Barnes (B) - 2021 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2021, and 2020, highlighting a significant increase in Q2 2021 net income to $24.5 million and total assets at $2.63 billion Consolidated Statements of Income Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $321,158 | $235,537 | $622,787 | $566,207 | | Operating income | $38,543 | $10,115 | $70,923 | $59,429 | | Net income | $24,491 | $567 | $43,873 | $30,300 | | Diluted EPS | $0.48 | $0.01 | $0.86 | $0.59 | Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $664,669 | $642,345 | | Total assets | $2,626,871 | $2,676,226 | | Total current liabilities | $307,433 | $295,379 | | Long-term debt | $654,483 | $699,868 | | Total stockholders' equity | $1,390,393 | $1,382,677 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85,721 | $123,194 | | Net cash (used) provided by investing activities | $(14,507) | $17,309 | | Net cash used by financing activities | $(58,567) | $(151,610) | - The company divested its Seeger business effective February 1, 2020, yielding net cash proceeds of $36.1 million, which were used to reduce debt, resulting in tax charges of $4.2 million and divestiture charges of $2.4 million in Q1 2020[30][31] - In June 2021, the company elected an Italian tax basis realignment for intangible property, resulting in a one-time tax benefit of $2.7 million, and recording a deferred tax asset of $83.9 million and a corresponding deferred tax liability of $72.2 million[87] Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 2021 net sales rose 36.4% to $321.2 million with operating margin at 12.0%, reflecting market recovery and strong liquidity Results of Operations Q2 2021 sales increased 36.4% to $321.2 million, with operating income surging 281.0% to $38.5 million due to higher sales and reduced charges Net Sales by Segment (in millions) | Segment | Q2 2021 | Q2 2020 | % Change | H1 2021 | H1 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Industrial | $234.7 | $165.0 | 42.2% | $454.7 | $364.1 | 24.9% | | Aerospace | $86.5 | $70.5 | 22.7% | $168.1 | $202.1 | (16.8)% | | Total | $321.2 | $235.5 | 36.4% | $622.8 | $566.2 | 10.0% | Operating Profit (Loss) and Margin by Segment | Segment | Q2 2021 Profit | Q2 2021 Margin | Q2 2020 Profit | Q2 2020 Margin | | :--- | :--- | :--- | :--- | :--- | | Industrial | $27.3M | 11.6% | $(0.3)M | (0.2)% | | Aerospace | $11.3M | 13.0% | $10.4M | 14.8% | - The Industrial segment's Q2 organic sales increased by $57.5 million (34.8%), driven by improved volumes across all businesses, with foreign currency fluctuations contributing an additional $12.4 million to sales[135] - The Aerospace segment's Q2 sales increase was driven by a 37% rise in the OEM business, partially offset by a 2% decline in the Aftermarket business due to the COVID-19 pandemic's impact on air travel[139] - The significant increase in operating income was primarily driven by the absence of $17.7 million in pre-tax restructuring charges recorded in Q2 2020, combined with higher sales volumes[124] Liquidity and Capital Resources The company maintains strong liquidity with $85.7 million in H1 2021 operating cash flow, a $1 billion credit facility, and compliance with all debt covenants Cash Flow Summary (in millions) | Activity | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Operating | $85.7 | $123.2 | | Investing | $(14.5) | $17.3 | | Financing | $(58.6) | $(151.6) | - In February 2021, the company entered into a sixth amended and restated senior unsecured revolving credit agreement, maintaining $1 billion in availability, increasing the accordion feature to $250 million, and extending the maturity to February 2026[150] Debt Covenant Compliance as of June 30, 2021 | Covenant | Actual Ratio | Required Ratio | | :--- | :--- | :--- | | Ratio of Consolidated Senior Debt to Consolidated EBITDA | 2.86x | Maximum 3.75x | | Ratio of Consolidated Total Debt to Consolidated EBITDA | 2.86x | Maximum 3.75x | | Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense | 14.21x | Minimum 4.25x | - Share repurchase activity, suspended in 2020 due to COVID-19, resumed in Q2 2021, with the company repurchasing 0.1 million shares for $5.2 million[153] Critical Accounting Policies This section details critical accounting policies, noting that the Q2 2021 annual impairment test identified no impairment for goodwill or indefinite-lived intangible assets - Management completed its annual impairment assessment for goodwill and indefinite-lived intangible assets during the second quarter of 2021, identifying no impairments at any reporting units[167][168] - The estimated fair value of the Automation reporting unit (Gimatic acquisition) exceeded its carrying value, while the fair values of all other reporting units significantly exceeded their carrying values[168] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure during the first six months of 2021, referring to its Annual Report for detailed discussion - There have been no material changes to the Company's market risk during the six-months ended June 30, 2021[174] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The President and Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[175] - There were no changes in internal control over financial reporting during Q2 2021 that materially affected, or are reasonably likely to materially affect, internal controls[176] Part II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings but anticipates no material adverse effect on its financial position, cash flows, or results of operations - The company expects that the outcome of pending litigation, individually or in the aggregate, will not have a material adverse effect on its financial position, cash flows, or results of operations[178] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company repurchased 102,332 shares at an average price of $52.30, with 3,604,000 shares remaining available under the program Issuer Purchases of Equity Securities (Q2 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased Under Program | Max Shares Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | April 2021 | 730 | $51.12 | 0 | 3,704,000 | | May 2021 | 100,472 | $52.29 | 100,000 | 3,604,000 | | June 2021 | 1,130 | $53.28 | 0 | 3,604,000 | | Total | 102,332 | $52.30 | 100,000 | 3,604,000 | - On April 25, 2019, the Board of Directors increased the share repurchase authorization by 3.5 million shares, bringing the total authorized under the program to 5.0 million shares[181] Exhibits This section lists exhibits filed with the Form 10-Q, including the CFO offer letter and certifications required by the Sarbanes-Oxley Act - Exhibits filed with this report include the CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[183]