Barnes (US:B)2024-02-25 16:00Part I Item 1. Business Barnes Group Inc. is a global manufacturer focused on scaling Aerospace and rationalizing Industrial operations - Barnes Group Inc. focuses on three strategic priorities: driving core business execution, scaling its Aerospace business, and integrating, consolidating, and rationalizing its Industrial business8910 - The company completed the acquisition of MB Aerospace in Q3 2023, significantly expanding its global aerospace business with diverse capabilities9122 - In January 2024, Barnes Group announced the sale of its Associated Spring and Hänggi businesses (within the MCS unit) for $175 million, aligning with its Industrial rationalization strategy11123 Key Customer Sales Concentration (2023) | Segment | Largest Customer Sales | Next Four Largest Customers Sales | Total Top 5 Customers Sales | |:-----------|:-----------------------|:----------------------------------|:----------------------------| | Aerospace | 49% (GE) | 15% | 64% | | Industrial | N/A | N/A | 10% | - As of December 31, 2023, the Company had approximately 6,500 employees worldwide, with 25% in Asia-Pacific, 45% in Europe, Middle East, and Africa, and 30% in the Americas17 Item 1A. Risk Factors The company faces diverse risks from customer dependence, competitive markets, global operations, indebtedness, and acquisitions - Dependence on a small number of significant customers, with GE accounting for 21% of total sales and 49% of Aerospace's net sales in 2023, poses a significant risk35 Order Backlog (in millions USD) | Segment | December 31, 2023 | December 31, 2022 | |:-----------|:------------------|:------------------| | Aerospace | $1,257.3 | $750.1 | | Industrial | $272.9 | $270.2 | | Total | $1,530.2 | $1,020.3 | - Approximately 50% of the consolidated year-end backlog is expected to be recognized during 202438 - The company faces risks from highly competitive markets, the need for continuous product innovation, and potential obsolescence of products due to new technologies424546 - Global operations expose the company to geopolitical risks (e.g., Russia-Ukraine war, Red Sea freight disruptions), regulatory complexities, and foreign currency fluctuations535565126 - Significant indebtedness ($1,290.8 million at Dec 31, 2023) and potential goodwill impairment (Automation reporting unit had a $68.2 million charge in 2022) are key financial risks8184136 - The acquisition of MB Aerospace and other strategic initiatives carry integration risks, potential for unexpected costs, and challenges in realizing anticipated synergies9293969798 Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments100 Item 1C. Cybersecurity Barnes Group Inc. maintains a cybersecurity risk management program based on the NIST framework with Board oversight - The company maintains a cybersecurity risk management program based on the NIST Cybersecurity framework101 - Key activities include periodic third-party penetration testing, internal user training, tabletop exercises, and annual reviews of critical vendors' cybersecurity positions102 - No cybersecurity threat has materially affected the company's business strategy, results of operations, or financial condition to date103 - The cybersecurity program is managed by a global internal team, led by the VP, IT, who reports to the Senior VP, CFO, with oversight from the Board of Directors through the Audit Committee104105 Item 2. Properties Barnes Group Inc. operates a global network of owned and leased manufacturing and non-manufacturing facilities Number of Owned Facilities (December 31, 2023) | Location | Aerospace | Industrial | Other | Total | |:----------------------|:----------|:-----------|:------|:------| | Manufacturing: | | | | | | North America | 5 | 4 | — | 9 | | Europe | 3 | 8 | — | 11 | | Asia | 2 | 1 | — | 3 | | Central & Latin America | — | 2 | — | 2 | | Total Manufacturing | 10 | 15 | — | 25| | Non-Manufacturing: | | | | | | North America | — | 1 | 1* | 2 | | Total Non-Manufacturing | — | 1 | 1 | 2 | Number of Leased Facilities (December 31, 2023) | Location | Aerospace | Industrial | Other | Total | |:----------------------|:----------|:-----------|:------|:------| | Manufacturing: | | | | | | North America | 4 | 2 | — | 6 | | Europe | 2 | 4 | — | 6 | | Asia | 8 | 4 | — | 12 | | Total Manufacturing | 14 | 10 | — | 24| | Non-Manufacturing: | | | | | | North America | 2 | 9 | — | 11 | | Europe | 2 | 27 | — | 29 | | Asia | — | 23 | — | 23 | | Central & Latin America | — | 3 | — | 3 | | Total Non-Manufacturing | 4 | 62 | — | 66| Item 3. Legal Proceedings The company is involved in various legal proceedings, not expected to materially affect its financial position - The company is subject to litigation in the ordinary course of business110 - Management expects that the outcome of current legal proceedings will not have a material adverse effect on consolidated financial position, cash flows, or results of operations110 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable111 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Barnes Group Inc.'s common stock trades on the NYSE, with future dividends subject to financial condition and credit limitations - The Company's common stock is traded on the New York Stock Exchange under the symbol "B"113 - As of February 21, 2024, there were approximately 1,533 holders of record of the Company's common stock113 - Payment of future dividends depends on financial condition, results of operations, and limitations from financial covenants under credit facilities or debt indentures114 Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Per Share | |:------------------|:---------------------------------|:------------------------| | October 1-31, 2023| 179 | $33.25 | | November 1-30, 2023| 1,073 | $22.22 | | December 1-31, 2023| 685 | $31.68 | | Total | 1,937 | $26.58 | - All equity security acquisitions in Q4 2023 were for income tax withholding upon share issuance from equity compensation plans; no shares were purchased under the publicly announced Repurchase Program in 2023118144168 Item 6. Reserved This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis covers Barnes Group Inc.'s 2023 financial performance, strategic initiatives, and macroeconomic impacts Overview In 2023, Barnes Group Inc. pursued business transformation, acquiring MB Aerospace and planning divestitures, achieving 15.0% net sales growth and improved operating income - Barnes Group Inc. acquired MB Aerospace Holdings Inc. in August 2023, integrating it into the Aerospace segment to enhance growth opportunities and diversify customer base122 - In January 2024, the company announced an agreement to sell its Associated Spring and Hänggi businesses for $175.0 million, with proceeds intended for debt reduction from the MB Aerospace acquisition123 Consolidated Sales and Operating Income (2023 vs. 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | % Change | |:----------------|:--------------------|:--------------------|:----------------------|:---------| | Net Sales | $1,450.9 | $1,261.9 | $189.0 | 15.0% | | Organic Sales | N/A | N/A | $64.5 | 5.1% | | Operating Income| $89.0 | $57.1 | $31.9 | 55.8% | | Operating Margin| 6.1% | 4.5% | 1.6 pp | N/A | - The increase in operating income was largely due to favorable pricing, procurement actions, and the absence of a $68.2 million goodwill impairment charge from 2022, partially offset by $45.8 million in restructuring charges and $13.2 million in acquisition/divestiture transaction costs124134136 Impact of Macroeconomic Trends and Management Actions In 2023, the company faced macroeconomic challenges, responding with pricing, cost control, and strategic integration - Macroeconomic challenges in 2023 included labor and supply chain constraints, rising interest rates, and inflationary pressures, leading to increased labor and raw material costs125 - Management implemented pricing actions, cost control, and productivity initiatives to mitigate these impacts126 - The company is executing a multi-phased initiative to reduce costs and integrate operations, particularly within the Industrial segment, and is focused on integrating the MB Aerospace acquisition in Aerospace126127 Our Business Barnes Group Inc. operates through two global business segments, Aerospace and Industrial, with performance evaluated by various KPIs - The company operates under two global business segments: Aerospace and Industrial129 - Key Performance Indicators (KPIs) include employee safety (total recordable incident rate, lost time incident rate), customer metrics (on-time-delivery, quality), and internal effectiveness/productivity (sales effectiveness, global sourcing, operational excellence, cost of quality, days working capital, return on invested capital)130 Key Industry Data Management monitors various economic and industry data to gauge sector health and outlook for Aerospace and Industrial - Aerospace segment monitors active aircraft fleet, utilization rates, engine shop visits, airline profitability, aircraft fuel costs, passenger traffic, and OEM orders/backlog131 - Industrial segment tracks manufacturing PMI Composite Index, Bureau of Economics Industrial Production Index, worldwide light/heavy-duty vehicle production forecasts, hot runner systems reports, and global GDP growth forecasts132 Results of Operations In 2023, Barnes Group Inc. reported $1,450.9 million net sales, a 15.0% increase, with improved operating income but higher interest expense Net Sales by Segment (in millions USD) | Segment | 2023 | 2022 | Change | % Change | |:-----------|:----------|:----------|:----------|:---------| | Industrial | $842.8 | $832.7 | $10.1 | 1.2% | | Aerospace | $608.1 | $429.2 | $178.9 | 41.7% | | Total | $1,450.9| $1,261.9| $189.0| 15.0%| - Organic sales increased by $64.5 million (5.1%), almost entirely driven by Aerospace ($64.4 million, 15.0%); the MB Aerospace acquisition added $114.5 million to Aerospace sales133 Expenses and Operating Income (in millions USD) | Metric | 2023 | 2022 | Change | % Change | |:--------------------------------|:------------|:------------|:------------|:---------| | Cost of sales | $1,008.8 | $840.0 | $168.8 | 20.1% | | Gross profit | $442.1 | $421.9 | $20.2 | 4.8% | | Gross profit % sales | 30.5% | 33.4% | (2.9 pp) | N/A | | Selling & administrative expenses| $353.1 | $296.6 | $56.5 | 19.1% | | Goodwill impairment charge | — | $68.2 | $(68.2) | NM | | Operating income | $89.0 | $57.1 | $31.9 | 55.9% | | Operating income % sales | 6.1% | 4.5% | 1.6 pp | N/A | - Interest expense increased by $43.5 million to $58.2 million in 2023, primarily due to bridge loan financing fees ($9.5 million) and higher average borrowings related to the MB Aerospace acquisition137 - The effective tax rate decreased to 51.9% in 2023 from 64.7% in 2022, mainly due to the absence of the non-tax-deductible goodwill impairment charge from 2022139 Net Income and EPS (in millions USD, except per share) | Metric | 2023 | 2022 | Change | % Change | |:------------------------|:------|:------|:-------|:---------| | Net income | $16.0 | $13.5 | $2.5 | 18.7% | | Basic EPS | $0.31 | $0.26 | $0.05 | 19.2% | | Diluted EPS | $0.31 | $0.26 | $0.05 | 19.2% | Financial Performance by Business Segment Aerospace sales grew 41.7% but operating profit declined due to acquisition costs, while Industrial sales were flat with improved operating profit Aerospace Segment Performance (in millions USD) | Metric | 2023 | 2022 | Change | % Change | |:----------------|:--------|:--------|:--------|:---------| | Sales | $608.1 | $429.2 | $178.9 | 41.7% | | Operating profit| $53.0 | $76.2 | $(23.2) | (30.5)% | | Operating margin| 8.7% | 17.7% | (9.0 pp)| N/A | - Aerospace sales growth was driven by volume increases in both OEM and Aftermarket businesses, with the MB Aerospace acquisition contributing $114.5 million145 - Aerospace operating profit decreased due to $19.2 million in short-term purchase accounting adjustments, $12.2 million in acquisition transaction costs, $8.2 million in increased amortization, and $7.6 million in restructuring charges related to MB Aerospace146 - Aerospace OEM backlog, including MB Aerospace, was $1,233.6 million at December 31, 2023, up 64.5% from $750.1 million in 2022149 Industrial Segment Performance (in millions USD) | Metric | 2023 | 2022 | Change | % Change | |:----------------|:--------|:--------|:--------|:---------| | Sales | $842.8 | $832.7 | $10.1 | 1.2% | | Operating profit| $36.0 | $(19.1) | $55.1 | NM | | Operating margin| 4.3% | (2.3)% | 6.6 pp | N/A | - Industrial organic sales were flat, with volume decreases in Motion Control Solutions and Molding Solutions offset by favorable pricing initiatives152 - Industrial operating profit improved due to the absence of the $68.2 million goodwill impairment charge in 2022 and favorable pricing, partially offset by $38.3 million in restructuring charges153 Liquidity and Capital Resources Barnes Group Inc. maintains liquidity through operating cash flows and $1,650.0 million in new senior secured financing for the MB Aerospace acquisition - The company believes its ability to generate cash from operations is a financial strength and anticipates sufficient cash from operating activities in 2024158 - In August 2023, the company entered into a new Credit Agreement for $1,650.0 million in senior secured financing, comprising a $650.0 million Term Loan Facility and a $1,000.0 million Revolving Credit Facility, to fund the MB Aerospace acquisition and repay existing debt159 - At December 31, 2023, consolidated debt obligations totaled $1,290.8 million, with 67% fixed-rate and 33% variable-rate debt81174 - The company was in compliance with all debt covenants (Total Net Leverage Ratio of 3.64 and Interest Coverage Ratio of 3.47) as of December 31, 2023165 Cash Flow Summary (in millions USD) | Activity | 2023 | 2022 | Change | |:--------------------|:----------|:----------|:----------| | Operating activities| $112.4 | $75.6 | $36.9 | | Investing activities| $(767.5) | $(36.0) | $(731.5) |\n| Financing activities| $666.6 | $(64.8) | $731.4 | | Net Change in Cash| $10.9 | $(30.8) | $41.7 | - Investing activities in 2023 included $718.8 million for the MB Aerospace acquisition and $55.7 million in capital expenditures. Expected capital spending for 2024 is $70 million182 - The company expects to contribute approximately $7.1 million to its defined benefit pension plans in 2024176 Contractual Obligations and Commitments As of December 31, 2023, Barnes Group Inc. had total contractual obligations and commitments of $2,428.3 million Contractual Obligations and Commitments (in millions USD, as of December 31, 2023) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |:----------------------------------------------|:----------|:-----------------|:----------|:----------|:------------------| | Long-term debt obligations | $1,303.4 | $10.9 | $17.2 | $657.8 | $617.5 | | Estimated interest payments | $557.9 | $98.6 | $195.1 | $178.0 | $86.2 | | Operating lease obligations | $61.0 | $13.0 | $15.7 | $9.2 | $23.1 | | Purchase obligations | $459.3 | $366.2 | $90.7 | $2.4 | — | | Expected pension contributions (2024) | $7.1 | $7.1 | — | — | — | | Expected benefit payments – other postretirement| $17.8 | $2.3 | $4.2 | $3.7 | $7.6 | | Long-term U.S. Tax Reform obligations | $21.7 | — | $21.7 | — | — | | Total | $2,428.3| $498.1 | $344.5| $851.1| $734.5 | Other Matters This section addresses inflation's impact, mitigation strategies, and critical accounting estimates for various financial areas - Inflation impacts labor, equipment, raw materials, freight, and utilities costs, which the company aims to offset through price increases, escalator provisions, and cost-saving initiatives188 - Critical accounting estimates include inventory valuation, revenue recognition, business acquisitions, Aerospace Aftermarket Programs, pension and other postretirement benefits, income taxes, and stock-based compensation189190191193195198200204205210 - A one-quarter percentage point decrease in the discount rate on U.S. pension plans would decrease 2024 pre-tax income by approximately $8.0 million202 - The total valuation allowance for deferred tax assets as of December 31, 2023, was $41.6 million, with $28.5 million related to the MB Aerospace acquisition421 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Barnes Group Inc. is exposed to market risks from interest rates, foreign currency, and commodity prices, using derivatives for hedging - The company's financial results are exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices212 - Financial instruments, including interest rate swaps and foreign currency contracts, are used to hedge exposures, not for speculative or trading purposes212213216357 - A hypothetical 100 basis point increase in the interest rate on variable-rate debt would have reduced annual pretax profit by $4.3 million in 2023214 - A 10% adverse change in foreign currencies relative to the U.S. dollar at December 31, 2023, would have resulted in a $2.6 million loss in the fair value of financial instruments215 - Commodity price changes, particularly for high-grade steel, stainless steel, titanium, aluminum, Inconel, Hastelloys, and other specialty metals, are managed through procurement and sales practices218 Item 8. Financial Statements and Supplementary Data This section presents Barnes Group Inc.'s audited consolidated financial statements, including notes and the independent auditor's report Consolidated Statements of Income In 2023, net sales increased to $1,450.9 million, operating income rose to $89.0 million, and net income was $16.0 million Consolidated Statements of Income (in thousands USD) | Metric | 2023 | 2022 | 2021 | |:--------------------------------|:------------|:------------|:------------| | Net sales | $1,450,871 | $1,261,868 | $1,258,846 | | Cost of sales | $1,008,786 | $839,996 | $803,850 | | Selling and administrative expenses| $353,093 | $296,559 | $304,978 | | Goodwill impairment charge | — | $68,194 | — | | Operating income | $88,992 | $57,119 | $150,018 | | Interest expense | $58,171 | $14,624 | $16,209 | | Other expense (income), net | $(2,443) | $4,310 | $5,992 | | Income before income taxes | $33,264 | $38,185 | $127,817 | | Income taxes | $17,268 | $24,706 | $27,944 | | Net income | $15,996 | $13,479 | $99,873 | | Basic EPS | $0.31 | $0.26 | $1.96 | | Diluted EPS | $0.31 | $0.26 | $1.96 | Consolidated Statements of Comprehensive (Loss) Income In 2023, total comprehensive income was $41.4 million, a significant improvement from a $55.2 million loss in 2022 Consolidated Statements of Comprehensive (Loss) Income (in thousands USD) | Metric | 2023 | 2022 | 2021 | |:--------------------------------------------------|:------------|:-------------|:-------------| | Net income | $15,996 | $13,479 | $99,873 | | Unrealized (loss) gain on hedging activities, net of tax| $(20,445) | $5,781 | $917 | | Foreign currency translation adjustments, net of tax| $37,952 | $(78,110) | $(60,252) | | Defined benefit pension and other postretirement benefits, net of tax| $7,864 | $3,667 | $29,812 | | Total other comprehensive income (loss), net of tax| $25,371 | $(68,662)| $(29,523)| | Total comprehensive income (loss) | $41,367 | $(55,183)| $70,350 | Consolidated Balance Sheets Total assets increased to $3,308.0 million in 2023, primarily due to the MB Aerospace acquisition, with a corresponding rise in liabilities Consolidated Balance Sheets (in thousands USD) | Asset/Liability/Equity Category | December 31, 2023 | December 31, 2022 | |:--------------------------------------------|:------------------|:------------------| | Assets: | | | | Cash and cash equivalents | $89,827 | $76,858 | | Accounts receivable, net | $353,923 | $291,883 | | Inventories | $365,221 | $283,402 | | Total current assets | $906,720 | $732,304 | | Property, plant and equipment, net | $402,697 | $320,139 | | Goodwill | $1,183,624 | $835,472 | | Other intangible assets, net | $706,471 | $442,492 | | Total assets | $3,308,014 | $2,413,730 | | Liabilities: | | | | Total current liabilities | $396,610 | $305,073 | | Long-term debt | $1,279,962 | $569,639 | | Accrued retirement benefits | $45,992 | $54,352 | | Deferred income taxes | $120,608 | $62,562 | | Total liabilities | $1,945,841 | $1,068,000 | | Stockholders' Equity: | | | | Total stockholders' equity | $1,362,263 | $1,346,327 | Consolidated Statements of Cash Flows Operating cash flow increased to $112.4 million in 2023, while investing activities used $767.5 million for the MB Aerospace acquisition Consolidated Statements of Cash Flows (in thousands USD) | Activity | 2023 | 2022 | 2021 | |:--------------------------------------------------|:------------|:------------|:------------| | Net cash provided by operating activities | $112,415 | $75,559 | $167,806 | | Net cash used in investing activities | $(767,521) | $(35,986) | $(29,806) | | Net cash provided by (used in) financing activities| $666,562 | $(64,829) | $(114,666) | | Effect of exchange rate changes on cash flows | $(545) | $(5,525) | $(2,893) | | Increase (decrease) in cash, cash equivalents and restricted cash| $10,911 | $(30,781)| $20,441 | | Cash, cash equivalents and restricted cash at end of year| $92,039 | $81,128 | $111,909 | Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased to $1,362.3 million in 2023, driven by comprehensive income, partially offset by dividends Consolidated Statements of Changes in Stockholders' Equity (in thousands USD) | Metric | December 31, 2023 | December 31, 2022 | December 31, 2021 | |:----------------------------------------------|:------------------|:------------------|:------------------| | Total Stockholders' Equity, beginning of year | $1,346,327 | $1,428,766 | $1,382,677 | | Comprehensive income (loss) | $41,367 | $(55,183) | $70,350 | | Dividends declared ($0.64 per share) | $(32,412) | $(32,376) | $(32,402) | | Residual interest in subsidiary | $(2,381) | — | $2,177 | | Common stock repurchases | — | $(6,721) | $(5,229) | | Employee stock plans | $9,362 | $11,841 | $11,193 | | Total Stockholders' Equity, end of year | $1,362,263 | $1,346,327 | $1,428,766 | Note 1. Summary of Significant Accounting Policies This note outlines Barnes Group Inc.'s significant accounting policies, including revenue recognition, goodwill, and derivatives - Revenue is recognized when control of the product or solution is transferred to the customer, generally at a point in time, but an over-time recognition model is used for customized products or work on customer-owned assets236 - Goodwill is tested for impairment annually or more frequently if circumstances indicate a reduction in fair value. A non-cash goodwill impairment charge of $68.2 million was recorded in 2022 for the Automation reporting unit242243 - Aerospace Aftermarket Programs (RSPs and CRPs) are recorded as long-lived intangible assets and amortized as a reduction to revenue based on proportional sales dollars over the program life245246 - The company uses derivative instruments to hedge exposure to interest rate and foreign currency fluctuations, not for speculative purposes249 - Recently adopted accounting standards include amendments related to income taxes, business combinations, and supplier finance programs. New segment reporting requirements are effective for fiscal years beginning after Dec 15, 2023257258259261262 Note 2. Acquisition On August 31, 2023, Barnes Group Inc. acquired MB Aerospace for $728.4 million, contributing $114.5 million in sales - Barnes Group Inc. completed the acquisition of MB Aerospace Holdings Inc. on August 31, 2023, for an aggregate purchase price of $728.4 million264265 - The acquisition was funded using cash on hand and borrowings from the company's $1,000.0 million Revolving Credit Facility and $650.0 million Term Loan Facility265 - Acquisition-related costs totaled $23.8 million in 2023, including due diligence and transaction costs267 - MB Aerospace contributed $114.5 million in net sales and an operating loss of $13.9 million to the Aerospace segment from the acquisition date through December 31, 2023268 Estimated Fair Value of Assets Acquired and Liabilities Assumed (MB Aerospace, in thousands USD) | Category | Amount | |:--------------------------|:----------| | Accounts receivable | $50,715 | | Inventories | $77,914 | | Property, plant & equipment| $80,480 | | Goodwill | $320,883 | | Other intangible assets | $320,000 | | Total Assets Acquired | $878,712 | | Total Liabilities Assumed | $(160,089)|\n| Net Assets Acquired | $718,623| - Goodwill of $320.9 million was allocated to the Aerospace segment, reflecting increased global market access and the acquired workforce271 Unaudited Pro Forma Operating Results (in thousands USD) | Metric | 2023 | 2022 | |:----------|:--------------|:--------------| | Net sales | $1,664,652 | $1,544,888 | | Net income| $21,942 | $(77,355) | Note 3. Revenue This note details revenue recognition policies, disaggregated revenue data, and contract balances, with 80% recognized at point-in-time - Approximately 80% of revenue is recognized at a point in time, primarily when products are shipped or delivered. Approximately 20% is recognized over time for customized products or services on customer-owned assets292293 Revenue by Product and Services (in thousands USD) | Product and Services | Aerospace 2023 | Industrial 2023 | Total Company 2023 | |:--------------------------------|:---------------|:----------------|:-------------------| | Aerospace OEM | $382,126 | — | $382,126 | | Aerospace Aftermarket | $225,924 | — | $225,924 | | Molding Solutions Products | — | $408,691 | $408,691 | | Motion Control Solutions Products| — | $372,877 | $372,877 | | Automation Products | — | $61,253 | $61,253 | | Total | $608,050 | $842,821 | $1,450,871 | Revenue by Geographic Regions (in thousands USD) | Geographic Region | Aerospace 2023 | Industrial 2023 | Total Company 2023 | |:------------------|:---------------|:----------------|:-------------------| | Americas | $430,527 | $364,215 | $794,742 | | Europe | $115,973 | $312,402 | $428,375 | | Asia | $58,419 | $157,949 | $216,368 | | Rest of World | $3,131 | $8,255 | $11,386 | | Total | $608,050 | $842,821 | $1,450,871 | Net Contract Assets (in thousands USD) | Metric | December 31, 2023 | December 31, 2022 | Change | % Change | |:------------------------|:------------------|:------------------|:----------|:---------| | Unbilled receivables (contract assets)| $59,652 | $42,423 | $17,229 | 41% | | Contract liabilities | $(42,428) | $(27,857) | $(14,571) | 52% | | Net contract assets | $17,224 | $14,566 | $2,658| 18% | - As of December 31, 2023, the aggregate amount of transaction price allocated to remaining performance obligations (contracts with original duration > 1 year) was $526.1 million, with approximately 75% expected to be recognized over the next 12 months309 Note 4. Inventories Inventories are valued at the lower of cost or net realizable value, totaling $365.2 million at year-end 2023 Inventories (in thousands USD, as of December 31) | Category | 2023 | 2022 | |:-------------------------|:------------|:------------| | Finished goods | $104,801 | $105,965 | | Work-in-process | $105,737 | $68,664 | | Raw materials and supplies| $154,683 | $108,773 | | Total Inventories | $365,221| $283,402| Note 5. Property, Plant and Equipment Net property, plant and equipment increased to $402.7 million in 2023, with $52.1 million in depreciation expense Property, Plant and Equipment, Net (in thousands USD, as of December 31) | Category | 2023 | 2022 | |:--------------------------------|:------------|:------------| | Land | $16,594 | $18,018 | | Buildings | $198,207 | $184,909 | | Machinery and equipment | $816,694 | $704,053 | | Less accumulated depreciation | $(628,798) | $(586,841) | | Total Property, Plant and Equipment, Net| $402,697| $320,139| - Depreciation expense was $52.1 million in 2023, $47.2 million in 2022, and $47.6 million in 2021312 Note 6. Goodwill and Other Intangible Assets Goodwill increased to $1,183.6 million due to the MB Aerospace acquisition, with $63.7 million in intangible asset amortization Goodwill by Segment (in thousands USD) | Segment | December 31, 2023 | December 31, 2022 | |:-----------|:------------------|:------------------| | Aerospace | $352,352 | $30,786 | | Industrial | $831,272 | $804,686 | | Total | $1,183,624 | $835,472 | - Goodwill increased by $320.9 million in 2023 due to the MB Aerospace acquisition, allocated entirely to the Aerospace segment317 - No additional goodwill impairment was recorded in 2023; a $68.2 million non-cash impairment charge was recorded in 2022 for the Automation reporting unit317 Other Intangible Assets (in thousands USD, as of December 31, 2023) | Category | Gross Amount | Accumulated Amortization | |:--------------------------|:-------------|:-------------------------| | Revenue Sharing Programs | $299,500 | $(176,143) | | Component Repair Programs | $111,839 | $(49,577) | | Customer relationships | $586,189 | $(180,679) | | Patents and technology | $178,433 | $(100,662) | | Trademarks/trade names | $10,949 | $(10,910) | | Other | $26,334 | $(14,857) | | Unamortized intangible assets: Trade names| $55,670 | — | | Total | $1,239,299| $(532,828) | - The MB Aerospace acquisition added $320.0 million in intangible assets, including $249.0 million in customer relationships, $55.0 million in developed technology, and $16.0 million in customer backlog318 - Amortization of intangible assets was $63.7 million in 2023, up from $45.0 million in 2022320 Note 7. Accrued Liabilities Total accrued liabilities increased to $221.5 million in 2023, driven by higher payroll, contract liabilities, and income taxes Accrued Liabilities (in thousands USD, as of December 31) | Category | 2023 | 2022 | |:----------------------------------------|:------------|:------------| | Payroll and other compensation | $45,764 | $32,276 | | Contract liabilities | $42,428 | $27,857 | | Pension and other postretirement benefits| $8,124 | $10,999 | | Accrued income taxes | $49,138 | $29,201 | | Lease liability | $10,894 | $10,209 | | Business reorganizations | $10,276 | $11,000 | | Other | $54,838 | $37,026 | | Total Accrued Liabilities | $221,462| $158,568| Note 8. Debt and Commitments Long-term debt increased to $1,290.8 million in 2023 due to new $1,650.0 million senior secured financing for MB Aerospace Long-Term Debt and Notes and Overdrafts Payable (in thousands USD, as of December 31) | Category | 2023 Carrying Amount | 2022 Carrying Amount | |:------------------------------------------------|:---------------------|:---------------------| | Revolving Credit Facility | $642,988 | $466,672 | | Term Loan Facility | $648,375 | — | | Unamortized deferred financing costs & original issue discount| $(12,532) | — | | 3.97% Senior Notes | — | $100,000 | | Borrowings under lines of credit and overdrafts | $16 | $8 | | Finance leases | $11,999 | $4,404 | | Total | $1,290,846 | $571,084 | | Less current maturities | $(10,884) | $(1,445) | | Long-term debt | $1,279,962 | $569,639 | - In August 2023, the company entered into a new Credit Agreement for $1,650.0 million, consisting of a $650.0 million Term Loan Facility and a $1,000.0 million Revolving Credit Facility, to fund the MB Aerospace acquisition and repay the 3.97% Senior Notes328330 - The Senior Facilities are guaranteed by wholly-owned domestic subsidiaries and secured by substantially all company assets331 - At December 31, 2023, the company was in compliance with all applicable covenants, including a Total Net Leverage Ratio of 3.64 (max 5.50) and an Interest Coverage Ratio of 3.47 (min 3.00)335 - Interest paid was $59.2 million in 2023, significantly up from $13.5 million in 2022, reflecting higher borrowings and interest rates341 Note 9. Business Reorganizations Barnes Group Inc. undertook multiple restructuring actions from 2021-2023 to reduce costs and integrate operations, incurring significant charges - The 2021 Actions resulted in $2.9 million in pre-tax charges in 2021, primarily for employee severance, with net benefits in subsequent years342 - The 2022 Actions, focused on Industrial segment cost reduction and transformation, resulted in $18.0 million in pre-tax charges in 2022, including $11.9 million for employee termination costs and $6.1 million for accelerated depreciation and pension curtailment losses344 - In 2023, additional pre-tax charges of $10.3 million were recorded for the 2022 Actions, including $3.8 million for accelerated depreciation and $7.3 million for site consolidation345 - The April 2023 Actions, focused on manufacturing footprint optimization, resulted in $13.8 million in pre-tax charges in 2023, with $10.8 million for employee termination costs347 - The September 2023 Actions, including organizational realignment post-MB Aerospace acquisition, resulted in $7.9 million in pre-tax charges in 2023 for employee termination costs350 Note 10. Derivatives The company uses derivatives to hedge interest rate and foreign currency exposures, entering new swaps in 2023 for €150.0 million and $600.0 million - The company uses derivative financial instruments to hedge exposure to fluctuations in interest rates and foreign currency exchange rates, not for speculative or trading purposes353357 - In 2023, the company entered into a Euribor Swap for €150.0 million and six 2023 Swaps for $600.0 million to convert variable-rate borrowings to fixed rates, with maturities ranging from 2026 to 2030354 - These interest rate swaps are accounted for as cash flow hedges, with changes in fair value recorded to accumulated other comprehensive income356357 - At December 31, 2023, the company's total borrowings were comprised of 67% fixed rate debt and 33% variable rate debt, a shift from 34% fixed and 66% variable in 2022174 Note 11. Fair Value Measurements Fair value measurements for assets and liabilities, primarily derivatives, are categorized into a three-level hierarchy, totaling $(5.4) million in 2023 - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants360 - Inputs for fair value measurement are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)360 Assets and Liabilities Reported at Fair Value (in thousands USD, as of December 31) | Category | 2023 Total | 2023 Level 1 | 2023 Level 2 | 2023 Level 3 | |:------------------------|:-----------|:-------------|:-------------|:-------------| | Asset derivatives | $6,420 | — | $6,420 | — | | Liability derivatives | $(25,885) | — | $(25,885) | — | | Bank acceptances | $12,161 | — | $12,161 | — | | Rabbi trust assets | $1,923 | $1,923 | — | — | | Total | $(5,381)| $1,923 | $(7,304) | — | Note 12. Pension and Other Postretirement Benefits Pension plan funded status improved to $0.7 million overfunded in 2023, with $7.1 million expected contributions in 2024 - The funded status of the company's pension plans improved from an underfunded status of $27.4 million at December 31, 2022, to a funded status of $0.7 million at December 31, 2023175 Pension Plan Funded Status (in thousands USD, as of December 31) | Metric | 2023 Total | 2022 Total | |:--------------------------------------|:-----------|:-----------| | Benefit obligation, December 31 | $382,876 | $402,306 | | Fair value of plan assets, December 31| $383,566 | $374,920 | | (Underfunded) Overfunded status | $690 | $(27,386)| - Benefit obligations decreased in 2023 due to a plan curtailment (freezing a U.S. defined benefit plan) and increased benefit payments, partially offset by actuarial losses from discount rate changes369 Weighted-Average Assumptions for Benefit Obligations (as of December 31) | Assumption | 2023 U.S. Plans | 2023 Non-U.S. Plans | 2022 U.S. Plans | 2022 Non-U.S. Plans | |:---------------------------|:----------------|:--------------------|:----------------|:--------------------| | Discount rate | 5.45% | 3.00% | 5.50% | 3.60% | | Increase in compensation | —% | 2.56% | 3.05% | 2.76% | - The company expects to contribute approximately $7.1 million to its various defined benefit pension plans in 2024, with no discretionary contributions planned for U.S. Qualified plans176388 Net Periodic Benefit Cost (in thousands USD) | Component | 2023 Pensions | 2023 Other Postretirement | 2022 Pensions | 2022 Other Postretirement | |:--------------------------------|:--------------|:--------------------------|:--------------|:--------------------------| | Service cost | $2,589 | $39 | $5,689 | $77 | | Interest cost | $19,415 | $1,122 | $14,108 | $808 | | Expected return on plan assets | $(30,056) | — | $(28,944) | — | | Amortization of prior service cost| $354 | $10 | $387 | $36 | | Recognized losses/(gains) | $1,643 | $(146) | $12,710 | $(2) | | Curtailment (gain)/loss | $(668) | — | $1,158 | — | | Settlement (gain)/loss | $(656) | — | $(605) | — | | Special termination benefits | — | — | $395 | — | | Net periodic benefit cost | $(7,379) | $1,025 | $4,898 | $919 | Note 13. Stock-Based Compensation Stock-based compensation cost was $10.2 million in 2023, with $24.8 million in unrecognized costs for unvested awards - Stock-based compensation cost recognized was $10.2 million in 2023, $12.8 million in 2022, and $11.5 million in 2021398 - As of December 31, 2023, unrecognized compensation costs related to unvested awards totaled $24.8 million, expected to be recognized over a weighted average period of 2.51 years398 Stock Option Awards Summary (2023) | Metric | Number of Shares | Weighted-Average Exercise Price | |:--------------------------------------|:-----------------|:--------------------------------| | Outstanding, January 1, 2023 | 1,852,603 | $37.79 | | Granted | 120,195 | $44.94 | | Forfeited | (67,605) | $54.23 | | Outstanding, December 31, 2023 | 1,905,193 | $37.66 | Weighted-Average Black-Scholes Assumptions for Stock Options (excluding performance-vested) | Assumption | 2023 | 2022 | 2021 | |:------------------------|:-------|:-------|:-------| | Risk-free interest rate | 3.85% | 1.98% | 0.55% | | Expected life (years) | 5.5 | 5.5 | 5.5 | | Expected volatility | 41.6% | 40.1% | 40.0% | | Expected dividend yield | 1.20% | 1.22% | 1.23% | - Performance share awards are part of a long-term program assessing company performance relative to the Russell 2000 Index or pre-established goals (TSR, EBITDA growth, ROIC) over a three-year period408 Note 14. Income Taxes In 2023, income before taxes was $33.3 million, with an effective tax rate of 51.9%, and a $41.6 million valuation allowance on deferred tax assets Income from Continuing Operations Before Income Taxes (in thousands USD) | Geographic Area | 2023 | 2022 | 2021 | |:----------------|:------------|:------------|:------------| | U.S. | $(61,688) | $(53,088) | $(28,832) | | International | $94,952 | $91,273 | $156,649 | | Total | $33,264 | $38,185 | $127,817| Income Tax Provision (in thousands USD) | Category | 2023 | 2022 | 2021 | |:----------------|:------------|:------------|:------------| | Current | $23,382 | $30,428 | $44,351 | | Deferred | $(6,114) | $(5,722) | $(16,407) | | Total | $17,268 | $24,706 | $27,944 | - The effective tax rate was 51.9% in 2023, compared to 64.7% in 2022, with key drivers including foreign operations, foreign losses, GILTI, capitalized transaction costs, and tax holidays422 - Tax holidays in Singapore, China, and Malaysia provided benefits of $15.2 million in 2023, $11.5 million in 2022, and $3.2 million in 2021140424 - The total valuation allowance for deferred tax assets was $41.6 million at December 31, 2023, including $28.5 million from the MB Aerospace acquisition421 - The company is evaluating the impacts of enacted and pending legislation for the OECD Pillar Two Model Rules (global minimum tax of 15%)141419 Note 15. Common Stock No common stock was issued from treasury in 2023, and no shares were repurchased under the program - No shares of common stock were issued from treasury in 2023, 2022, or 2021430 - The company repurchased 0 shares in 2023, 200,000 shares in 2022 ($6.7 million cost), and 100,000 shares in 2021 ($5.2 million cost) under its Repurchase Program430 - In 2023, 119,142 shares were issued from authorized shares for stock option exercises, incentive awards, and the Employee Stock Purchase Plan430 Note 16. Preferred Stock Barnes Group Inc. had 3,000,000 shares of preferred stock authorized at year-end 2023, with none outstanding - 3,000,000 shares of preferred stock were authorized at December 31, 2023 and 2022, with none outstanding431 Note 17. Stock Plans The company offers various stock plans, including 401(k), ESPP, and incentive award plans, with 3,717,399 shares available for future grants - The Retirement Savings Plan (401(k)) allows for employer contributions (50% of employee contributions up to 6% of eligible compensation), with expense of $6.8 million in 2023432 - The Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at 95% of market value, with 9,979 shares purchased in 2023433 - The 2023 Barnes Group Stock and Incentive Award Plan, which merged with the 2014 Plan, permits the issuance of incentive awards, stock options, and stock appreciation rights435 - As of December 31, 2023, there were 3,717,399 shares available for future grants under the 2023 Plan, and 6,512,031 total maximum shares reserved for issuance under all stock plans435438 Note 18. Weighted Average Shares Outstanding Basic shares outstanding were 51.1 million in 2023, with diluted shares at 51.2 million, reflecting dilutive stock awards Weighted-Average Common Shares Outstanding (in thousands) | Metric | 2023 | 2022 | 2021 | |:--------------------------------------|:---------|:---------|:---------| | Basic | 51,053 | 50,962 | 50,926 | | Dilutive effect of: | | | | | Stock options | 87 | 21 | 75 | | Performance share awards | 66 | 101 | 78 | | Diluted | 51,206| 51,084| 51,079| - The calculation of weighted-average diluted shares outstanding excludes anti-dilutive shares (1,089,449 in 2023)440 Note 19. Leases Operating lease ROU assets were $46.8 million and liabilities $47.1 million at year-end 2023, with $19.3 million in costs - The company leases manufacturing, distribution, assembly facilities, office space, land, machinery, and equipment, with terms generally ranging from one to five years441 Operating Lease ROU Assets and Liabilities (in thousands USD, as of December 31) | Category | 2023 | 2022 | |:--------------------------|:------------|:------------| | ROU assets | $46,780 | $27,054 | | Current lease liability | $10,894 | $10,209 | | Long-term lease liability | $36,197 | $17,128 | | Total Lease Liabilities| $47,091 | $27,337 | - Operating lease costs were $19.3 million in 2023, $17.1 million in 2022, and $17.7 million in 2021446 Operating Lease Term and Discount Rate (as of December 31) | Metric | 2023 | 2022 | 2021 | |:--------------------------------------|:-------|:-------|:-------| | Weighted-average remaining lease term (years)| 7.8 | 5.8 | 5.8 | | Weighted-average discount rates | 5.67% | 3.38% | 3.01% | Note 20. Changes in Accumulated Other Comprehensive Income by Component AOCI improved to $(195.1) million at year-end 2023, driven by foreign currency translation and pension benefits Changes in Accumulated Other Comprehensive Income (in thousands USD, 2023) | Component | Gains and Losses on Cash Flow Hedges | Pension and Other Postretirement Benefit Items | Foreign Currency Items | Total | |:--------------------------------------------------------------------------|:-------------------------------------|:-----------------------------------------------|:-----------------------|:------------| | January 1, 2023 | $5,941 | $(108,640) | $(117,801) | $(220,500) | | Other comprehensive (loss) income before reclassifications | $(16,637) | $7,230 | $37,952 | $28,545 | | Amounts reclassified from accumulated other comprehensive income to income| $(3,808) | $634 | — | $(3,174) | | Net current-period other comprehensive (loss) income | $(20,445) | $7,864 | $37,952 | $25,371 | | December 31, 2023 | $(14,504) | $(100,776) | $(79,849) | $(195,129)| - Reclassifications out of AOCI to earnings in 2023 included $5.0 million (pre-tax) from cash flow hedges (interest rate and foreign exchange contracts) and $(0.96) million (pre-tax) from pension and other postretirement benefit items457 Note 21. Information on Business Segments This note provides detailed financial information for the Aerospace and Industrial segments, including sales, operating profit, and assets - Aerospace segment manufactures complex components for turbine engines, nacelles, and structures, and provides MRO services, including through Component Repair Programs (CRPs) and Revenue Sharing Programs (RSPs)461 - Industrial segment provides highly-engineered precision components, products, and systems for diverse end-markets like industrial equipment, automation, personal care, packaging, electronics, mobility, and medical devices465 Summarized Financial Information by Reportable Business Segment (in millions USD) | Metric | 2023 Aerospace | 2023 Industrial | 2023 Other | 2023 Total Company | |:------------------------|:---------------|:----------------|:-----------|:-------------------| | Sales | $608.1 | $842.8 | — | $1,450.9 | | Operating profit (loss) | $53.0 | $36.0 | — | $89.0 | | Assets | $1,465.3 | $1,685.3 | $157.4 | $3,308.0 | | Depreciation and amortization| $61.6 | $53.7 | $0.5 | $115.8 | | Capital expenditures | $32.8 | $22.4 | $0.6 | $55.7 | Total Net Sales and Long-Lived Assets by Geographic Area (in millions USD) | Category | 2023 Domestic | 2023 International | 2023 Other | 2023 Total Company | |:------------------|:--------------|:-------------------|:-----------|:-------------------| | Sales | $599.9 | $935.1 | $(84.2) | $1,450.9 | | Long-lived assets | $557.9 | $1,833.1 | — | $2,391.0 | - Germany ($405.8 million), Italy ($303.9 million), Singapore, and Taiwan ($321.6 million) represent international countries with long-lived assets exceeding 10% of the company's total long-lived assets in 2023472 Note 22. Commitments and Contingencies This note outlines product warranties, litigation, and supplier finance programs, with no material adverse effects expected - The company provides product warranties and accrues estimated exposure based on historical experience; liabilities were not material at December 31, 2023 or 2022473 - A customer asserted breach of contract and warranty claims in July 2021, which the company disputes and expects will not have a material adverse effect on financial position or liquidity474 - The company records loss contingency liabilities when a loss is probable and the amount can be reasonably estimated475 - Outstanding obligations related to the Supplier Finance Program were not material at December 31, 2023 or 2022476 Note 23. Subsequent Event On January 11, 2024, the company agreed to sell its Associated Spring and Hänggi bus