NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data
and the tables in Note 22)
1. Summary of Significant Accounting Policies
General: The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The outbreak of the COVID-19 pandemic has resulted in a substantial curtailment of business activities worldwide and has caused weakened economic conditions, both in the United States and abroad. COVID-19 has had, and may continue to have, a significant negative impact on the Company's ongoing operations and the end markets in which it serves. The Company has assessed the impacts that COVID-19 has had on its accounting estimates, assumptions and disclosures.
Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. Intercompany transactions and account balances have been eliminated.
Revenue recognition: The Company accounts for revenue in accordance with Accounting Standard Codification 606, Revenue from Contracts with Customers, which it adopted on January 1, 2018. Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, the significant risks and rewards of ownership have transferred, the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting standards governing revenue recognition. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed. See Note 4. Management fees related to the Aerospace Aftermarket Revenue Sharing Programs ("RSPs") are satisfied through an agreed upon reduction from the sales price of each of the related spare parts. These fees recognize our customer's necessary performance of engine program support activities, such as spare parts administration, warehousing and inventory management, and customer support, and are not separable from our sale of products, and accordingly, they are reflected as a reduction to sales, rather than as costs incurred, when revenues are recognized.
Cash and cash equivalents: Cash in excess of operating requirements is invested in short-term, highly liquid, income-producing investments. All highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash equivalents are carried at cost which approximates fair value.
Accounts receivable: The Company records accounts receivable at net realizable value. Balances are reviewed regularly and reserves are adjusted when events or circumstances indicate carrying values may not be recoverable. Effective January 1, 2020, the Company adopted the amended guidance related to credit losses on financial instruments. See "Recently Adopted Accounting Standards" below for additional discussion regarding the application of this amended guidance.
Inventories: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The primary components of cost included in inventories are raw material, labor and overhead. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable value. The process for evaluating the value of excess and obsolete inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business and estimated costs. Accelerating the disposal process or changes in estimates based on future sales potential or estimated costs may necessitate future adjustments to these provisions.
Property, plant and equipment: Property, plant and equipment is stated at cost. Depreciation is recorded using a straight-line method of depreciation over estimated useful lives, generally ranging from 20 to 50 years for buildings and four to 12 years for machinery and equipment. The Company assesses the impairment of property, plant and equipment subject to depreciation whenever events or changes in circumstances indicate the carrying value may not be recoverable.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill: Goodwill represents the excess purchase cost over the fair value of net assets of companies acquired in business combinations. Goodwill is considered an indefinite-lived asset. Goodwill is subject to impairment testing in accordance with accounting standards governing such on an annual basis, in the second quarter, or more frequently if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. Based on the assessment performed there was no goodwill impairment in 2020.
The Company executed a Share Purchase and Transfer Agreement to sell its Seeger business in December 2019 and classified the assets and liabilities of Seeger as "held for sale" on the Consolidated Balance Sheet as of December 31, 2019. Pursuant to the required accounting guidance, the Company allocated $15,000 of goodwill within the Engineered Components ("EC") reporting unit to Seeger based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. The Company subsequently recorded a non-cash impairment charge of $5,600 related to the goodwill that was allocated to Seeger. The impairment charge was recorded within Selling and Administrative expenses on the Consolidated Statement of Income in the period ended December 31, 2019. The Company assessed the goodwill within the remaining EC reporting unit and determined that there was no further impairment. See Note 3.
Leases: Contracts are evaluated at inception to determine whether they contain a lease. Operating lease right-of use assets (“ROUs”) and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date for operating leases with an initial term greater than 12 months. The Company recognizes lease expense for minimum lease payments on a straight line basis over the term of the lease. Certain leases provide the option to purchase the leased property and are therefore evaluated for finance lease consideration. The depreciable life of leased assets are limited by the expected term of the lease, unless there is a transfer of title or purchase option and the Company believes it is reasonably certain of exercise. The Company utilizes its incremental borrowing rate by lease term to calculate the present value of our future lease payments if an implicit rate is not specified. See Note 20.
Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives an exclusive right to manufacture and supply designated aftermarket parts over the life of the related aircraft engine program. As consideration, the Company has paid participation fees, which are recorded as long-lived intangible assets. The Company records amortization of the related intangible asset as sales dollars are being earned based on a proportional sales dollar method. Specifically, this method amortizes each asset as a reduction to revenue based on the proportion of sales under a program in a given period to the estimated aggregate sales dollars over the life of that program. This method reflects the pattern in which the economic benefits of the RSPs are realized.
The Company also entered into Component Repair Programs ("CRPs") that provide for, among other items, the right to sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers as one of a few GE licensed suppliers. In addition, the CRPs extended certain existing contracts under which the Company currently provides these services directly to GE. The Company recorded the consideration for these rights as an intangible asset that is amortized as a reduction to sales over the remaining life of these engine programs based on the estimated sales over the life of such programs. This method reflects the pattern in which the economic benefits of the CRPs are realized.
The recoverability of each asset is subject to significant estimates about future revenues related to the program’s aftermarket parts and services. The Company evaluates these intangible assets for recoverability and updates amortization rates on an agreement by agreement basis for the RSPs and on an individual asset program basis for the CRPs. The assets are reviewed for recoverability periodically including whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Annually, the Company evaluates the remaining useful life of these assets to determine whether events and circumstances warrant a revision to the remaining periods of amortization. Management updates revenue projections, which includes comparing actual experience against projected revenue and industry projections. The potential exists that actual revenues will not meet expectations due to a change in market conditions including, for example, the replacement of older engines with new, more fuel-efficient engines or the Company's ability to maintain market share within the Aftermarket business. A shortfall in future revenues may indicate a triggering event requiring a write down or further evaluation of the recoverability of the assets or require the Company to accelerate amortization expense prospectively dependent on the level of the shortfall. Management considered the impacts of the COVID-19 pandemic on the broader aerospace end markets during its evaluation of these intangible assets in 2020. The Company has not identified any impairment of these assets, although changes in projected RSP and CRP revenue has impacted amortization rates that will be applied in remaining periods.
Other Intangible Assets: Other intangible assets consist primarily of the Aerospace Aftermarket programs, as discussed above, customer relationships, tradenames, patents and proprietary technology. These intangible assets, with the exception of
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
certain tradenames, have finite lives and are amortized over the periods in which they provide benefit. The Company assesses the impairment of long-lived assets, including identifiable intangible assets subject to amortization, whenever significant events or significant changes in circumstances indicate the carrying value may not be recoverable. Tradenames with indefinite lives are subject to impairment testing in accordance with accounting standards governing such on an annual basis, in the second quarter, or more frequently if an event or change in circumstances indicates that the fair value of the asset has been reduced below its carrying value. Based on the assessments performed during 2020, there were no impairments of other intangible assets. See Note 7.
Derivatives: Accounting standards related to the accounting for derivative instruments and hedging activities require that all derivative instruments be recorded on the balance sheet at fair value. Foreign currency contracts may qualify as fair value hedges of unrecognized firm commitments, cash flow hedges of recognized assets and liabilities or anticipated transactions, or a hedge of a net investment. Changes in the fair market value of derivatives that qualify as fair value hedges or cash flow hedges are recorded directly to earnings or accumulated other non-owner changes to equity, depending on the designation. Amounts recorded to accumulated other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company’s policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item.
Foreign currency: Assets and liabilities are translated at year-end rates of exchange; revenues and expenses are translated at average rates of exchange. The resulting translation gains or losses are reflected in accumulated other non-owner changes to equity within stockholders’ equity. Net foreign currency transaction losses of $1,518, $6,485 and $3,879 in 2020, 2019 and 2018, respectively, were recorded within other expense (income), net in the Consolidated Statements of Income.
Research and Development: Costs are incurred in connection with efforts aimed at discovering and implementing new knowledge that is critical to developing new products, processes or services, significantly improving existing products or services, and developing new applications for existing products and services. Research and development expenses for the creation of new and improved products, processes and services were $16,949, $15,666 and $16,193, for the years 2020, 2019 and 2018, respectively, and are included in selling and administrative expense.
Pension and Other Postretirement Benefits: The Company accounts for its defined benefit pension plans and other postretirement plans by recognizing the overfunded or underfunded status of the plans, calculated as the difference between plan assets and the projected benefit obligation related to each plan, as an asset or liability on the Consolidated Balance Sheets. Benefit costs associated with the plans primarily include current service costs, interest costs and the amortization of actuarial losses, partially offset by expected returns on plan assets, which are determined based upon actuarial valuations. Settlement and curtailment losses (gains) may also impact benefit costs. The Company regularly reviews actuarial assumptions, including discount rates and the expected return on plan assets, which are updated at the measurement date, December 31st. The impact of differences between actual results and the assumptions are generally accumulated within Other Comprehensive Income and amortized over future periods, which will affect benefit costs recognized in such periods. The Company bifurcates the components of net periodic benefit cost for pension and other postretirement plans. The service cost component of expense requires presentation with other employee compensation costs in operating income, whereas the other components of expense are reported separately outside of operating income. See Note 13.
Stock-Based Compensation: Stock-based employee compensation plans are accounted for based on their fair value on the grant date and the related cost is recognized in the Consolidated Statements of Income in accordance with accounting standards related to share-based payments. The fair values of stock options are estimated using the Black-Scholes option-pricing model based on certain assumptions. The fair values of service and performance based share awards are estimated based on the fair market value of the Company’s stock price on the grant date. The fair values of market based performance share awards are estimated using the Monte Carlo valuation method. See Note 14.
Income Taxes: Deferred tax assets and liabilities are recognized for future tax effects attributable to temporary differences, operating loss carryforwards and tax credits. The measurement of deferred tax assets and liabilities is determined using tax rates from enacted tax law of the period in which the temporary differences, operating loss carryforwards and tax credits are expected to be realized. The effect of the change in income tax rates is recognized in the period of the enactment date. The guidance related to accounting for income taxes requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. The Company is exposed to certain tax contingencies in the ordinary course of business and records those tax liabilities in accordance with the guidance for accounting for uncertain tax positions. See Note 15.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Recent Accounting Standards
The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under U.S. GAAP through the use of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification. The Company evaluates the applicability and potential impacts of recent ASUs on its Consolidated Financial Statements and related disclosures.
Recently Adopted Accounting Standards
In February 2016, the FASB amended its guidance related to lease accounting. The amended guidance required lessees to recognize a majority of their leases on the balance sheet as a right-of-use ("ROU") asset and a lease liability. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted. The Company adopted the new standard using the modified retrospective approach on January 1, 2019. The most significant impact of the guidance was the recognition of ROU assets and related lease liabilities for operating leases on the Consolidated Balance Sheet. The Company recognized ROU assets and related lease liabilities of $31,724 and $32,579, respectively, related to operating lease commitments as of January 1, 2019. The amended guidance did not have a material impact on the Company's cash flows or results of operations. See Note 20.
In June 2016, the FASB amended its guidance related to credit losses on financial instruments. The amended guidance required the use of a methodology of estimation that reflects expected credit losses on certain types of financial instruments, including trade receivables, as a replacement to the current methodology, which estimates losses based on incurred credit losses. This expected credit loss methodology required that the Company consider a broader range of information when estimating credit losses on receivables. The amended guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted this amended guidance and applicable FASB updates related to the guidance during the first quarter of 2020 and it did not have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB amended its guidance related to goodwill impairment testing. The amended guidance simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under the amended guidance, companies should perform their annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. The amended guidance was effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company elected to early adopt this amended guidance during the second quarter of 2018 in connection with its annual goodwill impairment testing and it did not have an impact on the Company's Consolidated Financial Statements.
In August 2017, the FASB amended its guidance related to hedge accounting. The amended guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements and changes the assessment of effectiveness. The guidance also more closely aligns hedge accounting with management strategies, simplifies application and increases the transparency of hedging. The amended guidance was effective January 1, 2019, with early adoption permitted in any interim period. The Company adopted the amended guidance on January 1, 2019 and it did not have a material impact on the Consolidated Financial Statements, however it did result in amendments to certain disclosures required pursuant to the earlier guidance. See Note 11.
In February 2018, the FASB issued guidance related to the impacts of the tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The guidance permits the reclassification of certain income tax effects of the Act from Accumulated Other Comprehensive Income to Retained Earnings (stranded tax effects). The stranded tax effects resulted from the December 31, 2017 remeasurement of deferred income taxes that was recorded through the Consolidated Statements of Income, with no corresponding adjustment to Accumulated Other Comprehensive Income having been initially recognized. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption is permitted. The Company elected to early adopt this amended guidance during the first quarter of 2018 using specific identification and as a result reclassified $19,331 from Accumulated Other Comprehensive Income to Retained Earnings on the Consolidated Balance Sheets. This reclassification relates only to the change in the U.S. Corporate income tax rate.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In August 2018, the FASB issued new guidance related to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (for example, a service contract). Pursuant to the new guidance, customers apply the same criteria for capitalizing implementation costs in a hosting arrangement as they would for an arrangement that has a software license. The new guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period for which financial statements have not been issued. The FASB provided the option of applying the guidance retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company elected to early adopt this guidance, prospectively, during the third quarter of 2018, and it did not have a material impact on the Consolidated Financial Statements.
In August 2018, the FASB amended its guidance related to disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amended requirements serve to remove, add and otherwise clarify certain existing disclosures. The amended guidance was effective for fiscal years ending after December 15, 2020. The guidance requires application on a retrospective basis to all periods presented. The Company has adopted this guidance within the Consolidated Financial Statements herein and it did not have a material impact. See Note 13.
Recently Issued Accounting Standards
In December 2019, the FASB amended its guidance related to income taxes. The amended guidance simplifies the accounting for income taxes, eliminating certain exceptions to the general income tax principles, in an effort to reduce the cost and complexity of application. The amended guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. Early adoption is permitted in any interim or annual period. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The Company does not expect that this amended guidance will have a material impact on its Consolidated Financial Statements.
The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2020, in response to this transition, the FASB issued guidance related to this rate reform, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. The guidance is effective through December 31, 2022. The Company’s Amended Credit Agreement and corresponding interest rate Swaps are tied to LIBOR, with each maturing in February 2026 and January 2022, respectively. The Company is evaluating the potential impact of the replacement of LIBOR, but does not anticipate a material impact on our business, financial condition, results of operations or cash flows.
2. Acquisitions
The Company acquired two businesses during the past three years. The results of operations of these acquired businesses have been included in the consolidated results from the respective acquisition dates. The purchase prices for these acquisitions have been allocated to tangible and intangible assets and liabilities of the businesses based upon estimates of their respective fair values.
In the third quarter of 2018, the Company acquired Industrial Gas Springs Group Holdings Limited (“IGS”), a recognized designer, manufacturer and supplier of customized gas springs. IGS is headquartered in the United Kingdom, with distribution and assembly capabilities in the United States. Its diversified end markets include general industrial, transportation, aerospace, and medical, among others. The Company acquired IGS for an aggregate purchase price of 29,138 British pound sterling ($38,016) which includes adjustments under the terms of the Share Purchase Agreement, including 2,820 British pound sterling ($3,679) related to cash acquired. The acquisition was financed using cash on hand and borrowings under the Company's revolving credit facility. In connection with the acquisition, the Company recorded $14,098 of goodwill and $15,300 of intangible assets. See Note 7.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the fourth quarter of 2018, the Company completed its acquisition of Gimatic S.r.l. (“Gimatic”). Gimatic designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components. Headquartered in Italy, Gimatic has a sales network extending across Europe, North America and Asia. Its diversified end markets include automotive, packaging, health care, and food and beverage, among others. The Company acquired Gimatic for an aggregate purchase price of 363,352 Euro ($411,024) which includes adjustments under the terms of the Sale and Purchase Agreement, including approximately 7,790 Euro ($8,812) related to cash acquired. The Company paid the aggregate purchase price in cash, using cash on hand and additional borrowings under the Company's existing revolving credit facility, including the utilization of funds made available through the accordion feature provided by the facility. In connection with the acquisition, the Company recorded $277,098 of goodwill and $158,800 of intangible assets. See Note 7.
The Company incurred $5,420 of acquisition-related costs during the year ended December 31, 2018 related to the IGS and Gimatic acquisitions. These costs include due diligence costs and transaction costs to complete the acquisition and have been recognized in the Consolidated Statements of Income as selling and administrative expenses.
The operating results of IGS and Gimatic have been included in the Consolidated Statements of Income since the dates of acquisition. For the year ended December 31, 2018, the Company reported $6,360 in net sales and an operating loss of $1,726 at IGS, inclusive of $2,887 of short-term purchase accounting adjustments, and $8,793 in net sales and an operating loss of $2,109 at Gimatic, inclusive of $2,707 of short-term purchase accounting adjustments. IGS and Gimatic results have been included within the Industrial segment's operating profit. The operating results of IGS and Gimatic during 2020 and 2019 have been included in the Consolidated Statements of Income.
The following table reflects the unaudited pro forma operating results (the "Pro Forma Results") of the Company for the year ended December 31, 2018, which give effect to the acquisitions of Gimatic and IGS as if they had occurred on January 1, 2017. The Pro Forma Results are based on assumptions that the Company believes are reasonable under the circumstances. The Pro Forma Results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 2017, nor are they intended to be indicative of results that may occur in the future. The underlying Pro Forma Results include the historical financial results of the Company, Gimatic and IGS adjusted for certain items including amortization expense associated with the assets acquired and the Company’s expense related to financing arrangements, with the related tax effects. The Pro Forma Results do not include the effects of any synergies or cost reduction initiatives related to the acquisitions.
|
|
|
|
|
|
|
(Unaudited Pro Forma)
|
|
2018
|
Net Sales
|
$
|
1,555,481
|
|
Net Income
|
171,422
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings during the year ended December 31, 2018 were adjusted to exclude non-recurring items including acquisition-related costs and amortization related to the fair value adjustment to inventory.
3. Divestiture
On December 20, 2019, the Company entered into a Share Purchase and Transfer Agreement ("SPA") with the Kajo Neukirchen Group ("KNG") to sell the Seeger business, consisting of partnership interests and shares, respectively, of Seeger-Orbis GmbH & Co. OHG and Seeger-Orbis Mechanical Components (Tianjin) Co., Ltd. (“Seeger”) for 42,500 Euros, subject to certain adjustments. The Company classified the assets and liabilities of Seeger, which operated within the Industrial segment, as "held for sale" on the Consolidated Balance Sheet as of December 31, 2019. Pursuant to the required accounting guidance, the Company allocated $15,000 of goodwill from the Engineered Components reporting unit to Seeger based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. The Company subsequently recorded an impairment charge of $5,600 related to the goodwill that was allocated to Seeger. The impairment charge was recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the period ended December 31, 2019.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Seeger assets and liabilities held for sale were comprised of the following as of December 31, 2019:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Accounts receivable, less allowance of $152
|
$
|
6,844
|
|
|
|
Inventories
|
13,727
|
|
|
|
Prepaid expenses and other current assets
|
802
|
|
|
|
Current assets held for sale
|
21,373
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
17,701
|
|
|
|
Other intangible assets, net
|
590
|
|
|
|
Goodwill
|
9,400
|
|
|
|
Other assets
|
354
|
|
|
|
Non-current assets held for sale
|
28,045
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable
|
$
|
2,961
|
|
|
|
Accrued liabilities
|
1,655
|
|
|
|
Current liabilities held for sale
|
4,616
|
|
|
|
|
|
|
|
Accrued retirement benefits
|
5,788
|
|
|
|
Other liabilities
|
1,201
|
|
|
|
Non-current liabilities held for sale
|
6,989
|
|
|
|
The Company completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 38,964 Euros ($42,915). The Company yielded net cash proceeds of $36,062 after consideration of cash sold and transaction costs. Resulting tax charges of $4,211 were recognized in the first quarter of 2020 following the completion of the sale. Divestiture charges of $2,466 resulted from the completion of the sale and were recorded within selling and administrative expenses on the Consolidated Statement of Income for the year ended December 31, 2020.
The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Facility. Pursuant to the SPA, 6,000 Euros of the proceeds were placed in escrow and will be released through 2024, pending any potential settlement of claims. Cash related to a pending claim would remain in escrow until a final determination of the claim has been made. The Company has recorded the restricted cash in other assets as of December 31, 2020.
4. Revenue
The Company is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare, and packaging.
Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, the significant risks of ownership have transferred, the Company has rights to payment and the rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting guidance. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the Company's revenue disaggregated by products and services, geographic regions and end markets, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Industrial
|
|
Aerospace
|
|
Total Company
|
Product and Services
|
|
|
|
|
|
Engineered Components Products
|
$
|
161,024
|
|
|
$
|
—
|
|
|
$
|
161,024
|
|
Molding Solutions Products
|
400,806
|
|
|
—
|
|
|
400,806
|
|
Force & Motion Control Products
|
153,397
|
|
|
—
|
|
|
153,397
|
|
Automation Products
|
54,892
|
|
|
—
|
|
|
54,892
|
|
Aerospace Original Equipment Manufacturer Products
|
—
|
|
|
234,578
|
|
|
234,578
|
|
Aerospace Aftermarket Product and Services
|
—
|
|
|
119,694
|
|
|
119,694
|
|
|
$
|
770,119
|
|
|
$
|
354,272
|
|
|
$
|
1,124,391
|
|
|
|
|
|
|
|
Geographic Regions (A)
|
|
|
|
|
|
Americas
|
$
|
293,339
|
|
|
$
|
257,370
|
|
|
$
|
550,709
|
|
Europe
|
308,288
|
|
|
62,250
|
|
|
370,538
|
|
Asia
|
164,002
|
|
|
30,316
|
|
|
194,318
|
|
Rest of World
|
4,490
|
|
|
4,336
|
|
|
8,826
|
|
|
$
|
770,119
|
|
|
$
|
354,272
|
|
|
$
|
1,124,391
|
|
|
|
|
|
|
|
End Markets
|
|
|
|
|
|
Aerospace OEM
|
$
|
11,182
|
|
|
$
|
234,577
|
|
|
$
|
245,759
|
|
Aerospace Aftermarket
|
—
|
|
|
119,695
|
|
|
119,695
|
|
Medical, Personal Care & Packaging
|
213,725
|
|
|
—
|
|
|
213,725
|
|
Tool and Die
|
81,187
|
|
|
—
|
|
|
81,187
|
|
General Industrial
|
192,547
|
|
|
—
|
|
|
192,547
|
|
Auto Molding Solutions
|
125,337
|
|
|
—
|
|
|
125,337
|
|
Auto Production
|
91,249
|
|
|
—
|
|
|
91,249
|
|
Automation
|
54,892
|
|
|
—
|
|
|
54,892
|
|
|
$
|
770,119
|
|
|
$
|
354,272
|
|
|
$
|
1,124,391
|
|
(A) Sales by geographic market are based on the location to which the product is shipped.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Industrial
|
|
Aerospace
|
|
Total Company
|
Product and Services
|
|
|
|
|
|
Engineered Components Products
|
$
|
254,569
|
|
|
$
|
—
|
|
|
$
|
254,569
|
|
Molding Solutions Products
|
442,564
|
|
|
—
|
|
|
442,564
|
|
Force & Motion Control Products
|
186,737
|
|
|
—
|
|
|
186,737
|
|
Automation Products
|
54,637
|
|
|
—
|
|
|
54,637
|
|
Aerospace Original Equipment Manufacturer Products
|
—
|
|
|
367,538
|
|
|
367,538
|
|
Aerospace Aftermarket Product and Services
|
—
|
|
|
185,073
|
|
|
185,073
|
|
|
$
|
938,507
|
|
|
$
|
552,611
|
|
|
$
|
1,491,118
|
|
|
|
|
|
|
|
Geographic Regions (A)
|
|
|
|
|
|
Americas
|
$
|
365,903
|
|
|
$
|
397,580
|
|
|
$
|
763,483
|
|
Europe
|
349,001
|
|
|
99,204
|
|
|
448,205
|
|
Asia
|
219,872
|
|
|
51,754
|
|
|
271,626
|
|
Rest of World
|
3,731
|
|
|
4,073
|
|
|
7,804
|
|
|
$
|
938,507
|
|
|
$
|
552,611
|
|
|
$
|
1,491,118
|
|
|
|
|
|
|
|
End Markets
|
|
|
|
|
|
Aerospace OEM
|
$
|
14,128
|
|
|
$
|
367,538
|
|
|
$
|
381,666
|
|
Aerospace Aftermarket
|
—
|
|
|
185,073
|
|
|
185,073
|
|
Medical, Personal Care & Packaging
|
222,963
|
|
|
—
|
|
|
222,963
|
|
Tool and Die
|
102,476
|
|
|
—
|
|
|
102,476
|
|
General Industrial
|
240,983
|
|
|
—
|
|
|
240,983
|
|
Auto Molding Solutions
|
144,122
|
|
|
—
|
|
|
144,122
|
|
Auto Production
|
159,197
|
|
|
—
|
|
|
159,197
|
|
Automation
|
54,638
|
|
|
—
|
|
|
54,638
|
|
|
$
|
938,507
|
|
|
$
|
552,611
|
|
|
$
|
1,491,118
|
|
(A) Sales by geographic market are based on the location to which the product is shipped.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
Industrial
|
|
Aerospace
|
|
Total Company
|
Product and Services
|
|
|
|
|
|
Engineered Components Products
|
$
|
285,929
|
|
|
$
|
—
|
|
|
$
|
285,929
|
|
Molding Solutions Products
|
503,793
|
|
|
—
|
|
|
503,793
|
|
Force & Motion Control Products
|
196,212
|
|
|
—
|
|
|
196,212
|
|
Automation Products
|
8,793
|
|
|
—
|
|
|
8,793
|
|
Aerospace Original Equipment Manufacturer Products
|
—
|
|
|
336,987
|
|
|
336,987
|
|
Aerospace Aftermarket Product and Services
|
—
|
|
|
164,175
|
|
|
164,175
|
|
|
$
|
994,727
|
|
|
$
|
501,162
|
|
|
$
|
1,495,889
|
|
|
|
|
|
|
|
Geographic Regions (A)
|
|
|
|
|
|
Americas
|
$
|
394,361
|
|
|
$
|
358,183
|
|
|
$
|
752,544
|
|
Europe
|
368,159
|
|
|
94,561
|
|
|
462,720
|
|
Asia
|
228,663
|
|
|
44,298
|
|
|
272,961
|
|
Rest of World
|
3,544
|
|
|
4,120
|
|
|
7,664
|
|
|
$
|
994,727
|
|
|
$
|
501,162
|
|
|
$
|
1,495,889
|
|
|
|
|
|
|
|
End Markets
|
|
|
|
|
|
Aerospace OEM
|
$
|
10,191
|
|
|
$
|
336,987
|
|
|
$
|
347,178
|
|
Aerospace Aftermarket
|
—
|
|
|
164,175
|
|
|
164,175
|
|
Medical, Personal Care & Packaging
|
220,269
|
|
|
—
|
|
|
220,269
|
|
Tool and Die
|
115,635
|
|
|
—
|
|
|
115,635
|
|
General Industrial
|
244,007
|
|
|
—
|
|
|
244,007
|
|
Auto Molding Solutions
|
208,767
|
|
|
—
|
|
|
208,767
|
|
Auto Production
|
187,065
|
|
|
—
|
|
|
187,065
|
|
Automation
|
8,793
|
|
|
—
|
|
|
8,793
|
|
|
$
|
994,727
|
|
|
$
|
501,162
|
|
|
$
|
1,495,889
|
|
(A) Sales by geographic market are based on the location to which the product is shipped.
Revenue from products and services transferred to customers at a point in time accounted for approximately 85 percent of revenue for the year ended December 31, 2020 and 90 percent of revenue for the years ended December 31, 2019 and 2018. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Aftermarket business, is recognized at a point in time, primarily when the product or solution is shipped to the customer.
Revenue from products and services transferred to customers over time accounted for approximately 15% of revenue for the year ended December 31, 2020 and 10 percent of revenue for the years ended December 31, 2019 and 2018. The Company recognizes revenue over time in instances where a contract supports a continual transfer of control to the customer. Substantially all of our revenue in the Aerospace maintenance repair and overhaul business and a portion of revenue in our Engineered Components Products, Molding Solutions Products and Aerospace Original Equipment Manufacturer Products businesses is recognized over time. Within the Molding Solutions and Aerospace Aftermarket businesses, this continual transfer of control to the customer results from repair and refurbishment work performed on customer controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract where we deliver products that do not have an alternative use and requires an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.
Performance Obligations. A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. The Company accounts for a contract when it has approval and commitment from both parties, the
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable. Transaction price reflects the amount of consideration which the Company expects to be entitled in exchange for transferred goods or services. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied.
The majority of our revenues are from contracts that are less than one year, however certain Aerospace OEM and Industrial Molding Solutions business contracts extend beyond one year. In the Industrial segment, customers are typically OEMs or suppliers to OEMs and, in some businesses, distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and defense-related parts and service providers.
To determine the proper revenue recognition method for contracts, the Company uses judgment to evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. Contracts within the Aerospace OEM and Engineered Components businesses typically have contracts that are combined as the customer may issue multiple purchase orders at or near the same point in time under the terms of a long term agreement.
Revenue is recognized in an over time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts.
Contract Estimates. Due to the nature of the work performed in completing certain performance obligations, the estimation of both total revenue and cost at completion includes a number of variables and requires significant judgment, as described further below.
Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, rebates, early payment discounts, or other provisions that can impact transaction price. The Company generally estimates variable consideration utilizing the expected value methodology as multiple inputs are considered and weighed, such as customer history, customer forecast communications, economic outlooks, and industry data. In certain circumstances where a particular outcome is probable, we utilize the most likely amount to which we expect to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
Estimating the total expected costs related to contracts also requires significant judgment. The Aerospace OEM business has an Estimate at Completion process in which management reviews the progress and execution of our performance obligations for significant contracts with revenue recognized under an over time model. As part of this process, management reviews information including, but not limited to, performance under the contract, progress towards completion, identified risks and opportunities, sourcing determinations and related changes in estimates of costs to be incurred. These considerations include management's judgment about the ability and cost to achieve technical requirements and other contract requirements. Management makes assumptions and estimates regarding labor efficiency, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors and overhead cost rates, among other variables.
The Company generally utilizes the portfolio approach to estimate the amount of revenue to recognize for certain other contracts which require over time revenue recognition. Such contracts are grouped together either by revenue stream, customer or product. Each portfolio of contracts is grouped together based on having similar characteristics. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts.
Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary in the period they become known. Revenue recognized from performance obligations satisfied in previous periods was not material in 2020, 2019 and 2018.
Contract Balances. The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Unbilled Receivables (Contract Assets) - Pursuant to the over time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within prepaid expenses and other current assets on the Consolidated Balance Sheets as of December 31, 2020 and 2019.
Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions business, for example, may require such advances. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within accrued liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are generally received less than one year before the customer solution is completed. These assets and liabilities are reported on the Consolidated Balance Sheets on an individual contract basis at the end of each reporting period.
Net contract liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
$ Change
|
|
% Change
|
Unbilled receivables (contract assets)
|
$
|
33,009
|
|
|
$
|
22,444
|
|
|
$
|
10,565
|
|
|
47
|
%
|
Contract liabilities
|
(39,865)
|
|
|
(55,076)
|
|
|
15,211
|
|
|
(28)
|
%
|
Net contract liabilities
|
$
|
(6,856)
|
|
|
$
|
(32,632)
|
|
|
$
|
25,776
|
|
|
(79)
|
%
|
Contract liabilities balances at December 31, 2020 and December 31, 2019 include $12,750 and $16,971, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, includes corresponding balances at December 31, 2020 and December 31, 2019, respectively.
Changes in the net contract liabilities balance during the year ended December 31, 2020 were impacted by a $15,211 decrease in contract liabilities, driven primarily by revenue recognized in the current period, partially offset by new customer advances and deposits. Adding to this net contract liabilities decrease was a $10,565 increase in contract assets, driven primarily by contract progress (i.e. unbilled receivable), partially offset by earlier contract progress being invoiced to the customer.
The Company recognized approximately 100% of the revenue related to the contract liability balance as of December 31, 2019 during the year ended December 31, 2020 and 85% of the revenue related to the contract liability balance as of December 31, 2018 during the year ended December 31, 2019, primarily representing revenue from the sale of molds and hot runner systems within the Molding Solutions business.
Contract Costs. The Company may incur costs to fulfill a contract. Costs are incurred to develop, design and manufacture tooling to produce a customer’s customized product in conjunction with certain of its contracts, primarily in the Aerospace OEM business. For certain contracts, control related to this tooling remains with the Company. The tooling may be deemed recoverable over the life of the related customer contract (oftentimes a long-term agreement). The Company therefore capitalizes these tooling costs and amortizes them over the shorter of the tooling life or the duration of the long-term agreement. The Company may also incur costs related to the development of product designs (molds or hot runner systems) within its Molding Solutions business. Control of the design may be retained by the Company and deemed recoverable over the contract to build the systems or mold, therefore this design work cost is capitalized and amortized to cost of sales when the related revenue is recognized. Amortization related to these capitalized costs to fulfill a contract were $12,847, $14,078, and $14,988 in the years ended December 31, 2020, 2019 and 2018, respectively.
Capitalized costs, net of amortization, to fulfill a contract balances were as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
Tooling
|
$
|
4,976
|
|
$
|
5,908
|
|
Design costs
|
2,871
|
|
3,209
|
|
|
|
|
|
$
|
7,847
|
|
$
|
9,117
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Remaining Performance Obligations. The Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not been performed and, for Aerospace, excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to the accounting guidance. As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $168,426. The Company expects to recognize revenue on approximately 75% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months. As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $234,859.
5. Inventories
Inventories at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Finished goods
|
|
$
|
79,833
|
|
|
$
|
69,594
|
|
Work-in-process
|
|
76,542
|
|
|
88,196
|
|
Raw materials and supplies
|
|
81,633
|
|
|
74,916
|
|
|
|
$
|
238,008
|
|
|
$
|
232,706
|
|
6. Property, Plant and Equipment
Property, plant and equipment, net, at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Land
|
|
$
|
19,182
|
|
|
$
|
17,644
|
|
Buildings
|
|
194,936
|
|
|
178,657
|
|
Machinery and equipment
|
|
696,260
|
|
|
644,339
|
|
|
|
910,378
|
|
|
840,640
|
|
Less accumulated depreciation
|
|
(539,431)
|
|
|
(484,037)
|
|
|
|
$
|
370,947
|
|
|
$
|
356,603
|
|
Depreciation expense was $46,590, $47,552 and $48,914 during 2020, 2019 and 2018, respectively.
7. Goodwill and Other Intangible Assets
Goodwill: The following table sets forth the change in the carrying amount of goodwill for each reportable segment and the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Aerospace
|
|
|
|
|
|
Total
Company
|
January 1, 2019
|
$
|
924,738
|
|
|
$
|
30,786
|
|
|
|
|
|
|
$
|
955,524
|
|
Acquisition-related
|
5,841
|
|
|
—
|
|
|
|
|
|
|
5,841
|
|
Reclassified to assets held for sale (see Note 3)
|
(15,000)
|
|
|
—
|
|
|
|
|
|
|
(15,000)
|
|
Foreign currency translation
|
(13,343)
|
|
|
—
|
|
|
|
|
|
|
(13,343)
|
|
December 31, 2019
|
902,236
|
|
|
30,786
|
|
|
|
|
|
|
933,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
78,558
|
|
|
—
|
|
|
|
|
|
|
78,558
|
|
December 31, 2020
|
$
|
980,794
|
|
|
$
|
30,786
|
|
|
|
|
|
|
$
|
1,011,580
|
|
Of the $1,011,580 of goodwill at December 31, 2020, $43,860 represents the original tax deductible basis.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The acquisition-related changes recorded at Industrial during 2019 include final purchase accounting adjustments of $5,841 of goodwill resulting from the acquisition of Gimatic. See Note 2.
The Company entered into the SPA to sell Seeger in December 2019. Pursuant to the required accounting guidance, the Company allocated $15,000 of goodwill within the Engineered Components reporting unit to Seeger based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained ("Seeger goodwill"). Seeger goodwill was reclassified to assets held for sale on the Consolidated Balance Sheet as of December 31, 2019 and subsequently evaluated for impairment. See Note 3.
Other Intangible Assets: Other intangible assets at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Range of
Life-Years
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Revenue Sharing Programs
|
|
Up to 30
|
|
$
|
299,500
|
|
|
$
|
(143,209)
|
|
|
$
|
299,500
|
|
|
$
|
(135,466)
|
|
Component Repair Programs
|
|
Up to 30
|
|
111,839
|
|
|
(30,869)
|
|
|
111,839
|
|
|
(27,270)
|
|
Customer relationships
|
|
10-16
|
|
338,366
|
|
|
(118,752)
|
|
|
338,366
|
|
|
(98,953)
|
|
Patents and technology
|
|
4-11
|
|
123,433
|
|
|
(77,311)
|
|
|
123,433
|
|
|
(68,188)
|
|
Trademarks/trade names
|
|
10-30
|
|
10,949
|
|
|
(10,377)
|
|
|
10,949
|
|
|
(10,145)
|
|
Other
|
|
Up to 15
|
|
10,746
|
|
|
(4,580)
|
|
|
10,746
|
|
|
(4,014)
|
|
|
|
|
|
894,833
|
|
|
(385,098)
|
|
|
894,833
|
|
|
(344,036)
|
|
Unamortized intangible asset:
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
55,670
|
|
|
—
|
|
|
55,670
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
(1,273)
|
|
|
—
|
|
|
(25,351)
|
|
|
—
|
|
Other intangible assets
|
|
|
|
$
|
949,230
|
|
|
$
|
(385,098)
|
|
|
$
|
925,152
|
|
|
$
|
(344,036)
|
|
The Company has entered into a number of aftermarket RSP and CRP agreements each of which is with our customer, General Electric ("GE"). See Note 1 for a further discussion of these programs. As of December 31, 2020, the Company has made all required payments under the RSP and CRP agreements.
Amortization of intangible assets for the years ended December 31, 2020, 2019 and 2018 was $41,066, $51,502 and $45,220, respectively. Estimated amortization of intangible assets for future periods is as follows: 2021 - $42,000; 2022- $42,000; 2023 - $43,000; 2024 - $43,000 and 2025 - $44,000.
8. Accrued Liabilities
Accrued liabilities at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Payroll and other compensation
|
|
$
|
26,834
|
|
|
$
|
39,293
|
|
Contract liabilities
|
|
39,865
|
|
|
55,076
|
|
Pension and other postretirement benefits
|
|
6,318
|
|
|
8,044
|
|
Accrued income taxes
|
|
31,883
|
|
|
41,706
|
|
Lease liability
|
|
11,707
|
|
|
10,751
|
|
Business reorganizations (Note 10)
|
|
13,151
|
|
|
—
|
|
Other
|
|
48,802
|
|
|
55,122
|
|
|
|
$
|
178,560
|
|
|
$
|
209,992
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9. Debt and Commitments
Long-term debt and notes and overdrafts payable at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Revolving credit agreement
|
|
$
|
593,622
|
|
|
$
|
601,936
|
|
|
$
|
720,379
|
|
|
$
|
737,816
|
|
3.97% Senior Notes
|
|
100,000
|
|
|
109,151
|
|
|
100,000
|
|
|
104,151
|
|
Borrowings under lines of credit and overdrafts
|
|
2,115
|
|
|
2,115
|
|
|
7,724
|
|
|
7,724
|
|
Finance leases
|
|
8,268
|
|
|
8,650
|
|
|
6,266
|
|
|
6,515
|
|
Other foreign bank borrowings
|
|
254
|
|
|
257
|
|
|
406
|
|
|
410
|
|
|
|
704,259
|
|
|
722,109
|
|
|
834,775
|
|
|
856,616
|
|
Less current maturities
|
|
(4,391)
|
|
|
|
|
(9,758)
|
|
|
|
Long-term debt
|
|
$
|
699,868
|
|
|
|
|
$
|
825,017
|
|
|
|
The Company’s long-term debt portfolio consists of fixed-rate and variable-rate instruments and is managed to reduce the overall cost of borrowing and to mitigate fluctuations in interest rates. Among other things, interest rate fluctuations impact the market value of the Company’s fixed-rate debt.
In February 2017, the Company and certain of its subsidiaries entered into a fourth amendment to its fifth amended and restated revolving credit agreement (the “Fourth Amendment”) and retained Bank of America, N.A. ("Bank of America") as the Administrative Agent for the lenders. The $850,000 facility was scheduled to mature in February 2022. The Fourth Amendment also increased the previous accordion feature from $250,000, allowing the Company to request additional borrowings of up to $350,000. The Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of default has not occurred or is not continuing. The borrowing availability of $850,000, pursuant to the terms of the Fourth Amendment, allows for multi-currency borrowing which includes Euro, British pound sterling or Swiss franc borrowing, up to $600,000. In September 2018, the Company and one of its wholly owned subsidiaries entered into a Sale and Purchase Agreement to acquire Gimatic S.r.l (the "Acquisition"). See Note 2 of the Consolidated Financial Statements. In conjunction with the Acquisition, the Company requested additional borrowings of $150,000 that was provided for under the existing accordion feature. The Administrative Agent for the lenders approved the Company's access to the accordion feature and on October 19, 2018 the lenders formally committed the capital to fund such feature, resulting in the execution of the fifth amendment to the Amended Credit Agreement (the "Fifth Amendment"). The Fifth Amendment, effective October 19, 2018, thereby increased the borrowing availability of the existing facility to $1,000,000. The Company may also request access to the residual $200,000 of the accordion feature. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Amended Credit Agreement will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate, as defined in the Amended Credit Agreement, plus a margin of 0.10% to 0.70%. Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.10% and 1.70%. The Company paid fees and expenses of $529 and $2,542 in 2018 and 2017, respectively, in conjunction with executing amendments to the Amended Credit Agreement; such fees have been deferred within Other Assets on the accompanying Consolidated Balance Sheets and are being amortized into interest expense on the accompanying Consolidated Statements of Income through its maturity. Cash used to pay these fees has been recorded through other financing activities on the Consolidated Statements of Cash Flows.
In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $$100,000 aggregate principal amount of 3.97% senior notes due October 17, 2024 (the “3.97% Senior Notes”). The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The fair value of the 3.97% Senior Notes was determined using the US Treasury yield and a long-term credit spread for similar types of borrowings, which represent Level 2 observable inputs.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company's borrowing capacity remains limited by various debt covenants in the Fourth Amendment of the Amended Credit Agreement and the Note Purchase Agreement (the "Agreements"). The Agreements require the Company to maintain a ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 3.75 times ("Total Debt Ratio") and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, in each case at the end of each fiscal quarter; provided that the debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. A permitted acquisition is defined as an acquisition exceeding $150,000, for which the acquisition of Gimatic on October 31, 2018 qualified. With the completion of a permitted acquisition, the Senior Debt Ratio cannot exceed 3.50 times and the Total Debt Ratio cannot exceed 4.25 times. The increased ratios were allowed for a period of four fiscal quarters subsequent to the close of the permitted acquisition and therefore expired in the fourth quarter of 2019.
On October 8, 2020, the Company entered into the sixth amendment to the Amended Credit Agreement with Bank of America (the “Sixth Amendment”) and the first amendment to the Note Purchase Agreement with New York Life (the “First NPA Amendment”). The Sixth Amendment and the First NPA Amendment provided for an increase in the Company’s maximum ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, from 3.25 times (or, if a certain permitted acquisition above $150,000 is consummated, 3.50 times) to 3.75 times in each case at the end of the four fiscal quarters, beginning with December 31, 2020, and regardless of whether a permitted acquisition, as defined, is consummated, providing additional financing flexibility and access to liquidity. Additionally, the Sixth Amendment requires the Company to maintain a maximum ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, of not more than 3.75 times in each case at the end of the four fiscal quarters, beginning with December 31, 2020, and regardless of whether a permitted acquisition, as defined, is consummated. Furthermore, the First NPA Amendment provides for (i) adjustments to the ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, as defined, to conform to a more restrictive total leverage ratio that may be required under the Amended Credit Agreement, (ii) an increase in the amount of allowable add-back for restructuring charges when calculating Consolidated EBITDA from $15,000 to $25,000 and (iii) a required fee payment equal to 0.50% per annum times the daily outstanding principal amount of the note during each of the four fiscal quarters, following the quarter ended December 31, 2020, if the Company’s Senior Leverage Ratio, as defined, exceeds 3.25 times. In October 2020, the Company paid fees and expenses of $1,384 in conjunction with executing the Amendments; such fees have been deferred within Other Assets on the accompanying Consolidated Balance Sheet and are being amortized into interest expense on the Consolidated Statements of Income.
At December 31, 2020, the Company was in compliance with all applicable covenants. The Company anticipates continued compliance in each of the next four quarters. The Company's most restrictive financial covenant is the Senior Debt Ratio, which required the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.75 times at December 31, 2020. The actual ratio at December 31, 2020 was 3.05 times, as defined.
Borrowings and availability under the Sixth Amendment were $593,622 and $406,378, respectively, at December 31, 2020 and borrowings and availability under the Fifth Amendment were $720,379 and $279,621, respectively, at December 31, 2019, subject to covenants in the Company's revolving debt agreements. At December 31, 2020, additional borrowings of $161,521 million of Total Debt (including $161,521 million of Senior Debt) would have been allowed under the financial covenants. The average interest rate on these borrowings was 1.42% and 1.76% on December 31, 2020 and 2019, respectively. Borrowings included Euro-denominated borrowings of 344,450 Euros ($423,622) at December 31, 2020 and 504,690 Euros ($565,379) at December 31, 2019. The fair value of the borrowings is based on observable Level 2 inputs. The borrowings were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings. In 2019 and 2018, the Company borrowed 44,100 Euros ($49,506) and 179,000 Euros ($208,589), respectively, under the respective Amendments through an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down U.S. borrowings under the respective Amendments.
On February 10, 2021, the Company and certain of its subsidiaries entered into the sixth amended and restated senior unsecured revolving credit agreement (the "Amended Credit Agreement") and retained Bank of America, N.A. as the Administrative Agent for the lenders. The Amended Credit Agreement maintains the $1,000,000 of availability within the facility, while increasing the available borrowings under the accordion feature from $200,000 to $250,000 (aggregate availability of $1,250,000) and extends the maturity date through February 2026. The Amended Credit Agreement also adjusts the interest rate to either LIBOR plus a margin of 1.175% to 1.775% or the base rate, as defined in the Amended Agreement, plus a margin of 0.175% and 0.775%, depending on the Company's leverage ratio at the time of the borrowing. Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.175% to 1.775%. As with the earlier facility, the Company's
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
borrowing capacity is limited by various debt covenants in the Amended Credit Agreement, as described further below. The Amended Credit Agreement requires the Company to maintain a Senior Debt Ratio of not more than 3.75 times at the end of each fiscal quarter ending on or before September 30, 2021, after which the ratio will revert to 3.25 times (or, if a permitted acquisition above $150,000 is consummated, 3.50 times at the end of each of the first four fiscal quarters ending after the consummation of any such acquisition). In addition, the Amended Credit Agreement requires the Company to maintain a Total Debt Ratio of not more than 3.75 for each fiscal quarter (or, if a permitted acquisition above $150,000 is consummated, 4.25 times at the end of each of the first four fiscal quarters ending after the consummation of any such acquisition, however, such increase in the ratio will not be effective during any period prior to October 1, 2021). A ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, is required at the end of each fiscal quarter. The Company paid fees and expenses of $4,279 in conjunction with executing the Amended Credit Agreement; such fees will be deferred within Other assets on the Consolidated Balance and will be amortized into interest expense on the Consolidated Statements of Income through its maturity.
In addition, the Company has approximately $83,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. The Credit Lines are accessed locally and are available primarily within the U.S., Europe and Asia. The Credit Lines are subject to the applicable borrowing rates within each respective country and vary between jurisdictions (i.e. LIBOR, Euribor, etc.). Under the Credit Lines, $2,100 was borrowed at December 31, 2020 at an average interest rate of 1.10% and $7,700 was borrowed at December 31, 2019 at an average interest rate of 2.38%. The Company had also borrowed $15 and $24 under the overdraft facilities at December 31, 2020 and 2019, respectively. Repayments under the Credit Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.
The Company also has several finance leases under which $8,268 and $6,266 was outstanding at December 31, 2020 and December 31, 2019, respectively. The fair value of the finance leases are based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
At December 31, 2020 and 2019, the Company also had other foreign bank borrowings of $254 and $406, respectively. The fair value of the foreign bank borrowings was based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
Long-term debt and notes payable as of December 31, 2020 are payable as follows: $4,391 in 2021, $595,642 in 2022, $1,416 in 2023, $101,858 in 2024, $560 in 2025 and $392 thereafter. The amount payable under the revolving credit agreement at December 31, 2020 is included in 2022 based on the maturity date of the Sixth Amendment. As described above, the Company and certain of its subsidiaries entered into the sixth amended and restated senior unsecured revolving credit agreement on February 10, 2021 which extended the maturity date of borrowings under the revolving credit agreement through February 2026.
In addition, the Company had unused letters of credit totaling $8,757 at December 31, 2020.
Interest paid was $15,088, $20,248 and $16,678 in 2020, 2019 and 2018, respectively. Interest capitalized was $348, $498 and $544 in 2020, 2019 and 2018, respectively, and is being depreciated over the lives of the related fixed assets.
10. Business Reorganizations
In June 2020, the Company announced restructuring and workforce reduction actions ("Actions") to be implemented across its businesses and functions in response to the macroeconomic disruption in global industrial and aerospace end-markets arising from COVID-19. A resulting pre-tax charge of $19,116 was recorded, primarily related to employee severance and other termination benefits, with the amounts expected to be paid by the end of 2021. The Actions were substantially complete as of December 31, 2020 and reduced the Company’s global workforce by approximately 8%. A corresponding liability of $13,151, per below, was included within accrued liabilities as of December 31, 2020. The Company expects to incur additional costs of approximately $1,000 in the first half of 2021 related to the Actions. The employee termination costs are recorded primarily within Selling and Administrative Expenses in the accompanying Consolidated Statements of Income. Of the aggregate charges recorded, $2,251 is reflected within the results of the Aerospace segment, $15,907 is reflected within the results of the Industrial segment and $958 of pension curtailment and settlement losses is included in Other expense (income), net.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the change in the liability related to these actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
$
|
—
|
|
Employee severance and other termination benefits
|
17,413
|
|
Payments
|
(4,262)
|
|
December 31, 2020
|
$
|
13,151
|
|
11. Derivatives
The Company has manufacturing and sales facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.
Financial instruments have been used by the Company to hedge its exposure to fluctuations in interest rates. The Company entered into an interest rate swap agreement (the "Swap") on April 28, 2017 with one bank, which converts the interest on the first $100,000 of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The Swap expires on January 31, 2022. The Swap was accounted for as a cash flow hedge. The Swap remained in place at December 31, 2020.
The Company also uses financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The Company has various contracts outstanding which primarily hedge recognized assets or liabilities and anticipated transactions in various currencies including the Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen, Singapore dollar, Korean won, Swedish kroner, Chinese renminbi, Mexican peso, Hong Kong dollar and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within two years.
The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures. Changes in the fair market value of derivatives that qualify as cash flow hedges are recorded to accumulated other non-owner changes to equity. Amounts recorded to accumulated other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Amounts related to contracts that are not designated as hedges are recorded directly to earnings.
The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. Other financing cash flows during the years ended December 31, 2020, 2019 and 2018, as presented on the Consolidated Statements of Cash Flows, include $(5,587), $7,538 and $10,813, respectively, of net cash (proceeds) payments related to the settlement of foreign currency hedges related to intercompany financing.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the fair value amounts of derivative instruments held by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Fair Value
|
|
|
Fair Value
|
|
Balance Sheet Location
|
December 31, 2020
|
December 31, 2019
|
|
Balance Sheet Location
|
December 31, 2020
|
December 31, 2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate contracts
|
Other assets
|
$
|
—
|
|
$
|
—
|
|
|
Other liabilities
|
$
|
(1,977)
|
|
$
|
(820)
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
908
|
|
700
|
|
|
Accrued liabilities
|
—
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
908
|
|
700
|
|
|
|
(1,977)
|
|
(820)
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
734
|
|
1,375
|
|
|
Accrued liabilities
|
(11)
|
|
(1)
|
|
Total derivatives not designated as hedging instruments
|
|
734
|
|
1,375
|
|
|
|
(11)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
1,642
|
|
$
|
2,075
|
|
|
|
$
|
(1,988)
|
|
$
|
(821)
|
|
The following table sets forth the effect of hedge accounting on accumulated other comprehensive (loss) income for the twelve month periods ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative
|
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
|
|
Twelve Months Ended
December 31,
|
Twelve Months Ended
December 31,
|
Derivatives in Hedging Relationships
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
(882)
|
|
|
$
|
(1,702)
|
|
|
$
|
578
|
|
|
Interest expense
|
$
|
(1,321)
|
|
|
$
|
347
|
|
|
$
|
(277)
|
|
|
Foreign exchange contracts
|
240
|
|
|
753
|
|
|
95
|
|
|
Net sales
|
(11)
|
|
|
(956)
|
|
|
(1,116)
|
|
|
Total
|
$
|
(642)
|
|
|
$
|
(949)
|
|
|
$
|
673
|
|
|
|
$
|
(1,332)
|
|
|
$
|
(609)
|
|
|
$
|
(1,393)
|
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the effect of hedge accounting on the consolidated statements of income for the twelve month periods ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
|
|
Twelve Months Ended
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
Net sales
|
|
Interest expense
|
|
Net sales
|
|
Interest expense
|
|
Net sales
|
|
Interest expense
|
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of hedges are recorded
|
$
|
1,124,391
|
|
|
$
|
15,944
|
|
|
$
|
1,491,118
|
|
|
$
|
20,629
|
|
|
$
|
1,495,889
|
|
|
$
|
16,841
|
|
The effects of hedging:
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
(1,321)
|
|
|
|
|
347
|
|
|
|
|
(277)
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive income (loss) into income
|
(11)
|
|
|
|
|
(956)
|
|
|
|
|
(1,116)
|
|
|
|
The following table sets forth the effect of derivatives not designated as hedging instruments on the consolidated statements of income for the twelve month periods ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
Amount of Gain (Loss) Recognized in Income on Derivative(A)
|
|
Twelve Months Ended
December 31,
|
Derivatives Not Designated as Hedging Instruments
|
2020
|
|
2019
|
|
2018
|
Foreign exchange contracts
|
Other expense (income), net
|
$
|
5,631
|
|
|
$
|
(8,250)
|
|
|
$
|
(12,162)
|
|
(A) During 2020 and 2018, such gains (losses) were substantially offset by net losses (gains) recorded on the underlying hedged asset or liability (the "underlying"). During 2019, approximately half of the loss recognized was offset by a net gain recorded on the underlying. Offsetting net gains or losses on the underlying are also recorded in other expense (income), net.
12. Fair Value Measurements
The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:
|
|
|
|
|
|
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
Unobservable inputs for the asset or liability.
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
$
|
1,642
|
|
|
$
|
—
|
|
|
$
|
1,642
|
|
|
$
|
—
|
|
Liability derivatives
|
|
(1,988)
|
|
|
—
|
|
|
(1,988)
|
|
|
—
|
|
Bank acceptances
|
|
13,267
|
|
|
—
|
|
|
13,267
|
|
|
—
|
|
Rabbi trust assets
|
|
3,233
|
|
|
3,233
|
|
|
—
|
|
|
—
|
|
|
|
$
|
16,154
|
|
|
$
|
3,233
|
|
|
$
|
12,921
|
|
|
$
|
—
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
$
|
2,075
|
|
|
$
|
—
|
|
|
$
|
2,075
|
|
|
$
|
—
|
|
Liability derivatives
|
|
(821)
|
|
|
—
|
|
|
(821)
|
|
|
—
|
|
Bank acceptances
|
|
14,460
|
|
|
—
|
|
|
14,460
|
|
|
—
|
|
Rabbi trust assets
|
|
2,947
|
|
|
2,947
|
|
|
—
|
|
|
—
|
|
|
|
$
|
18,661
|
|
|
$
|
2,947
|
|
|
$
|
15,714
|
|
|
$
|
—
|
|
The derivative contracts are valued using observable current market information as of the reporting date such as the prevailing LIBOR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial instruments accepted from certain China-based customers in lieu of cash paid on receivables, generally range from 3 to 6 months in maturity and are guaranteed by banks. The carrying amounts of the bank acceptances, which are included within prepaid expenses and other current assets, approximate fair value due to their short maturities. The fair values of rabbi trust assets are based on quoted market prices from various financial exchanges. For disclosures of the fair values of the Company’s pension plan assets, see Note 13.
13. Pension and Other Postretirement Benefits
The accounting standards related to employers’ accounting for defined benefit pension and other postretirement plans requires the Company to recognize the funded status of its defined benefit postretirement plans as assets or liabilities in the accompanying consolidated balance sheets and to recognize changes in the funded status of the plans in comprehensive income.
The Company has various defined contribution plans, the largest of which is its Retirement Savings Plan. Most U.S. salaried and non-union hourly employees are eligible to participate in this plan. See Note 18 for further discussion of the Retirement Savings Plan. The Company also maintains various other defined contribution plans which cover certain other employees. Company contributions under certain of these plans are based on the performance of the business units and employee compensation. Contribution expense under these other defined contribution plans was $5,301, $6,874 and $6,921 in 2020, 2019 and 2018, respectively.
Defined benefit pension plans in the U.S. cover a majority of the Company’s U.S. employees at the Associated Spring and Force & Motion Control businesses of Industrial, certain former U.S. employees, including retirees, and a portion of employees at the Company’s Corporate Office. Employees at certain international businesses within Industrial are also covered by defined benefit pension plans. Plan benefits for salaried and non-union hourly employees are based on years of service and average salary. Plans covering union hourly employees provide benefits based on years of service. The Company funds U.S. pension costs in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Non-U.S. defined benefit pension plans cover certain employees of certain international locations in Europe and Canada.
The Company provides other medical, dental and life insurance postretirement benefits for certain of its retired employees in the U.S. and Canada. It is the Company’s practice to fund these benefits as incurred.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The accompanying balance sheets reflect the funded status of the Company’s defined benefit pension plans at December 31, 2020 and 2019. Reconciliations of the obligations and funded status of the plans follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
Benefit obligation, January 1
|
|
$
|
430,625
|
|
|
$
|
87,031
|
|
|
$
|
517,656
|
|
|
$
|
388,334
|
|
|
$
|
79,307
|
|
|
$
|
467,641
|
|
Service cost
|
|
4,134
|
|
|
2,135
|
|
|
6,269
|
|
|
3,715
|
|
|
1,710
|
|
|
5,425
|
|
Interest cost
|
|
14,015
|
|
|
1,069
|
|
|
15,084
|
|
|
16,628
|
|
|
1,611
|
|
|
18,239
|
|
Amendments
|
|
—
|
|
|
1,014
|
|
|
1,014
|
|
|
240
|
|
|
(934)
|
|
|
(694)
|
|
Actuarial loss
|
|
37,709
|
|
|
2,812
|
|
|
40,521
|
|
|
46,662
|
|
|
11,843
|
|
|
58,505
|
|
Benefits paid
|
|
(25,049)
|
|
|
(3,422)
|
|
|
(28,471)
|
|
|
(24,954)
|
|
|
(4,026)
|
|
|
(28,980)
|
|
Transfers in
|
|
—
|
|
|
767
|
|
|
767
|
|
|
—
|
|
|
2,165
|
|
|
2,165
|
|
Plan curtailments
|
|
(138)
|
|
|
—
|
|
|
(138)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Plan settlements
|
|
—
|
|
|
(2,165)
|
|
|
(2,165)
|
|
|
—
|
|
|
(1,582)
|
|
|
(1,582)
|
|
Participant contributions
|
|
—
|
|
|
1,127
|
|
|
1,127
|
|
|
—
|
|
|
1,131
|
|
|
1,131
|
|
Foreign exchange rate changes
|
|
—
|
|
|
6,140
|
|
|
6,140
|
|
|
—
|
|
|
1,975
|
|
|
1,975
|
|
Reclassified to liabilities held for sale (see Note 3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,169)
|
|
|
(6,169)
|
|
Benefit obligation, December 31
|
|
461,296
|
|
|
96,508
|
|
|
557,804
|
|
|
430,625
|
|
|
87,031
|
|
|
517,656
|
|
Fair value of plan assets, January 1
|
|
380,242
|
|
|
82,265
|
|
|
462,507
|
|
|
322,615
|
|
|
73,607
|
|
|
396,222
|
|
Actual return on plan assets
|
|
55,813
|
|
|
3,849
|
|
|
59,662
|
|
|
64,681
|
|
|
6,992
|
|
|
71,673
|
|
Company contributions
|
|
2,892
|
|
|
1,545
|
|
|
4,437
|
|
|
17,900
|
|
|
1,808
|
|
|
19,708
|
|
Participant contributions
|
|
—
|
|
|
1,127
|
|
|
1,127
|
|
|
—
|
|
|
1,131
|
|
|
1,131
|
|
Benefits paid
|
|
(25,049)
|
|
|
(3,422)
|
|
|
(28,471)
|
|
|
(24,954)
|
|
|
(4,026)
|
|
|
(28,980)
|
|
Plan settlements
|
|
—
|
|
|
(2,165)
|
|
|
(2,165)
|
|
|
—
|
|
|
(1,582)
|
|
|
(1,582)
|
|
Transfers in
|
|
—
|
|
|
767
|
|
|
767
|
|
|
—
|
|
|
2,165
|
|
|
2,165
|
|
Foreign exchange rate changes
|
|
—
|
|
|
4,914
|
|
|
4,914
|
|
|
—
|
|
|
2,170
|
|
|
2,170
|
|
Fair value of plan assets, December 31
|
|
413,898
|
|
|
88,880
|
|
|
502,778
|
|
|
380,242
|
|
|
82,265
|
|
|
462,507
|
|
Underfunded status, December 31
|
|
$
|
(47,398)
|
|
|
$
|
(7,628)
|
|
|
$
|
(55,026)
|
|
|
$
|
(50,383)
|
|
|
$
|
(4,766)
|
|
|
$
|
(55,149)
|
|
Benefit obligations increased in 2020 and 2019 primarily due to increases in actuarial losses, resulting largely from declines in discount rates, and interests costs, partially offset by the payment of benefits to plan participants.
Projected benefit obligations related to pension plans with benefit obligations in excess of plan assets follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
Projected benefit obligation
|
|
$
|
352,062
|
|
|
$
|
52,481
|
|
|
$
|
404,543
|
|
|
$
|
334,808
|
|
|
$
|
46,256
|
|
|
$
|
381,064
|
|
Fair value of plan assets
|
|
298,966
|
|
|
34,947
|
|
|
333,913
|
|
|
282,213
|
|
|
31,248
|
|
|
313,461
|
|
Information related to pension plans with accumulated benefit obligations in excess of plan assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
340,158
|
|
|
$
|
52,357
|
|
|
$
|
392,515
|
|
|
$
|
322,999
|
|
|
$
|
52,202
|
|
|
$
|
375,201
|
|
Fair value of plan assets
|
|
298,966
|
|
|
34,947
|
|
|
333,913
|
|
|
282,213
|
|
|
31,248
|
|
|
313,461
|
|
The accumulated benefit obligation for all defined benefit pension plans was $545,918 and $511,977 at December 31, 2020 and 2019, respectively.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts related to pensions recognized in the accompanying balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
Other assets
|
|
$
|
5,698
|
|
|
$
|
9,906
|
|
|
$
|
15,604
|
|
|
$
|
2,212
|
|
|
$
|
10,242
|
|
|
$
|
12,454
|
|
Accrued liabilities
|
|
3,204
|
|
|
—
|
|
|
3,204
|
|
|
2,977
|
|
|
—
|
|
|
2,977
|
|
Accrued retirement benefits
|
|
49,892
|
|
|
17,534
|
|
|
67,426
|
|
|
49,618
|
|
|
15,008
|
|
|
64,626
|
|
Accumulated other non-owner changes to equity, net
|
|
(118,951)
|
|
|
(19,132)
|
|
|
(138,083)
|
|
|
(122,109)
|
|
|
(18,859)
|
|
|
(140,968)
|
|
Amounts related to pensions recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 2020 and 2019, respectively, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
Net actuarial loss
|
|
$
|
(117,409)
|
|
|
$
|
(18,687)
|
|
|
$
|
(136,096)
|
|
|
$
|
(119,908)
|
|
|
$
|
(19,190)
|
|
|
$
|
(139,098)
|
|
Prior service costs
|
|
(1,542)
|
|
|
(445)
|
|
|
(1,987)
|
|
|
(2,201)
|
|
|
331
|
|
|
(1,870)
|
|
|
|
$
|
(118,951)
|
|
|
$
|
(19,132)
|
|
|
$
|
(138,083)
|
|
|
$
|
(122,109)
|
|
|
$
|
(18,859)
|
|
|
$
|
(140,968)
|
|
The accompanying balance sheets reflect the underfunded status of the Company’s other postretirement benefit plans at December 31, 2020 and 2019. Reconciliations of the obligations and underfunded status of the plans follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Benefit obligation, January 1
|
|
$
|
33,239
|
|
|
$
|
33,076
|
|
Service cost
|
|
81
|
|
|
70
|
|
Interest cost
|
|
1,041
|
|
|
1,345
|
|
|
|
|
|
|
Actuarial loss
|
|
950
|
|
|
380
|
|
Benefits paid
|
|
(3,203)
|
|
|
(2,917)
|
|
Participant contributions
|
|
960
|
|
|
1,246
|
|
Foreign exchange rate changes
|
|
36
|
|
|
39
|
|
Benefit obligation, December 31
|
|
33,104
|
|
|
33,239
|
|
Fair value of plan assets, January 1
|
|
—
|
|
|
—
|
|
Company contributions
|
|
2,243
|
|
|
1,671
|
|
Participant contributions
|
|
960
|
|
|
1,246
|
|
Benefits paid
|
|
(3,203)
|
|
|
(2,917)
|
|
Fair value of plan assets, December 31
|
|
—
|
|
|
—
|
|
Underfunded status, December 31
|
|
$
|
33,104
|
|
|
$
|
33,239
|
|
Benefit obligations remained flat in 2020 and 2019 as benefit payments offset an increase in actuarial losses, driven by declines in the discount rate, and interest cost.
Amounts related to other postretirement benefits recognized in the accompanying balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Accrued liabilities
|
|
$
|
3,114
|
|
|
$
|
5,067
|
|
Accrued retirement benefits
|
|
29,990
|
|
|
28,172
|
|
Accumulated other non-owner changes to equity, net
|
|
(4,036)
|
|
|
(3,079)
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts related to other postretirement benefits recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 2020 and 2019 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Net actuarial loss
|
|
$
|
(3,979)
|
|
|
$
|
(2,981)
|
|
Prior service loss
|
|
(57)
|
|
|
(98)
|
|
|
|
$
|
(4,036)
|
|
|
$
|
(3,079)
|
|
The sources of changes in accumulated other non-owner changes to equity, net, during 2020 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other
Postretirement
Benefits
|
Prior service cost
|
|
$
|
(808)
|
|
|
$
|
—
|
|
Net loss
|
|
(7,984)
|
|
|
(1,000)
|
|
Amortization of prior service costs
|
|
628
|
|
|
21
|
|
Amortization of actuarial loss
|
|
10,925
|
|
|
27
|
|
Divestiture (see Note 3)
|
|
1,347
|
|
|
—
|
|
Foreign exchange rate changes
|
|
(1,223)
|
|
|
(5)
|
|
|
|
|
|
|
|
|
$
|
2,885
|
|
|
$
|
(957)
|
|
Weighted-average assumptions used to determine benefit obligations as of December 31, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
U.S. plans:
|
|
|
|
|
Discount rate
|
|
2.65
|
%
|
|
3.40
|
%
|
Increase in compensation
|
|
2.56
|
%
|
|
2.56
|
%
|
Non-U.S. plans:
|
|
|
|
|
Discount rate
|
|
0.83
|
%
|
|
1.26
|
%
|
Increase in compensation
|
|
2.75
|
%
|
|
2.72
|
%
|
Interest crediting rate
|
|
1.34
|
%
|
|
1.72
|
%
|
The investment strategy of the plans is to generate a consistent total investment return sufficient to pay present and future plan benefits to retirees, while minimizing the long-term cost to the Company. Target allocations for asset categories are used to earn a reasonable rate of return, provide required liquidity and minimize the risk of large losses. Targets may be adjusted, as necessary, to reflect trends and developments within the overall investment environment. The weighted-average target investment allocations by asset category were as follows during 2020: 65% in equity securities and 35% in fixed income securities, including cash.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair values of the Company’s pension plan assets at December 31, 2020 and 2019, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
Asset Category
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
3,678
|
|
|
$
|
3,678
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
44,693
|
|
|
—
|
|
|
44,693
|
|
|
—
|
|
U.S. mid-cap
|
|
20,346
|
|
|
20,346
|
|
|
—
|
|
|
—
|
|
U.S. small-cap
|
|
19,422
|
|
|
19,422
|
|
|
—
|
|
|
—
|
|
International equities
|
|
153,315
|
|
|
—
|
|
|
153,315
|
|
|
—
|
|
Global equity
|
|
55,552
|
|
|
55,552
|
|
|
—
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
U.S. bond funds
|
|
125,309
|
|
|
—
|
|
|
125,309
|
|
|
—
|
|
International bonds
|
|
77,221
|
|
|
—
|
|
|
77,221
|
|
|
—
|
|
Other
|
|
3,242
|
|
|
—
|
|
|
—
|
|
|
3,242
|
|
|
|
$
|
502,778
|
|
|
$
|
98,998
|
|
|
$
|
400,538
|
|
|
$
|
3,242
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
3,737
|
|
|
3,737
|
|
|
—
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
40,538
|
|
|
—
|
|
|
40,538
|
|
|
—
|
|
U.S. mid-cap
|
|
17,744
|
|
|
17,744
|
|
|
—
|
|
|
—
|
|
U.S. small-cap
|
|
16,116
|
|
|
16,116
|
|
|
—
|
|
|
—
|
|
International equities
|
|
146,013
|
|
|
—
|
|
|
146,013
|
|
|
—
|
|
Global equity
|
|
51,037
|
|
|
51,037
|
|
|
—
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
U.S. bond funds
|
|
124,429
|
|
|
—
|
|
|
124,429
|
|
|
—
|
|
International bonds
|
|
60,050
|
|
|
—
|
|
|
60,050
|
|
|
—
|
|
Other
|
|
2,843
|
|
|
—
|
|
|
—
|
|
|
2,843
|
|
|
|
$
|
462,507
|
|
|
$
|
88,634
|
|
|
$
|
371,030
|
|
|
$
|
2,843
|
|
The fair values of the Level 1 assets are based on quoted market prices from various financial exchanges. The fair values of the Level 2 assets are based primarily on quoted prices in active markets for similar assets or liabilities. The Level 2 assets are comprised primarily of commingled funds and fixed income securities. Commingled equity funds are valued at their net asset values based on quoted market prices of the underlying assets. Fixed income securities are valued using a market approach which considers observable market data for the underlying asset or securities. The Level 3 assets relate to a defined benefit plan within the Molding Solutions business. These pension assets are fully insured and have been estimated based on accrued pension rights and actuarial rates. These pension assets are limited to fulfilling the Company's pension obligations.
The Company expects to contribute approximately $4,692 to the pension plans in 2021. No contributions to the U.S. Qualified pension plans, specifically, are required, and the Company does not currently plan to make any discretionary contributions to such plans in 2021.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following are the estimated future net benefit payments, which include future service, over the next 10 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
Other
Postretirement
Benefits
|
2021
|
|
$
|
29,590
|
|
|
$
|
3,114
|
|
2022
|
|
29,531
|
|
|
2,888
|
|
2023
|
|
29,650
|
|
|
2,681
|
|
2024
|
|
29,505
|
|
|
2,499
|
|
2025
|
|
29,167
|
|
|
2,342
|
|
Years 2026-2030
|
|
146,049
|
|
|
9,782
|
|
Total
|
|
$
|
293,492
|
|
|
$
|
23,306
|
|
Pension and other postretirement benefit costs consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
Other
Postretirement Benefits
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
6,269
|
|
|
$
|
5,425
|
|
|
$
|
5,961
|
|
|
$
|
81
|
|
|
$
|
70
|
|
|
$
|
85
|
|
Interest cost
|
|
15,084
|
|
|
18,239
|
|
|
17,383
|
|
|
1,041
|
|
|
1,345
|
|
|
1,358
|
|
Expected return on plan assets
|
|
(29,698)
|
|
|
(29,425)
|
|
|
(29,900)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
359
|
|
|
404
|
|
|
560
|
|
|
27
|
|
|
25
|
|
|
20
|
|
Recognized losses
|
|
13,626
|
|
|
8,889
|
|
|
11,628
|
|
|
35
|
|
|
13
|
|
|
561
|
|
Curtailment loss
|
|
484
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement loss
|
|
549
|
|
|
340
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
6,673
|
|
|
$
|
3,872
|
|
|
$
|
5,632
|
|
|
$
|
1,184
|
|
|
$
|
1,453
|
|
|
$
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The curtailment loss of $484 and a majority of the settlement loss of $549 in 2020 relate to the restructuring and workforce reduction actions that were taken during the current period. See Note 10.
The components of net periodic benefit cost other than service cost are included in Other Expense (Income) on the Consolidated Statements of Income.
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
U.S. plans:
|
|
|
|
|
|
|
Discount rate
|
|
3.40
|
%
|
|
4.40
|
%
|
|
3.90
|
%
|
Long-term rate of return
|
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
Increase in compensation
|
|
2.56
|
%
|
|
2.56
|
%
|
|
2.56
|
%
|
Non-U.S. plans:
|
|
|
|
|
|
|
Discount rate
|
|
1.28
|
%
|
|
2.07
|
%
|
|
1.90
|
%
|
Long-term rate of return
|
|
3.02
|
%
|
|
3.90
|
%
|
|
4.09
|
%
|
Increase in compensation
|
|
2.75
|
%
|
|
2.72
|
%
|
|
2.17
|
%
|
Interest crediting rate
|
|
1.34
|
%
|
|
1.03
|
%
|
|
1.03
|
%
|
The expected long-term rate of return is based on consideration of projected rates of return and the historical rates of return of published indices that reflect the plans’ target asset allocation.
The Company’s accumulated postretirement benefit obligations, exclusive of pensions, take into account certain cost-sharing provisions. The annual rate of increase in the cost of covered benefits (i.e., health care cost trend rate) is assumed to be
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5.70% and 6.24% at December 31, 2020 and 2019, respectively, decreasing gradually to a rate of 4.50% by December 31, 2038.
The Company actively contributes to a Swedish pension plan that supplements the Swedish social insurance system. The pension plan guarantees employees a pension based on a percentage of their salary and represents a multi-employer pension plan, however the pension plan was not significant in any year presented. This pension plan is not underfunded.
Contributions related to the individually insignificant multi-employer plans, as disclosure is required pursuant to the applicable accounting standards, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by the Company
|
|
|
Pension Fund:
|
|
2020
|
|
2019
|
|
2018
|
|
|
Swedish Pension Plan
|
|
783
|
|
|
$
|
754
|
|
|
$
|
792
|
|
|
|
Total Contributions
|
|
$
|
783
|
|
|
$
|
754
|
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Stock-Based Compensation
The Company accounts for the cost of all share-based payments, including stock options, by measuring the payments at fair value on the grant date and recognizing the cost in the results of operations. The fair values of stock options are estimated using the Black-Scholes option-pricing model based on certain assumptions. The fair values of service and performance based stock awards are estimated based on the fair market value of the Company’s stock price on the grant date. The fair value of market based performance share awards are estimated using the Monte Carlo valuation method. Estimated forfeiture rates are applied to outstanding awards.
Refer to Note 18 for a description of the Company’s stock-based compensation plans and their general terms. As of December 31, 2020, incentives have been awarded in the form of performance share awards and restricted stock unit awards (collectively, “Rights”) and stock options. The Company has elected to use the straight-line method to recognize compensation costs. Stock options and awards typically vest over a period ranging from six months to five years. The maximum term of stock option awards is 10 years. Upon exercise of a stock option or upon vesting of Rights, shares may be issued from treasury shares held by the Company or from authorized shares.
During 2020, 2019 and 2018, the Company recognized $10,300, $13,306, and $12,158 respectively, of stock-based compensation cost and $2,198, $2,805, and $2,613 respectively, of related tax benefits in the accompanying consolidated statements of income. Additionally, the Company recognized excess tax (expense) benefits in the tax provision of $(579), $1,952 and $1,687 in 2020, 2019 and 2018, respectively. The Company has realized all available tax benefits related to deductions from excess stock awards exercised or restricted stock unit awards and performance share awards vested. At December 31, 2020, the Company had $13,894 of unrecognized compensation costs related to unvested awards which are expected to be recognized over a weighted average period of 1.95 years.
The following table summarizes information about the Company’s stock option awards during 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average
Exercise
Price
|
Outstanding, January 1, 2020
|
|
620,285
|
|
|
$
|
45.35
|
|
Granted
|
|
107,924
|
|
|
64.65
|
|
Exercised
|
|
(55,895)
|
|
|
28.55
|
|
Forfeited
|
|
(26,709)
|
|
|
63.26
|
|
Outstanding, December 31, 2020
|
|
645,605
|
|
|
49.29
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about stock options outstanding at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise
Prices
|
|
Number
of Shares
|
|
Average
Remaining
Life (Years)
|
|
Average
Exercise
Price
|
|
Number
of Shares
|
|
Average
Exercise
Price
|
$20.69 to $26.59
|
|
11,600
|
|
|
1.24
|
|
$
|
24.93
|
|
|
11,600
|
|
|
$
|
24.93
|
|
$30.71 to $36.31
|
|
197,905
|
|
|
4.72
|
|
33.49
|
|
|
197,905
|
|
|
33.49
|
|
$37.13 to $47.04
|
|
124,423
|
|
|
5.78
|
|
45.52
|
|
|
118,999
|
|
|
45.90
|
|
$58.92 to $59.46
|
|
124,194
|
|
|
7.23
|
|
59.26
|
|
|
71,992
|
|
|
59.25
|
|
$60.72 to $66.10
|
|
187,483
|
|
|
8.29
|
|
63.38
|
|
|
45,420
|
|
|
61.49
|
|
The Company received cash proceeds from the exercise of stock options of $1,596, $5,029 and $673 in 2020, 2019 and 2018, respectively. The total intrinsic value (the amount by which the stock price exceeds the exercise price of the option on the date of exercise) of the stock options exercised during 2020, 2019 and 2018 was $781, $5,324 and $1,589, respectively.
The weighted-average grant date fair value of stock options granted in 2020, 2019 and 2018 was $14.69, $14.04 and $12.80, respectively. The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Risk-free interest rate
|
|
1.45
|
%
|
|
2.43
|
%
|
|
2.60
|
%
|
Expected life (years)
|
|
5.5
|
|
5.5
|
|
5.3
|
Expected volatility
|
|
26.0
|
%
|
|
25.0
|
%
|
|
24.1
|
%
|
Expected dividend yield
|
|
1.25
|
%
|
|
1.43
|
%
|
|
1.74
|
%
|
The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time that options are expected to remain outstanding. Assumptions of expected volatility of the Company’s common stock and expected dividend yield are estimates of future volatility and dividend yields based on historical trends.
The following table summarizes information about stock options outstanding that are expected to vest and stock options outstanding that are exercisable at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding, Expected to Vest
|
|
Options Outstanding, Exercisable
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-
Average
Remaining
Term (Years)
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-
Average
Remaining
Term (Years)
|
636,577
|
|
$
|
49.29
|
|
|
$
|
4,285
|
|
|
6.38
|
|
445,916
|
|
|
$
|
43.59
|
|
|
$
|
4,273
|
|
|
5.43
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about the Company’s Rights during 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Based Rights
|
|
Service and Performance Based Rights
|
|
Service and Market Based Rights
|
|
|
Number of Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Number of Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Number of Units
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding, January 1, 2020
|
|
256,187
|
|
|
$
|
51.33
|
|
|
141,244
|
|
|
$
|
56.58
|
|
|
90,327
|
|
|
$
|
85.21
|
|
Granted
|
|
97,842
|
|
|
45.79
|
|
|
56,249
|
|
|
29.86
|
|
|
28,125
|
|
|
104.35
|
|
Forfeited
|
|
(24,037)
|
|
|
71.43
|
|
|
(11,174)
|
|
|
42.52
|
|
|
(6,347)
|
|
|
103.26
|
|
Additional Earned
|
|
—
|
|
|
—
|
|
|
39,029
|
|
|
47.11
|
|
|
15,271
|
|
|
73.29
|
|
Issued
|
|
(102,567)
|
|
|
41.86
|
|
|
(76,922)
|
|
|
47.11
|
|
|
(53,163)
|
|
|
73.29
|
|
Outstanding, December 31, 2020
|
|
227,425
|
|
|
|
|
148,426
|
|
|
|
|
74,213
|
|
|
|
The Company granted 97,842 restricted stock unit awards and 84,374 performance share awards in 2020. All of the restricted stock unit awards vest upon meeting certain service conditions. "Additional Earned" reflects performance share awards earned above target that have been issued. The performance share awards are part of the long-term Performance Share Award Program (the "Awards Program"), which is designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index or to pre-established goals. The performance goals are independent of each other and based on equally weighted metrics. For awards granted in 2020, 2019 and 2018, the metrics included the Company's total shareholder return ("TSR"), operating income before depreciation and amortization growth ("EBITDA growth") and return on invested capital ("ROIC"). The TSR and EBITDA growth metrics are designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index over a three year period. ROIC is designed to assess the Company’s performance compared to pre-established goals over a three year performance period. The participants can earn from zero to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. Compensation expense for the awards is recognized over the three year service period based upon the value determined under the intrinsic value method for EBITDA growth and ROIC portions of the award and the Monte Carlo simulation valuation model for the TSR portion of the award since it contains a market condition. The assumptions used to determine the weighted-average fair values of the market based portion of the 2020 awards include a 1.42% risk-free interest rate and a 26.70% expected volatility rate.
Compensation expense for the TSR portion of the awards is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the TSR performance goal. Compensation expense for the EBITDA growth and the ROIC portions of the awards is recorded each period based upon a probability assessment of achieving the goals with a final adjustment at the end of the service period based upon the actual achievement of those performance goals.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Income Taxes
The components of Income from continuing operations before income taxes and Income taxes follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
U.S.
|
|
$
|
(21,538)
|
|
|
$
|
2,424
|
|
|
$
|
(10,719)
|
|
International
|
|
123,033
|
|
|
204,420
|
|
|
218,214
|
|
Income from continuing operations before income taxes
|
|
$
|
101,495
|
|
|
$
|
206,844
|
|
|
$
|
207,495
|
|
Income tax provision:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
U.S. – federal
|
|
$
|
3,697
|
|
|
$
|
2,068
|
|
|
$
|
3,110
|
|
U.S. – state
|
|
(92)
|
|
|
(1,873)
|
|
|
(623)
|
|
International
|
|
41,506
|
|
|
60,866
|
|
|
57,871
|
|
|
|
45,111
|
|
|
61,061
|
|
|
60,358
|
|
Deferred:
|
|
|
|
|
|
|
U.S. – federal
|
|
$
|
1,914
|
|
|
$
|
(1,356)
|
|
|
$
|
(2,206)
|
|
U.S. – state
|
|
222
|
|
|
344
|
|
|
(826)
|
|
International
|
|
(9,127)
|
|
|
(11,555)
|
|
|
(16,017)
|
|
|
|
(6,991)
|
|
|
(12,567)
|
|
|
(19,049)
|
|
Income taxes
|
|
$
|
38,120
|
|
|
$
|
48,494
|
|
|
$
|
41,309
|
|
On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Company was capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax expense of $86,707 in 2017. The U.S. Treasury issued certain Notices and proposed regulations ("interpretative guidance") in 2018. The interpretative guidance provided additional guidance to assist companies in calculating the one-time Transition Tax. The Company completed the accounting and recorded a final Transition Tax of $86,858. The U.S. Treasury issued Final Regulations addressing the Transition Tax in January 2019. The Final Regulations did not impact the computation of final income tax expense. The Company made a reasonable estimate of the state taxation of these earnings and recorded a provisional expense of $1,423 in 2017. In 2018, various states issued guidance related to calculating the tax impacts of the Act, as well as clarifications describing how States would tax income arising from the application of provisions within the Act. As a result, the Company reduced the tax expense related to the impact of the Act to $597 in 2018.
The Act required the mandatory deemed repatriation of the undistributed earnings of the Company’s international subsidiaries as of December 31, 2017. If the earnings were distributed in the form of cash dividends, the Company would not be subject to additional U.S. income taxes but could be subject to foreign income and withholding taxes. Under accounting standards (ASC 740) a deferred tax liability is not recorded for the excess of the tax basis over the financial reporting (book) basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria is met. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6,932 during 2017. In 2018 the Company repatriated $62,383 between certain foreign entities, thereby reducing the previously recorded deferred tax liability by $5,245 and repatriated $228,750 to the U.S. In 2018, the Company revised its estimates and no longer expects to repatriate foreign earnings relating to $1,185 of taxes for which a deferred tax liability was previously recorded and as such, a benefit resulted. In 2020, the Company paid a dividend between subsidiaries which further reduced the deferred tax liability by $300. On December 31, 2020, the Company's unremitted foreign earnings were approximately $1,605,522.
The Company has recognized a deferred tax liability for U.S. taxes of $185 on $3,501 of undistributed earnings of its international subsidiaries, earned before 2017 and the application of the Transition Tax implemented by the Act. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. The Company repatriated dividends of $85,000 and $152,992, as noted above, to the U.S. from accumulated foreign earnings in 2020 and 2019, respectively. Pursuant to the Act, neither dividend was subject to tax.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Pension
|
|
$
|
15,403
|
|
|
$
|
16,256
|
|
Tax loss carryforwards
|
|
9,521
|
|
|
9,167
|
|
Inventory valuation
|
|
10,642
|
|
|
12,251
|
|
Other postretirement/postemployment costs
|
|
7,735
|
|
|
8,066
|
|
Accrued compensation
|
|
8,085
|
|
|
7,753
|
|
Lease obligation
|
|
9,846
|
|
|
9,188
|
|
Other
|
|
16,309
|
|
|
14,769
|
|
Valuation allowance
|
|
(3,757)
|
|
|
(3,592)
|
|
Total deferred tax assets
|
|
73,784
|
|
|
73,858
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation and amortization
|
|
(109,391)
|
|
|
(110,230)
|
|
Goodwill
|
|
(9,850)
|
|
|
(9,757)
|
|
Swedish tax incentive
|
|
(9,170)
|
|
|
(7,436)
|
|
Right of use liability
|
|
(9,758)
|
|
|
(9,050)
|
|
Other
|
|
(5,191)
|
|
|
(4,558)
|
|
Total deferred tax liabilities
|
|
(143,360)
|
|
|
(141,031)
|
|
Net deferred tax liabilities
|
|
$
|
(69,576)
|
|
|
$
|
(67,173)
|
|
Amounts related to deferred taxes in the balance sheets as of December 31, 2020 and 2019 are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Non-current deferred tax assets
|
|
$
|
22,092
|
|
|
$
|
21,235
|
|
|
|
|
|
|
Non-current deferred tax liabilities
|
|
(91,668)
|
|
|
(88,408)
|
|
Net deferred tax liabilities
|
|
$
|
(69,576)
|
|
|
$
|
(67,173)
|
|
The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.
The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. As of December 31, 2020, the Company has gross tax loss carryforwards of $30,814; $3,638 of which relates to U.S tax loss carryforwards which have carryforward periods up to twenty years for federal purposes and ranging from one to twenty years for state purposes; $9,857 of which relates to international tax loss carryforwards with carryforward periods ranging from one to twenty years; and $17,319 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $382 with remaining carryforward periods ranging from one to five years. Currently the Company has a valuation allowance of $2,588 and $366 related to loss carryforwards and credit carryforwards, respectively, as it believes it is more likely than not that future income will not be earned to timely utilize certain net operating losses or credit carryforwards which have expiration dates. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.
Management is required to assess whether its valuation allowance analysis is affected by various components of the Act including the deemed mandatory repatriation of foreign income for the Transition Tax, future GILTI inclusions, changes to the
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
deductibility of executive compensation and interest expense and changes to the NOL and FTC rules. The Company has determined that a valuation allowance of $803 is appropriate relating to deferred taxes recognized for stock compensation granted to executives which the Company believes will not be deductible in future years.
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal statutory income tax rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State taxes (net of federal benefit)
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Foreign operations taxed at different rates
|
|
5.6
|
|
|
2.0
|
|
|
1.3
|
|
Foreign losses without tax benefit
|
|
3.0
|
|
|
2.0
|
|
|
1.5
|
|
|
|
|
|
|
|
|
GILTI
|
|
3.0
|
|
|
0.6
|
|
|
1.2
|
|
Tax holidays
|
|
(1.0)
|
|
|
(1.3)
|
|
|
(1.7)
|
|
Stock awards excess tax expense/(benefit)
|
|
0.6
|
|
|
(0.9)
|
|
|
(0.8)
|
|
Tax on Seeger transaction
|
|
4.9
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Benefit for change in valuation allowances
|
|
(0.5)
|
|
|
(0.3)
|
|
|
(2.5)
|
|
Audit settlements
|
|
0.2
|
|
|
0.3
|
|
|
—
|
|
Transition tax
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
U.S. Corporate tax rate change
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
Indefinite reinvestment assertion
|
|
—
|
|
|
—
|
|
|
(0.6)
|
|
Other
|
|
0.8
|
|
|
(0.1)
|
|
|
1.2
|
|
Consolidated effective income tax rate
|
|
37.6
|
%
|
|
23.4
|
%
|
|
19.9
|
%
|
Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $6,949, has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2020. The long-term portion of the assessment, $59,063, is included as a long-term tax liability on the Consolidated Balance Sheet and is payable as follows: $6,949 annually in 2022; $13,029 in 2023; $17,371 in 2024 and $21,714 in 2025.
The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore and China. Tax benefits of $1,065 ($0.02 per diluted share), $2,718 ($0.05 per diluted share) and $3,627 ($0.07 per diluted share) were realized in 2020, 2019 and 2018, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. The Company is in discussion with the Malaysian government as to the start date of the holiday in Malaysia and currently anticipates the holiday beginning in 2022 at a point to be determined. The China holiday expired at the end of 2020 and the Singapore holiday expires at the end of 2022, whereas the Malaysia holiday expires ten years after becoming effective.
Income taxes paid globally, net of refunds, were $60,427, $59,003, and $60,576 in 2020, 2019 and 2018, respectively.
As of December 31, 2020, 2019 and 2018, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $9,156, $8,919 and $11,594, respectively, which, if recognized, would have reduced the effective tax rate in
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2020, 2019 and 2018 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Balance at January 1
|
|
$
|
8,919
|
|
|
$
|
11,594
|
|
|
$
|
9,209
|
|
Increase (decrease) in unrecognized tax benefits due to:
|
|
|
|
|
|
|
Tax positions taken during prior periods
|
|
550
|
|
|
11
|
|
|
649
|
|
Tax positions taken during the current period
|
|
649
|
|
|
1,114
|
|
|
367
|
|
Acquisition
|
|
—
|
|
|
—
|
|
|
2,516
|
|
Settlements
|
|
—
|
|
|
(1,351)
|
|
|
—
|
|
Lapse of the applicable statute of limitations
|
|
(900)
|
|
|
(2,344)
|
|
|
(1,290)
|
|
Foreign currency translation
|
|
(62)
|
|
|
(105)
|
|
|
143
|
|
Balance at December 31
|
|
$
|
9,156
|
|
|
$
|
8,919
|
|
|
$
|
11,594
|
|
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(196), $(206), and $370 in the years 2020, 2019 and 2018, respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $3,675, $3,906 and $4,169 at December 31, 2020, 2019 and 2018, respectively.
The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2015 and forward and for the U.S. include tax years 2016 and forward. The Company is undergoing a tax audit by the IRS for the 2016 and 2017 tax year and received notice of intent to audit the 2018 year. The Company remains under audit for the Synventive business group in 2015 through 2017 in Germany.
16. Common Stock
There were no shares of common stock issued from treasury in 2020, 2019 or 2018.
In 2020, 2019 and 2018, the Company acquired 396,000 shares, 900,000 shares and 2,292,100 shares, respectively, of the Company’s common stock at a cost of $15,550, $50,347 and $138,275, respectively. These amounts exclude shares reacquired to pay for the related income tax upon issuance of shares in accordance with the terms of the Company’s stockholder-approved equity compensation plans and the equity rights granted under those plans ("Reacquired Shares"). These Reacquired Shares were placed in treasury.
In 2020, 2019 and 2018, 298,565 shares, 505,623 shares and 332,893 shares of common stock, respectively, were issued from authorized shares for the exercise of stock options, various other incentive awards and purchases by the Company's Employee Stock Purchase Plan.
17. Preferred Stock
At December 31, 2020 and 2019, the Company had 3,000,000 shares of preferred stock authorized, none of which were outstanding.
18. Stock Plans
Most U.S. salaried and non-union hourly employees are eligible to participate in the Company’s 401(k) plan (the "Retirement Savings Plan"). The Retirement Savings Plan provides for the investment of employer and employee contributions in various investment alternatives including the Company’s common stock, at the employee’s direction. The Company contributes an amount equal to 50% of employee contributions up to 6% of eligible compensation. The Company expenses all contributions made to the Retirement Savings Plan. Effective January 1, 2013, the Retirement Savings Plan was amended to provide certain salaried employees hired on or after January 1, 2013 with an additional annual retirement contribution of 4% of
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
eligible earnings. The Company recognized expense of $3,679, $4,149 and $4,333 in 2020, 2019 and 2018, respectively. As of December 31, 2020, the Retirement Savings Plan held 732,811 shares of the Company’s common stock.
The Company has an Employee Stock Purchase Plan (“ESPP”) under which eligible employees may elect to have up to the lesser of $25 or 10% of base compensation deducted from their payroll checks for the purchase of the Company’s common stock at 95% of the average market value on the date of purchase. The maximum number of shares which may be purchased under the ESPP is 4,550,000. The number of shares purchased under the ESPP was 10,041, 8,834 and 8,006 in 2020, 2019 and 2018, respectively. The Company received cash proceeds from the purchase of these shares of $393, $463 and $457 in 2020, 2019 and 2018, respectively. As of December 31, 2020, 250,790 additional shares may be purchased.
The 1991 Barnes Group Stock Incentive Plan (the “1991 Plan”) authorized the granting of incentives to executive officers, directors and key employees in the form of stock options, stock appreciation rights, incentive stock rights and performance unit awards. On May 9, 2014, the 1991 Plan was merged into the 2014 Plan (defined below).
The Barnes Group Inc. Employee Stock and Ownership Program (the “2000 Plan”) was approved on April 12, 2000, and subsequently amended on April 10, 2002 by the Company’s stockholders. The 2000 Plan permitted the granting of incentive stock options, nonqualified stock options, restricted stock awards, performance share or cash unit awards and stock appreciation rights, or any combination of the foregoing, to eligible employees to purchase up to 6,900,000 shares of the Company’s common stock. Such shares were authorized and reserved. On May 9, 2014, the 2000 Plan was merged into the 2014 Plan (defined below).
The Barnes Group Stock and Incentive Award Plan (the “2004 Plan”) was approved on April 14, 2004, and subsequently amended on April 20, 2006 and May 7, 2010 by the Company’s stockholders. The 2004 Plan permits the issuance of incentive awards, stock option grants and stock appreciation rights to eligible participants to purchase up to 5,700,000 shares of common stock. On May 9, 2014, the 2004 Plan was merged into the 2014 Plan (defined below), and the remaining shares available for future grants under the 2004 Plan, as of the merger date, were made available under the 2014 Plan.
The 2014 Barnes Group Stock and Incentive Award Plan (the “2014 Plan”) was approved on May 9, 2014 by the Company's stockholders. The 2014 Plan permits the issuance of incentive awards, stock option grants and stock appreciation rights to eligible participants to purchase up to 6,913,978 shares of common stock. The amount includes shares available for purchase under the 1991, 2000, and 2004 Plans which were merged into the 2014 Plan. The 2014 Plan allows for stock options and stock appreciation rights to be issued at a ratio of 1:1 and other types of incentive awards at a ratio of 2.84:1 from the shares available for future grants. As of December 31, 2020, there were 3,067,427 shares available for future grants under the 2014 Plan, inclusive of Shares Reacquired and shares made available through 2020 forfeitures. As of December 31, 2020, there were 1,026,156 shares of common stock outstanding to be issued upon the exercise of stock options and the vesting of Rights.
Rights under the 2014 Plan entitle the holder to receive, without payment, one share of the Company’s common stock after the expiration of the vesting period. Certain of these Rights are also subject to the satisfaction of established performance goals. Additionally, holders of certain Rights are credited with dividend equivalents, which are converted into additional Rights, and holders of certain restricted stock units are paid dividend equivalents in cash when dividends are paid to other stockholders. All Rights have a vesting period of up to five years.
Under the Non-Employee Director Deferred Stock Plan, as amended, each non-employee director who joined the Board of Directors prior to December 15, 2005 was granted the right to receive 12,000 shares of the Company’s common stock upon retirement. In 2020, 2019 and 2018, $21, $22 and $22, respectively, of dividend equivalents were paid in cash related to these shares. There was no compensation cost related to this plan in 2020 and 2019 and there was $8 in 2018. There are 31,200 shares reserved for issuance under this plan.
Total maximum shares reserved for issuance under all stock plans aggregated 4,375,573 at December 31, 2020.
19. Weighted Average Shares Outstanding
Net income per common share is computed in accordance with accounting standards related to earnings per share. Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the year. Share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, as such, should be included in the calculation of basic earnings per share. The Company’s restricted stock unit awards which contain nonforfeitable rights to dividends are considered participating securities. Diluted earnings per share
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
reflects the assumed exercise and conversion of all dilutive securities. Shares held by the Retirement Savings Plan are considered outstanding for both basic and diluted earnings per share. There are no adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 2020, 2019 and 2018. A reconciliation of the weighted-average number of common shares outstanding used in the calculation of basic and diluted earnings per share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Outstanding
|
|
|
2020
|
|
2019
|
|
2018
|
Basic
|
|
50,880,846
|
|
|
51,213,518
|
|
|
52,304,190
|
|
Dilutive effect of:
|
|
|
|
|
|
|
Stock options
|
|
66,738
|
|
|
176,984
|
|
|
260,240
|
|
Performance share awards
|
|
150,002
|
|
|
242,667
|
|
|
267,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
51,097,586
|
|
|
51,633,169
|
|
|
52,831,606
|
|
The calculation of weighted-average diluted shares outstanding excludes all anti-dilutive shares. During 2020, 2019 and 2018, the Company excluded 484,835, 280,254 and 127,562 stock awards, respectively, from the calculation of diluted weighted-average shares outstanding as the stock awards were considered anti-dilutive.
20. Leases
The Company maintains leases of certain manufacturing, distribution and assembly facilities, office space, land, machinery and equipment. Leases generally have remaining terms of one year to ten years. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes lease expense for minimum lease payments on a straight line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the contractual terms associated with extending the lease.
Certain leases provide the option to purchase the leased property and are therefore evaluated for finance lease consideration. Right-of-use ("ROU") assets and lease liabilities related to finance leases were not material as of December 31, 2020 and 2019. ROU assets arising from finance leases are included in property, plant and equipment, net, and the corresponding liabilities are included in Long Term Debt - Current and Long-Term Debt on the Consolidated Balance Sheet. The depreciable life of leased assets are limited by the expected term of the lease, unless there is a transfer of title or purchase option and the Company believes it is reasonably certain of exercise.
Lease agreements generally do not contain any material residual value guarantees or materially restrictive covenants and the Company does not sublease to any third parties. The Company does not have any material leases that have been signed but not commenced.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Contracts are evaluated at inception to determine whether they contain a lease, where the Company obtains the right to control an identified asset. The following table sets forth the classification of ROU assets and lease liabilities on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Classification
|
|
December 31, 2020
|
|
December 31, 2019
|
Leased Assets
|
|
|
|
|
|
|
ROU assets
|
|
Other assets
|
|
$
|
27,539
|
|
|
$
|
31,411
|
|
|
|
|
|
|
|
|
Lease Liabilities
|
|
|
|
|
|
|
Current lease liability
|
|
Accrued liabilities
|
|
11,707
|
|
|
10,751
|
|
Long-term lease liability
|
|
Other liabilities
|
|
16,304
|
|
|
21,374
|
|
|
|
|
|
$
|
28,011
|
|
|
$
|
32,125
|
|
|
|
|
|
|
|
|
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The Company's real estate leases, which are comprised primarily of manufacturing, distribution and assembly facilities, represent a majority of the lease liability. A significant portion of lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU and are recorded as incurred. The Company utilizes its incremental borrowing rate by lease term to calculate the present value of our future lease payments if an implicit rate is not specified. The discount rate is risk adjusted on a secured basis and is the rate at which the Company would be charged to borrow the amount equal to the lease payments over a similar term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Operating lease costs for the twelve months ended December 31, 2020 and December 31, 2019 were $17,379 and $17,838, respectively, and were included within cost of sales and selling and administrative expenses. Operating lease costs include short-term and variable leases costs, which were immaterial during the period. Rent expense was $15,839 in 2018.
Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
2021
|
|
$
|
12,539
|
|
2022
|
|
6,821
|
|
2023
|
|
3,950
|
|
2024
|
|
1,678
|
|
2025
|
|
609
|
|
After 2025
|
|
6,355
|
|
Total lease payments
|
|
$
|
31,952
|
|
Less: Interest
|
|
3,941
|
|
Present value of lease payments
|
|
$
|
28,011
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
December 31, 2020
|
|
|
December 31, 2019
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
5.8
|
|
|
6.0
|
Weighted-average discount rates
|
|
|
|
|
Operating leases
|
3.52
|
%
|
|
|
3.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
|
Year ended
December 31, 2020
|
|
Year ended
December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
13,907
|
|
|
$
|
13,546
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
|
$
|
8,012
|
|
|
$
|
11,823
|
|
|
|
|
|
|
21. Changes in Accumulated Other Comprehensive Income by Component
The following tables set forth the changes in accumulated other comprehensive income by component for the years ended December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
|
|
Total
|
January 1, 2020
|
$
|
(115)
|
|
|
$
|
(144,047)
|
|
|
$
|
(66,333)
|
|
|
|
|
$
|
(210,495)
|
|
Other comprehensive (loss) income before reclassifications to consolidated statements of income
|
(1,674)
|
|
|
(9,673)
|
|
|
86,894
|
|
|
|
|
75,547
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
1,032
|
|
|
11,601
|
|
|
—
|
|
|
|
|
12,633
|
|
Net current-period other comprehensive (loss) income
|
(642)
|
|
|
1,928
|
|
|
86,894
|
|
|
|
|
88,180
|
|
December 31, 2020
|
$
|
(757)
|
|
|
$
|
(142,119)
|
|
|
$
|
20,561
|
|
|
|
|
$
|
(122,315)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
January 1, 2019
|
$
|
834
|
|
|
$
|
(138,690)
|
|
|
$
|
(52,644)
|
|
|
|
|
$
|
(190,500)
|
|
Other comprehensive loss before reclassifications to consolidated statements of income
|
(1,436)
|
|
|
(12,743)
|
|
|
(13,689)
|
|
|
|
|
(27,868)
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
487
|
|
|
7,386
|
|
|
—
|
|
|
|
|
7,873
|
|
Net current-period other comprehensive loss
|
(949)
|
|
|
(5,357)
|
|
|
(13,689)
|
|
|
|
|
(19,995)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
$
|
(115)
|
|
|
$
|
(144,047)
|
|
|
$
|
(66,333)
|
|
|
|
|
$
|
(210,495)
|
|
|
|
|
|
|
|
|
|
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the reclassifications out of accumulated other comprehensive income by component for the years ended December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Consolidated Statements of Income
|
|
|
2020
|
|
2019
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(1,321)
|
|
|
$
|
347
|
|
|
Interest expense
|
Foreign exchange contracts
|
|
(11)
|
|
|
(956)
|
|
|
Net sales
|
|
|
(1,332)
|
|
|
(609)
|
|
|
Total before tax
|
|
|
300
|
|
|
122
|
|
|
Tax benefit
|
|
|
(1,032)
|
|
|
(487)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Pension and other postretirement benefit items
|
|
|
|
|
|
|
Amortization of prior-service costs
|
|
$
|
(386)
|
|
|
$
|
(429)
|
|
|
(A)
|
Amortization of actuarial losses
|
|
(13,661)
|
|
|
(8,902)
|
|
|
(A)
|
Curtailment loss
|
|
(484)
|
|
|
—
|
|
|
(A)
|
Settlement loss
|
|
(549)
|
|
|
(340)
|
|
|
(A)
|
|
|
(15,080)
|
|
|
(9,671)
|
|
|
Total before tax
|
|
|
3,479
|
|
|
2,285
|
|
|
Tax benefit
|
|
|
(11,601)
|
|
|
(7,386)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications in the period
|
|
$
|
(12,633)
|
|
|
$
|
(7,873)
|
|
|
|
(A) These accumulated other comprehensive income components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 13.
22. Information on Business Segments
The Company is organized based upon the nature of its products and services and reports under two global business segments: Industrial and Aerospace. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company has not aggregated operating segments for purposes of identifying these two reportable segments.
Industrial is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as transportation, industrial equipment, automation, personal care, packaging, electronics, and medical devices. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions business designs and manufactures customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. The Force & Motion Control business provides innovative cost effective force and motion control solutions for a wide range of metal forming and other industrial markets. The Automation business designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components for intelligent robotic handling solutions and industrial automation applications. Industrial's Engineered Components business manufactures and supplies precision mechanical products used in transportation and industrial applications, including mechanical springs, and high-precision punched and fine-blanked components.
Industrial competes with a broad base of large and small companies engaged in the manufacture and sale of engineered products, precision molds, hot runner systems, robotic handling solutions and precision components. Industrial competes on the basis of quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design and price. Industrial has a global presence in multiple countries, with manufacturing, distribution and
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assembly operations in the United States, China, Germany, Italy, Sweden and Switzerland, among others. Industrial also has sales and service operations in the United States, China/Hong Kong, Germany, Italy and Switzerland, among others.
Aerospace is a global manufacturer of complex fabricated and precision machined components and assemblies for turbine engines, nacelles and structures for both commercial and defense-related aircraft. The Aerospace aftermarket business provides aircraft engine component MRO services, including services performed under our Component Repair Programs (“CRPs”), for many of the world’s major turbine engine manufacturers, commercial airlines and the defense market. The Aerospace aftermarket activities also include the manufacture and delivery of aerospace aftermarket spare parts, including revenue sharing programs (“RSPs”) under which the Company receives an exclusive right to supply designated aftermarket parts over the life of specific aircraft engine programs.
Aerospace’s OEM business (“OEM”) offers a comprehensive range of in-house manufacturing solutions and capabilities, including components and assemblies. The applications for these components primarily include engines, airframes and nacelles. Aerospace OEM competes with a large number of fabrication and machining companies. Our competitive advantage is based mainly on value derived from quality, concurrent engineering and technical capability, product breadth, solutions-providing new product introduction, timeliness, service, price and intellectual property. Aerospace’s fabrication and machining operations, with facilities in Arizona, Connecticut, Michigan, Ohio, Utah and Singapore, produce critical engine, nacelle and airframe components through technologically advanced manufacturing processes.
The Aerospace aftermarket business supplements jet engine OEMs’ maintenance, repair and overhaul capabilities, and competes with the service centers of major commercial airlines and other independent service companies for the repair and overhaul of turbine engine components. The manufacture and supply of aerospace aftermarket spare parts, including those related to the RSPs, are dependent upon the reliable and timely delivery of high-quality components. Aerospace’s Aftermarket facilities, located in Connecticut, Ohio and Singapore, specialize in the repair and refurbishment of highly engineered components and assemblies such as cases, rotating life limited parts, rotating air seals, turbine shrouds, vanes and honeycomb air seals. Aerospace Aftermarket's facility in Malaysia is focused on the supply of spare parts.
The Company evaluates the performance of its reportable segments based on the operating profit of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and certain components of other expense (income), net, as well as the allocation of corporate overhead expenses.
Sales between the business segments and between the geographic areas in which the businesses operate are accounted for on the same basis as sales to unaffiliated customers. Additionally, revenues are attributed to countries based on the location of facilities.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table (in millions) sets forth summarized financial information by reportable business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Aerospace
|
|
|
|
Other
|
|
Total Company
|
Sales
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
770.1
|
|
|
$
|
354.3
|
|
|
|
|
$
|
—
|
|
|
$
|
1,124.4
|
|
2019
|
|
938.5
|
|
|
552.6
|
|
|
|
|
—
|
|
|
1,491.1
|
|
2018
|
|
994.7
|
|
|
501.2
|
|
|
|
|
—
|
|
|
1,495.9
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
66.6
|
|
|
$
|
56.8
|
|
|
|
|
$
|
—
|
|
|
$
|
123.4
|
|
2019
|
|
114.0
|
|
|
122.5
|
|
|
|
|
—
|
|
|
236.4
|
|
2018
|
|
130.4
|
|
|
101.4
|
|
|
|
|
—
|
|
|
231.8
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
1,908.4
|
|
|
$
|
623.5
|
|
|
|
|
$
|
144.3
|
|
|
$
|
2,676.2
|
|
2019
|
|
1,879.3
|
|
|
704.3
|
|
|
|
|
154.8
|
|
|
2,738.3
|
|
2018
|
|
1,962.4
|
|
|
692.6
|
|
|
|
|
154.0
|
|
|
2,809.0
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
57.7
|
|
|
$
|
29.0
|
|
|
|
|
$
|
0.9
|
|
|
$
|
87.7
|
|
2019
|
|
62.4
|
|
|
35.9
|
|
|
|
|
0.8
|
|
|
99.1
|
|
2018
|
|
57.6
|
|
|
35.9
|
|
|
|
|
0.8
|
|
|
94.2
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
19.4
|
|
|
$
|
20.8
|
|
|
|
|
$
|
0.5
|
|
|
$
|
40.7
|
|
2019
|
|
25.3
|
|
|
26.0
|
|
|
|
|
2.0
|
|
|
53.3
|
|
2018
|
|
33.4
|
|
|
23.6
|
|
|
|
|
0.3
|
|
|
57.3
|
|
_________________________
Notes:
One customer, General Electric, accounted for 17%, 21% and 18% of the Company’s total revenues in 2020, 2019 and 2018, respectively.
“Other” assets include corporate-controlled assets, the majority of which are cash and cash equivalents and deferred tax assets.
A reconciliation of the total reportable segments’ operating profit to income before income taxes follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Operating profit
|
|
$
|
123.4
|
|
|
$
|
236.4
|
|
|
$
|
231.8
|
|
Interest expense
|
|
15.9
|
|
|
20.6
|
|
|
16.8
|
|
Other expense (income), net
|
|
5.9
|
|
|
9.0
|
|
|
7.4
|
|
Income before income taxes
|
|
$
|
101.5
|
|
|
$
|
206.8
|
|
|
$
|
207.5
|
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table (in millions) summarizes total net sales and long-lived assets of the Company by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
International
|
|
Other
|
|
Total
Company
|
Sales
|
|
|
|
|
|
|
|
|
2020
|
|
|
$
|
483.8
|
|
|
$
|
714.0
|
|
|
$
|
(73.4)
|
|
|
$
|
1,124.4
|
|
2019
|
|
630.0
|
|
|
949.4
|
|
|
(88.4)
|
|
|
1,491.1
|
|
2018
|
|
624.3
|
|
|
958.7
|
|
|
(87.1)
|
|
|
1,495.9
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
2020
|
|
|
$
|
383.2
|
|
|
$
|
1,628.6
|
|
|
$
|
—
|
|
|
$
|
2,011.8
|
|
2019
|
|
372.2
|
|
|
1,580.5
|
|
|
—
|
|
|
1,952.7
|
|
2018
|
|
366.1
|
|
|
1,616.2
|
|
|
—
|
|
|
1,982.4
|
|
________________________
Notes: Germany, with sales of $223.3 million, $302.0 million and $331.4 million in 2020, 2019 and 2018, respectively, and Singapore, with sales of $129.8 million, $225.7 million and $193.6 million in 2020, 2019 and 2018, respectively, represent the only international countries with revenues in excess of 10% of the Company's total revenues in those years. “Other” revenues represent the elimination of inter-company sales between geographic locations, of which approximately 67%, 68% and 72% were sales from international locations to domestic locations in 2020, 2019 and 2018, respectively.
Germany, with long-lived assets of $481.5 million, $480.3 million and $494.0 million as of December 31, 2020, 2019 and 2018, respectively, Singapore, with long-lived assets of $214.8 million, $226.5 million and $233.3 million as of December 31, 2020, 2019 and 2018, respectively and Italy, with long-lived assets of $443.1 million, $402.1 million and $412.0 million as of December 31, 2020, 2019 and 2018, respectively, represent the international countries with long-lived assets that exceeded 10% of the Company's total long-lived assets in those years.
23. Commitments and Contingencies
Product Warranties
The Company provides product warranties in connection with the sale of certain products. From time to time, the Company is subject to customer claims with respect to product warranties. The Company accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, historical experience and other related information known to the Company. Liabilities related to product warranties and extended warranties were not material as of December 31, 2020 or 2019.
Litigation
The Company is subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending involving the Company and its subsidiaries. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with the Company's beliefs, the Company expects that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on financial condition or results of operations.