NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated balance sheet and the related unaudited consolidated statements of income, comprehensive income and cash flows have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The balance sheet as of December 31, 2020 has been derived from the 2020 financial statements of Barnes Group Inc. (the “Company”). For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair statement of the results, have been included. Operating results for the six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Certain reclassifications have been made to prior year amounts to conform to current year presentation.
The COVID-19 pandemic ("COVID-19") has resulted in a disruption in 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.
2. 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 completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 38,964 Euros ($42,915) after consideration of post-closing adjustments, which were made during the fourth quarter of 2020, pursuant to the terms of the SPA. 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 $2,409 resulted from the completion of the sale and were recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the quarter ended March 31, 2020.
The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Agreement. 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 Prepaid Expenses and Other Current Assets and Other Assets (non-current) as of June 30, 2021.
3. 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 June 2016, the FASB amended its guidance related to credit losses on financial instruments. The amended guidance requires 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 requires 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 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 has adopted this guidance, on a prospective basis, on January 1, 2021 and it did not have a material impact on the Company's Consolidated Financial Statements.
Recently Issued Accounting Standards
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. In January 2021, the FASB issued further clarifying guidance regarding derivatives, as it relates to this transition. The guidance is effective through December 31, 2022. The Company’s Amended Credit Agreement (Note 9) and corresponding interest rate Swaps (Note 10) are tied to LIBOR, with each maturing in February 2026. The Company is continuing to monitor 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.
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, and the significant risks and rewards of ownership have transferred, and 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 the Company's 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.
The following table presents the Company's revenue disaggregated by products and services, and geographic regions, by segment:
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Three Months Ended
June 30, 2021
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Three Months Ended
June 30, 2020
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Industrial
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Aerospace
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Total Company
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Industrial
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Aerospace
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Total Company
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Products and Services
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|
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Engineered Components Products
|
$
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45,429
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|
$
|
—
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|
|
$
|
45,429
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|
|
$
|
25,961
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|
$
|
—
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|
|
$
|
25,961
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|
|
|
|
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Molding Solutions Products
|
122,612
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—
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122,612
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|
93,779
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—
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|
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93,779
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|
|
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Force & Motion Control Products
|
48,321
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|
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—
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|
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48,321
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34,646
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—
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34,646
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Automation Products
|
18,311
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—
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18,311
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10,643
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—
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10,643
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Aerospace Original Equipment Manufacturer Products
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—
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|
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60,985
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|
60,985
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|
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—
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|
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44,617
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44,617
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Aerospace Aftermarket Products and Services
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—
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25,500
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25,500
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—
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|
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25,891
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25,891
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$
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234,673
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$
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86,485
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$
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321,158
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$
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165,029
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|
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$
|
70,508
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|
$
|
235,537
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|
|
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Geographic Regions (A)
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Americas
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$
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93,001
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|
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$
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65,638
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|
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$
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158,639
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|
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$
|
53,911
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|
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$
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47,627
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|
|
$
|
101,538
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Europe
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90,094
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|
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13,263
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103,357
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68,351
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14,440
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82,791
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Asia
|
50,746
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|
|
7,096
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|
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57,842
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|
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41,763
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|
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7,537
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|
|
49,300
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|
|
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Rest of World
|
832
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|
|
488
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|
|
1,320
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|
|
1,004
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|
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904
|
|
|
1,908
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|
|
|
|
|
|
|
|
$
|
234,673
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|
|
$
|
86,485
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|
|
$
|
321,158
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|
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$
|
165,029
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|
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$
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70,508
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|
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$
|
235,537
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Six Months Ended
June 30, 2021
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Six Months Ended
June 30, 2020
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Industrial
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Aerospace
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Total Company
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Industrial
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Aerospace
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Total Company
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Products and Services
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|
|
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|
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|
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Engineered Components Products
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$
|
93,715
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|
|
$
|
—
|
|
|
$
|
93,715
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|
|
$
|
73,668
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|
|
$
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—
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|
|
$
|
73,668
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|
|
|
|
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Molding Solutions Products
|
231,159
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|
|
—
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|
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231,159
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191,185
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—
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|
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191,185
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Force & Motion Control Products
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93,978
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|
|
—
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|
|
93,978
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74,437
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—
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74,437
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Automation Products
|
35,808
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|
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—
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35,808
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24,838
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—
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24,838
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Aerospace Original Equipment Manufacturer Products
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—
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|
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116,513
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|
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116,513
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|
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—
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|
|
126,323
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|
|
126,323
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Aerospace Aftermarket Products and Services
|
—
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|
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51,614
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|
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51,614
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|
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—
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|
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75,756
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|
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75,756
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|
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$
|
454,660
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|
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$
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168,127
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|
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$
|
622,787
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|
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$
|
364,128
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$
|
202,079
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|
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$
|
566,207
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|
|
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|
Geographic Regions (A)
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|
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Americas
|
$
|
175,896
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|
|
$
|
124,647
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|
|
$
|
300,543
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|
|
$
|
134,555
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|
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$
|
140,205
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|
|
$
|
274,760
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|
|
|
|
|
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|
Europe
|
178,768
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|
|
27,414
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|
|
206,182
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|
|
150,215
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|
|
39,603
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|
|
189,818
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|
|
|
|
|
|
|
Asia
|
97,506
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|
|
14,743
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|
|
112,249
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|
|
77,256
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|
|
19,233
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|
|
96,489
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|
|
|
|
|
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Rest of World
|
2,490
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|
|
1,323
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|
|
3,813
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|
|
2,102
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|
|
3,038
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|
|
5,140
|
|
|
|
|
|
|
|
|
$
|
454,660
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|
|
$
|
168,127
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|
|
$
|
622,787
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|
|
$
|
364,128
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|
|
$
|
202,079
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|
|
$
|
566,207
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|
|
|
|
|
|
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(A) Sales by geographic region 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 80 percent of total revenue for the three and six month periods ended June 30, 2021, and approximately 80 percent and 85 percent of total revenue for the three and six month periods ended June 30, 2020, respectively. A majority of revenue within the Industrial segment and Aerospace Original Equipment Manufacturer business ("OEM"), along with a portion of revenue within the Aerospace
Aftermarket Products and Services business ("Aftermarket"), 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 20 percent of total revenue for the three and six month periods ended June 30, 2021, and approximately 20 percent and 15 percent for the three and six month periods ended June 30, 2020, respectively. 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 (within Aftermarket Products and Services) and a portion of the revenue for Engineered Components products, Molding Solutions products and Aerospace OEM products 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, or governing commercial law for the relevant jurisdiction, where we deliver products that do not have an alternative use and require 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.
The majority of our revenues are from contracts that are for less than one year, however certain Aerospace OEM and 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.
A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. 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.
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 both the three and six month periods ended June 30, 2021 and 2020.
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.
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 June 30, 2021 and December 31, 2020.
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 assets (liabilities) consisted of the following:
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|
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|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
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$ Change
|
|
% Change
|
|
Unbilled receivables (contract assets)
|
$
|
36,362
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|
|
$
|
33,009
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|
|
$
|
3,353
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|
10
|
%
|
|
Contract liabilities
|
(30,781)
|
|
|
(39,865)
|
|
|
9,084
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|
|
(23)
|
%
|
|
Net contract assets (liabilities)
|
$
|
5,581
|
|
|
$
|
(6,856)
|
|
|
$
|
12,437
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|
|
NM
|
NM - Not Meaningful
Contract liabilities balances at June 30, 2021 and December 31, 2020 include $10,693 and $12,750, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, include corresponding balances at June 30, 2021 and December 31, 2020, respectively.
Changes in the net contract asset during the six-month period ended June 30, 2021 included a $9,084 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 assets increase was a $3,353 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 15% and 55% of the revenue related to the contract liabilities balance as of December 31, 2020 during the three- and six- months ended June 30, 2021, respectively, and approximately 15% and 50% of the revenue related to the contract liabilities balance as of December 31, 2019 during the three and six months ended June 30, 2020, respectively, primarily representing revenue from the sale of molds and hot runners within the Molding Solutions business.
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 yet 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 accounting guidance. As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $178,261. The Company expects to recognize revenue on approximately 70% of the remaining performance obligations over the next 12 months, with the remainder to be recognized within 24 months.
5. Stockholders' Equity
A schedule of consolidated changes in equity for the six months ended June 30, 2021 is as follows (number of shares in thousands):
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Common
Stock
(Number of
Shares)
|
|
Common
Stock
(Amount)
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
(Number of
Shares)
|
|
Treasury
Stock (Amount)
|
|
Retained
Earnings
|
|
Accumulated
Other
Non-Owner
Changes to
Equity
|
|
Total
Stockholders’
Equity
|
|
December 31, 2020
|
|
64,171
|
|
|
$
|
642
|
|
|
$
|
501,531
|
|
|
13,530
|
|
|
$
|
(516,992)
|
|
|
$
|
1,519,811
|
|
|
$
|
(122,315)
|
|
|
$
|
1,382,677
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,382
|
|
|
(44,902)
|
|
|
(25,520)
|
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,104)
|
|
|
—
|
|
|
(8,104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
12
|
|
|
—
|
|
|
2,406
|
|
|
1
|
|
|
(68)
|
|
|
(24)
|
|
|
—
|
|
|
2,314
|
|
|
March 31, 2021
|
|
64,183
|
|
|
$
|
642
|
|
|
$
|
503,937
|
|
|
13,531
|
|
|
$
|
(517,060)
|
|
|
$
|
1,531,065
|
|
|
$
|
(167,217)
|
|
|
$
|
1,351,367
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,491
|
|
|
24,591
|
|
|
49,082
|
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,090)
|
|
|
—
|
|
|
(8,090)
|
|
|
Common stock repurchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
(5,229)
|
|
|
—
|
|
|
—
|
|
|
(5,229)
|
|
|
Employee stock plans
|
|
17
|
|
|
—
|
|
|
3,417
|
|
|
3
|
|
|
(123)
|
|
|
(31)
|
|
|
—
|
|
|
3,263
|
|
|
June 30, 2021
|
|
64,200
|
|
|
$
|
642
|
|
|
$
|
507,354
|
|
|
13,634
|
|
|
$
|
(522,412)
|
|
|
$
|
1,547,435
|
|
|
$
|
(142,626)
|
|
|
$
|
1,390,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A schedule of consolidated changes in equity for the six months ended June 30, 2020 is as follows (number of shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
(Number of
Shares)
|
|
Common
Stock
(Amount)
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
(Number of
Shares)
|
|
Treasury
Stock (Amount)
|
|
Retained
Earnings
|
|
Accumulated
Other
Non-Owner
Changes to
Equity
|
|
Total
Stockholders’
Equity
|
|
December 31, 2019
|
|
63,873
|
|
|
$
|
639
|
|
|
$
|
489,282
|
|
|
13,051
|
|
|
$
|
(498,074)
|
|
|
$
|
1,489,176
|
|
|
$
|
(210,495)
|
|
|
$
|
1,270,528
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,733
|
|
|
(34,189)
|
|
|
(4,456)
|
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,133)
|
|
|
—
|
|
|
(8,133)
|
|
|
Common stock repurchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
396
|
|
|
(15,550)
|
|
|
—
|
|
|
—
|
|
|
(15,550)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
17
|
|
|
—
|
|
|
2,743
|
|
|
2
|
|
|
(84)
|
|
|
(88)
|
|
|
—
|
|
|
2,571
|
|
|
March 31, 2020
|
|
63,890
|
|
|
$
|
639
|
|
|
$
|
492,025
|
|
|
13,449
|
|
|
$
|
(513,708)
|
|
|
$
|
1,510,688
|
|
|
$
|
(244,684)
|
|
|
$
|
1,244,960
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
567
|
|
|
17,044
|
|
|
17,611
|
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,072)
|
|
|
—
|
|
|
(8,072)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
14
|
|
|
—
|
|
|
3,394
|
|
|
1
|
|
|
(53)
|
|
|
(134)
|
|
|
—
|
|
|
3,207
|
|
|
June 30, 2020
|
|
63,904
|
|
|
$
|
639
|
|
|
$
|
495,419
|
|
|
13,450
|
|
|
$
|
(513,761)
|
|
|
$
|
1,503,049
|
|
|
$
|
(227,640)
|
|
|
$
|
1,257,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Net Income Per Common Share
For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding is increased for the potential dilutive effects of stock-based incentive plans. For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding was increased by 169,081 and 244,347 for the three- month periods ended June 30, 2021 and 2020, respectively, and by 161,825 and 288,113 for the six month periods ended June 30, 2021 and 2020, respectively.
The calculation of weighted-average diluted shares outstanding excludes all shares that would have been anti-dilutive. During the three month periods ended June 30, 2021 and 2020, the Company excluded 503,078 and 525,738 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive. During the six month periods ended June 30, 2021 and 2020, the Company excluded 512,598 and 469,732 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive.
The Company granted 144,000 stock options, 104,029 restricted stock unit awards and 99,155 performance share awards ("PSAs") in February 2021 as part of its annual long-term incentive equity grant awards. All of the stock options and the restricted stock unit awards vest upon meeting certain service conditions. The restricted stock unit awards are included in basic weighted-average common shares outstanding as they contain nonforfeitable rights to dividend payments. The PSAs are part of the long-term Performance Share Award Program and are based on performance goals that are driven by a combination of independently measured metrics (depending on the grant year) with each metric being weighted equally. The metrics for awards granted in 2021 include the Company’s total shareholder return (“TSR”), return on invested capital (“ROIC”) and operating income before depreciation and amortization growth ("EBITDA growth"). 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 performance period. ROIC is designed to assess the Company's performance compared to pre-established Company targets 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. The fair value of the TSR is determined using a Monte Carlo valuation method as the award contains a market condition.
7. Inventories
The components of inventories consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Finished goods
|
$
|
85,640
|
|
|
$
|
79,833
|
|
|
Work-in-process
|
69,403
|
|
|
76,542
|
|
|
Raw material and supplies
|
80,494
|
|
|
81,633
|
|
|
|
$
|
235,537
|
|
|
$
|
238,008
|
|
8. Goodwill and Other Intangible Assets
Goodwill:
The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company as of and for the period ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Aerospace
|
|
|
|
Total Company
|
|
December 31, 2020
|
$
|
980,794
|
|
|
$
|
30,786
|
|
|
|
|
$
|
1,011,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
(25,519)
|
|
|
—
|
|
|
|
|
(25,519)
|
|
|
June 30, 2021
|
$
|
955,275
|
|
|
$
|
30,786
|
|
|
|
|
$
|
986,061
|
|
In the second quarter of 2021, management performed its annual impairment testing of goodwill and determined that there was no goodwill impairment.
Other Intangible Assets:
Other intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Range of
Life -Years
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Revenue Sharing Programs (RSPs)
|
Up to 30
|
|
$
|
299,500
|
|
|
$
|
(146,870)
|
|
|
$
|
299,500
|
|
|
$
|
(143,209)
|
|
|
Component Repair Programs (CRPs)
|
Up to 30
|
|
111,839
|
|
|
(32,756)
|
|
|
111,839
|
|
|
(30,869)
|
|
|
Customer relationships
|
10-16
|
|
338,366
|
|
|
(129,112)
|
|
|
338,366
|
|
|
(118,752)
|
|
|
Patents and technology
|
4-11
|
|
123,433
|
|
|
(81,843)
|
|
|
123,433
|
|
|
(77,311)
|
|
|
Trademarks/trade names
|
10-30
|
|
10,949
|
|
|
(10,487)
|
|
|
10,949
|
|
|
(10,377)
|
|
|
Other
|
Up to 15
|
|
10,746
|
|
|
(4,929)
|
|
|
10,746
|
|
|
(4,580)
|
|
|
|
|
|
894,833
|
|
|
(405,997)
|
|
|
894,833
|
|
|
(385,098)
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
55,670
|
|
|
—
|
|
|
55,670
|
|
|
—
|
|
|
Foreign currency translation
|
|
|
(9,670)
|
|
|
—
|
|
|
(1,273)
|
|
|
—
|
|
|
Other intangible assets
|
|
|
$
|
940,833
|
|
|
$
|
(405,997)
|
|
|
$
|
949,230
|
|
|
$
|
(385,098)
|
|
Estimated amortization of intangible assets for future periods is as follows: 2021 (remainder) - $21,000; 2022 - $42,000; 2023- $44,000; 2024 - $44,000, 2025 - $44,000 and 2026- $43,000.
In the second quarter of 2021, management performed its annual impairment testing of its trade names, which are indefinite-lived intangible assets. Based on this assessment, there were no impairments.
9. Debt
Long-term debt and notes and overdrafts payable at June 30, 2021 and December 31, 2020 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Amended Credit Agreement
|
$
|
549,376
|
|
|
$
|
586,441
|
|
|
$
|
593,622
|
|
|
$
|
601,936
|
|
|
3.97% Senior Notes
|
100,000
|
|
|
107,764
|
|
|
100,000
|
|
|
109,151
|
|
|
Borrowings under lines of credit and overdrafts
|
14
|
|
|
14
|
|
|
2,115
|
|
|
2,115
|
|
|
Finance leases
|
6,936
|
|
|
7,186
|
|
|
8,268
|
|
|
8,650
|
|
|
Other foreign bank borrowings
|
154
|
|
|
155
|
|
|
254
|
|
|
257
|
|
|
|
656,480
|
|
|
701,560
|
|
|
704,259
|
|
|
722,109
|
|
|
Less current maturities
|
(1,997)
|
|
|
|
|
(4,391)
|
|
|
|
|
Long-term debt
|
$
|
654,483
|
|
|
|
|
$
|
699,868
|
|
|
|
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 U.S. Treasury yield and a long-term credit spread for similar types of borrowings, which represent Level 2 observable inputs.
On October 8, 2020, the Company entered into the sixth amendment to its fifth amended and restated revolving 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” and, together with the Sixth Amendment, the "Amendments"). The Sixth Amendment maintained the borrowing availability of $1,000,000 along with access to request $200,000 through an accordion feature. 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 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 on the Consolidated Statements of Income.
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 the Eurocurrency rate, as defined in the Amended Credit Agreement, 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 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 $4,208 in the first quarter of 2021 in conjunction with executing the Amended Credit Agreement; such fees have been deferred within Other Assets on the Consolidated Balance Sheets and are being amortized into interest expense on the Consolidated Statements of Income through their maturity. Cash used to pay these fees has been recorded through other financing activities on the Consolidated Statements of Cash Flows.
Borrowings and availability under the Amended Credit Agreement were $549,376 and $450,624, respectively, at June 30, 2021 and borrowings and availability under the Sixth Amendment were $593,622 and $406,378, respectively, at December 31, 2020, subject to covenants in the Company's revolving debt agreements. At June 30, 2021, additional borrowings of $203,751 of Total Debt (including $203,751 of Senior Debt) would have been allowed under the financial covenants. The average interest rate on these borrowings was 1.70% and 1.42% on June 30, 2021 and December 31, 2020, respectively. Borrowings included Euro-denominated borrowings of 331,450 Euros ($394,376) at June 30, 2021 and 344,450 Euros ($423,622) at December 31, 2020. 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.
At June 30, 2021, the Company was in compliance with all applicable covenants. The Company currently anticipates that it will maintain compliance with all of its covenants in the next four quarters while continuing to monitor its future compliance based on current and future economic conditions. 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 June 30, 2021. The actual ratio at June 30, 2021 was 2.86 times, as defined.
In addition, the Company has approximately $82,000 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, the Company had no borrowings at June 30, 2021 while $2,100 was borrowed at December 31, 2020 at an average interest rate of 1.10%. The Company had also borrowed $14 and $15 under the overdraft facilities at June 30, 2021 and December 31, 2020, 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 $6,936 and $8,268 was outstanding at June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, the Company also had other foreign bank borrowings of $154 and $254, respectively. The fair value of the other 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.
10. Derivatives
The Company has manufacturing, service 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.
Derivative financial instruments have been used by the Company to hedge its exposure to fluctuations in interest rates. On April 28, 2017, the Company entered into an interest rate swap agreement (the "2017 Swap") 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 2017 Swap expires on January 31, 2022. On March 24, 2021, the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that will commence on January 31, 2022 and will convert 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 1.17% plus the borrowing spread. The 2021 Swap will expire on January 30, 2026. These interest rate swap agreements (collectively, the "Swaps") remained in place at June 30, 2021 and are accounted for as cash flow hedges.
The Company also uses derivative 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.
The Company records the derivatives at fair value on the Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets, Other Assets, Accrued Liabilities or Other Liabilities depending on their fair value and remaining contractual period. Changes in the fair market value of derivatives accounted for as cash flow hedges are recorded to accumulated other comprehensive income (loss) and reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Reclassifications to earnings for the Swaps are recorded through interest expense and reclassifications to earnings for foreign exchange contracts are recorded through net sales. Changes in the fair market value of the foreign exchange contracts that are not designated hedging instruments are recorded directly to earnings through other expense (income), net.
The fair values of derivatives were not material to the Company's Consolidated Balance Sheets as of June 30, 2021 or December 31, 2020. The activity related to the derivatives that have been designated hedging instruments was not material to the Company's Consolidated Financial Statements for the periods ended June 30, 2021 or 2020. The Company recognized gains of $2,889 and $6,372 related to the foreign exchange contracts that are not accounted for as hedging instruments within other expense (income), net, in the Consolidated Statements of Income for the three month periods ended June 30, 2021 and 2020, respectively. The Company recognized losses of $412 and $5,822 related to the foreign exchange contracts that are not accounted for as hedging instruments within other expense (income), net, in the Consolidated Statements of Income for the six month periods ended June 30, 2021 and 2020, respectively. Such gains and losses were substantially offset by net losses and gains recorded on the underlying hedged asset or liability (the "underlying"). Offsetting net gains or losses on the underlying are also recorded within other expense (income), net.
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 six months ended June 30, 2021 and 2020, as presented on the Consolidated Statements of Cash Flows, include $808 of net cash proceeds and $3,456 of net cash payments, respectively, related to the settlement of foreign currency hedges related to intercompany financing.
11. 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.
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
$
|
484
|
|
|
$
|
—
|
|
|
$
|
484
|
|
|
$
|
—
|
|
|
Liability derivatives
|
|
(2,565)
|
|
|
—
|
|
|
(2,565)
|
|
|
—
|
|
|
Bank acceptances
|
|
9,033
|
|
|
—
|
|
|
9,033
|
|
|
—
|
|
|
Rabbi trust assets
|
|
3,434
|
|
|
3,434
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
10,386
|
|
|
$
|
3,434
|
|
|
$
|
6,952
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
16,154
|
|
|
$
|
3,233
|
|
|
$
|
12,921
|
|
|
$
|
—
|
|
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, have maturities of less than one year 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.
12. Pension and Other Postretirement Benefits
Pension and other postretirement benefits expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
Pensions
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
1,538
|
|
|
$
|
1,435
|
|
|
$
|
3,279
|
|
|
$
|
3,084
|
|
|
Interest cost
|
3,204
|
|
|
3,806
|
|
|
6,376
|
|
|
7,623
|
|
|
Expected return on plan assets
|
(6,962)
|
|
|
(7,404)
|
|
|
(13,934)
|
|
|
(14,797)
|
|
|
Amortization of prior service cost
|
80
|
|
|
73
|
|
|
165
|
|
|
153
|
|
|
Amortization of actuarial losses
|
4,080
|
|
|
3,307
|
|
|
8,006
|
|
|
6,646
|
|
|
Curtailment loss
|
—
|
|
|
484
|
|
|
—
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
1,940
|
|
|
$
|
1,701
|
|
|
$
|
3,892
|
|
|
$
|
3,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
Other Postretirement Benefits
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
25
|
|
|
$
|
19
|
|
|
|
$
|
50
|
|
|
$
|
41
|
|
|
Interest cost
|
206
|
|
|
257
|
|
|
|
412
|
|
|
521
|
|
|
Amortization of prior service cost
|
8
|
|
|
7
|
|
|
|
15
|
|
|
14
|
|
|
Amortization of actuarial losses
|
70
|
|
|
(5)
|
|
|
|
140
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
309
|
|
|
$
|
278
|
|
|
|
$
|
617
|
|
|
$
|
594
|
|
The service cost component of net periodic benefit cost is included within cost of sales and selling and administrative expenses. The components of net periodic benefit cost other than the service cost component are included in Other Income (Expense) on the Consolidated Statements of Income.
13. Income Taxes
During the second quarter of 2021, the Italian tax authorities released Tax Guidance related to the application of tax basis realignment rules for intangible property ("Realignment") which provides Italian taxpayers with the opportunity to step up the basis of goodwill and intangibles to their fair market value and amortize the step up over 18 years for tax purposes in exchange for paying a 3% tax on the step up, payable over a three years period. The Company opted to elect the Realignment in June 2021 and accordingly recorded a tax payable of $3,008 and a long-term tax payable of $6,016. The Company also recorded a deferred tax asset of $83,921 related to the Realignment. Accounting guidance requires that when a deferred tax asset is realigned for tax purposes, a corresponding revaluation reserve also be recorded. Under Italian tax rules, any dividends paid out of this revaluation reserve are subject to tax at a 24% rate. Accordingly, the Company recorded a deferred tax liability of $72,190 related to the potential 24% tax due on any dividends, paid out of the revaluation reserve. The deferred tax asset and liability balances have been presented on a net basis on the Consolidated Balance Sheets. The Company also recorded a one time $2,707 benefit to the provision in the quarter related to this election and related accounting.
The Company's effective tax rate for the first half of 2021 was 26.6% compared with 37.6% in the first half of 2020 and 37.6% for the full year 2020. The decrease in the first half of 2021 effective tax rate from the full year 2020 rate is primarily due to the absence of tax expense related to the completed sale of the Seeger business in 2020, the second quarter 2021 benefit related to the tax basis of goodwill and intangibles at Automation and a favorable mix in earnings based on tax jurisdictions. The tax rate benefits were partially offset by second quarter 2021 tax expense related to the revaluation of UK deferred taxes resulting from a legislative increase in the corporate tax rate.
The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore and China. The tax holiday in China expired at the end of 2020. The Company has re-applied for approval of a potential three-year holiday in China which could reduce the tax rate. The Company anticipates notification of a decision on its application for the holiday in the latter half of 2021. 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. This holiday commenced effective November 2020 and remains effective for a period of ten years from inception.
14. Changes in Accumulated Other Comprehensive Income (Loss) by Component
The following tables set forth the changes in accumulated other comprehensive income (loss), net of tax, by component for the six-month periods ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
Total
|
|
December 31, 2020
|
$
|
(757)
|
|
|
$
|
(142,119)
|
|
|
$
|
20,561
|
|
|
$
|
(122,315)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(1,003)
|
|
|
145
|
|
|
(26,286)
|
|
|
(27,144)
|
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
453
|
|
|
6,380
|
|
|
—
|
|
|
6,833
|
|
|
Net current-period other comprehensive (loss) income
|
(550)
|
|
|
6,525
|
|
|
(26,286)
|
|
|
(20,311)
|
|
|
June 30, 2021
|
$
|
(1,307)
|
|
|
$
|
(135,594)
|
|
|
$
|
(5,725)
|
|
|
$
|
(142,626)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
Total
|
|
December 31, 2019
|
$
|
(115)
|
|
|
$
|
(144,047)
|
|
|
$
|
(66,333)
|
|
|
$
|
(210,495)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(2,255)
|
|
|
(5,141)
|
|
|
(16,077)
|
|
|
(23,473)
|
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
729
|
|
|
5,599
|
|
|
—
|
|
|
6,328
|
|
|
Net current-period other comprehensive (loss) income
|
(1,526)
|
|
|
458
|
|
|
(16,077)
|
|
|
(17,145)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
$
|
(1,641)
|
|
|
$
|
(143,589)
|
|
|
$
|
(82,410)
|
|
|
$
|
(227,640)
|
|
The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) by component for the three-month periods ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
Affected Line Item in the Consolidated Statements of Income
|
|
|
|
Three Months Ended
June 30, 2021
|
|
Three Months Ended
June 30, 2020
|
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(460)
|
|
|
$
|
(356)
|
|
|
Interest expense
|
|
Foreign exchange contracts
|
|
171
|
|
|
74
|
|
|
Net sales
|
|
|
|
(289)
|
|
|
(282)
|
|
|
Total before tax
|
|
|
|
73
|
|
|
95
|
|
|
Tax benefit
|
|
|
|
(216)
|
|
|
(187)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit items
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
$
|
(88)
|
|
|
$
|
(80)
|
|
|
(A)
|
|
Amortization of actuarial losses
|
|
(4,150)
|
|
|
(3,302)
|
|
|
(A)
|
|
Curtailment loss
|
|
—
|
|
|
(484)
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
(4,238)
|
|
|
(3,866)
|
|
|
Total before tax
|
|
|
|
992
|
|
|
906
|
|
|
Tax benefit
|
|
|
|
(3,246)
|
|
|
(2,960)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications in the period
|
|
$
|
(3,462)
|
|
|
$
|
(3,147)
|
|
|
|
The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) by component for the six-month periods ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
Affected Line Item in the Consolidated Statements of Income
|
|
|
|
Six Months Ended
June 30, 2021
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(909)
|
|
|
(417)
|
|
|
Interest expense
|
|
Foreign exchange contracts
|
|
298
|
|
|
(449)
|
|
|
Net sales
|
|
|
|
(611)
|
|
|
(866)
|
|
|
Total before tax
|
|
|
|
158
|
|
|
137
|
|
|
Tax benefit
|
|
|
|
(453)
|
|
|
(729)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit items
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
$
|
(180)
|
|
|
$
|
(167)
|
|
|
(A)
|
|
Amortization of actuarial losses
|
|
(8,146)
|
|
|
(6,664)
|
|
|
(A)
|
|
Curtailment loss
|
|
—
|
|
|
(484)
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
(8,326)
|
|
|
(7,315)
|
|
|
Total before tax
|
|
|
|
1,946
|
|
|
1,716
|
|
|
Tax benefit
|
|
|
|
(6,380)
|
|
|
(5,599)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications in the period
|
|
$
|
(6,833)
|
|
|
$
|
(6,328)
|
|
|
|
(A) These accumulated other comprehensive income (loss) components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 12.
15. 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 pneumatic 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.
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 maintenance, repair and overhaul ("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 business also manufactures and supplies aerospace aftermarket spare parts, including through 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.
The following tables set forth information about the Company's operations by its two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net sales
|
|
|
|
|
|
|
|
|
Industrial
|
$
|
234,679
|
|
|
$
|
165,031
|
|
|
$
|
454,671
|
|
|
$
|
364,131
|
|
|
Aerospace
|
86,485
|
|
|
70,508
|
|
|
168,127
|
|
|
202,079
|
|
|
Intersegment sales
|
(6)
|
|
|
(2)
|
|
|
(11)
|
|
|
(3)
|
|
|
Total net sales
|
$
|
321,158
|
|
|
$
|
235,537
|
|
|
$
|
622,787
|
|
|
$
|
566,207
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
Industrial
|
$
|
27,273
|
|
|
$
|
(300)
|
|
|
$
|
48,568
|
|
|
$
|
17,625
|
|
|
Aerospace
|
11,270
|
|
|
10,415
|
|
|
22,355
|
|
|
41,804
|
|
|
Total operating profit
|
38,543
|
|
|
10,115
|
|
|
70,923
|
|
|
59,429
|
|
|
Interest expense
|
4,475
|
|
|
3,898
|
|
|
8,416
|
|
|
8,223
|
|
|
Other expense (income), net
|
1,272
|
|
|
1,060
|
|
|
2,734
|
|
|
2,654
|
|
|
Income before income taxes
|
$
|
32,796
|
|
|
$
|
5,157
|
|
|
$
|
59,773
|
|
|
$
|
48,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Assets
|
|
|
|
|
Industrial
|
$
|
1,872,730
|
|
|
$
|
1,908,389
|
|
|
Aerospace
|
601,093
|
|
|
623,547
|
|
|
Other (A)
|
153,048
|
|
|
144,290
|
|
|
Total assets
|
$
|
2,626,871
|
|
|
$
|
2,676,226
|
|
(A) "Other" assets include corporate-controlled assets, the majority of which are cash and cash equivalents and deferred tax assets.
16. 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 June 30, 2021 and December 31, 2020.
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.
17. Business Reorganizations
In June 2020, the Company announced restructuring and workforce reduction actions ("Actions") which were implemented across its businesses and functions in response to the macroeconomic disruption in global industrial and aerospace end markets arising from COVID-19. During 2020, a resulting pre-tax charge of $19,116 was recorded ($18,158 through operating profit), primarily related to employee severance and termination benefits (recorded largely during the second quarter of 2020). These actions were substantially complete as of December 31, 2020 and reduced the Company’s global workforce by approximately 8%. A corresponding liability of $4,240, per below, was included within accrued liabilities as of June 30, 2021. The Company does not expect any additional costs related to the Actions to be significant.
The following table sets forth the change in the liability related to these actions:
|
|
|
|
|
|
|
|
December 31, 2020
|
$
|
13,151
|
|
|
Severance expense
|
(600)
|
|
|
Payments
|
(8,311)
|
|
|
June 30, 2021
|
$
|
4,240
|
|
In June 2021, the Company initiated additional restructuring actions ("Restructurings") at two locations. The Restructurings include a transfer of manufacturing capabilities to leverage existing manufacturing capacity which is expected to reduce labor and infrastructure costs. The Restructurings resulted in pre-tax charges of $1,118, primarily related to employee severance and termination benefits, and have been recorded within Selling and Administrative Expenses in the accompanying Consolidated Statements of Income. The Company expects to incur additional charges of approximately $3,000 related to these actions through 2022.
____________________________________________________________________________________
With respect to the unaudited consolidated financial information of Barnes Group Inc. for the three- month period ended June 30, 2021 and 2020, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate report dated July 30, 2021 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited consolidated financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.