BARNES GROUP INC (Form: 10-K, Received: 02/20/2018 12:22:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4801

BARNES GROUP INC.

(Exact name of registrant as specified in its charter)



Delaware				06-0247840
(State of incorporation)				(I.R.S. Employer Identification No.)
123 Main Street, Bristol, Connecticut				06010
(Address of Principal Executive Office)				(Zip Code)

(860) 583-7070

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $0.01 Par Value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of the close of business on June 30, 2017 was approximately $ 2,914,055,542 based on the closing price of the Common Stock on the New York Stock Exchange on that date. The registrant does not have any non-voting common equity.

The registrant had outstanding 53,234,401 shares of common stock as of February 14, 2018 .

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 4, 2018 are incorporated by reference into Part III.

Table of Contents

Barnes Group Inc.

Index to Form 10-K

Year Ended December 31, 2017



		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	14

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	73

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	74
Items 11-14.	Incorporated by Reference to Definitive Proxy Statement	75

Part IV
Item 15.	Exhibits, Financial Statement Schedules	75
Item 16.	Form 10-K Summary	76

FORWARD-LOOKING STATEMENTS

This Annual Report may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect intellectual property rights; introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; acts of terrorism, cybersecurity attacks or intrusions that could adversely impact our businesses; uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; the impact of new or revised tax laws and regulations; changes in raw material or product prices and availability; integration of acquired businesses; restructuring costs or

Table of Contents

savings; the continuing impact of prior acquisitions and divestitures; and any other future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies and uninsured claims; product liabilities; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature; and other risks and uncertainties described in this Annual Report. The Company assumes no obligation to update its forward-looking statements.

Table of Contents

PART I

Item 1. Business

BARNES GROUP INC. ⁽¹⁾

Barnes Group Inc. (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, healthcare and packaging. The Company’s skilled and dedicated employees around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth.

Our Strategy

The Company’s strategy outlines the actions that we are executing to achieve our vision. Our strategy is comprised of four pillars:

Build a World-class Company Focused on High Margin, High Growth Businesses - We pro-actively manage our business portfolio with a focus on multiple platforms and market channels, in end-markets where projected long-term growth and favorable macro-economic trends are present. By doing so, we expect to create superior value for our key stakeholders - our shareholders, customers, employees and the communities in which we operate.


2.	Leverage the Barnes Enterprise System (“BES”) as a Significant Competitive Advantage - BES is our integrated operating system that promotes a culture of employee engagement and empowerment and drives alignment across the organization around a common vision. BES standardizes our business processes to allow us to achieve commercial, operational and financial excellence in everything we do.

Expand and Protect Our Core Intellectual Property to Deliver Differentiated Solutions - Driven by a passion for innovation, we embrace intellectual property as a core differentiator to create proprietary products, processes and systems. Through our Global Innovation Forum, we foster an environment that generates great ideas and shares best practices across the enterprise to maximize our collective strengths and create economies of scale in the development and commercialization of new and innovative products and services.


4.	Effectively Allocate Capital to Drive Top Quartile Total Shareholder Return - We strive to be good custodians of our shareholders’ capital and to drive maximum shareholder value. We do so by investing in our core businesses to fund profitable, organic growth and by employing a disciplined capital allocation process in the strategic acquisitions we undertake.

Structure

The Company operates under two global business segments: Industrial and Aerospace. The Industrial Segment includes the Molding Solutions, Nitrogen Gas Products and Engineered Components business units. The Aerospace segment includes the original equipment manufacturer (“OEM”) business and the aftermarket business, which includes maintenance repair and overhaul (“MRO”) services and the manufacture and delivery of aerospace aftermarket spare parts.

__________


⁽¹⁾	As used in this annual report, “Company,” “Barnes Group,” “we” and “ours” refer to the registrant and its consolidated subsidiaries except where the context requires otherwise, and “Industrial” and “Aerospace” refer to the registrant’s segments, not to separate corporate entities.

Table of Contents

In the third quarter of 2016, the Company, through three of its subsidiaries, completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and operates out of manufacturing facilities located in Germany and China. FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. FOBOHA has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.

In the fourth quarter of 2015, the Company completed the acquisition of privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus, which is headquartered in Schaffhausen, Switzerland and has direct sales and service offices in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services many of the world's highest quality plastic injection molders in the medical, automotive, consumer goods, electronics and packaging markets. Priamus has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.

In the third quarter of 2015, the Company completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay specializes in the design, development, and manufacturing of hot runner systems for plastic injection molding, primarily in the packaging, automotive, and medical end markets. Thermoplay has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.

INDUSTRIAL

The Industrial segment 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, consumer products, packaging, electronics, medical devices, and energy. 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 businesses design and manufacture 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. Industrial's Nitrogen Gas Products business provides innovative cost effective force and motion solutions for sheet metal forming, heavy duty suspension and other selective niche markets for customers worldwide. Industrial's Engineered Components businesses manufacture and supply precision mechanical products used in transportation and industrial applications, including mechanical springs, high-precision punched and fine-blanked components and retention rings.

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 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 manufacturing, distribution and assembly operations in the United States, Brazil, China, Germany, Italy, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. Industrial also has sales and service operations in the United States, Brazil, Canada, Czech Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom. Sales by Industrial to its three largest customers accounted for approximately 9% of its sales in 2017 .

AEROSPACE

Aerospace is a global manufacturer of complex fabricated and precision machined components and assemblies for OEM turbine engine, airframe and industrial gas turbine builders, and the military. 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 military. 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 supplements the leading aircraft engine OEM capabilities and competes with a large number of fabrication and machining companies. Competition is based mainly on quality, engineering and technical capability, product

Table of Contents

breadth, new product introduction, timeliness, service and price. Aerospace’s fabrication and machining operations, with facilities in Arizona, Connecticut, Mexico, Michigan, Ohio, Utah and Singapore, produce critical engine 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. Sales by Aerospace to its three largest customers, General Electric, Rolls-Royce and United Technologies Corporation, accounted for approximately 55% , 15% and 10% of its sales in 2017 , respectively. Sales to its next three largest customers in 2017 collectively accounted for approximately 6% of its total sales.

FINANCIAL INFORMATION

The backlog of the Company’s orders believed to be firm at the end of 2017 was $ 1,039 million as compared with $ 886 million at the end of 2016 . Of the 2017 year-end backlog, $ 723 million was attributable to Aerospace and $ 316 million was attributable to Industrial. Approximately 62% of the Company's consolidated year-end backlog is scheduled to be shipped during 2018 . The remainder of the Company’s backlog is scheduled to be shipped after 2018 .

We have a global manufacturing footprint and a technical service network to service our worldwide customer base. The global economies have a significant impact on the financial results of the business as we have significant operations outside of the United States. For a summary of net sales, operating profit and long-lived assets by reportable business segment, as well as net sales by product and services and geographic area, see Note 19 of the Consolidated Financial Statements. For a discussion of risks attendant to the global nature of our operations and assets, see Item 1A. Risk Factors.

RAW MATERIALS

The principal raw materials used to manufacture our products are various grades and forms of steel, from rolled steel bars, plates and sheets, to high-grade valve steel wires and sheets, various grades and forms (bars, sheets, forgings, castings and powders) of stainless steels, aluminum alloys, titanium alloys, copper alloys, graphite, and iron-based, nickel-based (Inconels) and cobalt-based (Hastelloys) superalloys for complex aerospace applications. Prices for steel, titanium, Inconel, Hastelloys, as well as other specialty materials, have periodically increased due to higher demand and, in some cases, reduction of the availability of materials. If this occurs, the availability of certain raw materials used by us or in products sold by us may be negatively impacted.

RESEARCH AND DEVELOPMENT

We conduct research and development activities in our effort to provide a continuous flow of innovative new products, processes and services to our customers. We also focus on continuing efforts aimed at discovering and implementing new knowledge that significantly improves existing products and services, and developing new applications for existing products and services. Our product development strategy is driven by product design teams and collaboration with our customers, particularly within Industrial’s Molding Solutions businesses, as well as within our Aerospace and our other Industrial businesses. Many of the products manufactured by us are custom parts made to customers’ specifications. Investments in research and development are important to our long-term growth, enabling us to stay ahead of changing customer and marketplace needs. We spent approximately $ 15 million, $ 13 million and $ 13 million in 2017 , 2016 and 2015 , respectively, on research and development activities.

PATENTS AND TRADEMARKS

Patents and other proprietary rights, including trade secrets and unpatented know-how, are critical to certain of our business units. We are party to certain licenses of intellectual property and hold numerous patents, trademarks, and trade names that enhance our competitive position. The Company does not believe, however, that any of these licenses, patents, trademarks or trade names is individually significant to the Company or either of our segments. We maintain procedures to protect our intellectual property (including trade secrets, patents and trademarks). Risk factors associated with our intellectual property are discussed in Item 1A. Risk Factors.

Table of Contents

EXECUTIVE OFFICERS OF THE COMPANY

For information regarding the Executive Officers of the Company, see Part III, Item 10 of this Annual Report.

ENVIRONMENTAL

Compliance with federal, state, and local laws, as well as those of other countries, which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect, and is not expected to have a material effect, upon our capital expenditures, earnings, or competitive position.

Our past and present business operations and past and present ownership and operations of real property and the use, sale, storage and handling of chemicals and hazardous products subject us to extensive and changing U.S. federal, state and local environmental laws and regulations, as well as those of other countries, pertaining to the discharge of materials into the environment, enforcement, disposition of wastes (including hazardous wastes), the use, shipping, labeling, and storage of chemicals and hazardous materials, building requirements, or otherwise relating to protection of the environment. We have experienced, and expect to continue to experience, costs to comply with environmental laws and regulations. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become subject to new or increased liabilities that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We use and generate hazardous substances and wastes in our operations. In addition, many of our current and former properties are or have been used for industrial purposes. Accordingly, we monitor hazardous waste management and applicable environmental permitting and reporting for compliance with applicable laws at our locations in the ordinary course of our business. We may be subject to potential material liabilities relating to any investigation and clean-up of our locations or properties where we delivered hazardous waste for handling or disposal that may be contaminated or which may have been contaminated prior to our purchase, and to claims alleging personal injury.

AVAILABLE INFORMATION

Our Internet address is www.BGInc.com . Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available without charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC"). In addition, we have posted on our website, and will make available in print to any stockholder who makes a request, our Corporate Governance Guidelines, our Code of Business Ethics and Conduct, and the charters of the Audit Committee, Compensation and Management Development Committee and Corporate Governance Committee (the responsibilities of which include serving as the nominating committee) of the Company’s Board of Directors. References to our website addressed in this Annual Report are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this Annual Report.

Item 1A. Risk Factors

Our business, financial condition or results of operations could be materially adversely affected by any of the following risks. Please note that additional risks not presently known to us may also materially impact our business and operations.

RISKS RELATED TO OUR BUSINESS

We depend on revenues and earnings from a small number of significant customers. Any bankruptcy of or loss of or, cancellation, reduction or delay in purchases by these customers could harm our business. In 2017 , our net sales to General Electric and its subsidiaries accounted for 18% of our total sales and approximately 55% of Aerospace's net sales. Aerospace's second and third largest customers, Rolls-Royce and United Technologies Corporation and their subsidiaries, accounted for 15% and 10% , respectively, of Aerospace's net sales in 2017 . Approximately 6% of Aerospace's net sales in 2017 were to its next three largest customers. Approximately 9% of Industrial's sales in 2017 were to its three largest customers. Some of our success will depend on the business strength and viability of those customers. We cannot assure you that we will be able to retain our largest customers. Some of our customers may in the future reduce their purchases due to economic conditions or shift their purchases from us to our competitors, in-house or to other sources. Some of our long-term sales agreements provide that until a firm order is placed by a customer for a particular product, the customer may unilaterally reduce or discontinue its projected purchases without penalty, or terminate for convenience. The loss of one or more of our largest

Table of Contents

customers, any reduction, cancellation or delay in sales to these customers (including a reduction in aftermarket volume in our RSPs), our inability to successfully develop relationships with new customers, or future price concessions we make to retain customers could significantly reduce our sales and profitability.

The global nature of our business exposes us to foreign currency fluctuations that may affect our future revenues, debt levels and profitability. We have manufacturing facilities and technical service, sales and distribution centers around the world, and the majority of our foreign operations use the local currency as their functional currency. These include, among others, the Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, Euro, Japanese yen, Korean won, Malaysian ringgit, Mexican peso, Singapore dollar, Swedish krona, Swiss franc and Thai baht. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies expose us to translation risk when the local currency financial statements are translated to U.S. dollars. Changes in currency exchange rates may also expose us to transaction risk. We may buy hedges in certain currencies to reduce or offset our exposure to currency exchange fluctuations; however, these transactions may not be adequate or effective to protect us from the exposure for which they are purchased. We have not engaged in any speculative hedging activities. Currency fluctuations may adversely impact our revenues and profitability in the future.

Our operations depend on our manufacturing, sales, and service facilities and information systems in various parts of the world which are subject to physical, financial, regulatory, environmental, operational and other risks that could disrupt our operations. We have a significant number of manufacturing facilities, technical service, and sales centers both within and outside the U.S. The global scope of our business subjects us to increased risks and uncertainties such as threats of war, terrorism and instability of governments; and economic, regulatory and legal systems in countries in which we or our customers conduct business.

Customer, supplier and our facilities are located in areas that may be affected by natural disasters, including earthquakes, windstorms and floods, which could cause significant damage and disruption to the operations of those facilities and, in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, some of our manufacturing equipment and tooling is custom-made and is not readily replaceable. Loss of such equipment or tooling could have a negative impact on our manufacturing business, financial condition, results of operations and cash flows.

Although we have obtained property damage and business interruption insurance, a major catastrophe such as an earthquake, windstorm, flood or other natural disaster at any of our sites, or significant labor strikes, work stoppages, political unrest, or any of the events described above, in any of the areas where we conduct operations could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in the manufacture or shipment of products or the provision of repair and other services that may result in our loss of sales and customers. Our insurance will not cover all potential risks, and we cannot assure you that we will have adequate insurance to compensate us for all losses that result from any insured risks. Any material loss not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows. We cannot assure you that insurance will be available in the future at a cost acceptable to us or at a cost that will not have a material adverse effect on our profitability, net income and cash flows.

The global nature of our operations and assets subject us to additional financial and regulatory risks. We have operations and assets in various parts of the world. In addition, we sell or may in the future sell our products and services to the U.S. and foreign governments and in foreign countries. As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate, and associated risks, including: U.S. imposed embargoes of sales to specific countries; foreign import controls (which may be arbitrarily imposed or enforced); import regulations and duties; export regulations (which require us to comply with stringent licensing regimes); reporting requirements regarding the use of "conflict" minerals mined from certain countries; anti-dumping regulations; price and currency controls; exchange rate fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability; government contracting requirements including cost accounting standards, including various procurement, security, and audit requirements, as well as requirements to certify to the government compliance with these requirements; the necessity of obtaining governmental approval for new and continuing products and operations; and legal systems or decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied. We have experienced inadvertent violations of some of these regulations, including export regulations, safety and environmental regulations, regulations prohibiting sales of certain products and product labeling regulations, in the past, none of which has had or, we believe, will have a material adverse effect on our business. However, any significant violations of these or other regulations in the future could result in civil or criminal sanctions, and the loss of export or other licenses which could have a material adverse effect on our business. We are subject to state unclaimed property laws in the ordinary course of business, and are currently undergoing a multi-state unclaimed property audit, the timing and outcome of which cannot be predicted, and we may incur significant professional fees in conjunction with the audit. We may also be subject to unanticipated income taxes, excise duties, import taxes, export taxes, value added taxes, or other governmental assessments, and taxes may be

Table of Contents

impacted by changes in legislation in the tax jurisdictions in which we operate. In addition, our organizational and capital structure may limit our ability to transfer funds between countries without incurring adverse tax consequences. Any of these events could result in a loss of business or other unexpected costs that could reduce sales or profits and have a material adverse effect on our financial condition, results of operations and cash flows.

Any disruption or failure in the operation of our information systems, including from conversions or integrations of information technology or reporting systems, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our information technology ("IT") systems are an integral part of our business. We depend upon our IT systems to help communicate internally and externally, process orders, manage inventory, make payments and collect accounts receivable. Our IT systems also allow us to purchase, sell and ship products efficiently and on a timely basis, to maintain cost-effective operations, and to help provide superior service to our customers. We are currently in the process of implementing enterprise resource planning ("ERP") platforms across certain of our businesses, and we expect that we will need to continue to improve and further integrate our IT systems, on an ongoing basis in order to effectively run our business. If we fail to successfully manage and integrate our IT systems, including these ERP platforms, it could adversely affect our business or operating results.

Further, in the ordinary course of our business, we store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees, in our data centers and on our networks. The secure maintenance and transmission of this information is critical to our business operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business, revenues and competitive position.

We have significant indebtedness that could affect our operations and financial condition, and our failure to meet certain financial covenants required by our debt agreements may materially and adversely affect our assets, financial position and cash flows. At December 31, 2017 , we had consolidated debt obligations of $532.6 million, representing approximately 30% of our total capital (indebtedness plus stockholders’ equity) as of that date. Our level of indebtedness, proportion of variable rate debt obligations and the significant debt servicing costs associated with that indebtedness may adversely affect our operations and financial condition. For example, our indebtedness could require us to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing the amount of our cash flows available for working capital, capital expenditures, investments in technology and research and development, acquisitions, dividends and other general corporate purposes; limit our flexibility in planning for, or reacting to, changes in the industries in which we compete; place us at a competitive disadvantage compared to our competitors, some of whom have lower debt service obligations and greater financial resources than we do; limit our ability to borrow additional funds; or increase our vulnerability to general adverse economic and industry conditions. In addition, a majority of our debt arrangements require us to maintain certain debt and interest coverage ratios and limit our ability to incur debt, make investments or undertake certain other business activities. These requirements could limit our ability to obtain future financing and may prevent us from taking advantage of attractive business opportunities. Our ability to meet the financial covenants or requirements in our debt arrangements may be affected by events beyond our control, and we cannot assure you that we will satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the restrictions could result in an event of default under our debt arrangements which, in turn, could result in an event of default under the terms of our other indebtedness. Upon the occurrence of an event of default under our debt arrangements, after the expiration of any grace periods, our lenders could elect to declare all amounts outstanding under our debt arrangements, together with accrued interest, to be immediately due and payable. If this were to happen, we cannot assure you that our assets would be sufficient to repay in full the payments due under those arrangements or our other indebtedness or that we could find alternative financing to replace that indebtedness.

Conditions in the worldwide credit markets may limit our ability to expand our credit lines beyond current bank commitments. In addition, our profitability may be adversely affected as a result of increases in interest rates. At December 31, 2017 , we and our subsidiaries had $532.6 million aggregate principal amount of consolidated debt obligations outstanding, of which approximately 61% had interest rates that float with the market (not hedged against interest rate fluctuations). A 100 basis point increase in the interest rate on the floating rate debt in effect at December 31, 2017 would result in an approximate $3.2 million annualized increase in interest expense.

Changes in the availability or price of materials, products and energy resources could adversely affect our costs and profitability. We may be adversely affected by the availability or price of raw materials, products and energy resources, particularly related to certain manufacturing operations that utilize steel, stainless steel, titanium, Inconel, Hastelloys and other

Table of Contents

specialty materials. The availability and price of raw materials and energy resources may be subject to curtailment or change due to, among other things, new laws or regulations, global economic or political events including strikes, terrorist attacks and war, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. In some instances there are limited sources for raw materials and a limited number of primary suppliers for some of our products for resale. Although we are not dependent upon any single source for any of our principal raw materials or products for resale, and such materials and products have, historically, been readily available, we cannot assure you that such raw materials and products will continue to be readily available. Disruption in the supply of raw materials, products or energy resources or our inability to come to favorable agreements with our suppliers could impair our ability to manufacture, sell and deliver our products and require us to pay higher prices. Any increase in prices for such raw materials, products or energy resources could materially adversely affect our costs and our profitability.

We maintain pension and other postretirement benefit plans in the U.S. and certain international locations. Our costs of providing defined benefit plans are dependent upon a number of factors, such as the rates of return on the plans’ assets, exchange rate fluctuations, future governmental regulation, global fixed income and equity prices, and our required and/or voluntary contributions to the plans. Declines in the stock market, prevailing interest rates, declines in discount rates, improvements in mortality rates and rising medical costs may cause an increase in our pension and other postretirement benefit expenses in the future and result in reductions in our pension fund asset values and increases in our pension and other postretirement benefit obligations. These changes have caused and may continue to cause a significant reduction in our net worth and without sustained growth in the pension investments over time to increase the value of the plans’ assets, and depending upon the other factors listed above, we could be required to increase funding for some or all of these pension and postretirement plans.

We carry significant inventories and a loss in net realizable value could cause a decline in our net worth. At December 31, 2017 , our inventories totaled $ 242.0 million . Inventories are valued at the lower of cost or net realizable value based on management's judgments and estimates concerning future sales levels, quantities and prices at which such inventories will be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may necessitate future reduction to inventory values. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.

We have significant goodwill and an impairment of our goodwill could cause a decline in our net worth. Our total assets include substantial goodwill. At December 31, 2017 , our goodwill totaled $690.2 million. The goodwill results from our prior acquisitions, representing the excess of the purchase price we paid over the net assets of the companies acquired. We assess whether there has been an impairment in the value of our goodwill during each calendar year or sooner if triggering events warrant. If future operating performance at one or more of our reporting units does not meet expectations or fair values fall due to significant stock market declines, we may be required to reflect a non-cash charge to operating results for goodwill impairment. The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations and total capitalization, the effect of which could be material. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.

We may not realize all of the sales expected from our existing backlog or anticipated orders . At December 31, 2017 , we had $ 1,039.0 million of order backlog, the majority of which related to aerospace OEM customers. There can be no assurances that the revenues projected in our backlog will be realized or, if realized, will result in profits. We consider backlog to be firm customer orders for future delivery. OEM customers may provide projections of components and assemblies that they anticipate purchasing in the future under existing programs. These projections may represent orders that are beyond lead time and are included in backlog when supported by a long term agreement. Our customers may have the right under certain circumstances or with certain penalties or consequences to terminate, reduce or defer firm orders that we have in backlog. If our customers terminate, reduce or defer firm orders, we may be protected from certain costs and losses, but our sales will nevertheless be adversely affected. Although we strive to maintain ongoing relationships with our customers, there is an ongoing risk that orders may be canceled or rescheduled due to fluctuations in our customers’ business needs or purchasing budgets.

Also, our realization of sales from new and existing programs is inherently subject to a number of important risks and uncertainties, including whether our customers execute the launch of product programs on time, or at all, the number of units that our customers actually produce, the timing of production and manufacturing insourcing decisions made by our customers. In addition, until firm orders are placed, our customers may have the right to discontinue a program or replace us with another supplier at any time without penalty. Our failure to realize sales from new and existing programs could have a material adverse effect on our net sales, results of operations and cash flows.

Table of Contents

We may not recover all of our up-front costs related to new or existing programs. New programs may require significant up-front investments for capital equipment, engineering, inventory, design and tooling. As OEMs in the transportation and aerospace industries have looked to suppliers to bear increasing responsibility for the design, engineering and manufacture of systems and components, they have increasingly shifted the financial risk associated with those responsibilities to the suppliers as well. This trend may continue and is most evident in the area of engineering cost reimbursement. We cannot assure you that we will have adequate funds to make such up-front investments or to recover such costs from our customers as part of our product pricing. In the event that we are unable to make such investments, or to recover them through sales or direct reimbursement from our customers, our profitability, liquidity and cash flows may be adversely affected. In addition, we incur costs and make capital expenditures for new program awards based upon certain estimates of production volumes and production complexity. While we attempt to recover such costs and capital expenditures by appropriately pricing our products, the prices of our products are based in part upon planned production volumes. If the actual production is significantly less than planned or significantly more complex than anticipated, we may be unable to recover such costs. In addition, because a significant portion of our overall costs is fixed, declines in our customers’ production levels can adversely affect the level of our reported profits even if our up-front investments are recovered.

We may not realize all of the intangible assets related to the Aerospace aftermarket businesses. We participate in aftermarket Revenue Sharing Programs ("RSPs") under which we receive an exclusive right to supply designated aftermarket parts over the life of the related aircraft engine program to our customer, General Electric ("GE"). As consideration, we pay participation fees, which are recorded as intangible assets and are recognized as a reduction of sales over the estimated life of the related engine programs. Our total investments in participation fees under our RSPs as of December 31, 2017 equaled $293.7 million, all of which have been paid. At December 31, 2017 , the remaining unamortized balance of these participation fees was $185.6 million.

We entered into Component Repair Programs ("CRPs"), also with GE, during 2015, 2014 and 2013. The CRPs 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 over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain contracts under which the Company currently provides these services directly to GE. Our total investments in CRPs as of December 31, 2017 equaled $111.8 million, all of which have been paid. At December 31, 2017 , the remaining unamortized balance the CRPs was $95.3 million. We recorded the CRP payments as an intangible asset which is recognized as a reduction of sales over the remaining useful life of these engine programs.

The realizability of each asset is dependent upon future revenues related to the programs' aftermarket parts and services and is subject to impairment testing if circumstances indicate that its carrying amount may not be recoverable. 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 our ability to maintain market share within the aftermarket business. A shortfall in future revenues may result in the failure to realize the net amount of the investments, which could adversely affect our financial condition and results of operations. In addition, profitability could be impacted by the amortization of the participation fees and licenses, and the expiration of the international tax incentives on these programs. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.

We face risks of cost overruns and losses on fixed-price contracts. We sell certain of our products under firm, fixed-price contracts providing for a fixed price for the products regardless of the production or purchase costs incurred by us. The cost of producing products may be adversely affected by increases in the cost of labor, materials, fuel, outside processing, overhead and other factors, including manufacturing inefficiencies. Increased production costs may result in cost overruns and losses on contracts.

The departure of existing management and key personnel, a shortage of skilled employees or a lack of qualified sales professionals could materially affect our business, operations and prospects. Our executive officers are important to the management and direction of our business. Our future success depends, in large part, on our ability to retain or replace these officers and other key management personnel. Although we believe we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so could have a material adverse effect on our business, financial condition, results of operations or cash flows. Because of the complex nature of many of our products and services, we are generally dependent on an educated and highly skilled workforce, including, for example, our engineering talent. In addition, there are significant costs associated with the hiring and training of sales professionals. We could be adversely affected by a shortage of available skilled employees or the loss of a significant number of our sales professionals.

If we are unable to protect our intellectual property rights effectively, our financial condition and results of operations could be adversely affected. We own or are licensed under various intellectual property rights, including patents,

Table of Contents

trademarks and trade secrets. Our intellectual property rights may not be sufficiently broad or otherwise may not provide us a significant competitive advantage, and patents may not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we have taken to maintain and protect our intellectual property may not prevent it from being improperly disclosed, challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual property rights are not highly developed or protected. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual property position or for other business reasons, or countries may require compulsory licensing of our intellectual property. We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in part, confidential information, trade secrets and other proprietary rights. There can be no assurance that these agreements will adequately protect these intangible assets and will not be breached, that we will have adequate remedies for any breach, or that others will not independently develop substantially equivalent proprietary information. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights could adversely impact our competitive position, financial condition and results of operations.

Any product liability, warranty, contractual or other claims in excess of insurance may adversely affect our financial condition. Our operations expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and the products we buy from third parties and sell to our customers, or to potential warranty, contractual or other claims. For example, we may be exposed to potential liability for personal injury, property damage or death as a result of the failure of an aircraft component designed, manufactured or sold by us, or the failure of an aircraft component that has been serviced by us or of the components themselves. While we have liability insurance for certain risks, our insurance may not cover all liabilities, including potential reputational impacts. Additionally, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available for the full amount of the loss could have a material adverse effect on our financial condition, results of operations and cash flows.

From time to time, we receive product warranty claims, under which we may be required to bear costs of inspection, repair or replacement of certain of our products. Warranty claims may range from individual customer claims to full recalls of all products in the field. We vigorously defend ourselves in connection with these matters. We cannot, however, assure you that the costs, charges and liabilities associated with these matters will not be material, or that those costs, charges and liabilities will not exceed any amounts reserved for them in our consolidated financial statements.

Our business, financial condition, results of operations and cash flows could be adversely impacted by strikes or work stoppages. Approximately 17% of our U.S. employees are covered by collective bargaining agreements and more than 39% of our non-U.S. employees are covered by collective bargaining agreements or statutory trade union agreements. The Company has a national collective bargaining agreement (“CBA”) with certain unionized employees at the Bristol, Connecticut and Corry, Pennsylvania facilities of the Associated Spring business unit, covering approximately 300 employees. The current CBA will expire in August 2020, at which time we expect to negotiate a successor agreement. The local CBA for the Corry, Pennsylvania facility of the Associated Spring business unit will expire on June 14, 2018, and the local CBA for the Bristol, Connecticut facility of the Associated Spring business unit will expire on October 15, 2018, at which time we expect to negotiate successor agreements. We also have annual negotiations in Brazil and Mexico and, collectively, these negotiations cover approximately 300 employees in those two countries. In addition, we expect to negotiate a successor agreement to the local CBA covering approximately 250 employees in Singapore which will expire at the end of 2018. We also completed negotiations resulting in wage adjustments at four locations in our Industrial Segment, collectively, covering a total of approximately 750 employees.

Although we believe that our relations with our employees are good, we cannot assure you that we will be successful in negotiating new CBAs or that such negotiations will not result in significant increases in the cost of labor, including healthcare, pensions or other benefits. Any potential strikes or work stoppages, and the resulting adverse impact on our relationships with customers, could have a material adverse effect on our business, financial condition, results of operations or cash flows. Similarly, a protracted strike or work stoppage at any of our major customers, suppliers or other vendors could materially adversely affect our business.

Changes in taxation requirements could affect our financial results. Our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which we operate. Increases in indirect taxes could affect our products’ affordability and therefore reduce our sales. We are also subject to income tax in numerous jurisdictions in which we generate revenues. Changes in tax laws, tax rates or tax rulings may have a significant adverse impact on our effective tax rate. Among other things, our tax liabilities are affected by the mix of pretax income or loss among the tax jurisdictions in which we operate and the potential repatriation of foreign earnings to the U.S. Further, during the ordinary course of business, we are subject to examination by the various tax authorities of the jurisdictions in which we operate which could result in an

Table of Contents

unanticipated increase in taxes. 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 Act makes broad and complex changes to the U.S Tax Code that affect 2017 and that include, but are not limited to, requiring a one-time Transition Tax on certain unrepatriated earnings of foreign subsidiaries of the Company (payable over eight years) and exempting foreign dividends paid to the U.S. during the year from taxation, if such earnings are included with the Transition Tax. The Act also establishes new law that will affect 2018 and beyond, including, but not limited to a reduction of the U.S. Corporate income tax rate from 35% to 21% and a general elimination of U.S federal income taxes on dividends from foreign subsidiaries. The Company has recorded a provisional tax expense in the Consolidated Financial Statements as of December 31, 2017. The Company has not finalized its' accounting for the income tax effects related to certain sections of the Act; however we are permitted to make changes over a measurement period that should not extend beyond one year from the enactment date of the Act. Such changes may adversely affect our financial condition, results of operations and cash flows. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - U.S. Tax Reform”.

Changes in accounting guidance could affect our financial results. New accounting guidance that may become applicable to us from time to time, or changes in the interpretations of existing guidance, could have a significant effect on our reported results for the affected periods. Adoption of new accounting guidance could have a material impact on our financial statements and may retroactively affect the accounting treatment of transactions completed before adoption. See Note 1 of the Consolidated Financial Statements.

RISKS RELATED TO THE INDUSTRIES IN WHICH WE OPERATE

We operate in highly competitive markets. We may not be able to compete effectively with our competitors, and competitive pressures could adversely affect our business, financial condition and results of operations. Our two global business segments compete with a number of larger and smaller companies in the markets we serve. Some of our competitors have greater financial, production, research and development, or other resources than we do. Within Aerospace, certain of our OEM customers compete with our repair and overhaul business. Some of our OEM customers in the aerospace industry also compete with us where they have the ability to manufacture the components and assemblies that we supply to them but have chosen, for capacity limitations, cost considerations or other reasons, to outsource the manufacturing to us. Our customers award business based on, among other things, price, quality, reliability of supply, service, technology and design. Our competitors’ efforts to grow market share could exert downward pressure on our product pricing and margins. Our competitors may also develop products or services, or methods of delivering those products or services that are superior to our products, services or methods. Our competitors may adapt more quickly than us to new technologies or evolving customer requirements. We cannot assure you that we will be able to compete successfully with our existing or future competitors. Our ability to compete successfully will depend, in part, on our ability to continue make investments to innovate and manufacture the types of products demanded by our customers, and to reduce costs by such means as reducing excess capacity, leveraging global purchasing, improving productivity, eliminating redundancies and increasing production in low-cost countries. We have invested, and expect to continue to invest, in increasing our manufacturing footprint in low-cost countries. We cannot assure you that we will have sufficient resources to continue to make such investments or that we will be successful in maintaining our competitive position. If we are unable to differentiate our products or maintain a low-cost footprint, we may lose market share or be forced to reduce prices, thereby lowering our margins. Any such occurrences could adversely affect our financial condition, results of operations and cash flows.

The industries in which we operate have been experiencing consolidation, both in our suppliers and the customers we serve. Supplier consolidation is in part attributable to OEMs more frequently awarding long-term sole source or preferred supplier contracts to the most capable suppliers in an effort to reduce the total number of suppliers from whom components and systems are purchased. If consolidation of our existing competitors occurs, we would expect the competitive pressures we face to increase, and we cannot assure you that our business, financial condition, results of operations or cash flows will not be adversely impacted as a result of consolidation by our competitors or customers.

Original equipment manufacturers in the aerospace and transportation industries have significant pricing leverage over suppliers and may be able to achieve price reductions over time. Additionally, we may not be successful in our efforts to raise prices on our customers. There is substantial and continuing pressure from OEMs in the transportation industries, including automotive and aerospace, to reduce the prices they pay to suppliers. We attempt to manage such downward pricing pressure, while trying to preserve our business relationships with our customers, by seeking to reduce our production costs through various measures, including purchasing raw materials and components at lower prices and implementing cost-effective process improvements. Our suppliers have periodically resisted, and in the future may resist, pressure to lower their prices and may seek to impose price increases. If we are unable to offset OEM price reductions, our profitability and cash flows could be adversely affected. In addition, OEMs have substantial leverage in setting purchasing and payment terms, including the terms of accelerated payment programs under which payments are made prior to the account due

Table of Contents

date in return for an early payment discount. OEMs can unexpectedly change their purchasing policies or payment practices, which could have a negative impact on our short-term working capital.

Demand for our defense-related products depends on government spending. A portion of Aerospace's sales is derived from the military market, including single-sourced and dual-sourced sales. The military market is largely dependent upon government budgets and is subject to governmental appropriations. Although multi-year contracts may be authorized in connection with major procurements, funds are generally appropriated on a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only partially funded and additional funds are committed only as further appropriations are made. We cannot assure you that maintenance of or increases in defense spending will be allocated to programs that would benefit our business. Moreover, we cannot assure you that new military aircraft programs in which we participate will enter full-scale production as expected. A decrease in levels of defense spending or the government’s termination of, or failure to fully fund, one or more of the contracts for the programs in which we participate could have a material adverse effect on our financial position and results of operations.

The aerospace industry is highly regulated. Complications related to aerospace regulations may adversely affect the Company. A substantial portion of our income is derived from our aerospace businesses. The aerospace industry is highly regulated in the U.S. by the Federal Aviation Administration, or FAA, and in other countries by similar regulatory agencies. We must be certified by these agencies and, in some cases, by individual OEMs in order to engineer and service systems and components used in specific aircraft models. If material authorizations or approvals were delayed, revoked or suspended, our business could be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened, in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.

Fluctuations in jet fuel and other energy prices may impact our operating results. Fuel costs constitute a significant portion of operating expenses for companies in the aerospace industry. Fluctuations in fuel costs could impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the value associated with new fuel efficient technologies. Widespread disruption to oil production, refinery operations and pipeline capacity in certain areas of the U.S. can impact the price of jet fuel significantly. Conflicts in the Middle East, an important source of oil for the U.S. and other countries where we do business, cause prices for fuel to be volatile. Because we and many of our customers are in the aerospace industry, these fluctuations could have a material adverse effect on our financial condition or results of operations.

Our products and services may be rendered obsolete by new products, technologies and processes. Our manufacturing operations focus on highly engineered components which require extensive engineering and research and development time. Our competitive advantage may be adversely impacted if we cannot continue to introduce new products ahead of our competition, or if our products are rendered obsolete by other products or by new, different technologies and processes. The success of our new products will depend on a number of factors, including innovation, customer acceptance, the efficiency of our suppliers in providing materials and component parts, and the performance and quality of our products relative to those of our competitors. We cannot predict the level of market acceptance or the amount of market share our new products will achieve. Additionally, we may face increased or unexpected costs associated with new product introduction, including the use of additional resources such as personnel and capital. We cannot assure that we will not experience new product introduction delays in the future.

RISKS RELATED TO RESTRUCTURING, ACQUISITIONS, JOINT VENTURES AND DIVESTITURES

Our restructuring actions could have long-term adverse effects on our business. From time to time, we have implemented restructuring activities across our businesses to adjust our cost structure, and we may engage in similar restructuring activities in the future. We may not achieve expected cost savings from workforce reductions or restructuring activities and actual charges, costs and adjustments due to these actions may vary materially from our estimates. Our ability to realize anticipated cost savings, synergies and revenue enhancements may be affected by a number of factors, including the following: our ability to effectively eliminate duplicative back office overhead and overlapping sales personnel, rationalize manufacturing capacity, synchronize information technology systems, consolidate warehousing and other facilities and shift production to more economical facilities; significant cash and non-cash integration and implementation costs or charges in order to achieve those cost savings, which could offset any such savings and other synergies resulting from our acquisitions or divestitures; and our ability to avoid labor disruption in connection with these activities. In addition, delays in implementing planned restructuring activities or other productivity improvements may diminish the expected operational or financial benefits. See Note 8 of the Consolidated Financial Statements.

Table of Contents

Our acquisition and other strategic initiatives may not be successful. We have made a number of acquisitions in the past, including most recently the acquisitions of the Gammaflux and FOBOHA businesses, and we anticipate that we may, from time to time, acquire additional businesses, assets or securities of companies, and enter into joint ventures and other strategic relationships that we believe would provide a strategic fit with our businesses. These activities expose the Company to a number of risks and uncertainties, the occurrence of any of which could materially adversely affect our business, cash flows, financial condition and results of operations. A portion of the industries that we serve are mature industries. As a result, our future growth may depend in part on the successful acquisition and integration of acquired businesses into our existing operations. We may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approvals or otherwise complete acquisitions in the future.

We could have difficulties integrating acquired businesses with our existing operations. Difficulties of integration can include coordinating and consolidating separate systems, integrating the management of the acquired business, retaining market acceptance of acquired products and services, maintaining employee morale and retaining key employees, and implementing our enterprise resource planning systems and operational procedures and disciplines. Any such difficulties may make it more difficult to maintain relationships with employees, customers, business partners and suppliers. In addition, even if integration is successful, the financial performance of acquired business may not be as expected and there can be no assurance we will realize anticipated benefits from our acquisitions. We cannot assure you that we will effectively assimilate the business or product offerings of acquired companies into our business or product offerings or realize anticipated operational synergies. In connection with the integration of acquired operations or the conduct of our overall business strategies, we may periodically restructure our businesses and/or sell assets or portions of our business. Integrating the operations and personnel of acquired companies into our existing operations may result in difficulties, significant expense and accounting charges, disrupt our business or divert management’s time and attention.

Acquisitions involve numerous other risks, including potential exposure to unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business. Certain of the acquisition agreements by which we have acquired businesses require the former owners to indemnify us against certain liabilities related to the business operations before we acquired it. However, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial condition. In connection with acquisitions or joint venture investments outside the U.S., we may enter into derivative contracts to purchase foreign currency in order to hedge against the risk of foreign currency fluctuations in connection with such acquisitions or joint venture investments, which subjects us to the risk of foreign currency fluctuations associated with such derivative contracts. Additionally, our final determinations and appraisals of the fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates. We cannot assure you that the fair value of acquired businesses will remain constant.

We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected. A successful divestiture depends on various factors, including our ability to effectively transfer liabilities, contracts, facilities and employees to any purchaser, identify and separate the intellectual property to be divested from the intellectual property that we wish to retain, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any divestitures. In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other products offered by us. All of these efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits or synergies of any divestiture transaction, our consolidated financial position, results of operations and cash flows could be negatively impacted. In addition, divestitures of businesses involve a number of risks, including significant costs and expenses, the loss of customer relationships, and a decrease in revenues and earnings associated with the divested business. Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of material financial resources and significant employee resources. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition.

Item 1B. Unresolved Staff Comments

None.

Table of Contents

Item 2. Properties



Number of Facilities - Owned

Location	Industrial	Aerospace	Other	Total

Manufacturing:
North America	6	5	0	11
Europe	9	0	0	9
Asia	1	0	0	1
Central and Latin America	2	0	0	2
	18	5	0	23
Non-Manufacturing:
North America	0	0	1 ^*	1
Europe	2	0	0	2
	2	0	1	3

^* The Company's Corporate office



Number of Facilities - Leased

Location	Industrial	Aerospace	Other	Total

Manufacturing:
North America	3	2	0	5
Europe	2	0	0	2
Asia	5	5	0	10
	10	7	0	17
Non-Manufacturing:
North America	8	2	1 ^**	11
Europe	13	1	0	14
Asia	20	0	0	20
Central and Latin America	3	0	0	3
	44	3	1	48

^** Industrial Segment headquarters and certain Shared Services groups.

Table of Contents

Item 3. Legal Proceedings

We are subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending against us and our subsidiaries. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

In November 2016, the Company’s previously disclosed arbitration with Triumph Actuation Systems - Yakima, LLC ("Triumph") was concluded. The Company was awarded $9.2 million, plus interest on the judgment of $1.4 million, which amounts were received on January 3, 2017. The outcome did not have a material impact on the Company's consolidated financial position, liquidity or consolidated results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


(a)	Market Information

The Company’s common stock is traded on the New York Stock Exchange under the symbol “B”. The following table sets forth, for the periods indicated, the low and high sales intra-day trading price per share, as reported by the New York Stock Exchange, and dividends declared and paid.



	2017
	Low		High		Dividends
Quarter ended March 31	$	45.47	$	51.97	$	0.13
Quarter ended June 30	49.31		60.74		0.14
Quarter ended September 30	57.70		70.84		0.14
Quarter ended December 31	61.06		72.87		0.14



	2016
	Low		High		Dividends
Quarter ended March 31	$	30.07	$	35.81	$	0.12
Quarter ended June 30	31.13		37.75		0.13
Quarter ended September 30	32.55		41.86		0.13
Quarter ended December 31	37.88		49.90		0.13

Stockholders

As of February 13, 2018, there were approximately 3,088 holders of record of the Company’s common stock. A significant number of the outstanding shares of common stock which are beneficially owned by individuals or entities are registered in the name of a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms. The Company believes that there are approximately 29,596 beneficial owners of its common stock.

Dividends

Payment of future dividends will depend upon the Company’s financial condition, results of operations and other factors deemed relevant by the Company’s Board of Directors, as well as any limitations resulting from financial covenants under the Company’s credit facilities or debt indentures. See the table above for dividend information for 2017 and 2016 .

Securities Authorized for Issuance Under Equity Compensation Plans

For information regarding Securities Authorized for Issuance Under Equity Compensation Plans, see Part III, Item 12 of this Annual Report.

Table of Contents

Performance Graph

A stock performance graph based on cumulative total returns (price change plus reinvested dividends) for $100 invested the Company on December 31, 2012 is set forth below.



	2012	2013	2014	2015	2016	2017
BGI	$100.00	$172.90	$169.10	$163.68	$222.26	$299.35
S&P 600	$100.00	$141.29	$149.40	$146.40	$185.09	$209.41
Russell 2000	$100.00	$138.81	$145.59	$139.18	$168.75	$193.42

The performance graph includes the S&P 600 Small Cap Index and the Russell 2000 Index, both of which include the Company.


(c)	Issuer Purchases of Equity Securities



Period	Total Number of Shares (or Units) Purchased		Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
October 1-31, 2017	304		$	70.75	—	4,042,006
November 1-30, 2017	106,471		$	64.88	106,100	3,935,906
December 1-31, 2017	171,646		$	64.61	164,000	3,771,906
Total	278,421	⁽¹⁾	$	64.72	270,100

(1)

Other than 270,100 shares purchased in the fourth quarter of 2017 , which were purchased as part of the Company's 2011 Program (defined below), all acquisitions of equity securities during the fourth quarter of 2017 were the result of the operation of the terms of the Company's stockholder-approved equity compensation plans and the terms of the equity rights granted pursuant to those plans to pay for the related income tax upon issuance of shares. The purchase price of a share of stock used for tax withholding is the market price on the date of issuance.

(2)

The program was publicly announced on October 20, 2011 (the "2011 Program") authorizing repurchase of up to 5.0 million shares of common stock. At December 31, 2015, 1.1 million shares of common stock had not been purchased under the 2011 Program. On February 10, 2016, the Board of Directors of the Company increased the number of shares authorized for repurchase under the 2011 Program by 3.9 million shares of common stock (5.0 million authorized, in total). The 2011 Program permits open market purchases, purchases under a Rule 10b5-1 trading plan and privately negotiated transactions.

Table of Contents

Item 6. Selected Financial Data



	2017 ⁽⁵⁾⁽⁶⁾			2016 ⁽⁷⁾			2015 ⁽⁸⁾			2014			2013 ^(9)(10)
Per common share ⁽¹⁾
Income from continuing operations
Basic	$	1.10		$	2.50		$	2.21		$	2.20		$	1.34
Diluted	1.09			2.48			2.19			2.16			1.31
Net income
Basic	1.10			2.50			2.21			2.16			5.02
Diluted	1.09			2.48			2.19			2.12			4.92
Dividends declared and paid	0.55			0.51			0.48			0.45			0.42
Stockholders’ equity (at year-end)	23.61			21.72			20.94			20.40			21.17
Stock price (at year-end)	63.27			47.42			35.39			37.01			38.31
For the year (in thousands)
Net sales	$	1,436,499		$	1,230,754		$	1,193,975		$	1,262,006		$	1,091,566
Operating income	210,278			192,178			168,396			179,974			123,201
As a percent of net sales	14.6		%	15.6		%	14.1		%	14.3		%	11.3		%
Income from continuing operations	$	59,415		$	135,601		$	121,380		$	120,541		$	72,321
As a percent of net sales	4.1		%	11.0		%	10.2		%	9.6		%	6.6		%
Net income	$	59,415		$	135,601		$	121,380		$	118,370		$	270,527
As a percent of net sales	4.1		%	11.0		%	10.2		%	9.4		%	24.8		%
As a percent of average stockholders’ equity ⁽²⁾	4.7		%	11.6		%	10.7		%	10.3		%	28.3		%
Depreciation and amortization	$	90,150		$	80,154		$	78,242		$	81,395		$	65,052
Capital expenditures	58,712			47,577			45,982			57,365			57,304
Weighted average common shares outstanding – basic	54,073			54,191			55,028			54,791			53,860
Weighted average common shares outstanding – diluted	54,605			54,631			55,513			55,723			54,973
Year-end financial position (in thousands)
Working capital	$	452,960		$	306,609		$	359,038		$	323,306		$	276,878
Goodwill	690,223			633,436			587,992			594,949			649,697
Other intangible assets, net	507,042			522,258			528,322			554,694			534,293
Property, plant and equipment, net	359,298			334,489			308,856			299,435			302,558
Total assets	2,365,716			2,137,539			2,061,866			2,073,885			2,123,673
Long-term debt and notes payable	532,596			500,954			509,906			504,734			547,424
Stockholders’ equity	1,260,321			1,168,358			1,127,753			1,111,793			1,141,414
Debt as a percent of total capitalization ⁽³⁾	29.7		%	30.0		%	31.1		%	31.2		%	32.4		%
Statistics
Employees at year-end ⁽⁴⁾	5,375			5,036			4,735			4,515			4,331


(1)	Income from continuing operations and net income per common share are based on the weighted average common shares outstanding during each year. Stockholders’ equity per common share is calculated based on actual common shares outstanding at the end of each year.


(2)	Average stockholders' equity is calculated based on the month-end stockholders equity balances between December 31, 2016 and December 31, 2017 (13-month average).


(3)	Debt includes all interest-bearing debt and total capitalization includes interest-bearing debt and stockholders’ equity.


(4)	The number of employees at each year-end includes employees of continuing operations and excludes prior employees of discontinued operations.


(5)	During 2017, the Company completed the acquisition of the assets of the Gammaflux business. The results of Gammaflux, from the acquisition on April 3, 2017, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2017.


(6)	During 2017, the Company recorded the effects of the U.S. Tax Reform, resulting in tax expense of $96.7 million, or $1.79 per basic share ($1.77 per diluted share). See Note 13 of the Consolidated Financial Statements.


(7)	During 2016, the Company completed the acquisition of FOBOHA. The results of FOBOHA, from the acquisition on August 31, 2016, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2016.


(8)	During 2015, the Company completed the acquisitions of Thermoplay and Priamus. The results of Thermoplay and Priamus, from their acquisitions on August 7, 2015 and October 1, 2015, respectively, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2015.


(9)	During 2013, the Company completed the acquisition of the Männer Business. The results of the Männer Business, from the acquisition on October 31, 2013, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2013.


(10)	During 2013, the Company sold the BDNA business within the segment formerly referred to as Distribution. The results of the BDNA business, including any (loss) gain on the sale of business, have been reported through discontinued operations during the respective periods.

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our consolidated financial statements and related notes in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences include those described in the section titled “Risk Factors” and elsewhere in this report. We undertake no obligation to update any of the forward-looking statements.

OVERVIEW

2017 Highlights

Barnes Group Inc. (the "Company") achieved sales of $1,436.5 million in 2017 , an increase of $ 205.7 million, or 16.7% , from 2016 . Within Industrial, the acquisitions of FOBOHA in August 2016 and Gammaflux in April 2017 provided incremental sales of $ 47.2 million and $ 9.1 million, respectively, during the 2017 period. Organic sales (net sales excluding both foreign currency and acquisition impacts) increased by $137.1 million, or 11.1% , with increases of 9.8% and 13.8% within the Industrial and Aerospace segments, respectively. Sales in the Industrial segment were impacted by changes in foreign currency which increased sales by approximately $ 12.4 million as the U.S. dollar weakened against foreign currencies.

Operating income increased 9.4% from $192.2 million in 2016 to $210.3 million in 2017 and operating margin decreased from 15.6% in 2016 to 14.6% in 2017 . Operating income was impacted by increased leverage of organic sales growth in both segments, partially offset by lower productivity, resulting primarily from increased costs incurred on certain programs at Industrial.

The Company focused on profitable sales growth both organically and through acquisition, in addition to productivity improvements, as key strategic objectives in 2017 . Management continued its focus on cash flow and working capital management in 2017 and generated $203.9 million in cash flow from operations.

Business Transformation

Acquisitions and strategic relationships with our customers have been a key growth driver for the Company, and we continue to seek alliances which foster long-term business relationships. These acquisitions have allowed us to extend into new or adjacent markets, expand our geographic reach, and commercialize new products, processes and services. The Company continually evaluates its business portfolio to optimize product offerings and maximize value. We have significantly transformed our business following our entrance into the plastic injection molding market.

The Company has completed a number of acquisitions in the past few years. In the second quarter of 2017, the Company completed its acquisition of the assets of the privately held Gammaflux L.P. business ("Gammaflux"), a leading supplier of hot runner temperature and sequential valve gate control systems to the plastics industry. Gammaflux, which is headquartered in Sterling, Virginia and has offices in Illinois and Germany, provides temperature control solutions for injection molding, extrusion, blow molding, thermoforming, and other applications. Its end markets include packaging, electronics, automotive, household products, medical, and tool building. The Company acquired the assets of Gammaflux for an aggregate purchase price of $8.9 million, which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Asset Purchase Agreement. In connection with the acquisition, the Company recorded $1.5 million of goodwill and $3.7 million of intangible assets. See Notes 2 and 5 to the Consolidated Financial Statements.

In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and currently operates out of two manufacturing facilities located in Germany and China. At the time of acquisition, FOBOHA also operated out of a manufacturing facility located in Switzerland; however, this location was consolidated and closed during 2017. See Note 8 to the Consolidated Financial Statements. FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 137.9 million ( $140.2 million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the FOBOHA Share Purchase Agreement, including approximately CHF 11.3 million ( $11.5 million) related to cash acquired. In connection with the acquisition, the Company recorded $39.8 million of intangible assets and $75.6 million of goodwill. See Notes 2 and 5 to the Consolidated Financial Statements.

Table of Contents

In the fourth quarter of 2015, the Company, itself and through two of its subsidiaries, completed the acquisition of privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus is headquartered in Schaffhausen, Switzerland and has direct sales and service offices in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services many of the world's highest quality plastic injection molders in the medical, automotive, consumer goods, electronics and packaging markets. Priamus has been integrated into our Industrial segment. The Company acquired Priamus for an aggregate cash purchase price of CHF 9.9 million ($10.1 million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Share Purchase Agreement, including CHF 1.6 million ($1.6 million) related to cash acquired. See Note 2 of the Consolidated Financial Statements.

In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay, which has been integrated into our Industrial segment, specializes in the design, development, and manufacturing of hot runner solutions for plastic injection molding, primarily in the packaging, automotive, and medical end markets. The Company acquired Thermoplay for an aggregate cash purchase price of €58.1 million ($63.7 million), pursuant to the terms of the Sale and Purchase Agreement ("SPA"), which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the SPA, including €17.1 million ($18.7 million) related to cash acquired. See Note 2 of the Consolidated Financial Statements.

Management Objectives

Management is focused on continuing the Company's transformation by executing on its profitable growth strategy comprised of the following elements:


•	Build a world-class Company focused on high margin, high growth businesses


•	Leverage the Barnes Enterprise System ("BES") as a significant competitive advantage


•	Expand and protect our core intellectual property to deliver differentiated solutions


•	Effectively allocate capital to drive top quartile total shareholder returns.

The successful execution of this strategy requires making value enhancing investments in organic growth (new products, processes, systems, services, markets and customers) and strategic acquisitions. Management remains focused on a deeper deployment of BES across the Company to advance Commercial Excellence, Operational Excellence and Financial Excellence. In addition, we remain focused on optimizing two key strategic enablers that will strengthen our competitive position:


•	Cultivate a culture of innovation and build upon intellectual property to drive growth


•	Enhance our talent management system to recruit, develop and retain an engaged and empowered workforce.

The combined benefits from growth investment and execution of the strategic enablers is expected to generate long-term value for the Company's shareholders, customers and employees.

Our Business

The Company consists of two operating segments: Industrial and Aerospace.

Key Performance Indicators

Management evaluates the performance of its reportable segments based on the sales, operating profit, operating margins and cash generation of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and certain components of other income and other expenses, as well as the allocation of corporate overhead expenses. Each segment has standard key performance indicators (“KPIs”), a number of which are focused on customer metrics (on-time-delivery and quality), internal effectiveness and productivity/efficiency metrics (sales effectiveness, global sourcing, operational excellence, functional excellence, cost of quality, and days working capital), employee safety-related metrics (total recordable incident rate and lost time incident rate), and specific KPIs on profitable growth.

Table of Contents

Key Industry Data

In both segments, management tracks a variety of economic and industry data as indicators of the health of a particular sector.

At Industrial, key data for the manufacturing operations include the Institute for Supply Management’s manufacturing

PMI Composite Index (and similar indices for European and Asian-based businesses); the Federal Reserve’s Industrial

Production Index ("the IPI"); IHS-Markit worldwide forecasts for light vehicle production, as well as new model introductions and existing model refreshes; North American medium and heavy duty vehicle production; IC Interconnection Consulting Hotrunners Worldwide Report for Auto, Medical, Personal Care and Packaging industries; and global GDP growth forecasts.

At Aerospace, management of the aftermarket business monitors the number of aircraft in the active fleet, the number of planes temporarily or permanently taken out of service, aircraft utilization rates for the major airlines, engine shop visits, airline profitability, aircraft fuel costs and traffic growth. The Aerospace OEM business regularly tracks orders and deliveries for each of the major aircraft manufacturers, as well as engine purchases made for new aircraft. Management also monitors annual appropriations for the U.S. military related to purchases of new or used aircraft and engine components.

RESULTS OF OPERATIONS

Sales



($ in millions)	2017		2016		$ Change		% Change		2015
Industrial	$	973.9	$	824.2	$	149.7	18.2	%	$	782.3
Aerospace	462.6		406.5		56.1		13.8	%	411.7
Total	$	1,436.5	$	1,230.8	$	205.7	16.7	%	$	1,194.0

2017 vs. 2016 :

The Company reported net sales of $ 1,436.5 million in 2017 , an increase of $205.7 million, or 16.7% , from 2016 . Acquired businesses contributed incremental sales of $ 56.3 million during the 2017 period. Organic sales within Industrial increased by $81.0 million , or 9.8% during 2017 , driven primarily by continued strength in our Nitrogen Gas Products and Molding Solutions business units. Aerospace recorded sales of $ 462.6 million in 2017 , a $56.1 million , or 13.8% increase from 2016 as newer, more technologically advanced engine platforms increased volumes at the original equipment manufacturing business within Aerospace. Sales within the aftermarket businesses also improved throughout 2017. The impact of foreign currency translation increased sales within Industrial by approximately $ 12.4 million as the U.S. dollar weakened against foreign currencies. Sales within Aerospace were not impacted by changes in foreign currency as these are largely denominated in U.S. dollars. The Company’s international sales increased 19.8% year-over-year, while domestic sales increased 13.0% , largely a result of Aerospace sales being primarily U.S. based. Excluding the impact of foreign currency translation on sales, however, the Company's international sales in 2017 increased 18.0% , inclusive of sales through acquisition, from 2016 .

2016 vs. 2015 :

The Company reported net sales of $ 1,230.8 million in 2016 , an increase of $36.8 million , or 3.1% , from 2015 . Acquired businesses contributed incremental sales of $47.4 million during the 2016 period. Organic sales within Industrial increased by $4.1 million, or 0.5%, during 2016 , primarily due to strength in our Molding Solutions businesses, slightly offset by continued softness in North American general industrial end-markets. Aerospace recorded sales of $ 406.5 million in 2016 , a $5.2 million, or 1.3% decrease from 2015 . Lower sales within the OEM and spare parts businesses were partially offset by increased sales within the MRO business. The impact of foreign currency translation decreased sales within Industrial by approximately $9.6 million as the U.S. dollar strengthened against foreign currencies. Sales within Aerospace were not impacted by changes in foreign currency as these are largely denominated in U.S. dollars. The Company’s international sales increased 10.4% year-over-year, while domestic sales decreased 4.7%, largely a result of Aerospace sales being primarily U.S.-based. Excluding the impact of foreign currency translation on sales, however, the Company's international sales in 2016 increased 12.0%, inclusive of sales through acquisition, from 2015 .

Table of Contents

Expenses and Operating Income



($ in millions)	2017			2016			$ Change		% Change		2015
Cost of sales	$	939.3		$	790.3		$	149.0	18.9	%	$	782.8
% sales	65.4		%	64.2		%					65.6		%
Gross profit ⁽¹⁾	$	497.2		$	440.5		$	56.8	12.9	%	$	411.2
% sales	34.6		%	35.8		%					34.4		%
Selling and administrative expenses	$	286.9		$	248.3		$	38.7	15.6	%	$	242.8
% sales	20.0		%	20.2		%					20.3		%
Operating income	$	210.3		$	192.2		$	18.1	9.4	%	$	168.4
% sales	14.6		%	15.6		%					14.1		%


(1)	Sales less cost of sales

2017 vs. 2016 :

Cost of sales in 2017 increased 18.9% from 2016 , while gross profit margin decreased from 35.8% in 2016 to 34.6% in 2017 . Gross margins improved at Aerospace and declined at Industrial. Gross profit improved within both segments, driven primarily by organic growth within each of the business units. At Industrial, gross margins decreased during 2017 as a result of lower productivity, primarily a result of additional costs incurred on certain programs at Engineered Components. Incremental costs include expedited freight, increased scrap and costs related to the transfer of work to other facilities. A lower margin contribution on acquisition sales also had an impact on the overall lower gross margins at Industrial. Gross profit at Industrial increased, however, driven by the profit impact of organic growth within our Molding Solutions and Nitrogen Gas Products business units, and a pre-tax net benefit of $0.3 million resulting from the second quarter 2017 restructuring actions taken within Industrial, partially offset by the additional costs at Engineered Components discussed above. Gross profits during both the 2017 and 2016 periods were negatively impacted by $2.3 million of short-term purchase accounting adjustments related to the acquisition of FOBOHA. Within Aerospace, improvement in gross profit relates primarily to organic growth within each of the businesses, combined with favorable productivity, partially offset by scheduled price deflation and the absence of the $1.4 million gain related to the contract termination arbitration award in 2016. Increased volumes in the maintenance repair and overhaul and spare parts businesses, in particular, contributed to the gross margin improvement during 2017. Selling and administrative expenses in 2017 increased 15.6% from the 2016 period, due primarily to corresponding increases in sales volumes, incentive compensation, the amortization of intangible assets related to the acquisition of FOBOHA and a pre-tax charge of $0.3 million resulting from the second quarter 2017 restructuring actions taken within Industrial, partially offset by the absence of $3.0 million of costs related to a customer termination dispute and a $1.2 million reduction in transaction costs related to the acquisition of FOBOHA in 2016. As a percentage of sales, selling and administrative costs slightly decreased from 20.2% in the 2016 period to 20.0% in the 2017 period. Operating income in 2017 increased 9.4% to $210.3 million from the 2016 period and operating income margin decreased from 15.6% to 14.6% .

2016 vs. 2015 :

Cost of sales in 2016 increased 1.0% from 2015 , while gross profit margin increased from 34.4% in 2015 to 35.8% in 2016 . Gross margins improved at Industrial and decreased at Aerospace. Gross margin during the comparable 2015 period included a charge of $6.4 million related to a lump-sum pension settlement charge (see Note 11 of the Consolidated Financial Statements). At Industrial, gross profit increased during 2016 primarily as a result of favorable productivity and strength within the Molding Solutions businesses. Gross profit during 2016 was negatively impacted by $2.3 million of short-term purchase accounting adjustments related to the acquisition of FOBOHA, whereas the 2015 period included $0.9 million of short-term purchase accounting adjustments related to the acquisition of the Männer business and $0.9 million of short-term purchase accounting adjustments related to the acquisition of Thermoplay. Within Aerospace, a decline in gross profit relates primarily to lower sales volumes and unfavorable productivity. Selling and administrative expenses in 2016 increased 2.3% from the 2015 period, due in part to $3.0 million of costs related to the contract termination dispute within the Aerospace segment and the incremental operations of the acquired businesses, partially offset by an $0.8 million reduction in short-term purchase accounting adjustments related to acquisitions. During the 2015 period, selling and administrative expenses included $4.2 million of charges related to workforce reductions and severance, and $3.5 million of lump-sum pension settlement charges. Short-term purchase accounting adjustments that impact selling and administrative expenses during 2015 included $0.6 million and $0.3 million related to the acquisitions of Männer and Thermoplay, respectively. As a percentage of sales, selling and administrative costs decreased slightly from 20.3% in the 2015 period to 20.2% in the 2016 period. Operating income in the 2016 period increased 14.1% to $192.2 million from 2015 and operating income margin increased from 14.1% to 15.6% .

Table of Contents

Interest expense

2017 vs. 2016 :

Interest expense in 2017 increased $2.7 million to $14.6 million from 2016 , primarily as a result of higher average interest rates.

2016 vs. 2015 :

Interest expense in 2016 increased $ 1.2 million to $ 11.9 million from 2015 , primarily as a result of higher average interest rates.

Other expense (income), net

2017 vs. 2016 :

Other expense (income), net in 2017 was $ 0.0 million compared to $ (2.3) million in 2016 . Foreign currency gains of $ 0.8 million in the 2017 period compared with gains of $ 1.9 million in the 2016 period. Interest income of $0.8 million in 2017 compared with interest income of $2.3 million during 2016 , with the decrease being primarily attributed to the $1.4 million of interest income that resulted from the Triumph arbitration in 2016. See "Part I - Legal Proceedings".

2016 vs. 2015 :

Other expense (income), net in 2016 was $ (2.3) million compared to $ (0.2) million in 2015 . Foreign currency gains of $ 1.9 million in the 2016 period compared with gains of $ 0.5 million in the 2015 period. Interest income of $2.3 million in 2016 compared with interest income of $1.0 million during 2015 , with the increase being primarily attributed to the $1.4 million of interest income resulting from the Triumph arbitration award. See "Part I - Legal Proceedings".

Income Taxes

U.S. Tax Reform

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 Act makes broad and complex changes to the U.S. Tax Code that affect 2017 and include, but are not limited to, requiring a one-time Transition Tax on certain unrepatriated earnings of foreign subsidiaries of the Company, which is payable over eight years, and exempting foreign dividends paid to the U.S. during the year from taxation if such earnings are included within the Transition Tax.

The Act also establishes new law that will affect 2018 and beyond and includes, but is not limited to, (1) a reduction of the U.S. Corporate income tax rate from 35% to 21%; (2) general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (3) a new limitation on the deduction of interest expense; (4) repeal of the domestic production activity deduction; (5) additional limitations on deduction of compensation for certain executives; (6) a new provision designed to tax global intangible low-taxed income (“GILTI”) which allows for the possibility of utilizing foreign tax credits (“FTCs”) and a deduction up to 50% to offset the income tax liability (subject to certain limitations); (7) the introduction of the base erosion anti-abuse tax which represents a new minimum tax; (8) limitations on utilization of FTCs to reduce U.S. income tax liability; and (9) limitations on net operating losses (“NOLS”) generated after December 31, 2017 to 80% of taxable income.

The SEC issued Staff Accounting Bulletin 118 ("SAB 118") in January 2018, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period in which to finalize the accounting under Accounting Standards Codification 740, Income Taxes ("ASC 740"). This measurement period should not extend beyond one year from the Act enactment date. In accordance with SAB 118, we are required to reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that our accounting for certain income tax effects of the Act is incomplete but we are capable of reasonably estimating the effects, we must record a provisional amount in the Consolidated Financial Statements based on this estimate. To the extent we could not reasonably estimate the provisional impacts of the Act, we are required to apply ASC 740 on the basis of tax law in place immediately prior to the enactment of the Act.

Table of Contents

As part of our analysis of the impact of the Act, we have recorded discrete tax expense of $99.2 million in the three-month period ended December 31, 2017. This amount primarily consists of net expense related to the deemed repatriation Transition Tax of $86.7 million, combined with the impacts of reduced corporate income tax rates on our deferred tax assets of $4.2 million, state taxation on the earnings reported under the Transition Tax of $1.4 million and foreign income and withholding taxes of $6.9 million related to the repatriation of certain foreign earnings. For reasons discussed further below, we have not completed our accounting for the income tax effects for certain sections of the Act. The amounts recorded are therefore provisional as we were capable of reasonably estimating the effects of certain sections of the Act. The provisional adjustments are as follows:

•

Deemed Repatriation Transition Tax: The Act taxes certain unrepatriated earnings and profits (“E&P”) of our foreign subsidiaries. In order to calculate the Transition Tax we must determine, along with other information, the amount of our accumulated post 1986 E&P for our foreign subsidiaries, as well as the non-U.S. income tax paid by those subsidiaries on such E&P. We are capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax liability of $86.7 million. However, we continue to gather additional information which may adjust the computed Transition Tax. Further, certain provisions of the Act are ambiguous as to the details of the computation of the Transition tax requiring us to await further guidance from the U.S. Treasury Department and the Internal Revenue Service.

•

Reduction of U.S. Federal Corporate tax rate: The Act reduced the U.S. Corporate income tax rate from 35% to 21%, effective January 1, 2018. Our U.S. companies remain in a net deferred tax asset position, and, as a result of the Corporate rate reduction, we have reduced our deferred tax assets by $4.2 million, with a corresponding adjustment to net deferred tax expense for the year ended December 31, 2017. While we were able to make a reasonable estimate on the impact of the reduction in the Corporate income tax rate, it may be affected by other analysis related to the Act, such as the calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary difference.

•

State Taxation of unrepatriated earnings and profits : As a result of the Transition Tax, the Company will record income as if the earnings had been repatriated. This income may be subject to additional taxation at the state level. We were able to reasonably estimate the state taxation of these earnings and recorded a provisional expense of $1.4 million. While we were able to reasonably estimate the impact of state taxation on the deemed repatriation of deferred foreign income, it may be affected by changes of the computation resulting from the gathering of additional information as well as future guidance provided by the state tax authorities.

•

Indefinite Reinvestment Assertion: 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. On December 31, 2017, the Company’s unremitted foreign earnings were $1,228.2 million. Pursuant to SAB 118, if an entity has completed all or portions of its assessment and has made a decision to repatriate and has the ability to reasonably estimate the effects of that assessment, that entity should record a provisional expense and disclose the status of its efforts. The Company is continuing to evaluate its indefinite reinvestment assertion, but expects to repatriate certain earnings that would be subject to withholding and foreign income tax. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6.9 million. These amounts are provisional in nature given the uncertainty related to the taxation of the distributions under the Act and the finalization of the Company’s analysis on its indefinite reinvestment assertion.

•

Valuation Allowances: The Company must 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 and changes to the NOL and FTC rules. Since, as discussed within this section, the Company has recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for or change in a valuation allowance would also be provisional.

The Act created a new requirement, effective for 2018, that certain income (i.e. GILTI) earned by Controlled Foreign Corporations (“CFCs”) must be included currently in the gross income of the Company. GILTI represents the excess of the shareholders “net CFC tested income” over the net deemed tangible income return which is defined in the Act as the excess of (1) 10 percent of the aggregate of the U.S. shareholders' pro rata share of the qualified business assets of each CFC over (2) the amount of certain interest expense taken into account in the determination of the net CFC tested income.

Given the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost

Table of Contents

method”) or (2) factoring such amounts into our measurement of its deferred taxes (the “deferred method’). Our selection of an accounting method with respect to the new GILTI provisions will depend on our analysis of our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact of those inclusions will be. The determination of potential future U.S. inclusions in taxable income related to GILTI depends on our current structure and estimated future results of our foreign subsidiaries, as well as our intent and ability to modify our structure. Due to this uncertainty, we are unable to currently estimate the effect of the GILTI provisions within the Act and its impact on our future financial statements. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.

2017 vs. 2016 :

The Company’s effective tax rate was 69.6% in 2017 compared with 25.7% in 2016 . The increase in the 2017 effective tax rate is primarily due to taxes recorded as a result of U.S. Tax Reform. Excluding the impact of $99.2 million of discrete tax expense related to the Act, partially offset by a benefit of $2.5 million on the current year repatriation, the effective tax rate would have been 20.2% in 2017. The comparable decrease in the effective tax rate, excluding the impacts of the Act, are primarily due to the adjustment of the Swiss valuation reserves, the settlement of tax audits and closure of tax years for various tax jurisdictions and the change in the mix of earnings attributable to higher-taxing jurisdictions, partially offset by the expiration of certain tax holidays. During 2017, the Company repatriated a dividend from a portion of the current year foreign earnings to the U.S. in the amount of $7.3 million, compared to $8.3 million in 2016. Pursuant to the Act, this current year dividend is not taxable in the U.S.

In 2018, the Company expects the effective tax rate to be between 25% and 26%, an increase from the 20.2% in 2017, primarily due to the absence of the current year excess tax benefit on stock awards, the settlements of tax audits and the adjustment of the Swiss valuation reserves, combined with the expiration of certain foreign tax holidays, partially offset by the reduction of the U.S. tax rate. As discussed above, we are currently evaluating the potential impact of the GILTI provisions, therefore adjustments have not been made in estimating our effective tax rate in 2018. We have made provisional entries related to certain provisions within the Act, including the Transition Tax, the state impact on the earnings reported as required by the Transition Tax, and the change in tax rates impact on the U.S deferred tax asset balance. Changes resulting from our ongoing evaluation may further impact our expected tax rate in 2018.

2016 vs. 2015 :

The Company’s effective tax rate from continuing operations was 25.7% in 2016 compared with 23.2% in 2015 . The increase in the 2016 effective tax rate from continuing operations is primarily due to the expiration of certain tax holidays, the absence of the 2015 refund of withholding taxes and the change in the mix of earnings attributable to higher-taxing jurisdictions, partially offset by lower repatriation of a portion of current year foreign earnings to the U.S and the excess tax benefit on stock awards, reflecting the amended guidance related to share-based payments made to employees. See Note 12 of the Consolidated Financial Statements. During 2016, the Company repatriated a dividend from a portion of the current year foreign earnings to the U.S. in the amount of $8.3 million compared to $19.5 million in 2015. The decrease in the dividend decreased tax expense by $3.9 million and decreased the annual effective tax rate by 2.2 percentage points compared to 2015.

See Note 13 of the Consolidated Financial Statements for a reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate.

Income and Income Per Share



(in millions, except per share)	2017		2016		Change			% Change		2015
Net income	$	59.4	$	135.6	$	(76.2	)	(56.2	)%	$	121.4
Net income per common share:
Basic	$	1.10	$	2.50	$	(1.40	)	(56.0	)%	$	2.21
Diluted	$	1.09	$	2.48	$	(1.39	)	(56.0	)%	$	2.19
Weighted average common shares outstanding:
Basic	54.1		54.2		(0.1		)	(0.2	)%	55.0
Diluted	54.6		54.6		—			—	%	55.5

Table of Contents

Basic and diluted net income per common share decreased for 2017 as compared to 2016 , consistent with the change in net income year over year. Basic weighted average common shares outstanding decreased slightly while diluted weighted average common shares outstanding were flat. Share repurchases of 550,994 and 677,100 shares during 2016 and 2017 , respectively, as part of the Company's repurchase program were largely offset by the issuance of shares for employee stock plans.

Financial Performance by Business Segment

Industrial



($ in millions)	2017			2016			$ Change			% Change		2015
Sales	$	973.9		$	824.2		$	149.7		18.2	%	$	782.3
Operating profit	127.1			129.7			(2.6		)	(2.0	)%	103.0
Operating margin	13.0		%	15.7		%						13.2		%

2017 vs. 2016 :

Sales at Industrial were $ 973.9 million in 2017 , an increase of $149.7 million , or 18.2% , from 2016 . Acquired businesses contributed incremental sales of $ 56.3 million during the 2017 period. Organic sales increased by $81.0 million , or 9.8% , during 2017 , driven primarily by continued strength in our Nitrogen Gas Products and Molding Solutions business units. A continuation of favorable demand trends in our tool and die, transportation and other industrial end-markets have largely contributed to the organic growth within these business units. The impact of foreign currency translation increased sales by approximately $ 12.4 million as the U.S. dollar weakened against foreign currencies.

Operating profit in 2017 at Industrial was $ 127.1 million , a decrease of 2.0% from 2016 . The decrease was driven by lower productivity, primarily driven by the increased costs incurred on certain programs within Engineered Components. Incremental costs include expedited freight, increased scrap and costs related to the transfer of work to other facilities. Employee related costs also increased during the 2017 period, primarily due to incentive compensation at certain Industrial businesses. Industrial's ability to leverage increased sales volumes partially offset this decrease in operating profit. The 2016 period included $3.5 million of short-term purchase accounting adjustments and transaction costs related to business acquisitions, whereas the 2017 period included $2.3 million of short-term purchase accounting adjustments. Operating margins decreased from 15.7% in the 2016 period to 13.0% in the 2017 period primarily as a result of these items. Lower margins at FOBOHA also impacted the 2017 period.

Outlook:

In Industrial, management is focused on generating organic sales growth through the introduction of new products and services and by leveraging the benefits of the diversified products and industrial end-markets in which its businesses have a global presence. Our ability to generate sales growth is subject to economic conditions in the global markets served by all of our businesses. For general industrial end-markets, manufacturing Purchasing Managers Indices ("PMIs") above 50 in China, North America and Europe are positive signs. Growth in PMI's continued throughout the fourth quarter of 2017. Within China, we have seen a strengthening in orders that began during the middle of 2016 and that has continued through the fourth quarter of 2017 , indicating strength within the transportation markets. Global forecasted production for light vehicles is expected to grow nominally in 2018, with production expected to improve modestly within the North American market. Within our Molding Solutions businesses, global markets remain healthy. The Molding Solutions businesses exited 2017 with improved growth, and we anticipate favorable demand trends to continue within the automotive, medical, personal care and packaging hot runner and mold markets in 2018. As noted above, our sales were positively impacted by $ 12.4 million from fluctuations in foreign currencies. To the extent that the U.S. dollar fluctuates relative to other foreign currencies, our sales may continue to be impacted by foreign currency relative to the prior year periods. The relative impact on operating profit is not expected to be as significant as the impact on sales as most of our businesses have expenses primarily denominated in local currencies, where their revenues reside, however operating margins may be impacted. The Company also remains focused on sales growth through acquisition and expanding geographic reach. Strategic investments in new technologies, manufacturing processes and product development are expected to provide incremental benefits over the long term.

Operating profit is largely dependent on sales volumes, mix of the businesses in the segment and the Company's ability to effectively perform. Management continues to focus on improving profitability and expanding margins through leveraging organic sales growth, acquisitions, pricing initiatives, global sourcing, productivity and the evaluation of customer programs.

Table of Contents

Management does not anticipate increased costs incurred on certain programs within Engineered Components to be as impactful in 2018, with these business challenges being primarily resolved in the first half of 2018. We continue to evaluate market conditions and remain proactive in managing costs. Costs associated with new product and process introductions, restructuring initiatives, strategic investments and the integration of acquisitions may negatively impact operating profit.

2016 vs. 2015 :

Sales at Industrial were $ 824.2 million in 2016 , an increase of $41.9 million, or 5.4% , from 2015 . Acquired businesses contributed incremental sales of $47.4 million during the 2016 period. Organic sales increased by $4.1 million, or $0.5%, during 2016 , driven primarily by strength in our Molding Solutions businesses, slightly offset by continued softness in North American general industrial end-markets. The impact of foreign currency translation decreased sales by approximately $9.6 million as the U.S. dollar strengthened against foreign currencies.

Operating profit in 2016 at Industrial was $ 129.7 million , an increase of 26.0% from 2015 . The increase was driven by favorable productivity, as the Company continued its focus on manufacturing efficiencies and improved supply chain management across multiple units, and the profit contributions of acquired businesses, partially offset by lower pricing. The 2015 period included $3.6 million of short-term purchase accounting adjustments and transaction costs related to business acquisitions, whereas the acquisition of FOBOHA during the 2016 period resulted in $3.5 million of such costs. The 2015 period also included lump-sum pension settlement charges of $7.5 million that were allocated to the segment and $3.4 million of charges related to certain workforce reductions and restructuring.

Aerospace



($ in millions)	2017			2016			$ Change		% Change		2015
Sales	$	462.6		$	406.5		$	56.1	13.8	%	$	411.7
Operating profit	83.2			62.5			20.7		33.2	%	65.4
Operating margin	18.0		%	15.4		%					15.9		%

2017 vs. 2016 :

Aerospace recorded sales of $ 462.6 million in 2017 , a 13.8% increase from 2016 . Sales increased within all of the Aerospace businesses. The original equipment manufacturing ("OEM") business continued to transition from the manufacture of components on legacy engine platforms to newer, more technologically advanced platforms. Increased volume generated by ramping programs was partially offset by lower volumes and scheduled price deflation on more mature engine platforms. Sales within the aftermarket maintenance repair and overhaul ("MRO") business also increased during the 2017 period as the Company continued to obtain additional sales volume from new and existing customers, a trend that began during the second half of 2016. Volumes within the spare parts business also increased during the 2017 period. Sales were not impacted by changes in foreign currency as sales within the segment are largely denominated in U.S. dollars.

Operating profit at Aerospace increased 33.2% from 2016 to $ 83.2 million . The operating profit increase resulted from the increased volumes discussed above, coupled with favorable productivity, resulting from our ability to leverage production volumes, partially offset by scheduled price deflation and an increase in incentive compensation. Operating profit during the 2016 period included a $3.0 million charge related to the contract termination dispute and a $1.4 million benefit from the contract termination arbitration award.

Outlook:

Sales in the Aerospace OEM business are based on the general state of the aerospace market driven by the worldwide economy and are supported by its order backlog through participation in certain strategic commercial and military engine and airframe programs. Over the next several years, the Company expects sustained strength in demand for new engines, driven by a forecasted increase in commercial aircraft production levels. The Company anticipates further shifts in the production mix from legacy engine programs to the continual ramping of several new engine programs. Backlog at OEM was $713.8 million at December 31, 2017 , an increase of 14.0% since December 31, 2016 , at which time backlog was $626.3 million . The increase in 2017 orders primarily reflects an expanded time horizon on orders for certain engine programs and increased volumes. Approximately 50% of OEM backlog is expected to ship in the next 12 months. The Aerospace OEM business may be impacted by changes in the content levels on certain platforms, changes in customer sourcing decisions, adjustments to customer inventory levels, commodity availability and pricing, the use of alternate materials, changes in production schedules

Table of Contents

of specific engine and airframe programs, redesign of parts, quantity of parts per engine, cost schedules agreed to under contract with the engine manufacturers, as well as the pursuit and duration of new programs. Sales in the Aerospace aftermarket business may be impacted by fluctuations in end-market demand, early aircraft retirements, inventory management and changes in customer sourcing, deferred or limited maintenance activity during engine shop visits and the use of surplus (used) material during the engine repair and overhaul process. End markets are expected to grow based on the long term underlying fundamentals of the aerospace industry. Management continues to believe its Aerospace aftermarket business is competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the MRO business and long-term Revenue Sharing Programs ("RSPs") and Component Repair Programs ("CRPs"), expanded capabilities and current capacity levels. The MRO business may be potentially impacted by airlines that closely manage their aftermarket costs as engine performance and quality improves. Fluctuations in fuel costs and their impact on airline profitability and behaviors within the aerospace industry could also impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the economics associated with new fuel efficient technologies.

Management is focused on growing operating profit at Aerospace primarily through leveraging organic sales growth, strategic investments, new product and process introductions, and productivity. Operating profit is expected to be affected by the impact of changes in sales volume, mix and pricing, particularly as they relate to the highly profitable aftermarket RSP spare parts business, and investments made in each of its businesses. Costs associated with new product and process introductions, the physical transfer of work to other global regions, additional productivity initiatives and restructuring activities may also negatively impact operating profit.

2016 vs. 2015 :

Aerospace recorded sales of $ 406.5 million in 2016 , a 1.3% decrease from 2015 . Lower sales within OEM and spare parts businesses were partially offset by increased sales within the MRO business. During the 2016 period, the segment continued to transition from the manufacture of components on legacy engine platforms to newer, more technologically advanced platforms. Lower volumes on the GE90 engine platform, as well as on other mature engine platforms, were partially offset by increased volume generated by newer programs within the OEM business. A decline in aftermarket spare parts was partially offset by a volume increase in the MRO business. Customer inventory management resulted in lower volumes within the spare parts business. Sales within the MRO business, although soft during the first half of the year, improved during the second half of 2016 as we obtained additional sales volume from existing customers. This business, however, continues to be impacted by airlines continuing to closely manage their aftermarket costs and as engine performance and quality has improved. Sales were not impacted by changes in foreign currency as sales within the segment are largely denominated in U.S. dollars.

Operating profit at Aerospace decreased 4.5% from 2015 to $ 62.5 million . The operating profit decrease was primarily due to pricing deflation, the profit impact of lower volumes within the highly profitable spare parts business and unfavorable productivity, primarily a result of the transition from legacy engine platforms to newer, more advanced programs. Operating profit included a $1.4 million benefit from a contract termination arbitration award. Charges related to the contract termination dispute approximated $3.0 million and $2.8 million during the 2016 and 2015 periods, respectively. Operating profit in 2015 also included a lump-sum pension settlement charge of $2.4 million that was allocated to the segment and $0.8 million in workforce reduction and restructuring charges.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions overseas and adequate lines of credit.

The Company believes that it's ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and working capital management, and anticipates that operating activities in 2018 will generate sufficient cash to fund operations. The Company closely monitors its cash generation, usage and preservation including the management of working capital to generate cash.

Table of Contents

the existing accordion feature from $250.0 million , allowing the Company to now request additional borrowings of up to $350.0 million . 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 $850.0 million , pursuant to the terms of the Amended Credit Agreement, allows for multi-currency borrowing which includes euro, British pound sterling or Swiss franc borrowing, up to $600.0 million . 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% .

On October 15, 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 $100.0 million aggregate principal amount of 3.97% senior notes due October 17, 2024 (the “3.97% Senior Notes”). The Company completed funding of the transaction and issued the 3.97% Senior Notes on October 17, 2014. The 3.97% Senior Notes are senior unsecured obligations of the Company and pays 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 Note Purchase Agreement contains customary affirmative and negative covenants that are similar to the covenants required under the Amended Credit Agreement, as discussed below. At December 31, 2017, the Company was in compliance with all covenants under the Note Purchase Agreement.

The Company's borrowing capacity remains limited by various debt covenants in 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 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. At December 31, 2017 , the Company was in compliance with all covenants under the Agreements. The Company's most restrictive financial covenant is the Senior Debt Ratio which requires the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.25 times at December 31, 2017 . The actual ratio at December 31, 2017 was 1.70 times.

In 2017 , 2016 and 2015 , the Company acquired 0.7 million shares, 0.6 million shares and 1.4 million shares of the Company's common stock, respectively, at a cost of $40.8 million, $20.5 million and $52.1 million, respectively.

Operating cash flow may be supplemented with external borrowings to meet near-term business expansion needs and the Company's current financial commitments. The Company has assessed its credit facilities in conjunction with the Amended Credit Facility and currently expects that its bank syndicate, comprised of 14 banks, will continue to support its Amended Credit Agreement which matures in February 2022. At December 31, 2017 , the Company had $428.5 million unused and available for borrowings under its $850.0 million Amended Credit Facility, subject to covenants. At December 31, 2017 , additional borrowings of $642.8 million of Total Debt and $486.1 million of Senior Debt would have been allowed under the financial covenants. The Company intends to use borrowings under its Amended Credit Facility to support the Company's ongoing growth initiatives. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements.

The Company had $5.3 million in borrowings under short-term bank credit lines at December 31, 2017 .

In 2012, the Company entered into five-year interest rate swap agreements (the "Swaps") transacted with three banks which together converted the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.03% plus the borrowing spread, for the purpose of mitigating its exposure to variable interest rates. The Swaps expired on April 28, 2017. The Company entered into a new interest rate swap agreement (the "Swap") that commenced on April 28, 2017, with one bank, and converts the interest on the first $100.0 million 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. At December 31, 2017 , the Company's total borrowings were comprised of approximately 39% fixed rate debt and 61% variable rate debt. At December 31, 2016 , the Company's total borrowings were comprised of approximately 41% fixed rate debt and 59% variable rate debt.

Table of Contents

The funded status of the Company's pension plans is dependent upon many factors, including actual rates of return that impact the fair value of pension assets and changes in discount rates that impact projected benefit obligations. The unfunded status of the pension plans decreased from $77.0 million at December 31, 2016 to $43.7 million at December 31, 2017 as the increase in the fair value of the pension plan assets exceeded increase in the projected benefit obligations ("PBOs"), following an update of certain actuarial assumptions. The Company recorded a $10.7 million non-cash after-tax increase in stockholders equity (through other non-owner changes to equity) to record the current year adjustments for changes in the funded status of its pension and postretirement benefit plans as required under accounting for defined benefit and other postretirement plans. This increase in stockholders equity resulted primarily from favorable variances between expected and actual returns on pension plan assets and the amortization of actuarial losses recorded earlier, partially offset by changes in actuarial assumptions, primarily the decrease in the discount rate. In 2017, the Company made $10.0 million in discretionary contributions to the U.S. qualified pension plans. The Company expects to contribute approximately $ 4.6 million to its various defined benefit pension plans in 2018 . No discretionary contributions to the U.S. Qualified pension plans are currently planned in 2018 . See Note 11 of the Consolidated Financial Statements.

As noted above, the U.S. government enacted the Act on December 22, 2017, resulting in a provisional net expense of $86.7 million related to the Transition Tax. The Company intends to elect to pay the Transition Tax over the allowed eight year period. The installment payments for the Transition Tax are not expected to have a material impact on the liquidity or capital resources of the Company. The Company expects to make the payments through the use of available cash or borrowings under the Amended Credit Facility.

At December 31, 2017 , the Company held $145.3 million in cash and cash equivalents, the majority of which was held by foreign subsidiaries. These amounts have no material regulatory or contractual restrictions. The Act has changed the impact of U.S. taxation on foreign distributions. The Company is continuing its evaluation regarding the potential repatriation of overseas cash. Currently the Company expects to repatriate certain foreign earnings and has recorded a provisional tax expense of $6.9 million to account for the estimated withholding and income taxes on the potential repatriation, however no final decision has been made in regards to future potential distributions. The evaluation is dependent upon several variables, including foreign taxation of dividends and the impact of withholding tax. The Company repatriated $7.3 million of current year foreign earnings to the U.S. during 2017 .

Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Cash Flow



($ in millions)	2017			2016			$ Change			% Change		2015
Operating activities	$	203.9		$	217.6		$	(13.7	)	(6.3	)%	$	217.5
Investing activities	(68.0		)	(179.5		)	111.5			62.1	%	(115.5		)
Financing activities	(63.8		)	(53.3		)	(10.4		)	(19.6	)%	(59.2		)
Exchange rate effect	6.7			(2.3		)	9.0			NM		(4.9		)
Increase (decrease) in cash	$	78.8		$	(17.5	)	$	96.3		NM		$	37.9

________________________

NM – Not meaningful

Operating activities provided $203.9 million in 2017 compared to $217.6 million in 2016 . Operating cash flows in the 2017 period were positively impacted by improved operating results partially offset by an increase in cash used for working capital driven by an increase in accounts receivable, reflecting growth in revenue. Net income during the period was impacted by $96.7 million of tax expense related to the enactment of the Act, having no impact to cash outflows during the 2017 period. See Note 13 of the Consolidated Financial Statements. Cash flows in the 2017 and 2016 periods were impacted by outflows of $10.0 million and $15.0 million, respectively, related to discretionary contributions to the U.S. Qualified pension plans.

Investing activities used $68.0 million in 2017 and $179.5 million in 2016 . In 2017 , investing activities included capital expenditures of $58.7 million compared to $47.6 million in 2016 . The Company expects capital spending in 2018 to approximate $60 million. Capital expenditures relate to both maintenance needs and support of growth initiatives, which include the purchase of equipment to support new products and services, and are expected to be funded primarily through cash

Table of Contents

flows from operations. Investing activities in 2017 also included outflows of $ 8.9 million used to fund the Gammaflux acquisition and $3.0 million related to an Aerospace agreement (which was included in Other Investing activities). In 2016, investing activities also included outflows of $127.1 million used to fund the FOBOHA acquisition, $1.5 million related to the post-acquisition closing adjustment of Thermoplay and $4.1 million related to the Component Repair Programs ("CRPs"). See Note 5 of the Consolidated Financial Statements.

Cash used by financing activities in 2017 included a net increase in borrowings of $30.7 million compared to a net decrease of $9.9 million in 2016 . In 2016, the Company borrowed $100.0 million under the Amended Credit Facility through an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down U.S. borrowings under the Amended Credit Agreement. Proceeds from the issuance of common stock were $2.4 million and $4.6 million in 2017 and 2016 , respectively. In 2017 , the Company repurchased 0.7 million shares of the Company's stock at a cost of $40.8 million, compared with the purchase of 0.6 million shares at a cost of $20.5 million in 2016 . Total cash used to pay dividends increased slightly to $29.6 million in 2017 compared to $27.4 million in 2016 , reflecting an increase in dividends paid per share. Withholding taxes paid on stock issuances in the 2017 and 2016 periods were $5.4 million and $4.9 million, respectively. Other financing cash flows during 2017 include $18.2 million of net cash payments related to the settlement of foreign currency hedges related to intercompany financings, compared to $5.2 million and $10.3 million of net cash proceeds in 2016 and 2015, respectively, and $2.5 million of payments made in connection with executing the Amended Credit Agreement.

Debt Covenants

As noted above, borrowing capacity is limited by various debt covenants in the Company's debt agreements. Following is a reconciliation of Consolidated EBITDA, a key metric in the debt covenants, to the Company's net income (in millions):



	2017
Net income	$	59.4
Add back:
Interest expense	14.6
Income taxes	136.3
Depreciation and amortization	90.2
Adjustment for non-cash stock based compensation	11.7
Other adjustments	1.3
Consolidated EBITDA, as defined	$	313.4

Consolidated Senior Debt, as defined, as of December 31, 2017	$	532.6
Ratio of Consolidated Senior Debt to Consolidated EBITDA	1.70
Maximum	3.25
Consolidated Total Debt, as defined, as of December 31, 2017	$	532.6
Ratio of Consolidated Total Debt to Consolidated EBITDA	1.70
Maximum	3.75
Consolidated Cash Interest Expense, as defined, as of December 31, 2017	$	14.6
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense	21.51
Minimum	4.25

The Amended Credit Agreement allows for certain adjustments within the calculation of the financial covenants. Other adjustments consist of net gains on the sale of assets, due diligence and transaction expenses as permitted under the Amended Credit Agreement and the amortization of the FOBOHA acquisition inventory step-up. The Company's financial covenants are measured as of the end of each fiscal quarter. At December 31, 2017 , additional borrowings of $642.8 million of Total Debt and $486.1 million of Senior Debt would have been allowed under the covenants. Senior Debt includes primarily the borrowings under the Amended Credit Facility, the 3.97% Senior Notes and the borrowings under the lines of credit. The Company's unused committed credit facilities at December 31, 2017 were $428.5 million. As noted above, the Company is continuing to analyze the impacts of the Act, however we currently do not believe that any changes proposed by the Act will impact compliance with our debt covenants.

Table of Contents

Contractual Obligations and Commitments

At December 31, 2017 , the Company had the following contractual obligations and commitments:



($ in millions)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt obligations ⁽¹⁾	$	526.9	$	1.3	$	1.5	$	422.6	$	101.6
Estimated interest payments under long-term obligations ⁽²⁾	78.6		15.4		30.7		21.2		11.1
Operating lease obligations	39.8		11.9		13.4		7.2		7.4
Purchase obligations ⁽³⁾	182.5		167.1		11.5		3.8		0.1
Expected pension contributions ⁽⁴⁾	4.6		4.6		—		—		—
Expected benefit payments – other postretirement benefit plans ⁽⁵⁾	27.9		3.7		6.7		5.9		11.7
Long-term U.S. Tax Reform obligations ⁽⁶⁾	79.8		—		13.9		13.9		52.0
Total	$	940.1	$	204.0	$	77.6	$	474.5	$	184.0


(1)	Long-term debt obligations represent the required principal payments under such agreements.


(2)	Interest payments under long-term debt obligations have been estimated based on the borrowings outstanding and market interest rates as of December 31, 2017.


(3)	The amounts do not include purchase obligations reflected as current liabilities on the consolidated balance sheet. The purchase obligation amount includes all outstanding purchase orders as of the balance sheet date as well as the minimum contractual obligation or termination penalty under other contracts.


(4)	The amount included in “Less Than 1 Year” reflects anticipated contributions to the Company’s various pension plans. Anticipated contributions beyond one year are not determinable.


(5)	Amounts reflect anticipated benefit payments under the Company’s various other postretirement benefit plans based on current actuarial assumptions. Expected benefit payments do not extend beyond 2027. See Note 11 of the Consolidated Financial Statements.


(6)	Amounts reflect anticipated long-term payments related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017. Payments are allowed over an eight-year period. See Note 13 of the Consolidated Financial Statements. The amount payable in 2018 is included within accrued liabilities on the Consolidated Balance Sheets.

The above table does not reflect unrecognized tax benefits as the timing of the potential payments of these amounts cannot be determined. See Note 13 of the Consolidated Financial Statements.

OTHER MATTERS

Inflation

Inflation generally affects the Company through its costs of labor, equipment and raw materials. Increases in the costs of these items have historically been offset by price increases, commodity price escalator provisions, operating improvements, and other cost-saving initiatives.

Critical Accounting Estimates

The preparation of 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. Significant accounting policies are disclosed in Note 1 of the Consolidated Financial Statements. The most significant areas involving management judgments and estimates are described below. Actual results could differ from such estimates.

Inventory Valuation: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable value. Loss provisions, if any, on aerospace contracts are established when estimable. Loss provisions are based on the projected excess of manufacturing costs over the net revenues of the products or group of related products representing orders that are supported under a long term agreement. 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, access to applicable markets, quantities and prices at which such inventory will be sold in the normal course of business and estimated costs. Accelerating the disposal process or incorrect estimates of future sales potential or estimated costs may necessitate future adjustments to these provisions.

Business Acquisitions, Indefinite-Lived Intangible Assets and Goodwill: Assets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date. At December 31, 2017 , the Company had $690.2

Table of Contents

million and $42.8 million of goodwill and indefinite-lived intangible assets, respectively. Goodwill represents the cost of acquisitions in excess of fair values assigned to the underlying net assets of acquired companies. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit may have been reduced below its carrying value. Management completes its annual impairment assessments for goodwill and indefinite-lived intangible assets during the second quarter of each year. The Company uses the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment tests in accordance with applicable accounting standards.

Under the qualitative goodwill assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, overall unit performance and events directly affecting a unit. If the Company determines that the two-step quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to future earnings and growth and the weighted average cost of capital. Based on the second quarter 2017 assessment, the estimated fair value of all reporting units significantly exceeded their carrying values and there was no goodwill impairment at any of the reporting units. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions. Management’s quantitative assessment during the second quarter of 2017 included a review of the potential impacts of current and projected market conditions from a market participant’s perspective on reporting units’ projected cash flows, growth rates and cost of capital to assess the likelihood of whether the fair value would be less than the carrying value. Management also performed its annual impairment testing of its trade names, indefinite-lived intangible assets, during the second quarter of 2017. Based on this assessment, there was no trade name impairment recognized.

Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives an exclusive right to supply designated aftermarket parts over the life of the related aircraft engine program to our customer, General Electric ("GE"). As consideration, the Company has paid participation fees, which are recorded as intangible assets. The carrying value of these intangible assets was $185.6 million at December 31, 2017 . The Company records amortization of the related 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 which reflects the pattern in which economic benefits are realized.

The Company entered into Component Repair Programs ("CRPs") with GE during 2015, 2014 and 2013. The CRPs 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 over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain existing contracts under which the Company provides these services directly to GE. Our total investments in CRPs as of December 31, 2017 equaled $111.8 million, all of which have been paid. At December 31, 2017 , the carrying value of the CRPs was $95.3 million. The Company recorded the CRP payments as an intangible asset which is recognized as a reduction of 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 programs' 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 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 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 capture additional 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. The Company has not identified any impairment of these assets. See Note 5 of the Consolidated Financial Statements.

Pension and Other Postretirement Benefits: Accounting policies and significant assumptions related to pension and other postretirement benefits are disclosed in Note 11 of the Consolidated Financial Statements. As discussed further below, the

Table of Contents

significant assumptions that impact pension and other postretirement benefits include discount rates, mortality rates and expected long-term rates of return on invested pension assets.

The Company selected the expected long-term rate of return of its U.S. defined benefit plans based on consideration of historical and projected rates of return on the weighted target asset mix of our pension investments. The target mix reflects a 65% equity investment target and a 35% target for fixed income and cash investments (in aggregate). The equity investment of 65% is more heavily weighted on global equity investment targets, rather than U.S. targets. The historical rates of return for the Company's defined benefit plans were calculated based upon compounded average rates of return of published indices. Management selected a long-term expected rate of return on its U.S. pension assets of 7.75%. The long-term rates of return for non-U.S. plans were selected based on actual historical rates of return of published indices that reflect the plans’ target asset allocations.

The discount rate used for the Company’s U.S. pension plans reflects the rate at which the pension benefits could be effectively settled. At December 31, 2017 , the Company selected a discount rate of 3.90% based on a bond matching model for its U.S. pension plans. Market interest rates have decreased in 2017 as compared with 2016 and, as a result, the discount rate used to measure pension liabilities decreased from 4.50% at December 31, 2016 . The discount rates for non-U.S. plans were selected based on highly rated long-term bond indices and yield curves that match the duration of the plan’s benefit obligations.

A one-quarter percentage point change in the assumed long-term rate of return on the Company’s U.S. pension plans as of December 31, 2017 would impact the Company’s 2018 pre-tax income by approximately $0.9 million. A one-quarter percentage point decrease in the discount rate on the Company's U.S. pension plans as of December 31, 2017 would decrease the Company’s 2018 pre-tax income by approximately $0.9 million. The Company reviews these and other assumptions at least annually.

The Company recorded a $10.7 million non-cash after-tax increase in stockholders equity (through other non-owner changes to equity) to record the current year adjustments for changes in the funded status of its pension and postretirement benefit plans as required under accounting for defined benefit and other postretirement plans. This increase in stockholders equity resulted primarily from favorable variances between expected and actual returns on pension plan assets, and the amortization of actuarial losses recorded earlier, partially offset by changes in actuarial assumptions, primarily the decrease in the discount rate. During 2017 , the fair value of the Company’s pension plan assets increased by $37.5 million and the projected benefit obligation increased by $4.2 million. The increase in the projected benefit obligation included a $24.0 million (pre-tax) increase due to actuarial losses resulting primarily from a change in the discount rates used to measure pension liabilities, annual service and interest costs of $6.1 million and $18.8 million, respectively, $7.2 million of foreign exchange impacts and $2.7 million of transfers in, resulting from employees that were hired during the period. These increases were partially offset by a $7.0 million curtailment gain related to the Closure of the FOBOHA facility in Muri, Switzerland (the "Closure", see Note 8 of the Consolidated Financial Statements), settlements of $21.1 million (primarily related to the Closure) and $29.1 million in benefits paid. Changes to other actuarial assumptions in 2017 did not have a material impact on our stockholders equity or projected benefit obligation. Actual pre-tax gains on total pension plan assets were $62.3 million compared with an expected pre-tax return on pension assets of $28.1 million. Also impacting total pension plan assets during the 2017 period were $29.1 million in benefits paid and settlements of $20.9 million, related primarily to the Closure. Pension expense for 2018 is expected to decrease from $7.8 million in 2017, excluding curtailments and settlement gains of $7.2 million and $0.1 million, respectively, to $5.8 million.

Income Taxes: Recognition of the impacts of the U.S. Tax Reform required significant estimates and judgments. As noted within “Results of Operations - U.S. Tax Reform”, the SEC issued SAB 118 in January 2018. Pursuant to SAB 118, the Company was capable of reasonably estimating the effects of the Act and therefore has recorded a provisional income tax expense within the Consolidated Financial Statements. See further discussion therein.

As of December 31, 2017 , the Company had recognized $12.2 million of deferred tax assets, net of valuation reserves. The realization of these benefits is dependent, in part, on the amount and timing of future taxable income in jurisdictions where the deferred tax assets reside. For those jurisdictions where the expirations date of tax loss carryforwards or the proposed operating results indicate that realization is unlikely, a valuation allowance is provided. Management currently believes that sufficient taxable income should be earned in the future to realize the deferred tax assets, net of valuation allowances recorded, however there can be no assurance that such expectations will be met.

Additionally, 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. For tax positions where the Company believes it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized. For those income tax positions where it is more likely than not that

Table of Contents

a tax benefit will not be sustained, no tax benefit is recognized in the financial statements. See Note 13 of the Consolidated Financial Statements.

A significant portion of revenue is generated by foreign locations. Current guidance requires the recognition of a tax liability under the assumption that foreign earnings will be repatriated in the future, unless the Company can assert that the earnings are indefinitely reinvested. Management’s annual assessment in determining whether the earnings are indefinitely reinvested is based on an analysis of U.S. cash requirements and working capital requirements of the foreign operations, including capital expenditures, combined with any limitations, such as dividend restrictions or local law limits, which would limit possible repatriation.

Stock-Based Compensation: The Company accounts for its stock-based employee compensation plans at fair value on the grant date and recognizes the related cost in its consolidated statement 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 12 of the Consolidated Financial Statements.

EBITDA

Earnings before interest expense, income taxes, and depreciation and amortization (“EBITDA”) for 2017 was $300.4 million compared to $274.7 million in 2016 . EBITDA is a measurement not in accordance with generally accepted accounting principles (“GAAP”). The Company defines EBITDA as net income plus interest expense, income taxes, and depreciation and amortization which the Company incurs in the normal course of business. The Company does not intend EBITDA to represent cash flows from operations as defined by GAAP, and the reader should not consider it as an alternative to net income, net cash provided by operating activities or any other items calculated in accordance with GAAP, or as an indicator of the Company’s operating performance. The Company’s definition of EBITDA may not be comparable with EBITDA as defined by other companies. The Company believes EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. Accordingly, the calculation has limitations depending on its use.

Following is a reconciliation of EBITDA to the Company’s net income (in millions):



	2017		2016
Net income	$	59.4	$	135.6
Add back:
Interest expense	14.6		11.9
Income taxes	136.3		47.0
Depreciation and amortization	90.2		80.2
EBITDA	$	300.4	$	274.7

Table of Contents

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. The Company’s financial results could be impacted by changes in interest rates and foreign currency exchange rates, and commodity price changes. The Company uses financial instruments to hedge its exposure to fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivatives for speculative or trading purposes.

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 while also minimizing the effect of changes in interest rates on near-term earnings. The Company’s primary interest rate risk is derived from its outstanding variable-rate debt obligations. Financial instruments have been used by the Company to hedge its exposures to fluctuations in interest rates.

In April 2012, the Company entered into five-year interest rate swap agreements (the "Swaps") transacted with three banks which together converted the interest on the first $100.0 million of borrowings under the Company’s Amended Credit Agreement from a variable rate plus the borrowing spread to a fixed rate of 1.03% plus the borrowing spread for the purpose of mitigating its exposure to variable interest rates. The Swaps expired on April 28, 2017. The Company entered into a new interest rate swap agreement (the "Swap") that commenced on April 28, 2017, with one bank, and converts the interest on the first $100.0 million of 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 result of a hypothetical 100 basis point increase in the interest rate on the average bank borrowings of the Company’s variable-rate debt during 2017 would have reduced annual pretax profit by $3.0 million.

At December 31, 2017 , the fair value of the Company’s fixed-rate debt was $107.2 million, compared with its carrying amount of $105.4 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31, 2017 would have increased the fair value of the Company's fixed rate debt to $113.5 million.

The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is exposed primarily to financial instruments denominated in currencies other than the functional currency at its international locations. A 10% adverse change in foreign currencies relative to the U.S dollar at December 31, 2017 would have resulted in a $3.8 million loss in the fair value of those financial instruments. At December 31, 2017 , the Company held $ 145.3 million of cash and cash equivalents, the majority of which is held by foreign subsidiaries.

Foreign currency commitments and transaction exposures are managed at the operating units as an integral part of their businesses in accordance with a corporate policy that addresses acceptable levels of foreign currency exposures.

Additionally, to reduce foreign currency exposure, management generally maintains the majority of foreign cash and short-term investments in functional currency and uses forward currency contracts for non-functional currency denominated monetary assets and liabilities and anticipated transactions in an effort to reduce the effect of the volatility of changes in foreign exchange rates on the income statement. Management assesses the strength of currencies in certain countries such as Brazil and Mexico, relative to the U.S. dollar, and may elect during periods of local currency weakness to invest excess cash in U.S. dollar-denominated instruments.

The Company’s exposure to commodity price changes relates to certain manufacturing operations that utilize high-grade steel spring wire, stainless steel, titanium, Inconel, Hastelloys and other specialty metals. The Company attempts to manage its exposure to price increases through its procurement and sales practices.

Table of Contents

Item 8. Financial Statements and Supplementary Data

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)



	Years Ended December 31,
	2017		2016			2015
Net sales	$	1,436,499	$	1,230,754		$	1,193,975
Cost of sales	939,288		790,299			782,817
Selling and administrative expenses	286,933		248,277			242,762
	1,226,221		1,038,576			1,025,579
Operating income	210,278		192,178			168,396
Interest expense	14,571		11,883			10,698
Other expense (income), net	8		(2,326		)	(248		)
Income before income taxes	195,699		182,621			157,946
Income taxes	136,284		47,020			36,566
Net income	$	59,415	$	135,601		$	121,380
Per common share:
Basic	$	1.10	$	2.50		$	2.21
Diluted	$	1.09	$	2.48		$	2.19
Dividends	$	0.55	$	0.51		$	0.48
Weighted average common shares outstanding:
Basic	54,073,407		54,191,013			55,028,063
Diluted	54,605,298		54,631,313			55,513,219

See accompanying notes.

Table of Contents

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)



	Years Ended December 31,
	2017		2016			2015
Net income	$	59,415	$	135,601		$	121,380
Other comprehensive income (loss), net of tax
Unrealized gain (loss) hedging activities, net of tax (1)	299		(342		)	847
Foreign currency translation adjustments, net of tax (2)	83,404		(48,367		)	(54,232		)
Defined benefit pension and other postretirement benefits, net of tax (3)	10,726		(8,867		)	9,586
Total other comprehensive income (loss), net of tax	94,429		(57,576		)	(43,799		)
Total comprehensive income	$	153,844	$	78,025		$	77,581

(1) Net of tax of $232 , $(42) and $227 for the years ended December 31, 2017 , 2016 and 2015 , respectively.

(2) Net of tax of $610 , $(833) and $(1,777) for the years ended December 31, 2017 , 2016 and 2015 , respectively.

(3) Net of tax of $4,469 , $(4,687) and $3,916 for the years ended December 31, 2017 , 2016 and 2015 , respectively.

See accompanying notes.

Table of Contents

BARNES GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



	December 31,
	2017			2016
Assets
Current assets
Cash and cash equivalents	$	145,290		$	66,447
Accounts receivable, less allowances (2017 – $5,143; 2016 – $3,992)	348,943			287,123
Inventories	241,962			227,759
Prepaid expenses and other current assets	32,526			27,163
Total current assets	768,721			608,492
Deferred income taxes	12,161			25,433
Property, plant and equipment, net	359,298			334,489
Goodwill	690,223			633,436
Other intangible assets, net	507,042			522,258
Other assets	28,271			13,431
Total assets	$	2,365,716		$	2,137,539
Liabilities and Stockholders’ Equity
Current liabilities
Notes and overdrafts payable	$	5,669		$	30,825
Accounts payable	127,521			112,024
Accrued liabilities	181,241			156,967
Long-term debt – current	1,330			2,067
Total current liabilities	315,761			301,883
Long-term debt	525,597			468,062
Accrued retirement benefits	89,000			109,350
Deferred income taxes	73,505			66,446
Long-term tax liability	79,770			—
Other liabilities	21,762			23,440
Commitments and contingencies (Note 20)
Stockholders’ equity
Common stock – par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2017 – 63,034,240 shares; 2016 – 62,692,403 shares)	630			627
Additional paid-in capital	457,365			443,235
Treasury stock, at cost (2017 – 9,656,369 shares; 2016 – 8,889,947 shares)	(297,998		)	(251,827		)
Retained earnings	1,206,723			1,177,151
Accumulated other non-owner changes to equity	(106,399		)	(200,828		)
Total stockholders’ equity	1,260,321			1,168,358
Total liabilities and stockholders’ equity	$	2,365,716		$	2,137,539

See accompanying notes.

Table of Contents

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



	Years Ended December 31,
	2017			2016			2015
Operating activities:
Net income	$	59,415		$	135,601		$	121,380
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	90,150			80,154			78,242
Gain on disposition of property, plant and equipment	(246		)	(349		)	(1,128		)
Stock compensation expense	12,279			11,493			9,258
Pension lump-sum settlement charge	—			—			9,856
Effect of U.S. Tax Reform on deferred tax assets	4,152			—			—
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable	(50,082		)	(23,057		)	14,027
Inventories	(173		)	1,989			(1,190		)
Prepaid expenses and other current assets	(4,241		)	569			(2,645		)
Accounts payable	12,018			11,778			(2,936		)
Accrued liabilities	14,439			15,825			(14,166		)
Deferred income taxes	3,589			(2,210		)	3,121
Long-term retirement benefits	(16,349		)	(15,492		)	1,081
Long-term tax liability	79,770			—			—
Other	(801		)	1,345			2,575
Net cash provided by operating activities	203,920			217,646			217,475
Investing activities:
Proceeds from disposition of property, plant and equipment	2,594			780			3,442
Capital expenditures	(58,712		)	(47,577		)	(45,982		)
Business acquisitions, net of cash acquired	(8,922		)	(128,613		)	(51,954		)
Component Repair Program payments	—			(4,100		)	(21,000		)
Other	(3,000		)	—			—
Net cash used in investing activities	(68,040		)	(179,510		)	(115,494		)
Financing activities:
Net change in other borrowings	(25,304		)	8,375			14,680
Payments on long-term debt	(73,161		)	(321,506		)	(171,198		)
Proceeds from the issuance of long-term debt	129,118			303,277			159,264
Proceeds from the issuance of common stock	2,408			4,611			11,425
Common stock repurchases	(40,791		)	(20,520		)	(52,103		)
Dividends paid	(29,551		)	(27,435		)	(26,176		)
Withholding taxes paid on stock issuances	(5,380		)	(4,885		)	(4,913		)
Other	(21,090		)	4,771			9,850
Net cash used by financing activities	(63,751		)	(53,312		)	(59,171		)
Effect of exchange rate changes on cash flows	6,714			(2,303		)	(4,923		)
Increase (decrease) in cash and cash equivalents	78,843			(17,479		)	37,887
Cash and cash equivalents at beginning of year	66,447			83,926			46,039
Cash and cash equivalents at end of year	$	145,290		$	66,447		$	83,926

Supplemental Disclosure of Cash Flow Information:

Non-cash investing activities in 2015 included the acquisition of $3,200 of intangible assets, and the recognition of the corresponding liabilities, in connection with the Component Repair Programs.

See accompanying notes.

Table of Contents

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars and shares in thousands)



	Common Stock (Number of Shares)	Common Stock (Amount)		Additional Paid-In Capital		Treasury Stock (Number of Shares)	Treasury Stock			Retained Earnings			Accumulated Other Non-Owner Changes to Equity			Total Stockholders’ Equity
January 1, 2015	61,230	$	612	$	405,525	6,729	$	(169,405	)	$	974,514		$	(99,453	)	$	1,111,793
Comprehensive income										121,380			(43,799		)	77,581
Dividends paid										(26,176		)				(26,176		)
Common stock repurchases						1,353	(52,103		)							(52,103		)
Employee stock plans	841	9		22,033		125	(4,913		)	(471		)				16,658
December 31, 2015	62,071	621		427,558		8,207	(226,421		)	1,069,247			(143,252		)	1,127,753
Comprehensive income										135,601			(57,576		)	78,025
Dividends paid										(27,435		)				(27,435		)
Common stock repurchases						551	(20,520		)							(20,520		)
Cumulative effect of change in accounting guidance (Note 12)										198						198
Employee stock plans	621	6		15,677		132	(4,886		)	(460		)				10,337
December 31, 2016	62,692	627		443,235		8,890	(251,827		)	1,177,151			(200,828		)	1,168,358
Comprehensive income										59,415			94,429			153,844
Dividends paid										(29,551		)				(29,551		)
Common stock repurchases						677	(40,791		)							(40,791		)
Employee stock plans	342	3		14,130		89	(5,380		)	(292		)				8,461
December 31, 2017	63,034	$	630	$	457,365	9,656	$	(297,998	)	$	1,206,723		$	(106,399	)	$	1,260,321

See accompanying notes.

Table of Contents

BARNES GROUP INC.

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 19)

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.

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 : Sales and related cost of sales are recognized when products are shipped or delivered to customers, title has transferred, and the risks and rewards of ownership pass to the customer, provided the earnings process is complete and revenue is measurable. Service revenue is recognized when the related services are performed. In the aerospace manufacturing businesses, the Company recognizes revenue based on the units-of-delivery method in accordance with accounting standards related to accounting for performance of construction-type and certain production-type contracts. 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.

Inventories: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Loss provisions, if any, on aerospace contracts are established when estimable. Loss provisions are based on the projected excess of manufacturing costs over the net revenues of the products or group of related products representing firm orders that are supported under a long term agreement.

Property, plant and equipment: Property, plant and equipment is stated at cost. Depreciation is recorded over estimated useful lives, generally ranging from 20 to 50 years for buildings and four to 12 years for machinery and equipment. The straight-line method of depreciation was adopted for all property, plant and equipment placed in service after March 31, 1999. For property, plant and equipment placed into service prior to April 1, 1999, depreciation is calculated using accelerated methods. 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.

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 assessments performed during 2017, there was no goodwill impairment.

Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives an exclusive right to 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

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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. The Company has not identified any impairment of these assets.

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 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 assessment performed during 2017, there were no impairments of other intangible assets. See Note 5 of the Consolidated Financial Statements.

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 of international operations 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 gains of $756 , $1,873 and $505 in 2017 , 2016 and 2015 , respectively, were included in 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 and services were $14,765 , $12,913 and $12,688 , for the years 2017 , 2016 and 2015 , 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

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amortized over future periods, which will affect benefit costs recognized in such periods. See Note 11 to the Consolidated Financial Statements.

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 12 of the Consolidated Financial Statements.

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 13 of the Consolidated Financial Statements.

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.

Recently Adopted Accounting Standards

In April 2015, the FASB amended its guidance related to the presentation of debt issuance costs. The amended guidance specifies that debt issuance costs related to notes shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs shall be reported as interest expense. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied retrospectively. The Company adopted the guidance during the first quarter of 2016 and it did not have a material impact on its Consolidated Financial Statements.

In July 2015, the FASB amended its guidance related to the measurement of inventory. The amended guidance requires inventory to be measured at the lower of cost and net realizable value and thereby simplifies the prior guidance of measuring inventory at the lower of cost or market. The amended guidance is effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance during the first quarter of 2017 and it did not have a material impact on its Consolidated Financial Statements.

In November 2015, the FASB amended its guidance related to the balance sheet classification of deferred income taxes. The amended guidance removes the requirement to separate and classify deferred income tax liabilities and assets into current and non-current amounts and requires an entity to now classify all deferred tax liabilities and assets as non-current. The amended guidance can be adopted either on a prospective or retrospective basis and is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. The provisions of the amended guidance were adopted on a prospective basis during the first quarter of 2016. The provisions resulted in the classification of $26,639 and $1,290 of current deferred income tax assets and liabilities, respectively, into non-current deferred income tax assets and liabilities on the Consolidated Balance Sheet as of December 31, 2016.

In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was permitted, and the Company elected to early

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

adopt in the third quarter of 2016. See Note 12 of the Consolidated Financial Statements for additional details related to the Company's adoption of this amended guidance.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") amended its guidance related to revenue recognition. The amended guidance establishes a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The amended guidance clarifies that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the amended guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The amended guidance applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The amended guidance was initially effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. On July 9, 2015, the FASB approved a deferral of the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Entities have the option of using either a full retrospective or modified retrospective approach to the amended guidance.

The Company will adopt the amended guidance using the modified retrospective approach on January 1, 2018 at which time it becomes effective for the Company. In 2015, management developed a project plan and established a cross-functional team to implement the amended guidance. We have completed the review of our customer contracts and have evaluated the impact of the amended guidance on each of our primary revenue streams. While we are finalizing our overall assessment under the amended guidance, we believe that the most significant impact relates to the timing of revenue recognition, presentation and disclosures. We expect that the majority of our businesses will continue to recognize revenue on a "point-in-time basis". We also expect, however, that a portion of our businesses with customized products or customer contracts in which we perform work on a customer-owned asset will require the use of an "over time" recognition model as certain of our contracts meet certain of the criteria established in the amended guidance. We will utilize the cost-to-cost input method to measure progress towards completion for contracts on an over time revenue recognition model.

On January 1, 2018, the Company will recognize the cumulative effect of initially applying the amended guidance as an increase of approximately $4,000 to the opening balance of retained earnings, attributed primarily to the over time recognition of approximately $15,000 of net sales. We do not expect that the ongoing impact to net sales and net income will be material to the Consolidated Statements of Income, however the future impact of the amended guidance is dependent on the mix and nature of specific customer contracts. Under the existing guidance, the Company recognizes customer advances when payment is received. Adoption of the amended guidance will result in the recognition of additional customer advances for which the Company has received an unconditional right to payment. Since the related performance obligations have not been satisfied, however, the Company will recognize these customer advances as trade receivables, with a corresponding contract liability of equal amount. We continue to identify appropriate changes to our business processes, systems and controls to support recognition and disclosure requirements under the new standard. We are continuing to implement design changes to such business processes, controls and systems to ensure that such changes are effective.

In February 2016, the FASB amended its guidance related to lease accounting. The amended guidance requires lessees to recognize a majority of their leases on the balance sheet as a right-to-use asset. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lease expense will be recorded in a manner similar to current accounting. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact it will have on its Consolidated Financial Statements. The Company anticipates the amended guidance will have a material impact on its assets and liabilities due to the addition of right-of-use assets and lease liabilities to the balance sheet; however, it does not expect the amended guidance to have a material impact on its cash flows or results of operations.

In August 2016, the FASB amended its guidance related to the Statement of Cash Flows. The amended guidance clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows, with focus on eight specific areas in which cash flows have, in practice, been presented inconsistently. The guidance is effective for annual periods

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the amended guidance to have a material impact on its cash flows.

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 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption of this amended guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

In March 2017, the FASB amended its guidance related to the presentation of pension costs. The amended guidance requires the bifurcation of net periodic benefit cost for pension and other postretirement plans. The service cost component of expense will be presented with other employee compensation costs in operating income, consistent with the current guidance. The other components of expense, however, will be reported separately outside of operating income. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the amended guidance to determine the impact it will have on its Consolidated Financial Statements. The Company does not expect that the adoption of this amended guidance will have a material impact on the Company's Consolidated Financial Statements on an ongoing basis. The Company's retrospective adoption, though, will have an impact on certain classifications in the 2017 Consolidated Statements of Income, primarily due to the pre-tax pension curtailment gain of $7,217 that was recorded in operating income during 2017. See Note 11 of the 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 is effective January 1, 2019, with early adoption permitted in any interim period. The Company is currently evaluating the impact that the guidance may have on its Consolidated Financial Statements.

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 Other Comprehensive Income to Retained Earnings (stranded tax effects). The guidance also requires certain new disclosures. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption is permitted. Entities may adopt the guidance using one of two transition methods; retrospective to each period (or periods) in which the income tax effects of the Act related to the items remaining in Other Comprehensive Income are recognized or at the beginning of the period of adoption. The Company is currently evaluating the impact that the guidance may have on its Consolidated Financial Statements.

2. Acquisitions

The Company has acquired a number of 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. Pro forma operating results for the acquisitions are not presented as the results would not be significantly different than historical results.

In the second quarter of 2017, the Company completed its acquisition of the assets of the privately held Gammaflux L.P. business ("Gammaflux"), a leading supplier of hot runner temperature and sequential valve gate control systems to the plastics industry. Gammaflux, which is headquartered in Sterling, Virginia and has offices in Illinois and Germany, provides temperature control solutions for injection molding, extrusion, blow molding, thermoforming, and other applications. Its end markets include packaging, electronics, automotive, household products, medical, and tool building. The Company acquired the assets of Gammaflux for an aggregate purchase price of $8,866 , which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Asset Purchase Agreement, including $2 related to cash acquired. In connection with the acquisition, the Company recorded $1,535 of goodwill and $3,700 of intangible assets. See Note 5 to the Consolidated Financial Statements.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company incurred $210 of acquisition-related costs during the year ended December 31, 2017 related to the Gammaflux acquisition. 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 Gammaflux have been included in the Consolidated Statements of Income for the period ended December 31, 2017 since the date of acquisition. The Company reported $9,081 in net sales for Gammaflux for the year ended December 31, 2017. Gammaflux results have been included within the Industrial segment's operating profit.

In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and currently operates out of manufacturing facilities located in Germany and China. When acquired, FOBOHA also operated out of a third manufacturing facility located in Switzerland; however, this operation was consolidated and closed during 2017. See Note 8 to the Consolidated Financial Statements. The Company completed its purchase of the Germany and Switzerland businesses on August 31, 2016. The purchase of the China business required government approval which was granted on September 30, 2016. On October 7, 2016, shares of the China operations were subsequently transferred to the Company upon payment, per the terms of the Share Purchase Agreement for these respective operations ("China SPA"). The Company, pursuant to the terms and conditions within the Share Purchase Agreement ("FOBOHA SPA"), assumed economic control of the China business effective August 31, 2016. Having both economic control and the benefits and risks of ownership during the period from August 31, 2016 through September 30, 2016, the Company included the results of the China business within the consolidated results of operations of the Company during this period.

FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 137,918 ( $140,203 ) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the FOBOHA SPA, including approximately CHF 11,342 ( $11,530 ) related to cash acquired. In connection with the acquisition, the Company recorded $39,800 of intangible assets and $75,574 of goodwill. See Note 5 to the Consolidated Financial Statements.

The Company incurred $2,193 of acquisition-related costs during the year ended December 31, 2016 related to the FOBOHA acquisition. These costs include due diligence costs and transaction costs to complete the acquisition and have been recognized in the Company's Consolidated Statements of Income as selling and administrative expenses.

The operating results of FOBOHA have been included in the Consolidated Statements of Income for the period ended December 31, 2016 since the date of acquisition. The Company reported $18,348 in net sales for FOBOHA for the year ended December 31, 2016. FOBOHA results have been included within the Industrial segment's operating profit.

In the fourth quarter of 2015, the Company, itself and through two of its subsidiaries, completed the acquisition of privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus, which has approximately 40 employees, is headquartered in Schaffhausen, Switzerland and has direct sales and service offices in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services many of the world's highest quality plastic injection molders in the medical, automotive, consumer goods, electronics and packaging markets. The Company acquired Priamus for an aggregate cash purchase price of CHF 9,879 ( $10,111 ) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Share Purchase Agreement, including CHF 1,556 ( $1,592 ) related to cash acquired.

In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent Company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay specializes in the design, development, and manufacturing of hot runner solutions for plastic injection molding, primarily in the packaging, automotive, and medical end markets. The Company acquired Thermoplay for an aggregate cash purchase price of €58,066 ( $63,690 ), pursuant to the terms of the Sale and Purchase Agreement ("SPA"), which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the SPA, including €17,054 ( $18,706 ) related to cash acquired.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company incurred $2,195 and $574 of acquisition-related costs during the year ended December 31, 2015 related to the Thermoplay and Priamus acquisitions, respectively. These costs include due diligence costs and transaction costs to complete the acquisitions, and have been recognized in the Company's Consolidated Statements of Income as selling and administrative expenses.

The operating results of Thermoplay and Priamus have been included in the Consolidated Statements of Income for the period ended December 31, 2015, since the dates of acquisition. The Company reported $13,593 and $2,028 in net sales for Thermoplay and Priamus, respectively, for the year ended December 31, 2015. Thermoplay and Priamus results have been included within the Industrial segment's operating profit.

3. Inventories

Inventories at December 31 consisted of:



	2017		2016
Finished goods	$	79,649	$	71,100
Work-in-process	97,276		98,246
Raw materials and supplies	65,037		58,413
	$	241,962	$	227,759

4. Property, Plant and Equipment

Property, plant and equipment at December 31 consisted of:



	2017			2016
Land	$	21,723		$	19,952
Buildings	182,226			169,695
Machinery and equipment	631,392			572,540
	835,341			762,187
Less accumulated depreciation	(476,043		)	(427,698		)
	$	359,298		$	334,489

Depreciation expense was $48,693 , $43,165 and $39,654 during 2017 , 2016 and 2015 , respectively.

5. 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, 2016	$	557,206		$	30,786	$	587,992
Acquisition-related	73,688			—		73,688
Foreign currency translation	(28,244		)	—		(28,244		)
December 31, 2016	602,650			30,786		633,436
Acquisition-related	3,330			—		3,330
Foreign currency translation	53,457			—		53,457
December 31, 2017	$	659,437		$	30,786	$	690,223

Of the $690,223 of goodwill at December 31, 2017 , $43,860 represents the original tax deductible basis.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The increase in goodwill in 2016 was due to the acquisition of FOBOHA on August 31, 2016, which is included in the Industrial segment. The amount allocated to goodwill reflects the benefits that the Company expects to realize from synergies created by combining the operations of FOBOHA, future enhancements to technology, geographical expansion and FOBOHA's assembled workforce. None of the recognized goodwill is expected to be deductible for income tax purposes.

Other Intangible Assets: Other intangible assets at December 31 consisted of:



		2017						2016
	Range of Life-Years	Gross Amount			Accumulated Amortization			Gross Amount			Accumulated Amortization
Amortized intangible assets:
Revenue Sharing Programs	Up to 30	$	293,700		$	(108,075	)	$	293,700		$	(95,701	)
Component Repair Programs	Up to 30	111,839			(16,508		)	111,839			(10,497		)
Customer lists/relationships	10-16	215,966			(65,385		)	215,266			(53,198		)
Patents and technology	4-14	87,052			(48,083		)	84,052			(37,897		)
Trademarks/trade names	10-30	11,950			(10,349		)	11,950			(9,967		)
Other	Up to 15	20,551			(16,414		)	20,551			(16,338		)
		741,058			(264,814		)	737,358			(223,598		)
Unamortized intangible asset:
Trade names		42,770			—			42,770			—

Foreign currency translation		(11,972		)	—			(34,272		)	—
Other intangible assets		$	771,856		$	(264,814	)	$	745,856		$	(223,598	)

The Company entered into Component Repair Programs ("CRPs") with General Electric ("GE") during 2015, 2014 and 2013. The CRPs 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 over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain contracts under which the Company provides these services directly to GE. Total investments in CRPs as of December 31, 2017 equaled $111,839 , all of which have been paid. The Company recorded the CRP consideration as an intangible asset which is recognized as a reduction of sales over the remaining useful life of these engine programs based on the estimated sales over the life of such programs.

In connection with the acquisition of FOBOHA in August 2016, the Company recorded intangible assets of $39,800 , which includes $20,700 of customer relationships, $14,700 of patents and technology and $4,400 of an indefinite life trade name. The weighted-average useful lives of the acquired assets were 16 years and 7 years, respectively.

Amortization of intangible assets for the years ended December 31, 2017 , 2016 and 2015 was $41,216 , $36,753 and $38,502 , respectively. Estimated amortization of intangible assets for future periods is as follows: 2018 - $41,000 ; 2019 - $41,000 ; 2020 - $37,000 ; 2021 - $37,000 and 2022 - $36,000 .

The Company has entered into a number of aftermarket RSP agreements each of which is with GE. See Note 1 of the Consolidated Financial Statements for a further discussion of these Revenue Sharing Programs. As of December 31, 2017 , the Company has made all required participation fee payments under the aftermarket RSP agreements.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Accrued Liabilities

Accrued liabilities at December 31 consisted of:



	2017		2016
Payroll and other compensation	$	53,857	$	37,560
Deferred revenue and customer advances	40,472		34,812
Pension and other postretirement benefits	8,294		8,261
Accrued income taxes	26,340		26,477
Other	52,278		49,857
	$	181,241	$	156,967

7. Debt and Commitments

Long-term debt and notes and overdrafts payable at December 31 consisted of:



	2017					2016
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
Revolving credit agreement	$	421,500		$	424,818	$	363,300		$	364,775
3.97% Senior Notes	100,000			101,348		100,000			101,598
Borrowings under lines of credit and overdrafts	5,669			5,669		30,825			30,825
Capital leases	4,541			4,964		5,413			5,902
Other foreign bank borrowings	886			897		1,416			1,428
	532,596			537,696		500,954			504,528
Less current maturities	(6,999		)			(32,892		)
Long-term debt	$	525,597				$	468,062

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 the fourth amendment of its fifth amended and restated 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 increases the facility from $750,000 to $850,000 and extends the maturity date from September 2018 to February 2022 . The Amended Credit Agreement also increases the existing accordion feature from $250,000 , allowing the Company to now 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 Amended Credit Agreement, allows for multi-currency borrowing which includes euro, sterling or Swiss franc borrowing, up to $600,000 . 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% . The Company paid fees and expenses of $2,542 in conjunction with executing 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.

Borrowings and availability under the Amended Credit Agreement were $ 421,500 and $ 428,500 , respectively, at December 31, 2017 and $363,300 and $386,700 , respectively, at December 31, 2016 . The average interest rate on these borrowings was 2.65% and 1.86% on December 31, 2017 and 2016, respectively. 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 2016, the Company borrowed $100,000 under the Amended Credit Facility through an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down U.S. borrowings under the Amended Credit Agreement.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

The Company's borrowing capacity remains limited by various debt covenants in 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 and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25 times at the end of each fiscal quarter; provided that these debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. At December 31, 2017 , the Company was in compliance with all covenants under the Agreements and continues to monitor its future compliance based on current and future economic conditions.

In addition, the Company has approximately $59,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. Under the Credit Lines, $5,300 was borrowed at December 31, 2017 at an average interest rate of 2.33% and $30,700 was borrowed at December 31, 2016 at an average interest rate of 1.96% . The Company had also borrowed $369 and $125 under the overdraft facilities at December 31, 2017 and 2016 , 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 has capital leases at the Thermoplay and Männer businesses. The fair value of the capital leases are based on observable Level 2 inputs. These instruments are valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

At December 31, 2017 and 2016 , the Company also had other foreign bank borrowings of $886 and $1,416 , 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, 2017 are payable as follows: $6,999 in 2018 , $955 in 2019 , $508 in 2020 , $601 in 2021 , $421,989 in 2022 and $101,544 thereafter. The 3.97% Senior Notes are due in 2024 according to their maturity date.

In addition, the Company had outstanding letters of credit totaling $9,339 at December 31, 2017 .

Interest paid was $13,962 , $11,471 and $10,550 in 2017 , 2016 and 2015 , respectively. Interest capitalized was $415 , $324 and $422 in 2017 , 2016 and 2015 , respectively, and is being depreciated over the lives of the related fixed assets.

8. Business Reorganizations

In the second quarter of 2017, the Company authorized the closure and consolidation of two production facilities (the "Closures") including a FOBOHA facility located in Muri, Switzerland ( 60 employees) and an Associated Spring facility ( 30 employees) into other facilities included within the Industrial segment to leverage capacity, infrastructure and critical resources. The Company recorded a net pre-tax loss of $13 in 2017 related to the Closures. This balance includes employee severance charges of $3,796 and other Closure costs of $3,664 , primarily related to asset write-downs and costs to transfer work to other

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

existing facilities, almost fully offset by pension curtailment and settlement gains of $7,217 and $230 , respectively. The Muri Closure was completed as of December 31, 2017, whereas the Closure at the Associated Spring facility is expected to be completed in the first half of 2018. The remaining severance liability, which is expected to be paid in 2018, was included within accrued liabilities as of December 31, 2017. Closure costs are recorded primarily within cost of sales in the accompanying Consolidated Statements of Income and are reflected in the results of the Industrial segment.

The following table sets forth the change in the liability for the 2017 employee termination actions:



January 1, 2017	$	—
Employee severance costs	3,796
Payments	(3,099		)
Foreign currency translation	(48		)
December 31, 2017	$	649

9. 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 exposures to fluctuations in interest rates. In 2012, the Company entered into five -year interest rate swap agreements (the "Swaps") transacted with three banks which together converted 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 1.03% plus the borrowing spread. The Swaps expired on April 28, 2017. The Company entered into a new interest rate swap agreement (the "Swap") that commenced on April 28, 2017, with one bank, and 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. These interest rate swap agreements were accounted for as cash flow hedges. The Swap remained in place at December 31, 2017 .

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 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 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. Other financing cash flows during the years ended December 31, 2017 and 2016 , as presented on the consolidated statements of cash flows, include $18,256 of net cash payments and $5,221 of net cash proceeds, respectively, related to the settlement of foreign currency hedges related to intercompany financing.

The following table sets forth the fair value amounts of derivative instruments held by the Company as of December 31.



	2017					2016
	Asset Derivatives		Liability Derivatives			Asset Derivatives		Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate contracts	$	654	$	—		$	—	$	(78	)
Foreign exchange contracts	—		(379		)	—		(177		)
	654		(379		)	—		(255		)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	58		(29		)	397		(1,499		)
Total derivatives	$	712	$	(408	)	$	397	$	(1,754	)

Asset derivatives related to interest rate contracts and foreign exchange contracts are recorded in other assets and prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. Liability derivatives related to

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

interest rate contracts and foreign exchange contracts are recorded in other liabilities and accrued liabilities, respectively, in the accompanying consolidated balance sheets.

The following table sets forth the (loss) gain recorded in accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2017 and 2016 for derivatives held by the Company and designated as hedging instruments.



	2017			2016
Cash flow hedges:
Interest rate contracts	$	460		$	174
Foreign exchange contracts	(161		)	(516		)
	$	299		$	(342	)

Amounts related to the interest rate swaps included within accumulated other comprehensive income (loss) that were reclassified to expense during the years ended December 31, 2017 and 2016 resulted in a fixed rate of interest plus the borrowing spread for the first $100,000 of one-month LIBOR borrowings. The fixed rate of interest was 1.92% for the period covered by the Swap, which matures in January 2022, and 1.03% for the Swaps, which matured in April 2017. Additionally, there were no amounts recognized in income for hedge ineffectiveness during the years ended December 31, 2017 and 2016 .

The following table sets forth the net (loss) gains recorded in other expense (income), net in the consolidated statements of income for the years ended December 31, 2017 and 2016 for non-designated derivatives held by the Company. Such amounts were substantially offset by the net (gain) loss recorded on the underlying hedged asset or liability, also recorded in other expense (income), net.



	2017			2016
Foreign exchange contracts	$	(16,813	)	$	2,297

10. 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.

Table of Contents

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, 2017 and 2016 :



				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, 2017
Asset derivatives	$	712		$	—	$	712		$	—
Liability derivatives	(408		)	—		(408		)	—
Bank acceptances	16,092			—		16,092			—
Rabbi trust assets	2,554			2,554		—			—
	$	18,950		$	2,554	$	16,396		$	—
December 31, 2016
Asset derivatives	$	397		$	—	$	397		$	—
Liability derivatives	(1,754		)	—		(1,754		)	—
Bank acceptances	9,690			—		9,690			—
Rabbi trust assets	2,216			2,216		—			—
	$	10,549		$	2,216	$	8,333		$	—

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 Chinese 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 11 of the Consolidated Financial Statements.

11. 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 16 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 these plans are based primarily on the performance of the business units and employee compensation. Contribution expense under these other defined contribution plans was $6,644 , $5,907 and $5,347 in 2017 , 2016 and 2015 , respectively.

Defined benefit pension plans in the U.S. cover a majority of the Company’s U.S. employees at the Associated Spring and Nitrogen Gas Products businesses of Industrial, the Company’s Corporate Office and certain former U.S. employees, including retirees. 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. In 2012, the Company closed the U.S. salaried defined benefit pension plan (the "U.S. Salaried Plan") to employees hired on or after January 1, 2013, with no impact to the benefits of existing participants. 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 eligible earnings, in place of pensionable benefits under the closed U.S. Salaried Plan. 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.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

The accompanying balance sheets reflect the funded status of the Company’s defined benefit pension plans at December 31, 2017 and 2016 , respectively. Reconciliations of the obligations and funded status of the plans follow:



	2017									2016
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Benefit obligation, January 1	$	389,613		$	104,339		$	493,952		$	385,629		$	75,406		$	461,035
Service cost	3,931			2,124			6,055			3,892			1,503			5,395
Interest cost	17,151			1,668			18,819			17,523			1,971			19,494
Amendments	1,233			27			1,260			2,405			(174		)	2,231
Actuarial loss (gain)	28,350			(4,397		)	23,953			6,661			10,814			17,475
Benefits paid	(24,909		)	(4,240		)	(29,149		)	(26,497		)	(4,691		)	(31,188		)
Transfers in	—			2,743			2,743			—			25,968			25,968
Plan curtailments	—			(7,030		)	(7,030		)	—			—			—
Plan settlements	—			(21,074		)	(21,074		)	—			—			—
Participant contributions	—			1,355			1,355			—			1,444			1,444
Foreign exchange rate changes	—			7,226			7,226			—			(7,902		)	(7,902		)
Benefit obligation, December 31	415,369			82,741			498,110			389,613			104,339			493,952
Fair value of plan assets, January 1	331,260			85,652			416,912			326,829			68,553			395,382
Actual return on plan assets	56,131			6,150			62,281			13,051			7,276			20,327
Company contributions	12,896			2,027			14,923			17,877			2,224			20,101
Participant contributions	—			1,355			1,355			—			1,444			1,444
Benefits paid	(24,909		)	(4,240		)	(29,149		)	(26,497		)	(4,691		)	(31,188		)
Plan settlements	—			(20,857		)	(20,857		)	—			—			—
Transfers in	—			2,743			2,743			—			18,320			18,320
Foreign exchange rate changes	—			6,230			6,230			—			(7,474		)	(7,474		)
Fair value of plan assets, December 31	375,378			79,060			454,438			331,260			85,652			416,912
Underfunded status, December 31	$	(39,991	)	$	(3,681	)	$	(43,672	)	$	(58,353	)	$	(18,687	)	$	(77,040	)

In 2017, the Company authorized the closure of it's FOBOHA facility located in Muri, Switzerland, resulting in the pension curtailments and settlements noted above. See Note 8 of the Consolidated Financial Statements for additional information related to this Closure.

Projected benefit obligations related to pension plans with benefit obligations in excess of plan assets follow:



	2017						2016
	U.S.		Non-U.S.		Total		U.S.		Non-U.S.		Total
Projected benefit obligation	$	311,320	$	40,931	$	352,251	$	389,613	$	61,060	$	450,673
Fair value of plan assets	267,087		26,205		293,292		331,260		39,356		370,616

Information related to pension plans with accumulated benefit obligations in excess of plan assets follows:



	2017						2016
	U.S.		Non-U.S.		Total		U.S.		Non-U.S.		Total
Projected benefit obligation	$	40,572	$	40,931	$	81,503	$	389,613	$	61,014	$	450,627
Accumulated benefit obligation	40,090		40,877		80,967		378,431		59,568		437,999
Fair value of plan assets	4,797		26,205		31,002		331,260		39,356		370,616

The accumulated benefit obligation for all defined benefit pension plans was $485,777 and $481,241 at December 31, 2017 and 2016 , respectively.

Amounts related to pensions recognized in the accompanying balance sheets consist of:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017									2016
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Other assets	$	4,242		$	11,045		$	15,287		$	—		$	3,017		$	3,017
Accrued liabilities	2,823			407			3,230			2,813			367			3,180
Accrued retirement benefits	41,410			14,319			55,729			55,540			21,337			76,877
Accumulated other non-owner changes to equity, net	(84,990		)	(13,016		)	(98,006		)	(91,530		)	(19,458		)	(110,988		)

Amounts related to pensions recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 2017 and 2016 , respectively, consist of:



	2017									2016
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Net actuarial loss	$	(82,736	)	$	(13,237	)	$	(95,973	)	$	(89,772	)	$	(19,822	)	$	(109,594	)
Prior service costs	(2,254		)	221			(2,033		)	(1,758		)	364			(1,394		)
	$	(84,990	)	$	(13,016	)	$	(98,006	)	$	(91,530	)	$	(19,458	)	$	(110,988	)

The accompanying balance sheets reflect the underfunded status of the Company’s other postretirement benefit plans at December 31, 2017 and 2016 . Reconciliations of the obligations and underfunded status of the plans follow:



	2017			2016
Benefit obligation, January 1	$	36,853		$	41,706
Service cost	83			122
Interest cost	1,561			1,766
Actuarial loss (gain)	3,806			(3,495		)
Benefits paid	(7,251		)	(5,621		)
Participant contributions	2,209			2,281
Foreign exchange rate changes	309			94
Benefit obligation, December 31	37,570			36,853
Fair value of plan assets, January 1	—			—
Company contributions	5,042			3,340
Participant contributions	2,209			2,281
Benefits paid	(7,251		)	(5,621		)
Fair value of plan assets, December 31	—			—
Underfunded status, December 31	$	37,570		$	36,853

Amounts related to other postretirement benefits recognized in the accompanying balance sheets consist of:



	2017			2016
Accrued liabilities	$	5,064		$	5,081
Accrued retirement benefits	32,506			31,772
Accumulated other non-owner changes to equity, net	(5,838		)	(3,582		)

Amounts related to other postretirement benefits recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 2017 and 2016 consist of:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017			2016
Net actuarial loss	$	(5,746	)	$	(3,532	)
Prior service loss	(92		)	(50		)
	$	(5,838	)	$	(3,582	)

The sources of changes in accumulated other non-owner changes to equity, net, during 2017 were:



	Pension			Other Postretirement Benefits
Prior service cost	$	(800	)	$	—
Net (loss) gain	7,787			(2,392		)
Amortization of prior service (credits) costs	117			(43		)
Amortization of actuarial loss	7,140			170
Foreign exchange rate changes	(1,262		)	9
	$	12,982		$	(2,256	)

Weighted-average assumptions used to determine benefit obligations as of December 31, are:



	2017		2016
U.S. plans:
Discount rate	3.90	%	4.50	%
Increase in compensation	2.56	%	2.56	%
Non-U.S. plans:
Discount rate	1.90	%	1.60	%
Increase in compensation	2.17	%	2.29	%

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 2017 : 65% in equity securities and 35% in fixed income securities, including cash.

The fair values of the Company’s pension plan assets at December 31, 2017 and 2016 , by asset category are as follows:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



			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, 2017
Cash and short-term investments	$	10,731	$	10,731	$	—	$	—
Equity securities:
U.S. large-cap	46,786		—		46,786		—
U.S. mid-cap	15,576		15,576		—		—
U.S. small-cap	16,157		16,157		—		—
International equities	159,803		—		159,803		—
Global equity	51,945		51,945		—		—
Fixed income securities:
U.S. bond funds	109,033		—		109,033		—
International bonds	41,742		—		41,742		—
Other	2,665		—		—		2,665
	$	454,438	$	94,409	$	357,364	$	2,665
December 31, 2016
Cash and short-term investments	3,207		3,207		—		—
Equity securities:
U.S. large-cap	39,162		—		39,162		—
U.S. mid-cap	12,724		12,724		—		—
U.S. small-cap	19,551		19,551		—		—
International equities	135,514		—		135,514		—
Global equity	47,445		47,445		—		—
Fixed income securities:
U.S. bond funds	103,399		—		103,399		—
International bonds	53,783		—		53,783		—
Other	2,127		—		—		2,127
	$	416,912	$	82,927	$	331,858	$	2,127

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 the defined benefit pension plan at the Synventive 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 $4,600 to the pension plans in 2018 . 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 2018.

The following are the estimated future net benefit payments, which include future service, over the next 10 years:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	Pensions		Other Postretirement Benefits
2018	$	29,261	$	3,653
2019	29,243		3,485
2020	29,086		3,204
2021	29,205		3,014
2022	29,378		2,848
Years 2023-2027	144,074		11,722
Total	$	290,247	$	27,926

Pension and other postretirement benefit costs consist of the following:



	Pensions									Other Postretirement Benefits
	2017			2016			2015			2017			2016			2015
Service cost	$	6,055		$	5,395		$	5,508		$	83		$	122		$	145
Interest cost	18,819			19,494			20,019			1,561			1,766			1,836
Expected return on plan assets	(28,082		)	(30,302		)	(32,404		)	—			—			—
Amortization of prior service cost (credit)	446			210			305			(68		)	(373		)	(564		)
Recognized losses	10,557			10,791			15,004			276			535			1,011
Curtailment gain	(7,217		)	—			—			—			—			—
Settlement (gain) loss	(119		)	—			9,939			—			—			—
Net periodic benefit cost	$	459		$	5,588		$	18,371		$	1,852		$	2,050		$	2,428

In 2015, the Company announced a limited-time program offering (the "Program") to certain eligible, vested, terminated participants ("eligible participants") for a voluntary lump-sum pension payout or reduced annuity option that, if accepted, would settle the Company's pension obligation to them. The Program provided the eligible participants with a limited time opportunity of electing to receive a lump-sum settlement of their remaining pension benefit, or reduced annuity. The resultant pre-tax settlement charge of $9,856 represents accelerated amortization of actuarial losses and is included the settlement loss above. This settlement charge was reflected within costs of sales and selling and administrative expenses within the Consolidated Statements of Income.

The Closure of the Company's FOBOHA facility located in Muri, Switzerland, as discussed above, resulted in a pre-tax curtailment gain of $7,217 during the 2017 period. See Note 8 of the Consolidated Financial Statements.

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other non-owner changes to equity into net periodic benefit cost in 2018 are $11,222 and $562 , respectively. The estimated net actuarial loss and prior service credit for other defined benefit postretirement plans that will be amortized from accumulated other non-owner changes to equity into net periodic benefit cost in 2018 are $641 and $20 , respectively.

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, are:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017		2016		2015
U.S. plans:
Discount rate	4.50	%	4.65	%	4.25	%
Long-term rate of return	7.75	%	8.25	%	8.25	%
Increase in compensation	2.56	%	3.71	%	3.71	%
Non-U.S. plans:
Discount rate	1.60	%	2.80	%	2.74	%
Long-term rate of return	3.59	%	4.73	%	5.00	%
Increase in compensation	2.29	%	2.71	%	2.72	%

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 6.86% and 6.44% at December 31, 2017 and 2016 , respectively, decreasing gradually to a rate of 4.50% by December 31, 2038 . A one percentage point change in the assumed health care cost trend rate would have the following effects:



	One Percentage Point Increase		One Percentage Point Decrease
Effect on postretirement benefit obligation	$	261	$	(242	)
Effect on postretirement benefit cost	11		(10		)

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:	2017		2016		2015
Swedish Pension Plan	739		$	673	$	343
Total Contributions	$	739	$	673	$	343

12. 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 16 for a description of the Company’s stock-based compensation plans and their general terms. As of December 31, 2017 , 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.

In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. The guidance also allows for a policy election to account for forfeitures as they occur, rather than accounting for them on an estimated basis. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.

The Company elected to early adopt this guidance in the third quarter of 2016. This adoption requires the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The most significant impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than through equity for all periods in fiscal year 2016. This resulted in the recognition of excess tax benefits in the provision for income taxes of $2,229 for the year ended December 31, 2016. In 2015, the Company recorded $2,667 of excess tax benefits for current year tax deductions in additional paid-in capital, as was required pursuant to the earlier accounting guidance. In connection with the additional amendments within the amended guidance, the Company recognized state tax loss carryforwards in the amount of $198 , which impacted retained earnings as of January 1, 2016. The cumulative effect of this change is required to be recorded in retained earnings. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.

The presentation requirements for cash flows related to excess tax benefits and employee taxes paid for withheld shares were applied retrospectively to all periods presented. This resulted in an increase in both net cash provided by operating activities and net cash used by financing activities of $1,402 , $2,320 , $7,519 and $7,580 for the three, six, nine and twelve month periods ended March 31, June 30, September 30 and December 31, 2015, respectively, and $413 and $524 for the three and six month periods ended March 31 and June 30, 2016, respectively.

During 2017 , 2016 and 2015 , the Company recognized $12,285 , $11,493 , and $9,258 respectively, of stock-based compensation cost and $4,579 , $4,284 , and $3,451 respectively, of related tax benefits in the accompanying consolidated statements of income. Additionally, the Company recognized excess tax benefits in the tax provision of $2,463 and $2,229 in 2017 and 2016 , 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, 2017 , the Company had $12,940 of unrecognized compensation costs related to unvested awards which are expected to be recognized over a weighted average period of 2.85 years.

The following table summarizes information about the Company’s stock option awards during 2017 :

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	Number of Shares		Weighted-Average Exercise Price
Outstanding, January 1, 2017	589,160		$	28.67
Granted	131,416		47.80
Exercised	(84,393	)	23.28
Forfeited	(17,403	)	39.82
Outstanding, December 31, 2017	618,780		33.15

The following table summarizes information about stock options outstanding at December 31, 2017 :



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Average Remaining Life (Years)	Average Exercise Price		Number of Shares	Average Exercise Price
$11.45 to $15.83	67,130	1.5	$	13.43	67,130	$	13.43
$20.69 to $26.32	77,955	4.2	23.56		77,955	23.56
$26.38 to $30.71	146,828	7.5	30.26		58,173	29.58
$34.92 to $37.13	195,005	6.9	36.40		142,844	36.59
$38.93 to $63.38	131,862	9.0	47.28		5,750	38.96

The Company received cash proceeds from the exercise of stock options of $1,964 , $4,184 and $11,022 in 2017 , 2016 and 2015 , 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 2017 , 2016 and 2015 was $2,887 , $4,464 and $8,331 , respectively.

The weighted-average grant date fair value of stock options granted in 2017 , 2016 and 2015 was $10.31 , $7.01 and $8.86 , 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:



	2017		2016		2015
Risk-free interest rate	1.90	%	1.20	%	1.58	%
Expected life (years)	5.3		5.3		5.3
Expected volatility	26.1	%	29.1	%	31.1	%
Expected dividend yield	1.82	%	1.94	%	2.06	%

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, 2017 :



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)
598,986	$	33.15	$	18,041	6.58	351,852	$	28.16	$	12,352	5.16

The following table summarizes information about the Company’s Rights during 2017 :

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	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, 2017	347,304		$	31.86	172,042		$	34.74	116,746		$	52.24
Granted	122,696		50.30		43,506		47.69		43,506		74.20
Forfeited	(14,573	)	37.77		(4,660	)	57.83		(4,363	)	43.39
Additional Earned	—		—		18,370		37.00		3,946		50.45
Issued	(144,903	)	57.80		(73,364	)	37.00		(31,443	)	50.45
Outstanding, December 31, 2017	310,524				155,894				128,392

The Company granted 122,696 restricted stock unit awards and 87,012 performance share awards in 2017 . 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 2015, 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"). For awards granted in 2016 and 2017, the metrics included TSR and 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 the Earnings per share growth, 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 2017 awards include a 1.40% risk-free interest rate and a 24.76% 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 Earnings per share growth, 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.

13. Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017			2016			2015
Income from continuing operations before income taxes:
U.S.	$	3,082		$	34,129		$	11,525
International	192,617			148,492			146,421
Income from continuing operations before income taxes	$	195,699		$	182,621		$	157,946
Income tax provision:
Current:
U.S. – federal	$	77,799		$	7,215		$	(210	)
U.S. – state	1,762			755			2,019
International	48,032			41,516			32,217
	127,593			49,486			34,026
Deferred:
U.S. – federal	$	9,596		$	6,091		$	7,670
U.S. – state	819			1,060			(1,137		)
International	(1,724		)	(9,617		)	(3,993		)
	8,691			(2,466		)	2,540
Income taxes	$	136,284		$	47,020		$	36,566

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 Act reduced the U.S. Corporate income tax rate from 35% to 21%, effective January 1, 2018. As required, the Company re-measured its U.S. deferred tax assets and liabilities as of December 31, 2017, applying the reduced U.S. Corporate income tax rate. As a result, the Company recorded a provisional adjustment of $4,152 to net expense, with a corresponding reduction to the U.S. net deferred asset. The Company was capable of reasonably estimating the impact of the reduction to the U.S. Corporate tax rate on the deferred tax balances, however the estimate may be affected by other aspects of the Act, such as the calculation of deferred foreign income and the state effect of adjustments made to federal temporary differences.

The Act taxes certain unrepatriated earnings and profits (“E&P”) of our foreign subsidiaries. In order to determine the Transition Tax we must determine, along with other information, the amount of our accumulated post 1986 E&P for our foreign subsidiaries, as well as the non U.S. income tax paid by those subsidiaries on such E&P. We were capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax expense of $86,707 . However, we continue to gather information which may adjust the computed Transition Tax. Furthermore, certain provisions of the Act are ambiguous as to the details of the computation of the Transition tax, thereby requiring us to await further guidance from the U.S. Treasury Department and the Internal Revenue Service.

As a result of the Transition Tax the Company will be recording income as if the earnings had been repatriated. This income may be subject to additional taxation at the state level. We were able to make a reasonable estimate of the state taxation of these earnings and recorded a provisional expense of $1,423 . While we were able to make a reasonable estimate of the impact of state taxation on the deemed repatriation of deferred foreign income, it may be affected by changes in the computation resulting from the gathering of additional information as well as future guidance provided by the state tax authorities.

U.S. Tax Reform required the mandatory deemed repatriation of certain 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. On December 31, 2017, the Company's unremitted foreign earnings were $1,228,170 . Pursuant to SAB 118, if an entity has completed all or portions of its assessment and has made a decision to repatriate and has the ability to reasonably estimate the effects of that assessment, that entity should record a provisional expense and disclose the status of its efforts. The Company is continuing to evaluate its indefinite assertions related to its foreign earnings, but expects to repatriate certain earnings which would be subject to withholding and foreign income tax. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6,932 . These amounts are provisional in nature given the uncertainty related to the taxation of the distributions under the Act and the finalization of the Company’s analysis on its indefinite reinvestment assertion. During 2017, the

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $7,250 . The dividend was not taxable in the U.S. as the amount was included within the Transition Tax.

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:



	2017			2016
Deferred tax assets:
Pension	$	13,255		$	27,410
Tax loss carryforwards	16,078			16,686
Inventory valuation	10,568			15,518
Other postretirement/postemployment costs	9,440			14,071
Accrued Compensation	5,743			10,121
Other	4,018			6,489
Valuation allowance	(10,223		)	(14,957		)
Total deferred tax assets	48,879			75,338
Deferred tax liabilities:
Depreciation and amortization	(82,422		)	(89,198		)
Goodwill	(9,440		)	(14,871		)
Other	(18,361		)	(12,282		)
Total deferred tax liabilities	(110,223		)	(116,351		)
Net deferred tax liabilities	$	(61,344	)	$	(41,013	)

In the first quarter of 2016, the Company prospectively adopted the amended guidance related to the balance sheet classification of deferred income taxes. The amended guidance removed the requirement to separate and classify deferred income tax liabilities and assets into current and non-current amounts and required an entity to now classify all deferred tax liabilities and assets as non-current. The provisions of the amended guidance were adopted on a prospective basis during the first quarter of 2016. Amounts related to deferred taxes in the balance sheets as of December 31, 2017 and 2016 are presented as follows:



	2017			2016
Non-current deferred tax assets	$	12,161		$	25,433
Non-current deferred tax liabilities	(73,505		)	(66,446		)
Net deferred tax liabilities	$	(61,344	)	$	(41,013	)

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.

Management believes that sufficient taxable income should be earned in the future to realize the net deferred tax assets principally in the United States. 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. The Company has tax loss carryforwards of $62,285 ; $3,224 which relates to U.S tax loss carryforwards which have carryforward periods up to 20 years for federal purposes and ranging from one to 20 years for state purposes; $46,255 of which relates to international tax loss carryforwards with carryforward periods ranging from one to 20 years; and $12,806 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $144 with remaining carryforward periods ranging from one year to 5 years. 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

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 and changes to the NOL and FTC rules. Since the Company has recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for or change in a valuation allowance would be provisional.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:



	2017		2016		2015
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes (net of federal benefit)	0.1		0.4		0.2
Transition Tax	45.0		—		—
U.S. Corporate Tax Rate change	2.1		—		—
Indefinite Reinvestment Assertion	3.5		—		—
Foreign operations taxed at different rates	(11.5	)	(10.9	)	(12.9	)
Foreign losses without tax benefit	1.5		0.7		1.1
Repatriation from current year foreign earnings	—		1.6		4.3
Tax withholding refund	—		—		(1.9	)
Tax Holidays	(0.8	)	(1.2	)	(3.2	)
Stock awards excess tax benefit	(1.2	)	(1.2	)	—
Swiss Legal Entity Reduction	(3.4	)	—		—
Audit Settlements	(2.7	)	—		—
Other	2.0		1.3		0.6
Consolidated effective income tax rate	69.6	%	25.7	%	23.2	%

Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $6,937 , has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2017. The long-term portion of the assessment, $79,770 , is included as a Long-term tax liability on the Consolidated Balance Sheet and is payable as follows: $6,937 annually in 2019 through 2022; $13,005 in 2023; $17,341 in 2024 and $21,676 in 2025.

The Aerospace and Industrial Segments were previously awarded a number of multi-year tax holidays in both Singapore and China. Tax benefits of $1,540 ( $0.03 per diluted share), $2,245 ( $0.04 per diluted share) and $5,000 ( $0.09 per diluted share) were realized in 2017 , 2016 and 2015 , respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Most tax holidays expired in 2017.

Income taxes paid globally, net of refunds, were $51,548 , $40,842 and $31,895 in 2017 , 2016 and 2015 , respectively.

As of December 31, 2017 , 2016 and 2015 , the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $9,209 , $13,320 and $10,634 , respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2017 , 2016 and 2015 follows:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017			2016		2015
Balance at January 1	$	13,320		$	10,634	$	8,560
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	1,141			—		1,691
Tax positions taken during the current period	778			117		—
Acquisition	—			2,569		598
Settlements	(4,162		)	—		—
Lapse of the applicable statute of limitations	(1,868		)	—		(215		)
Balance at December 31	$	9,209		$	13,320	$	10,634

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 $(257) , $(337) , and $616 in the years 2017 , 2016 and 2015 respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $1,576 , $1,838 and $1,923 at December 31, 2017 , 2016 and 2015 , 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 2010 and forward and for the U.S. include tax years 2014 and forward. The Company has received the audit report but not the final assessment in Germany for tax years 2010 to 2014 and is also under audit in several states for the period 2013 to 2014.

14. Common Stock

There were no shares of common stock issued from treasury in 2017 , 2016 or 2015 .

In 2017 , 2016 and 2015 , the Company acquired 677,100 shares, 550,994 shares and 1,352,596 shares, respectively, of the Company’s common stock at a cost of $40,791 , $20,520 and $52,103 , 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 2017 , 2016 and 2015 , 341,837 shares, 621,259 shares and 841,164 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.

15. Preferred Stock

At December 31, 2017 and 2016 , the Company had 3,000,000 shares of preferred stock authorized, none of which were outstanding.

16. 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 eligible earnings. The Company recognized expense of $4,088 , $3,660 and $3,666 in 2017 , 2016 and 2015 , respectively. As of December 31, 2017 , the Retirement Savings Plan held 1,124,360 shares of the Company’s common stock.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 7,734 , 11,804 and 11,246 in 2017 , 2016 and 2015 , respectively. The Company received cash proceeds from the purchase of these shares of $444 , $427 and $403 in 2017 , 2016 and 2015 , respectively. As of December 31, 2017 , 277,671 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, 2017 , there were 5,628,950 shares available for future grants under the 2014 Plan, inclusive of Shares Reacquired and shares made available through 2017 forfeitures. As of December 31, 2017 , there were 1,224,275 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 2017 , 2016 and 2014, $20 , $21 and $26 , respectively, of dividend equivalents were paid in cash related to these shares. Compensation cost related to this plan was $9 , $28 and $16 in 2017 , 2016 and 2015 , respectively. There are 36,000 shares reserved for issuance under this plan. Each non-employee director who joined the Board of Directors subsequent to December 15, 2005 received restricted stock units under the respective 2004 or 2014 Plans that have a grant date value of $50 that vest three years after the date of grant.

Total maximum shares reserved for issuance under all stock plans aggregated 7,166,895 at December 31, 2017 .

17. 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 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 significant adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 2017 , 2016 and 2015 . 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
	2017	2016	2015
Basic	54,073,407	54,191,013	55,028,063
Dilutive effect of:
Stock options	258,052	166,986	206,778
Performance share awards	273,839	273,314	278,378
Diluted	54,605,298	54,631,313	55,513,219

The calculation of weighted-average diluted shares outstanding excludes all anti-dilutive shares. During 2017 , 2016 and 2015 , the Company excluded 46,450 , 262,336 and 214,032 stock awards, respectively, from the calculation of diluted weighted-average shares outstanding as the stock awards were considered anti-dilutive.

18. 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, 2017 and December 31, 2016 :

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	Gains and Losses on Cash Flow Hedges			Pension and Other Postretirement Benefit Items			Foreign Currency Items			Total
January 1, 2017	$	(227	)	$	(114,570	)	$	(86,031	)	$	(200,828	)
Other comprehensive (loss) income before reclassifications to consolidated statements of income	(231		)	3,342			83,404			86,515
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income	530			7,384			—			7,914
Net current-period other comprehensive income	299			10,726			83,404			94,429
December 31, 2017	$	72		$	(103,844	)	$	(2,627	)	$	(106,399	)

	Gains and Losses on Cash Flow Hedges			Pension and Other Postretirement Benefit Items			Foreign Currency Items			Total

January 1, 2016	$	115		$	(105,703	)	$	(37,664	)	$	(143,252	)
Other comprehensive loss before reclassifications to consolidated statements of income	(739		)	(16,137		)	(48,367		)	(65,243		)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income	397			7,270			—			7,667
Net current-period other comprehensive loss	(342		)	(8,867		)	(48,367		)	(57,576		)
December 31, 2016	$	(227	)	$	(114,570	)	$	(86,031	)	$	(200,828	)

The following table sets forth the reclassifications out of accumulated other comprehensive income by component for the years ended December 31, 2017 and December 31, 2016 :



Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	2017			2016
Gains and losses on cash flow hedges
Interest rate contracts	$	(545	)	$	(557	)	Interest expense
Foreign exchange contracts	(242		)	(61		)	Net sales
	(787		)	(618		)	Total before tax
	257			221			Tax benefit
	(530		)	(397		)	Net of tax

Pension and other postretirement benefit items
Amortization of prior-service (cost) credits, net	$	(378	)	$	163		(A)
Amortization of actuarial losses	(10,833		)	(11,326		)	(A)
Curtailment gain	187			—			(A)
Settlement loss	(142		)	—			(A)
	(11,166		)	(11,163		)	Total before tax
	3,782			3,893			Tax benefit
	(7,384		)	(7,270		)	Net of tax

Total reclassifications in the period	$	(7,914	)	$	(7,667	)

(A) These accumulated other comprehensive income components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 11.

19. 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 manufacturer 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, consumer products, packaging, electronics, medical devices, and energy. 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 businesses design and manufacture 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. Industrial's Nitrogen Gas Products business provides innovative cost effective force and motion solutions for sheet metal forming, heavy duty suspension and other selective niche markets for customers worldwide. Industrial's Engineered Components businesses manufacture and supply precision mechanical products used in transportation and industrial applications, including mechanical springs, high-precision punched and fine-blanked components and retention rings.

Industrial has a diverse customer base with products purchased by durable goods manufacturers located around the world in industries including transportation, consumer products, packaging, farm and mining equipment, telecommunications, medical devices, home appliances and electronics.

Industrial competes with a broad base of large and small companies engaged in the manufacture and sale of custom metal components, products and assemblies, precision molds, and hot runner systems. Industrial competes on the basis of value to customer, quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design, and price. Industrial has manufacturing, distribution and assembly operations in the United States, Brazil, China, Germany, Italy, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. Industrial also has sales and service operations in the United States, Brazil, Canada, Czech Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom.

Aerospace is a global provider of fabricated and precision-machined components and assemblies for original equipment manufacturer ("OEM") turbine engine, airframe and industrial gas turbine builders, and the military. Aerospace Aftermarket includes the jet engine component maintenance overhaul and repair business ("MRO") and the spare parts business. MRO includes our Component Repair Programs ("CRPs") and services many of the world's major turbine engine manufacturers, commercial airlines and the military. The spare parts business includes our revenue sharing programs ("RSPs") under which the Company receives an exclusive right to supply designated aftermarket parts over the life of the related aircraft engine program.

Aerospace’s OEM business supplements the leading jet engine OEM capabilities and competes with a large number of fabrication and machining companies. Competition is based on quality, engineering and technical capability, product breadth, new product introduction, timeliness, service and price. Aerospace’s fabrication and machining operations, with facilities in Arizona, Connecticut, Mexico, Michigan, Ohio, Utah and Singapore, produce critical engine and airframe components through technically advanced manufacturing processes.

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

The following table (in millions) sets forth summarized financial information by reportable business segment:



	Industrial		Aerospace		Other		Total Company
Sales
2017	$	973.9	$	462.6	$	—	$	1,436.5
2016	824.2		406.5		—		1,230.8
2015	782.3		411.7		—		1,194.0
Operating profit
2017	$	127.1	$	83.2	$	—	$	210.3
2016	129.7		62.5		—		192.2
2015	103.0		65.4		—		168.4
Assets
2017	$	1,505.4	$	667.1	$	193.3	$	2,365.7
2016	1,356.1		647.8		133.7		2,137.5
2015	1,241.2		654.1		166.5		2,061.9
Depreciation and amortization
2017	$	54.8	$	33.6	$	1.7	$	90.2
2016	49.5		30.0		0.7		80.2
2015	46.0		30.8		1.3		78.2
Capital expenditures
2017	$	31.0	$	27.5	$	0.2	$	58.7
2016	25.9		21.1		0.5		47.6
2015	28.7		17.2		0.1		46.0

_________________________

Notes:

One customer, General Electric, accounted for 18% , 17% and 18% of the Company’s total revenues in 2017 , 2016 and 2015 , respectively.

“Other” assets include corporate-controlled assets, the majority of which are cash and deferred tax assets.

A reconciliation of the total reportable segments’ operating profit to income before income taxes follows (in millions):



	2017		2016			2015
Operating profit	$	210.3	$	192.2		$	168.4
Interest expense	14.6		11.9			10.7
Other expense (income), net	—		(2.3		)	(0.2		)
Income before income taxes	$	195.7	$	182.6		$	157.9

The following table (in millions) summarizes total net sales of the Company by products and services:

Table of Contents

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	2017		2016		2015
Engineered Components Products	$	347.9	$	332.6	$	342.2
Molding Solutions Products	487.3		376.6		324.6
Nitrogen Gas Products	138.7		115.0		115.5
Aerospace Original Equipment Manufacturer Products	323.4		288.4		295.7
Aerospace Aftermarket Products and Services	139.2		118.2		116.0
Total net sales	$	1,436.5	$	1,230.8	$	1,194.0

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
2017	$	638.6	$	868.3	$	(70.4	)	$	1,436.5
2016	562.6		727.4		(59.2		)	1,230.8
2015	589.6		661.7		(57.3		)	1,194.0
Long-lived assets
2017	$	366.7	$	1,218.1	$	—		$	1,584.8
2016	368.2		1,135.5		—			1,503.6
2015	379.2		1,069.9		—			1,449.1

_________________________

Notes:

Germany, with sales of $301.7 million, $ 238.3 million and $ 210.5 million in 2017 , 2016 and 2015 , respectively, represents the only international country with revenues in excess of 10% of the Company's total revenues.

“Other” revenues represent the elimination of intercompany sales between geographic locations, of which approximately 78% , 82% and 82% were sales from international locations to domestic locations in 2017, 2016 and 2015, respectively.

Germany, with long-lived assets of $ 514.0 million , $ 449.9 million and $ 362.7 million as of December 31, 2017 , 2016 and 2015 , respectively, Singapore, with long-lived assets of $ 237.6 million , $ 238.3 million and $ 246.4 million as of December 31, 2017 , 2016 and 2015 , respectively and Switzerland, with long-lived assets of $ 160.0 million , $ 169.3 million and $ 167.0 million as of December 31, 2017 , 2016 and 2015 , respectively, represent the only international countries with long-lived assets that exceeded 10% of the Company's total long-lived assets in those years.

20. Commitments and Contingencies

Leases

The Company has various noncancellable operating leases for buildings, office space and equipment. Rent expense was $15,325 , $12,939 and $11,166 for 2017 , 2016 and 2015 , respectively. Minimum rental commitments under noncancellable leases in years 2018 through 2022 are $11,926 , $7,760 , $5,613 , $4,890 and $2,265 , respectively, and $7,372 thereafter. The rental expense and minimum rental commitments of leases with step rent provisions are recognized on a straight-line basis over the lease term.

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. Liabilities related to product warranties and extended warranties were not material as of December 31, 2017 or 2016 .

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Barnes Group Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Barnes Group Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income, of comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for share based compensation in 2016.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

Table of Contents

dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ P RICEWATERHOUSE C OOPERS LLP

Hartford, Connecticut

February 20, 2018

We have served as the Company’s auditor since 1994.

Table of Contents

QUARTERLY DATA (UNAUDITED)

(Dollars in millions, except per share data)



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter ⁽²⁾			Full Year ⁽²⁾
2017
Net sales	$	341.8	$	364.5	$	357.2	$	373.0		$	1,436.5
Gross profit ⁽¹⁾	122.0		128.0		121.1		126.1			497.2
Operating income	55.7		57.1		47.8		49.6			210.3
Net income	38.3		45.0		35.3		(59.2		)	59.4
Per common share:
Basic	0.71		0.83		0.65		(1.10		)	1.10
Diluted	0.70		0.82		0.65		(1.10		)	1.09
Dividends	0.13		0.14		0.14		0.14			0.55
Market prices (high - low)	$51.97-45.47		$60.74-49.31		$70.84-57.70		$72.87-61.06			$72.87-45.47
2016
Net sales	$	288.3	$	306.7	$	311.6	$	324.2		$	1,230.8
Gross profit ⁽¹⁾	102.1		109.5		113.0		115.9			440.5
Operating income	41.5		47.5		51.8		51.4			192.2
Net income	28.8		33.2		36.8		36.7			135.6
Per common share:
Basic	0.53		0.61		0.68		0.68			2.50
Diluted	0.53		0.61		0.67		0.67			2.48
Dividends	0.12		0.13		0.13		0.13			0.51
Market prices (high - low)	$35.81-30.07		$37.75-31.13		$41.86-32.55		$49.90-37.88			$49.90-30.07

________________________


(1)	Sales less cost of sales.


(2)	During the fourth quarter of 2017, the Company recorded the effects of the U.S. Tax Reform, resulting in tax expense of $96.7 million, or $1.79 per basic share ($1.79 per diluted share). During the full-year 2017 period, the effects of the U.S. Tax Reform were $1.79 and $1.77 per basic and per diluted share, respectively. See Note 13 of the Consolidated Financial Statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Management, including the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon, and as of the date of, our evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects and designed to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) is accumulated and communicated to the Company's management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an assessment of the effectiveness of its internal control over financial reporting based on the framework in the “Internal Control - Integrated Framework 2013” issued

Table of Contents

by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment under this framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017 .

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2017 , which appears on page 72 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There has been no change to our internal control over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information with respect to our directors and corporate governance may be found in the “Governance” and "Stock Ownership" sections of our definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May 4, 2018 (the “Proxy Statement”). Such information is incorporated herein by reference.

EXECUTIVE OFFICERS

The Company’s executive officers as of the date of this Annual Report are as follows:




Executive Officer	Position	Age as of December 31, 2017

Patrick J. Dempsey	President and Chief Executive Officer	53

Michael A. Beck	Senior Vice President, Barnes Group Inc., and President, Barnes Aerospace	57

Peter A. Gutermann	Senior Vice President, General Counsel and Secretary	58

Dawn N. Edwards	Senior Vice President, Human Resources	49

Scott A. Mayo	Senior Vice President, Barnes Group Inc., and President, Barnes Industrial	50

Christopher J. Stephens, Jr.	Senior Vice President, Finance and Chief Financial Officer	53

Each officer holds office until his or her successor is appointed and qualified or otherwise as provided in the Company’s Amended and Restated By-Laws. No family relationships exist among the executive officers of the Company. Except for Messrs. Beck, Gutermann and Mayo, each of the Company’s executive officers has been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past five years.

Mr. Dempsey was appointed President and Chief Executive Officer effective March 1, 2013. From February 2012 until such appointment, he served as Senior Vice President and Chief Operating Officer. From October 2008 until February 2012, he served as Vice President, Barnes Group Inc. and President, Logistics and Manufacturing Services. Prior to that, he held a series of roles of increasing responsibility since joining the Company in October 2000. In October 2007, he was appointed Vice President, Barnes Group Inc. and President, Barnes Distribution. In November 2004, he was promoted to Vice President, Barnes Group Inc. and President, Barnes Aerospace. Mr. Dempsey is currently a director of Nucor Corporation, having been appointed as of December 1, 2016.

Mr. Beck was appointed Senior Vice President, Barnes Group Inc. and President, Barnes Aerospace effective March 1, 2016. Mr. Beck came to Barnes Group with over 27 years of global aerospace experience. Prior to joining Barnes Group, Mr. Beck was the Senior Vice President & General Manager, Fuel and Motion Control, a $1B division of Eaton’s Aerospace Group. Prior to this, he was the Chief Executive Officer of GKN’s Aerospace Engine Systems business, where he led the due diligence, business synergies and integration of a significant acquisition. Prior to that, he was the President and Chief Executive Officer of GKN’s global Propulsion Systems and Special Products business. Earlier in his career, Mr. Beck was the Chief Operating Officer and Site Executive for GKN’s St. Louis, Missouri business.

Ms. Edwards was appointed Senior Vice President, Human Resources effective August 2009. From December 2008 until August 2009, she served as Vice President of Human Resources - Global Operations. From September 1998 until December 2008, Ms. Edwards served as Group Director, Human Resources for Barnes Aerospace, Associated Spring and Barnes Industrial. Ms. Edwards joined the Company in September 1998.

Mr. Gutermann was appointed Senior Vice President, General Counsel and Secretary, effective December 11, 2017. Before joining the Company, Mr. Gutermann served as Corporate Vice President, Chief Ethics & Compliance Officer for United Technologies Corporation. Prior to that, Mr. Gutermann held a variety of positions with increasing responsibility

Table of Contents

within United Technologies Corporation including Vice President & General Counsel, UTC Propulsion/Aerospace Systems; Vice President & General Counsel, Pratt & Whitney; Associate General Counsel, UTC Corporate; Deputy General Counsel, Otis Elevator Company; and Executive Assistant to the UTC Chairman and Chief Executive Officer. Mr. Gutermann began his career as a Litigation Associate with the law firm of Robinson & Cole.

Mr. Mayo was appointed Senior Vice President, Barnes Group Inc. and President, Barnes Industrial effective March 17, 2014. Before joining the Company, from 2012 to 2014, Mr. Mayo served as Vice President and General Manager, Power Sector, Flow Control, a division of Flowserve Corporation. From 2010 to 2012, he served as Vice President and General Manager, General Industries Sector, Flow Control Division. From 2009 to 2010, he served as Vice President, Marketing for the Flow Control Division. Prior to that, from 2002 to 2008, Mr. Mayo held a series of roles including General Manager, Flow Control Division China based in Shanghai, China; Director, Marketing, Flow Control Division, based in Raleigh, NC; Director and General Manager, Aftermarket, Raleigh, NC; and Director, Strategic Planning and Business Development, also based in Raleigh, NC.

Mr. Stephens was appointed Senior Vice President, Finance and Chief Financial Officer, Barnes Group Inc. effective January 2009. Prior to joining the Company, Mr. Stephens held key leadership roles at Honeywell International, serving as President of the Consumer Products Group from 2007 to 2008, and Vice President and Chief Financial Officer of Honeywell Transportation Systems from 2003 to 2007. Prior to Honeywell, he held roles with increasing responsibility at The Boeing Company, serving as Vice President and General Manager, Boeing Electron Dynamic Devices; Vice President, Business Operations, Boeing Space and Communications; and Vice President and Chief Financial Officer, Boeing Satellite Systems.

Items 11-14.

The information called for by Items 11-14 is incorporated by reference to the "Governance," "Stock Ownership," "Executive Compensation," "Director Compensation in 2017," "Securities Authorized for Issuance Under Equity Compensation Plans," "Related Person Transactions," and "Principal Accountant Fees and Services" sections in our Proxy Statement.

PART IV

Item 15. Exhibits, Financial Statement Schedule




(a)(1)		The following Financial Statements and Supplementary Data of the Company are set forth herein under Item 8 of this Annual Report:

		Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
		Consolidated Balance Sheets as of December 31, 2017 and 2016
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
		Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
		Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
		Notes to Consolidated Financial Statements
		Report of Independent Registered Public Accounting Firm

(a)(2)		See Financial Statement Schedule under Item 15(c).

(a)(3)		See Item 15(b) below.

(b)		The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report and indexed at pages 84 through 88 of this Annual Report, which index is incorporated herein by reference.

(c)		Financial Statement Schedule.

Table of Contents

Item 16. Form 10-K Summary

None.

Table of Contents

Schedule II—Valuation and Qualifying Accounts

Years Ended December 31, 2017 , 2016 and 2015

(In thousands)



Allowances for Doubtful Accounts:
Balance January 1, 2015	$	3,873
Provision charged to income	1,248
Doubtful accounts written off	(404		)
Other adjustments ⁽¹⁾	(632		)
Balance December 31, 2015	4,085
Provision charged to income	863
Doubtful accounts written off	(910		)
Other adjustments ⁽¹⁾	(46		)
Balance December 31, 2016	3,992
Provision charged to income	1,512
Doubtful accounts written off	(297		)
Other adjustments ⁽¹⁾	(64		)
Balance December 31, 2017	$	5,143

________________


(1)	These amounts are comprised primarily of foreign currency translation and other reclassifications.

Table of Contents

Schedule II—Valuation and Qualifying Accounts

Years Ended December 31, 2017 , 2016 and 2015

(In thousands)




Valuation Allowance on Deferred Tax Assets:
Balance January 1, 2015	$	15,856
Additions charged to income tax expense	1,043
Reductions charged to other comprehensive income	(59		)
Reductions credited to income tax expense	(1,216		)
Changes due to foreign currency translation	(2,204		)
Acquisitions ⁽¹⁾	981
Balance December 31, 2015	14,401
Additions charged to income tax expense	759
Reductions charged to other comprehensive income	(17		)
Reductions credited to income tax expense ⁽²⁾	(5,638		)
Changes due to foreign currency translation	(133		)
Acquisition ⁽³⁾	5,585
Balance December 31, 2016	14,957
Additions charged to income tax expense	1,161
Reductions charged to other comprehensive income	(123		)
Reductions credited to income tax expense ⁽⁴⁾	(6,773		)
Changes due to foreign currency translation	1,001
Balance December 31, 2017	$	10,223

________________


(1)	The increase in 2015 reflects the valuation allowances recorded at the Thermoplay and Priamus businesses which were acquired in the third and fourth quarters of 2015, respectively.


(2)	The reductions in 2016 relate primarily to net operating losses that were fully valued. These net operating losses have subsequently expired during 2016 (lapse of applicable carry forward periods) and the corresponding valuation allowance was reduced accordingly.


(3)	The increase in 2016 reflects the valuation allowance recorded at the FOBOHA business, which was acquired in the third quarter of 2016.


(4)	The reductions in 2017 relate to the release of valuation allowances associated with net operating losses as a result of the Swiss legal entity reduction.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




Date:	February 20, 2018

BARNES GROUP INC.

By		/S/ PATRICK J. DEMPSEY
		Patrick J. Dempsey
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the above date by the following persons on behalf of the Company in the capacities indicated.

/S/ PATRICK J. DEMPSEY

Patrick J. Dempsey

President and Chief Executive Officer

(Principal Executive Officer), and Director

/S/ CHRISTOPHER J. STEPHENS, JR.

Christopher J. Stephens, Jr.

Senior Vice President, Finance

Chief Financial Officer

(Principal Financial Officer)

/S/ MARIAN ACKER

Marian Acker

Vice President, Controller

(Principal Accounting Officer)

/S/ THOMAS O. BARNES

Thomas O. Barnes

Director

/S/ ELIJAH K. BARNES

Elijah K. Barnes

Director

/S/ GARY G. BENANAV

Gary G. Benanav

Director

/S/ THOMAS J. HOOK

Thomas J. Hook

Director

/S/ MYLLE H. MANGUM

Mylle H. Mangum

Director

/S/ HANS-PETER MÄNNER

Hans-Peter Männer

Director

/S/ HASSELL H. MCCLELLAN

Hassell H. McClellan

Director

/S/ WILLIAM J. MORGAN

William J. Morgan

Director

/S/ ANTHONY V. NICOLOSI

Anthony V. Nicolosi

Director

/S/ JOANNA L. SOHOVICH

JoAnna L. Sohovich

Director

/S/ RICHARD J. HIPPLE

Richard J. Hipple

Director

Table of Contents

EXHIBIT INDEX

Barnes Group Inc.

Annual Report on Form 10-K

for the Year ended December 31, 2017



Exhibit No.	Description	Reference

2.1 ^*	Asset Purchase Agreement dated February 22, 2013 between the Company and MSC Industrial Direct Co., Inc.	Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 10-Q for the quarter ended March 31, 2013.

2.2 ^*	Share Purchase and Assignment Agreement dated September 30, 2013 among the Company, two of its subsidiaries, Otto Männer Holding AG (the "Seller"), and the three shareholders of Seller.	Incorporated by reference to Exhibit 2.1 to Form 8-K filed by the Company on October 4, 2013.

3.1	Restated Certificate of Incorporation; Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock; Certificate of Change of Location of registered office and of registered agent, dated December 13, 2002; Certificate of Merger of domestic limited liability company into a domestic company, dated May 19, 2004; Certificate of Amendment of Restated Certificate of Incorporation, dated April 20, 2006; and Certificate of Amendment of Restated Certificate of Incorporation, dated as of May 3, 2013.	Incorporated by reference to Exhibit 3.1 to the Company’s report on Form 10-Q for the quarter ended June 30, 2013.

3.2	Amended and Restated By-Laws.	Incorporated by reference to Exhibit 3.1 to Form 8-K filed by the Company on February 11, 2016.

10.1	(i) Fifth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated September 27, 2011.	Incorporated by reference to Exhibit 4.1 to the Company’s report on Form 10-Q for the quarter ended June 30, 2013.

	(ii) Amendment No. 2 and Joinder to Credit Agreement dated as of September 27, 2013 (amending Fifth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated as of September 27, 2011).	Incorporated by reference to Exhibit 4.1 to the Company’s report on Form 10-Q for the quarter ended September 30, 2013.

	(iii) Amendment No. 3 to Credit Agreement dated as of October 15, 2014.	Incorporated by reference to Exhibit 10.1(iii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

	(iv) Amendment No. 4 to Credit Agreement dated as of February 2, 2017.	Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended March 31, 2017.

10.2	Note Purchase Agreement, dated as of October 15, 2014, 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 (BOLI 30C).	Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on October 17, 2014.

10.3 ^**	(i) Barnes Group Inc. Management Incentive Compensation Plan, amended October 22, 2008.	Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(ii) Barnes Group Inc. Management Incentive Compensation Plan, amended December 27, 2017.	Filed with this report.

10.4 ^**	Barnes Group Inc. Performance-Linked Bonus Plan for Selected Executive Officers, as amended February 8, 2011.	Incorporated by reference to Exhibit 10.4 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.5 ^**	(i) Offer Letter between the Company and Patrick Dempsey, dated February 22, 2013.	Incorporated by reference to Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended March 31, 2013.

Table of Contents



Exhibit No.	Description	Reference

	(ii) Amendment to Offer Letter to Patrick Dempsey, dated January 6, 2015.	Incorporated by reference to Exhibit 10.6(ii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

	(iii) Employee Non-Disclosure, Non-Competition, Non-Solicitation and Non-Disparagement Agreement between the Company and Patrick J. Dempsey, dated February 27, 2013.	Incorporated by reference to Exhibit 10.4 to the Company's report on Form 10-Q for the quarter ended March 31, 2013.

10.6 ^**	(i) Amendment to Offer Letter to Christopher J. Stephens, Jr., dated June 7, 2013.	Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 2013.

	(ii) Amendment to Amended Offer Letter to Christopher J. Stephens, Jr., dated February 12, 2014.	Incorporated by reference to Exhibit 10.6(ii) to the Company’s report on Form 10-K for the year ended December 31, 2013.

10.7 ^**	Offer Letter to Scott A. Mayo, dated January 28, 2014.	Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended March 31, 2014.

10.8 ^**	Offer Letter to James P. Berklas, Jr., dated June 5, 2015.	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended September 30, 2015.

10.9 ^**	(i) Barnes Group Inc. Retirement Benefit Equalization Plan, as amended and restated effective January 1, 2013.	Filed with this report.

	(ii) First Amendment to the Barnes Group Inc. Retirement Benefit Equalization Plan dated December 12, 2014.	Incorporated by reference to Exhibit 10.9(ii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

10.10 ^**	(i) Barnes Group Inc. Supplemental Senior Officer Retirement Plan, as amended and restated effective January 1, 2009.	Incorporated by reference to Exhibit 10.10 (i) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(ii) Amendment to the Barnes Group Inc. Supplemental Senior Officer Retirement Plan dated December 30, 2009.	Incorporated by reference to Exhibit 10.10 (ii) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(iii) Second Amendment to the Barnes Group Inc. Supplemental Senior Officer Retirement Plan dated December 12, 2014.	Incorporated by reference to Exhibit 10.10(iii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

10.11 ^**	(i) Amended and Restated Supplemental Executive Retirement Plan effective April 1, 2012.	Incorporated by reference to Exhibit 10.11 to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(ii) Amendment 2013-1 to the Barnes Group Inc. Supplemental Executive Retirement Plan dated July 23, 2013.	Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q for the quarter ended June 30, 2013.

	(iii) Amendment 2014-1 to the Barnes Group Inc. Supplemental Executive Retirement Plan dated December 12, 2014.	Incorporated by reference to Exhibit 10.11(iii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

10.12 ^**	Barnes Group Inc. Senior Executive Enhanced Life Insurance Program, as amended and restated effective April 1, 2011.	Incorporated by reference to Exhibit 10.12 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.13 ^**	Barnes Group Inc. Enhanced Life Insurance Program, as amended and restated effective April 1, 2011.	Incorporated by reference to Exhibit 10.13 to the Company’s report on Form 10-K for the year ended December 31, 2016.
10.14 ^**	Barnes Group Inc. Executive Group Term Life Insurance Program effective April 1, 2011.	Incorporated by reference to Exhibit 10.14 to the Company’s report on Form 10-K for the year ended December 31, 2016.

Table of Contents



Exhibit No.	Description	Reference

10.15 ^**	Form of Barnes Group Inc. Executive Officer Severance Agreement, as amended March 31, 2010.	Incorporated by reference to Exhibit 10.15 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.16 ^**	Form of Barnes Group Inc. Executive Officer Severance Agreement, effective February 19, 2014.	Incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31, 2014.

10.17 ^**	Barnes Group Inc. Executive Separation Pay Plan, as amended and restated effective January 1, 2012.	Incorporated by reference to Exhibit 10.17 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.18 ^**	(i) Trust Agreement between the Company and Fidelity Management Trust Company (Barnes Group 2009 Deferred Compensation Plan) dated September 1, 2009.	Incorporated by reference to Exhibit 10.18 (i) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(ii) Amended and Restated Barnes Group 2009 Deferred Compensation Plan effective as of April 1, 2012.	Incorporated by reference to Exhibit 10.18 (ii) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(iii) First Amendment to the Barnes Group 2009 Deferred Compensation Plan dated December 12, 2014.	Incorporated by reference to Exhibit 10.18(iii) to the Company’s report on Form 10-K for the year ended December 31, 2014.

10.19 ^**	Barnes Group Inc. Non-Employee Director Deferred Stock Plan, as amended and restated December 31, 2008.	Incorporated by reference to Exhibit 10.19 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.20 ^**	Barnes Group Inc. Directors’ Deferred Compensation Plan, as amended and restated December 31, 2008.	Incorporated by reference to Exhibit 10.20 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.21 ^**	Form of Amended and Restated Contingent Dividend Equivalent Rights Agreement for Officers.	Incorporated by reference to Exhibit 10.21 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.22 ^**	Barnes Group Inc. Trust Agreement for Specified Plans.	Incorporated by reference to Exhibit 10.22 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.23 ^**	Form of Incentive Compensation Reimbursement Agreement between the Company and certain Officers.	Incorporated by reference to Exhibit 10.23 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.24 ^**	Form of Indemnification Agreement between the Company and its Officers and Directors.	Incorporated by reference to Exhibit 10.24 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.25 ^**	(i) Barnes Group Inc. Stock and Incentive Award Plan, as amended December 31, 2008.	Incorporated by reference to Exhibit 10.25 (i) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(ii) Barnes Group Inc. Stock and Incentive Award Plan, as amended March 15, 2010.	Incorporated by reference to Exhibit 10.25 (ii) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(iii) Exercise of Authority Relating to the Stock and Incentive Award Plan, dated March 3, 2009.	Incorporated by reference to Exhibit 10.25 (iii) to the Company’s report on Form 10-K for the year ended December 31, 2016.

	(iv) Amendment 2010-1 approved on December 9, 2010 to the Barnes Group Inc. Stock and Incentive Award Plan as amended March 15, 2010.	Incorporated by reference to Exhibit 10.25 (iv) to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.26 ^**	2014 Barnes Group Inc. Stock and Incentive Award Plan.	Incorporated by reference to Annex A to the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 25, 2014.

Table of Contents



Exhibit No.	Description	Reference

10.27 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated February 8, 2012 (for non-management directors).	Incorporated by reference to Exhibit 10.27 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.28 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated May 9, 2014 (for non-management directors).	Incorporated by reference to Exhibit 10.2 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014.

10.29 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated February 9, 2016 (for non-management directors).	Incorporated by reference to Exhibit 10.29 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.30 ^**	Form of Non-Qualified Stock Option Agreement for employees grade 21 and up.	Incorporated by reference to Exhibit 10.30 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.31 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for employees in grade 21 and up dated as of February 8, 2011.	Incorporated by reference to Exhibit 10.31 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.32 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for Employees in Grade 21 and up dated May 9, 2014.	Incorporated by reference to Exhibit 10.4 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014.

10.33 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for Employees in Grade 21 and up dated February 9, 2016.	Incorporated by reference to Exhibit 10.33 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.34 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for employees grade 21 and up dated as of February 8, 2011.	Incorporated by reference to Exhibit 10.34 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.35 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated February 8, 2012.	Incorporated by reference to Exhibit 10.35 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.36 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated May 9, 2014.	Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014.

10.37 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated February 9, 2016.	Incorporated by reference to Exhibit 10.37 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.38 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated as of February 11, 2014.	Incorporated by reference to Exhibit 10.36 to the Company’s report on Form 10-K for the year ended December 31, 2013.

10.39 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated July 21, 2014.	Incorporated by reference to Exhibit 10.5 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014.

Table of Contents



Exhibit No.	Description	Reference

10.40 ^**	Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated as of February 11, 2015.	Incorporated by reference to Exhibit 10.40 to the Company’s report on Form 10-K for the year ended December 31, 2014.

10.41 ^**	(i) Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated as of February 9, 2016.	Incorporated by reference to Exhibit 10.42 to the Company’s report on Form 10-K for the year ended December 31, 2015.

	(ii) Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other individuals as Designated by the Compensation and Management Development Committee dated as of February 8, 2018.	Filed with this report.

10.42 ^**	Performance-Linked Bonus Plan for Selected Executive Officers dated as of May 6, 2016.	Incorporated by reference to Exhibit 10.42 to the Company’s report on Form 10-K for the year ended December 31, 2016.

10.43	Offer Letter to Michael A. Beck, dated January 28, 2016.	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended March 31, 2016

10.44	Offer Letter to Peter Gutermann, dated November 29, 2017.	Filed with this report.

21	List of Subsidiaries.	Filed with this report.

23	Consent of Independent Registered Public Accounting Firm.	Filed with this report.

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed with this report.

31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed with this report.

32	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished with this report.

101.INS	XBRL Instance Document.	Filed with this report.

101.SCH	XBRL Taxonomy Extension Schema Document.	Filed with this report.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	Filed with this report.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.	Filed with this report.

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.	Filed with this report.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.	Filed with this report.

_________________________

^* The Company hereby agrees to provide the Commission upon request copies of any omitted exhibits or schedules to this exhibit required by Item 601(b)(2) of Regulation S-K.

^** Management contract or compensatory plan or arrangement.

The Company agrees to furnish to the Commission, upon request, a copy of each instrument with respect to which there are outstanding issues of unregistered long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.

BARNES GROUP INC.

MANAGEMENT INCENTIVE COMPENSATION PLAN

(as amended on December 27, 2017, effective with respect to

Award Period 2017)

SECTION 1. PURPOSE

The Management Incentive Compensation Plan (the "MICP") is designed to provide incentive compensation opportunities to persons in key positions who contribute importantly to the success of Barnes Group Inc. (the "Company").

SECTION 2. ADMINISTRATION

The MICP shall be administered by the Compensation Committee of the Board of Directors of the Company, or its successor (the "Committee") unless otherwise provided herein. Amounts paid or projected to be paid under the MICP are referred to herein as "Awards."

SECTION 3. DEFINITIONS


3.1	"Award Period" shall mean the period of time within which Performance is measured for the purpose of determining whether an Award has been earned. Unless otherwise determined by the Committee, “Award Period” shall be a calendar year.


3.2	"Business Unit" shall mean a cost center, profit center or international subsidiary within a Segment.


3.3	"Business Unit Fund" shall mean an amount equal to the sum, in the aggregate, of the Individual Targets earned by all of the MICP participants in a Business Unit.


3.4	"CEO" shall mean the President and Chief Executive Officer of the Company.


3.5	"Company Officer" shall mean an executive officer of the Company elected by its Board of Directors.


3.6	"Fund" shall mean an amount equal to the sum, in the aggregate, of the Individual Targets earned by all of the MICP participants in a Segment.


3.7	"Segment" shall mean the Corporate Office, Barnes Industrial or Barnes Aerospace.


3.8	"Segment President" shall mean the president of Barnes Industrial or Barnes Aerospace.


3.9	"Individual Target" shall mean the percentage of salary for each individual participating in the MICP. The Committee will establish the Individual Target for each MICP participant, by position title, salary grade, or other category before or during the Award Period.


3.10	"Maximum" shall mean a Performance level at or above which the amount paid or projected to be paid for an Award Period is equal to 300% of the Fund for the corresponding Segment.

3.11

"Performance" shall mean the performance objectives established by the Committee in advance, with respect to each Segment or Business Unit, as the case may be, for an Award Period, for the purpose of determining whether, and to what extent, an Award has been earned by the Segment or Business Unit for an Award Period. Performance may be adjusted by the Committee to include or exclude extraordinary and non-recurring items or other factors.


3.12	"Target" shall mean a Performance level at which the amount paid or projected to be paid for an Award Period is equal to 100% of the Fund for the corresponding Segment.


3.13	"Threshold" shall mean a Performance level at or above which an Award is earned for an Award Period. For Threshold Performance, the amount paid or projected to be paid for an Award Period is equal to 25% of the Fund for the corresponding Segment.

SECTION 4. SEGMENT FUNDS

If an Award Period is a calendar year, prior to March 1, the Committee shall establish the Threshold, Target and Maximum for each Segment. The Committee may also designate one or more intermediate levels of Performance between the Threshold and the Target, and the Target and the Maximum, for a Segment, and the percentage of the corresponding Fund that will be available for payment as an Award if Performance equals such intermediate level.

SECTION 5. BUSINESS UNIT FUNDS

If an Award Period is a calendar year, prior to May 1, the CEO shall designate which Business Units, if any, shall have separate Business Unit Funds. For each such Business Unit, the CEO shall also determine the threshold, target and maximum on the same basis as such measures are determined for a Fund. The CEO may also designate intermediate levels of Performance between the threshold and the target, and the target and the maximum, for the Business Unit and the percentage of the Business Unit Fund that will be available for payment as an Award if Performance equals such intermediate level.

SECTION 6. PARTICIPANTS

If an Award Period is a calendar year, at any time before or during the Award Period the CEO may designate eligible participants in the MICP for that Award Period and the respective Funds or Business Unit Funds, as the case may be, in which they shall participate. The Committee may at any time designate an individual to participate in the MICP for an Award Period and the Fund or Business Unit Fund in which such individual shall participate. Except for (i) participants in the MICP during an Award Period who retire, die or become permanently disabled before Awards are paid for that Award Period pursuant to Section 10, whose Awards for that Award Period shall be prorated to the date of such retirement, death or permanent disability if it occurs before the last day of that Award Period, (ii) participants in the MICP during an Award Period whose employment is involuntarily terminated by the Company other than for cause (as determined by the CEO) on or after November 1 of that Award Period, whose Awards for that Award Period shall be prorated to the date of such termination if such termination occurs before the last day of that Award Period, and (iii) participants in Grade 24 and above, who must be employed by the Company or one of its subsidiaries on the date when an Award is paid in order to be eligible to receive an Award, a person must be employed by the Company or one of its subsidiaries on December 31 of that Award Period in order to be eligible to receive an Award, unless the CEO decides on an earlier date in individual cases. For the avoidance of doubt, a participant’s Award for any Award Period, including but not limited to an Award that is to be prorated pursuant to the preceding sentence, (A) shall be determined in accordance with the MICP, based on the level of Performance attained in that Award Period, and (B) shall be subject to all of the terms and conditions of the MICP, including without limitation the last sentence of Section 7 and Section 8.2, and (C) shall be paid at the time specified in Section 10.

SECTION 7. AWARDS – BUSINESS UNIT FUNDS

After the end of the Award Period and based on the final Performance of each Business Unit for which a Business Unit Fund has been designated pursuant to Section 5, the CEO, upon the recommendation of the corresponding Company Officer, shall determine each participant's share of the Business Unit Fund (except for any Company Officer who participates in the Business Unit Fund or the Fund of the corresponding Segment, whose Award shall be determined by the Committee pursuant to Section 8.1). Without limiting the foregoing, the CEO shall have the authority, subject to Section 9, to make adjustments to the amount of any Business Unit Fund and to adjust or refrain from making an Award to any participant.

SECTION 8. AWARDS – SEGMENT FUNDS

8.1

After the end of the Award Period and based on the final Performance of each Segment, the CEO shall determine each participant's share of the corresponding Segment Fund, upon the recommendations of the Company Officers (except for any Company Officer who participates in the Fund). The CEO shall recommend the share of the Corporate Office Fund for each Company Officer, other than the CEO. The Committee shall approve the Award to each Company Officer other than the CEO, and determine the appropriate Award for the CEO, based in all instances on Individual Targets and the Performance level achieved.


8.2	Subject to Section 9, the Committee shall have the authority to make adjustments to the Funds and to adjust or refrain from making an Award including, without limitation, making an Award to any Company Officer in excess of his or her calculated Award and recommending to the CEO an Award in excess of the calculated Award for any participant who is not a Company Officer.

SECTION 9. AWARDS ABOVE MAXIMUM

Notwithstanding anything in the MICP to the contrary, no awards in excess of the Maximum shall be made to any person without the approval of the Committee.

SECTION 10. PAYMENT

Awards shall be paid within the 2½ months that immediately follow the expiration of the Award Period (i.e., in the case of an Award Period that is a calendar year, on or after January 1 and on or before March 15 of the following calendar year).

SECTION 11. GENERAL


11.1	The interpretation of the MICP by the Committee and its decisions on all questions arising under the MICP shall be conclusive and binding on all participants and the CEO.


11.2	The MICP may be amended at any time, including retroactively, by the Committee.

11.3

All Awards are intended to qualify as short-term deferrals under Treasury Regulation section 1.409A-1(b)(4). The MICP shall be administered, interpreted and construed to carry out that intention, and any provision of the MICP that cannot be so administered, interpreted and construed shall to that extent be disregarded. However, the Company does not represent, warrant or guarantee that any Award will qualify as a short-term deferral, nor does the Company make any other representation, warranty or guaranty to any participant as to the tax consequences of any Award or of participation in the MICP.

[Signature page follows]

IN WITNESS WHEREOF , each of the following persons, together constituting all of the members of the Committee, have signed this document as of the day set forth below to be effective as of the latest day set forth below.

Gary G. Benanav Date

Richard J. Hipple Date

Mylle H. Mangum (Committee Chair) Date

JoAnna L. Sohovich Date

Amended

02/17/95

02/20/96

07/20/98

04/11/00

12/12/01

07/19/06

10/22/08

12/27/17

BARNES GROUP INC.

RETIREMENT BENEFIT EQUALIZATION PLAN

(As amended and restated effective January 1, 2013)

PREAMBLE

Barnes Group Inc. has been maintaining the Retirement Benefit Equalization Plan (the “RBEP” or “Plan”) and hereby amends and restates the RBEP generally effective January 1, 2013.

In general, this Plan as amended and in effect from time to time on and after January 1, 2009 applies to benefits accrued both before and after that date, without regard to any ability to treat certain benefits as “grandfathered” from the effect of section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding the preceding sentence, the provisions of this Plan as amended and in effect from time to time on and after January 1, 2009 applicable to the computation of benefits, to the commencement date of such benefits, to the time and form of payment, and to the selection of an optional form and a contingent annuitant or beneficiary, as well as any other provisions of this Plan as so amended that are impossible or impracticable to apply to benefits already in pay status, shall not apply to benefits in pay status prior to January 1, 2009, to the extent such provisions are not required to apply pursuant to guidance prescribed by the Treasury Department under section 409A of the Code (including, but not limited to, section XII.F of the preamble to the final regulations under section 409A of the Code and section 3.02 of Notice 2007-86); rather, the applicable terms of this Plan in effect prior to January 1, 2009, as modified or supplemented (if at all) by any written individual agreement with a participant in accordance with section 409A of the Code and Treasury Department guidance thereunder, construed and supplemented as necessary in accordance with the applicable provisions of section 409A of the Code and Treasury Department guidance thereunder, shall apply to such benefits. To the extent permissible under applicable provisions of section 409A of the Code and Treasury Department guidance thereunder, this paragraph also shall apply to benefits not yet in pay status prior to January 1, 2009 but with respect to which all events necessary to receive the payment have occurred before January 1, 2009.

SECTION 1

DEFINITIONS

The words and phrases defined hereinafter shall have the following meaning unless a different meaning is clearly required by the context of this Plan.

1.1 " Benefits Committee " shall mean the Benefits Committee appointed by the Board or its successor.

1.2 " Board " shall mean the Board of Directors of Barnes Group Inc., or its successor.

1.3 " Code " shall mean the Internal Revenue Code of 1986, as amended, or as it may be amended from time to time.

1.4 " Committee " shall mean the Compensation and Management Development Committee of the Board or its successor.

1.5 " Company " shall mean Barnes Group Inc. and each subsidiary and affiliated corporation that has adopted this Plan for the benefit of one or more employees. Each subsidiary and affiliated corporation acquired on or after January 1, 2012 that wishes to adopt this Plan for the benefit of one or more employees must do so with the consent of the Board or be otherwise designated by the Board as a participating employer under this Plan.

1.6 “MSSORP” shall mean the Barnes Group Inc. Modified Supplemental Senior Officer Retirement Plan.

1.7 " Plan " shall mean the Barnes Group Inc. Retirement Benefit Equalization Plan, as amended and set forth herein or in any amendment hereto.

1.8 “Savings Plan” shall mean the Barnes Group Inc. Retirement Savings Plan as amended and in effect from time to time, a defined contribution plan that is intended to satisfy the requirements for qualification under section 401(a) of the Code.

1.9 “ Separation from Service ” shall mean a “separation from service” from the Company and all corporations and other trades or businesses aggregated with the Company, as determined under rules set forth in Treasury Regulation section 1.409A-1(h), as in effect from time to time, or a successor thereto. If there is a question as to whether a Participant's employment has been terminated or his employment relationship remains intact on account of the types of absences described in (a), (b), and (c) below, the following rules (to be interpreted consistent with Treasury Regulation section 1.409A-1(h)) shall apply:

(a) The employment relationship shall be treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to reemployment with the Company under an applicable statute or by contract. If the period of leave exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.

(b) For purposes of this Section 1.9, a leave of absence constitutes a “bona fide” leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company.

(c) Notwithstanding the foregoing, where (i) a leave of absence is due to any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than six months, and (ii) such impairment causes the Participant to be unable to perform the duties of his position of employment or any substantially similar position of employment, a 29-month period of absence shall be substituted for the six-month period described in paragraph (a) hereof, regardless of whether the Participant retains a contractual right to reemployment, unless the employment relationship is otherwise terminated by the Company or the Participant.

1.10 “Specified Employee” shall mean a "Specified Employee" within the meaning of Treasury Regulation section 1.409A-1(i) as in effect from time to time, as determined in accordance with Section 7 below.

1.11 “Spouse” shall mean the individual to whom the Participant is legally married by civil or religious ceremony under the laws of the state in which the Participant is legally domiciled on the date the determination of whether there is a Spouse is being made. After a Participant's death, his “Spouse” shall be the individual, if any, who met these criteria as of the date of the Participant's death.

1.12 “SRIP” shall mean the Barnes Group Inc. Salaried Retirement Income Plan as amended and in effect from time to time, a pension plan that is intended to satisfy the requirements for qualification under section 401(a) of the Code.

1.13 “2009 DC Plan” shall mean the Barnes Group 2009 Deferred Compensation Plan

SECTION 2

PURPOSE OF PLAN

2.1 Purpose. The Plan is intended to be an excess benefit plan with respect to benefits in excess of the limitations imposed by sections 401(a)(17) and 415 of the Code for selected executives of the Company participating in the SRIP and, with respect to any individual hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Savings Plan on or after December 31, 2012, the Savings Plan.

Benefits under this Plan will approximate the difference between benefits that would be paid under the SRIP or Savings Plan, as applicable, but for such limitations, and the benefits that are payable under the SRIP or Savings Plan, as applicable, taking such limitations into account. The Plan pays benefits only in the event of a Participant's Separation from Service (as defined herein) or death, in both cases subject to the more specific provisions of this Plan that follow this Section 2.

The SRIP and the Savings Plan are qualified plans under section 401(a) of the Code. The Plan is not a qualified plan under the Code, and benefits hereunder shall not be funded for purposes of ERISA or the Code but shall be payable out of the general assets of the Company. Notwithstanding the foregoing, in the discretion of the Committee, the Company may enter into one or more grantor trusts (sometimes known as “rabbi trusts”) for the purpose of financing part or all of its obligations under this Plan. The rights of any person to receive benefits under this Plan are limited to those of a general creditor of the Company.

SECTION 3

PARTICIPATION

3.1 Designation by Committee . The Committee shall have the sole and exclusive right to designate who receives or will receive benefits under this Plan, using the minimum criteria set forth in Section 3.2 below as the Committee's starting point, with any individual who receives or is expected by the Committee to receive benefits under this Plan considered a “Participant.” An employee who satisfies the minimum criteria set forth in Section 3.2 shall be deemed to have been designated by the Committee as a Participant, unless the Committee takes action before the end of the period in which such minimum criteria are satisfied to exclude such employee from participation in this Plan, or unless the employee is a participant in the 2009 DC Plan or the MSSORP who has satisfied the age and service conditions to receive a benefit payable upon Separation from Service (as defined in the plan in which the employee is such a participant).

3.2 Minimum Criteria . The minimum criteria for receipt of benefits under this Plan shall be that an employee of the Company:

(a) participates or has participated in

(i) with respect to any individual hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Savings Plan prior to December 31, 2012, the SRIP; or

(ii) with respect to any individual hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Savings Plan on or after December 31, 2012, the Savings Plan; and

(b) is receiving or will receive benefits under the SRIP or Savings Plan, as applicable, that are limited by reason of section 401(a)(17) and/or 415 of the Code.

Notwithstanding the foregoing, each individual who is reclassified from an eligible to ineligible participation category under the Savings Plan due to a transfer of employment from a participating employer to non-participating affiliated employer shall continue to be eligible for an allocation under Section 4.4(b) on and after the date of such transfer.

Notwithstanding the foregoing, if an employee who has been considered a Participant in this Plan on or after January 1, 2009 also participates in the MSSORP and satisfies the age and service conditions to receive a benefit payable upon Separation from Service (as defined in the MSSORP) or death under the MSSORP (subject to Section 8.8 thereof), he shall, as of the time of satisfaction of such conditions, no longer be considered a Participant in this Plan with respect to any benefit that would otherwise be payable under this Plan upon the same event (i.e., a Separation from Service as defined in the MSSORP or death) and that has the same time and form of payment (within the meaning of Treasury Regulation 1.409A-3, including if applicable and without limitation the same 'toggled' time and form of payment described in Treasury Regulation 1.409A-3(c)(2)) as the Participant's benefit under the MSSORP, but only to the extent that such benefit under this Plan, as of immediately before the time at which the Participant satisfies the age and service conditions to receive a benefit upon that event under the MSSORP, is equal to or less than such benefit under the MSSORP, as of the time at which the Participant satisfies such conditions. However, notwithstanding the preceding sentence, if, on or after February 8, 2010 and after the date on which an employee who participated in the MSSORP on January 1, 2009 satisfied the age and

service conditions to receive a benefit payable upon Separation from Service (as defined in the MSSORP) under the MSSORP, the Committee designates such employee as a Participant in this Plan, then in that case the employee shall be considered a Participant in this Plan, but only with respect to the portion, if any, of the benefit that (but for this Section 3.2) would be payable to or in respect of the Participant under this Plan upon Separation from Service or death that exceeds the Participant's benefit under the MSSORP that is payable upon the same event and that has the same time and form of payment as the Participant's benefit under this Plan. Any determinations required by the two preceding sentences shall be made by the Committee in accordance with the applicable provisions of this Plan and the MSSORP based on the advice of professional advisors, including without limitation the Company's actuary and tax counsel, to the extent that the Committee deems in its sole discretion to be advisable. In no event shall any Participant who was a participant in the MSSORP on or after January 1, 2009 accrue any benefits under this Plan that are payable upon a Separation from Service or death after he satisfies the age and service conditions to receive a benefit under the MSSORP that is payable upon the same type of event, unless the Committee or the Board provides otherwise. For purposes of this Section 3.2, benefits are payable “upon” an event such as a separation from service (however defined) or death if they would be considered to be payable upon such event for purposes of section 409A of the Code, including in particular and without limitation Treasury Regulation 1.409A-3(a) thereunder.

SECTION 4

BENEFIT COMMENCEMENT DATES; AMOUNT OF BENEFIT

4.1 Separation from Service before Age 55 - Section 4.4(a) Benefit . With respect to the benefit provided under Section 4.4(a) and subject to Section 7.1, a Participant who has a Separation from Service prior to his 55 th birthday (other than by death) shall be entitled to a benefit payable as of the first day of the month following the Participant's 55 th birthday (the “ Benefit Commencement Date ”), which benefit shall actually commence on a date within the 90-day period beginning on the Participant's Benefit Commencement Date.

4.2 Separation from Service On or After Age 55 - Section 4.4(a) Benefit. With respect to the benefit provided under Section 4.4(a) and subject to Section 7.1, a Participant who has a Separation from Service on or after his 55 th birthday (other than by death) shall be entitled to a benefit payable as of the first day of the month following the date of the Participant's Separation from Service (the “ Benefit Commencement Date ”) which benefit shall actually commence on a date within the 90-day period beginning on the Participant's Benefit Commencement Date. Notwithstanding the foregoing provisions of Section 4.1 and 4.2 and any other provisions of this Plan, the benefit payable to a Participant who, on January 1 2009, was (a) a former employee of the Company entitled to benefits under this Plan but not yet in receipt of such benefits and (b) at least age 55 shall be paid in a lump sum, equal to the present value of the Participant's annuity benefit as of January 1, 2009 (as determined by the Company's actuary) and payable within the 90-day period beginning on January 1, 2009.

4.3 Separation from Service - Section 4.4(b) Benefit. With respect to the benefit provided under Section 4.4(b) and subject to Section 7.1, a Participant who has a Separation from Service (other than by death) shall be entitled to a benefit payable as of the first day of the month following the Participant's Separation from Service (the “ Benefit Commencement Date ”), which benefit shall actually commence on a date within the 90-day period beginning on the Participant's Benefit Commencement Date.

4.4 Amount of Benefit. The benefit payable to a Participant under this Section 4 by reason of the Participant's Separation from Service shall be determined under either paragraph (a) or (b) as follows:

(a) The monthly benefit payable with respect to any individual hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Savings Plan prior to December 31, 2012:

Step 1 : Compute (i) the monthly benefit that would be payable under the SRIP as of the Benefit Commencement Date, assuming it is computed as a single life annuity commencing on that date and without regard to Section 401(a)(17) and section 415 of the Code, minus (ii) the monthly benefit that would be payable under the SRIP as of the same date, assuming it is computed as a single life annuity commencing on that date and with regard to section 401(a)(17) and section 415 of the Code. Notwithstanding the foregoing, once a Participant's Separation from Service (as defined under this Plan) has occurred, no further accruals under the SRIP shall be taken into account when computing the amounts in (i) and (ii) hereof. For purposes of determining the SRIP benefit in this Step 1, any pre-retirement survivor annuity charge applicable under the terms of the SRIP document shall be disregarded.

Step 2 : If a Participant has elected an optional form of payment pursuant to Section 5 hereof, convert the benefit computed as a single life annuity under Step 1 to its actuarial

equivalent using the assumptions or factors applicable to such optional form under the SRIP.

(b) The benefit payable with respect to any individual hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Savings Plan on or after December 31, 2012:

(i) compute the Retirement Contribution that would be payable under the Savings Plan with respect to each plan year without regard to sections 401(a)(17) and 415 of the Code;

(ii) subtract the Retirement Contribution that would be payable under the Savings Plan with respect to the same plan year with regard to sections 401(a)(17) and 415 of the Code; and

(iii) adjust the difference of (i) and (ii) by deemed earnings on the hypothetical investment of the amounts prescribed in this paragraph (b), with such hypothetical investments to be determined, and such deemed earnings to be calculated, in the manner set forth in Section 4.4(b)(iv) below. Notwithstanding the foregoing, once a Participant's Separation from Service (as defined under this Plan) has occurred, no further Retirement Contributions under the Savings Plan shall be taken into account when computing the amounts in (i) and (ii) hereof.

(iv) Calculation of Deemed Earnings : An unfunded account or accounts shall be established for each Participant to determine the amount payable on his behalf under this Section 4.4(b). Unless otherwise determined by the Benefits Committee, the hypothetical investments shall be the same funds (or any other investment approved by the Benefits Committee) as are available under the Savings Plan from time to time. A separate account shall be established for such hypothetical investment. As of December 1 of each calendar year (or, in the discretion of the Benefits Committee, as of more frequent valuation dates), the balance in the account shall be adjusted to reflect (A) Plan contributions deemed credited under this Plan on behalf of the Participant since the last preceding valuation date and (B) the earnings or losses (whether or not realized) that would have occurred since such valuation date if the prior balance on such valuation date had been invested in the applicable hypothetical investment in the same proportions as the Participant invests his accounts under the Savings Plan. The Benefits Committee may at any time adopt uniform rules to administer these or other Plan provisions. The Benefits Committee may also terminate any hypothetical investment or investments under this Plan (after notice to affected Participant), in which event the account balance relating to such terminated investment shall be considered transferred to another investment account established for the Participant (which other investment shall be selected by the Benefits Committee). A statement showing his hypothetical account balance shall be distributed to each Participant from time to time by the Benefits Committee (at least once a year and at such additional times as the Benefits Committee shall determine in its discretion).

(v) Vesting . A Participant shall be vested in, and have a nonforfeitable right to, his benefit under this Section 4.4(b) in accordance with the vesting schedule applicable to his “Retirement Contributions” under the Savings Plan.

4.5 Time and Form of Payment in Case of Certain MSSORP Participants. Notwithstanding any provision of this Plan other than this Section 4.5 relating to the time or form of payment of retirement benefits hereunder to the contrary, except the Preamble, Section 5.5 (relating to Lump Sum Cashout) and Section 7.1 (relating to the six month delay applicable to Specified Employees), and subject to the second sentence of this Section 4.5, if, on the December 31 that immediately precedes any calendar year after 2009 in which a Participant in this Plan will accrue benefits under this Plan (including without limitation an individual who is not a Participant on such December 31 who will

become a Participant in this Plan during that calendar year), the Participant (or individual who will become a Participant) is a Group II Participant in the MSSORP who has not yet attained age 55, any benefits that will be accrued by such Participant in that calendar year (the “Service Year”) under this Plan that are payable upon Separation from Service (other than by death), i.e., (in the case of this Plan as in effect on December 31, 2009) benefits under Section 4, will be paid as follows (and only as follows): (a) if the Participant has a “Separation from Service (other than by reason of death)” within the meaning of the MSSORP before the date on which the Participant attains age 55, at the time and in the form of payment (within the meaning of “time and form of payment” in Treasury Regulation 1.409A-3(c)(2)) that will apply under the provisions of this Plan (other than this Section 4.5) as in effect on the December 31 immediately preceding that Service Year to any benefits that are payable upon Separation from Service (other than by death) that are accrued under this Plan in that Service Year by a Participant who participated in the MSSORP on or before July 22, 2009, who has a Separation from Service (other than by death) prior to his 55 th birthday, and (b) in accordance with Treasury Regulation 1.409A-3(c)(2), if the Participant has a “Separation from Service (other than by reason of death)” within the meaning of the MSSORP on or after the date on which the Participant attains age 55, at the time and in the form of payment that will apply under the provisions of the MSSORP (other than Section 4.5 thereof) as in effect on the December 31 immediately preceding that Service Year to benefits that are payable upon a “Separation from Service (other than by reason of death)” within the meaning of the MSSORP that are accrued under the MSSORP in that Service Year by a Group II Participant who has a “Separation from Service (other than by reason of death)” within the meaning of the MSSORP on or after the date on which the Group II Participant attains age 55 and 10 years of Credited Service (as defined in the MSSORP). In no event shall any benefits that will be accrued under this Plan in any Service Year be paid pursuant to the preceding sentence (or otherwise) unless the minimum criteria for receipt of benefits under this Plan have been satisfied by the Participant, or the Committee or the Board (or a written agreement approved by the Committee or the Board) provides for payment thereof, nor shall any benefits that will be accrued under this Plan in any Service Year be paid pursuant to the preceding sentence (or otherwise) if the individual in question has a Separation from Service on or after the time as of which he is no longer considered a Participant in this Plan with respect to those benefits pursuant to the second sentence of Section 3.2. Unless the relevant provisions of this Plan or the MSSORP are changed after 2009, in any case in which clause (b) of this Section 4.5 applies (“Separation from Service (other than by reason of death)” within the meaning of the MSSORP on or after the date on which the Participant attains age 55), the methodology for converting from the annuity benefits form that would otherwise apply under this Plan to the installments form that applies under the MSSORP to a Group II Participant who attains age 55 and 10 years of Credited Service (as defined in the MSSORP) shall be the same methodology that is prescribed in Section 9.3 for determining the amount of the installments payable pursuant to that Section to a Participant who had a Separation from Service on or after his 55 th birthday. For purposes of this Section 4.5, benefits are payable “upon” an event such as a separation from service (however defined) or death if they would be considered to be payable upon such event for purposes of section 409A of the Code, including in particular and without limitation Treasury Regulation 1.409A-3(a) thereunder.

SECTION 5

NORMAL AND OPTIONAL FORMS OF PAYMENT

5.1 Normal Form of Payment.

(a) The normal form of payment under this Plan for a Participant entitled to a benefit under Section 4.4(a) is a single life annuity, which is a benefit payable monthly for the lifetime of the Participant, with the first payment to be due on the Benefit Commencement Date specified in Section 4 (but subject to Section 7.1) and the last payment to be due on the first day of the calendar month in which death occurs. Consistent with Section 7.1, any payment due for a month prior to the month in which benefits actually commence shall be paid when benefits actually commence, with no adjustment for interest.

(b) The normal form of payment under this Plan for a Participant entitled to a benefit under Section 4.4(b) is a lump sum, with payment due on the Benefit Commencement Date specified in Section 4 (but subject to Section 7.1).

5.2 Optional Forms of Payment. In lieu of the normal form of payment, a Participant entitled to a benefit under Section 4.4(a) may elect to receive his benefit in one of the following optional forms, subject to the provisions of this Section 5:

(a) Joint and contingent annuity, which is a benefit payable monthly for the lifetime of the Participant with a benefit equal to 25%, 50%, 75%, or 100% (as selected by the Participant) of such benefit payable monthly to the Contingent Annuitant, commencing after the death of the Participant, for the lifetime of the Contingent Annuitant.

(b) Ten year certain and lump sum, which is a benefit payable monthly for the lifetime of the Participant and, in the event of the Participant's death prior to receiving 120 monthly payments, the value of the remaining number of such payments payable to a named Beneficiary in a lump sum. If both the Participant and the Beneficiary die before 120 payments have been made to the Participant, the value of the remaining number of such payments shall be made to the Participant's estate in a lump sum.

A Participant's election of an optional form generally shall be effective only if made by the close of the 30-day period beginning on the Participant's Benefit Commencement Date; provided, however, that the Committee may prescribe another period for electing an optional form. In the event that a Participant elects a joint and contingent annuity and the Contingent Annuitant designated by the Participant dies prior to the time benefits actually commence (with regard to Section 7.1), the election of the optional form of payment shall be disregarded. In the event that a Participant elects a Ten Year Certain and Continuous Annuity and the Beneficiary designated by the Participant dies prior to the time benefits actually commence (with regard to Section 7.1), the Participant shall designate a new Beneficiary. Notwithstanding the foregoing, in the event of the death of a Contingent Annuitant or Beneficiary under the circumstances described herein, the Committee may, in accordance with rules prescribed by it, permit the Participant to make another election of an optional form. Election of optional forms of payments shall be filed by the Participant with the Benefits Committee or its designee on a form approved by the Benefits Committee.

5.3 Actuarial Equivalent. Except to the extent otherwise specifically provided herein, the amount of any optional form of payment payable under Section 5.2 shall be the actuarial equivalent of the

single life annuity. Actuarial equivalence shall be determined using the factors specified in the SRIP as of the date that an election of an optional form of payment is made. Notwithstanding the foregoing, the normal and optional forms of payment shall be actuarially equivalent within the standards set forth in Treasury Regulation section 1.409A-2(b), with the Company's actuary making any adjustments to the factors specified in the SRIP or other adjustments as may be necessary to satisfy such standards.

5.4 Designation of Contingent Annuitant, Beneficiary. A Participant may designate a Contingent Annuitant or Beneficiary or change any prior designation by giving written notice to the Benefits Committee within the election period described in Section 5.2; provided, however, that all designations of Contingent Annuitants or Beneficiaries are subject to the approval of the Benefits Committee. When necessary because, for example, no properly designated Beneficiary survives the Participant and a payment is due to a Beneficiary (under the ten year certain and continuous annuity option), the Benefits Committee shall apply default rules determined by the Benefits Committee, in is sole discretion, but generally following a priority list of living persons in the following order: Spouse, children, parents, brothers and sisters, estate. Although the rules of the Benefits Committee may permit a Participant to designate one or more alternative Beneficiaries (for example, an individual who shall become a Participant's Beneficiary in case the Participant's first choice of a Beneficiary dies before benefits become payable), a Participant may not designate persons who shall jointly receive benefits as Beneficiaries (for example, the designation of two or more children to jointly receive benefits as Beneficiaries is prohibited). Subject to the approval of the Benefits Committee as provided above, a Participant may designate a trust as a Beneficiary.

5.5 Lump Sum Cashout. Notwithstanding the foregoing or any other provisions of this Plan and subject to Section 7.1, in the discretion of the Committee, a lump sum may be paid to a Participant as follows:

(a) with respect to the benefit provided under Section 4.4(a) of this Plan, within 90 days of the Participant's Benefit Commencement Date; or

(b) with respect to the benefit provided under Section 4.4(b) of this Plan, within 30 days following the applicable determination date. For purposes of this Section 5.5(b), “applicable determination date” means the date selected by the Committee to cash out a Participant's benefit under Section 4.4(b) pursuant to this Section 5.5.

Such lump sum payment shall be in satisfaction of his interest under this Plan if the value thereof as of the Benefit Commencement Date or applicable determination date does not exceed the applicable dollar amount under section 402(g)(1)(B) of the Code and the payment results in the termination and liquidation of the entirety of the Participant's interest under this Plan, including all agreements, methods, program, or other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Treasury Regulation section 1.409A-1(c)(2). The Committee shall document its decision to make a lump sum payment hereunder on or before the date of the payment.

SECTION 6

DEATH BENEFITS

6.1 Entitlement to Death Benefit.

(a) If a Participant dies after becoming eligible for a benefit under the SRIP but prior to the date any benefits under this Plan have actually commenced, the Participant's Spouse shall be eligible to receive a monthly lifetime benefit payable as of the day that was or would have been the Participant's Benefit Commencement Date (and actually commencing within the 90-day period beginning on such date, but, if the Participant died after a Separation from Service, not later than the latest date within such 90-day period on which the first payment of the benefits that would have been paid to the Participant on account of Separation from Service under this Plan if s/he had lived would have been considered timely under Treasury Regulation 1.409A-3(d)), had his date of death been the date the Participant had a Separation from Service.

(b) If a Participant dies before a complete distribution of his benefit under Section 4.4(b) has been made, a death benefit shall be payable to his Beneficiary in the form of a lump sum. Such payment shall be made not later than the 90th day following the Participant's death.

6.2 Amount of Death Benefit.

(a) The death benefit shall be equal to the amount that would have been payable to the Spouse under this Plan under a 50% joint and contingent annuity option if the Participant had begun to receive benefits in that form as of his Benefit Commencement Date and died the next day.

(b) The death benefit shall be equal to the unpaid balance of the deceased Participant's benefit as of the date of distribution.

6.3 Entitlement to and Amount of the Benefit in the Case of Certain Participants. If a Participant whose benefit is determined under Section 4.4(a), some of whose benefits under this Plan are benefits to which Section 9.3 applies and some of whose benefits under this Plan are benefits to which Section 9.3 does not apply, dies after the Participant's benefits under this Plan to which Section 9.3 applies have actually commenced but prior to the date any of the Participant's benefits under this Plan to which Section 9.3 does not apply have actually commenced, the Participant's Spouse shall be eligible to receive a monthly lifetime benefit payable as of the day that was or would have been the Participant's Benefit Commencement Date (and actually commencing within the 90-day period beginning on such date, but not later than the latest date within such 90-day period on which the first payment of the benefits to which Section 9.3 does not apply that would have been paid to the Participant on account of Separation from Service under this Plan if s/he had lived would have been considered timely under Treasury Regulation 1.409A-3(d)), had his date of death been the date the Participant had a Separation from Service. The benefit shall be equal to the amount that would have been payable to the Spouse under this Plan under a 50% joint and contingent annuity option if the Participant had begun to receive the benefits to which Section 9.3 does not apply in that form as of his Benefit Commencement Date and died the next day.

6.4 Certain Time and Form of Payment Provisions. Notwithstanding any provision of this Plan other than this Section 6.4 relating to the time or form of payment of death benefits to the contrary except the Preamble, and subject to the second sentence of this Section 6.4, if, on the December 31 that immediately precedes any calendar year after 2009 in which a Participant whose benefit is determined

under Section 4.4(a) will accrue benefits under this Plan (including without limitation an individual who is not a Participant on such December 31 who will become a Participant in this Plan during that calendar year), the Participant (or individual who will become a Participant) is a Group II Participant in the MSSORP who has not yet attained age 55, any benefits that will be accrued by such Participant in that calendar year (the “Service Year”) under this Plan that are payable upon death, i.e., (in the case of this Plan as in effect on December 31, 2009) the death benefits under Section 6.1 and Section 6.2, will be paid as follows (and only as follows): (a) if the Participant dies before the date on which he attains age 55, at the time and in the form of payment (within the meaning of “time and form of payment” in Treasury Regulation 1.409A-3(c)) that will apply under the provisions of this Plan (other than this Section 6.4) as in effect on the December 31 immediately preceding that Service Year to any benefits that are payable upon death that are accrued under this Plan in that Service Year by a Participant who participated in the MSSORP on or before July 22, 2009, who dies prior to his 55 th birthday, and (b) in accordance with Treasury Regulation 1.409A-3(c), if the Participant dies on or after the date on which he attains age 55, at the time and in the form of payment that will apply under the provisions of the MSSORP (other than Section 5.3A thereof) as in effect on the December 31 immediately preceding that Service Year to any benefits that are payable upon death that are accrued under the MSSORP in that Service Year by a Group II Participant who dies on or after the date on which he attains age 55 and 5 years of Credited Service (as defined in the MSSORP). In no event shall any benefits that will be accrued under this Plan in any Service Year be paid pursuant to the preceding sentence (or otherwise) unless the minimum criteria for receipt of benefits have been satisfied by the Participant and any other conditions to entitlement to a death benefit under this Plan have been satisfied, or the Committee or the Board (or a written agreement approved by the Committee or the Board) provides for payment thereof, nor shall any benefits that will be accrued under this Plan in any Service Year be paid pursuant to the preceding sentence (or otherwise) if the individual in question dies on or after the time as of which he is no longer considered a Participant in this Plan with respect to those benefits pursuant to the second sentence of Section 3.2. For purposes of this Section 6.4, benefits are payable “upon” an event such as a separation from service (however defined) or death if they would be considered to be payable upon such event for purposes of section 409A of the Code, including in particular and without limitation Treasury Regulation 1.409A-3(a) thereunder.

SECTION 7

SECTION 409A PROVISIONS

7.1 Six-Month Delay Rule. Notwithstanding any provision of this Plan to the contrary, (a) no “distributions” (within the meaning of Treasury Regulation section 1.409A-1(c)(3)(v)) of deferred compensation that is subject to section 409A of the Code may be made pursuant to this Plan to a Specified Employee due to a Separation from Service before the date that is six months after the date of such Specified Employee's Separation from Service; and (b) any distribution that, but for the preceding clause (a), would be made before the date that is six months after the date of the Specified Employee's Separation from Service shall be paid on the first day of the seventh month following the date of his Separation from Service. For the avoidance of doubt, the preceding sentence shall apply to any amount (and only to any amount) to be paid pursuant to this Plan to which section 409A(a)(2)(B)(i) of the Code (relating to Specified Employees) applies, and shall not apply to any amount or benefit to be paid or provided pursuant to this Plan if and to the extent that such amount or benefit is not subject to section 409A of the Code for any reason, including, without limitation, Treasury Regulation section 1.409A-1(a)(5) (relating to welfare benefit plans), Treasury Regulation section 1.409A-1(b)(4) (relating to short-term deferrals), Treasury Regulation section 1.409A-1(b)(9) (relating to separation pay plans), or the “grandfather” rules incorporated in Treasury Regulation section 1.409A-6(a).

7.2 Specified Employees. If at any time during the 12-month period ending on any “specified employee identification date,” which shall be December 31, a person who participates in or has any legally binding right, contingent or otherwise, under this Plan (a “ Plan Participant ”) is in Salary Grade 20 or above or meets the requirements of section 416(i)(1)(A)(ii) or (iii)of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding section 416(i)(5) of the Code), then this Plan Participant shall be treated as a Specified Employee for purposes of Section 6.1 above for the entire 12-month period beginning on the “specified employee effective date,” which shall be the January 1 that immediately follows such specified employee identification date, unless the Board or the Committee at any time prescribes a different method of identifying service providers who will be subject to the six month delay required by section 409A(a)(2)(B)(i) of the Code (the “ Six Month Delay ”) in accordance with Treasury Regulation section 1.409A-1(i) or the transition rules and official guidance under section 409A of the Code (a “ Different Identification Method ”) or elects a different specified employee identification date or specified employee effective date or makes any other election that may be made in accordance with Treasury Regulation section 1.409A-1(i) or the transition rules and official guidance under section 409A of the Code (a “ Different Election ”), in which case whether the Participant shall be treated as a Specified Employee shall be determined in accordance with any such Different Identification Method so prescribed and any such Different Election so made by the Board or Committee. By participating or continuing to participate in this Plan or accepting any legally binding right under this Plan, each Participant irrevocably (a) consents to any such Different Identification Method that the Board or Committee may prescribe at any time and any such Different Election that the Board or Committee may make at any time for purposes of identifying the service providers who will be subject to the Six Month Delay with respect to payments under this Plan, and (b) agrees that the Participant's consent to any such Different Identification Method or Different Election shall be as effective as if such Different Identification Method or Different Election were fully set forth herein, and (c) waives any right he may have to consent to the Different Identification Method or Different Election in question if for any reason the Participant's consent to such Different Identification Method or Different Election is not legally effective.

7.3 Installments Rule. If any Participant or beneficiary has any right under this Plan to “a

series of installment payments that is not a life annuity” (within the meaning of Treasury Regulation section 1.409A-2(b)(2)(iii)), then such right shall be treated as a right to a series of separate payments within the meaning of Treasury Regulation section 1.409A-2(b)(2)(iii).

7.4 General 409A Provisions. Any compensation that may be paid or provided pursuant to this Plan is intended to qualify for an exclusion from section 409A of the Code or to comply with section 409A of the Code, so that none of such compensation will be includible in any Plan Participant's federal gross income pursuant to section 409A(a)(1)(A) of the Code. This Plan shall be administered, interpreted and construed to carry out such intention, and any provision of this Plan that cannot be so administered, interpreted and construed shall to that extent be disregarded. However, the Company and any other person or entity with any responsibility for this Plan (including, but not limited to, the Board) do not represent, warrant or guarantee that any compensation that may be paid or provided pursuant to this Plan will not be includible in a Plan Participant's federal gross income pursuant to section 409A(a)(1)(A) of the Code, nor do the Company and other persons and entities with any responsibility for this Plan make any other representation, warranty or guaranty to any Plan Participant as to the tax consequences of this Plan or of participation in this Plan. If, notwithstanding the foregoing, amounts are includible in a Plan Participant's federal gross income pursuant to section 409A(a)(1)(A) of the Code, the payment of benefits will be accelerated to the extent determined by the Committee and permitted by Treasury Regulation section 1.409A-3(j)(vii).

SECTION 8

ADMINISTRATION AND GENERAL PROVISIONS

8.1 Administration . The Committee shall have full power and authority to interpret and construe the terms of this Plan, and to administer it, and the Committee's interpretations and construction thereof, and actions thereunder, including, but not limited to determining the amount or recipient of any benefits to be made therefrom, shall be binding and conclusive on all persons for all purposes. The Board, the Committee, the Benefits Committee, their individual members, and such persons' agents and representatives of the Board shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to willful misconduct or lack of good faith.

8.2 Expenses of Administration . All expenses incurred in connection with the execution of this Plan and in carrying out the provisions hereof shall be paid by the Company.

8.3 Information from Participant . Each Participant shall furnish to the Company such information as the Company may reasonably request for purposes of the proper administration of the provisions of this Plan.

8.4 No Employment Rights . Nothing contained in this Plan shall be construed as a contract of employment between the Company and a Participant, or as a right of any Participant to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its Participants, with or without cause. Any benefit payable under this Plan shall not be deemed salary, earnings, or other compensation to the Participant for the purpose of computing benefits to which he may be entitled under any qualified retirement plan or other arrangement of the Company for the benefit of its employees.

8.5 Restrictions on Alienation and Assignment. Neither a Participant or Spouse nor any Beneficiary or Contingent Annuitant shall have the right to assign, transfer, hypothecate, encumber, commute or anticipate any interest in any payments hereunder, and such payments shall not in any way be subject to any legal process to levy upon or attach the sum for payment of any such claim against the Participant, Spouse, Beneficiary, or Contingent Annuitant, provided, however, that nothing contained herein shall preclude a Participant from designating, in accordance with Section 5 and other terms of this Plan, a Beneficiary or Contingent Annuitant to receive benefits hereunder in the event of the Participant's death.

8.6 Facility of Payment . If the Committee shall find, upon receipt of medical evidence or legal representations satisfactory to the Committee, that any Participant or other person to whom a benefit is payable is unable to care for such person's affairs because of illness or accident, any payment due hereunder (unless a prior and valid claim therefor shall have been made by a duly appointed guardian, conservator or other legal representative) may be paid to such person's Spouse, child, parent or brother or sister, or to any person or persons determined by the Committee to have incurred expense for such Participant. Any payment shall be a complete discharge of all liability hereunder.

8.7 Failure to Claim Amounts Payable . In the event that any amount shall become payable hereunder to a person and, after written notice from the Company mailed to such person's last known address as shown in the Company's records and after diligent effort, the Company is unable to locate such person, the Company shall apply to a court of competent jurisdiction for direction as to the distribution of such amount.

8.8 Amendment and Termination . The Board reserves the right to amend and/or terminate this Plan at any time for whatever reasons it may deem appropriate (or for no reason), except that no such amendment or termination shall adversely affect the benefits payable to any person who has begun to receive benefits hereunder and no such amendment or termination may accelerate or defer the payment of compensation except as permitted by section 409A of the Code.

8.9 Gender and Number . All the words and terms used herein, regardless of the number and gender in which they shall be used, shall be deemed to include any other number, singular and plural, and any other gender, masculine and feminine, as the context may require.

8.10 Law Applicable . This Plan shall be governed by the laws of the State of Delaware to the extent not superseded by federal law.

8.11 Delegation of Authority. The Board, the Committee, and the Benefits Committee may delegate the responsibilities allocated to them under the terms of this Plan to others, including, but not limited to, a Board delegation to the Committee or the Benefits Committee, a Committee or Benefits Committee delegation to one or more members, and a delegation by the Board or one of the committees to Company employees. As long as the delegation is lawful, neither an employee nor any other person shall have the right to raise any questions relating to such delegation of authority and responsibility for interpreting, construing, and administering this Plan.

8.12 Releases. Any provision of this Plan to the contrary notwithstanding, each payment to a person hereunder shall be contingent on the person having executed and delivered to the Company, at such time and times in advance of the payment date as the Committee or its delegate may specify, any covenant agreement and release of claims that the Committee or its delegate may require, and on any such covenant and release of claims having become irrevocable by their terms in advance of the payment date. Without limiting the generality of the foregoing, the Committee or its delegate may require a covenant and release to be executed and delivered to the Company within a specified period of time following the Participant's Separation from Service, and another release to be executed and delivered to the Company within a specified period of time following another event or date as the Committee or its delegate may specify. Amounts not paid hereunder due to a failure to execute any covenant or release required by the Committee shall be treated as forfeited.

SECTION 9

BENEFITS UNDER SECTION 4.4(a)

FOR EXECUTIVE OFFICERS PARTICIPATING IN THE

2009 DEFERRED COMPENSATION PLAN

9.1 Applicability of Section. The provisions of this Section 9 shall apply solely with respect to the benefit determined under Section 4.4(a) of this Plan.

9.2 Conditions for Benefits. Notwithstanding any other provisions of this Plan, no benefits provided under this Plan upon a Participant's Separation from Service or death to which Section 9.3 applies shall be payable to or in respect of a Participant who also participates in the 2009 DC Plan if, at the Participant's “separation from “service” (within the meaning of the 2009 DC Plan) or death, the Participant has met the requisite age and service conditions for payment of a benefit under the 2009 DC Plan upon the same event (i.e., a “separation from service” or death) as the event upon which the benefits to which Section 9.3 applies would otherwise be payable to or in respect of the Participant under this Plan, nor shall such a Participant accrue any benefits under this Plan (to which Section 9.3 applies or otherwise) that are payable upon a Separation from Service or death after s/he has met the age and service conditions for payment of a benefit under the 2009 DC Plan upon the same type of event. For purposes of this Section 9, benefits and installments are provided or payable “upon” an event such as a separation from service (however defined) or death if they would be considered to be provided or payable upon such event for purposes of section 409A of the Code, including in particular and without limitation Treasury Regulation 1.409A-3(a) thereunder.

9.3 Time and Form of Benefits. Notwithstanding any provisions of this Plan other than this Section 9.3 relating to the time or form of payment of benefits except the Preamble, Section 5.5, Section 7 and Section 9.4, and subject to Section 9.2, if a Participant who was not a participant in the MSSORP on or before July 22, 2009 also participates in the 2009 DC Plan (the first date, if any, on which such a Participant is both a Participant in this Plan and a participant in the 2009 DC Plan being hereafter referred to as the Participant's “First Dual Participation Date”), any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death to which benefit this Section 9.3 applies in accordance with the provisions below of this Section 9.3, shall be paid in the form of installments, provided at the same time as installments would have been payable under the 2009 DC Plan upon a Separation from Service (as defined in that Plan) or death, assuming for this purpose (and it shall be assumed for this purpose) that the Participant (or the Participant's Spouse, in the case of any benefit payable upon the Participant's death) was entitled to benefits from the 2009 DC Plan, and any such benefit to which this Section 9.3 applies shall be paid in that form and at that time irrespective of any change after the Participant's First Dual Participation Date in his status as a participant in the 2009 DC Plan. For the avoidance of doubt, under the 2009 DC Plan, the number of such installments will be five, and the time of payment of such installments will be as follows: in the case of any benefit payable to the Participant under this Plan upon Separation from Service (other than by death) to which benefit this Section 9.3 applies, the first installment is payable on the first day of the seventh month following Separation from Service (as defined in the 2009 DC Plan), unless the death of the Participant occurs after Separation from Service (as defined in the 2009 DC Plan) and prior to the date on which the first installment is paid, in which case the first installment is payable within 90 days after death, but not later than the latest date within such 90-day period on which the first installment that would have been paid to the Participant on account of Separation from Service (as defined in the 2009 DC Plan) if s/he had lived would have been considered timely under Treasury Regulation 1.409A-3(d); in the case of any benefit payable in respect of the Participant under this Plan upon Separation from Service by death to which

benefit this Section 9.3 applies, the first installment is payable within 90 days after death; and in each case the last four installments are paid on anniversaries of the first installment payment. This Section 9.3 shall apply only to the following benefits payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death: (a) this Section 9.3 shall apply to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death that is accrued after the calendar year in which the Participant's First Dual Participation Date occurs, (b) if the Participant was not a Participant in this Plan before his First Dual Participation Date, this Section 9.3 shall also apply to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death that is accrued in the calendar year in which the Participant's First Dual Participation Date occurs, and (c) if the Participant was a Participant in this Plan before his First Dual Participation Date, and (i) the Participant's First Dual Participation Date is in the same calendar year in which s/he became a Participant in this Plan or in January of the following calendar year, and (ii) the Participant did not accrue a benefit or defer compensation under a plan in any year (within the meaning of Treasury Regulation 1.409A-2(a)(7)(iii)) prior to the calendar year in which s/he became a Participant in this Plan, and (iii) the Participant's base compensation did not exceed the compensation limit of section 401(a)(17) of the Code before the calendar year in which s/he became a Participant in this Plan and his benefits under the SRIP were not limited by section 415 of the Code before the calendar year in which s/he became a Participant in this Plan, then this Section 9.3 shall also apply to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death that is accrued in the calendar year in which the Participant's First Dual Participation Date occurs and, if the Participant's First Dual Participation Date is in January of the calendar year immediately following the calendar year in which s/he became a Participant in this Plan, shall also apply to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death that was accrued in the calendar year in which the Participant became a Participant in this Plan; provided, however, that clause (iii) of this sentence shall not apply if the Participant becomes a Participant in this Plan in 2009. Within the meaning of the preceding sentence (other than clause (c)(ii) thereof), all benefits payable to or in respect of a Participant under this Plan upon the Participant's Separation from Service or death are “accrued” on or after the date on which the Participant becomes a Participant in this Plan, including any such benefits which are based in whole or in part on the Participant's service or compensation before that date. Any provision above of this Section 9.3 to the contrary notwithstanding, in no event shall this Section 9.3 apply to any benefit with respect to which a timely initial deferral election cannot be made by the service recipient under Treasury Regulation 1.409A-2(a)(2) on a Participant's First Dual Participation Date. In no event shall any installments be paid pursuant to this Section 9.3 (or otherwise) unless the minimum criteria for receipt of benefits under this Plan have been satisfied by the Participant, or the Committee or the Board (or a written agreement approved by the Committee or the Board) provides for payment thereof, nor shall any installments be paid pursuant to this Section 9.3 (or otherwise) upon a Separation from Service or death after the Participant satisfies the requisite age and service conditions for payment of a benefit under the 2009 DC Plan upon the same event as the event upon which the installments in question would otherwise be payable hereunder. The amount of the installments payable pursuant to this Section 9.3 upon the Participant's Separation from Service or death shall be determined as follows:

Step 1. Determine the monthly benefit payable to the Participant upon the Participant's Separation from Service on the date in question under Section 4 (or, in the case of a Separation from Service by death, the monthly benefit that would have been payable to the Participant under Section 4 if the Separation from Service on the date in question had been other than by death), including both benefits to which this Section 9.3 applies and any benefits to which this Section 9.3 does not apply, assuming for purposes of this Step 1 (and it shall be assumed for purposes of this Step 1) that the Participant were receiving his benefit under Section 4 in the form of a single

life annuity commencing as of the Benefit Commencement Date that would apply in the Participant's case under Section 4.1 or Section 4.2 if the Participant were receiving his benefit under Section 4 in that form. Subtract the portion of the monthly benefit which is not a benefit to which Section 9.3 applies (determined in accordance with the provisions above of this Section 9.3, including in particular and without limitation clauses (a), (b) and (c) thereof), and then multiply the remainder by twelve (12).

Step 2 . If the Participant had a Separation from Service prior to his 55 th birthday, multiply the amount determined at the end of Step 1 by a single life annuity factor based on the Participant's age on the first day of the month following the date on which the Participant had a Separation from Service (or, in the case of the Participant's death before the first day of that month, the age the Participant would have been on the first day of that month) and the Participant's age on the Benefit Commencement Date determined under Section 4.1 (or, in the case of the Participant's death before that Benefit Commencement Date, the age the Participant would have been on that Benefit Commencement Date). If the Participant had a Separation from Service on or after his 55 th birthday, multiply the amount determined at the end of Step 1 by a single life annuity factor based on the Participant's age on the first day of the month following the date on which the Participant had a Separation from Service (or, in the case of the Participant's death before the first day of that month, the age the Participant would have been on the first day of that month). In each case, the annuity factor shall be based on an interest rate equal to the discount rate and any other assumptions used by the Company to value pension liabilities under this Plan for the financial statements of the Company last disclosed before the computation hereunder is made (unless a remeasurement of the pension liabilities has taken place since that time, in which case the remeasurement assumptions shall be used).

Step 3 . Treat the lump sum amount determined in Step 2 as the opening balance in a hypothetical account to be used to pay the installments to the Participant. Hypothetical interest shall be credited to the account on the last day of each calendar month (through the month that next precedes the last installment payment) by multiplying one-twelfth of the Wall Street Journal prime rate in effect on such day by the account balance as of the last day of the immediately preceding month.

Step 4 . Pay the installments referred to in Step 3 to the Participant at the times indicated in the second sentence of this Section 9.3 for Separation from Service (other than by death), with the installments equal to the applicable percentage below multiplied by the hypothetical account as of the last day of the month before the month in which payment occurs (after crediting interest until such date):

Installment Percentage

First 20%

Second 25%

Third 33 1/3%

Fourth 50%

Fifth 100%

If the Participant dies on or after the date on which the Participant has a Separation from Service and prior to the date on which the first installment is paid to the Participant, pay the Spouse five installments at the times indicated in the second sentence of this Section 9.3 for Separation from Service by death or, if applicable, for death after Separation from Service and prior to the date on

which the first installment is paid, with the installments equal to the applicable percentage in the table above multiplied by 50% of the hypothetical account as of the last day of the month before the month in which payment occurs (after crediting interest until such date).

If a Participant who is entitled to installments hereunder dies after receipt of the first installment and before receipt of the fifth installment, any installment(s) remaining unpaid at death shall be paid, at the same time(s) that such installment(s) would have been paid to the Participant, to a Beneficiary who is determined consistent with the provisions of Section 5.4 hereof. However, if such Beneficiary dies after s/he receives the first of such remaining installments, and before s/he receives the last of such remaining installments, then, notwithstanding any provision above of this Section 9.3 to the contrary, any installment(s) remaining unpaid on the date of death of the Beneficiary shall thereupon cease to be payable, and any benefits to which this Section 9.3 applies shall thereupon be deemed to have been paid in full. If a Spouse who is entitled to installments hereunder dies before s/he receives all five installments, then, notwithstanding any provision above of this Section 9.3 to the contrary, any installment(s) remaining unpaid on the date of death of the Spouse shall thereupon cease to be payable, and any benefits to which this Section 9.3 applies shall thereupon be deemed to have been paid in full. For the avoidance of doubt, (A) a Spouse is entitled to installments hereunder if (and only if) a Participant who is entitled to installments hereunder dies prior to the date any benefits under this Plan have actually commenced, (B) the amount of the installments payable to the Spouse is to be determined in accordance with the second sentence of Step 4 above, (C) the first of such installments is payable to the Spouse within 90 days after the Participant's death unless the Participant dies after Separation from Service (as defined in the 2009 DC Plan) and prior to the date on which the first installment is paid, in which case the first installment is payable to the Spouse within 90 days after death, but not later than the latest date within such 90-day period on which the first installment that would have been paid to the Participant on account of Separation from Service (as defined in the 2009 DC Plan) if s/he had lived would have been considered timely under Treasury Regulation 1.409A-3(d), and (D) the four other installments are payable to the Spouse on anniversaries of the first installment payment.

9.4 Exception to Section 9.3. If a Participant in this Plan who was not a participant in the MSSORP on or before July 22, 2009 also participates in the 2009 DC Plan and was not a Participant in this Plan before his First Dual Participation Date, but under Section 6.1(C) of a Severance Agreement with the Company that was entered into at any time before the date on which s/he became a participant in the 2009 DC Plan (the “2009 DC Plan Participation Date”) would have been deemed to have been participating in this Plan before the 2009 DC Plan Participation Date if Severance Payments had been payable pursuant to Section 6.1 of that Agreement before that date, (and whether or not s/he would have been deemed to have been vested in this Plan before the 2009 DC Plan Participation Date under said Section 6.1(C), and whether or not any benefits would have been payable thereunder in respect of benefits deemed to have been accrued under this Plan before that date), and if the time and form of payment (within the meaning of the Treasury Regulations under section 409A of the Code) of any benefits that would have been deemed to have been accrued under this Plan pursuant to and within the meaning of said Section 6.1(C) before the Participant's First Dual Participation Date, would have been determined pursuant to said Section 6.1(C) in accordance with the provisions of this Plan other than Section 9.3 (any such benefits the time and form of payment of which would have been determined pursuant to said Section 6.1(C) in accordance with the provisions of this Plan other than Section 9.3 being hereafter referred to as a “Pre-2009 DC Plan Accrual”), then, notwithstanding the provisions of Section 9.3 (including in particular and without limitation clause (b) thereof), Section 9.3 shall not apply to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from

Service or death that is accrued under this Plan in the calendar year in which the Participant's First Dual Participation Date occurs, and that is attributable to the same period of service and compensation prior to that date to which the Pre-2009 DC Plan Accrual is attributable, nor shall Section 9.3 apply, if the Participant was not participating in either this Plan or the 2009 DC Plan before the First Dual Participation Date (i.e., if the Participant became a Participant in this Plan and a participant in the 2009 DC Plan on the same date), to any benefit payable to or in respect of the Participant under this Plan upon the Participant's Separation from Service or death that is accrued under this Plan in the calendar year in which the Participant's First Dual Participation Date occurs, and that is attributable to the Participant's service in, and compensation in or for, the period from the First Dual Participation Date to the close of the calendar year in which the First Dual Participation Date occurs; instead, the time and form of payment of any such benefit payable to or in respect of the Participant under this Plan shall be determined in accordance with the provisions of this Plan other than Section 9.3.

BARNES GROUP INC.

STOCK AND INCENTIVE AWARD PLAN

PERFORMANCE SHARE AWARD SUMMARY OF GRANT

For Officers and Other Individuals as Designated by the CMDC

Barnes Group Inc. , a Delaware corporation (the “Company”), under the 2014 Barnes Group Inc. Stock and Incentive Award Plan, as may be amended from time to time (the “Plan”), hereby grants to the individual named below (“You” or “Grantee”) this Performance Share Award (also referred to as Performance Share Unit Award) (the “Grant”), representing the target number of performance shares set forth below (each a “Performance Share”) that may be earned by You based on the level of achievement of the Performance Goals. Each Performance Share entitles You to one share of Common Stock. The actual number of Performance Shares earned will be based on the actual performance level achieved with respect to the Performance Goals set forth on Schedule A . The Performance Shares are subject to this Performance Share Award Summary of Grant (the “Summary of Grant”), and the Performance Share Award Agreement attached as Exhibit A (the “Performance Share Award Agreement”) and the Plan, both of which are incorporated herein by reference and made part hereof. The Grant also entitles You to be paid Dividend Equivalents as set forth in the Performance Share Award Agreement. Unless otherwise defined, capitalized terms used in this Summary of Grant and the Performance Share Award Agreement have the meanings set forth in the Plan.



Grantee:	[__________________________]
Grant Date:	February XX, 20XX
Target Award:	[______] Performance Shares
Performance Period:	The 3 year period beginning on January 1, 20XX and ending on December 31, 20XX
Performance Goals: Vesting Schedule	The Performance Goals are based on the performance measures set forth on Schedule A . The Performance Shares will be earned based on the performance level achieved with respect to the Performance Goals if, except as provided otherwise in the Performance Share Award Agreement, You continue employment with Company through the third anniversary of the Grant Date. The number of Performance Shares set forth above is equal to the target number of shares of Common Stock that the Grantee will earn for 100% achievement of the Performance Goals (referred to as the “Target Award”). The actual number of shares of Common Stock that You will earn with respect to the Performance Shares may be greater or less than the Target Award, or even zero, and will be based on the performance level achieved by the Company with respect to the Performance Goals, as set forth on Schedule A . Performance level is measured based on the threshold, target and maximum performance levels set forth on Schedule A . Each performance level is calculated as a percentage of target level performance. Threshold performance level is 33% of target, target performance level is 100% of target, maximum performance level is 150% of target, maximum+ performance level is 200% of target and maximum++ performance level is 250% of target. If actual performance is between performance levels, the number of Performance Shares earned will be interpolated on a straight line basis for pro-rata achievement of the Performance Goals, rounded down to the nearest whole number. Failure to achieve the threshold performance level with respect to a Performance Goal will result in no Performance Shares being earned with respect to that Performance Goal.

Grant Acceptance:

You agree to be bound by the Plan, the Performance Share Award Agreement and this Summary of Grant by electronically acknowledging and accepting the Grant following the date of the Company’s electronic or other written notification to You of the Grant. You accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan, this Summary of Grant or the Performance Share Award Agreement. In no event do You acquire any rights to the Grant unless You electronically accept, no later than 60 days after the Grant Date, this Summary of Grant and the attached Performance Share Award Agreement.

You acknowledge that the Plan prospectus is available as part of the online grant package with E*TRADE, and that paper copies of the Plan and the Plan prospectus are available upon request by contacting Stockholder Relations Senior Specialist, Patricia Bradley, at pbradley@bginc.com or 860-973-2106.

Schedule A

The number of Performance Shares that may be earned will be determined based on the actual performance level achieved with respect to the following performance measures during the Performance Period: 3-Year Total Stockholder Return (“TSR”); 3-Year Return on Invested Capital (“ROIC”); and 3-Year EBITDA Growth (collectively referred to as the “Performance Goals,” and each individual measure, a “Performance Goal”). The chart below sets forth the applicable weighting of each performance measure and the Performance Goals needed to be achieved at each performance level for such performance measure during the Performance Period:

January 1, 20XX-December 31, 20XX Performance Period



Performance Measure	Weight	Performance Level	Performance Goals	Performance Shares Earned as a Percentage of Target (% of Target) *
3-Year TSR**	33.3334%	Threshold	Achieve 33 ^rd percentile ranking within the Russell 2000	33%
		Target	Achieve 50 ^th percentile ranking within the Russell 2000	100%
		Maximum	Achieve 66 ^th percentile ranking within the Russell 2000	150%
		Maximum+	Achieve 75 ^th percentile ranking within the Russell 2000	200%
		Maximum++	Achieve 85 ^th percentile ranking within the Russell 2000	250%
3-Year ROIC***	33.3333%	Threshold	Achieve 8.6% 3-Year ROIC	33%
		Target	Achieve 9.1% 3-Year ROIC	100%
		Maximum	Achieve 9.5% 3-Year ROIC	150%
		Maximum+	Achieve 10.0% 3-Year ROIC	200%
		Maximum++	Achieve 10.5% 3-Year ROIC	250%
3-Year EBITDA Growth****	33.3333%	Threshold	Achieve 33 ^rd percentile ranking within the Russell 2000	33%
		Target	Achieve 50 ^th percentile ranking within the Russell 2000	100%
		Maximum	Achieve 66 ^th percentile ranking within the Russell 2000	150%
		Maximum+	Achieve 75 ^th percentile ranking within the Russell 2000	200%
		Maximum++	Achieve 85 ^th percentile ranking within the Russell 2000	250%



* The actual number of Performance Shares that will be earned with respect to the 3-Year TSR and 3-Year EBITDA Growth performance measures is based on the Company’s percentile ranking within the Russell 2000 Index at the end of the Performance Period. The actual number of Performance Shares that will be earned with respect to the 3-Year ROIC performance measure is based on the Company’s performance compared to pre-established goals as determined by the Committee and set forth in the chart above. Each performance measure will be evaluated on a measure by measure basis, and once performance results are determined as to each individual performance measure, those results will be aggregated and the weighting applied. When assessing each performance measure, actual performance level achievement between each performance level will be interpolated on a straight line basis rounded down to the nearest whole number; provided that if the actual performance level achieved does not meet threshold performance (i.e., less than 33%) for the applicable performance measure, then no Performance Shares will be earned for that performance measure pursuant to this Grant. Threshold level performance may be achieved for one performance measure and not another based on the Company’s actual performance during the Performance Period. The actual number of Performance Shares earned will be determined by the Committee based on the actual performance level achieved with respect to each of the applicable Performance Goals, factoring in the weighting for each performance measure. The maximum number of Performance Shares that may be earned pursuant to this Grant is capped at 250% of the Target Award. 3-Year TSR represents the comparison between the Opening Average Share Value and the Closing Average Share Value, plus cumulative dividends during the Performance Period. At the end of the Performance Period, the TSR for the Company and each company in the Russell 2000 Index will be calculated by dividing the Closing Average Share Value by the Opening Share Value. For purposes of this Grant, the term “Closing Average Share Value” means the average closing value of the common stock, for the 20 trading days ending on the last day of the Performance Period (i.e., the 20 trading days ending on December 31, 20XX (the “20-day period”), which will be calculated as follows: (i) determine the closing price of the common stock on each trading date during the 20-day period, (ii) average the amounts so determined for the 20-day period; the term “Opening Average Share Value” means the average of the closing price of a share of common stock for the 20 trading days preceding the start of the Performance Period (i.e., January 1, 20XX). * 3-Year ROIC represents the ratio of the Company’s Net Income and the Company’s Total Average Invested Capital during the Performance Period. At the end of the Performance Period, the ROIC for the Company will be calculated for the Performance Period by dividing the Net Income during the Performance Period by Total Average Invested Capital during the Performance Period, and then divided by three. For purposes of this Grant, “Net Income” means the Company’s net income, adjusted for accounting changes and after-tax interest expense, and “Total Average Invested Capital” means the sum of the Company’s average total debt, stockholders equity and any non-controlling interest for the performance period computed on a four point basis. The 3-Year ROIC calculation is subject to the provisions as set forth below. ****3-Year EBITDA Growth represents Operating Income Before Depreciation and Amortization. EBITDA will be computed as EBITDA in Year 3 divided by EBITDA in the year preceding this award (i.e. 2017). The 3-Year EBITDA Growth calculation is subject to the provisions as set forth below. 3-Year ROIC and 3-Year EBITDA Growth shall be determined in accordance with generally accepted accounting principles (GAAP) and may include or exclude (or be adjusted to include or exclude) unusual or infrequently occurring items, extraordinary items, the impact of charges for restructurings or productivity initiatives, non-operating items, discontinued operations and other unusual and non-recurring items, the effects of currency fluctuations, the effects of financing activities (by way of example, without limitation, the effect on earnings per share of issuing convertible debt securities), the effects of acquisitions and acquisition expenses, the effects of divesture and divesture expenses, and the effects of tax or accounting changes. However, notwithstanding the preceding sentence, unless the Committee determines otherwise either at the time it establishes the Performance Goals for an award or prior to the payment of an award, if any of the items referenced in the preceding sentence occurs, then such item shall be automatically excluded or included in determining the extent to which the Performance Goal has been achieved, whichever will produce the higher award (subject to any exercise of “negative discretion” by the Committee).

EXHIBIT A

PERFORMANCE SHARE AWARD AGREEMENT

Under the provisions of the 2014 Barnes Group Inc. Stock and Incentive Award Plan, as may be amended from time to time, (the “Plan”), the Compensation and Management Development Committee of the Company’s Board of Directors (the “Committee”) has authorized the execution of this Agreement. Capitalized terms used in this Agreement and not otherwise defined herein will have the same meaning as provided for in the Plan or Summary of Grant, as applicable.

NOW, THEREFORE, in consideration of the agreements of each, and for other good and valuable consideration, the parties agree as follows:

1. Definitions .

(a) “Cause” means (i) Your willful and continued failure to substantially perform Your duties with the Company (other than any such failure resulting from the Your incapacity due to physical or mental illness) or (ii) Your willful engaging in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise.

(b) “Change in Control” has the meaning assigned to it in the Company’s form of Severance Agreement in effect as of February 4, 2014.

(c) “Disability” means “disability” as defined in the Company’s long-term disability plan as in effect from time to time (or, if that plan is not in effect at the time in question, as it was last in effect).

(d) “Good Reason” means, after any Change in Control, any one of the following acts by the Company, or failures by the Company to act, if You notify the Company that such act or failure to act has occurred within 90 days of the initial occurrence of such act or failure to act, and if such act or failure to act is not corrected within 30 days after You so notify the Company:

(i) the assignment to You of any duties materially inconsistent with Your position as an employee of the Company, or a material adverse alteration in the nature or status of Your responsibilities from those in effect immediately prior to a Change in Control;

(ii) a reduction by You in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, by five percent (5%) or more or by $20,000 or more; or

(iii) the relocation of Your principal place of employment to a location more than 50 miles from Your principal place of employment immediately prior to a Change in Control, provided that such relocation increases Your round trip commuting time by 25% or

more, or the Company's requiring You to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel time on the Company's business to an extent substantially consistent with Your present business travel obligations.

(e) “Retirement” means a Separation of Service initiated by You on or after Retirement Age under circumstances that do not constitute Cause.

(f) “Retirement Age” means age 55 or later with a minimum of 10 full years of service with the Company and/or its Subsidiaries.

(g) “Separation from Service” means a “separation from service with the employer” within the meaning of Treasury Regulation Section 1.409A-1(h), where the “employer” means the Company and all corporations and trades or businesses with which the Company would be considered a single employer under Section 414(b) or Section 414(c) of the Code (as determined in accordance with the first sentence of Treasury Regulation Section 1.409A-1(h)(3)).

2. Contingent Dividend Equivalents . You may be entitled to receive from the Company the cash payments described below, if (and only if) the Performance Shares are earned during the Performance Period pursuant to the Performance Share Award Summary of Grant. You understand and agree that, if the Company cancels the Performance Shares, the Dividend Equivalents that would have been payable if those Performance Shares had not been cancelled will automatically be cancelled, without action by the Company (other than its action cancelling those Performance Shares) and without the payment of any consideration to You, unless the Committee provides otherwise when those Performance Shares are cancelled or at a prior time.

3. Calculation of Dividend Equivalents . At the end of the Performance Period, or a prior date on which a portion of the Performance Shares have been earned pursuant to this Agreement, (the “End Date”) after the determination of the number of Performance Shares that have been earned, there will be calculated the dividends that were paid (other than a dividend paid in Common Stock, which is subject to the adjustment provided in Section 10 of the Plan) to the holders of Common Stock, the record date of which fell during the period commencing on the Grant Date and ending on the End Date (each a “Dividend Payment Date”). The Company will credit and pay to you, at the time specified in 5(a) below, an amount of money (“Dividend Equivalents”) determined by multiplying (a) the number of Performance Share Shares earned on the End Date (if any), times (b) the dividend per share paid on each Dividend Payment Date. However, if the dividend is paid in property other than cash, the amount of money to be paid to You in respect of such dividend will be determined by multiplying (i) the number of the Performance Shares (if any), times (ii) the fair market value on each Dividend Payment Date of the property that was paid per share of Common Stock as a dividend on such Dividend Payment Date. The fair market value of the property that was paid will be determined by the Committee in its sole and absolute discretion.

Any provision of this Agreement to the contrary notwithstanding, in no event (except on Death, Disability or a Change in Control as a result of which Performance Shares are deemed earned pursuant to this Agreement) will any payment be made pursuant to this Section unless the

Committee certifies in writing that the performance goals applicable to the related Performance Shares and any other material terms (within the meaning of Treasury Regulation section 1.162-27(e)(5)) applicable to such payment were in fact satisfied.

4. Vesting of Grant . The Performance Shares will be earned based on the actual performance level achieved with respect to the Performance Goals set forth on Schedule A of the Performance Share Award Summary of Grant and You remaining continuously employed by the Company through the third anniversary of the Grant Date.

5. Forfeiture or Earning of Performance Share Awards Prior to the End of the Performance Period .

(a) Notwithstanding the vesting schedule contained in the Performance Share Award Summary of Grant, the vesting schedule may change under one of the following conditions:

(i) Voluntary Termination or Termination for Cause . If You initiate a Separation from Service other than as a result of (A) death, (B) Disability, or (C) Retirement or if you have a Separation from Service initiated by the Company and/or its Subsidiaries for Cause, in each case, before the third anniversary of the Grant Date, then the Grant will terminate with respect to all Performance Shares, whether or not earned as of the date of the Separation from Service, and You will not be entitled to any distribution of shares for any Performance Shares.

(ii) All Other Separations of Service . If You have a Separation from Service (A) due to (x) death, (y) Disability, or (z) Retirement or (B) that is initiated by the Company and/or its Subsidiaries without Cause after the 1 year anniversary of the Grant Date but before the last day of the Performance Period, then on the last day of the Performance Period, the number of Performance Shares that will be deemed earned will equal the number of Performance Shares actually earned pursuant to the Grant, as determined at the end of the Performance Period, multiplied by a fraction equal to the total days worked from the beginning of the Performance Period to the date of the Separation from Service, divided by the total number of days in the Performance Period.

(iii) Change in Control . If You remain employed with the Company from the Grant Date to the date, if any, on which a Change in Control occurs before the last day of the Performance Period, except as otherwise provided in Your employment agreement, if applicable, the number of Performance Shares that will be deemed earned will equal the sum of (A) the number of Performance Shares subject to the award earned for each completed year (1/3 of the total number that would be earned for the full Performance Period based upon actual performance in the completed year(s)) of the Performance Period, if any, based on the achievement of the Performance Goals, plus (B) the target number of Performance Shares for each incomplete year of the Performance Period, if you are terminated (1) by the Company without Cause or (2) You terminate employment for Good Reason, in either case, if such termination occurs on or within 2 years following a Change in Control.

(b) Acceptance . All Performance Shares that are not earned in accordance with the terms of this Agreement and the Performance Share Award Summary of Grant will be forfeited. By electronically accepting this Grant, You irrevocably consent to any forfeiture of Performance Shares required or authorized by this Agreement.

6. Issuance of Shares .

(a) Except as otherwise provided below, a share of Common Stock will be issued to You in payment of each Performance Share that is deemed earned pursuant to the terms of this Agreement as soon as practicable in the year (but no later than August 1) following the year in which such Grant is deemed earned (which date during that period will be determined by the Company). In the event a distribution is due under Section 5(a)(ii) prior to the end of the Performance Period, the shares will be issued as soon as practicable following the date of the event giving rise to the payment, but no later than 60 days following the date of the event. In the event a distribution is due under Section 5(a)(iii) prior to the end of the Performance Period, the shares will be issued on the first day of the seventh month following the date of termination.

(b) Notwithstanding any provision of this Agreement to the contrary, (i) no “distributions” (within the meaning of Treasury Regulation Section 1.409A-1(c)(3)(v)) of deferred compensation that is subject to Section 409A of the Code may be made pursuant to this Agreement to a “specified employee” (within the meaning of Treasury Regulation Section 1.409A-1(i)) (“Specified Employee”) due to a Separation from Service before the date that is 6 months after the date of such Specified Employee’s Separation from Service (or, if earlier than the end of the 6 month period, the date of his death); and (ii) any distribution that, but for the preceding clause (i), would be made before the date that is 6 months after the date of the Specified Employee’s Separation from Service will be paid on the first day of the seventh month following the date of his Separation from Service (or, if earlier, within 14 days after the date of his death). For the avoidance of doubt, the preceding sentence will apply to any payment (and only to any payment) pursuant to this Agreement to which Code Section 409A(a)(2)(B)(i) (relating to Specified Employees) applies, and will not apply to any payment that is not subject to Code Section 409A as a result of Treasury Regulation Section 1.409A-1(b)(4) (relating to short-term deferrals) or otherwise. Your right to any series of payments pursuant to this Agreement will be treated as a right to a series of separate payments within the meaning of Treasury Regulation Section 1.409A-2(b)(2)(iii), including without limitation for purposes of the short-term deferral rule set forth in Treasury Regulation Section 1.409A-1(b)(4).

(c) In no event, except a Change in Control or a Grantee’s Separation from Service as a result of death or Disability, as a result of which Performance Shares are deemed earned pursuant to this Agreement, will any shares be issued in payment of Performance Shares unless the Committee certifies in writing that the performance goals and any other material terms (within the meaning of Treasury Regulation Section 1.162-27(e)(5)) were in fact satisfied with respect to such Performance Shares. Such certification will be final, conclusive and binding on You, and on all other persons, to the maximum extent permitted by law.

(d) The shares to be issued will be credited to a brokerage account established by the Company in Your name (or, in the event of Your death, in the name of Your Beneficiary)

in payment of such Performance Shares. All shares of Common Stock issued under this Agreement will be duly authorized, validly issued, fully paid and non-assessable.

7. Your Commitments; Recoupment .

(a) If You, at any time before the Grant terminates: (i) directly or indirectly, whether as an owner, partner, shareholder, consultant, agent, employee, investor or in any other capacity, accept employment by, render services for or otherwise assist any other business which competes with the business conducted by the Company or any of its Subsidiaries in which You worked during Your last 2 years with the Company or any of its Subsidiaries; (ii) directly or indirectly, hire or solicit or arrange for the hiring or solicitation of any employee of the Company or any of its Subsidiaries, or encourage any such employee to leave such employment; (iii) use, disclose, misappropriate or transfer confidential or proprietary information concerning the Company or any of its Subsidiaries (except as required by Your work responsibilities with the Company or any of its Subsidiaries); or (iv) are convicted of a crime against the Company or any of its Subsidiaries; or (v) engage in any activity in violation of the policies of the Company or any of its Subsidiaries, including without limitation the Company’s Code of Business Ethics and Conduct, or, at any time, engage in conduct adverse to the best interests of the Company or any of its Subsidiaries; then should any of the foregoing events occur, the Grant will be canceled, unless the Committee, in its sole discretion, elects not to cancel such Grant. The obligations in this Section are in addition to any other agreements related to non-competition, non-solicitation and preservation of Company confidential and proprietary information entered into between You and the Company, and nothing herein is intended to waive, modify, alter or amend the terms of any such other agreement.

(b) You agree that You will be subject to any compensation, clawback and recoupment policies that may be applicable to You, as in effect from time to time and as approved by the Board or the Committee, whether or not approved before or after the Grant Date.

8. Restrictions on Grant . In no event may (a) You sell, exchange, transfer, assign, pledge, hypothecate, mortgage or dispose of the Grant or any interest therein, nor (b) the Grant or any interest therein be subject to anticipation, attachment, garnishment, levy, encumbrance or charge of any nature, voluntary or involuntary, by operation of law or otherwise and any attempt to do so, whether voluntary or involuntary, will be null and void and no other party will obtain any rights to or interest in the Grant. You may designate a Beneficiary to receive the Grant in the event of Your death in accordance with Section 2(c) of the Plan. Any Beneficiary will receive the Grant subject to all of the terms, conditions and restrictions set forth in this Agreement, including but not limited to the forfeiture provisions set forth in this Agreement.

9. Taxes and Withholding . The Committee may cause to be made, as a condition precedent to any payment or transfer of stock hereunder, appropriate arrangements for the withholding of any Federal, state or local taxes. If applicable, the Company will have the right, in its discretion, to deduct from any Dividend Equivalents payable pursuant to this Agreement, and from any shares to be issued pursuant to this Agreement, cash and/or shares, valued at Fair Market Value on the date of payment, in an amount necessary to satisfy all Federal, state and

local taxes required by law to be withheld with respect to such Dividend Equivalents, cash and/or shares. You may be required to pay to the Company, prior to delivery of certificates representing such shares and prior to such shares being credited to a book entry account in Your name, the amount of any such taxes. The Company will accept whole shares of Common Stock of equivalent Fair Market Value in payment of the Company’s minimum statutory withholding tax obligations if You elect to make payment in shares.

10. Compliance with Law . The Company will make reasonable efforts to comply with all applicable federal and state securities laws. However, no shares or other securities will be issued pursuant to this Agreement if their issuance would result in a violation of any such law. If at any time the Committee determines, in its discretion, that the listing, registration or qualification of any shares subject to this Grant upon any securities exchange or under any state or Federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of this Grant or the issue of shares hereunder, no rights under the Grant may be exercised and shares of Common Stock may not be issued pursuant to the Grant, in whole or in part, unless such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Committee and any delay will in no way affect the dates of vesting or forfeiture of the Grant.

11. Amendments; Integrated Agreement . This Agreement may only be amended in a writing signed by You and an officer of the Company duly authorized to do so. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement and supersedes and replaces all prior agreements and understandings with respect to such subject matter, and the parties have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein.

12. Relation to Plan; Interpretation . The Grant is granted under the Plan, and the Grant and this Agreement are each subject to the terms and conditions of the Plan, which is incorporated in this Agreement by reference. In the event of any inconsistent provisions between this Agreement and the Plan, the provisions of the Plan control. References to Sections are to Sections of this Agreement unless otherwise noted. The titles to Sections of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any Section.

13. Notices . Any notice hereunder by You will be given to the Senior Vice President Human Resources and the Corporate Secretary in writing and such notice and any payment by You will be deemed duly given or made only upon receipt by the Corporate Secretary at Barnes Group Inc., 123 Main Street, Bristol, Connecticut 06010, U.S.A., or at such other address as the Company may designate by notice to You. Any notice to You will be in writing and will be deemed duly given if delivered to You in person or mailed or otherwise delivered to You at such address as You may have on file with the Company from time to time.

14. Interpretation and Disputes . This Agreement will be interpreted and construed, and all determinations will be made, by the Committee, and any such interpretation, construction or determination will be final, binding and conclusive on the Company and You. In the event

there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.

Any claim, demand or controversy arising from such interpretation, construction or determination by the Committee shall be submitted first to a mediator in accordance with the rules of the American Arbitration Association (“AAA”) by submitting a mediation request to the Administrator within 30 days of the date of the Committee’s interpretation or construction. The mediation process shall conclude upon the earlier of: (a) the resolution of the dispute; (b) a determination by either the mediator or one or more of the parties that all settlement possibilities have been exhausted and there is no possibility of resolution; or (c) 30 days have passed since the filing of a request to mediate with the AAA. A party who has previously submitted a dispute to mediation, and which dispute has not been resolved, may submit such dispute to binding arbitration pursuant to the rules of the AAA. Any arbitration proceeding for such dispute must be initiated within 14 days from the date that the mediation process has concluded. The prevailing party shall recover its costs and reasonable attorney’s fees incurred in such arbitration proceeding. You and the Company specifically understand and agree that the failure of a party to timely initiate a proceeding hereunder shall bar the party from any relief or other proceeding and any such dispute shall be deemed to have been finally and completely resolved. All mediation and arbitration proceedings shall be conducted in Bristol, Connecticut or such other location as the Company may determine and You agree that no objection shall be made to such jurisdiction or venue, as a forum non conveniens or otherwise. The arbitrator’s authority shall be limited to resolution of the legal disputes between the parties and the arbitrator shall not have authority to modify or amend this Agreement or the Committee’s interpretation or construction thereof, or abridge or enlarge rights available under applicable law. Any court with jurisdiction over the parties may enforce any award made hereunder.

15. General .

(a) Nothing in this Agreement confers upon You any right to continue in the employ or other service of the Company or any Subsidiary, or limit in any manner the right of the Company, its stockholders or any Subsidiary to terminate Your employment or adjust Your compensation.

(b) You have no rights as a stockholder with respect to any shares that may be issued pursuant to this Agreement until the date of issuance to You of a stock certificate for such shares or the date of a credit for such shares in a brokerage account in Your name.

(c) This Agreement is binding upon the successors and assigns of the Company and upon Your Beneficiary, estate, legal representatives, legatees and heirs.

(d) This Agreement is governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof.

(e) If applicable, any shares that may be earned pursuant to this Agreement are intended to qualify as “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code. Any provision of this Agreement that would prevent any such shares

from so qualifying will be administered, interpreted and construed to carry out such intention, and any provision that cannot be so administered, interpreted and construed will to that extent be disregarded.



Barnes GROUP INC	Patrick Dempsey President and CEO pjdempsey@BGInc.com	123 MAIN STREET Bristol, CT 06010-6307	T : 860 . 973 . 2121 F: 860.582.3228

November 29, 2017

Mr. Peter A. Gutermann

20 Hopmeadow Street, 11A

Weatogue, Connecticut 06089

Dear Peter:

We are pleased to offer you the position of Senior Vice President, General Counsel and Secretary, Barnes Group Inc. at an annual salary of $375,000 (paid monthly in advance), effective December 11, 2017, or your date of employment. In this position you will report to me and be headquartered in Bristol, Connecticut.

Effective January 1, 2018 (or the effective date of your employment, if later than 1 /1/ 2018, on a pro-rated basis), you will participate in the Performance-Linked Bonus Plan for Selected Executive Officers. Your target incentive under these plans is 45% of base salary, with a maximum payout of 135% of base salary. Your incentive payout will be based on 100% Barnes Corporate results. Corporate performance measures will be communicated in early 2018 once approved by the Compensation and Management Development Committee of the Board of Directors. Your total cash compensation package is $543,750 at target and $881,250 at maximum on an annualized basis. Payouts are subject to the provisions of the plan and are normally paid in late February of the year immediately following the plan year (i.e., payouts for the 2018 plan year are expected to be paid in late February , 2019). You must be employed on the date bonuses are paid to be eligible for a payout.

Effective on your date of employment, you will be awarded the following:

•

6,116 Stock Options, with an exercise price equal to the fair market value of Barnes Group's stock (as defined in the 2014 Barnes Group Inc. Stock and Incentive Award Plan) on your date of employment. These options will vest one-third each on the 18 ^th , 30 ^th , and 42 ^nd month anniversaries of the date of grant. Stock options are a speculative financial vehicle driven solely by stock price appreciation . Fair market value stock options have no intrinsic value absent such appreciation.


•	1,825 Time-vested Restricted Stock Units , with each unit having the equivalent value of one share of Barnes Group stock. The restrictions will lapse one-third each on the 18 ^th , 30 ^th , and 42 ^nd month anniversaries of the date of grant. You will receive dividends on these restricted stock units as such dividends are declared by the Company.



Barnes GROUP INC			Page -2 -

November 29, 2017

Peter A. Gutermann

•

3,042 Performance Share Awards, with each unit having the equivalent value of one share of Barnes Group stock. Performance share awards vest on the basis of the performance of Barnes Group over three years. One of the two performance measures, Total Shareholder Return (TSR) is measured on a relative basis against the Russell 2000 companies. The second measure, Return on Invested Capital (ROIC), is measured on an absolute basis against "pre-established targets" as set by the Compensation and Management Development Committee of the Board of Directors. Shares earned, if any, will be paid out upon vesting. Dividends will accrue on this performance share award and be paid in the same ratio as the underlying shares.

You will be eligible for annual long-term awards beginning with the 2019 grant cycle. Your

current target value for annual long-term compensation is $400,000. We currently expect these

awards to be in the form of stock options, restricted stock units, and performance share awards.

All awards are subject to the discretion of the Compensation and Management Development

Committee.

You will be expected to sign an agreement that provides that, in certain circumstances, you may

be subject to a "claw back" of any cash or equity awards earned if the Company restates its

financial results lower than those upon which awards were calculated (with the exception of

restatements not caused by misconduct or error) to comply with generally accepted accounting

principles.

Stock ownership guidelines have been established for our leadership team to ensure that

management's interests are aligned with our stockholders' interests. The guideline for your

position is three times your base salary. Ownership includes directly and beneficially owned

shares, stock retained following the distribution of vested restricted stock units and earned

performance share awards, exercises of stock options, stock unit holdings under the Barnes

Group Inc. Retirement Savings Plan (RSP), and stock owned through the Barnes Group Inc.

Employee Stock Purchase Plan (ESPP). In addition, two-thirds of the value of unvested

restricted stock units will be credited toward ownership guidelines. Shares granted by the

Company (100% of the after tax value of equity grants vesting, or options exercised) must be

retained until you have met your ownership guidelines. Once met, your multiple of salary

requirement converts into a "fixed" number of shares needed to meet that requirement. Going

forward, participants must maintain, at minimum, their "fixed" number of shares while employed

by the Company in an ownership designated position.

While there is no specific timeframe requirement for achieving the ownership requirement,

participants are expected to make steady progress and maintain ownership of any shares realized

through vesting of restricted stock units, performance share awards, and stock option exercises.

In addition to your annual salary and incentive compensation, Barnes Group Inc. offers a

comprehensive employee benefits package, including:



Barnes GROUP INC			Page -3-

November 29, 2017

Peter A. Gutermann


•	Medical and Prescription Drug Insurance (contributory on a pre-tax cost-sharing basis).


•	Dental Insurance (contributory on a pre-tax cost-sharing basis).


•	Vision Insurance (contributory).


•	Employee Stock Purchase Plan featuring a 5% discount off fair market value of Barnes Group Inc. stock, subject to statutory limits.


•	Retirement Savings 401(k) Plan with a Company matching contribution of 50% on the first 6% of your pre-tax contributions. The Plan offers a wide range of investment funds to choose from.


•	4% Retirement Contribution (Company funded based on eligible earnings) deposited annually into your Retirement Savings 401(k) Account.


•	4% Retirement Contribution to the Defined Contribution Retirement Benefit Equalization Plan (DC RBEP) for eligible compensation in excess of annual IRS limits ($265,000 for 2017), deposited annually into your Retirement Savings 401(k) Account.


•	Participation in the Company's Executive Group Term Life Insurance Plan (EGTLIP), effective on your date of employment. EGTLIP provides a death benefit equal to four times salary ($1,500,000). EGTLIP is an individual policy that you own and, as such, the policy is portable. Barnes Group Inc. pays the premium for as long as you remain with the Company.


•	Accidental Death and Dismemberment Insurance up to $100,000 (non-contributory).


•	Optional Employee Term Life Insurance of 1 to 6 times annual salary (contributory).


•	Optional Dependent Term Life Insurance of up to $250,000 for a spouse and up to $10,000 for each dependent child, as applicable (contributory).


•	Short-term Disability coverage, with a benefit of up to 26 weeks' salary continuation (non-contributory).


•	Long-term Disability coverage with a benefit of 50% of covered earnings (noncontributory).


•	Supplemental Long-term Disability coverage available in increments of 10% and 16 2/3% (contributory and subject to plan limits).


•	Business Travel Accident Insurance.


•	Education Assistance Program.



Barnes GROUP INC			Page -4-

November 29, 2017

Peter A. Gutermann

You will receive additional information regarding our benefit programs as part of our RedCarpet Onboarding system or by accessing the Benefits 360 website. Most coverage, subject to your enrollment, will become effective the first day of the month following your date of hire. Coverage under the Company's Short-term and Long-term Disability plans begin on the first day of the calendar month following the completion of 90 days' continuous service.

As an Officer of the Company, you are entitled to coverage for an annual executive physical and financial planning assistance. The executive physical benefit provides reimbursement for expenses associated with an annual physical examination with a provider of your choice. The financial planning benefit provides reimbursement for professional financial planning assistance, tax planning, and/or tax preparation services, up to a maximum of $8,000 (for the first year) and a maximum of $4,000 per year thereafter. There is no tax gross up associated with these benefits.

You will be entitled to four weeks of vacation annually (commencing in 2018) as well as eligible for a total of thirteen company-paid holidays (which includes 3 to 4 floating holidays annually).

All prospective Barnes Group employees are required to pass a urinalysis test for the presence of drugs and to undergo a standard physical examination to determine whether they are capable of performing (with or without reasonable accommodation) the essential functions of the job for which an offer is extended. This offer of employment is contingent upon your drug test, physical examination, background and reference checks yielding satisfactory results. Additionally, this offer is contingent on you completing the Officer Questionnaire and you being in compliance with the federal securities laws Barnes Group is required to comply with.

This letter sets forth our offer of employment and is not intended to create an expressed or implied contract of any kind, nor shall it be construed to constitute a promise or contract of lifetime or continuing employment. Your employment with Barnes Group Inc. is at will and may be terminated at any time, with or without cause, by either you or the Company. The terms of this offer supersede and take the place of any prior written or oral offers of employment. Barnes Group Inc. also has the right to change, interpret, withdraw, or add to any of the policies, benefits, terms or conditions of employment at any time. The terms and conditions of this letter may only be amended or modified in writing by me.

If you have any questions with regard to the above, please call Dawn Edwards, Senior Vice President, Human Resources, Barnes Group Inc., at (860) 973-2119.

Peter, I would appreciate your calling Dawn Edwards at the above number by December 4, 2017, with your decision. Please also sign, date, and return the enclosed duplicate copy of this letter to Dawn Edwards within three (3) business days of receipt to indicate your acceptance of this offer.



Barnes GROUP INC			Page -5-

November 29, 2017

Peter A. Gutermann

I look forward to your joining the Barnes Group executive team and contributing to the overall success, growth and profitability of the company .

Sincerely

/s/ Patrick J. Dempsey

Patrick J. Dempsey

President and Chief Executive Officer

Agreed to and accepted:

/s/ Peter A. Gutermann 12/4/2017

Peter A. Gutermann Date

EXHIBIT 21

BARNES GROUP INC.

CONSOLIDATED SUBSIDIARIES

as of December 31, 2017



Name	Jurisdiction of Incorporation
AS Monterrey, S.de R.L. de C.V.	Mexico
Associated Spring (Tianjin) Company, Ltd.	China
Associated Spring (UK) Ltd.	United Kingdom
Associated Spring Asia Pte. Ltd.	Singapore
Associated Spring Corporation	United States - Connecticut
Associated Spring do Brasil Ltda.	Brazil
Associated Spring Mexico, S. de R.L. de C.V.	Mexico
Associated Spring Raymond (Shanghai) Co., Ltd.	China
Associated Spring Raymond GmbH	Germany
Barnes Airmotive Malaysia SND BHD	Malaysia
Barnes Financing Delaware LLC	United States - Delaware
Barnes Group (Bermuda) Limited	Bermuda
Barnes Group (Delaware) LLC	United States - Delaware
Barnes Group (Germany) GmbH	Germany
Barnes Group (Scotland) Limited	Scotland
Barnes Group (Thailand) Ltd.	Thailand
Barnes Group (U.K.) 2 Limited	United Kingdom
Barnes Group (U.K.) Limited	United Kingdom
Barnes Group Acquisition GmbH	Germany
Barnes Group Canada Corp	Canada
Barnes Group Finance Company (Bermuda) Limited	Bermuda
Barnes Group Finance Company (Delaware)	United States - Delaware
Barnes Group Holding LLC	United States - Delaware
Barnes Group Inc.	United States - Alabama
Barnes Group Luxembourg (No. 1) S.à r.l.	Luxembourg
Barnes Group Luxembourg (No. 2) S.á r.l.	Luxembourg
Barnes Group Spain, S.R.L.	Spain
Barnes Group Suisse Industries GmbH	Switzerland
Barnes Group Switzerland GmbH	Switzerland
Barnes Industrial Group India Private Limited	India
Barnes Korea Ltd.	Korea
Blitz F16-34 GmbH	Germany
Curtiss Industries (U.K.) Limited	United Kingdom
Foboha (Germany) GmbH	Germany
Foboha (Switzerland) AG	Switzerland



Foboha Holding GmbH	Germany
Foboha US, Inc.	United States - Delaware
Gammaflux Controls, Inc.	United States - Connecticut
GF Controls GmbH	Germany
Heinz Hänggi GmbH, Stanztechnik	Switzerland
HPE S.p.A.	Italy
Manner Hong Kong Limited	Hong Kong
männer Japan Co. Ltd.	Japan
Manner USA, Inc.	United States - Georgia
Otto Männer GmbH	Germany
Otto Männer Immobilien GmbH	Germany
Otto Männer Innovation GmbH	Germany
Otto Männer Präzisionsformenbau AG, Schweiz	Switzerland
Priamus System Technologies GmbH	Switzerland
Priamus System Technologies GmbH	Germany
Priamus System Technologies LLC	United States - Ohio
Raymond Distribution-Mexico, S.A. de C.V.	Mexico
Resortes Argentina S.A.	Argentina
Ressorts SPEC SAS	France
Seeger-Orbis GmbH & Co. OHG	Germany
Strömsholmen AB	Sweden
Synventive Acquisition BV	Netherlands
Synventive Acquisition GmbH	Germany
Synventive Acquisition Inc.	United States - Delaware
Synventive Acquisition UK Ltd.	United Kingdom
Synventive Acquisition Unlimited	United Kingdom
Synventive BV	Netherlands
Synventive Fertigungstechnik GmbH	Germany
Synventive Holding BV	Netherlands
Synventive Holding Limited	United Kingdom
Synventive Holding SAS	France
Synventive Molding Solutions (Suzhou) Co., Ltd.	China
Synventive Molding Solutions BV	Netherlands
Synventive Molding Solutions Canada, Inc.	Canada
Synventive Molding Solutions Co., Ltd.	Hong Kong
Synventive Molding Solutions GmbH	Germany
Synventive Molding Solutions JBJ Private Limited	India
Synventive Molding Solutions K.K.	Japan
Synventive Molding Solutions LDA	Portugal
Synventive Molding Solutions Limited	United Kingdom
Synventive Molding Solutions LLC	United States - Delaware



Synventive Molding Solutions Ltda	Brazil
Synventive Molding Solutions Pte Ltd.	Singapore
Synventive Molding Solutions S.R.L.	Italy
Synventive Molding Solutions s.r.o.	Czech Republic
Synventive Molding Solutions SAS	France
Synventive Molding Solutions SL	Spain
Synventive Molding Solutions, Inc.	United States - Delaware
Synventive Parent Inc.	United States - Delaware
The Wallace Barnes Company	United States - Connecticut
Thermoplay Brasil Sistemas de Injecao Ltda	Brazil
Thermoplay Deutschland GmbH	Germany
Thermoplay France S.a.r.l.	France
Thermoplay Hot Runner Systems (Beijing) Co. Ltd	China
Thermoplay India Private Limited	India
Thermoplay Portugal Unipessoal Lda	Portugal
Thermoplay S.p.A.	Italy
Thermoplay U.K. Ltd.	United Kingdom
Windsor Airmotive Asia Pte. Ltd.	Singapore

The foregoing does not constitute a complete list of all subsidiaries of the registrant. The subsidiaries that have been omitted do not, if considered in the aggregate as a single subsidiary, constitute a “Significant Subsidiary” as defined by the Securities and Exchange Commission.

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-205952, 333-196013, 333-150741, and 333-133597) of Barnes Group Inc. of our report dated February 20, 2018 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Hartford, Connecticut

February 20, 2018

EXHIBIT 31.1

CERTIFICATION

I, Patrick J. Dempsey, certify that:


1.	I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of Barnes Group Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 20, 2018

/S/ PATRICK J. DEMPSEY

Patrick J. Dempsey

President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Christopher J. Stephens, Jr., certify that:


1.	I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of Barnes Group Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 20, 2018

/s/ C HRISTOPHER J. S TEPHENS, J R.

Christopher J. Stephens, Jr.

Chief Financial Officer

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Barnes Group Inc. (the “Company”) on Form 10-K for the period ending December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/S/ PATRICK J. DEMPSEY		/s/ CHRISTOPHER J. STEPHENS, JR.
Patrick J. Dempsey President and Chief Executive Officer		Christopher J. Stephens, Jr. Chief Financial Officer
February 20, 2018		February 20, 2018