NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated balance sheet and the related unaudited consolidated statements of income, comprehensive income and cash flows have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The balance sheet as of December 31, 2019 has been derived from the 2019 financial statements of Barnes Group Inc. (the “Company”). For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair statement of the results, have been included. Operating results for the nine-month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
The outbreak and a continued spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and has caused weakened economic conditions, both in the United States and abroad. COVID-19 has had, and may continue to have, a significant negative impact on the Company's ongoing operations and the end markets in which it serves. The Company has assessed the impacts that COVID-19 has had on its accounting estimates, assumptions and disclosures.
2. Divestiture
On December 20, 2019, the Company entered into a Share Purchase and Transfer Agreement ("SPA") with the Kajo Neukirchen Group ("KNG") to sell the Seeger business, consisting of partnership interests and shares, respectively, of Seeger-Orbis GmbH & Co. OHG and Seeger-Orbis Mechanical Components (Tianjin) Co., Ltd. (“Seeger”) for 42,500 Euros, subject to certain adjustments. The Company classified the assets and liabilities of Seeger, which operated within the Industrial segment, as "held for sale" on the Consolidated Balance Sheet as of December 31, 2019. Pursuant to the required accounting guidance, the Company allocated $15,000 of goodwill from the Engineered Components reporting unit to Seeger based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. The Company subsequently recorded an impairment charge of $5,600 related to the goodwill that was allocated to Seeger. The impairment charge was recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the period ended December 31, 2019.
The Seeger assets and liabilities held for sale were comprised of the following as of December 31, 2019:
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Assets
|
|
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|
Accounts receivable, less allowance of $152
|
$
|
6,844
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|
|
|
Inventories
|
13,727
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|
|
|
Prepaid expenses and other current assets
|
802
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|
|
|
Current assets held for sale
|
21,373
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|
|
|
|
|
|
|
Property, plant and equipment, net
|
17,701
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|
|
|
Other intangible assets, net
|
590
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|
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Goodwill
|
9,400
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|
|
Other assets
|
354
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Non-current assets held for sale
|
28,045
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Liabilities
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Accounts payable
|
$
|
2,961
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|
|
Accrued liabilities
|
1,655
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|
Current liabilities held for sale
|
4,616
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|
Accrued retirement benefits
|
5,788
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Other liabilities
|
1,201
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|
Non-current liabilities held for sale
|
6,989
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|
The Company completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 39,634 Euros ($43,732). The Company yielded net cash proceeds of $36,879 after consideration of cash sold and transaction costs. The final amount of proceeds from the sale is subject to post-closing adjustments. Resulting tax charges of $4,211 were recognized in the first quarter of 2020 following the completion of the sale. Divestiture charges of $2,409 resulted from the completion of the sale and were recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the quarter ended March 31, 2020.
The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Facility. Pursuant to the SPA, 6,000 Euros of the proceeds were placed in escrow and will be released pro-ratably through 2024, pending any potential settlement of claims. Cash related to a pending claim would remain in escrow until a final determination of the claim has been made. The Company has recorded the restricted cash in other assets as of September 30, 2020.
3. Recent Accounting Standards
The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under U.S. GAAP through the use of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification. The Company evaluates the applicability and potential impacts of recent ASUs on its Consolidated Financial Statements and related disclosures.
Recently Adopted Accounting Standards
In February 2016, the FASB amended its guidance related to lease accounting. The amended guidance required lessees to recognize a majority of their leases on the balance sheet as a right-of-use ("ROU") asset and a lease liability. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted. The Company adopted the new standard using the modified retrospective approach on January 1, 2019. The most significant impact of the guidance was the recognition of ROU assets and related lease liabilities for operating leases on the Consolidated Balance Sheet. The Company recognized ROU assets and related lease liabilities of $31,724 and $32,579, respectively, related to operating lease commitments as of January 1, 2019. The amended guidance did not have a material impact on the Company's cash flows or results of operations.
In June 2016, the FASB amended its guidance related to credit losses on financial instruments. The amended guidance requires the use of a methodology of estimation that reflects expected credit losses on certain types of financial instruments, including trade receivables, as a replacement to the current methodology, which estimates losses based on incurred credit losses. This expected credit loss methodology requires that the Company consider a broader range of information when estimating credit losses on receivables. The amended guidance was effective for fiscal years, and interim periods within those years, beginning
after December 15, 2019. The Company adopted this amended guidance and applicable FASB updates related to the guidance during the first quarter of 2020 and it did not have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB amended its guidance related to goodwill impairment testing. The amended guidance simplified the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under the amended guidance, companies should perform their annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. The amended guidance was effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company elected to early adopt this amended guidance during the second quarter of 2018 in connection with its annual goodwill impairment testing and it did not have an impact on the Company's Consolidated Financial Statements.
In August 2017, the FASB amended its guidance related to hedge accounting. The amended guidance made more financial and nonfinancial hedging strategies eligible for hedge accounting, amended presentation and disclosure requirements and changed the assessment of effectiveness. The guidance also more closely aligned hedge accounting with management strategies, simplified application and increased the transparency of hedging. The amended guidance was effective January 1, 2019, with early adoption permitted in any interim period. The Company adopted the amended guidance on January 1, 2019 and it did not have a material impact on the Company's Consolidated Financial Statements, however it did result in amendments to certain disclosures required pursuant to the earlier guidance. See Note 10 of the Company's Consolidated Financial Statements.
In August 2018, the FASB issued new guidance related to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (for example, a service contract). Pursuant to the new guidance, customers apply the same criteria for capitalizing implementation costs in a hosting arrangement as they would for an arrangement that has a software license. The new guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period for which financial statements have not been issued. The FASB provided the option of applying the guidance retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company elected to early adopt this guidance, prospectively, during the third quarter of 2018, and it did not have a material impact on the Consolidated Financial Statements.
Recently Issued Accounting Standards
In August 2018, the FASB amended its guidance related to disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amended requirements serve to remove, add and otherwise clarify certain existing disclosures. The amended guidance is effective for fiscal years ending after December 15, 2020. The guidance requires application on a retrospective basis to all periods presented. The adoption of this amended guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
In December 2019, the FASB amended its guidance related to income taxes. The amended guidance simplifies the accounting for income taxes, eliminating certain exceptions to the general income tax principles, in an effort to reduce the cost and complexity of application. The amended guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. Early adoption is permitted in any interim or annual period. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The adoption of this amended guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2020, in response to this transition, the FASB issued guidance that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships and other transactions that reference LIBOR, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. The guidance is effective as of March 12, 2020 through December 31, 2022. Once elected, the guidance must be applied prospectively for all eligible contract modifications. The Company’s Amended Credit Agreement and corresponding interest rate swap are tied to LIBOR, with both maturing in early 2022 (see Note 9). The Company is evaluating the potential impact of the replacement of LIBOR, but does not anticipate a material impact on our business, financial condition, results of operations or cash flows.
4. Revenue
The Company is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare and packaging.
Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, and the significant risks and rewards of ownership have transferred, and the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting guidance. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed.
The following table presents the Company's revenue disaggregated by products and services, and geographic regions, by segment:
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Three Months Ended
September 30, 2020
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Nine Months Ended
September 30, 2020
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|
|
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Industrial
|
|
Aerospace
|
|
Total Company
|
|
Industrial
|
|
Aerospace
|
|
Total Company
|
Products and Services
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Components Products
|
$
|
41,746
|
|
|
$
|
—
|
|
|
$
|
41,746
|
|
|
$
|
115,414
|
|
|
$
|
—
|
|
|
$
|
115,414
|
|
Molding Solutions Products
|
103,684
|
|
|
—
|
|
|
103,684
|
|
|
294,869
|
|
|
—
|
|
|
294,869
|
|
Force & Motion Control Products
|
37,813
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|
|
—
|
|
|
37,813
|
|
|
112,250
|
|
|
—
|
|
|
112,250
|
|
Automation Products
|
13,668
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|
|
—
|
|
|
13,668
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|
|
38,506
|
|
|
—
|
|
|
38,506
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|
Aerospace Original Equipment Manufacturer Products
|
—
|
|
|
52,023
|
|
|
52,023
|
|
|
—
|
|
|
178,346
|
|
|
178,346
|
|
Aerospace Aftermarket Products and Services
|
—
|
|
|
20,125
|
|
|
20,125
|
|
|
—
|
|
|
95,881
|
|
|
95,881
|
|
|
$
|
196,911
|
|
|
$
|
72,148
|
|
|
$
|
269,059
|
|
|
$
|
561,039
|
|
|
$
|
274,227
|
|
|
$
|
835,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Regions (A)
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
73,677
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|
|
$
|
56,740
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|
|
$
|
130,417
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|
|
$
|
208,232
|
|
|
$
|
196,945
|
|
|
$
|
405,177
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|
Europe
|
80,470
|
|
|
10,139
|
|
|
90,609
|
|
|
230,685
|
|
|
49,742
|
|
|
280,427
|
|
Asia
|
41,255
|
|
|
4,704
|
|
|
45,959
|
|
|
118,511
|
|
|
23,937
|
|
|
142,448
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|
Rest of World
|
1,509
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|
|
565
|
|
|
2,074
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|
|
3,611
|
|
|
3,603
|
|
|
7,214
|
|
|
$
|
196,911
|
|
|
$
|
72,148
|
|
|
$
|
269,059
|
|
|
$
|
561,039
|
|
|
$
|
274,227
|
|
|
$
|
835,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2019
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|
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Nine Months Ended
September 30, 2019
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|
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Industrial
|
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Aerospace
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|
Total Company
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Industrial
|
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Aerospace
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Total Company
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Products and Services
|
|
|
|
|
|
|
|
|
|
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Engineered Components Products
|
$
|
63,069
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|
|
$
|
—
|
|
|
$
|
63,069
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|
|
$
|
198,291
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|
|
$
|
—
|
|
|
$
|
198,291
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Molding Solutions Products
|
110,546
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|
|
—
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|
|
110,546
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|
|
323,242
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|
|
—
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|
|
323,242
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Force & Motion Control Products
|
45,676
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|
|
—
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|
|
45,676
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|
|
144,746
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|
|
—
|
|
|
144,746
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Automation Products
|
12,397
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|
|
—
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|
|
12,397
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|
|
41,315
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|
|
—
|
|
|
41,315
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Aerospace Original Equipment Manufacturer Products
|
—
|
|
|
92,885
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|
|
92,885
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|
|
—
|
|
|
274,708
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|
|
274,708
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Aerospace Aftermarket Products and Services
|
—
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|
|
48,014
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|
|
48,014
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|
|
—
|
|
|
138,645
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|
|
138,645
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|
|
$
|
231,688
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|
|
$
|
140,899
|
|
|
$
|
372,587
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|
|
$
|
707,594
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|
|
$
|
413,353
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|
|
$
|
1,120,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Regions (A)
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|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
93,086
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|
|
$
|
100,949
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|
|
$
|
194,035
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|
|
$
|
278,520
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|
|
$
|
299,220
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|
|
$
|
577,740
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Europe
|
77,308
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|
|
25,534
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|
|
102,842
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|
|
261,388
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|
|
73,248
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|
|
334,636
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|
Asia
|
60,433
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|
|
13,444
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|
|
73,877
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|
|
164,844
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|
|
38,051
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|
|
202,895
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|
Rest of World
|
861
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|
|
972
|
|
|
1,833
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|
|
2,842
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|
|
2,834
|
|
|
5,676
|
|
|
$
|
231,688
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|
|
$
|
140,899
|
|
|
$
|
372,587
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|
|
$
|
707,594
|
|
|
$
|
413,353
|
|
|
$
|
1,120,947
|
|
(A) Sales by geographic region are based on the location to which the product is shipped.
Revenue from products and services transferred to customers at a point in time accounted for approximately 90 percent and 85 percent of total revenue for the three and nine month periods ended September 30, 2020, respectively, and approximately 90 percent of revenue for the three and nine month periods ended September 30, 2019. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Aftermarket business, is recognized at a point in time, primarily when the product or solution is shipped to the customer.
Revenue from products and services transferred to customers over time accounted for approximately 10 percent and 15 percent of total revenue for the three and nine month periods ended September 30, 2020, respectively, and approximately 10 percent of revenue for the three and nine month periods ended September 30, 2019. The Company recognizes revenue over time in instances where a contract supports a continual transfer of control to the customer. Substantially all of our revenue in the Aerospace maintenance repair and overhaul business and a portion of the Engineered Components products, Molding Solutions products and Aerospace OEM products is recognized over time. Within the Molding Solutions and Aerospace Aftermarket businesses, this continual transfer of control to the customer results from repair and refurbishment work performed on customer-controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract where we deliver products that do not have an alternative use and require an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.
The majority of our revenues are from contracts that are for less than one year, however certain Aerospace OEM and Molding Solutions business contracts extend beyond one year. In the Industrial segment, customers are typically OEMs or suppliers to OEMs and, in some businesses, distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and military parts and service providers.
A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. Revenue is recognized in an over time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts.
Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary in the period they become known. Revenue recognized from performance obligations satisfied in previous periods was not material in both the three and nine months ended September 30, 2020 and 2019.
Contract Balances. The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.
Unbilled Receivables (Contract Assets) - Pursuant to the over time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within prepaid expenses and other current assets on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.
Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions business, for example, may require such advances. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within accrued liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are generally received less than one year before the customer solution is completed. These assets and liabilities are reported on the Consolidated Balance Sheets on an individual contract basis at the end of each reporting period.
Net contract liabilities consisted of the following:
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
$ Change
|
|
% Change
|
Unbilled receivables (contract assets)
|
$
|
36,201
|
|
|
$
|
22,444
|
|
|
$
|
13,757
|
|
|
61
|
%
|
Contract liabilities
|
(45,499)
|
|
|
(55,076)
|
|
|
9,577
|
|
|
(17)
|
%
|
Net contract liabilities
|
$
|
(9,298)
|
|
|
$
|
(32,632)
|
|
|
$
|
23,334
|
|
|
(72)
|
%
|
Contract liabilities balances at September 30, 2020 and December 31, 2019 include $12,536 and $16,971, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, includes corresponding balances at September 30, 2020 and December 31, 2019, respectively.
Changes in the net contract liabilities balance during the nine-month period ended September 30, 2020 were impacted by a $9,577 decrease in contract liabilities, driven primarily by revenue recognized in the current period, partially offset by new customer advances and deposits. Adding to this net contract liability decrease was a $13,757 increase in contract assets, driven primarily by contract progress (i.e. unbilled receivable), partially offset by earlier contract progress being invoiced to the customer.
The Company recognized approximately 25% and 75% of the revenue related to the contract liability balance as of December 31, 2019 during the three and nine months ended September 30, 2020, respectively, and approximately 15% and 70% of the revenue related to the contract liability balance as of December 31, 2018 during the three and nine months ended September 30, 2019, respectively, primarily representing revenue from the sale of molds and hot runners within the Molding Solutions business.
Remaining Performance Obligations. The Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed and, for Aerospace, excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to accounting guidance. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $170,388. The Company expects to recognize revenue on approximately 75% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months.
5. Stockholders' Equity
A schedule of consolidated changes in equity for the nine months ended September 30, 2020 is as follows (shares in thousands):
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Common
Stock
(Number of
Shares)
|
|
Common
Stock
(Amount)
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
(Number of
Shares)
|
|
Treasury
Stock (Amount)
|
|
Retained
Earnings
|
|
Accumulated
Other
Non-Owner
Changes to
Equity
|
|
Total
Stockholders’
Equity
|
December 31, 2019
|
|
63,873
|
|
|
$
|
639
|
|
|
$
|
489,282
|
|
|
13,051
|
|
|
$
|
(498,074)
|
|
|
$
|
1,489,176
|
|
|
$
|
(210,495)
|
|
|
$
|
1,270,528
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,733
|
|
|
(34,189)
|
|
|
(4,456)
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,133)
|
|
|
—
|
|
|
(8,133)
|
|
Common stock repurchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
396
|
|
|
(15,550)
|
|
|
—
|
|
|
—
|
|
|
(15,550)
|
|
Employee stock plans
|
|
17
|
|
|
—
|
|
|
2,743
|
|
|
2
|
|
|
(84)
|
|
|
(88)
|
|
|
—
|
|
|
2,571
|
|
March 31, 2020
|
|
63,890
|
|
|
$
|
639
|
|
|
$
|
492,025
|
|
|
13,449
|
|
|
$
|
(513,708)
|
|
|
$
|
1,510,688
|
|
|
$
|
(244,684)
|
|
|
$
|
1,244,960
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
567
|
|
|
17,044
|
|
|
17,611
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,072)
|
|
|
—
|
|
|
(8,072)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
14
|
|
|
—
|
|
|
3,394
|
|
|
1
|
|
|
(53)
|
|
|
(134)
|
|
|
—
|
|
|
3,207
|
|
June 30, 2020
|
|
63,904
|
|
|
$
|
639
|
|
|
$
|
495,419
|
|
|
13,450
|
|
|
$
|
(513,761)
|
|
|
$
|
1,503,049
|
|
|
$
|
(227,640)
|
|
|
$
|
1,257,706
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,358
|
|
|
42,139
|
|
|
57,497
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,097)
|
|
|
—
|
|
|
(8,097)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
237
|
|
|
2
|
|
|
3,601
|
|
|
76
|
|
|
(3,039)
|
|
|
(14)
|
|
|
—
|
|
|
550
|
|
September 30, 2020
|
|
64,141
|
|
|
$
|
641
|
|
|
$
|
499,020
|
|
|
13,526
|
|
|
$
|
(516,800)
|
|
|
$
|
1,510,296
|
|
|
$
|
(185,501)
|
|
|
$
|
1,307,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A schedule of consolidated changes in equity for the nine months ended September 30, 2019 is as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
(Number of
Shares)
|
|
Common
Stock
(Amount)
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
(Number of
Shares)
|
|
Treasury
Stock (Amount)
|
|
Retained
Earnings
|
|
Accumulated
Other
Non-Owner
Changes to
Equity
|
|
Total
Stockholders’
Equity
|
December 31, 2018
|
|
63,367
|
|
|
$
|
634
|
|
|
$
|
470,818
|
|
|
12,034
|
|
|
$
|
(441,668)
|
|
|
$
|
1,363,772
|
|
|
$
|
(190,500)
|
|
|
$
|
1,203,056
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,992
|
|
|
(8,178)
|
|
|
25,814
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,217)
|
|
|
—
|
|
|
(8,217)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
51
|
|
|
—
|
|
|
4,039
|
|
|
1
|
|
|
(80)
|
|
|
(109)
|
|
|
—
|
|
|
3,850
|
|
March 31, 2019
|
|
63,418
|
|
|
$
|
634
|
|
|
$
|
474,857
|
|
|
12,035
|
|
|
$
|
(441,748)
|
|
|
$
|
1,389,438
|
|
|
$
|
(198,678)
|
|
|
$
|
1,224,503
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,616
|
|
|
4,698
|
|
|
42,314
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,086)
|
|
|
—
|
|
|
(8,086)
|
|
Common stock repurchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
900
|
|
|
(50,347)
|
|
|
—
|
|
|
—
|
|
|
(50,347)
|
|
Employee stock plans
|
|
18
|
|
|
—
|
|
|
3,285
|
|
|
2
|
|
|
(106)
|
|
|
(178)
|
|
|
—
|
|
|
3,001
|
|
June 30, 2019
|
|
63,436
|
|
|
$
|
634
|
|
|
$
|
478,142
|
|
|
12,937
|
|
|
$
|
(492,201)
|
|
|
$
|
1,418,790
|
|
|
$
|
(193,980)
|
|
|
$
|
1,211,385
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,769
|
|
|
(37,345)
|
|
|
8,424
|
|
Dividends declared ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,111)
|
|
|
—
|
|
|
(8,111)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
321
|
|
|
4
|
|
|
4,713
|
|
|
112
|
|
|
(5,727)
|
|
|
10
|
|
|
—
|
|
|
(1,000)
|
|
September 30, 2019
|
|
63,757
|
|
|
$
|
638
|
|
|
$
|
482,855
|
|
|
13,049
|
|
|
$
|
(497,928)
|
|
|
$
|
1,456,458
|
|
|
$
|
(231,325)
|
|
|
$
|
1,210,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Net Income Per Common Share
For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding is increased for the potential dilutive effects of stock-based incentive plans. For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding was increased by 103,936 and 304,324 for the three-month periods ended September 30, 2020 and 2019, respectively, and by 236,930 and 441,773 for the nine-month periods ended September 30, 2020 and 2019, respectively, to account for the potential dilutive effect of stock-based incentive plans. There were no adjustments to net income for the purposes of computing income available to common stockholders for the periods.
The calculation of weighted-average diluted shares outstanding excludes all shares that would have been anti-dilutive. During the three-month periods ended September 30, 2020 and 2019, the Company excluded 525,738 and 257,979 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive. During the nine-month periods ended September 30, 2020 and 2019, the Company excluded 488,401 and 295,043 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive.
The Company granted 102,500 stock options, 79,994 restricted stock unit awards and 81,283 performance share awards ("PSAs") in February 2020 as part of its annual long-term incentive equity grant awards. All of the stock options and the restricted stock unit awards vest upon meeting certain service conditions. The restricted stock unit awards are included in basic weighted-average common shares outstanding as they contain nonforfeitable rights to dividend payments. The PSAs are part of the long-term Performance Share Award Program and are based on performance goals that are driven by a combination of independently measured metrics (depending on the grant year) with each metric being weighted equally. The metrics for awards granted in 2020 include the Company’s total shareholder return (“TSR”), return on invested capital (“ROIC”) and operating income before depreciation and amortization growth ("EBITDA growth"). The TSR and EBITDA growth metrics are designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index over a three-year performance period. ROIC is designed to assess the Company's performance compared to pre-established Company targets over a three-year performance period. The participants can earn from zero to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. The fair value of the TSR is determined using a Monte Carlo valuation method as the award contains a market condition.
7. Inventories
The components of inventories consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Finished goods
|
$
|
82,175
|
|
|
$
|
69,594
|
|
Work-in-process
|
84,310
|
|
|
88,196
|
|
Raw material and supplies
|
79,483
|
|
|
74,916
|
|
|
$
|
245,968
|
|
|
$
|
232,706
|
|
8. Goodwill and Other Intangible Assets
Goodwill:
The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company as of and for the period ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Aerospace
|
|
|
|
Total Company
|
December 31, 2019
|
$
|
902,236
|
|
|
$
|
30,786
|
|
|
|
|
$
|
933,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
36,233
|
|
|
—
|
|
|
|
|
36,233
|
|
September 30, 2020
|
$
|
938,469
|
|
|
$
|
30,786
|
|
|
|
|
$
|
969,255
|
|
In the second quarter of 2020, management performed its annual impairment testing of goodwill and determined that there was no goodwill impairment.
Other Intangible Assets:
Other intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Range of
Life -Years
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Gross Amount
|
|
Accumulated Amortization
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
Revenue Sharing Programs (RSPs)
|
Up to 30
|
|
$
|
299,500
|
|
|
$
|
(141,821)
|
|
|
$
|
299,500
|
|
|
$
|
(135,466)
|
|
Component Repair Programs (CRPs)
|
Up to 30
|
|
111,839
|
|
|
(30,097)
|
|
|
111,839
|
|
|
(27,270)
|
|
Customer relationships
|
10-16
|
|
338,366
|
|
|
(113,662)
|
|
|
338,366
|
|
|
(98,953)
|
|
Patents and technology
|
4-11
|
|
123,433
|
|
|
(75,006)
|
|
|
123,433
|
|
|
(68,188)
|
|
Trademarks/trade names
|
10-30
|
|
10,949
|
|
|
(10,323)
|
|
|
10,949
|
|
|
(10,145)
|
|
Other
|
Up to 15
|
|
10,746
|
|
|
(4,449)
|
|
|
10,746
|
|
|
(4,014)
|
|
|
|
|
894,833
|
|
|
(375,358)
|
|
|
894,833
|
|
|
(344,036)
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
55,670
|
|
|
—
|
|
|
55,670
|
|
|
—
|
|
Foreign currency translation
|
|
|
(14,679)
|
|
|
—
|
|
|
(25,351)
|
|
|
—
|
|
Other intangible assets
|
|
|
$
|
935,824
|
|
|
$
|
(375,358)
|
|
|
$
|
925,152
|
|
|
$
|
(344,036)
|
|
Estimated amortization of intangible assets for future periods is as follows: 2020 (remainder) - $9,000; 2021 - $42,000; 2022- $41,000; 2023 - $41,000, 2024 - $40,000 and 2025- $39,000.
In the second quarter of 2020, management performed its annual impairment testing of its trade names, which represent indefinite-lived intangible assets. Based on this assessment, there were no impairments.
9. Debt
Long-term debt and notes and overdrafts payable at September 30, 2020 and December 31, 2019 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Revolving credit agreement
|
$
|
597,102
|
|
|
$
|
602,054
|
|
|
$
|
720,379
|
|
|
$
|
737,816
|
|
3.97% Senior Notes
|
100,000
|
|
|
110,656
|
|
|
100,000
|
|
|
104,151
|
|
Borrowings under lines of credit and overdrafts
|
14,490
|
|
|
14,490
|
|
|
7,724
|
|
|
7,724
|
|
Finance leases
|
5,842
|
|
|
5,998
|
|
|
6,266
|
|
|
6,515
|
|
Other foreign bank borrowings
|
289
|
|
|
289
|
|
|
406
|
|
|
410
|
|
|
717,723
|
|
|
733,487
|
|
|
834,775
|
|
|
856,616
|
|
Less current maturities
|
(16,310)
|
|
|
|
|
(9,758)
|
|
|
|
Long-term debt
|
$
|
701,413
|
|
|
|
|
$
|
825,017
|
|
|
|
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 increased 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 previous 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, British pound sterling or Swiss franc borrowing, up to $600,000. In September 2018, the Company and one of its wholly owned subsidiaries entered into a Sale and Purchase Agreement to acquire Gimatic. In conjunction with the acquisition, the Company requested additional borrowings of $150,000 that was provided for under the existing accordion feature. The Administrative Agent for the lenders approved the Company's access to the accordion feature and on October 19, 2018 the lenders formally committed the capital to fund such feature, resulting in the execution of the fifth amendment to the Amended Credit Agreement (the "Fifth Amendment"). The Fifth Amendment, effective October 19,
2018, thereby increased the borrowing availability of the existing facility to $1,000,000. The Company may also request access to the residual $200,000 of the accordion feature. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Amended Credit Agreement will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate, as defined in the Amended Credit Agreement, plus a margin of 0.10% to 0.70%. Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.10% and 1.70%.
Borrowings and availability under the Amended Credit Agreement were $597,102 and $402,898, respectively, at September 30, 2020 and $720,379 and $279,621, respectively, at December 31, 2019, subject to covenants in the Company's revolving debt agreements. The borrowing capacity under the Amended Credit Agreement was limited by the Senior Debt Ratio (defined below) to $126,285 as of September 30, 2020. The average interest rate on these borrowings was 1.22% and 1.76% on September 30, 2020 and December 31, 2019, respectively. Borrowings included Euro-denominated borrowings of 359,450 Euros ($422,102) at September 30, 2020 and 504,690 Euros ($565,379) at December 31, 2019. The fair value of the borrowings is based on observable Level 2 inputs. The borrowings were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings. In 2019, the Company borrowed 44,100 Euros ($49,506) 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.
In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100,000 aggregate principal amount of 3.97% Senior Notes due October 17, 2024 (the “3.97% Senior Notes”).
The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The fair value of the 3.97% Senior Notes was determined using the U.S. Treasury yield and a long-term credit spread for similar types of borrowings, which represent Level 2 observable inputs.
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 ("Total Debt Ratio") and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, in each case at the end of each fiscal quarter; provided that the debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. A permitted acquisition is defined as an acquisition exceeding $150,000, for which the acquisition of Gimatic on October 31, 2018 qualified. With the completion of a permitted acquisition, the Senior Debt Ratio cannot exceed 3.50 times and the Total Debt Ratio cannot exceed 4.25 times. The increased ratios were allowed for a period of four fiscal quarters subsequent to the close of the permitted acquisition and therefore expired in the fourth quarter of 2019.
On October 8, 2020, the Company entered into the sixth amendment to the Amended Credit Agreement with Bank of America (the “Sixth Amendment”) and the first amendment to the Note Purchase Agreement with New York Life (the “First NPA Amendment”). The Sixth Amendment and the First NPA Amendment provided for an increase in the Company’s maximum ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, from 3.25 times (or, if a certain permitted acquisition above $150,000 is consummated, 3.50 times) to 3.75 times in each case at the end of the four fiscal quarters, beginning with December 31, 2020. Additionally, the Sixth Amendment requires the Company to maintain a maximum ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, of not more than 3.75 times in each case, at the end of the four fiscal quarters, beginning with December 31, 2020 and regardless of whether a permitted acquisition, as defined, is consummated. Furthermore, the First NPA Amendment provides for (i) adjustments to the ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, as defined, to conform to a more restrictive total leverage ratio that may be required under the Amended Credit Agreement, (ii) an increase in the amount of allowable add-back for restructuring charges when calculating Consolidated EBITDA from $15,000 to $25,000 and (iii) a required fee payment equal to 0.50% per annum times the daily outstanding principal amount of the note during each of the four fiscal quarters, following the quarter ended December 31, 2020, if the Company’s Senior Leverage Ratio, as defined, exceeds 3.25 times. In October 2020, the Company paid fees and expenses of $1,384 in conjunction with executing the Amendments; such fees will be deferred within Other Assets on the accompanying Consolidated Balance Sheet and amortized into interest expense on the Consolidated Statements of Income
through their expiration. The increased ratios related to the close of a permitted acquisition have been suspended during the four fiscal quarters in which the Amendments are in effect. At September 30, 2020, the Company was in compliance with all covenants under the Agreements. The Company currently anticipates that it will maintain compliance with all of its covenants in the next four quarters while continuing to monitor its future compliance based on current and future economic conditions.
In addition, the Company has approximately $82,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. The Credit Lines are accessed locally and are available primarily within the U.S., Europe and Asia. The Credit Lines are subject to the applicable borrowing rates within each respective country and vary between jurisdictions (i.e. LIBOR, Euribor, etc.). Under the Credit Lines, $14,300 was borrowed at September 30, 2020 at an average interest rate of 1.10% and $7,700 was borrowed at December 31, 2019 at an average interest rate of 2.38%. The Company had also borrowed $190 and $24 under the overdraft facilities at September 30, 2020 and December 31, 2019, respectively. Repayments under the Credit Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.
The Company also has several finance leases under which $5,842 and $6,266 was outstanding at September 30, 2020 and December 31, 2019, respectively. The fair value of the finance leases are based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
At September 30, 2020 and December 31, 2019, the Company also had other foreign bank borrowings of $289 and $406, respectively. The fair value of the other foreign bank borrowings was based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
10. Derivatives
The Company has manufacturing and sales facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.
Financial instruments have been used by the Company to hedge its exposure to fluctuations in interest rates. The Company entered into an interest rate swap agreement (the "Swap") on April 28, 2017, with one bank, which converts the interest on the first $100,000 of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The Swap expires on January 31, 2022 and is accounted for as a cash flow hedge.
The Company also uses financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The Company has various contracts outstanding which primarily hedge recognized assets or liabilities and anticipated transactions in various currencies including the Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen, Singapore dollar, Korean won, Swedish kroner, Chinese renminbi, Mexican peso, Hong Kong dollar and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within two years.
The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures. Changes in the fair market value of derivatives that qualify as cash flow hedges are recorded to accumulated other non-owner changes to equity. Amounts recorded to accumulated other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Amounts related to contracts that are not designated as hedges are recorded directly to earnings.
The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. Other financing cash flows during the first nine months of 2020 and 2019, as presented on the Consolidated Statements of Cash Flows, include $1,880 and $12,593, respectively, of net cash payments 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
Derivative Liabilities
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
September 30, 2020
|
December 31, 2019
|
|
Balance Sheet Location
|
September 30, 2020
|
December 31, 2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate contracts
|
Other assets
|
$
|
—
|
|
$
|
—
|
|
|
Other liabilities
|
$
|
(2,425)
|
|
$
|
(820)
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
235
|
|
700
|
|
|
Accrued liabilities
|
—
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
235
|
|
700
|
|
|
|
(2,425)
|
|
(820)
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
405
|
|
1,375
|
|
|
Accrued liabilities
|
(221)
|
|
(1)
|
|
Total derivatives not designated as hedging instruments
|
|
405
|
|
1,375
|
|
|
|
(221)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
640
|
|
$
|
2,075
|
|
|
|
$
|
(2,646)
|
|
$
|
(821)
|
|
The following table sets forth the effect of hedge accounting on accumulated other comprehensive (loss) income for the three and nine-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative
|
|
|
|
|
|
|
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Derivatives in Hedging Relationships
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
344
|
|
|
$
|
(178)
|
|
|
$
|
(1,223)
|
|
|
$
|
(1,846)
|
|
Interest expense
|
$
|
(449)
|
|
|
$
|
86
|
|
|
$
|
(866)
|
|
|
$
|
367
|
|
Foreign exchange contracts
|
(265)
|
|
|
10
|
|
|
(224)
|
|
|
(114)
|
|
Net sales
|
237
|
|
|
(199)
|
|
|
(213)
|
|
|
(788)
|
|
Total
|
$
|
79
|
|
|
$
|
(168)
|
|
|
$
|
(1,447)
|
|
|
$
|
(1,960)
|
|
|
$
|
(212)
|
|
|
$
|
(113)
|
|
|
$
|
(1,079)
|
|
|
$
|
(421)
|
|
The following table sets forth the effect of hedge accounting on the Consolidated Statements of Income for the three-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
Net sales
|
|
Interest expense
|
|
Net sales
|
|
Interest expense
|
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of hedges are recorded
|
$
|
269,059
|
|
|
$
|
3,701
|
|
|
$
|
372,587
|
|
|
$
|
5,344
|
|
The effects of hedging:
|
|
|
|
|
|
|
|
Gain (Loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
(449)
|
|
|
|
|
86
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
|
237
|
|
|
|
|
(199)
|
|
|
|
The following table sets forth the effect of hedge accounting on the consolidated statements of income for the nine-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
Net sales
|
|
Interest expense
|
|
Net sales
|
|
Interest expense
|
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of hedges are recorded
|
$
|
835,266
|
|
|
$
|
11,924
|
|
|
$
|
1,120,947
|
|
|
$
|
15,856
|
|
The effects of hedging:
|
|
|
|
|
|
|
|
Gain (Loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from accumulated other comprehensive income (loss) into income
|
|
|
(866)
|
|
|
|
|
367
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from accumulated other comprehensive income (loss) into income
|
(213)
|
|
|
|
|
(788)
|
|
|
|
The following table sets forth the effect of derivatives not designated as hedging instruments on the consolidated statements of income for the three and nine-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
Amount of Gain (Loss) Recognized in Income on
Derivative(A)
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign exchange contracts
|
Other expense (income), net
|
$
|
3,079
|
|
|
$
|
(11,662)
|
|
|
$
|
(2,743)
|
|
|
$
|
(15,182)
|
|
(A) 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.
11. Fair Value Measurements
The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 Unobservable inputs for the asset or liability.
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
September 30, 2020
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
$
|
640
|
|
|
$
|
—
|
|
|
$
|
640
|
|
|
$
|
—
|
|
Liability derivatives
|
|
(2,646)
|
|
|
—
|
|
|
(2,646)
|
|
|
—
|
|
Bank acceptances
|
|
13,427
|
|
|
—
|
|
|
13,427
|
|
|
—
|
|
Rabbi trust assets
|
|
2,889
|
|
|
2,889
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
14,310
|
|
|
$
|
2,889
|
|
|
$
|
11,421
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
$
|
2,075
|
|
|
$
|
—
|
|
|
$
|
2,075
|
|
|
$
|
—
|
|
Liability derivatives
|
|
(821)
|
|
|
—
|
|
|
(821)
|
|
|
—
|
|
Bank acceptances
|
|
14,460
|
|
|
—
|
|
|
14,460
|
|
|
—
|
|
Rabbi trust assets
|
|
2,947
|
|
|
2,947
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
18,661
|
|
|
$
|
2,947
|
|
|
$
|
15,714
|
|
|
$
|
—
|
|
The derivative contracts are valued using observable current market information as of the reporting date such as the prevailing LIBOR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial instruments accepted from certain China-based customers in lieu of cash paid on receivables, generally range from three to six 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.
12. Pension and Other Postretirement Benefits
Pension and other postretirement benefits expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Pensions
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
1,620
|
|
|
$
|
1,356
|
|
|
$
|
4,704
|
|
|
$
|
4,064
|
|
Interest cost
|
3,815
|
|
|
4,539
|
|
|
11,438
|
|
|
13,647
|
|
Expected return on plan assets
|
(7,594)
|
|
|
(7,389)
|
|
|
(22,391)
|
|
|
(21,816)
|
|
Amortization of prior service cost
|
128
|
|
|
101
|
|
|
281
|
|
|
302
|
|
Amortization of actuarial losses
|
3,502
|
|
|
2,215
|
|
|
10,148
|
|
|
6,658
|
|
Curtailment loss
|
—
|
|
|
—
|
|
|
484
|
|
|
—
|
|
Settlement loss
|
—
|
|
|
93
|
|
|
—
|
|
|
340
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
1,471
|
|
|
$
|
915
|
|
|
$
|
4,664
|
|
|
$
|
3,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Other Postretirement Benefits
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
Service cost
|
$
|
20
|
|
|
$
|
18
|
|
|
|
$
|
61
|
|
|
$
|
53
|
|
Interest cost
|
259
|
|
|
335
|
|
|
|
780
|
|
|
1,008
|
|
Amortization of prior service cost
|
6
|
|
|
6
|
|
|
|
20
|
|
|
19
|
|
Amortization of actuarial losses
|
9
|
|
|
3
|
|
|
|
27
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
294
|
|
|
$
|
362
|
|
|
|
$
|
888
|
|
|
$
|
1,090
|
|
The service cost component of net periodic benefit cost is included within cost of sales and selling and administrative expenses. The components of net periodic benefit cost other than the service cost component are included in Other Income (Expense) on the Consolidated Statements of Income. The curtailment loss of $484 relates to the restructuring actions that were taken during the second quarter of 2020. See Note 17.
13. Income Taxes
The Company's effective tax rate for the first nine months of 2020 was 40.0% compared with 23.4% in the first nine months of 2019 and 23.4% for the full year 2019. The increase in the first nine months of 2020 effective tax rate from the full year 2019 rate is primarily due to a decrease in projected earnings in jurisdictions with lower rates, the recognition of tax expense related to the completed sale of the Seeger business during the first quarter of 2020, the impact of the global intangible low-taxed income tax on foreign earnings in the U.S. (despite lower U.S. income) and excess tax charges related to stock awards. The impact of these items was partially offset by a benefit related to a refund of withholding taxes that were previously paid and included in tax expense in prior years and a reduction of the statutory tax rate at one of our international operations, both of which were recognized in the first quarter of 2020.
The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore and China. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted a multi-year income tax holiday for operations recently established in Malaysia. The Company expected the holiday to begin in the third quarter of 2020, however, due to the impact of COVID-19, the start date of the holiday has been delayed. Discussions are currently being held regarding the effective start date of the holiday, with a likelihood that the holiday will be deferred until 2022. Once the start date is established, the holiday is scheduled to remain effective for ten years. The Industrial Segment has a holiday in China, for which it currently receives benefit, that is scheduled to expire at the end of 2020. The Company plans to re-apply for the holiday, but does not expect notification of potential approval until the latter half of 2021.
14. Changes in Accumulated Other Comprehensive Income (Loss) by Component
The following tables set forth the changes in accumulated other comprehensive income (loss), net of tax, by component for the nine-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
Total
|
January 1, 2020
|
$
|
(115)
|
|
|
$
|
(144,047)
|
|
|
$
|
(66,333)
|
|
|
$
|
(210,495)
|
|
Other comprehensive (loss) income before reclassifications
|
(2,305)
|
|
|
(5,733)
|
|
|
23,774
|
|
|
15,736
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
858
|
|
|
8,400
|
|
|
—
|
|
|
9,258
|
|
Net current-period other comprehensive (loss) income
|
(1,447)
|
|
|
2,667
|
|
|
23,774
|
|
|
24,994
|
|
September 30, 2020
|
$
|
(1,562)
|
|
|
$
|
(141,380)
|
|
|
$
|
(42,559)
|
|
|
$
|
(185,501)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefit Items
|
|
Foreign Currency Items
|
|
Total
|
January 1, 2019
|
$
|
834
|
|
|
$
|
(138,690)
|
|
|
$
|
(52,644)
|
|
|
$
|
(190,500)
|
|
Other comprehensive loss before reclassifications
|
(2,300)
|
|
|
(18)
|
|
|
(44,513)
|
|
|
(46,831)
|
|
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income
|
340
|
|
|
5,666
|
|
|
—
|
|
|
6,006
|
|
Net current-period other comprehensive (loss) income
|
(1,960)
|
|
|
5,648
|
|
|
(44,513)
|
|
|
(40,825)
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
$
|
(1,126)
|
|
|
$
|
(133,042)
|
|
|
$
|
(97,157)
|
|
|
$
|
(231,325)
|
|
The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) by component for the three-month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Affected Line Item in the Consolidated Statements of Income
|
|
|
Three Months Ended
September 30, 2020
|
|
Three Months Ended
September 30, 2019
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(449)
|
|
|
$
|
86
|
|
|
Interest expense
|
Foreign exchange contracts
|
|
237
|
|
|
(199)
|
|
|
Net sales
|
|
|
(212)
|
|
|
(113)
|
|
|
Total before tax
|
|
|
85
|
|
|
19
|
|
|
Tax benefit
|
|
|
(127)
|
|
|
(94)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Pension and other postretirement benefit items
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
$
|
(134)
|
|
|
$
|
(107)
|
|
|
(A)
|
Amortization of actuarial losses
|
|
(3,511)
|
|
|
(2,218)
|
|
|
(A)
|
|
|
|
|
|
|
|
Settlement loss
|
|
—
|
|
|
(93)
|
|
|
(A)
|
|
|
(3,645)
|
|
|
(2,418)
|
|
|
Total before tax
|
|
|
844
|
|
|
554
|
|
|
Tax benefit
|
|
|
(2,801)
|
|
|
(1,864)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications in the period
|
|
$
|
(2,928)
|
|
|
$
|
(1,958)
|
|
|
|
The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) by component for the nine month periods ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Affected Line Item in the Consolidated Statements of Income
|
|
|
Nine Months Ended
September 30, 2020
|
|
Nine Months Ended
September 30, 2019
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(866)
|
|
|
$
|
367
|
|
|
Interest expense
|
Foreign exchange contracts
|
|
(213)
|
|
|
(788)
|
|
|
Net sales
|
|
|
(1,079)
|
|
|
(421)
|
|
|
Total before tax
|
|
|
221
|
|
|
81
|
|
|
Tax benefit
|
|
|
(858)
|
|
|
(340)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Pension and other postretirement benefit items
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
$
|
(301)
|
|
|
$
|
(321)
|
|
|
(A)
|
Amortization of actuarial losses
|
|
(10,175)
|
|
|
(6,668)
|
|
|
(A)
|
Curtailment loss
|
|
(484)
|
|
|
—
|
|
|
(A)
|
Settlement loss
|
|
—
|
|
|
(340)
|
|
|
(A)
|
|
|
(10,960)
|
|
|
(7,329)
|
|
|
Total before tax
|
|
|
2,560
|
|
|
1,663
|
|
|
Tax benefit
|
|
|
(8,400)
|
|
|
(5,666)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications in the period
|
|
$
|
(9,258)
|
|
|
$
|
(6,006)
|
|
|
|
(A) These accumulated other comprehensive income (loss) components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 12.
15. Information on Business Segments
The Company is organized based upon the nature of its products and services and reports under two global business segments: Industrial and Aerospace. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company has not aggregated operating segments for purposes of identifying these two reportable segments.
Industrial is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as transportation, industrial equipment, automation, personal care, packaging, electronics, and medical devices. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions business designs and manufactures customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. The Force & Motion Control business provides innovative cost effective force and motion control solutions for a wide range of metal forming and other industrial markets. The Automation business designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components for intelligent robotic handling solutions and industrial automation applications. Industrial's Engineered Components business manufactures and supplies precision mechanical products used in transportation and industrial applications, including mechanical springs, and high-precision punched and fine-blanked components.
Aerospace's original equipment manufacturing ("OEM") business is a global manufacturer of complex fabricated and precision-machined components and assemblies for turbine engines, nacelles and structures for both commercial and military aircraft. The
Aerospace aftermarket business provides aircraft engine component MRO services, including services performed under our Component Repair Programs (“CRPs”), for many of the world’s major turbine engine manufacturers, commercial airlines and the 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.
The following tables set forth information about the Company's operations by its two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net sales
|
|
|
|
|
|
|
|
Industrial
|
$
|
196,916
|
|
|
$
|
231,688
|
|
|
$
|
561,047
|
|
|
$
|
707,594
|
|
Aerospace
|
72,148
|
|
|
140,899
|
|
|
274,227
|
|
|
413,353
|
|
Intersegment sales
|
(5)
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
Total net sales
|
$
|
269,059
|
|
|
$
|
372,587
|
|
|
$
|
835,266
|
|
|
$
|
1,120,947
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
Industrial
|
$
|
24,438
|
|
|
$
|
34,836
|
|
|
$
|
42,063
|
|
|
$
|
83,785
|
|
Aerospace
|
6,805
|
|
|
32,749
|
|
|
48,609
|
|
|
91,407
|
|
Total operating profit
|
31,243
|
|
|
67,585
|
|
|
90,672
|
|
|
175,192
|
|
Interest expense
|
3,701
|
|
|
5,344
|
|
|
11,924
|
|
|
15,856
|
|
Other expense (income), net
|
47
|
|
|
2,524
|
|
|
2,700
|
|
|
6,043
|
|
Income before income taxes
|
$
|
27,495
|
|
|
$
|
59,717
|
|
|
$
|
76,048
|
|
|
$
|
153,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
Industrial
|
$
|
1,834,736
|
|
|
$
|
1,879,258
|
|
Aerospace
|
631,765
|
|
|
704,318
|
|
Other (A)
|
143,615
|
|
|
154,759
|
|
Total assets
|
$
|
2,610,116
|
|
|
$
|
2,738,335
|
|
(A) "Other" assets include corporate-controlled assets, the majority of which are cash and cash equivalents and deferred tax assets.
16. Commitments and Contingencies
Product Warranties
The Company provides product warranties in connection with the sale of certain products. From time to time, the Company is subject to customer claims with respect to product warranties. The Company accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, historical experience and other related information known to the Company. Liabilities related to product warranties and extended warranties were not material as of September 30, 2020 and December 31, 2019.
Litigation
The Company is subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending involving the Company and its subsidiaries. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with the Company's beliefs, the Company expects that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on financial condition or results of operations.
17. Business Reorganization
In June 2020, the Company announced restructuring and workforce reduction actions ("actions") to be implemented across its businesses and functions in response to the macroeconomic disruption in global industrial and aerospace end markets arising from COVID-19. A resulting pre-tax charge of $18,493 was recorded through the third quarter of 2020, primarily related to employee severance and other termination benefits, with the amounts expected to be paid by the end of 2021. These actions are expected to be substantially completed in 2020 and reduce the Company’s global workforce by approximately 8%. A corresponding liability of $15,119, per below, was included within accrued liabilities as of September 30, 2020. The Company expects to incur additional costs of approximately $2,000 through the first half of 2021 related to these actions. The employee termination costs are recorded primarily within Selling and Administrative Expenses in the accompanying Consolidated Statements of Income. Of the aggregate charges recorded, $2,243 is reflected within the results of the Aerospace segment, $15,766 is reflected within the results of the Industrial segment and $484, a pension curtailment loss, is included in Other expense (income), net.
The following table sets forth the change in the liability related to these actions:
|
|
|
|
|
|
December 31, 2019
|
$
|
—
|
|
Employee severance and other termination benefits
|
17,614
|
|
Payments
|
(2,495)
|
|
September 30, 2020
|
$
|
15,119
|
|
_________________________________________________________________________________________
With respect to the unaudited consolidated financial information of Barnes Group Inc. for the three months period ended September 30, 2020 and 2019, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 26, 2020 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited consolidated financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.