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
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
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
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
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.
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.
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.
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.
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.
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
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
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.
|
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.
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:
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:
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:
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:
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:
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
:
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
:
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:
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
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
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:
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.
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
:
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.
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.
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:
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
.