BARNES GROUP INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2004
OR

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

For the transition period from to

Commission file number 1-4801

BARNES GROUP INC.
(Exact name of registrant as specified in its charter)


Delaware		06-0247840
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

123 Main Street, Bristol, Connecticut		06011-0489
(Address of Principal Executive Offices)		(Zip Code)

(860) 583-7070
Registrant's telephone number, including area code

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

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

The registrant had outstanding 23,104,562 shares of common stock as of May 4, 2004.

Barnes Group Inc.
Index to Form 10-Q
For the Quarterly Period Ended March 31, 2004

		Page
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Statements of Income for the three months ended March 31, 2004 and 2003	3
	Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003	5
	Notes to Consolidated Financial Statements	6-11
	Report of Independent Accountants	12

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-20

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	20

Item 4.	Controls and Procedures	21

Part II.	OTHER INFORMATION

Item 2.	Changes in Securities and Use of Proceeds	21

Item 6.	Exhibits and Reports on Form 8-K	21

	Signatures	22
	Exhibit Index	23

PART I. FINANICAL INFORMATION
Item 1. Financial Statements

BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)

	Three months ended
	March 31,

	2004			2003

Net sales	$		247,228	$		218,734

Cost of sales			162,060			142,230
Selling and administrative expenses			69,411			63,294


			231,471			205,524


Operating income			15,757			13,210

Other income			698			613

Interest expense			3,802			4,110
Other expenses			130			278


Income before income taxes			12,523			9,435

Income taxes			2,880			2,076


Net income	$		9,643	$		7,359


Per common share:
Net income:
Basic	$		.42	$		.38
Diluted			.40			.37
Dividends			.20			.20

Average common shares outstanding:
Basic		22,975,586			19,531,719
Diluted		23,877,153			19,894,312

See accompanying notes.

BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

			March 31,				December 31,
			2004				2003

Assets
Current assets
Cash and cash equivalents	$	32,274		$	49,788
Accounts receivable, less allowances (2004 - $3,045; 2003 - $3,188)		138,476			119,130
Inventories		112,979			109,780
Deferred income taxes		20,769			22,319
Prepaid expenses		14,974			11,083


Total current assets		319,472			312,100

Deferred income taxes		23,207			22,790

Property, plant and equipment		457,443			452,542
Less accumulated depreciation		(303,510	)		(298,454	)

		153,933			154,088

Goodwill		220,297			220,118
Other intangible assets, net		85,727			61,923
Other assets		57,957			59,801


Total assets	$	860,593		$	830,820


Liabilities and Stockholders' Equity
Current liabilities
Notes payable	$	---		$	10,000
Accounts payable		98,473			97,155
Accrued liabilities		71,716			78,520
Long-term debt - current		6,815			6,804


Total current liabilities		177,004			192,479

Long-term debt		251,528			224,213
Accrued retirement benefits		78,502			77,455
Other liabilities		27,567			14,934

Commitments and Contingencies (Note 11)

Stockholders' equity
Common stock - par value $0.01 per share
Authorized: 60,000,000 shares
Issued: 24,419,694 shares at par value		244			244
Additional paid-in capital		99,780			100,592
Treasury stock at cost (2004 - 1,336,044 shares; 2003 - 1,552,006 shares)		(31,493	)		(34,652	)
Retained earnings		274,888			270,030
Accumulated other non-owner changes to equity		(17,427	)		(14,475	)


Total stockholders' equity		325,992			321,739


Total liabilities and stockholders' equity	$	860,593		$	830,820

See accompanying notes.

BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

		Three months ended
		March 31,

		2004				2003

Operating activities:
Net income	$	9,643		$	7,359
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		8,543			8,532
Gain on disposition of property, plant and equipment		(215	)		(32	)
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable		(19,923	)		(15,986	)
Inventories		(3,595	)		506
Prepaid expenses		(4,060	)		(1,489	)
Accounts payable		6,305			4,869
Accrued liabilities		(6,092	)		1,373
Deferred income taxes		1,824			922
Long-term pension assets		(1,100	)		(698	)
Other		2,828			526


Net cash (used) provided by operating activities		(5,842	)		5,882

Investing activities:
Proceeds from disposition of property, plant and equipment		1,674			204
Capital expenditures		(8,478	)		(3,301	)
Business acquisitions, net of cash acquired		---			(61,167	)
Revenue sharing program payment		(15,000	)		---
Other		(119	)		(172	)


Net cash used by investing activities		(21,923	)		(64,436	)

Financing activities:
Net change in other borrowings		(12,484	)		2,852
Payments on long-term debt		(6,135	)		(137	)
Proceeds from the issuance of long-term debt		33,000			63,500
Proceeds from the issuance of common stock		1,740			440
Common stock repurchases		(47	)		(154	)
Dividends paid		(4,612	)		(3,983	)
Other		---			(915	)


Net cash provided by financing activities		11,462			61,603

Effect of exchange rate changes on cash flows		(1,211	)		657


(Decrease) increase in cash and cash equivalents		(17,514	)		3,706

Cash and cash equivalents at beginning of period		49,788			28,355


Cash and cash equivalents at end of period	$	32,274		$	32,061

Supplemental Disclosure of Cash Flow Information:
Non-cash financing and investing activities include the 2004 acquisition of a $25.0 million intangible asset and the recognition of the corresponding liability in connection with a revenue sharing program, and the 2003 issuance of $18.5 million of treasury stock in connection with the Kar acquisition.

See accompanying notes.

BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data.)

1. Summary of Significant Accounting Policies

The accompanying unaudited consolidated balance sheet as of March 31, 2004 and consolidated statements of income and cash flows for the three-month periods ended March 31, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. The balance sheet as of December 31, 2003 has been derived from the Barnes Group Inc.'s (the "Company's") 2003 financial statements. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included. Operatin g results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

	Three months ended March 31,

	2004			2003

Net income, as reported	$	9,643		$	7,359
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		520			472
Deduct: Stock-based employee compensation expense determined under fair value based-method for all awards, net of related tax effects		(1,530	)		(1,411	)

Pro forma net income	$	8,633		$	6,420


Earnings per share:
Basic - as reported	$	.42		$	.38
Basic - pro forma		.38			.33

Diluted - as reported		.40			.37
Diluted - pro forma		.35			.32

The average fair value of options granted in the three months ended March 31, 2004 and 2003 was $5.40 and $4.13, respectively. The fair value of each stock option on the date of grant was estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:

	2004			2003

Risk-free interest rate		2.39	%		2.33	%
Expected life (years)		3.6			3.8
Expected volatility		30	%		35	%
Expected dividend yield		3.00	%		3.52	%

2. Net Income Per Common Share

For the purpose of computing diluted earnings per share, the weighted-average number of shares outstanding was increased by 901,567 and 362,593 for the three-month periods ended March 31, 2004 and 2003, respectively, for the potential dilutive effects of stock-based incentive plans. As of March 31, 2004, there were 3,644,803 options for shares of common stock outstanding of which 3,200,497 were considered dilutive. There were no adjustments to net income for the purposes of computing income available to common stockholders for those periods.

3. Inventories

The components of inventories consisted of:

	March 31,		December 31,
	2004		2003

Finished goods	$	78,003