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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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
Connecticut06010
(Address of Principal Executive Offices) (Zip Code)
(860) 583-7070
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share B New York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.   
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
                   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YesNo

The registrant had outstanding 50,653,088 shares of common stock as of April 28, 2021.
1


Barnes Group Inc.
Index to Form 10-Q
For the Quarterly Period Ended March 31, 2021
 
 Page
Part I.FINANCIAL INFORMATION
  
Item 1.
 
 
 
 
 
  
Item 2.
  
Item 3.
  
Item 4.
  
Part II.OTHER INFORMATION
Item 1.
Item 2.
  
Item 6.
  
 
 


This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “FORWARD-LOOKING STATEMENTS” under Part I - Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

2


PART I. FINANCIAL 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,
20212020
Net sales$301,629 $330,671 
 
Cost of sales194,696 208,248 
Selling and administrative expenses74,553 73,110 
 269,249 281,358 
Operating income32,380 49,313 
 
Interest expense3,942 4,324 
Other expense (income), net1,463 1,594 
Income before income taxes26,975 43,395 
Income taxes7,593 13,662 
Net income$19,382 $29,733 
 
Per common share:
Basic$0.38 $0.58 
Diluted0.38 0.58 
Weighted average common shares outstanding:
Basic50,933,666 51,061,132 
Diluted51,087,688 51,501,857 

See accompanying notes.

3


BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Net income$19,382 $29,733 
Other comprehensive loss, net of tax
Unrealized loss on hedging activities, net of tax (1)
(652)(2,337)
Foreign currency translation adjustments, net of tax (2)
(47,882)(36,333)
Defined benefit pension and other postretirement benefits, net of tax (3)
3,632 4,481 
Total other comprehensive loss, net of tax(44,902)(34,189)
Total comprehensive loss$(25,520)$(4,456)

(1) Net of tax of $(184) and $(823) for the three months ended March 31, 2021 and 2020, respectively.

(2) Net of tax of $0 and $(66) for the three months ended March 31, 2021 and 2020, respectively.

(3) Net of tax of $1,069 and $810 for the three months ended March 31, 2021 and 2020, respectively.

See accompanying notes.
4


BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
March 31, 2021December 31, 2020
Assets
Current assets  
Cash and cash equivalents$84,900 $79,145 
Accounts receivable, less allowances (2021 - $6,394; 2020 - $6,348)
252,548 251,460 
Inventories233,465 238,008 
Prepaid expenses and other current assets77,490 73,732 
Total current assets648,403 642,345 
 
Deferred income taxes21,653 22,092 
Property, plant and equipment896,096 910,378 
Less accumulated depreciation(539,824)(539,431)
356,272 370,947 
Goodwill971,851 1,011,580 
Other intangible assets, net541,148 564,132 
Other assets60,937 65,130 
Total assets$2,600,264 $2,676,226 
 
Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable$7,507 $2,115 
Accounts payable118,756 112,428 
Accrued liabilities169,277 178,560 
Long-term debt - current2,051 2,276 
Total current liabilities297,591 295,379 
 
Long-term debt664,015 699,868 
Accrued retirement benefits94,066 98,171 
Deferred income taxes88,117 91,668 
Long-term tax liability59,063 59,063 
Other liabilities46,045 49,400 
 
Commitments and contingencies (Note 16)
Stockholders' equity
Common stock - par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2021 - 64,183,161 shares; 2020 - 64,171,321 shares)
642 642 
Additional paid-in capital503,937 501,531 
Treasury stock, at cost (2021 - 13,531,343 shares; 2020 - 13,530,074 shares)
(517,060)(516,992)
Retained earnings1,531,065 1,519,811 
Accumulated other non-owner changes to equity(167,217)(122,315)
Total stockholders' equity1,351,367 1,382,677 
Total liabilities and stockholders' equity$2,600,264 $2,676,226 

See accompanying notes.
5


BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Operating activities:  
Net income$19,382 $29,733 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization21,992 23,617 
Gain on disposition of property, plant and equipment(50)(123)
Stock compensation expense2,306 2,552 
Seeger divestiture charges 6,620 
Changes in assets and liabilities, net of the effects of divestitures:
Accounts receivable(7,590)9,592 
Inventories78 (12,788)
Prepaid expenses and other current assets(4,882)(3,227)
Accounts payable9,121 1,328 
Accrued liabilities(6,456)(7,885)
Deferred income taxes(101)462 
Long-term retirement benefits(569)(3,518)
Other2,381 826 
Net cash provided by operating activities35,612 47,189 
Investing activities:
Proceeds from disposition of property, plant and equipment83 185 
Proceeds from the sale of businesses, net of cash sold 36,879 
Capital expenditures(7,855)(11,912)
Other3,758  
Net cash (used) provided by investing activities(4,014)25,152 
Financing activities:
Net change in other borrowings5,354 20,775 
Payments on long-term debt(30,933)(108,521)
Proceeds from the issuance of long-term debt15,000 75,000 
Proceeds from the issuance of common stock125 183 
Common stock repurchases (15,550)
Dividends paid(8,104)(8,133)
Withholding taxes paid on stock issuances(68)(84)
Other(5,816)(7,252)
Net cash used by financing activities(24,442)(43,582)
Effect of exchange rate changes on cash flows(2,331)(3,111)
Increase in cash, cash equivalents and restricted cash4,825 25,648 
Cash, cash equivalents and restricted cash at beginning of period91,468 93,805 
Cash, cash equivalents and restricted cash at end of period96,293 119,453 
Less: Restricted cash, included in Prepaid expenses and other current assets(6,198) 
Less: Restricted cash, included in Other assets(5,195)(6,626)
Cash and cash equivalents at end of period$84,900 $112,827 


See accompanying notes.
6


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

1. Basis of Presentation

The accompanying unaudited consolidated balance sheet and the related unaudited consolidated statements of income, comprehensive income and cash flows have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The balance sheet as of December 31, 2020 has been derived from the 2020 financial statements of Barnes Group Inc. (the “Company”). For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair statement of the results, have been included. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

The COVID-19 pandemic ("COVID-19") has resulted in a disruption in business activities worldwide and has caused weakened economic conditions, both in the United States and abroad. COVID-19 has had, and may continue to have, a significant negative impact on the Company's ongoing operations and the end markets in which it serves. The Company has assessed the impacts that COVID-19 has had on its accounting estimates, assumptions and disclosures.

2. Divestiture

On December 20, 2019, the Company entered into a Share Purchase and Transfer Agreement ("SPA") with the Kajo Neukirchen Group ("KNG") to sell the Seeger business, consisting of partnership interests and shares, respectively, of Seeger-Orbis GmbH & Co. OHG and Seeger-Orbis Mechanical Components (Tianjin) Co., Ltd. (“Seeger”) for 42,500 Euros, subject to certain adjustments. The Company completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 38,964 Euros ($42,915) after consideration of post-closing adjustments, which were made during the fourth quarter of 2020, pursuant to the terms of the SPA. The Company yielded net cash proceeds of $36,062 after consideration of cash sold and transaction costs. Resulting tax charges of $4,211 were recognized in the first quarter of 2020 following the completion of the sale. Divestiture charges of $2,409 resulted from the completion of the sale and were recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the quarter ended March 31, 2020.

The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Agreement. Pursuant to the SPA, 6,000 Euros of the proceeds were placed in escrow and will be released through 2024, pending any potential settlement of claims. Cash related to a pending claim would remain in escrow until a final determination of the claim has been made. The Company has recorded the restricted cash in Prepaid Expenses and Other Current Assets and Other Assets (non-current) as of March 31, 2021.

3. Recent Accounting Standards

The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under U.S. GAAP through the use of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification. The Company evaluates the applicability and potential impacts of recent ASUs on its Consolidated Financial Statements and related disclosures.

Recently Adopted Accounting Standards

In June 2016, the FASB amended its guidance related to credit losses on financial instruments. The amended guidance requires the use of a methodology of estimation that reflects expected credit losses on certain types of financial instruments, including trade receivables, as a replacement to the current methodology, which estimates losses based on incurred credit losses. This expected credit loss methodology requires that the Company consider a broader range of information when estimating credit losses on receivables. The amended guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted this amended guidance and applicable FASB updates related to the guidance during the first quarter of 2020 and it did not have a material impact on the Company's Consolidated Financial Statements.


7




In December 2019, the FASB amended its guidance related to income taxes. The amended guidance simplifies the accounting for income taxes, eliminating certain exceptions to the general income tax principles, in an effort to reduce the cost and complexity of application. The amended guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. Early adoption is permitted in any interim or annual period. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The Company has adopted this guidance, on a prospective basis, on January 1, 2021 and it did not have a material impact on the Company's Consolidated Financial Statements.

Recently Issued Accounting Standards

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2020, in response to this transition, the FASB issued guidance related to this rate reform, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. In January 2021, the FASB issued further clarifying guidance regarding derivatives, as it relates to this transition. The guidance is effective through December 31, 2022. The Company’s Amended Credit Agreement (Note 9) and corresponding interest rate Swaps (Note 11) are tied to LIBOR, with each maturing in February 2026. The Company is continuing to monitor the potential impact of the replacement of LIBOR, but does not anticipate a material impact on our business, financial condition, results of operations or cash flows.

4. Revenue

The Company is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare and packaging.

Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, and the significant risks and rewards of ownership have transferred, and the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of the Company's businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting guidance. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed.

8


The following table presents the Company's revenue disaggregated by products and services, and geographic regions, by segment:
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
IndustrialAerospaceTotal CompanyIndustrialAerospaceTotal Company
Products and Services
Engineered Components Products$48,286 $ $48,286 $47,707 $ $47,707 
Molding Solutions Products108,547  108,547 97,406  97,406 
Force & Motion Control Products45,657  45,657 39,791  39,791 
Automation Products17,497  17,497 14,196  14,196 
Aerospace Original Equipment Manufacturer Products 55,528 55,528  81,706 81,706 
Aerospace Aftermarket Products and Services 26,114 26,114  49,865 49,865 
$219,987 $81,642 $301,629 $199,100 $131,571 $330,671 
Geographic Regions (A)
Americas$82,895 $59,009 $141,904 $80,644 $92,578 $173,222 
Europe88,674 14,151 102,825 81,864 25,163 107,027 
Asia46,760 7,647 54,407 35,493 11,696 47,189 
Rest of World1,658 835 2,493 1,099 2,134 3,233 
$219,987 $81,642 $301,629 $199,100 $131,571 $330,671 

(A) Sales by geographic region are based on the location to which the product is shipped.

Revenue from products and services transferred to customers at a point in time accounted for approximately 80 percent and 85 percent of total revenue for the three-month periods ended March 31, 2021 and 2020, respectively. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Aftermarket business, is recognized at a point in time, primarily when the product or solution is shipped to the customer.

Revenue from products and services transferred to customers over-time accounted for approximately 20 percent and 15 percent of total revenue for the three-month periods ended March 31, 2021, and 2020, respectively. The Company recognizes revenue over-time in instances where a contract supports a continual transfer of control to the customer. Substantially all of our revenue in the Aerospace maintenance repair and overhaul business (within Aftermarket Products and Services) and a portion of the Engineered Components products, Molding Solutions products and Aerospace OEM products is recognized over-time. Within the Molding Solutions and Aerospace Aftermarket businesses, this continual transfer of control to the customer results from repair and refurbishment work performed on customer-controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract, or governing commercial law for the relevant jurisdiction, where we deliver products that do not have an alternative use and require an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.

The majority of our revenues are from contracts that are for less than one year, however certain Aerospace OEM and Molding Solutions business contracts extend beyond one year. In the Industrial segment, customers are typically OEMs or suppliers to OEMs and, in some businesses, distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and defense-related parts and service providers.

A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. Revenue is recognized in an over-time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts.

9


Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary in the period they become known. Revenue recognized from performance obligations satisfied in previous periods was not material in both the three months ended March 31, 2021 and 2020.

Contract Balances. The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.

Unbilled Receivables (Contract Assets) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.

Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions business, for example, may require such advances. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within Accrued Liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are generally received less than one year before the customer solution is completed. These assets and liabilities are reported on the Consolidated Balance Sheets on an individual contract basis at the end of each reporting period.

Net contract asset (liabilities) consisted of the following:
March 31, 2021December 31, 2020$ Change% Change
Unbilled receivables (contract assets)$35,796 $33,009 $2,787 8 %
Contract liabilities(35,046)(39,865)4,819 (12)%
Net contract asset (liabilities)$750 $(6,856)$7,606 NM
NM - Not Meaningful

Contract liabilities balances at March 31, 2021 and December 31, 2020 include $11,158 and $12,750, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, include corresponding balances at March 31, 2021 and December 31, 2020, respectively.

Changes in the net contract asset during the three-month period ended March 31, 2021 included a $4,819 decrease in contract liabilities, driven primarily by revenue recognized in the current period, partially offset by new customer advances and deposits. Adding to this net contract asset increase was a $2,787 increase in contract assets, driven primarily by contract progress (i.e. unbilled receivable), partially offset by earlier contract progress being invoiced to the customer.

The Company recognized approximately 40% of the revenue related to the contract liability balance as of December 31, 2020 during the three months ended March 31, 2021, and approximately 40% of the revenue related to the contract liability balance as of December 31, 2019 during the three months ended March 31, 2020, primarily representing revenue from the sale of molds and hot runners within the Molding Solutions business.

Remaining Performance Obligations. The Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed and, for Aerospace, excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to accounting guidance. As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $178,459. The Company expects to recognize revenue on approximately 70% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months.






10


5. Stockholders' Equity

A schedule of consolidated changes in equity for the three months ended March 31, 2021 is as follows (shares in thousands):
Common
Stock
(Number of
Shares)
Common
Stock
(Amount)
Additional
Paid-In
Capital
Treasury
Stock
(Number of
Shares)
Treasury
Stock (Amount)
Retained
Earnings
Accumulated
Other
Non-Owner
Changes to
Equity
Total
Stockholders’
Equity
December 31, 202064,171 $642 $501,531 13,530 $(516,992)$1,519,811 $(122,315)$1,382,677 
Comprehensive income— — — — — 19,382 (44,902)(25,520)
Dividends declared ($0.16 per share)

— — — — — (8,104)— (8,104)
Employee stock plans12 — 2,406 1 (68)(24)— 2,314 
March 31, 202164,183 $642 $503,937 13,531 $(517,060)$1,531,065 $(167,217)$1,351,367 

A schedule of consolidated changes in equity for the three months ended March 31, 2020 is as follows (shares in thousands):
Common
Stock
(Number of
Shares)
Common
Stock
(Amount)
Additional
Paid-In
Capital
Treasury
Stock
(Number of
Shares)
Treasury
Stock (Amount)
Retained
Earnings
Accumulated
Other
Non-Owner
Changes to
Equity
Total
Stockholders’
Equity
December 31, 201963,873 $639 $489,282 13,051 $(498,074)$1,489,176 $(210,495)$1,270,528 
Comprehensive income— — — — — 29,733 (34,189)(4,456)
Dividends declared ($0.16 per share)
— — — — — (8,133)— (8,133)
Common stock repurchases— — — 396 (15,550)— — (15,550)
Employee stock plans17  2,743 2 (84)(88)— 2,571 
March 31, 202063,890 $639 $492,025 13,449 $(513,708)$1,510,688 $(244,684)$1,244,960 


6. Net Income Per Common Share

For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding is increased for the potential dilutive effects of stock-based incentive plans. For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding was increased by 154,022 and 440,725 for the three-month periods ended March 31, 2021 and 2020, respectively.

The calculation of weighted-average diluted shares outstanding excludes all shares that would have been anti-dilutive. During the three-month periods ended March 31, 2021 and 2020, the Company excluded 522,117 and 325,670 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive.

The Company granted 144,000 stock options, 104,029 restricted stock unit awards and 99,155 performance share awards ("PSAs") in February 2021 as part of its annual long-term incentive equity grant awards. All of the stock options and the restricted stock unit awards vest upon meeting certain service conditions. The restricted stock unit awards are included in basic weighted-average common shares outstanding as they contain nonforfeitable rights to dividend payments. The PSAs are part of the long-term Performance Share Award Program and are based on performance goals that are driven by a combination of independently measured metrics (depending on the grant year) with each metric being weighted equally. The metrics for awards granted in 2021 include the Company’s total shareholder return (“TSR”), return on invested capital (“ROIC”) and operating income before depreciation and amortization growth ("EBITDA growth"). The TSR and EBITDA growth metrics are designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index over a three-year performance period. ROIC is designed to assess the Company's performance compared to pre-established Company targets over a three-year performance period. The participants can earn from zero to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. The fair value of the TSR is determined using a Monte Carlo valuation method as the award contains a market condition.




11


7. Inventories

The components of inventories consisted of:
March 31, 2021December 31, 2020
Finished goods$78,023 

$79,833 
Work-in-process75,858 76,542 
Raw material and supplies79,584 81,633 
$233,465 $238,008 

8. Goodwill and Other Intangible Assets

Goodwill:
The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company as of and for the period ended March 31, 2021:
IndustrialAerospaceTotal Company
December 31, 2020$980,794 $30,786 $1,011,580 
Foreign currency translation(39,729) (39,729)
March 31, 2021$941,065 $30,786 $971,851 


Other Intangible Assets:

Other intangible assets consisted of:
March 31, 2021December 31, 2020
Range of
Life -Years
Gross AmountAccumulated AmortizationGross AmountAccumulated Amortization
Amortized intangible assets:  
Revenue Sharing Programs (RSPs)
Up to 30
$299,500 $(144,937)$299,500 $(143,209)
Component Repair Programs (CRPs)
Up to 30
111,839 (31,918)111,839 (30,869)
Customer relationships
10-16
338,366 (123,806)338,366 (118,752)
Patents and technology
4-11
123,433 (79,623)123,433 (77,311)
Trademarks/trade names
10-30
10,949 (10,431)10,949 (10,377)
Other
Up to 15
10,746 (4,733)10,746 (4,580)
894,833 (395,448)894,833 (385,098)
Unamortized intangible assets:
Trade names55,670 — 55,670 — 
Foreign currency translation(13,907)— (1,273)— 
Other intangible assets$936,596 $(395,448)$949,230 $(385,098)

Estimated amortization of intangible assets for future periods is as follows: 2021 (remainder) - $32,000; 2022 - $42,000; 2023- $44,000; 2024 - $44,000, 2025 - $44,000 and 2026- $43,000.








12


9. Debt

Long-term debt and notes and overdrafts payable at March 31, 2021 and December 31, 2020 consisted of:
 March 31, 2021December 31, 2020
 Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Amended Credit Agreement$558,526 $596,456 $593,622 $601,936 
3.97% Senior Notes
100,000 109,282 100,000 109,151 
Borrowings under lines of credit and overdrafts7,507 7,507 2,115 2,115 
Finance leases7,343 8,508 8,268 8,650 
Other foreign bank borrowings197 199 254 257 
673,573 721,952 704,259 722,109 
Less current maturities(9,558)(4,391)
Long-term debt$664,015 $699,868 
In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100,000 aggregate principal amount of 3.97% Senior Notes due October 17, 2024 (the “3.97% Senior Notes”). The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The fair value of the 3.97% Senior Notes was determined using the U.S. Treasury yield and a long-term credit spread for similar types of borrowings, which represent Level 2 observable inputs.

On October 8, 2020, the Company entered into the sixth amendment to its fifth amended and restated revolving credit agreement with Bank of America (the “Sixth Amendment”) and the first amendment to the Note Purchase Agreement with New York Life (the “First NPA Amendment”). The Sixth Amendment maintained the borrowing availability of $1,000,000 along with access to request $200,000 through an accordion feature. The Sixth Amendment and the First NPA Amendment provided for an increase in the Company’s maximum ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, from 3.25 times (or, if a certain permitted acquisition above $150,000 is consummated, 3.50 times) to 3.75 times in each case at the end of the four fiscal quarters, beginning with December 31, 2020, and regardless of whether a permitted acquisition, as defined, is consummated, providing additional financing flexibility and access to liquidity. Additionally, the Sixth Amendment requires the Company to maintain a maximum ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, of not more than 3.75 times in each case, at the end of the four fiscal quarters, beginning with December 31, 2020 and regardless of whether a permitted acquisition, as defined, is consummated. Furthermore, the First NPA Amendment provides for (i) adjustments to the ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, as defined, to conform to a more restrictive total leverage ratio that may be required under the Amended Credit Agreement, (ii) an increase in the amount of allowable add-back for restructuring charges when calculating Consolidated EBITDA from $15,000 to $25,000 and (iii) a required fee payment equal to 0.50% per annum times the daily outstanding principal amount of the note during each of the four fiscal quarters, following the quarter ended December 31, 2020, if the Company’s Senior Leverage Ratio, as defined, exceeds 3.25 times. In October 2020, the Company paid fees and expenses of $1,384 in conjunction with executing the Amendments; such fees have been deferred within Other Assets on the accompanying Consolidated Balance Sheet and are being amortized on the Consolidated Statements of Income.

On February 10, 2021, the Company and certain of its subsidiaries entered into the sixth amended and restated senior unsecured revolving credit agreement (the "Amended Credit Agreement") and retained Bank of America, N.A. as the Administrative Agent for the lenders. The Amended Credit Agreement maintains the $1,000,000 of availability within the facility, while increasing the available borrowings under the accordion feature from $200,000 to $250,000 (aggregate availability of $1,250,000) and extends the maturity date through February 2026. The Amended Credit Agreement also adjusts the interest rate to either the Eurocurrency rate, as defined in the Amended Credit Agreement, plus a margin of 1.175% to 1.775% or the base rate, as defined in the Amended Agreement, plus a margin of 0.175% and 0.775%, depending on the Company's leverage ratio at the time of the borrowing. Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.175% to 1.775%.
13


As with the earlier facility, the Company's borrowing capacity is limited by various debt covenants in the Amended Credit Agreement, as described further below. The Amended Credit Agreement requires the Company to maintain a Senior Debt Ratio of not more than 3.75 times at the end of each fiscal quarter ending on or before September 30, 2021, after which the ratio will revert to 3.25 times (or, if a permitted acquisition above $150,000 is consummated, 3.50 times at the end of each of the first four fiscal quarters ending after the consummation of any such acquisition). In addition, the Amended Credit Agreement requires the Company to maintain a Total Debt Ratio of not more than 3.75 for each fiscal quarter (or, if a permitted acquisition above $150,000 is consummated, 4.25 times at the end of each of the first four fiscal quarters ending after the consummation of any such acquisition, however, such increase in the ratio will not be effective during any period prior to October 1, 2021). A ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, is required at the end of each fiscal quarter. The Company paid fees and expenses of $4,279 in the first quarter of 2021 in conjunction with executing the Amended Credit Agreement; such fees have been deferred within Other assets on the Consolidated Balance and will be amortized into interest expense on the 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 $558,526 and $441,474, respectively, at March 31, 2021 and borrowings and availability under the Sixth Amendment were $593,622 and $406,378, respectively, at December 31, 2020, subject to covenants in the Company's revolving debt agreements. At March 31, 2021, additional borrowings of $142,716 of Total Debt (including $142,716 of Senior Debt) would have been allowed under the financial covenants. The average interest rate on these borrowings was 1.48% and 1.42% on March 31, 2021 and December 31, 2020, respectively. Borrowings included Euro-denominated borrowings of 331,450 Euros ($388,525) at March 31, 2021 and 344,450 Euros ($423,622) at December 31, 2020. The fair value of the borrowings is based on observable Level 2 inputs. The borrowings were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

At March 31, 2021, the Company was in compliance with all applicable covenants. The Company currently anticipates that it will maintain compliance with all of its covenants in the next four quarters while continuing to monitor its future compliance based on current and future economic conditions. The Company's most restrictive financial covenant is the Senior Debt Ratio, which required the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.75 times at March 31, 2021. The actual ratio at March 31, 2021 was 3.09 times, as defined.

In addition, the Company has approximately $82,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. The Credit Lines are accessed locally and are available primarily within the U.S., Europe and Asia. The Credit Lines are subject to the applicable borrowing rates within each respective country and vary between jurisdictions (i.e. LIBOR, Euribor, etc.). Under the Credit Lines, $7,500 was borrowed at March 31, 2021 at an average interest rate of 1.09% and $2,100 was borrowed at December 31, 2020 at an average interest rate of 1.10%. The Company had also borrowed $7 and $15 under the overdraft facilities at March 31, 2021 and December 31, 2020, respectively. Repayments under the Credit Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.

The Company also has several finance leases under which $7,343 and $8,268 was outstanding at March 31, 2021 and December 31, 2020, respectively. The fair value of the finance leases are based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

At March 31, 2021 and December 31, 2020, the Company also had other foreign bank borrowings of $197 and $254, respectively. The fair value of the other foreign bank borrowings was based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

10. Derivatives

The Company has manufacturing and sales facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.

Derivative financial instruments have been used by the Company to hedge its exposure to fluctuations in interest rates. On April 28, 2017, the Company entered into an interest rate swap agreement (the "2017 Swap") with one bank which converts the interest on the first $100,000 of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The 2017 Swap expires on January 31, 2022. On March 24, 2021, the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that will commence on
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January 31, 2022 and will convert the interest on the first $100,000 of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.17% plus the borrowing spread. The 2021 Swap will expire on January 30, 2026. These interest rate swap agreements (the "Swaps") remained in place at March 31, 2021 and are accounted for as cash flow hedges.

The Company also uses derivative financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The Company has various contracts outstanding which primarily hedge recognized assets or liabilities and anticipated transactions in various currencies including the Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen, Singapore dollar, Korean won, Swedish kroner, Chinese renminbi, Mexican peso, Hong Kong dollar and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within two years.

The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures.

The Company records the derivatives at fair value on the Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets, Other Assets, Accrued Liabilities or Other Liabilities depending on their fair value and remaining contractual period. Changes in the fair market value of derivatives accounted for as cash flow hedges are recorded to accumulated other comprehensive income (loss) and reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Reclassifications to earnings for the Swaps are recorded through interest expense and reclassifications to earnings for foreign exchange contracts are recorded through net sales. Changes in the fair market value of the foreign exchange contracts that are not designated hedging instruments are recorded directly to earnings through other expense (income), net.

The fair values of derivatives were not material to the Company's Consolidated Balance Sheets as of March 31, 2021 or December 31, 2020. The activity related to the derivatives that have been designated hedging instruments was not material to the Company's Consolidated Financial Statements for the periods ended March 31, 2021 or 2020. The Company recognized losses of $3,302 and $12,195 related to the foreign exchange contracts that are not accounted for as hedging instruments within other expense (income), net, in the Consolidated Statements of Income for the three-month periods ended March 31, 2021 and 2020, respectively. Such losses were substantially offset by net gains recorded on the underlying hedged asset or liability (the "underlying"). Offsetting net gains or losses on the underlying are also recorded within other expense (income), net.

The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. Other financing cash flows during the three months ended March 31, 2021 and 2020, as presented on the Consolidated Statements of Cash Flows, include $1,567 and $7,212, respectively, of net cash payments related to the settlement of foreign currency hedges related to intercompany financing.

11. Fair Value Measurements

The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:

Level 1    Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2    Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3    Unobservable inputs for the asset or liability.

The following table provides the assets and liabilities reported at fair value and measured on a recurring basis:
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Fair Value Measurements Using
DescriptionTotalQuoted Prices in Active Markets for
Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
March 31, 2021
Asset derivatives$441 $ $441 $ 
Liability derivatives(3,091) (3,091) 
Bank acceptances10,509  10,509  
Rabbi trust assets3,306 3,306   
Total$11,165 $3,306 $7,859 $ 
December 31, 2020
Asset derivatives$1,642 $ $1,642 $ 
Liability derivatives(1,988) (1,988) 
Bank acceptances13,267  13,267  
Rabbi trust assets3,233 3,233   
Total$16,154 $3,233 $12,921 $ 

The derivative contracts are valued using observable current market information as of the reporting date such as the prevailing LIBOR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial instruments accepted from certain China-based customers in lieu of cash paid on receivables, generally range from three to six months in maturity and are guaranteed by banks. The carrying amounts of the bank acceptances, which are included within prepaid expenses and other current assets, approximate fair value due to their short maturities. The fair values of rabbi trust assets are based on quoted market prices from various financial exchanges.

12. Pension and Other Postretirement Benefits

Pension and other postretirement benefits expenses consisted of the following:
Three Months Ended
March 31,
Pensions20212020
Service cost$1,741 $1,649 
Interest cost3,172 3,817 
Expected return on plan assets(6,972)(7,393)
Amortization of prior service cost85 80 
Amortization of actuarial losses3,926 3,339 
Net periodic benefit cost$1,952 $1,492 

Three Months Ended
March 31,
Other Postretirement Benefits20212020
Service cost$25 $22 
Interest cost206 264 
Amortization of prior service cost7 7 
Amortization of actuarial losses70 23 
Net periodic benefit cost$308 $316 

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The service cost component of net periodic benefit cost is included within cost of sales and selling and administrative expenses. The components of net periodic benefit cost other than the service cost component are included in Other Income (Expense) on the Consolidated Statements of Income.

13. Income Taxes

The Company's effective tax rate for the first quarter of 2021 was 28.1% compared with 31.5% in the first quarter of 2020 and 37.6% for the full year 2020. The decrease in the first quarter of 2021 effective tax rate from the full year 2020 rate is primarily due to an increase in projected earnings in jurisdictions with lower tax rates, a reduction in tax reserves due to statute of limitations expiration and the absence of tax expense related to the completed sale of the Seeger business in the first quarter of 2020. The tax rate benefits were partially offset by additional expense related to the global intangible low-tax income tax.

The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore and China. The tax holiday in China expired at the end of 2020. The Company has re-applied for approval of a potential three-year holiday in China which could reduce the tax rate. The Company anticipates notification of a decision on its application for the holiday in the latter half of 2021. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. This holiday commenced effective November 2020 and remains effective for a period of ten years from inception.

14. Changes in Accumulated Other Comprehensive Income (Loss) by Component

The following tables set forth the changes in accumulated other comprehensive income (loss), net of tax, by component for the three-month periods ended March 31, 2021 and 2020:
Gains and Losses on Cash Flow HedgesPension and Other Postretirement Benefit ItemsForeign Currency ItemsTotal
December 31, 2020$(757)$(142,119)$20,561 $(122,315)
Other comprehensive (loss) income before reclassifications (888)498 (47,882)(48,272)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income 236 3,134  3,370 
Net current-period other comprehensive (loss) income (652)3,632 (47,882)(44,902)
March 31, 2021$(1,409)$(138,487)$(27,321)$(167,217)
Gains and Losses on Cash Flow HedgesPension and Other Postretirement Benefit ItemsForeign Currency ItemsTotal
December 31, 2019$(115)$(144,047)$(66,333)$(210,495)
Other comprehensive (loss) income before reclassifications (2,879)1,842 (36,333)(37,370)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income542 2,639  3,181 
Net current-period other comprehensive (loss) income(2,337)4,481 (36,333)(34,189)
March 31, 2020$(2,452)$(139,566)$(102,666)$(244,684)

The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) by component for the three-month periods ended March 31, 2021 and 2020:
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Details about Accumulated Other Comprehensive Income (Loss) ComponentsAmount Reclassified from Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Statements of Income
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Gains and losses on cash flow hedges
Interest rate contracts
$(449)$(61)Interest expense
Foreign exchange contracts
128 (523)Net sales
(321)(584)Total before tax
85