News Column

BARNES GROUP INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

April 28, 2014

OVERVIEW

Please refer to the Overview in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Annual Report on Form 10-K and other documents related to the Company are located on the Company's website: www.bginc.com.



First Quarter 2014 Highlights

In the first quarter of 2014, sales increased by $48.6 million, or 18.4% from the first quarter of 2013, to $312.1 million. This increase was driven primarily by a $38.0 million sales contribution from the MÄnner Business. Organic sales, driven by the Aerospace segment, increased by $9.8 million, or 3.7%. Organic growth within the Industrial segment declined slightly. Operating income in the first quarter of 2014 increased 40.7% to $35.1 million from the first quarter of 2013 and operating margin increased from 9.5% to 11.3%. Operating income benefited from the profit contribution of both the MÄnner Business and increased organic sales, partially offset by $4.9 million of short-term purchase accounting adjustments related to the acquisition of the MÄnner Business and $2.8 million of pre-tax restructuring charges related to the closure of production operations at the facility in Saline, Michigan. Operating income during the first quarter of 2013 included $10.5 million of non-recurring stock compensation expenses related to the modification of outstanding equity awards granted to the former Chief Executive Officer ("CEO transition costs"). In March 2014, the Company authorized the closure of production operations ("Saline operations") at its Associated Spring facility located in Saline, Michigan ("the Closure"). The Saline operations primarily manufacture certain automotive engine valve springs. The Closure is expected to be completed mid-year 2014. RESULTS OF OPERATIONS Net Sales Three months ended March 31, (in millions) 2014 2013 Change Industrial 203.9 165.5 38.4 23.2 % Aerospace $ 108.2$ 98.0$ 10.2 10.4 % Intersegment sales - - - - % Total $ 312.1$ 263.5$ 48.6 18.4 % The Company reported net sales of $312.1 million in the first quarter of 2014, an increase of $48.6 million or 18.4%, from the first quarter of 2013. The acquisition of the MÄnner Business in 2013 provided $38.0 million of net sales during the first quarter of 2014. Organic sales increased by $9.8 million, as $10.2 million of organic growth at Aerospace was partially offset by a decline of $0.4 million at Industrial. The weakening of the U.S. dollar against foreign currencies increased net sales by approximately $0.8 million. 21

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Expenses and Operating Income Three months ended March 31, (in millions) 2014 2013 Change Cost of sales $ 214.6$ 177.7$ 36.8 20.7 % % sales 68.8 % 67.4 % Gross profit (1) $ 97.5$ 85.8$ 11.7 13.6 % % sales 31.2 % 32.6 % Selling and administrative expenses $ 62.4$ 60.9$ 1.5 2.5 % % sales 20.0 % 23.1 % Operating income $ 35.1$ 25.0$ 10.2 40.7 % % sales 11.3 % 9.5 % (1) Sales less cost of sales. Cost of sales in the first quarter of 2014 increased 20.7% from the 2013 period, while gross profit margin decreased from 32.6% in the 2013 period to 31.2% in the 2014 period. Gross margins declined at both Industrial and Aerospace. The acquisition of the MÄnner Business resulted in a higher percentage of sales being driven by Industrial during the 2014 period. Gross profit benefits from the MÄnner Business were partially offset by the $3.3 million of short-term purchase accounting adjustments related to the acquisition of the MÄnner Business and charges of $2.3 million related to the Closure of the Saline operations. Selling and administrative expenses in the first quarter of 2014 increased 2.5% from the 2013 period due primarily to the incremental operations of the MÄnner Business, $1.6 million of short-term purchase accounting adjustments related to the acquisition of the MÄnner Business and $0.5 million of charges related to the Closure of the Saline operations. As a percentage of sales, selling and administrative costs decreased from 23.1% in the first quarter of 2013 to 20.0% in the 2014 period as the 2013 period included CEO transition costs of $10.5 million. Operating income in the first quarter of 2014 increased 40.7% to $35.1 million from the first quarter of 2013 and operating income margin increased from 9.5% to 11.3%. Interest expense Interest expense decreased by $1.0 million in the first quarter of 2014 compared to the prior year amount, primarily the result of lower average borrowings under the Amended Credit Agreement. Other expense (income), net Other expense (income), net in the first quarter of 2014 was $0.2 million compared to $1.0 million in the first quarter of 2013. The decrease was primarily due to changes in foreign exchange net transaction losses during the period. Income Taxes The Company's effective tax rate from continuing operations for the first quarter of 2014 was 27.9% compared with 21.4% in the first quarter of 2013 and 32.8% for the full year 2013 which includes the impact of $16.4 million of tax expense related to the April 16, 2013U.S. Tax Court Decision (see below). Excluding the impact of the U.S. Tax Court Decision, the Company's effective tax rate from continuing operations for full year 2013 was 17.5%. The increase in the first quarter 2014 effective tax rate from the full year 2013 rate, as adjusted for the U.S. Tax Court Decision, is primarily due to the a change in the mix of earnings attributable to higher-taxing jurisdictions or jurisdictions where losses cannot be benefited in 2014, the expiration of certain tax holidays and the increase in planned repatriation of a portion of current foreign earnings to the U.S.



The Aerospace and Industrial segments were previously awarded international tax holidays. All of the tax holidays for which the Company currently receives benefit are expected to expire in 2014 through 2016.

On April 16, 2013, the United States Tax Court rendered an unfavorable decision in the matter Barnes Group Inc. and Subsidiaries v. Commissioner of Internal Revenue ("Tax Court Decision"). The Tax Court rejected the Company's objections and imposed penalties. The case involved IRS proposed adjustments of approximately $16.4 million, plus a 20% penalty and interest for the tax years 1998, 2000 and 2001. The case arose out of an Internal Revenue Service ("IRS") audit for the tax years 2000 through 2002. The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest of these adjustments. In the third quarter of 2009, the Company was informed that its protest was denied and a tax assessment was received from the Appeals Office of the IRS. Subsequently, in November 2009, the Company filed a petition against the IRS in 22 -------------------------------------------------------------------------------- the United States Tax Court, contesting the tax assessment. A trial was held and all briefs were filed in 2012. In April 2013 the Tax Court Decision was then issued rendering an unfavorable decision against the Company and imposing penalties. As a result of the unfavorable Tax Court Decision, the Company recorded an additional tax charge during 2013 for $16.4 million. In November 2013, the Company made a cash payment of approximately $12.7 million related to tax, interest and penalties and utilized a portion of its net operating losses. The Company also submitted a notice of appeal of the Tax Court Decision to the United States Court of Appeals for the Second Circuit. The Company filed its formal appeal with the United States Court of Appeals for the Second Circuit on February 13, 2014. The Company does not expect a decision until 2015. Discontinued Operations In April 2013, the Company completed the sale of its Barnes Distribution North America business ("BDNA") to MSC Industrial Direct Co., Inc. ("MSC"). The results of BDNA were segregated and presented as discontinued operations during the first quarter of 2013. The Company recorded a $2.0 million loss from discontinued operations during the 2013 period. The loss relates to the income generated by the operations of BDNA, more than offset by transaction expenses associated with the BDNA sale, charges related to the pension plans held by BDNA and a final adjustment related to a retained liability at the Barnes Distribution Europe businesses. See Note 2 of the Consolidated Financial Statements. Income and Income per Share Three months ended March 31, (in millions, except per share) 2014 2013 Change Income from continuing operations $ 22.8$ 15.4$ 7.3 47.4 % Loss from discontinued operations, net of income taxes - (2.0 ) 2.0 NM Net income $ 22.8$ 13.5$ 9.3 68.9 % Per common share: Basic: Income from continuing operations $ 0.42 $



0.29 $ 0.13 44.8 %

Loss from discontinued operations, net of income taxes - (0.04 ) 0.04 NM

Net income $ 0.42 $



0.25 $ 0.17 68.0 %

Diluted:

Income from continuing operations $ 0.41 $



0.28 $ 0.13 46.4 %

Loss from discontinued operations, net of income taxes - (0.04 ) 0.04 NM

Net income $ 0.41$ 0.24$ 0.17 70.8 % Weighted average common shares outstanding: Basic 54.7 54.7 - (0.2 )% Diluted 56.0 55.5 0.4 0.8 %



NM - Not meaningful

In the first quarter of 2014, basic and diluted income from continuing operations per common share increased 44.8% and 46.4%, respectively, from the first quarter of 2013. The increases were directly attributable to the increase in income from continuing operations for the period. Basic weighted average common shares outstanding decreased slightly due to the repurchase of 220,794 and 2,350,697 shares during 2014 and 2013, respectively, as part of the repurchase program. Diluted weighted average common shares outstanding increased as a result of an increase in the dilutive effect of potentially issuable shares given an increase in the Company's stock price and the modification of outstanding equity awards granted to the former Chief Executive Officer in the first quarter of 2013. 23

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Financial Performance by Business Segment

Industrial

Three months ended March 31, (in millions) 2014 2013 Change Sales $ 203.9$ 165.5$ 38.4 23.2 %



Operating profit 19.4 14.6 4.8 32.6 % Operating margin 9.5 % 8.8 %

Sales at Industrial were $203.9 million in the first quarter of 2014, a $38.4 million increase from the first quarter of 2013. The acquisition of the MÄnner Business in 2013 provided $38.0 million of sales. Organic sales declined by $0.4 million during the 2014 period. Sales benefited from foreign currency translation which increased sales by approximately $0.8 million as the U.S. dollar weakened against foreign currencies. Operating profit in the first quarter of 2014 at Industrial was $19.4 million, an increase of $4.8 million from the first quarter of 2013. Operating profit benefited primarily from the profit contribution of the MÄnner Business, partially offset by $4.9 million of short-term purchase accounting adjustments related to the acquisition and $2.8 million of pre-tax restructuring charges related to the Closure of the Saline operations. Operating income during the first quarter of 2013 included CEO transition costs of $6.6 million that were allocated to the Industrial segment. Outlook: In the Industrial manufacturing businesses, management is focused on generating organic sales growth through the introduction of new products and by leveraging the benefits of the diversified products and industrial end-markets in which its businesses have a global presence. The Company also remains focused on sales growth through acquisition and expanding geographic reach. Synventive, acquired in 2012, added new innovative products and services and has expanded the Company's global marketplace presence. The MÄnner Business, acquired in 2013, is expected to further provide additional differentiated products and services through the manufacture of high precision molds, valve gate hot runner systems, and system solutions for the medical/pharmaceutical, packaging, and personal care/health care industries. Our ability to generate sales growth is subject to economic conditions in the global markets served by all of our businesses. Order activity in certain end-markets may provide extended sales growth. Strategic investments in new technologies, manufacturing processes and product development are expected to provide incremental benefits in the long term. Operating profit is largely dependent on the sales volumes and mix within all businesses of the segment. Management continues to focus on improving profitability through leveraging organic sales growth, acquisitions, pricing initiatives, and productivity and process improvements. Costs associated with increases in new product and process introductions, strategic investments and the integration of acquisitions may negatively impact operating profit.



Aerospace

Three months ended March 31,



(in millions) 2014 2013 Change Sales

$ 108.2$ 98.0$ 10.2 10.4 %



Operating profit 15.8 10.3 5.4 52.2 % Operating margin 14.6 % 10.6 %

The Aerospace segment reported sales of $108.2 million in the first quarter of 2014, a 10.4% increase from the first quarter of 2013. Sales increased within the original equipment manufacturing ("OEM") business and the aftermarket business. Within aftermarket, a sales increase within the repair and overhaul business ("MRO") was partially offset by lower sales in the spare parts business. Increased sales within the OEM business reflected continued strength in demand for new engines, driven by increased commercial aircraft production. The aftermarket repair and overhaul sales growth was driven by increased levels of commercial engine maintenance. Operating profit at Aerospace in the first quarter of 2014 increased 52.2% from the first quarter of 2013 to $15.8 million, driven primarily by the profit contributions of increased sales in the OEM and MRO businesses, partially offset by lower profits in the spare parts business. Operating income during the first quarter of 2013 included CEO transition costs of $3.9 million that were allocated to the segment. Operating margin increased from 10.6% in the 2013 period to 14.6% in the 2014 period. 24 -------------------------------------------------------------------------------- Outlook: Sales in the Aerospace OEM business are based on the general state of the aerospace market driven by the worldwide economy and are supported by its order backlog through participation in certain strategic commercial and military engine and airframe programs. Backlog in this business was $544.9 million at March 31, 2014, of which approximately 61% is expected to be shipped in the next 12 months. The Aerospace OEM business may be impacted by adjustments of customer inventory levels, commodity availability and pricing, changes in the content levels on certain platforms, including insourcing, changes in production schedules of specific engine and airframe programs, as well as the pursuit of new programs. Sales levels in the Aerospace aftermarket repair and overhaul business are expected to be impacted by fluctuations in end-market demand and changes in customer insourcing. Management continues to believe its Aerospace aftermarket business is competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the repair and overhaul business and long-term RSP and Component Repair Program ("CRP"), expanded capabilities and current capacity levels. Management is focused on growing operating profit at Aerospace primarily through leveraging organic sales growth, productivity initiatives, new product and process introductions and continued cost management. Operating profit is expected to be affected by the impact of changes in sales volume, mix and pricing, particularly as it relates to the highly profitable aftermarket RSP spare parts business, and investments made in each of its businesses. Management actively manages commodity price increases through pricing actions and other productivity initiatives. Costs associated with increases in new product and process introductions and the physical transfer of work to lower cost manufacturing regions may negatively impact operating profit.



LIQUIDITY AND CAPITAL RESOURCES

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

The Company's ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and working capital management, and anticipates that operating activities in 2014 will generate adequate cash. The Company closely monitors its cash generation, usage and preservation including the management of working capital to generate cash. As of March 20, 2014, the 3.375% Convertible Notes ("Notes") are subject to redemption at their par value at any time, at the option of the Company. The note holders had the option to require the Company to redeem some or all of the Notes on April 11, 2014. As such, the balance of these Notes of $55,636 (par value) and the related deferred tax balances are classified as current in the accompanying balance sheet as of March 31, 2014. None of the Notes were redeemed by the note holders on April 11, 2014. The note holders may also require the Company to redeem some or all of the notes at their par value on March 15th of 2017 and 2022. The 3.375% Convertible Notes are also eligible for conversion upon meeting certain conditions as provided in the indenture agreement including the closing stock price for 20 of the last 30 trading days in the preceding quarter being greater than or equal to 130% of the conversion price (the "conversion price eligibility requirement"). The eligibility for conversion is determined quarterly. During the first quarter of 2014, the 3.375% Convertible Notes were not eligible for conversion. During the second quarter of 2014, the 3.375% Convertible Notes will be eligible for conversion due to meeting the conversion price eligibility requirement and on March 20, the Company formally notified the note holders that they are entitled to convert the Notes. The first $1 of the conversion value of each note would be paid in cash and the additional conversion value, if any, would be paid in cash or common stock, at the option of the Company. Payment on the 3.375% Convertible Notes, if required by note holders, is expected to be financed through internal cash, borrowings under its Credit Facility and the sale of debt securities, or a combination thereof. In September 2013, the Company entered into a second amendment to its fifth amended and restated revolving credit agreement (the "Amended Credit Agreement") and retained Bank of America, N.A. as Administrative Agent for the lenders. The Amended Credit Agreement extends the maturity date of the debt facility by two years from September 2016 to September 2018 and includes an option to extend the maturity date for an additional year, subject to certain conditions. The Amended Credit Agreement added a new foreign subsidiary borrower in Germany, Barnes Group Acquisition GmbH, maintained the borrowing availability of the Company at $750.0 million and adds an accordion feature to increase this amount to $1,000.0 million. The borrowing availability of $750.0 million, pursuant to the terms of the Amended Credit Agreement, allows for Euro-denominated borrowings equivalent to $500.0 million. Euro-denominated borrowings are subject to foreign currency translation adjustments that are included within accumulated other non-owner changes to equity. 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 continuing. Borrowings under the Amended Credit Agreement continue to bear interest at LIBOR plus a spread ranging from 1.10% to 25 -------------------------------------------------------------------------------- 1.70%. The Company paid fees and expenses of $1.3 million in conjunction with executing the Amended Credit Agreement; such fees will be deferred and amortized into interest expense on the accompanying Consolidated Statements of Income through its maturity. The Company's borrowing capacity remains limited by various debt covenants in the Amended Credit Agreement, certain of which were amended in September 2013. The Amended Credit Agreement requires the Company to maintain a ratio of Consolidated Senior Debt, as defined in the Amended Credit Agreement, to Consolidated EBITDA, as defined, of not more than 3.25 times at the end of each fiscal quarter ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 4.00 times at the end of each fiscal quarter, 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. The Amended Credit Agreement also provides that in connection with certain permitted acquisitions with aggregate consideration in excess of $150.0 million, the Consolidated Senior Debt to EBITDA ratio and the Consolidated Total Debt to EBITDA ratio are permitted to increase to 3.50 times and 4.25 times, respectively, for a period of the four fiscal quarters ending after the closing of the acquisition. In October 2013, the Company completed the acquisition of the MÄnner Business, a permitted transaction pursuant to the terms of the Amended Credit Agreement. At March 31, 2014, the Company was in compliance with all financial covenants under the Amended Credit Agreement. The Company's most restrictive financial covenant is the Senior Debt Ratio which requires the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.50 times at March 31, 2014. The actual ratio at March 31, 2014 was 2.10 times. Operating cash flow may be supplemented with external borrowings to meet near-term business expansion needs and the Company's current financial commitments. The Company has assessed its credit facilities in conjunction with the September 27, 2013 refinancing and currently expects that its bank syndicate, comprised of 17 banks, will continue to support its Amended Credit Agreement which matures in September 2018. At March 31, 2014, the Company had $249.2 million unused and available for borrowings under its $750.0 million Amended Credit Facility, subject to covenants in the Company's debt agreements. At March 31, 2014, additional borrowings of $464.0 million of Total Debt and $338.7 million of Senior Debt would have been allowed under the financial covenants. Additional funds may be used, as needed, to support the Company's ongoing growth initiatives. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements. In 2012, the Company entered into five-year interest rate swap agreements transacted with three banks which together convert the interest on the first $100.0 million of borrowings under the Company's Credit Agreement from a variable rate plus the borrowing spread to a fixed rate of 1.03% plus the borrowing spread for the purpose of mitigating its exposure to variable interest rates. Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Cash Flow Three months ended March 31, (in millions) 2014 2013 Change Operating activities $ 17.0$ 17.7$ (0.7 ) Investing activities (15.2 ) (11.4 ) (3.7 ) Financing activities (11.0 ) 8.3 (19.4 ) Exchange rate effect (0.2 ) (1.0 ) 0.8



(Decrease)/increase in cash $ (9.4 )$ 13.5$ (23.0 )

Operating activities provided $17.0 million in cash in the first three months of 2014 and $17.7 million in the first three months of 2013. Operating cash flows in the 2014 period reflect an increase in cash used for working capital generated by higher levels of sales growth relative to 2013. Higher levels of sales growth in 2014 resulted in an increase in receivables which generated a higher use of cash than in the comparable period. Operating cash flows in the 2013 period were negatively impacted by a higher use of cash for the settlement of accrued liabilities than in the comparable 2014 period. 26 --------------------------------------------------------------------------------



Investing activities in the 2014 and 2013 periods primarily consisted of capital expenditures of $15.1 million and $10.1 million, respectively. The Company expects capital spending in 2014 to approximate $60 million.

Financing activities in the first three months of 2014 included a net increase in borrowings of $13.7 million compared to $23.5 million in the comparable 2013 period. In addition, financing activities in the 2014 period included the payment of an assumed liability to the seller in connection with the acquisition of the MÄnner Business. Proceeds from the issuance of common stock were $7.3 million and $2.7 million in the 2014 and 2013 periods, respectively. During the three months ended March 31, 2014 and March 31, 2013, the Company repurchased 0.2 million and 0.5 million shares, respectively, of the Company's stock. The cost of the repurchases was $8.4 million in the 2014 period and $12.9 million in the 2013 period. Total cash used to pay dividends was $6.0 million in the 2014 period compared to $5.4 million in the 2013 period. At March 31, 2014, the Company held $61.4 million in cash and cash equivalents, the majority of which was held by foreign subsidiaries. These amounts have no material regulatory or contractual restrictions and are expected to primarily fund international investments. The Company has not repatriated any portion of current year foreign earnings to the U.S. during the first three months of 2014; however, repatriations of a portion of current year foreign earnings are planned during the remainder of 2014. The Company maintains borrowing facilities with banks to supplement internal cash generation. At March 31, 2014, $500.8 million was borrowed at an interest rate of 1.30% under the Company's amended $750.0 million Credit Facility which matures in September 2018. In addition, as of March 31, 2014, the Company had $1.0 million in borrowings under short-term bank credit lines. At March 31, 2014, the Company's total borrowings were comprised of approximately 28% fixed rate debt and approximately 72% variable rate debt. The interest payments on approximately $100.0 million of the variable rate interest debt have been converted into payment of fixed interest plus the borrowing spread under the terms of the respective interest rate swaps that were executed in April 2012.



Debt Covenants

Borrowing capacity is limited by various debt covenants in the Company's debt agreements. As of March 31, 2014, the most restrictive financial covenant is included within the Amended Credit Agreement and requires the Company to maintain a maximum ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times for the four fiscal quarters then ending. The Company's Amended Credit Agreement also contains other financial covenants that require the maintenance of a certain other debt ratio, Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 4.00 times and a certain interest coverage ratio, Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of at least 4.25 times, at March 31, 2014. The Amended Credit Agreement also provides that in connection with certain permitted acquisitions with aggregate consideration in excess of $150.0 million, the Consolidated Senior Debt to EBITDA ratio and the Consolidated Total Debt to EBITDA ratio are permitted to increase to 3.50 times and 4.25 times, respectively, for a period of the four fiscal quarters ending after the closing of the acquisition. On October 31, 2013, the Company completed the acquisition of the MÄnner Business, a permitted transaction pursuant to the terms of the Amended Credit Agreement. Following is a reconciliation of Consolidated EBITDA to the Company's net income (in millions): 27 -------------------------------------------------------------------------------- Four fiscal quarters ended March 31, 2014 Net income $ 279.8 Add back: Interest expense 12.1 Income taxes 39.9 Depreciation and amortization 69.3 Income from discontinued operations, net of income taxes (200.2 ) Adjustment for acquired businesses 23.8 Adjustment for non-cash stock based compensation 6.8 Amortization of MÄnner acquisition inventory step-up 6.9 Restructuring charges 2.2 Due diligence and transaction expenses 1.5 Other adjustments (0.9 ) Consolidated EBITDA, as defined $



241.3

Consolidated Senior Debt, as defined, as of March 31, 2014 $



505.7

Ratio of Consolidated Senior Debt to Consolidated EBITDA



2.10

Maximum



3.50

Consolidated Total Debt, as defined, as of March 31, 2014 $



561.3

Ratio of Consolidated Total Debt to Consolidated EBITDA



2.33

Maximum



4.25

Consolidated Cash Interest Expense, as defined, as of March 31, 2014

$



11.3

Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense 21.36 Minimum 4.25 The income from discontinued operations, net of income taxes, reflects income associated with BDNA (including gain on sale). The adjustment for acquired businesses reflects the unaudited pre-acquisition operations of the MÄnner business for the seven-month period ended October 31, 2013. The restructuring charges represent charges recorded in the first quarter of 2014 related to the closure of production operations at the Associated Spring facility located in Saline, Michigan. Other adjustments primarily consist of net gains on the sale of assets. The Company's financial covenants are measured as of the end of each fiscal quarter. At March 31, 2014, additional borrowings of $464.0 million of Total Debt and $338.7 million of Senior Debt would have been allowed under the covenants. Senior Debt includes primarily the borrowings under the Credit Facility and the borrowings under lines of credit. The Company's unused credit facilities at March 31, 2014 were $249.2 million.



OTHER MATTERS

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting policies are disclosed in Note 1 of the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The most significant areas involving management judgments and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes to such judgments and estimates. Actual results could differ from those estimates.



EBITDA

EBITDA for the first three months of 2014 was $55.7 million compared to $38.8 million in the first three months of 2013. EBITDA is a measurement not in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company defines EBITDA as net income plus interest expense, income taxes and depreciation and amortization which the Company incurs in the normal course of business. The Company does not intend EBITDA to represent cash flows from operations as defined by GAAP, and the reader should not consider it as an alternative to net income, net cash 28 -------------------------------------------------------------------------------- provided by operating activities or any other items calculated in accordance with GAAP, or as an indicator of the Company's operating performance. The Company's definition of EBITDA may not be comparable with EBITDA as defined by other companies. Accordingly, the measurement has limitations depending on its use. The Company believes EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. Following is a reconciliation of EBITDA to the Company's net income (in millions): Three months ended March 31, 2014 2013 Net income $ 22.8 $ 13.5 Add back: Interest expense 3.3 4.4 Income taxes 8.8 4.4 Depreciation and amortization 20.8 16.5 EBITDA $ 55.7 $ 38.8 FORWARD-LOOKING STATEMENTS Certain of the statements in this quarterly report contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "strategy," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; potential strikes or work stoppages; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect intellectual property rights; introduction or development of new products or transfer of work; higher risks in international operations and markets; the impact of intense competition; and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The risks and uncertainties described in our periodic filings with the SEC include, among others, uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including insourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; changes in raw material or product prices and availability; integration of acquired businesses including the MÄnner business; restructuring costs or savings including those related to the planned closure of production operations at the Company's facility in Saline, Michigan; the continuing impact of strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies and uninsured claims; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature. The Company assumes no obligation to update our forward-looking statements.


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Source: Edgar Glimpses