BARNES GROUP INC. 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 endedDecember 31, 2020 . The Annual Report on Form 10-K, along with the Company's other filings, can be found on theSecurities and Exchange Commission's website, www.sec.gov, as well as on the Company's website: www.bginc.com. Second Quarter Highlights The Company reported net sales of$321.2 million in the second quarter of 2021, an increase of$85.6 million or 36.4%, from the second quarter of 2020. Organic sales increased by$73.5 million , or 31.2%, including an increase of$16.0 million , or 22.7%, at Aerospace and an increase of$57.5 million , or 34.8%, at Industrial. On a sequential basis relative to the first quarter of 2021, sales increased 6.5%. The year-over-year increase at Aerospace was driven by a volume increase within the Aerospace Original Equipment Manufacturing business, whereas the Aerospace Aftermarket business, which remains more heavily impacted by the lingering effects of the COVID-19 pandemic, was down slightly. Industrial end-markets continued to recover during the second quarter of 2021, benefiting sales volumes. The weakening of theU.S. dollar against foreign currencies increased net sales within the Industrial segment by approximately$12.4 million . Operating margins increased from 4.3% in the 2020 period to 12.0% in the current period, largely a result of the absence of$17.7 million of restructuring charges taken during the 2020 period, the profit impact of increased sales volumes and continued productivity resulting from earlier cost initiatives, partially offset by an increase in employee related costs, including incentive compensation, and investments in growth and innovation.
Impact of COVID-19
The COVID-19 pandemic has resulted in a disruption in business activities worldwide and caused weakened economic conditions, both inthe United States and abroad. Beginning during the first quarter of 2020, COVID-19 had a significant impact on order rates within Industrial and, on a more targeted basis, Aerospace end-markets. Financial conditions worsened during the second quarter of 2020. End-markets and order activity have since improved within both segments. Industrial sales volumes and order rates strengthened during the first half of 2021, while the Aerospace Aftermarket business, sequentially lower, remains impacted by lower passenger traffic and the removal of aircraft from service. Although sales volumes have increased within the Aerospace Original Equipment Manufacturing ("OEM") business, management anticipates continued sales pressure as the production of certain wide body aircraft has been lowered. COVID-19 may continue to have further negative impacts on the Company's operations, customers and supply chain despite preventative measures taken. The Company currently maintains sufficient liquidity and remained in compliance with all debt covenants as ofJune 30, 2021 , and anticipates continued compliance in each of the next four quarters. The Company continues to closely monitor its cash generation, usage and preservation including the management of working capital to generate cash. To better align costs with the current business environment, the Company has taken several actions in earlier periods, which include restructuring and workforce reductions (the "Actions"). Resulting pre-tax charges of$18.2 million were recorded through operating profit in 2020 (primarily during the second quarter of 2020). See Note 17. Certain other cost savings initiatives (including those resulting from the Actions) remain in place, providing additional benefit during the current period.
RESULTS OF OPERATIONS
Net Sales Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 Change 2021 2020 Change Industrial$ 234.7 $ 165.0 $ 69.6 42.2 %$ 454.7 $ 364.1 $ 90.5 24.9 % Aerospace 86.5 70.5 16.0 22.7 % 168.1 202.1 (34.0) (16.8) % Total$ 321.2 $ 235.5 $ 85.6 36.4 %$ 622.8 $ 566.2 $ 56.6 10.0 % The Company reported net sales of$321.2 million in the second quarter of 2021, an increase of$85.6 million or 36.4%, from the second quarter of 2020. Organic sales increased by$73.5 million , or 31.2%, including increases of$57.5 million at Industrial and$16.0 million at Aerospace. Sales at Industrial and Aerospace reflected sequential improvements of 25 -------------------------------------------------------------------------------- approximately 7% and 6%, respectively, in the second quarter of 2021, as compared with the first quarter of 2021. The year-over-year increase at Aerospace was driven by improved sales within the OEM business, partially offset by a decline within the Aerospace Aftermarket business, resulting primarily from a global slowdown in aerospace markets, and more specifically a resulting decline in aircraft utilization and the removal of aircraft from service by certain airlines. OEM sales improved sequentially by 10%, whereas Aerospace Aftermarket sales declined sequentially by roughly 2%. From an Industrial standpoint, end-markets improved on both a year-over-year and sequential basis. Medical end markets in which the Company participates remain solid and order activity remains favorable. General industrial markets demonstrated significant strength in the current quarter, with both sales and order improvement on a year-over-year and sequential basis. Forecasted automotive production rates remained strong during the 2021 period, although pressures resulting from semiconductor shortages continue to impact near-term automotive production. The Automation business experienced organic sales growth during the current period as a result of further penetration into end markets. The weakening of theU.S. dollar against foreign currencies increased net sales within the Industrial segment by approximately$12.4 million . The Company reported net sales of$622.8 million in the first half of 2021, an increase of$56.6 million , or 10.0%, from the first half of 2020. Organic sales increased by$39.1 million driven by an increase of$73.1 million at Industrial and offset by a decrease of$34.0 million at Aerospace. The weakening of theU.S. dollar against foreign currencies increased net sales within the Industrial segment by approximately$22.7 million . The decrease at Aerospace was driven by organic sales declines within each of the businesses, due primarily to the effect of COVID-19 on airline travel, whereas improvements within Industrial were driven by recovering end-markets within each of the businesses. Expenses and Operating Income Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 Change 2021 2020 Change Cost of sales$ 203.2 $ 147.1 $ 56.1 38.2 %$ 397.9 $ 355.3 $ 42.6 12.0 % % sales 63.3 % 62.4 % 63.9 % 62.8 % Gross profit (1)$ 118.0 $ 88.5 $ 29.5 33.4 %$ 224.9 $ 210.9 $ 14.0 6.6 % % sales 36.7 % 37.6 % 36.1 % 37.2 % Selling and administrative expenses$ 79.4 $ 78.4 $ 1.1 1.4 %$ 154.0 $ 151.5 $ 2.5 1.7 % % sales 24.7 % 33.3 % 24.7 % 26.8 % Operating income$ 38.5 $ 10.1 $ 28.4 281.0 %$ 70.9 $ 59.4 $ 11.5 19.3 % % sales 12.0 % 4.3 % 11.4 % 10.5 % (1) Sales less cost of sales. Cost of sales in the second quarter of 2021 increased 38.2% from the 2020 period and gross profit margin decreased from 37.6% in the 2020 period to 36.7% in the 2021 period. Gross profit margins declined at Aerospace and remained flat at Industrial. Within Industrial, gross profit increased primarily as a result of the profit contribution of higher sales volumes, combined with cost savings initiatives discussed above. Within Aerospace, higher volumes within the OEM business, in particular, contributed to an increase in gross profit during the second quarter of 2021. Gross profit margin decreased during the second quarter of 2021 at Aerospace, however, given the mix of products between the OEM and Aftermarket businesses. Selling and administrative expenses in the second quarter of 2021 increased 1.4% from the 2020 period. Sales, however, increased by 36.4% between the comparable 2020 and 2021 periods. As a percentage of sales, selling and administrative costs decreased from 33.3% in the second quarter of 2020 to 24.7% in the 2021 period. The decrease in selling and administrative costs as a percentage of sales was driven primarily by the absence of$17.7 million of pre-tax charges related to restructuring and workforce reduction actions that were taken during the 2020 period, combined with the ongoing benefit of earlier cost savings initiatives. Partially offsetting this decrease in selling and administrative costs as a percentage of sales were investments in growth and innovation, and an increase in employee related costs, including incentive compensation within both segments. Operating income in the second quarter of 2021 increased by 281.0% to$38.5 million compared with the second quarter of 2020 and operating income margin increased from 4.3% to 12.0%, driven by the items above, primarily the absence of prior period restructuring charges. Cost of sales in the first half of 2021 increased 12.0% from the 2020 period, while gross profit margin decreased from 37.2% in the 2020 period to 36.1% in the 2021 period. Gross profit margins declined at Aerospace and remained flat at Industrial. Within Aerospace, lower volumes within both businesses on a year to date basis, in particular, contributed to a decrease in gross profit 26 -------------------------------------------------------------------------------- during the first half of 2021. Gross profit margin also decreased during the first half of 2021 at Aerospace, given the mix of products between the OEM and Aftermarket businesses. Within Industrial, gross profit increased primarily as a result of the profit contribution of increased sales volumes. Gross profit margins at Industrial during the 2021 and 2020 periods remained flat as the cost savings initiatives initiated in the earlier period remained in place during the current period. Within Aerospace, a reduction in gross profit in the first half of 2021 was driven by significantly lower volumes across the OEM and Aftermarket businesses, primarily due to OEM sales being lower during the first quarter of 2021. Selling and administrative expenses in the first half of 2021 increased 1.7% from the 2020 period. Sales, however, increased by 10.0% between the comparable 2020 and 2021 periods. As a percentage of sales, selling and administrative costs decreased from 26.8% in the first half of 2020 to 24.7% in the 2021 period. The decrease in selling and administrative costs as a percentage of sales was driven by the absence of$17.7 million of restructuring charges and$2.4 million of divestiture charges related to the completion of the Seeger sale during the 2020 period, combined with the ongoing benefit of earlier cost savings initiatives. Partially offsetting this decrease in selling and administrative costs as a percentage of sales were investments in growth and innovation, and an increase in employee related costs, including incentive compensation within both segments. Operating income in the first half of 2021 increased 19.3% to$70.9 million from the first half of 2020 and operating income margin increased from 10.5% in the 2020 period to 11.4% in the 2021 period, primarily driven by the items noted above. Interest expense Interest expense increased by$0.6 million in the second quarter of 2021 and by$0.2 million in the first half of 2021 as compared with the prior year periods, primarily as a result of higher interest rates, partially offset by decreased average borrowings during the period. Other expense (income), net Other expense (income), net in the second quarter of 2021 was$1.3 million compared to$1.1 million in the second quarter of 2020. Other expense (income), net in the first half of 2021 was$2.7 million , flat since the first half of 2020. Income Taxes During the second quarter of 2021, the Italian tax authorities released Tax Guidance related to the application of tax basis realignment rules for intangible property ("Realignment") which provides Italian taxpayers with the opportunity to step up the basis of goodwill and intangibles to their fair market value and amortize the step up over 18 years for tax purposes in exchange for paying a 3% tax on the step up, payable over a three year period. The Company opted to elect the Realignment inJune 2021 and accordingly recorded a tax payable of$3,008 and a long-term tax payable of$6,016 . The Company also recorded a deferred tax asset of$83,921 related to the Realignment. Accounting guidance requires that when a deferred tax asset is realigned for tax purposes, a corresponding revaluation reserve also be recorded. Under Italian tax rules, any dividends paid out of this revaluation reserve are subject to tax at a 24% rate. Accordingly, the Company recorded a deferred tax liability of$72,190 related to the potential 24% tax due on any dividends, paid out of the revaluation reserve. The deferred tax asset and liability balances have been presented on a net basis on the Consolidated Balance Sheets. The Company also recorded a one time$2,707 benefit to the provision in the quarter related to this election and related accounting. The Company's effective tax rate for the first half of 2021 was 26.6% compared with 37.6% in the first half of 2020 and 37.6% for the full year 2020. The decrease in the first half of 2021 effective tax rate from the full year 2020 rate is primarily due to the absence of tax expense related to the completed sale of the Seeger business in 2020, the second quarter 2021 benefit related to the tax basis of goodwill and intangibles at Automation and a favorable mix in earnings based on tax jurisdictions. The tax rate benefits were partially offset by second quarter 2021 tax expense related to the revaluation ofUK deferred taxes resulting from a legislative increase in the corporate tax rate. The Aerospace and Industrial segments have a number of multi-year tax holidays inSingapore andChina . The tax holiday inChina expired at the end of 2020. The Company has re-applied for approval of a potential three-year holiday inChina which could reduce the tax rate. The Company anticipates notification of a decision on its application for the holiday in the latter half of 2021. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established inMalaysia . This holiday commenced effectiveNovember 2020 and remains effective for a period of ten years from inception. 27 -------------------------------------------------------------------------------- Income and Income per Share Three Months Ended Six Months Ended June 30, June 30, (in millions, except per share) 2021 2020 Change 2021 2020 Change Net income$ 24.5 $ 0.6 $ 23.9 NM$ 43.9 $ 30.3 $ 13.6 44.8 % Net income per common share: Basic$ 0.48 $ 0.01 $ 0.47 NM$ 0.86 $ 0.60 $ 0.26 43.3 % Diluted 0.48 0.01 0.47 NM 0.86 0.59 0.27 45.8 % Weighted average common shares outstanding: Basic 50.9 50.8 0.2 0.3 % 50.9 50.9 - - % Diluted 51.1 51.0 0.1 0.2 % 51.1 51.2 (0.1) (0.2) % NM - Not meaningful Basic and diluted net income per common share increased for the three and six month periods endedJune 30, 2021 as compared to 2020. The increases were due to the increases in net income for the periods. Basic and diluted weighted average common shares outstanding were largely consistent for the periods and were only slightly impacted by the repurchase of 396,000 and 100,000 shares during 2020 and 2021, respectively, as part of the Company's publicly announced Repurchase Program (as defined herein) as well as the issuance of additional shares for employee stock plans.
Financial Performance by Business Segment
Industrial
Three Months Ended Six Months Ended
June 30, June 30,
(in millions) 2021 2020 Change 2021 2020 Change
Sales $ 234.7 $ 165.0 $ 69.6 42.2 % $ 454.7 $ 364.1 $ 90.5 24.9 %
Operating profit 27.3 (0.3) 27.6 NM 48.6 17.6 30.9 175.6 %
Operating margin 11.6 % (0.2) % 10.7 % 4.8 %
Sales at Industrial were $234.7 million in the second quarter of 2021, a $69.6
million , or 42.2% increase from the second quarter of 2020. Organic sales
increased by $57.5 million , or 34.8%, during the 2021 period, driven by improved
volumes across each of the businesses. On a sequential basis, Industrial sales
increased by approximately 7% in the second quarter of 2021 relative to the
first quarter of 2021, supporting a continued recovery within our end-markets.
Industrial end-markets improved as the broader effects of COVID-19 continued to
lessen. Forecasted automotive production rates remained strong during the 2021
period, though were tempered by semiconductor shortages that continue to impact
near-term automotive production. The release of certain orders related to
automotive model changes, earlier deferred by customers due to economic
uncertainty, provided benefit to Industrial during the second quarter of 2021.
The Automation business saw strong organic sales growth during the current
period, with continuing signs of strength beginning during the second half of
2020. Orders within the personal care and packaging markets began to improve
during the back end of 2020, with strength within personal care orders
continuing throughout 2021. Volumes within our medical markets remained solid,
consistent with this market trend throughout the pandemic, and order rates
remain favorable. Foreign currency increased sales by approximately $12.4
million as the U.S. dollar weakened against foreign currencies. During the first
half of 2021, this segment reported sales of $454.7 million , a 24.9% increase
from the first half of 2020. Organic sales increased by $73.1 million , or 20.1%,
during the 2021 period, primarily a result of recovering end-markets, the
lessened impacts of COVID-19 and related sales improvements within each of the
businesses. The Company completed the sale of its Seeger business in February
2020 , reducing sales by $5.3 million during the first half of 2021 relative to
the prior year period. Foreign currency increased sales by approximately $22.7
million as the U.S. dollar weakened against foreign currencies.
28-------------------------------------------------------------------------------- Operating profit in the second quarter of 2021 at Industrial was$27.3 million , an increase of$27.6 million from the second quarter operating loss of$0.3 million in 2020. Operating profit benefited from the profit contribution of increased organic sales volumes and the absence of$15.8 million of restructuring charges related primarily to severance and other termination benefits, driven by management actions taken in the 2020 period during the earlier stages of COVID-19. The current year period also benefited from the continued impacts of cost initiatives that were taken in earlier periods, including discretionary spending initiatives. These benefits were partially offset by an increase in employee related costs, including incentive compensation, investments in growth and severance charges resulting from a restructuring action that occurred during the 2021 period. Research and development costs also increased in the current year period as the Company continues to invest in innovation. Operating margin increased from (0.2)% in the 2020 period to 11.6% in the 2021 period, driven primarily by the items described above. Operating profit in the first half of 2021 was$48.6 million , an increase of$30.9 million from the first half of 2020, driven by the profit impact of increased organic sales, the continued impacts of cost initiatives that were taken in earlier periods, and the absence of$15.8 million of restructuring charges and$2.4 million of divestiture charges related to the completion of the Seeger sale during the 2020 period. Operating margin increased from 4.8% in the 2020 period to 10.7% in the 2021 period, primarily a result of the items described above. Outlook: In Industrial, management remains focused on generating organic sales growth through the introduction of new products and services and by leveraging the benefits of its diversified products and global industrial end-markets, however our end markets continue to recover from the impacts of COVID-19 and related supply chain constraints. Markets within our key regions ofNorth America ,Europe andChina continue to demonstrate recovery as order rates have generally improved further during the second quarter of 2021. General industrial end markets have shown significant improvement and a continuation is anticipated as the broader economy recovers. For overall industrial end-markets, the manufacturing Purchasing Managers' Index ("PMI") are above 50 in all regions. PMI withinthe United States andEurope have continued to improve during 2021, with slight deterioration inChina since the end of the year. All regions remain above 50, with particular strength in theU.S. and certain regions withinEurope (above 60). Global forecasted production for light vehicles has also remained strong within theNorth America ,Europe andChina markets, a positive sign for our businesses. Production, however, remains under pressure due to semiconductor shortages that have impacted, and may continue to impact, near-term automotive builds, tempering overall strength within the transportation markets during the first half of 2021. Management also continues to track closely the impact of pricing changes and lead times on raw materials. Within our Molding Solutions business, global medical markets remain healthy and are expected to remain favorable given the recent demands of COVID-19, an aging population and expanded medical applications. The automotive hot runner and tool and die markets continue to improve following the release of projects with automotive original equipment manufacturers related to model launches, including new electric vehicles. Orders within the packaging market have improved on a year-over-year basis, however proposed environmental regulations affecting product and packaging composition and disposability may impact future sales within these end markets. Automation end-markets continue to trend positively with increased order activity through 2021 and we look to expand further into adjacent end-markets. Overall industrial end-markets may be impacted by uncertainty related to current and potential future tariffs. As noted above, our sales were positively impacted by$12.4 million from fluctuations in foreign currencies. To the extent that theU.S. dollar fluctuates relative to other foreign currencies, our sales may be impacted relative to the prior year periods. The relative impact on operating profit is not expected to be as significant as the impact on sales as most of our businesses have expenses primarily denominated in local currencies, where their revenues reside, however operating margins may be impacted. Management is focused on sales growth through innovation, acquisition and expanding geographic reach. Strategic investments in new technologies, manufacturing processes and product development are expected to provide benefits over the long term and management continues to evaluate such opportunities. The Company is focused on the proactive management of costs to mitigate any residual impacts of COVID-19 on operating profit. Management also remains focused on strategic investments and new product and process introductions, as well as driving productivity by leveraging the Barnes Enterprise System ("BES"). Cost saving initiatives taken earlier, including discretionary spending initiatives, continue to provide benefit. The Company continues to manage its cost structure to align with the intake of orders and sales given some level of remaining uncertainty within certain end-markets as we progress through 2021. Management will continue to explore opportunities for additional cost savings, while working closely with vendors and customers as it relates to the timing of deliveries and pricing initiatives. It is anticipated that operating profit will continue to be impacted by changes in sales volume, mix and pricing, freight costs and the levels of investments made within each of the Industrial businesses. Operating profit may also be impacted by enactment of or changes in tariffs, trade agreements and trade policies that may affect the cost, lead times and/or availability of goods, including but not limited to, steel and aluminum. Costs associated with new product and process introductions, restructuring and other cost initiatives, strategic investments and the integration of acquisitions may negatively impact operating profit. 29 -------------------------------------------------------------------------------- Aerospace Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 Change 2021 2020 Change Sales$ 86.5 $ 70.5 $ 16.0 22.7 % $
168.1
Operating profit 11.3 10.4 0.9 8.2 % 22.4 41.8 (19.4) (46.5) %
Operating margin 13.0 % 14.8 % 13.3 % 20.7 % The Aerospace segment reported sales of$86.5 million in the second quarter of 2021, a 22.7% increase from the second quarter of 2020. Sales increased 37% within the OEM business and decreased 2% within the Aftermarket business relative to the 2020 period. On a sequential basis, Aerospace sales improved by 6% in the second quarter of 2021 relative to the first quarter of 2021. The sales mix within the businesses varied on a sequential basis, as OEM sales improved by 10% and Aftermarket sales declined slightly by 2% relative to the first quarter of 2021. The year-over-year increase in OEM sales was driven by growing narrow body airframe production and a return to flight of the Boeing 737 Max. COVID-19 continues to impact the broader aerospace industry during 2021. Sales within OEM, although having increased since the comparable 2020 period, continued to experience the impact of earlier reductions in engine and airframe build schedules, in addition to higher levels of inventory within the supply chain. The order schedules of our OEM customers stabilized during the second quarter of 2021. Sales within the Aftermarket Maintenance Repair and Overhaul ("MRO") and spare parts businesses declined slightly during the second quarter of 2021 on a year-over-year basis. Airline traffic and aircraft utilization have improved relative to the second quarter of 2020, however the removal of aircraft from service by airlines remains a driver as required maintenance, in many cases, is deferred. The MRO business is showing signs of a gradual recovery as the distribution of vaccines increased, certain domestic health and travel restrictions were lifted and passenger traffic improved. Sequentially, however, the Aftermarket business declined by roughly 2%. Sales within the segment are largely denominated inU.S. dollars and therefore were not significantly impacted by changes in foreign currency. During the first half of 2021, the Aerospace segment reported sales of$168.1 million , a 16.8% decrease from the first half of 2020, also driven by declines within each of the Aerospace businesses. The sales decline during the first half of 2021 resulted from lower sales volumes, primarily during the first quarter of 2021, due to the impact of COVID-19. Aerospace segment sales during the first quarter of 2021 were down 37.9% relative to the comparable 2020 quarter, thereby weighing on the first half of 2021. Operating profit at Aerospace in the second quarter of 2021 increased 8.2% from the second quarter of 2020 to$11.3 million . The operating profit increase resulted from the profit impact of higher volumes within the OEM business, as discussed above, productivity and cost savings initiatives including discretionary spending initiatives, and the absence of$1.9 million of restructuring charges included within the 2020 period. These benefits were partially offset by an increase in incentive compensation, unfavorable mix and severance charges resulting from a restructuring action that occurred during the 2021 period. Operating margin decreased from 14.8% in the 2020 period to 13.0% in the 2021 period primarily as a result of mix between the OEM and Aftermarket businesses. Operating margin decreased from 20.7% in the first half of 2020 to 13.3% in the first half of 2021, also a result of mix across the businesses and, more specifically, the comparably lower Aftermarket sales during the first half of 2021. Operating profit in the first half of 2021 decreased 46.5% from the first half of 2020 to$22.4 million , also driven by strong aftermarket performance within the prior year period. 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 defense-related engine and airframe programs. OEM sales and orders grew modestly in 2021 relative to the second half of 2020 and management anticipates gradual order improvement in the latter half of 2021 as customer schedules continue to normalize, albeit at lower levels. The Company expects, however, that the OEM business will continue to see lingering softness in demand for its manufactured components as aircraft production rates at Boeing and Airbus have been reduced. Narrow body airframe production is beginning to ramp, whereas wide body airframe production remains under pressure given continued international travel restrictions. The duration and depth of the aerospace market disruptions remain uncertain at this time, however a recovery to pre-pandemic levels is expected to take several years. Aerospace management continues to work with customers to evaluate engine and airframe build schedules, giving management the ability to react timely to such changes. Management is also working closely with suppliers to align raw material schedules with production requirements. Management remains focused on executing long-term agreements while expanding our share of production on key programs. Backlog at OEM was$694.0 million atJune 30, 2021 , an increase of 21.3% sinceDecember 31, 2020 , at which time backlog was$572.0 million . The recent trend of improved OEM orders has increased backlog as we progressed through 2021, as noted above, however backlog may decline as Aerospace customers adjust orders based on their changing aircraft production schedules. Approximately 40% of OEM backlog is currently scheduled to ship in the next 12 months. If COVID-19 continues to have a material impact on the aviation industry, including our more significant OEM customers, it will continue to materially affect our Aerospace business 30 -------------------------------------------------------------------------------- and results of operations. The Aerospace OEM business may also be impacted by changes in the content levels on certain platforms, changes in customer sourcing decisions, adjustments to customer inventory levels, commodity availability and pricing, vendor sourcing capacity and the use of alternate materials. Additional impacts may include the redesign of parts, quantity of parts per engine, cost schedules agreed to under contract with the engine and airframe manufacturers, as well as the pursuit and duration of new programs. COVID-19 continues to impact our Aerospace Aftermarket businesses. Reduced aircraft utilization, increased levels of aircraft removed from service and reduced airline profitability are expected to continue to negatively impact our business in the mid-term. The Aftermarket business has, however, showed signs of a gradual recovery during the first half of 2021 as domestic passenger traffic improved, the distribution of vaccines increased and certain domestic health and travel restrictions were lifted. Travel restrictions, especially on an international basis, continue to impact wide body aircraft utilization and corresponding Aftermarket orders, although freight remains strong. Sales in the Aerospace Aftermarket business may continue to be impacted by inventory management and changes in customer sourcing, deferred or limited maintenance activity during engine shop visits and the use of surplus (used) material during the engine repair and overhaul process. Management believes that its Aerospace Aftermarket business continues to be competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the MRO business and long-term Revenue Sharing Programs ("RSPs") and Component Repair Programs ("CRPs"). The MRO business may also be impacted by airlines that closely manage their aftermarket costs as engine performance and quality improves. Fluctuations in fuel costs and their impact on airline profitability and behaviors within the aerospace industry could also impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the economics associated with new fuel efficient technologies. Given the pressures on sales growth resulting from COVID-19, the Company remains focused on the proactive management of costs as it takes action to mitigate continued pressure on operating profit. Certain cost savings actions taken in the prior year remain in effect and were critical in partially offsetting the lower profit contribution of lower Aftermarket sales in the current period. Aerospace will continue to explore opportunities for additional cost savings throughout 2021, including working closely with vendors and customers as it relates to the timing of deliveries and pricing initiatives. Management also remains focused on strategic investments and new product and process introductions. Driving productivity through the application of the Barnes Enterprise System continues as a key initiative. Operating profit is expected to be affected by the impact of the changes in sales volume noted above, mix and pricing, particularly as they relate to the higher profit Aftermarket RSP spare parts business, and investments made in each of its businesses. Operating profits may also be impacted by potential changes in tariffs, trade agreements and trade policies that may affect the cost and/or availability of goods. Costs associated with new product and process introductions, the physical transfer of work to other global regions, additional productivity initiatives and restructuring activities may also 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 currently maintains sufficient liquidity and will continue to evaluate ways to enhance its liquidity position as it navigates through the disrupted business environment that has resulted from COVID-19. The Company believes that its 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 2021 will generate sufficient cash to fund operations. Given the recent global market disruptions caused by COVID-19, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash. The Company does not currently anticipate requiring any additional debt facilities. See additional discussion regarding currently available debt facilities below. To better align costs with the current business environment, the Company has taken several actions. During 2020, the Company announced the Actions that were taken across the businesses and functions in response to the macroeconomic disruption in global industrial and aerospace end markets. A resulting pre-tax charge of$18.2 million was recorded through operating profit during 2020 (Note 17), primarily related to employee severance and other termination benefits. The Actions were substantially completed in 2020 and, at the time of the Actions being taken, reduced the Company's global workforce by approximately 8%. The Company continues to invest within its businesses, with its estimate of 2021 capital spending to be approximately$50 million . 31 -------------------------------------------------------------------------------- InOctober 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$100.0 million aggregate principal amount of 3.97% senior notes dueOctober 17, 2024 (the "3.97% Senior Notes"). The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually onApril 17 andOctober 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature onOctober 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 Note Purchase Agreement contains customary affirmative and negative covenants that are similar to the covenants required under the Amended Credit Agreement, as discussed below. AtJune 30, 2021 , the Company was in compliance with all covenants under the Note Purchase Agreement. OnOctober 8, 2020 , the Company entered into the sixth amendment to its fifth amended and restated revolving credit agreement withBank of America (the "Sixth Amendment") and the first amendment to the Note Purchase Agreement withNew York Life (the "First NPA Amendment"). The Sixth Amendment maintained the borrowing availability of$1,000.0 million along with access to request$200.0 million 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$150.0 million is consummated, 3.50 times) to 3.75 times in each case at the end of the four fiscal quarters, beginning withDecember 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 withDecember 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$15.0 million to$25.0 million 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 endedDecember 31, 2020 , if the Company's Senior Leverage Ratio, as defined, exceeds 3.25 times. InOctober 2020 , the Company paid fees and expenses of$1.4 million 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. OnFebruary 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 retainedBank of America, N.A . as the Administrative Agent for the lenders. The Amended Credit Agreement maintains the$1,000.0 million of availability within the facility, while increasing the available borrowings under the accordion feature from$200.0 million to$250.0 million (aggregate availability of$1,250.0 million ) and extends the maturity date throughFebruary 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%. 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 beforeSeptember 30, 2021 , after which the ratio will revert to 3.25 times (or, if a permitted acquisition above$150.0 million 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$150.0 million 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 toOctober 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 Amended Credit Agreement also contemplates the potential replacement of LIBOR (as defined below) with a successor financing rate, pursuant to the intent of theUnited Kingdom's Financial Conduct Authority to phase out use of LIBOR. See additional discussion immediately below regarding the Company's ongoing evaluation related to this potential change in financing rates. The Company paid fees and expenses of$4.2 million in conjunction with executing the Amended Credit Agreement; such fees will be deferred within Other assets on the Consolidated Balance Sheets and will be amortized into interest expense on the Consolidated Statements of Income through its maturity. 32 -------------------------------------------------------------------------------- TheUnited Kingdom's Financial Conduct Authority , which regulates theLondon Interbank Offered Rate ("LIBOR"), announced its intent to phase out the use of LIBOR by the end of 2021. TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, identified the Secured Overnight Financing Rate ("SOFR") as its preferred benchmark alternative toU.S. dollar LIBOR. Published by theFederal Reserve Bank of New York , SOFR represents a measure of the cost of borrowing cash overnight, collateralized byU.S. Treasury securities, and is calculated based on directly observableU.S. Treasury -backed repurchase transactions. The Company's Amended Credit Agreement and corresponding interest rate Swap are tied to LIBOR, with each maturing inFebruary 2026 , as noted above. 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 and cash flows. AtJune 30, 2021 , the Company was in compliance with all applicable covenants. The Company anticipates continued compliance under the Agreements in each of the next four quarters. 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 atJune 30, 2021 . The actual ratio atJune 30, 2021 was 2.86 times, as defined. Management suspended share repurchase activity during 2020 as a result of COVID-19, and therefore no shares were repurchased during the first quarter of 2021. Management resumed share repurchase activity during the second quarter of 2021 and, in an effort to offset equity compensation dilution, repurchased 0.1 million shares of the Company's stock at a cost of$5.2 million . Management will continue to evaluate additional repurchases based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. See "Part II - Item 2 - Unregistered Sales ofEquity Securities and Use of Proceeds". 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 Amended Credit Facility and currently expects that its bank syndicate, comprised of 12 banks, will continue to support its recently executed Amended Credit Agreement which matures inFebruary 2026 . AtJune 30, 2021 , the Company had$450.6 million unused and available for borrowings under its$1,000.0 million Amended Credit Facility, subject to covenants in the Company's revolving debt agreements. AtJune 30, 2021 , additional borrowings of$203.8 million of Total Debt, as defined, including$203.8 million of Senior Debt would have been allowed under the financial covenants. The Company intends to use borrowings under its Amended Credit Agreement to support the Company's ongoing growth initiatives. The Company continues to analyze potential acquisition targets and end markets that meet its strategic criteria with an emphasis on proprietary, highly-engineered industrial technologies. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements. The Company has not drawn on its debt agreements as a result of COVID-19, as it believes the availability of those funds are not at risk given the strength of the underlying bank syndicate. The Company maintains communication with its bank syndicate as it continues to monitor its cash requirements.
The Company had no borrowings under short-term bank credit lines at
OnApril 28, 2017 , the Company entered into an interest rate swap agreement (the "2017 Swap") with one bank which converts the interest on the first$100.0 million 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 onJanuary 31, 2022 . OnMarch 24, 2021 , the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that will commence onJanuary 31, 2022 and will convert the interest on the first$100.0 million 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 onJanuary 30, 2026 . These interest rate swap agreements (the "Swaps") remained in place atJune 30, 2021 and are accounted for as cash flow hedges. AtJune 30, 2021 , the Company's total borrowings were comprised of 32% fixed rate debt and 68% variable rate debt. AtDecember 31, 2020 , the Company's total borrowings were comprised of 30% fixed rate debt and 70% variable rate debt. The Company completed the sale of the Seeger business to KNG effectiveFebruary 1, 2020 . Gross proceeds received were39.0 million Euros ($42.9 million ) 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$36.1 million after consideration of cash sold and transaction costs. Resulting tax charges of$4.2 million were recognized in the first quarter of 2020 following the completion of the sale. The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Facility. AtJune 30, 2021 , the Company held$91.1 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. 33 --------------------------------------------------------------------------------
The Company currently does not plan to make any additional discretionary
contributions to its
Cash Flow
Six Months Ended
June 30,
(in millions) 2021 2020 Change
Operating activities $ 85.7 $ 123.2 $ (37.5)
Investing activities (14.5) 17.3 (31.8)
Financing activities (58.6) (151.6) 93.0
Exchange rate effect (1.3) (1.7) 0.5
Increase (decrease) in cash $ 11.4 $ (12.8) $ 24.2
Operating activities provided $85.7 million in the first half of 2021 compared
to $123.2 million in the first half of 2020. Operating cash flows in the
comparable 2021 period included cash provided by working capital of $1.3 million
compared to $44.5 million in the 2020 period, reflecting a recovery within our
end-markets and a corresponding growth in sales.
Investing activities used $14.5 million in the first half of 2021 and generated
$17.3 million in the first half of 2020. Net cash proceeds of $36.9 million from
the sale of the Seeger business were included in investing activities for the
2020 period. See Note 2 of the Consolidated Financial Statements. Investing
activities in the 2021 period included capital expenditures of $17.6 million
compared to $19.8 million in the 2020 period. The Company expects capital
spending in 2021 to approximate $50 million .
Financing activities in the first half of 2021 included a net decrease in
borrowings of $33.7 million compared to $116.5 million in the comparable 2020
period. During the first six months of 2021 and 2020, the Company repurchased
0.1 million shares and 0.4 million shares, respectively, of the Company's stock
at a cost of $5.2 million and $15.6 million , respectively. Total cash used to
pay dividends was $16.2 million in both the 2021 and 2020 periods. Other
financing cash flows during the first half of 2021 and 2020 include $0.8 million
of net cash proceeds and $3.5 million of net cash payments, respectively,
resulting from the settlement of foreign currency hedges related to intercompany
financing. Other financing cash flows during the first half of 2021 also include
$4.2 million of payments made in conjunction with executing the Amended Credit
Agreement.
The Company maintains borrowing facilities with banks to supplement internal
cash generation. At June 30, 2021 , $549.4 million was borrowed at an average
interest rate of 1.70% under the Company's $1,000.0 million Amended Credit
Facility which matures in February 2026 . In addition, as of June 30, 2021 , the
Company had no borrowings under short-term bank credit lines. At June 30, 2021 ,
the Company's total borrowings were comprised of 32% fixed rate debt and 68%
variable rate debt. The interest payments on $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 2017 and March 2021 .
Debt Covenants
As noted above, borrowing capacity is limited by various debt covenants in the
Company's debt agreements. Following is a reconciliation of Consolidated EBITDA,
a key metric in the debt covenants, to the Company's net income (in millions):
34
--------------------------------------------------------------------------------
Four Fiscal Quarters Ended
June 30, 2021
Net income $ 76.9
Add back:
Interest expense 16.1
Income taxes 35.8
Depreciation and amortization 88.1
Adjustment for non-cash stock based compensation 10.1
Workforce reduction and restructuring charges 2.0
Other adjustments 0.4
Consolidated EBITDA, as defined within the Amended Credit Agreement $
229.4
Consolidated Senior Debt, as defined, as of June 30, 2021 $ 656.5
Ratio of Consolidated Senior Debt to Consolidated EBITDA 2.86
Maximum 3.75
Consolidated Total Debt, as defined, as of June 30, 2021 $ 656.5
Ratio of Consolidated Total Debt to Consolidated EBITDA 2.86
Maximum 3.75
Consolidated Cash Interest Expense, as defined, as of
16.1
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense
14.21
Minimum 4.25
The Amended Credit Agreement allows for certain adjustments within the
calculation of the financial covenants. Other adjustments consist primarily of
due diligence and transaction expenses as permitted under the Amended Credit
Agreement. The Company's financial covenants are measured as of the end of each
fiscal quarter. At June 30, 2021 , additional borrowings of $203.8 million of
Senior Debt would have been allowed under the covenants. Additional borrowings
for Total Debt would also have been limited to $203.8 million at June 30, 2021 .
Senior Debt includes primarily the borrowings under the Amended Credit
Agreement, the 3.97% Senior Notes and the borrowings under the lines of credit.
The Company's unused committed credit facilities at June 30, 2021 were $450.6
million ; however, the borrowing capacity was limited by the debt covenants to
$203.8 million at June 30, 2021 .
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 endedDecember 31, 2020 . 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 endedDecember 31, 2020 . Actual results could differ from those estimates. There have been no material changes to such judgments and estimates.
Critical Accounting Policies
Goodwill and Indefinite-Lived Intangible Assets:Goodwill and indefinite-lived intangible assets are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. Management completes their annual impairment assessments during the second quarter of each year as ofApril 1 . The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, overall unit performance and events directly affecting a unit. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management's cash flow projections, and also evaluates the fair value using the market approach. Inherent in management's development of cash flow projections are assumptions and estimates, 35 -------------------------------------------------------------------------------- including those related to future earnings and growth and the weighted average cost of capital. The Company compares the fair value of the reporting unit with the carrying value of the reporting unit. If the fair values were to fall below the carrying values, the Company would recognize a non-cash impairment charge to income from operations for the amount by which the carrying amount of any reporting unit exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. Based on our second quarter assessment, the estimated fair value of the Automation reporting unit, which represents the 2018 acquisition of Gimatic, exceeded its carrying value while the estimated fair value of each of the remaining reporting units significantly exceeded their carrying values. There was no goodwill impairment at any reporting units. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions, including the impacts of the COVID-19 pandemic. Management's quantitative assessment includes a review of the potential impacts of current and projected market conditions from a market participant's perspective on reporting units' projected cash flows, growth rates and cost of capital to assess the likelihood of whether the fair value would be less than the carrying value. The Company also completed its annual impairment testing of its trade names, indefinite-lived intangible assets, in the second quarter of 2021 and determined that there were no impairments.
EBITDA
Earnings before interest expense, income taxes, and depreciation and
amortization ("EBITDA") for the first half of 2021 was $112.9 million compared
to $102.0 million in the first half of 2020. EBITDA is a measurement not in
accordance with generally accepted accounting principles ("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 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. 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.
Accordingly, the calculation has limitations depending on its use.
Following is a reconciliation of EBITDA to the Company's net income (in
millions):
Six Months Ended
June 30,
2021 2020
Net income $ 43.9 $ 30.3
Add back:
Interest expense 8.4 8.2
Income taxes 15.9 18.3
Depreciation and amortization 44.7 45.3
EBITDA $ 112.9 $ 102.0
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q are 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," "estimate," "project," "continue,"
"will," "should," "may," 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, customers, distributors,
suppliers, business partners or governmental entities; failure to successfully
negotiate collective bargaining agreements or potential strikes, work stoppages
or other similar events; difficulties leveraging market opportunities; changes
in market demand for our products and services; rapid technological and market
change; the ability to protect and avoid infringing upon intellectual property
rights; introduction or development of new products or transfer of work; higher
risks in global operations and markets; the impact of intense competition; acts
of terrorism, cybersecurity attacks or intrusions that could adversely impact
our businesses; the impacts of the COVID-19 pandemic on our business, including
on demand, supply chains, operations and our ability to maintain sufficient
liquidity throughout the unknown duration and severity of the pandemic; the
failure to achieve anticipated cost savings and benefits associated with
workforce reductions and restructuring actions; uncertainties relating to
conditions in financial markets; currency fluctuations and foreign currency
36--------------------------------------------------------------------------------
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 changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; government tariffs, trade agreements and trade policies; the impact of new or revised tax laws and regulations; the adoption of laws, directives or regulations that impact the materials processed by our products or their end markets; changes in raw material or product prices and availability; disruptions in information technology systems, including as a result of cybersecurity or data security breaches; the continuing impact of prior acquisitions and divestitures; and any other future 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 ability to achieve social and environmental performance goals; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies; product liabilities 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, social, economic, business, competitive, environmental, regulatory and public health nature; and other risks and uncertainties described in documents filed with or furnished to theSecurities 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 Company assumes no obligation to update its forward-looking statements.
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