Table of Contents
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the transition period from to Commission file number 1-4801
BARNES GROUP INC.(Exact name of registrant as specified in its charter)
Delaware 06-0247840(State of incorporation) (I.R.S. Employer Identification No.)
123 Main Street, Bristol, Connecticut 06010(Address of Principal Executive Office) (Zip Code)
(860) 583-7070
Registrants telephone number, including area codeSecurities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registeredCommon Stock, $0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesxNoIndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesNoxIndicatebycheckmarkwhethertheregistrant:(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934
duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports);and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesxNo
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesxNo
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbecontained,tothebestofregistrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seedefinitionsoflargeacceleratedfiler,acceleratedfiler,andsmallerreportingcompanyinRule12b-2oftheExchangeAct.(Checkone):
Largeacceleratedfilerx AcceleratedfileroNon-acceleratedfilero Smallerreportingcompanyo
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).YesNoxTheaggregatemarketvalueofthevotingstock(CommonStock)heldbynon-affiliatesoftheregistrantasofthecloseofbusinessonJune30,2016was
approximately$1,661,081,242basedontheclosingpriceoftheCommonStockontheNewYorkStockExchangeonthatdate.Theregistrantdoesnothaveanynon-votingcommonequity.
Theregistranthadoutstanding53,823,313sharesofcommonstockasofFebruary16,2017.Documents Incorporated by Reference
PortionsoftheregistrantsdefinitiveproxystatementtobedeliveredtostockholdersinconnectionwiththeAnnualMeetingofStockholderstobeheldMay5,2017areincorporatedbyreferenceintoPartIII.
Table of Contents
Barnes Group Inc.Index to Form 10-K
Year Ended December 31, 2016
PagePartI Item1. Business 1Item1A. RiskFactors 4Item1B. UnresolvedStaffComments 12Item2. Properties 12Item3. LegalProceedings 14Item4. MineSafetyDisclosures 14
PartII Item5. MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 15Item6. SelectedFinancialData 17Item7. ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations 18Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 36Item8. FinancialStatementsandSupplementaryData 37Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 72Item9A. ControlsandProcedures 72Item9B. OtherInformation 73
PartIII Item10. Directors,ExecutiveOfficersandCorporateGovernance 74Items11-14. IncorporatedbyReferencetoDefinitiveProxyStatement 75
PartIV Item15. Exhibits,FinancialStatementSchedules 75Item16.
Form10-KSummary76
FORWARD-LOOKING STATEMENTS
ThisAnnualReportmaycontainforward-lookingstatementsasdefinedinthePrivateSecuritiesLitigationReformActof1995.Forward-lookingstatementsoftenaddressourexpectedfutureoperatingandfinancialperformanceandfinancialcondition,andoftencontainwordssuchas"anticipate,""believe,""expect,""plan,""estimate,""project,"andsimilarterms.Theseforward-lookingstatementsdonotconstituteguaranteesoffutureperformanceandaresubjecttoavarietyofrisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthoseexpressedintheforward-lookingstatements.Theseinclude,amongothers:difficultymaintainingrelationshipswithemployees,includingunionizedemployees,customers,distributors,suppliers,businesspartnersorgovernmentalentities;failuretosuccessfullynegotiatecollectivebargainingagreementsorpotentialstrikes,workstoppagesorothersimilarevents;difficultiesleveragingmarketopportunities;changesinmarketdemandforourproductsandservices;rapidtechnologicalandmarketchange;theabilitytoprotectintellectualpropertyrights;introductionordevelopmentofnewproductsortransferofwork;higherrisksinglobaloperationsandmarkets;theimpactofintensecompetition;actsofterrorism,cybersecurityattacksorintrusionsthatcouldadverselyimpactourbusinesses;uncertaintiesrelatingtoconditionsinfinancialmarkets;currencyfluctuationsandforeigncurrencyexposure;futurefinancialperformanceoftheindustriesorcustomersthatweserve;ourdependenceuponrevenuesandearningsfromasmallnumberofsignificantcustomers;amajorlossofcustomers;inabilitytorealizeexpectedsalesorprofitsfromexistingbacklogduetoarangeoffactors,includingchangesincustomersourcingdecisions,materialchanges,productionschedulesandvolumesofspecificprograms;theimpactofgovernmentbudgetandfundingdecisions;changesinrawmaterialorproductpricesandavailability;integrationofacquiredbusinesses;restructuringcostsorsavings;thecontinuingimpactofprioracquisitionsand
Table of Contents
divestitures;andanyotherfuturestrategicactions,includingacquisitions,divestitures,restructurings,orstrategicbusinessrealignments,andourabilitytoachievethefinancialandoperationaltargetssetinconnectionwithanysuchactions;theoutcomeofpendingandfuturelegal,governmental,orregulatoryproceedingsandcontingenciesanduninsuredclaims;futurerepurchasesofcommonstock;futurelevelsofindebtedness;andnumerousothermattersofaglobal,regionalornationalscale,includingthoseofapolitical,economic,business,competitive,environmental,regulatoryandpublichealthnature;andotherrisksanduncertaintiesdescribedinthisAnnualReport.TheCompanyassumesnoobligationtoupdateitsforward-lookingstatements.
Table of Contents
PART I
Item 1. BusinessBARNES GROUP INC. (1)
Foundedin1857,BarnesGroupInc.(theCompany)isaglobalindustrialandaerospacemanufacturerandserviceprovider,servingawiderangeofendmarketsandcustomers.Thehighlyengineeredproducts,differentiatedindustrialtechnologies,andinnovativesolutionsdeliveredbyBarnesGroupareusedinfar-reachingapplicationsthatprovidetransportation,manufacturing,healthcareproducts,andtechnologytotheworld.BarnesGroupsapproximately5,000skilledanddedicatedemployeesaroundtheglobearecommittedtoachievingconsistentandsustainableprofitablegrowth.
Structure
TheCompanyoperatesundertwoglobalbusinesssegments:IndustrialandAerospace.TheIndustrialsegmentincludesthetheMoldingSolutions,NitrogenGasProductsandEngineeredComponentsbusinessunits.TheAerospacesegmentincludestheoriginalequipmentmanufacturer(OEM)businessandtheaftermarketbusiness,whichincludesmaintenancerepairandoverhaul(MRO)servicesandthemanufactureanddeliveryofaerospaceaftermarketspareparts.
Inthethirdquarterof2016,theCompany,throughthreeofitssubsidiaries(collectively,thePurchaser),completeditsacquisitionofthemoldsbusinessofAdvalTechHoldingAGandAdvalTechHoldings(Asia)Pte.Ltd.("FOBOHA").FOBOHAisheadquarteredinHaslach,GermanyandoperatesoutofthreemanufacturingfacilitieslocatedinGermany,SwitzerlandandChina.TheCompanycompleteditspurchaseoftheGermanyandSwitzerlandbusinessesonAugust31,2016.ThepurchaseoftheChinabusinessrequiredgovernmentapprovalwhichwasgrantedonSeptember30,2016.FOBOHAspecializesinthedevelopmentandmanufactureofcomplexplasticinjectionmoldsforpackaging,medical,consumerandautomotiveapplications.TheCompanyacquiredFOBOHAforanaggregatecashpurchasepriceofCHF136.3million($138.6million)whichwasfinancedusingcashonhandandborrowingsundertheCompany'srevolvingcreditfacility.ThepurchasepriceincludespreliminaryadjustmentsunderthetermsoftheSharePurchaseAgreement("SPA"),includingapproximatelyCHF11.3million($11.5million)relatedtocashacquired,andissubjecttopostclosingadjustmentsunderthetermsoftheSPA.Inconnectionwiththeacquisition,theCompanyrecorded$39.8millionofintangibleassetsand$73.7millionofgoodwill.FOBOHAisbeingintegratedintotheIndustrialSegment,withinourMoldingSolutionsbusinessunit.SeeNote2andNote5totheConsolidatedFinancialStatements.
Inthefourthquarterof2015,theCompanycompletedtheacquisitionofprivatelyheldPriamusSystemTechnologiesAGandtwoofitssubsidiaries(collectively,"Priamus")fromGrowthFinanceAG.Priamus,whichhasapproximately40employees,isheadquarteredinSchaffhausen,SwitzerlandandhasdirectsalesandserviceofficesintheU.S.andGermany.Priamusisatechnologyleaderinthedevelopmentofadvancedprocesscontrolsystemsfortheplasticinjectionmoldingindustryandservicesmanyoftheworld'shighestqualityplasticinjectionmoldersinthemedical,automotive,consumergoods,electronicsandpackagingmarkets.PriamusisbeingintegratedintotheIndustrialSegment,withinourMoldingSolutionsbusinessunit.SeeNote2oftheConsolidatedFinancialStatements.
Inthethirdquarterof2015,theCompanycompletedtheacquisitionoftheThermoplaybusiness("Thermoplay")byacquiringallofthecapitalstockofprivatelyheldHPES.p.A.,theparentcompanythroughwhichThermoplayoperates.ThermoplaysheadquartersandmanufacturingfacilityarelocatedinPont-Saint-MartininAosta,Italy,withtechnicalservicecapabilitiesinChina,India,France,Germany,UnitedKingdom,Portugal,andBrazil.Thermoplayspecializesinthedesign,development,andmanufacturingofhotrunnersystemsforplasticinjectionmolding,primarilyinthepackaging,automotive,andmedicalendmarkets.ThermoplayisbeingintegratedintotheIndustrialSegment,withinourMoldingSolutionsbusinessunit.SeeNote2oftheConsolidatedFinancialStatements.
_________(1)Asusedinthisannualreport,Company,BarnesGroup,weandoursrefertotheregistrantanditsconsolidatedsubsidiariesexceptwherethecontextrequiresotherwise,andIndustrialandAerospacerefertotheregistrantssegments,nottoseparatecorporateentities
1
Table of Contents
INDUSTRIAL
Industrialisaglobalmanufacturerofhighly-engineered,high-qualityprecisionparts,productsandsystemsforcriticalapplicationsservingadiversecustomerbaseinend-marketssuchastransportation,industrialequipment,consumerproducts,packaging,electronics,medicaldevices,andenergy.Focusedoninnovativecustomsolutions,Industrialparticipatesinthedesignphaseofcomponentsandassemblieswherebycustomersreceivethebenefitsofapplicationandsystemsengineering,newproductdevelopment,testingandevaluation,andthemanufacturingoffinalproducts.Productsaresoldprimarilythroughitsdirectsalesforceandglobaldistributionchannels.IndustrialsMoldingSolutionsbusinessesdesignandmanufacturecustomizedhotrunnersystems,advancedmoldcavitysensorsandprocesscontrolsystems,andprecisionhighcavitationandcubemoldassemblies-collectively,theenablingtechnologiesformanycomplexplasticinjectionmoldingapplications.IndustrialsNitrogenGasProductsbusinessmanufacturesnitrogengasspringsandmanifoldsystemsusedtopreciselycontrolstampingpresses.IndustrialsEngineeredComponentsbusinessesmanufactureandsupplyprecisionmechanicalproductsusedintransportationandindustrialapplications,includingmechanicalsprings,high-precisionpunchedandfine-blankedcomponents,andretainingrings.EngineeredComponentsisequippedtoproducemanytypesofhighlyengineeredprecisionsprings,fromfinehairspringsforelectronicsandinstrumentstolargeheavy-dutyspringsformachinery.
Industrialcompeteswithabroadbaseoflargeandsmallcompaniesengagedinthemanufactureandsaleofengineeredproducts,precisionmolds,hotrunnersystemsandprecisioncomponents.Industrialcompetesonthebasisofquality,service,reliabilityofsupply,engineeringandtechnicalcapability,geographicreach,productbreadth,innovation,design,andprice.Industrialhasmanufacturing,distributionandassemblyoperationsintheUnitedStates,Brazil,China,Germany,Italy,Mexico,Singapore,SwedenandSwitzerland.IndustrialalsohassalesandserviceoperationsintheUnitedStates,Brazil,Canada,CzechRepublic,China/HongKong,France,Germany,India,Italy,Japan,Mexico,theNetherlands,Portugal,Singapore,Slovakia,SouthAfrica,SouthKorea,Spain,Switzerland,ThailandandtheUnitedKingdom.SalesbyIndustrialtoitsthreelargestcustomersaccountedforapproximately11%ofitssalesin2016.
AEROSPACE
AerospaceisaglobalproviderofcomplexfabricatedandprecisionmachinedcomponentsandassembliesforOEMturbineengine,airframeandindustrialgasturbinebuilders,andthemilitary.TheAerospaceaftermarketbusinessprovidesjetenginecomponentMROservices,includingservicesperformedunderourComponentRepairPrograms(CRPs),formanyoftheworldsmajorturbineenginemanufacturers,commercialairlinesandthemilitary.TheAerospaceaftermarketactivitiesalsoincludethemanufactureanddeliveryofaerospaceaftermarketspareparts,includingtherevenuesharingprograms(RSPs)underwhichtheCompanyreceivesanexclusiverighttosupplydesignatedaftermarketpartsoverthelifeoftherelatedaircraftengineprograms.
AerospacesOEMbusinesssupplementstheleadingjetengineOEMcapabilitiesandcompeteswithalargenumberoffabricationandmachiningcompanies.Competitionisbasedmainlyonquality,engineeringandtechnicalcapability,productbreadth,newproductintroduction,timeliness,serviceandprice.Aerospacesfabricationandmachiningoperations,withfacilitiesinArizona,Connecticut,Michigan,Ohio,UtahandSingapore,producecriticalengineandairframecomponentsthroughtechnologicallyadvancedmanufacturingprocesses.
TheAerospaceaftermarketbusinesssupplementsjetengineOEMsmaintenance,repairandoverhaulcapabilities,andcompeteswiththeservicecentersofmajorcommercialairlinesandotherindependentservicecompaniesfortherepairandoverhaulofturbineenginecomponents.Themanufactureandsupplyofaerospaceaftermarketspareparts,includingthoserelatedtotheRSPs,aredependentuponthereliableandtimelydeliveryofhigh-qualitycomponents.Aerospacesaftermarketfacilities,locatedinConnecticut,OhioandSingapore,specializeintherepairandrefurbishmentofhighlyengineeredcomponentsandassembliessuchascases,rotatinglifelimitedparts,rotatingairseals,turbineshrouds,vanesandhoneycombairseals.SalesbyAerospacetoitsthreelargestcustomers,GeneralElectric,Rolls-RoyceandUnitedTechnologiesCorporation,accountedforapproximately51%,13%and11%ofitssalesin2016,respectively.Salestoitsnextfourlargestcustomersin2016collectivelyaccountedforapproximately10%ofitstotalsales.
FINANCIAL INFORMATION
ThebacklogoftheCompanysordersbelievedtobefirmattheendof2016was$886millionascomparedwith$764millionattheendof2015.Ofthe2016year-endbacklog,$636millionwasattributabletoAerospaceand$250millionwasattributabletoIndustrial.Approximately65%oftheCompany'syear-endbacklogisscheduledtobeshippedduring2017.TheremainderoftheCompanysbacklogisscheduledtobeshippedafter2017.
2
Table of Contents
Wehaveaglobalmanufacturingfootprintandatechnicalservicenetworktoserviceourworldwidecustomerbase.TheglobaleconomieshaveasignificantimpactonthefinancialresultsofthebusinessaswehavesignificantoperationsoutsideoftheUnitedStates.Forananalysisofourrevenuefromsalestoexternalcustomers,operatingprofitandassetsbybusinesssegment,aswellasrevenuesfromsalestoexternalcustomersandlong-livedassetsbygeographicarea,seeNote19oftheConsolidatedFinancialStatements.Foradiscussionofrisksattendanttotheglobalnatureofouroperationsandassets,seeItem1A.RiskFactors.
RAW MATERIALS
Theprincipalrawmaterialsusedtomanufactureourproductsarevariousgradesandformsofsteel,fromrolledsteelbars,platesandsheets,tohigh-gradevalvesteelwiresandsheets,variousgradesandforms(bars,sheets,forgings,castingsandpowders)ofstainlesssteels,aluminumalloys,titaniumalloys,copperalloys,graphite,andiron-based,nickel-based(Inconels)andcobalt-based(Hastelloys)superalloysforcomplexaerospaceapplications.Pricesforsteel,titanium,Inconel,Hastelloys,aswellasotherspecialtymaterials,haveperiodicallyincreasedduetohigherdemandand,insomecases,reductionoftheavailabilityofmaterials.Ifthisoccurs,theavailabilityofcertainrawmaterialsusedbyusorinproductssoldbyusmaybenegativelyimpacted.
RESEARCH AND DEVELOPMENT
Weconductresearchanddevelopmentactivitiesinourefforttoprovideacontinuousflowofinnovativenewproducts,processesandservicestoourcustomers.Wealsofocusoncontinuingeffortsaimedatdiscoveringandimplementingnewknowledgethatsignificantlyimprovesexistingproductsandservices,anddevelopingnewapplicationsforexistingproductsandservices.Ourproductdevelopmentstrategyisdrivenbyproductdesignteamsandcollaborationwithourcustomers,particularlywithinIndustrialsMoldingSolutionsbusinesses,aswellaswithinourAerospaceandourotherIndustrialbusinesses.Manyoftheproductsmanufacturedbyusarecustompartsmadetocustomersspecifications.Investmentsinresearchanddevelopmentareimportanttoourlong-termgrowth,enablingustostayaheadofchangingcustomerandmarketplaceneeds.Wespentapproximately$13million,$13millionand$16millionin2016,2015and2014,respectively,onresearchanddevelopmentactivities.
PATENTS AND TRADEMARKS
Patentsandotherproprietaryrightsarecriticaltocertainofourbusinessunits,howevertheCompanyalsoholdscertaintradesecretsandunpatentedknow-how.Wearepartytocertainlicensesofintellectualpropertyandholdnumerouspatents,trademarks,andtradenamesthatenhanceourcompetitiveposition.TheCompanydoesnotbelieve,however,thatanyoftheselicenses,patents,trademarksortradenamesisindividuallysignificanttotheCompanyoreitherofoursegments.Wemaintainprocedurestoprotectourintellectualproperty(includingpatentsandtrademarks)bothdomesticallyandinternationally.RiskfactorsassociatedwithourintellectualpropertyarediscussedinItem1A.RiskFactors.EXECUTIVE OFFICERS OF THE COMPANY
ForinformationregardingtheExecutiveOfficersoftheCompany,seePartIII,Item10ofthisAnnualReport.ENVIRONMENTAL
Compliancewithfederal,state,andlocallaws,aswellasthoseofothercountries,whichhavebeenenactedoradoptedregulatingthedischargeofmaterialsintotheenvironmentorotherwiserelatingtotheprotectionoftheenvironmenthasnothadamaterialeffect,andisnotexpectedtohaveamaterialeffect,uponourcapitalexpenditures,earnings,orcompetitiveposition.
Ourpastandpresentbusinessoperationsandpastandpresentownershipandoperationsofrealpropertyandtheuse,sale,storageandhandlingofchemicalsandhazardousproductssubjectustoextensiveandchangingU.S.federal,stateandlocalenvironmentallawsandregulations,aswellasthoseofothercountries,pertainingtothedischargeofmaterialsintotheenvironment,enforcement,dispositionofwastes(includinghazardouswastes),theuse,shipping,labeling,andstorageofchemicalsandhazardousmaterials,buildingrequirements,orotherwiserelatingtoprotectionoftheenvironment.Wehaveexperienced,andexpecttocontinuetoexperience,coststocomplywithenvironmentallawsandregulations.Inaddition,newlawsandregulations,stricterenforcementofexistinglawsandregulations,thediscoveryofpreviouslyunknowncontaminationortheimpositionofnewclean-uprequirementscouldrequireustoincurcostsorbecomesubjecttoneworincreasedliabilitiesthatcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.
3
Table of Contents
Weuseandgeneratehazardoussubstancesandwastesinouroperations.Inaddition,manyofourcurrentandformerpropertiesareorhavebeenusedforindustrialpurposes.Accordingly,wemonitorhazardouswastemanagementandapplicableenvironmentalpermittingandreportingforcompliancewithapplicablelawsatourlocationsintheordinarycourseofourbusiness.Wemaybesubjecttopotentialmaterialliabilitiesrelatingtoanyinvestigationandclean-upofourlocationsorpropertieswherewedeliveredhazardouswasteforhandlingordisposalthatmaybecontaminatedorwhichmayhavebeencontaminatedpriortoourpurchase,andtoclaimsallegingpersonalinjury.
AVAILABLE INFORMATION
OurInternetaddressiswww.BGInc.com.OurannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstothosereportsareavailablewithoutchargeonourwebsiteassoonasreasonablypracticableaftertheyarefiledwith,orfurnishedto,theU.S.SecuritiesandExchangeCommission("SEC").Inaddition,wehavepostedonourwebsite,andwillmakeavailableinprinttoanystockholderwhomakesarequest,ourCorporateGovernanceGuidelines,ourCodeofBusinessEthicsandConduct,andthechartersoftheAuditCommittee,CompensationandManagementDevelopmentCommitteeandCorporateGovernanceCommittee(theresponsibilitiesofwhichincludeservingasthenominatingcommittee)oftheCompanysBoardofDirectors.ReferencestoourwebsiteaddressedinthisAnnualReportareprovidedasaconvenienceanddonotconstitute,andshouldnotbeviewedas,anincorporationbyreferenceoftheinformationcontainedon,oravailablethrough,thewebsite.Therefore,suchinformationshouldnotbeconsideredpartofthisAnnualReport.
Item 1A. Risk Factors
Ourbusiness,financialconditionorresultsofoperationscouldbemateriallyadverselyaffectedbyanyofthefollowingrisks.Pleasenotethatadditionalrisksnotpresentlyknowntousmayalsomateriallyimpactourbusinessandoperations.RISKS RELATED TO OUR BUSINESS
We depend on revenues and earnings from a small number of significant customers. Any bankruptcy of or loss of or, cancellation, reduction ordelay in purchases by these customers could harm our business. In2016,ournetsalestoGeneralElectricanditssubsidiariesaccountedfor17%ofourtotalsalesandapproximately51%ofAerospace'snetsales.Aerospace'ssecondandthirdlargestcustomers,Rolls-RoyceandUnitedTechnologiesCorporationanditssubsidiaries,accountedfor13%and11%,respectively,ofAerospacenetsalesin2016.Approximately10%ofAerospace'ssalesin2016weretoitsnextfourlargestcustomers.Approximately11%ofIndustrial'ssalesin2016weretoitsthreelargestcustomers.Someofoursuccesswilldependonthebusinessstrengthandviabilityofthosecustomers.Wecannotassureyouthatwewillbeabletoretainourlargestcustomers.Someofourcustomersmayinthefuturereducetheirpurchasesduetoeconomicconditionsorshifttheirpurchasesfromustoourcompetitors,in-houseortoothersources.Someofourlong-termsalesagreementsprovidethatuntilafirmorderisplacedbyacustomerforaparticularproduct,thecustomermayunilaterallyreduceordiscontinueitsprojectedpurchaseswithoutpenalty,orterminateforconvenience.Thelossofoneormoreofourlargestcustomers,anyreduction,cancellationordelayinsalestothesecustomers(includingareductioninaftermarketvolumeinourRSPs),ourinabilitytosuccessfullydeveloprelationshipswithnewcustomers,orfuturepriceconcessionswemaketoretaincustomerscouldsignificantlyreduceoursalesandprofitability.
The global nature of our business exposes us to foreign currency fluctuations that may affect our future revenues, debt levels and profitability. Wehavemanufacturingfacilitiesandtechnicalservice,salesanddistributioncentersaroundtheworld,andthemajorityofourforeignoperationsusethelocalcurrencyastheirfunctionalcurrency.Theseinclude,amongothers,theBrazilianreal,Britishpoundsterling,Canadiandollar,Chineserenminbi,Euro,Japaneseyen,Koreanwon,Mexicanpeso,Singaporedollar,Swedishkrona,SwissfrancandThaibaht.SinceourfinancialstatementsaredenominatedinU.S.dollars,changesincurrencyexchangeratesbetweentheU.S.dollarandothercurrenciesexposeustotranslationriskwhenthelocalcurrencyfinancialstatementsaretranslatedtoU.S.dollars.Changesincurrencyexchangeratesmayalsoexposeustotransactionrisk.Wemaybuyhedgesincertaincurrenciestoreduceoroffsetourexposuretocurrencyexchangefluctuations;however,thesetransactionsmaynotbeadequateoreffectivetoprotectusfromtheexposureforwhichtheyarepurchased.Wehavenotengagedinanyspeculativehedgingactivities.Currencyfluctuationsmayadverselyimpactourrevenuesandprofitabilityinthefuture.
Our operations depend on our manufacturing, sales, and service facilities and information systems in various parts of the world which are subjectto physical, financial, regulatory, environmental, operational and other risks that could disrupt our operations. Wehaveasignificantnumberofmanufacturingfacilities,technicalservice,andsalescentersbothwithinandoutsidetheU.S.Theglobalscopeofourbusinesssubjectsustoincreasedrisksanduncertaintiessuchasthreats
4
Table of Contents
ofwar,terrorismandinstabilityofgovernments;andeconomic,regulatoryandlegalsystemsincountriesinwhichweorourcustomersconductbusiness.
Customer,supplierandourfacilitiesarelocatedinareasthatmaybeaffectedbynaturaldisasters,includingearthquakes,windstormsandfloods,whichcouldcausesignificantdamageanddisruptiontotheoperationsofthosefacilitiesand,inturn,couldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Additionally,someofourmanufacturingequipmentandtoolingiscustom-madeandisnotreadilyreplaceable.Lossofsuchequipmentortoolingcouldhaveanegativeimpactonourmanufacturingbusiness,financialcondition,resultsofoperationsandcashflows.
Althoughwehaveobtainedpropertydamageandbusinessinterruptioninsurance,amajorcatastrophesuchasanearthquake,windstorm,floodorothernaturaldisasteratanyofoursites,orsignificantlaborstrikes,workstoppages,politicalunrest,oranyoftheeventsdescribedabove,inanyoftheareaswhereweconductoperationscouldresultinaprolongedinterruptionofourbusiness.Anydisruptionresultingfromtheseeventscouldcausesignificantdelaysinthemanufactureorshipmentofproductsortheprovisionofrepairandotherservicesthatmayresultinourlossofsalesandcustomers.Ourinsurancewillnotcoverallpotentialrisks,andwecannotassureyouthatwewillhaveadequateinsurancetocompensateusforalllossesthatresultfromanyinsuredrisks.Anymateriallossnotcoveredbyinsurancecouldhaveamaterialadverseeffectonourfinancialcondition,resultsofoperationsandcashflows.Wecannotassureyouthatinsurancewillbeavailableinthefutureatacostacceptabletousoratacostthatwillnothaveamaterialadverseeffectonourprofitability,netincomeandcashflows.
The global nature of our operations and assets subject us to additional financial and regulatory risks. Wehaveoperationsandassetsinvariouspartsoftheworld.Inaddition,wesellormayinthefuturesellourproductsandservicestotheU.S.andforeigngovernmentsandinforeigncountries.Asaglobalbusiness,wearesubjecttocomplexlawsandregulationsintheU.S.andothercountriesinwhichweoperate,andassociatedrisks,including:U.S.imposedembargoesofsalestospecificcountries;foreignimportcontrols(whichmaybearbitrarilyimposedorenforced);importregulationsandduties;exportregulations(whichrequireustocomplywithstringentlicensingregimes);reportingrequirementsregardingtheuseof"conflict"mineralsminedfromcertaincountries;anti-dumpingregulations;priceandcurrencycontrols;exchangeratefluctuations;dividendremittancerestrictions;expropriationofassets;war,civiluprisingsandriots;governmentinstability;governmentcontractingrequirementsincludingcostaccountingstandards,includingvariousprocurement,security,andauditrequirements,aswellasrequirementstocertifytothegovernmentcompliancewiththeserequirements;thenecessityofobtaininggovernmentalapprovalfornewandcontinuingproductsandoperations;andlegalsystemsordecrees,laws,taxes,regulations,interpretationsandcourtdecisionsthatarenotalwaysfullydevelopedandthatmayberetroactivelyorarbitrarilyapplied.Wehaveexperiencedinadvertentviolationsofsomeoftheseregulations,includingexportregulations,safetyandenvironmentalregulations,regulationsprohibitingsalesofcertainproductsandproductlabelingregulations,inthepast,noneofwhichhashador,webelieve,willhaveamaterialadverseeffectonourbusiness.However,anysignificantviolationsoftheseorotherregulationsinthefuturecouldresultincivilorcriminalsanctions,andthelossofexportorotherlicenseswhichcouldhaveamaterialadverseeffectonourbusiness.Wearesubjecttofederalandstateunclaimedpropertylawsintheordinarycourseofbusiness,andarecurrentlyundergoingamulti-stateunclaimedpropertyaudit,thetimingandoutcomeofwhichcannotbepredicted,andwemayincursignificantprofessionalfeesinconjunctionwiththeaudit.Wemayalsobesubjecttounanticipatedincometaxes,exciseduties,importtaxes,exporttaxes,valueaddedtaxes,orothergovernmentalassessments,andtaxesmaybeimpactedbychangesinlegislationinthetaxjurisdictionsinwhichweoperate.Inaddition,ourorganizationalandcapitalstructuremaylimitourabilitytotransferfundsbetweencountries,particularlyintotheU.S.,withoutincurringadversetaxconsequences.Anyoftheseeventscouldresultinalossofbusinessorotherunexpectedcoststhatcouldreducesalesorprofitsandhaveamaterialadverseeffectonourfinancialcondition,resultsofoperationsandcashflows.
Any disruption or failure in the operation of our information systems, including from conversions or integrations of information technology orreporting systems, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Ourinformationtechnology(IT)systemsareanintegralpartofourbusiness.WedependuponourITsystemstohelpprocessorders,manageinventory,makepaymentsandcollectaccountsreceivable.OurITsystemsalsoallowustopurchase,sellandshipproductsefficientlyandonatimelybasis,tomaintaincost-effectiveoperations,andtohelpprovidesuperiorservicetoourcustomers.Wearecurrentlyintheprocessofimplementingenterpriseresourceplanning(ERP)platformsacrosscertainofourbusinesses,andweexpectthatwewillneedtocontinuetoimproveandfurtherintegrateourITsystems,onanongoingbasisinordertoeffectivelyrunourbusiness.IfwefailtosuccessfullymanageandintegrateourITsystems,includingtheseERPplatforms,itcouldadverselyaffectourbusinessoroperatingresults.
Further,intheordinarycourseofourbusiness,westoresensitivedata,includingintellectualproperty,ourproprietarybusinessinformationandthatofourcustomers, suppliers and business partners, and personally identifiable information of our employees, in our data centers and on our networks. The securemaintenance and transmission of this information is critical to our business operations. Despite our security measures, our information technology andinfrastructuremaybevulnerabletoattacksbyhackers
5
Table of Contents
orbreachedduetoemployeeerror,malfeasanceorotherdisruptions.Anysuchbreachcouldcompromiseournetworksandtheinformationstoredtherecouldbeaccessed,publiclydisclosed,lostorstolen.Anysuchaccess,disclosureorotherlossofinformationcouldresultinlegalclaimsorproceedings,liabilityunderlawsthat protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect ourbusiness,revenuesandcompetitiveposition.
We have significant indebtedness that could affect our operations and financial condition, and our failure to meet certain financial covenantsrequired by our debt agreements may materially and adversely affect our assets, financial position and cash flows. AtDecember31,2016,wehadconsolidateddebtobligationsof$501.0million,representingapproximately30%ofourtotalcapital(indebtednessplusstockholdersequity)asofthatdate.Ourlevelofindebtedness,proportionofvariableratedebtobligationsandthesignificantdebtservicingcostsassociatedwiththatindebtednessmayadverselyaffectouroperationsandfinancialcondition.Forexample,ourindebtednesscouldrequireustodedicateasubstantialportionofourcashflowsfromoperationstopaymentsonourdebt,therebyreducingtheamountofourcashflowsavailableforworkingcapital,capitalexpenditures,investmentsintechnologyandresearchanddevelopment,acquisitions,dividendsandothergeneralcorporatepurposes;limitourflexibilityinplanningfor,orreactingto,changesintheindustriesinwhichwecompete;placeusatacompetitivedisadvantagecomparedtoourcompetitors,someofwhomhavelowerdebtserviceobligationsandgreaterfinancialresourcesthanwedo;limitourabilitytoborrowadditionalfunds;orincreaseourvulnerabilitytogeneraladverseeconomicandindustryconditions.Inaddition,amajorityofourdebtarrangementsrequireustomaintaincertaindebtandinterestcoverageratiosandlimitourabilitytoincurdebt,makeinvestmentsorundertakecertainotherbusinessactivities.Theserequirementscouldlimitourabilitytoobtainfuturefinancingandmaypreventusfromtakingadvantageofattractivebusinessopportunities.Ourabilitytomeetthefinancialcovenantsorrequirementsinourdebtarrangementsmaybeaffectedbyeventsbeyondourcontrol,andwecannotassureyouthatwewillsatisfysuchcovenantsandrequirements.Abreachofthesecovenantsorourinabilitytocomplywiththerestrictionscouldresultinaneventofdefaultunderourdebtarrangementswhich,inturn,couldresultinaneventofdefaultunderthetermsofourotherindebtedness.Upontheoccurrenceofaneventofdefaultunderourdebtarrangements,aftertheexpirationofanygraceperiods,ourlenderscouldelecttodeclareallamountsoutstandingunderourdebtarrangements,togetherwithaccruedinterest,tobeimmediatelydueandpayable.Ifthisweretohappen,wecannotassureyouthatourassetswouldbesufficienttorepayinfullthepaymentsdueunderthosearrangementsorourotherindebtednessorthatwecouldfindalternativefinancingtoreplacethatindebtedness.
Conditionsintheworldwidecreditmarketsmaylimitourabilitytoexpandourcreditlinesbeyondcurrentbankcommitments.Inaddition,ourprofitabilitymaybeadverselyaffectedasaresultofincreasesininterestrates.AtDecember31,2016,weandoursubsidiarieshad$501.0millionaggregateprincipalamountofconsolidateddebtobligationsoutstanding,ofwhichapproximately59%hadinterestratesthatfloatwiththemarket(nothedgedagainstinterestratefluctuations).A100basispointincreaseintheinterestrateonthefloatingratedebtineffectatDecember31,2016wouldresultinanapproximate$3.0millionannualizedincreaseininterestexpense.
Changes in the availability or price of materials, products and energy resources could adversely affect our costs and profitability. Wemaybeadverselyaffectedbytheavailabilityorpriceofrawmaterials,productsandenergyresources,particularlyrelatedtocertainmanufacturingoperationsthatutilizesteel,stainlesssteel,titanium,Inconel,Hastelloysandotherspecialtymaterials.Theavailabilityandpriceofrawmaterialsandenergyresourcesmaybesubjecttocurtailmentorchangedueto,amongotherthings,newlawsorregulations,globaleconomicorpoliticaleventsincludingstrikes,terroristattacksandwar,suppliersallocationstootherpurchasers,interruptionsinproductionbysuppliers,changesinexchangeratesandprevailingpricelevels.Insomeinstancestherearelimitedsourcesforrawmaterialsandalimitednumberofprimarysuppliersforsomeofourproductsforresale.Althoughwearenotdependentuponanysinglesourceforanyofourprincipalrawmaterialsorproductsforresale,andsuchmaterialsandproductshave,historically,beenreadilyavailable,wecannotassureyouthatsuchrawmaterialsandproductswillcontinuetobereadilyavailable.Disruptioninthesupplyofrawmaterials,productsorenergyresourcesorourinabilitytocometofavorableagreementswithoursupplierscouldimpairourabilitytomanufacture,sellanddeliverourproductsandrequireustopayhigherprices.Anyincreaseinpricesforsuchrawmaterials,productsorenergyresourcescouldmateriallyadverselyaffectourcostsandourprofitability.
We maintain pension and other postretirement benefit plans in the U.S. and certain international locations. Ourcostsofprovidingdefinedbenefitplansaredependentuponanumberoffactors,suchastheratesofreturnontheplansassets,exchangeratefluctuations,futuregovernmentalregulation,globalfixedincomeandequityprices,andourrequiredand/orvoluntarycontributionstotheplans.Declinesinthestockmarket,prevailinginterestrates,declinesindiscountrates,improvementsinmortalityratesandrisingmedicalcostsmaycauseanincreaseinourpensionandotherpostretirementbenefitexpensesinthefutureandresultinreductionsinourpensionfundassetvaluesandincreasesinourpensionandotherpostretirementbenefitobligations.Thesechangeshavecausedandmaycontinuetocauseasignificantreductioninournetworthandwithoutsustainedgrowthinthepensioninvestmentsovertimetoincreasethevalueoftheplansassets,and
6
Table of Contents
dependingupontheotherfactorslistedabove,wecouldberequiredtoincreasefundingforsomeorallofthesepensionandpostretirementplans.
We carry significant inventories and a loss in net realizable value could cause a decline in our net worth. AtDecember31,2016,ourinventoriestotaled$227.8million.Inventoriesarevaluedatthelowerofcostormarketbasedonmanagement'sjudgmentsandestimatesconcerningfuturesaleslevels,quantitiesandpricesatwhichsuchinventorieswillbesoldinthenormalcourseofbusiness.Acceleratingthedisposalprocessorincorrectestimatesoffuturesalespotentialmaynecessitatefuturereductiontoinventoryvalues.SeePartII-Item7-Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-CriticalAccountingPolicies.
We have significant goodwill and an impairment of our goodwill could cause a decline in our net worth. Ourtotalassetsincludesubstantialgoodwill.AtDecember31,2016,ourgoodwilltotaled$633.4million.Thegoodwillresultsfromourprioracquisitions,representingtheexcessofthepurchasepricewepaidoverthenetassetsofthecompaniesacquired.Weassesswhethertherehasbeenanimpairmentinthevalueofourgoodwillduringeachcalendaryearorsooneriftriggeringeventswarrant.Iffutureoperatingperformanceatoneormoreofourreportingunitsdoesnotmeetexpectationsorfairvaluesfallduetosignificantstockmarketdeclines,wemayberequiredtoreflectanon-cashchargetooperatingresultsforgoodwillimpairment.Therecognitionofanimpairmentofasignificantportionofgoodwillwouldnegativelyaffectourresultsofoperationsandtotalcapitalization,theeffectofwhichcouldbematerial.SeePartII-Item7-Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-CriticalAccountingPolicies.
We may not realize all of the sales expected from our existing backlog or anticipated orders .AtDecember31,2016,wehad$885.5millionoforderbacklog,themajorityofwhichrelatedtoaerospaceOEMcustomers.Therecanbenoassurancesthattherevenuesprojectedinourbacklogwillberealizedor,ifrealized,willresultinprofits.Weconsiderbacklogtobefirmcustomerordersforfuturedelivery.OEMcustomersmayprovideprojectionsofcomponentsandassembliesthattheyanticipatepurchasinginthefutureundernewandexistingprograms.Suchprojectionsareincludedinourbacklogwhentheyaresupportedbyalongtermagreement.Ourcustomersmayhavetherightundercertaincircumstancesorwithcertainpenaltiesorconsequencestoterminate,reduceordeferfirmordersthatwehaveinbacklog.Ifourcustomersterminate,reduceordeferfirmorders,wemaybeprotectedfromcertaincostsandlosses,butoursaleswillneverthelessbeadverselyaffected.Althoughwestrivetomaintainongoingrelationshipswithourcustomers,thereisanongoingriskthatordersmaybecanceledorrescheduledduetofluctuationsinourcustomersbusinessneedsorpurchasingbudgets.
Also,ourrealizationofsalesfromnewandexistingprogramsisinherentlysubjecttoanumberofimportantrisksanduncertainties,includingwhetherourcustomersexecutethelaunchofproductprogramsontime,oratall,thenumberofunitsthatourcustomersactuallyproduce,thetimingofproductionandmanufacturinginsourcingdecisionsmadebyourcustomers.Inaddition,untilfirmordersareplaced,ourcustomersmayhavetherighttodiscontinueaprogramorreplaceuswithanothersupplieratanytimewithoutpenalty.Ourfailuretorealizesalesfromnewandexistingprogramscouldhaveamaterialadverseeffectonournetsales,resultsofoperationsandcashflows.
We may not recover all of our up-front costs related to new or existing programs. Newprogramsmayrequiresignificantup-frontinvestmentsforcapitalequipment,engineering,inventory,designandtooling.AsOEMsinthetransportationandaerospaceindustrieshavelookedtosupplierstobearincreasingresponsibilityforthedesign,engineeringandmanufactureofsystemsandcomponents,theyhaveincreasinglyshiftedthefinancialriskassociatedwiththoseresponsibilitiestothesuppliersaswell.Thistrendmaycontinueandismostevidentintheareaofengineeringcostreimbursement.Wecannotassureyouthatwewillhaveadequatefundstomakesuchup-frontinvestmentsortorecoversuchcostsfromourcustomersaspartofourproductpricing.Intheeventthatweareunabletomakesuchinvestments,ortorecoverthemthroughsalesordirectreimbursementfromourcustomers,ourprofitability,liquidityandcashflowsmaybeadverselyaffected.Inaddition,weincurcostsandmakecapitalexpendituresfornewprogramawardsbaseduponcertainestimatesofproductionvolumesandproductioncomplexity.Whileweattempttorecoversuchcostsandcapitalexpendituresbyappropriatelypricingourproducts,thepricesofourproductsarebasedinpartuponplannedproductionvolumes.Iftheactualproductionissignificantlylessthanplannedorsignificantlymorecomplexthananticipated,wemaybeunabletorecoversuchcosts.Inaddition,becauseasignificantportionofouroverallcostsisfixed,declinesinourcustomersproductionlevelscanadverselyaffectthelevelofourreportedprofitsevenifourup-frontinvestmentsarerecovered.
We may not realize all of the intangible assets related to the Aerospace aftermarket businesses. WeparticipateinaftermarketRevenueSharingPrograms("RSPs")underwhichwereceiveanexclusiverighttosupplydesignatedaftermarketpartsoverthelifeoftherelatedaircraftengineprogramtoourcustomer,GeneralElectric.Asconsideration,wepayparticipationfees,whicharerecordedasintangibleassetsandarerecognizedasareductionofsalesovertheestimatedlifeoftherelatedengineprogramswhichrangeupto30years.OurtotalinvestmentsinparticipationfeesunderourRSPsasof
7
Table of Contents
December31,2016equaled$293.7million,allofwhichhavebeenpaid.AtDecember31,2016,theremainingunamortizedbalanceoftheseparticipationfeeswas$198.0million.
WeenteredintoComponentRepairPrograms("CRPs"),alsowithGeneralElectric("GE"),duringthefourthquarterof2013("CRP1"),thesecondquarterof2014("CRP2")andthefourthquarterof2015("CRP3"and,collectivelywithCRP1andCRP2,the"CRPs").TheCRPsprovidefor,amongotheritems,therighttosellcertainaftermarketcomponentrepairservicesforCFM56,CF6,CF34andLMenginesdirectlytoothercustomersasoneofafewGElicensedsuppliers.Inaddition,theCRPsextendcertainexistingcontractsunderwhichtheCompanycurrentlyprovidestheseservicesdirectlytoGE.
Weagreedtopay$26.6millionasconsiderationfortherightsrelatedtoCRP1.Ofthisbalance,wepaid$16.6millioninthefourthquarterof2013,$9.1millioninthefourthquarterof2014and$0.9millioninthefirstquarterof2016.Weagreedtopay$80.0millionasconsiderationfortherightsrelatedtoCRP2.Wepaid$41.0millioninthesecondquarterof2014,$20.0millioninthefourthquarterof2014and$19.0millioninthesecondquarterof2015.Weagreedtopay$5.2millionasconsiderationfortherightsrelatedtoCRP3.Wepaid$2.0millioninthefourthquarterof2015and$3.2millionwaspaidinDecember2016.WerecordedtheCRPpaymentsasanintangibleassetwhichisrecognizedasareductionofsalesovertheremainingusefullifeoftheseengineprograms.
Therealizabilityofeachassetisdependentuponfuturerevenuesrelatedtotheprograms'aftermarketpartsandservicesandissubjecttoimpairmenttestingifcircumstancesindicatethatitscarryingamountmaynotberecoverable.Thepotentialexiststhatactualrevenueswillnotmeetexpectationsduetoachangeinmarketconditions,including,forexample,thereplacementofolderengineswithnew,morefuel-efficientenginesorourabilitytomaintainmarketsharewithintheaftermarketbusiness.Ashortfallinfuturerevenuesmayresultinthefailuretorealizethenetamountoftheinvestments,whichcouldadverselyaffectourfinancialconditionandresultsofoperations.Inaddition,profitabilitycouldbeimpactedbytheamortizationoftheparticipationfeesandlicenses,andtheexpirationoftheinternationaltaxincentivesontheseprograms.SeePartII-Item7-Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-CriticalAccountingPolicies.
We face risks of cost overruns and losses on fixed-price contracts. Wesellcertainofourproductsunderfirm,fixed-pricecontractsprovidingforafixedpricefortheproductsregardlessoftheproductionorpurchasecostsincurredbyus.Thecostofproducingproductsmaybeadverselyaffectedbyincreasesinthecostoflabor,materials,fuel,outsideprocessing,overheadandotherfactors,includingmanufacturinginefficiencies.Increasedproductioncostsmayresultincostoverrunsandlossesoncontracts.
The departure of existing management and key personnel, a shortage of skilled employees or a lack of qualified sales professionals could materiallyaffect our business, operations and prospects. Ourexecutiveofficersareimportanttothemanagementanddirectionofourbusiness.Ourfuturesuccessdepends,inlargepart,onourabilitytoretainorreplacetheseofficersandothercapablemanagementpersonnel.Althoughwebelievewewillbeabletoattractandretaintalentedpersonnelandreplacekeypersonnelshouldtheneedarise,ourinabilitytodosocouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsorcashflows.Becauseofthecomplexnatureofmanyofourproductsandservices,wearegenerallydependentonaneducatedandhighlyskilledworkforce,including,forexample,ourengineeringtalent.Inaddition,therearesignificantcostsassociatedwiththehiringandtrainingofsalesprofessionals.Wecouldbeadverselyaffectedbyashortageofavailableskilledemployeesorthelossofasignificantnumberofoursalesprofessionals.
If we are unable to protect our intellectual property rights effectively, our financial condition and results of operations could be adversely affected.Weownorarelicensedundervariousintellectualpropertyrights,includingpatents,trademarksandtradesecrets.Ourintellectualpropertyrightsmaynotbesufficientlybroadorotherwisemaynotprovideusasignificantcompetitiveadvantage,andpatentsmaynotbeissuedforpendingorfuturepatentapplicationsownedbyorlicensedtous.Inaddition,thestepsthatwehavetakentomaintainandprotectourintellectualpropertymaynotpreventitfrombeingchallenged,invalidated,circumventedordesigned-around,particularlyincountrieswhereintellectualpropertyrightsarenothighlydevelopedorprotected.Insomecircumstances,enforcementmaynotbeavailabletousbecauseaninfringerhasadominantintellectualpropertypositionorforotherbusinessreasons,orcountriesmayrequirecompulsorylicensingofourintellectualproperty.Wealsorelyonnondisclosureandnoncompetitionagreementswithemployees,consultantsandotherpartiestoprotect,inpart,confidentialinformation,tradesecretsandotherproprietaryrights.Therecanbenoassurancethattheseagreementswilladequatelyprotecttheseintangibleassetsandwillnotbebreached,thatwewillhaveadequateremediesforanybreach,orthatotherswillnotindependentlydevelopsubstantiallyequivalentproprietaryinformation.Ourfailuretoobtainormaintainintellectualpropertyrightsthatconveycompetitiveadvantage,adequatelyprotectourintellectualpropertyordetectorpreventcircumventionorunauthorizeduseofsuchpropertyandthecostofenforcingourintellectualpropertyrightscouldadverselyimpactourcompetitiveposition,financialconditionandresultsofoperations.
8
Table of Contents
Any product liability, warranty, contractual or other claims in excess of insurance may adversely affect our financial condition. Ouroperationsexposeustopotentialproductliabilityrisksthatareinherentinthedesign,manufactureandsaleofourproductsandtheproductswebuyfromthirdpartiesandselltoourcustomers,ortopotentialwarranty,contractualorotherclaims.Forexample,wemaybeexposedtopotentialliabilityforpersonalinjury,propertydamageordeathasaresultofthefailureofanaircraftcomponentdesigned,manufacturedorsoldbyus,orthefailureofanaircraftcomponentthathasbeenservicedbyusorofthecomponentsthemselves.Whilewehaveliabilityinsuranceforcertainrisks,ourinsurancemaynotcoverallliabilities.Additionally,insurancecoveragemaynotbeavailableinthefutureatacostacceptabletous.Anymaterialliabilitynotcoveredbyinsuranceorforwhichthird-partyindemnificationisnotavailableforthefullamountofthelosscouldhaveamaterialadverseeffectonourfinancialcondition,resultsofoperationsandcashflows.
Fromtimetotime,wereceiveproductwarrantyclaims,underwhichwemayberequiredtobearcostsofrepairorreplacementofcertainofourproducts.Warrantyclaimsmayrangefromindividualcustomerclaimstofullrecallsofallproductsinthefield.Wevigorouslydefendourselvesinconnectionwiththesematters.Wecannot,however,assureyouthatthecosts,chargesandliabilitiesassociatedwiththesematterswillnotbematerial,orthatthosecosts,chargesandliabilitieswillnotexceedanyamountsreservedfortheminourconsolidatedfinancialstatements.
Our business, financial condition, results of operations and cash flows could be adversely impacted by strikes or work stoppages. Approximately16%ofourU.S.employeesarecoveredbycollectivebargainingagreementsandmorethan37%ofournon-U.S.employeesarecoveredbycollectivebargainingagreementsorstatutorytradeunionagreements.TheCompanyhasanationalcollectivebargainingagreement(CBA)withcertainunionizedemployeesattheBristol,ConnecticutandCorry,PennsylvaniafacilitiesoftheAssociatedSpringbusinessunit,coveringapproximately250employees.ThecurrentCBAwillexpireinAugust2017,atwhichtimewewillnegotiateasuccessoragreement.ThelocalcollectivebargainingagreementfortheMilwaukee,WisconsinfacilityoftheAssociatedSpringbusinessunitwillexpireonJune30,2017,atwhichtimewewillnegotiateasuccessoragreement.Inaddition,wehaveannualnegotiationsinBrazilandMexicoand,collectively,thesenegotiationscoverapproximately300employeesinthosetwocountries.In2016,wealsocompletednegotiationsresultinginwageincreasesatfourlocationsinourIndustrialsegmentandonelocationinourAerospacesegment,collectivelycoveringatotalofapproximately900employees.
Althoughwebelievethatourrelationswithouremployeesaregood,wecannotassureyouthatwewillbesuccessfulinnegotiatingnewcollectivebargainingagreementsorthatsuchnegotiationswillnotresultinsignificantincreasesinthecostoflabor,includinghealthcare,pensionsorotherbenefits.Anypotentialstrikesorworkstoppages,andtheresultingadverseimpactonourrelationshipswithcustomers,couldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsorcashflows.Similarly,aprotractedstrikeorworkstoppageatanyofourmajorcustomers,suppliersorothervendorscouldmateriallyadverselyaffectourbusiness.
Changes in taxation requirements could affect our financial results. Ourproductsaresubjecttoimportandexcisedutiesand/orsalesorvalue-addedtaxesinmanyjurisdictionsinwhichweoperate.Increasesinindirecttaxescouldaffectourproductsaffordabilityandthereforereduceoursales.Wearealsosubjecttoincometaxinnumerousjurisdictionsinwhichwegeneraterevenues.Changesintaxlaws,taxratesortaxrulingsmayhaveasignificantadverseimpactonoureffectivetaxrate.Amongotherthings,ourtaxliabilitiesareaffectedbythemixofpretaxincomeorlossamongthetaxjurisdictionsinwhichweoperateandtherepatriationofforeignearningstotheU.S.Further,duringtheordinarycourseofbusiness,wearesubjecttoexaminationbythevarioustaxauthoritiesofthejurisdictionsinwhichweoperatewhichcouldresultinanunanticipatedincreaseintaxes.PotentialtaxreformdiscussedbythenewU.S.administration,suchasreducingthecorporateincometaxrateorchangingtherepatriationandtaxationofforeignearnings,mayimpactincometaxexpenses,deferredtaxassetsintheU.S.andtaxliabilitybalances.
Changes in accounting guidance could affect our financial results. Newaccountingguidancethatmaybecomeapplicabletousfromtimetotime,orchangesintheinterpretationsofexistingguidance,couldhaveasignificanteffectonourreportedresultsfortheaffectedperiods.Forexample,theFinancialAccountingStandardsBoardissuedanewaccountingstandardforrevenuerecognitioninMay2014-AccountingStandardsUpdate(ASU)2014-09,"RevenuefromContractswithCustomers(Topic606)".AlthoughwearecurrentlyintheprocessofevaluatingtheimpactofASU2014-09onourconsolidatedfinancialstatements,itisexpectedtochangethewayweaccountforcertainofoursalestransactionsandreportedbacklog.Adoptionofthestandardcouldhaveamaterialimpactonourfinancialstatementsandmayretroactivelyaffecttheaccountingtreatmentoftransactionscompletedbeforeadoption.SeePartII-Item7-Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-OtherMattersforadditionaldisclosurerelatedtotheCompany'splannedadoptionofTopic606.
9
Table of Contents
RISKS RELATED TO THE INDUSTRIES IN WHICH WE OPERATE
We operate in highly competitive markets. We may not be able to compete effectively with our competitors, and competitive pressures couldadversely affect our business, financial condition and results of operations. Ourtwoglobalbusinesssegmentscompetewithanumberoflargerandsmallercompaniesinthemarketsweserve.Someofourcompetitorshavegreaterfinancial,production,researchanddevelopment,orotherresourcesthanwedo.WithinAerospace,certainofourOEMcustomerscompetewithourrepairandoverhaulbusiness.SomeofourOEMcustomersintheaerospaceindustryalsocompetewithuswheretheyhavetheabilitytomanufacturethecomponentsandassembliesthatwesupplytothembuthavechosen,forcapacitylimitations,costconsiderationsorotherreasons,tooutsourcethemanufacturingtous.Ourcustomersawardbusinessbasedon,amongotherthings,price,quality,reliabilityofsupply,service,technologyanddesign.Ourcompetitorseffortstogrowmarketsharecouldexertdownwardpressureonourproductpricingandmargins.Ourcompetitorsmayalsodevelopproductsorservices,ormethodsofdeliveringthoseproductsorservicesthataresuperiortoourproducts,servicesormethods.Ourcompetitorsmayadaptmorequicklythanustonewtechnologiesorevolvingcustomerrequirements.Wecannotassureyouthatwewillbeabletocompetesuccessfullywithourexistingorfuturecompetitors.Ourabilitytocompetesuccessfullywilldepend,inpart,onourabilitytocontinuemakeinvestmentstoinnovateandmanufacturethetypesofproductsdemandedbyourcustomers,andtoreducecostsbysuchmeansasreducingexcesscapacity,leveragingglobalpurchasing,improvingproductivity,eliminatingredundanciesandincreasingproductioninlow-costcountries.Wehaveinvested,andexpecttocontinuetoinvest,inincreasingourmanufacturingfootprintinlow-costcountries.Wecannotassureyouthatwewillhavesufficientresourcestocontinuetomakesuchinvestmentsorthatwewillbesuccessfulinmaintainingourcompetitiveposition.Ifweareunabletodifferentiateourproductsormaintainalow-costfootprint,wemaylosemarketshareorbeforcedtoreduceprices,therebyloweringourmargins.Anysuchoccurrencescouldadverselyaffectourfinancialcondition,resultsofoperationsandcashflows.
Theindustriesinwhichweoperatehavebeenexperiencingconsolidation,bothinoursuppliersandthecustomersweserve.SupplierconsolidationisinpartattributabletoOEMsmorefrequentlyawardinglong-termsolesourceorpreferredsuppliercontractstothemostcapablesuppliersinanefforttoreducethetotalnumberofsuppliersfromwhomcomponentsandsystemsarepurchased.Ifconsolidationofourexistingcompetitorsoccurs,wewouldexpectthecompetitivepressureswefacetoincrease,andwecannotassureyouthatourbusiness,financialcondition,resultsofoperationsorcashflowswillnotbeadverselyimpactedasaresultofconsolidationbyourcompetitorsorcustomers.
Original equipment manufacturers in the aerospace and transportation industries have significant pricing leverage over suppliers and may be ableto achieve price reductions over time. Additionally, we may not be successful in our efforts to raise prices on our customers. ThereissubstantialandcontinuingpressurefromOEMsinthetransportationindustries,includingautomotiveandaerospace,toreducethepricestheypaytosuppliers.Weattempttomanagesuchdownwardpricingpressure,whiletryingtopreserveourbusinessrelationshipswithourcustomers,byseekingtoreduceourproductioncoststhroughvariousmeasures,includingpurchasingrawmaterialsandcomponentsatlowerpricesandimplementingcost-effectiveprocessimprovements.Oursuppliershaveperiodicallyresisted,andinthefuturemayresist,pressuretolowertheirpricesandmayseektoimposepriceincreases.IfweareunabletooffsetOEMpricereductions,ourprofitabilityandcashflowscouldbeadverselyaffected.Inaddition,OEMshavesubstantialleverageinsettingpurchasingandpaymentterms,includingthetermsofacceleratedpaymentprogramsunderwhichpaymentsaremadepriortotheaccountduedateinreturnforanearlypaymentdiscount.OEMscanunexpectedlychangetheirpurchasingpoliciesorpaymentpractices,whichcouldhaveanegativeimpactonourshort-termworkingcapital.
Demand for our defense-related products depends on government spending. AportionofAerospace'ssalesisderivedfromthemilitarymarket,includingsingle-sourcedanddual-sourcedsales.Themilitarymarketislargelydependentupongovernmentbudgetsandissubjecttogovernmentalappropriations.Althoughmulti-yearcontractsmaybeauthorizedinconnectionwithmajorprocurements,fundsaregenerallyappropriatedonafiscalyearbasiseventhoughaprogrammaybeexpectedtocontinueforseveralyears.Consequently,programsareoftenonlypartiallyfundedandadditionalfundsarecommittedonlyasfurtherappropriationsaremade.Wecannotassureyouthatmaintenanceoforincreasesindefensespendingwillbeallocatedtoprogramsthatwouldbenefitourbusiness.Moreover,wecannotassureyouthatnewmilitaryaircraftprogramsinwhichweparticipatewillenterfull-scaleproductionasexpected.Adecreaseinlevelsofdefensespendingorthegovernmentsterminationof,orfailuretofullyfund,oneormoreofthecontractsfortheprogramsinwhichweparticipatecouldhaveamaterialadverseeffectonourfinancialpositionandresultsofoperations.
The aerospace industry is highly regulated. Complications related to aerospace regulations may adversely affect the Company. Asubstantialportionofourincomeisderivedfromouraerospacebusinesses.TheaerospaceindustryishighlyregulatedintheU.S.bytheFederalAviationAdministration,orFAA,andinothercountriesbysimilarregulatoryagencies.Wemustbecertifiedbytheseagenciesand,insomecases,byindividualOEMsinordertoengineerandservicesystemsandcomponentsusedinspecificaircraftmodels.Ifmaterialauthorizationsorapprovalsweredelayed,revokedorsuspended,our
10
Table of Contents
businesscouldbeadverselyaffected.Newormorestringentgovernmentalregulationsmaybeadopted,orindustryoversightheightened,inthefuture,andwemayincursignificantexpensestocomplywithanynewregulationsoranyheightenedindustryoversight.
Fluctuations in jet fuel and other energy prices may impact our operating results. Fuelcostsconstituteasignificantportionofoperatingexpensesforcompaniesintheaerospaceindustry.Fluctuationsinfuelcostscouldimpactlevelsandfrequencyofaircraftmaintenanceandoverhaulactivities,andairlines'decisionsonmaintaining,deferringorcancelingnewaircraftpurchases,inpartbasedonthevalueassociatedwithnewfuelefficienttechnologies.Widespreaddisruptiontooilproduction,refineryoperationsandpipelinecapacityincertainareasoftheU.S.canimpactthepriceofjetfuelsignificantly.ConflictsintheMiddleEast,animportantsourceofoilfortheU.S.andothercountrieswherewedobusiness,causepricesforfueltobevolatile.Becauseweandmanyofourcustomersareintheaerospaceindustry,thesefluctuationscouldhaveamaterialadverseeffectonourfinancialconditionorresultsofoperations.
Our products and services may be rendered obsolete by new products, technologies and processes. Ourmanufacturingoperationsfocusonhighlyengineeredcomponentswhichrequireextensiveengineeringandresearchanddevelopmenttime.Ourcompetitiveadvantagemaybeadverselyimpactedifwecannotcontinuetointroducenewproductsaheadofourcompetition,orifourproductsarerenderedobsoletebyotherproductsorbynew,differenttechnologiesandprocesses.Thesuccessofournewproductswilldependonanumberoffactors,includinginnovation,customeracceptance,theefficiencyofoursuppliersinprovidingmaterialsandcomponentparts,andtheperformanceandqualityofourproductsrelativetothoseofourcompetitors.Wecannotpredictthelevelofmarketacceptanceortheamountofmarketshareournewproductswillachieve.Additionally,wemayfaceincreasedorunexpectedcostsassociatedwithnewproductintroductionincludingtheuseofadditionalresourcessuchaspersonnel.Wecannotassurethatwewillnotexperiencenewproductintroductiondelaysinthefuture.
RISKS RELATED TO RESTRUCTURING, ACQUISITIONS, JOINT VENTURES AND DIVESTITURES
Our restructuring actions could have long-term adverse effects on our business. Fromtimetotime,wehaveimplementedrestructuringactivitiesacrossourbusinessestoadjustourcoststructure,andwemayengageinsimilarrestructuringactivitiesinthefuture.Wemaynotachieveexpectedcostsavingsfromworkforcereductionsorrestructuringactivitiesandactualcharges,costsandadjustmentsduetotheseactionsmayvarymateriallyfromourestimates.Ourabilitytorealizeanticipatedcostsavings,synergiesandrevenueenhancementsmaybeaffectedbyanumberoffactors,includingthefollowing:ourabilitytoeffectivelyeliminateduplicativebackofficeoverheadandoverlappingsalespersonnel,rationalizemanufacturingcapacity,synchronizeinformationtechnologysystems,consolidatewarehousingandotherfacilitiesandshiftproductiontomoreeconomicalfacilities;significantcashandnon-cashintegrationandimplementationcostsorchargesinordertoachievethosecostsavings,whichcouldoffsetanysuchsavingsandothersynergiesresultingfromouracquisitionsordivestitures;andourabilitytoavoidlabordisruptioninconnectionwiththeseactivities.Inaddition,delaysinimplementingplannedrestructuringactivitiesorotherproductivityimprovementsmaydiminishtheexpectedoperationalorfinancialbenefits.
Our acquisition and other strategic initiatives may not be successful. Wehavemadeanumberofacquisitionsinthepast,includingmostrecentlythe
acquisitionoftheFOBOHAbusiness,andweanticipatethatwemay,fromtimetotime,acquireadditionalbusinesses,assetsorsecuritiesofcompanies,andenterintojointventuresandotherstrategicrelationshipsthatwebelievewouldprovideastrategicfitwithourbusinesses.TheseactivitiesexposetheCompanytoanumberofrisksanduncertainties,theoccurrenceofanyofwhichcouldmateriallyadverselyaffectourbusiness,cashflows,financialconditionandresultsofoperations.Aportionoftheindustriesthatweservearematureindustries.Asaresult,ourfuturegrowthmaydependinpartonthesuccessfulacquisitionandintegrationofacquiredbusinessesintoourexistingoperations.Wemaynotbeabletoidentifyandsuccessfullynegotiatesuitableacquisitions,obtainfinancingforfutureacquisitionsonsatisfactoryterms,obtainregulatoryapprovalsorotherwisecompleteacquisitionsinthefuture.
Wecouldhavedifficultiesintegratingacquiredbusinesseswithourexistingoperations.Difficultiesofintegrationcanincludecoordinatingandconsolidatingseparatesystems,integratingthemanagementoftheacquiredbusiness,retainingmarketacceptanceofacquiredproductsandservices,maintainingemployeemoraleandretainingkeyemployees,andimplementingourenterpriseresourceplanningsystemsandoperationalproceduresanddisciplines.Anysuchdifficultiesmaymakeitmoredifficulttomaintainrelationshipswithemployees,customers,businesspartnersandsuppliers.Inaddition,evenifintegrationissuccessful,thefinancialperformanceofacquiredbusinessmaynotbeasexpectedandtherecanbenoassurancewewillrealizeanticipatedbenefitsfromouracquisitions.Wecannotassureyouthatwewilleffectivelyassimilatethebusinessorproductofferingsofacquiredcompaniesintoourbusinessorproductofferingsorrealizeanticipatedoperationalsynergies.Inconnectionwiththeintegrationofacquiredoperationsortheconductofouroverallbusinessstrategies,wemayperiodicallyrestructureourbusinessesand/orsellassetsorportionsofourbusiness.Integratingtheoperationsandpersonnelofacquired
11
Table of Contents
companiesintoourexistingoperationsmayresultindifficulties,significantexpenseandaccountingcharges,disruptourbusinessordivertmanagementstimeandattention.
Acquisitionsinvolvenumerousotherrisks,includingpotentialexposuretounknownliabilitiesofacquiredcompaniesandthepossiblelossofkeyemployeesandcustomersoftheacquiredbusiness.Certainoftheacquisitionagreementsbywhichwehaveacquiredbusinessesrequiretheformerownerstoindemnifyusagainstcertainliabilitiesrelatedtothebusinessoperationsbeforeweacquiredit.However,theliabilityoftheformerownersislimitedandcertainformerownersmaybeunabletomeettheirindemnificationresponsibilities.Wecannotassureyouthattheseindemnificationprovisionswillprotectusfullyoratall,andasaresultwemayfaceunexpectedliabilitiesthatadverselyaffectourfinancialcondition.InconnectionwithacquisitionsorjointventureinvestmentsoutsidetheU.S.,wemayenterintoderivativecontractstopurchaseforeigncurrencyinordertohedgeagainsttheriskofforeigncurrencyfluctuationsinconnectionwithsuchacquisitionsorjointventureinvestments,whichsubjectsustotheriskofforeigncurrencyfluctuationsassociatedwithsuchderivativecontracts.Additionally,ourfinaldeterminationsandappraisalsofthefairvalueofassetsacquiredandliabilitiesassumedinouracquisitionsmayvarymateriallyfromearlierestimates.Wecannotassureyouthatthefairvalueofacquiredbusinesseswillremainconstant.
We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are deemed not to fit withour strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, operating results and financialcondition will not be materially and adversely affected. Asuccessfuldivestituredependsonvariousfactors,includingourabilitytoeffectivelytransferliabilities,contracts,facilitiesandemployeestoanypurchaser,identifyandseparatetheintellectualpropertytobedivestedfromtheintellectualpropertythatwewishtoretain,reducefixedcostspreviouslyassociatedwiththedivestedassetsorbusiness,andcollecttheproceedsfromanydivestitures.Inaddition,ifcustomersofthedivestedbusinessdonotreceivethesamelevelofservicefromthenewowners,thismayadverselyaffectourotherbusinessestotheextentthatthesecustomersalsopurchaseotherproductsofferedbyus.Alloftheseeffortsrequirevaryinglevelsofmanagementresources,whichmaydivertourattentionfromotherbusinessoperations.Ifwedonotrealizetheexpectedbenefitsorsynergiesofanydivestituretransaction,ourconsolidatedfinancialposition,resultsofoperationsandcashflowscouldbenegativelyimpacted.Inaddition,divestituresofbusinessesinvolveanumberofrisks,includingsignificantcostsandexpenses,thelossofcustomerrelationships,andadecreaseinrevenuesandearningsassociatedwiththedivestedbusiness.Furthermore,divestiturespotentiallyinvolvesignificantpost-closingseparationactivities,whichcouldinvolvetheexpenditureofmaterialfinancialresourcesandsignificantemployeeresources.Anydivestituremayresultinadilutiveimpacttoourfutureearningsifweareunabletooffsetthedilutiveimpactfromthelossofrevenueassociatedwiththedivestiture,aswellassignificantwrite-offs,includingthoserelatedtogoodwillandotherintangibleassets,whichcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.Item 1B. Unresolved Staff Comments
None.Item 2. Properties
Number of Facilities - Owned Location Industrial Aerospace Other Total Manufacturing:
NorthAmerica 6 5 0 11Europe 9 0 0 9Asia 1 0 0 1CentralandLatinAmerica 2 0 0 2
18 5 0 23
Non-Manufacturing: NorthAmerica 0 0 1* 1Europe 2 0 0 2
2 0 1 3
*TheCompany'sCorporateoffice
12
Table of Contents
Number of Facilities - Leased Location Industrial Aerospace Other Total Manufacturing:
NorthAmerica 2 2 0 4Europe 3 0 0 3Asia 5 5 0 10
10 7 0 17
Non-Manufacturing: NorthAmerica 8 2 1** 11Europe 13 1 0 14Asia 22 0 0 22CentralandLatinAmerica 4 0 0 4
47 3 1 51
**IndustrialsegmentheadquartersandcertainSharedServicesgroups.
13
Table of Contents
Item 3. Legal Proceedings
InNovember2016,theCompanyspreviouslydisclosedarbitrationwithTriumphActuationSystems-Yakima,LLC("Triumph")wasconcluded.TheCompanywasawarded$9.2million,plusinterestonthejudgmentof$1.4million,whichamountswerereceivedonJanuary3,2017.TheoutcomedidnothaveamaterialimpactontheCompany'sconsolidatedfinancialposition,liquidityorconsolidatedresultsofoperations.
Inaddition,wearesubjecttolitigationfromtimetotimeintheordinarycourseofbusinessandvariousothersuits,proceedingsandclaimsarependingagainstusandoursubsidiaries.Whileitisnotpossibletodeterminetheultimatedispositionofeachoftheseproceedingsandwhethertheywillberesolvedconsistentwithourbeliefs,weexpectthattheoutcomeofsuchproceedings,individuallyorintheaggregate,willnothaveamaterialadverseeffectonourfinancialconditionorresultsofoperations.
Item 4. Mine Safety Disclosures
Notapplicable.
14
Table of Contents
PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information
TheCompanyscommonstockistradedontheNewYorkStockExchangeunderthesymbolB.Thefollowingtablesetsforth,fortheperiodsindicated,thelowandhighsalesintra-daytradingpricepershare,asreportedbytheNewYorkStockExchange,anddividendsdeclaredandpaid.
2016 Low High DividendsQuarterendedMarch31 $ 30.07 $ 35.81 $ 0.12QuarterendedJune30 31.13 37.75 0.13QuarterendedSeptember30 32.55 41.86 0.13QuarterendedDecember31 37.88 49.90 0.13
2015 Low High DividendsQuarterendedMarch31 $ 33.75 $ 41.00 $ 0.12QuarterendedJune30 38.75 41.74 0.12QuarterendedSeptember30 35.33 41.78 0.12QuarterendedDecember31 33.00 39.74 0.12Stockholders
AsofFebruary14,2017,therewereapproximately3,239holdersofrecordoftheCompanyscommonstock.AsignificantnumberoftheoutstandingsharesofcommonstockwhicharebeneficiallyownedbyindividualsorentitiesareregisteredinthenameofanomineeofTheDepositoryTrustCompany,asecuritiesdepositoryforbanksandbrokeragefirms.TheCompanybelievesthatthereareapproximately18,774beneficialownersofitscommonstock.Dividends
PaymentoffuturedividendswilldependupontheCompanysfinancialcondition,resultsofoperationsandotherfactorsdeemedrelevantbytheCompanysBoardofDirectors,aswellasanylimitationsresultingfromfinancialcovenantsundertheCompanyscreditfacilitiesordebtindentures.Seethetableabovefordividendinformationfor2016and2015.Securities Authorized for Issuance Under Equity Compensation Plans
ForinformationregardingSecuritiesAuthorizedforIssuanceUnderEquityCompensationPlans,seePartIII,Item12ofthisAnnualReport.
15
Table of Contents
Performance Graph
Astockperformancegraphbasedoncumulativetotalreturns(pricechangeplusreinvesteddividends)for$100investedinBarnesGroup,Inc.("BGI")onDecember31,2011issetforthbelow.
2011 2012 2013 2014 2015 2016BGI $100.00 $94.74 $163.80 $160.20 $155.06 $210.56S&P 600 $100.00 $116.30 $164.33 $173.75 $170.27 $215.26Russell 2000 $100.00 $116.37 $161.53 $169.43 $161.96 $196.38
Theperformancegraphdoesnotincludeapublishedindustryorline-of-businessindexorpeergroupofsimilarissuersbecausetheCompanyisinmultiplelinesofbusinessanddoesnotbelieveameaningfulpublishedindexorpeergroupcanbereasonablyidentified.Accordingly,aspermittedbySECrules,thegraphincludestheS&P600SmallCapIndexandtheRussell2000Index,whicharecomprisedofissuerswithgenerallysimilarmarketcapitalizationstothatoftheCompany.
(c) Issuer Purchases of Equity Securities
Period
Total Numberof Shares (or Units)
Purchased
Average PricePaid Per Share
(or Unit)
Total Number ofShares (or Units)
Purchased as Part ofPublicly AnnouncedPlans or Programs
Maximum Number of Shares(or Units) that May Yet Be
Purchased Under the Plans orPrograms (2)
October1-31,2016 100 $ 40.55 4,573,798November1-30,2016 124,792 $ 38.95 124,792 4,449,006December1-31,2016 $ 4,449,006Total 124,892 (1) $ 38.95 124,792
(1) Otherthan124,792sharespurchasedinthefourthquarterof2016,whichwerepurchasedaspartoftheCompany's2011Program(definedbelow),allacquisitionsofequitysecuritiesduringthefourthquarterof2016weretheresultoftheoperationofthetermsoftheCompany'sstockholder-approvedequitycompensationplansandthetermsoftheequityrightsgrantedpursuanttothoseplanstopayfortherelatedincometaxuponissuanceofshares.Thepurchasepriceofashareofstockusedfortaxwithholdingisthemarketpriceonthedateofissuance.
(2) TheprogramwaspubliclyannouncedonOctober20,2011(the"2011Program")authorizingrepurchaseofupto5.0millionsharesofcommonstock.AtDecember31,2015,1.1millionsharesofcommonstockhadnotbeenpurchasedunderthe2011Program.OnFebruary10,2016,theBoardofDirectorsoftheCompanyincreasedthenumberofsharesauthorizedforrepurchaseunderthe2011Programby3.9millionsharesofcommonstock(5.0millionauthorized,intotal).The2011Programpermitsopenmarketpurchases,purchasesunderaRule10b5-1tradingplanandprivatelynegotiatedtransactions.
16
Table of Contents
Item 6. Selected Financial Data
2016 (5) 2015 (6) 2014 2013 (7)(9) 2012 (8)(9)
Per common share (1) Incomefromcontinuingoperations
Basic $ 2.50 $ 2.21 $ 2.20 $ 1.34 $ 1.46Diluted 2.48 2.19 2.16 1.31 1.44
Netincome Basic 2.50 2.21 2.16 5.02 1.74Diluted 2.48 2.19 2.12 4.92 1.72
Dividendsdeclaredandpaid 0.51 0.48 0.45 0.42 0.40Stockholdersequity(atyear-end) 21.72 20.94 20.40 21.17 14.76Stockprice(atyear-end) 47.42 35.39 37.01 38.31 22.46For the year (inthousands) Netsales $ 1,230,754 $ 1,193,975 $ 1,262,006 $ 1,091,566 $ 928,780Operatingincome 192,178 168,396 179,974 123,201 107,131
Asapercentofnetsales 15.6% 14.1% 14.3% 11.3% 11.5%Incomefromcontinuingoperations $ 135,601 $ 121,380 $ 120,541 $ 72,321 $ 79,830
Asapercentofnetsales 11.0% 10.2% 9.6% 6.6% 8.6%Netincome $ 135,601 $ 121,380 $ 118,370 $ 270,527 $ 95,249
Asapercentofnetsales 11.0% 10.2% 9.4% 24.8% 10.3%Asapercentofaveragestockholdersequity(2) 11.6% 10.7% 10.3% 28.3% 12.6%
Depreciationandamortization $ 80,154 $ 78,242 $ 81,395 $ 65,052 $ 57,360Capitalexpenditures 47,577 45,982 57,365 57,304 37,787Weightedaveragecommonsharesoutstandingbasic 54,191 55,028 54,791 53,860 54,626Weightedaveragecommonsharesoutstandingdiluted 54,631 55,513 55,723 54,973 55,224Year-end financial position (inthousands) Workingcapital $ 306,609 $ 359,038 $ 323,306 $ 276,878 $ 418,645Goodwill 633,436 587,992 594,949 649,697 579,905Otherintangibleassets,net 522,258 528,322 554,694 534,293 383,972Property,plantandequipment,net 334,489 308,856 299,435 302,558 233,097Totalassets 2,137,539 2,061,866 2,073,885 2,123,673 1,868,596Long-termdebtandnotespayable 500,954 509,906 504,734 547,424 646,613Stockholdersequity 1,168,358 1,127,753 1,111,793 1,141,414 800,118Debtasapercentoftotalcapitalization(3) 30.0% 31.1% 31.2% 32.4% 44.7%Statistics Employeesatyear-end(4) 5,036 4,735 4,515 4,331 3,795(1) Incomefromcontinuingoperationsandnetincomepercommonsharearebasedontheweightedaveragecommonsharesoutstandingduringeachyear.Stockholdersequitypercommonshareiscalculated
basedonactualcommonsharesoutstandingattheendofeachyear.(2) Averagestockholders'equityiscalculatedbasedonthemonth-endstockholdersequitybalancesbetweenDecember31,2015andDecember31,2016(13-monthaverage).(3) Debtincludesallinterest-bearingdebtandtotalcapitalizationincludesinterest-bearingdebtandstockholdersequity.(4) Thenumberofemployeesateachyear-endincludesemployeesofcontinuingoperationsandexcludesprioremployeesofdiscontinuedoperations.(5) During2016,theCompanycompletedtheacquisitionofFOBOHA.TheresultsofFOBOHA,fromtheacquisitiononAugust31,2016,havebeenincludedwithintheCompany'sConsolidatedFinancial
StatementsfortheperiodendedDecember31,2016.(6) During2015,theCompanycompletedtheacquisitionsofThermoplayandPriamus.TheresultsofThermoplayandPriamus,fromtheiracquisitionsonAugust7,2015andOctober1,2015,respectively,
havebeenincludedwithintheCompany'sConsolidatedFinancialStatementsfortheperiodendedDecember31,2015.(7) During2013,theCompanycompletedtheacquisitionoftheMnnerBusiness.TheresultsoftheMnnerBusiness,fromtheacquisitiononOctober31,2013,havebeenincludedwithintheCompany's
ConsolidatedFinancialStatementsfortheperiodendedDecember31,2013.(8) During2012,theCompanycompletedtheacquisitionofSynventive.TheresultsofSynventive,fromtheacquisitiononAugust27,2012,havebeenincludedwithintheCompany'sConsolidatedFinancial
StatementsfortheperiodendedDecember31,2012.(9) During2013,theCompanysoldtheBDNAbusinesswithinthesegmentformerlyreferredtoasDistribution.TheresultsoftheBDNAbusiness,includingany(loss)gainonthesaleofbusiness,havebeen
reportedthroughdiscontinuedoperationsduringtherespectiveperiods.
17
Table of Contents
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
YoushouldreadthefollowingdiscussioninconjunctionwithourconsolidatedfinancialstatementsandrelatednotesinthisAnnualReportonForm10-K.Inadditiontohistoricalinformation,thisdiscussioncontainsforward-lookingstatementsthatinvolverisks,uncertainties,andassumptionsthatcouldcauseactualresultstodiffermateriallyfromourexpectations.FactorsthatcouldcausesuchdifferencesincludethosedescribedinthesectiontitledRiskFactorsandelsewhereinthisreport.Weundertakenoobligationtoupdateanyoftheforward-lookingstatements.
OVERVIEW
2016 Highlights
BarnesGroupInc.(the"Company")achievedsalesof$1,230.8millionin2016,anincreaseof$36.8million,or3.1%,from2015.Acquiredbusinessescontributedincrementalsalesof$47.4millionduring2016.Organicsales(netsalesexcludingbothforeigncurrencyandacquisitionimpacts)decreasedby$1.1million,or0.1%,withanincreaseof0.5%andadecreaseof1.3%withintheIndustrialandAerospacesegments,respectively.SalesintheIndustrialsegmentwereimpactedbychangesinforeigncurrencywhichdecreasedsalesbyapproximately$9.6millionastheU.S.dollarstrengthenedagainstforeigncurrencies.
Operatingincomeincreased14.1%from$168.4millionin2015to$192.2millionin2016andoperatingmarginincreasedfrom14.1%in2015to15.6%in2016.OperatingincomewasimpactedbyimprovedproductivitywithinIndustrialandtheprofitcontributionsoftheincrementalsalesgeneratedatourrecentlyacquiredbusinesses,partiallyoffsetbyunfavorablepricingwithinbothsegments.Operatingincomeduring2016and2015included$2.3millionand$2.6millionofshort-termpurchaseaccountingadjustments,respectively,relatedtorecentbusinessacquisitions.Operatingincomein2015includeda$9.9millionlump-sumpensionsettlementchargeand$4.2millionofchargesrelatedtocertainworkforcereductionsandrestructuringcharges.
TheCompanyfocusedonprofitablesalesgrowthbothorganicallyandthroughacquisition,inadditiontoproductivityimprovements,askeystrategicobjectivesin2016.Managementcontinueditsfocusoncashflowandworkingcapitalmanagementin2016andgenerated$217.6millionincashflowfromoperations.
Business Transformation
AcquisitionsandstrategicrelationshipswithourcustomershavebeenakeygrowthdriverfortheCompany,andwecontinuetoseekallianceswhichfosterlong-termbusinessrelationships.Theseacquisitionshaveallowedustoextendintoneworadjacentmarkets,expandourgeographicreach,andcommercializenewproducts,processesandservices.TheCompanycontinuallyevaluatesitsbusinessportfoliotooptimizeproductofferingsandmaximizevalue.Wehavesignificantlytransformedourbusinessfollowingourentranceintotheplasticinjectionmoldingmarket.
Inthethirdquarterof2016,theCompany,throughthreeofitssubsidiaries(collectively,thePurchaser),completeditsacquisitionofthemoldsbusinessofAdvalTechHoldingAGandAdvalTechHoldings(Asia)Pte.Ltd.("FOBOHA").FOBOHAisheadquarteredinHaslach,GermanyandoperatesoutofthreemanufacturingfacilitieslocatedinGermany,SwitzerlandandChina.TheCompanycompleteditspurchaseoftheGermanyandSwitzerlandbusinessesonAugust31,2016.ThepurchaseoftheChinabusinessrequiredgovernmentapprovalwhichwasgrantedonSeptember30,2016.FOBOHAspecializesinthedevelopmentandmanufactureofcomplexplasticinjectionmoldsforpackaging,medical,consumerandautomotiveapplications.TheCompanyacquiredFOBOHAforanaggregatecashpurchasepriceofCHF136.3million($138.6million)whichwasfinancedusingcashonhandandborrowingsundertheCompany'srevolvingcreditfacility.ThepurchasepriceincludespreliminaryadjustmentsunderthetermsoftheSharePurchaseAgreement("SPA"),includingapproximatelyCHF11.3million($11.5million)relatedtocashacquired,andissubjecttopostclosingadjustmentsunderthetermsoftheSPA.Inconnectionwiththeacquisition,theCompanyrecorded$39.8millionofintangibleassetsand$73.7millionofgoodwill.SeeNote2andNote5totheConsolidatedFinancialStatements.
Inthefourthquarterof2015,theCompany,itselfandthroughtwoofitssubsidiaries,completedtheacquisitionofprivatelyheldPriamusSystemTechnologiesAGandtwoofitssubsidiaries(collectively,"Priamus")fromGrowthFinanceAG.Priamus,whichhasapproximately40employees,isheadquarteredinSchaffhausen,SwitzerlandandhasdirectsalesandserviceofficesintheU.S.andGermany.Priamusisatechnologyleaderinthedevelopmentofadvancedprocesscontrolsystemsfortheplasticinjectionmoldingindustryandservicesmanyoftheworld'shighestqualityplasticinjectionmoldersinthemedical,automotive,consumergoods,electronicsandpackagingmarkets.PriamushasbeenintegratedintoourIndustrial
18
Table of Contents
segment.TheCompanyacquiredPriamusforanaggregatecashpurchasepriceofCHF9.9million($10.1million)whichwasfinancedusingcashonhandandborrowingsundertheCompany'srevolvingcreditfacility.ThepurchasepriceincludesadjustmentsunderthetermsoftheSharePurchaseAgreement,includingCHF1.6million($1.6million)relatedtocashacquired.SeeNote2oftheConsolidatedFinancialStatements.
Inthethirdquarterof2015,theCompany,throughoneofitssubsidiaries,completedtheacquisitionoftheThermoplaybusiness("Thermoplay")byacquiringallofthecapitalstockofprivatelyheldHPES.p.A.,theparentcompanythroughwhichThermoplayoperates("HPE").ThermoplaysheadquartersandmanufacturingfacilityarelocatedinPont-Saint-MartininAosta,Italy,withtechnicalservicecapabilitiesinChina,India,France,Germany,UnitedKingdom,Portugal,andBrazil.Thermoplay,whichhasbeenintegratedintoourIndustrialsegment,specializesinthedesign,development,andmanufacturingofhotrunnersolutionsforplasticinjectionmolding,primarilyinthepackaging,automotive,andmedicalendmarkets.TheCompanyacquiredThermoplayforanaggregatecashpurchasepriceof58.1million($63.7million),pursuanttothetermsoftheSaleandPurchaseAgreement("SPA"),whichwasfinancedusingcashonhandandborrowingsundertheCompany'srevolvingcreditfacility.ThepurchasepriceincludesadjustmentsunderthetermsoftheSPA,including17.1million($18.7million)relatedtocashacquired.SeeNote2oftheConsolidatedFinancialStatements.
Management Objectives
Managementfocusedonthreekeystrategicenablersduring2016:deploymentoftheBarnesEnterpriseSystem,acceleratinginnovationandmaturingthetalentmanagementsystem,which,incombination,areexpectedtogeneratelong-termvaluefortheCompany'sstockholdersandourcustomers.TheCompany'sstrategiesforgrowthincludebothorganicgrowthfromnewproducts,processes,systems,services,marketsandcustomers,andgrowthfromacquisitions.TheCompany'sstrategiesforprofitabilityincludeemployeeengagementandempowermenttodriveproductivityandprocessinitiatives,suchastheapplicationofnewtechnologies,automationandinnovation,intensifiedfocusonintellectualpropertyasacoredifferentiator.AkeycomponentoftheCompany'scultureistheBarnesEnterpriseSystem(BES),theCompany'soperatingsystem,whichdrivesalignmentandfosterscontinuousimprovement,collaborationandinnovationthroughouttheglobalorganization.Our Business
TheCompanyconsistsoftwooperatingsegments:IndustrialandAerospace.
Key Performance Indicators
Managementevaluatestheperformanceofitsreportablesegmentsbasedonthesales,operatingprofit,operatingmarginsandcashgenerationoftherespectivebusinesses,whichincludesnetsales,costofsales,sellingandadministrativeexpensesandcertaincomponentsofotherincomeandotherexpenses,aswellastheallocationofcorporateoverheadexpenses.Eachsegmenthasstandardkeyperformanceindicators(KPIs),anumberofwhicharefocusedoncustomermetrics(on-time-deliveryandquality),internaleffectivenessandproductivity/efficiencymetrics(saleseffectiveness,globalsourcing,operationalexcellence,functionalexcellence,salesperemployee,costofquality,anddaysworkingcapital),employeesafety-relatedmetrics(totalrecordableincidentrateandlosttimeincidentrate),andspecificKPIsonprofitablegrowth.Key Industry Data
Inbothsegments,managementtracksavarietyofeconomicandindustrydataasindicatorsofthehealthofaparticularsector.
AtIndustrial,keydataforthemanufacturingoperationsincludetheInstituteforSupplyManagementsmanufacturingPMICompositeIndex(andsimilarindicesforEuropeanandAsian-basedbusinesses);theFederalReservesIndustrialProductionIndex("theIPI");theGlobalInsightglobalmedicalandmeasuringequipmentindex;theproductionoflightvehicles,bothintheU.S.andglobally;worldwidelightvehiclenewmodelintroductionsandexistingmodelrefreshes;NorthAmericanmediumandheavydutyvehicleproduction;andglobalGDPgrowthforecasts.
AtAerospace,managementoftheaftermarketbusinessmonitorsthenumberofaircraftintheactivefleet,thenumberofplanestemporarilyorpermanentlytakenoutofservice,aircraftutilizationratesforthemajorairlines,engineshopvisits,airlineprofitability,aircraftfuelcostsandtrafficgrowth.TheAerospaceOEMbusinessregularlytracksordersanddeliveriesforeachofthemajoraircraftmanufacturers,aswellasenginepurchasesmadefornewaircraft.ManagementalsomonitorsannualappropriationsfortheU.S.militaryrelatedtopurchasesofneworusedaircraftandenginecomponents.
19
Table of Contents
RESULTS OF OPERATIONSSales
($inmillions) 2016 2015 $ Change % Change 2014Industrial $ 824.2 $ 782.3 $ 41.9 5.4% $ 822.1Aerospace 406.5 411.7 (5.2) (1.3)% 440.0Total $ 1,230.8 $ 1,194.0 $ 36.8 3.1% $ 1,262.0
2016vs.2015:
TheCompanyreportednetsalesof$1,230.8millionin2016,anincreaseof$36.8million,or3.1%,from2015.Acquiredbusinessescontributedincrementalsalesof$47.4millionduringthe2016period.OrganicsaleswithinIndustrialincreasedby$4.1million,or0.5%,during2016,primarilyduetostrengthinourMoldingSolutionsbusinesses,slightlyoffsetbycontinuedsoftnessinNorthAmericangeneralindustrialend-markets.Aerospacerecordedsalesof$406.5millionin2016,a$5.2million,or1.3%decreasefrom2015.LowersaleswithintheOEMandsparepartsbusinesseswerepartiallyoffsetbyincreasedsaleswithintheMRObusiness.TheimpactofforeigncurrencytranslationdecreasedsaleswithinIndustrialbyapproximately$9.6millionastheU.S.dollarstrengthenedagainstforeigncurrencies.SaleswithinAerospacewerenotimpactedbychangesinforeigncurrencyasthesearelargelydenominatedinU.S.dollars.TheCompanysinternationalsalesincreased10.4%year-over-year,whiledomesticsalesdecreased4.7%,largelyaresultAerospacesalesbeingprimarilyU.S.-based.Excludingtheimpactofforeigncurrencytranslationonsales,however,theCompany'sinternationalsalesin2016increased12.0%,inclusiveofsalesthroughacquisition,from2015.
2015vs.2014:
TheCompanyreportednetsalesof$1,194.0millionin2015,adecreaseof$68.0million,or5.4%,from2014.TheacquisitionsofThermoplayonAugust7,2015andPriamusonOctober1,2015providedsalesof$13.6millionand$2.0million,respectively,duringthe2015period.OrganicsaleswithinIndustrialincreasedby$13.5million,or1.6%,during2015,primarilyduetofavorableend-marketsservedbyourtoolanddieandplasticsbusinessesduringthefirsthalfof2015.Asofteningwithinourtransportationandgeneralindustrialend-marketsduringthesecondhalfof2015temperedasubstantialportionoftheorganicgrowthinthefirsthalfoftheyear.Aerospacerecordedsalesof$411.7millionin2015,a$28.3million,or6.4%decreasefrom2014.LowersaleswithintheOEMandMRObusinesseswerepartiallyoffsetbyincreasedsaleswithinthesparepartsbusiness.Thesparepartsbusinessbenefitedfromincreaseddemandasaresultofhigheraircraftutilizationandcustomerrestockingofinventory,whereastheMRObusinesscontinuedtobeimpactedbydeferredmaintenanceoncertainplatforms.Thetimingofcustomerdeliveriesandexecution,whichwaspartiallyimpactedbynewproductintroductionchallenges,inadditiontotheimpactofacontractterminationdispute,directlyimpactedlowersaleswithintheOEMbusinessduringthesecondhalfof2015.TheimpactofforeigncurrencytranslationdecreasedsaleswithinIndustrialbyapproximately$68.8millionastheU.S.dollarstrengthenedagainstforeigncurrencies.SaleswithinAerospacewerenotimpactedbychangesinforeigncurrencyasthesearelargelydenominatedinU.S.dollars.TheCompanysinternationalsalesdecreased2.4%year-over-year,whiledomesticsalesdecreased4.7%.Excludingtheimpactofforeigncurrencytranslationonsales,however,theCompany'sinternationalsalesin2015increased7.8%,inclusiveofsalesthroughacquisition,from2014.
20
Table of Contents
Expenses and Operating Income
($inmillions) 2016 2015 $ Change % Change 2014Costofsales $ 790.3 $ 782.8 $ 7.5 1.0% $ 829.6
%sales 64.2% 65.6% 65.7%Grossprofit(1) $ 440.5 $ 411.2 $ 29.3 7.1% $ 432.4
%sales 35.8% 34.4% 34.3%Sellingandadministrativeexpenses $ 248.3 $ 242.8 $ 5.5 2.3% $ 252.4
%sales 20.2% 20.3% 20.0%Operatingincome $ 192.2 $ 168.4 $ 23.8 14.1% $ 180.0
%sales 15.6% 14.1% 14.3%
(1) Saleslesscostofsales
2016vs.2015:
Costofsalesin2016increased1.0%from2015,whilegrossprofitmarginincreasedfrom34.4%in2015to35.8%in2016.GrossmarginsimprovedatIndustrialanddecreasedatAerospace.Grossmarginduringthecomparable2015periodincludedachargeof$6.4millionrelatedtoalump-sumpensionsettlementcharge(seeNote11oftheConsolidatedFinancialStatements).AtIndustrial,grossprofitincreasedduring2016primarilyasaresultoffavorableproductivityandstrengthwithintheMoldingSolutionsbusinesses.Grossprofitduring2016wasnegativelyimpactedby$2.3millionofshort-termpurchaseaccountingadjustmentsrelatedtotheacquisitionofFOBOHA,whereasthe2015periodincluded$0.9millionofshort-termpurchaseaccountingadjustmentsrelatedtotheacquisitionoftheMnnerbusinessand$0.9millionofshort-termpurchaseaccountingadjustmentsrelatedtotheacquisitionofThermoplay.WithinAerospace,adeclineingrossprofitrelatesprimarilytolowersalesvolumesandunfavorableproductivity.Sellingandadministrativeexpensesin2016increased2.3%fromthe2015period,dueinpartto$3.0millionofcostsrelatedtothecontractterminationdisputewithintheAerospacesegmentandtheincrementaloperationsoftheacquiredbusinesses,partiallyoffsetbyan$0.8millionreductioninshort-termpurchaseaccountingadjustmentsrelatedtoacquisitions.Duringthe2015period,sellingandadministrativeexpensesincluded$4.2millionofchargesrelatedtoworkforcereductionsandseverance,and$3.5millionoflump-sumpensionsettlementcharges.Short-termpurchaseaccountingadjustmentsthatimpactsellingandadministrativeexpensesduring2015included$0.6millionand$0.3millionrelatedtotheacquisitionsofMnnerandThermoplay,respectively.Asapercentageofsales,sellingandadministrativecostsdecreasedslightlyfrom20.3%inthe2015periodto20.2%inthe2016period.Operatingincomeinthe2016periodincreased14.1%to$192.2millionfrom2015andoperatingincomemarginincreasedfrom14.1%to15.6%.
2015vs.2014:
Costofsal
Top Related