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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.
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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
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divestitures;andanyotherfuturestrategicactions,includingacquisitions,divestitures,restructurings,orstrategicbusinessrealignments,andourabilitytoachievethefinancialandoperationaltargetssetinconnectionwithanysuchactions;theoutcomeofpendingandfuturelegal,governmental,orregulatoryproceedingsandcontingenciesanduninsuredclaims;futurerepurchasesofcommonstock;futurelevelsofindebtedness;andnumerousothermattersofaglobal,regionalornationalscale,includingthoseofapolitical,economic,business,competitive,environmental,regulatoryandpublichealthnature;andotherrisksanduncertaintiesdescribedinthisAnnualReport.TheCompanyassumesnoobligationtoupdateitsforward-lookingstatements.
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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
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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.
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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$68.8millionastheU.S.dollarstrengthenedagainstforeigncurrencies.SaleswithinAerospacewerenotimpactedbychangesinforeigncurrencyasthesearelargelydenominatedinU.S.dollars.TheCompanysinternationalsalesdecreased2.4%year-over-year,whiledomesticsalesdecreased4.7%.Excludingtheimpactofforeigncurrencytranslationonsales,however,theCompany'sinternationalsalesin2015increased7.8%,inclusiveofsalesthroughacquisition,from2014.
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Expenses and Operating Income
($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