Barnes Group Inc. Reports First Quarter 2008 Financial Results

Business Wire, May 2, 2008

[TABLE OMITTED]

Cost of Sales and Selling and Administrative Expenses - Cost of sales increased approximately 9 percent in the first quarter of 2008 compared with the same period in 2007, primarily as a result of higher sales levels. The increase in cost of sales was slightly higher than the percentage increase in sales and resulted in a slight reduction in gross margin, to approximately 38 percent. The decrease in gross margin was driven in large part by the shift in the overall sales mix from the higher gross margin distribution business to the lower gross margin aerospace business.

Selling and administrative expenses increased approximately 2 percent in the first quarter of 2008 and at 25.4 percent of sales, decreased by 1.4 percentage points from the same period of 2007. This decrease was due primarily to productivity improvements through lean enterprise activities in all three business segments and most significantly at Barnes Aerospace.

Operating Income - Operating income of $49.9 million in the first quarter of 2008 increased $6.7 million. All three business groups contributed to the increase in operating income, with Barnes Aerospace being the greatest contributor due to a significant improvement in results, driven by higher sales. Operating income margin for the quarter increased to 12.8 percent from 12.0 percent a year ago, primarily due to improvements within Barnes Aerospace and at Barnes Distribution, which realized a considerable improvement in results within North America.

Other Income/Interest Expense - Other expenses, net of other income, increased $1.5 million in the first quarter of 2008, compared to the same period in 2007, primarily as a result of the transaction loss of $1.2 million on the sale of Spectrum Plastics. Interest expense decreased $1.7 million to $5.3 million in the first quarter of 2008. The interest expense reduction was principally due to a lower average interest rate, driven in large part by a higher percentage of lower fixed-rate debt in the 2008 period compared to higher variable rate debt in the 2007 period, as well as a decline in variable debt interest rates.

Income Taxes - The Company's effective tax rate for the first quarter of 2008 was 22.2 percent, compared with 23.4 percent in the first quarter of 2007 and 20.3 percent for the full year 2007. The increase in the effective tax rate from the full year 2007 rate was driven by improving Barnes Distribution results in North America, partially offset by additional earnings from the RSPs in Singapore, a lower-tax jurisdiction. The tax rate for the full year 2008 is projected to be in line with the first quarter rate which is lower than the initial estimate of 23% to 25% due to stronger growth in lower-tax jurisdictions.

Net Income - Net income for the first quarter was a record at $33.4 million, an increase of 21 percent over last year with diluted EPS of $0.60, an increase of 20 percent. Diluted EPS growth was adversely affected by an increase of approximately 2 percent in average diluted shares to 56.1 million.