Business Acquisitions Reorganization of Businesses Pension and Other Postretirement Benefits Assets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date. At December 31, 2002, the Company had $164.6 million of goodwill, representing the cost of acquisitions in excess of fair values assigned to the underlying net assets of acquired companies. In accordance with Statement of Financial Accounting Standards (SFAS) 142, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment testing. The assessment of goodwill involves the estimation of the fair value of “reporting units,” as defined by SFAS 142. Management completed this assessment during the second quarter of 2002 based on the best information available as of the date of the assessment, which incorporated management assumptions about expected future cash flows. Based on this assessment, there was no goodwill impairment in 2002. Future cash flows can be affected by changes in the global economy and local economies, industries and markets in which the Company sells products or services, and the execution of management’s plans, particularly with respect to integrating acquired companies. There can be no assurance that future events will not result in impairment of goodwill or other intangible assets.  The Company records a liability for reorganization initiatives at the time that management approves and commits to a reorganization plan. Such a plan identifies all significant actions to be taken and specifies an expected completion date that is within a reasonable period of time. The liability includes those costs that can be reasonably estimated. These estimates are subject to adjustments based upon actual costs incurred (see “Recent Accounting Changes” on page 16).  Accounting policies and significant assumptions related to pension and other postretirement benefits are disclosed in Note 10 to the Consolidated Financial Statements.  In 2002, the portfolio managers authorized to invest pension trust funds were changed and the mix of assets in which managers invest was revised. The following table provides a breakout of the new targeted mix of investments, by asset classification, along with the historical rates of return for each asset class and the long-term projected rates of return. The historical rates of return were calculated based upon compounded average rates of return of published indices. The fixed income investments represent approximately 27% of the trust asset mix and are estimated to be 5% to 10% lower than the fixed income components of typical pension trusts. The fixed income investments include a higher-than-average component of yield-aggressive investments, including high-yield corporate bonds. Based on the overall historical and projected rates of return, management is projecting the long-term rate of return on pension assets to be 9.5%. A one-quarter percentage point change in the assumed long-term rate of return would impact the Company’s pretax income by approximately $0.8 million annually. A one-quarter percentage point change in the discount rate would impact the Company’s pretax income by approximately $0.3 million annually. The Company reviews these and other assumptions at least annually. The Company uses a calculated value to determine the market-related value of pension plan assets. This approach results in a market-related value of pension assets that differs from the fair Back to Table of Contents PAGE 8 MANAGEMENT’ S DISCUSSION & ANALYSIS BARNES GROUP INC. (1) Historical returns based on the life of the respective index, approximately 20 to 25 years. Asset Class Large Cap Growth 20 11.4 10.4 Large Cap Value 20 13.1 12.1 Small Cap Growth 9 8.9 7.9 Small Cap Value 9 14.7 13.7 Non-U.S. Equity 9 10.2 9.2 Real Estate-Related 5 14.9 12.9 Fixed Income 27 9.3 7.3 Cash 1 7.1 5.1 Weighted Average 11.3  9.9 Annual Return % Asset Mix  % Long-Term  Projection Historical  (1)