Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Product Warranties

The Company provides product warranties in connection with the sale of certain products. From time to time, the Company is subject to customer claims with respect to product warranties. Product warranty liabilities were not material as of March 31, 2013 and December 31, 2012.

The Company was named in a lawsuit arising out of an alleged breach of contract and implied warranty by a customer of Toolcom Suppliers Limited (“Toolcom”), a business previously included within the former Logistics and Manufacturing Services segment, related to the sale of certain products prior to the Company’s 2005 acquisition of Toolcom. In 2006, the plaintiff filed the lawsuit in civil court in Scotland and asserted that certain products sold were not fit for a particular use. The Company settled the lawsuit during the first quarter of 2013 with an outcome that did not have a material effect on the consolidated financial statements. The final settlement expense is included within the loss from operations of discontinued businesses in the consolidated statements of income for the quarter ended March 31, 2013.

Income Taxes

On April 16, 2013, the United States Tax Court rendered an unfavorable decision in the matter Barnes Group Inc. and Subsidiaries v. Commissioner of Internal Revenue (“April 2013 Tax Court Decision”). The Tax Court rejected the Company's objections and imposed penalties. The case involved IRS proposed adjustments of approximately $16,500, plus a 20% penalty and interest for the tax years 1998, 2000 and 2001. The proposed IRS cash tax assessment (after utilization of a portion of the Company's existing net operating losses) is estimated to be approximately $13,000 including penalties and interest.

The case arose out of an Internal Revenue Service (“IRS”) audit for the tax years 2000 through 2002. The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest of these adjustments.  In the third quarter of 2009, the Company was informed that its protest was denied and a tax assessment was received from the Appeals Office of the IRS.  Subsequently, in November 2009, the Company filed a petition against the IRS in the United States Tax Court, contesting the tax assessment. A trial was held and all briefs were filed in 2012. In April 2013 the Tax Court Decision was then issued rendering an unfavorable decision against the Company and imposing penalties.

The Company expects the Tax Court to enter an order reflecting the tax assessment, interest and penalties due (“Court Approved Assessment”) in the second quarter 2013. Following entry of that order, both parties have 90 days to decide whether or not to appeal the April 2013 Tax Court Decision. At the end of the 90 day period, or earlier if an appeal is filed by the Company, the Court Approved Assessment becomes due. 

The Company continues to believe that its tax position is correct and the Company is evaluating its options including an appeal of the decision. The April Tax Court Decision is not expected to have a material effect on the Company's consolidated financial position, but could be material to both the consolidated results of operations and cash flows in any one period. The Company now expects the cash flows to be negatively impacted by approximately $13,000 in the third quarter of 2013 in connection with the Court Approved Assessment. In addition, in the second quarter of 2013, following the Company's evaluation, the Company could record an income tax charge of up to approximately $20,000 and a reduction in its deferred tax assets to reflect the utilization of a portion of the Company's net operating loss carryforwards.