UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7284
BALDOR ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0168840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5711 R.S. Boreham, Jr Street, Fort Smith, Arkansas 72908
(Address of principal executive offices) (Zip Code)
(501) 646-4711
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
At September 29, 2001, there were 33,883,415 shares of the registrant's common stock outstanding.
Index
Baldor Electric Company and Affiliates
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-September 29, 2001 and December 30, 2000
Condensed consolidated statements of earnings-Three and nine months ended
September 29, 2001 and September 30, 2000
Condensed consolidated statements of cash flow-Nine months ended
September 29, 2001 and September 30, 2000
Notes to condensed consolidated financial statements-September 29, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part 2. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Baldor Electric Company and Affiliates
Condensed Consolidated Balance Sheets (Unaudited)
September 29 December 30
(in thousands) 2001 2000
Assets
Current Assets
Cash and cash equivalents $7,537 $5,868
Marketable securities 8,423 9,137
Receivables, less allowance of $4,600 98,149 100,494
Inventories: Finished products 80,479 83,709
Work-in-process 9,908 10,311
Raw materials 57,251 53,047
147,638 147,067
LIFO valuation adjustment (25,665) (26,116)
121,973 120,951
Other current assets and deferred income taxes 20,444 25,971
Total Current Assets 256,526 262,421
Other Assets 60,206 63,737
Net Property, Plant and Equipment 137,283 138,820
$454,015 $464,978
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $32,496 $26,813
Employee compensation 7,300 6,154
Profit sharing 4,225 9,717
Accrued warranty costs 6,625 6,625
Accrued insurance obligations 13,616 14,409
Other accrued expenses 14,082 17,813
Income taxes 650 5,447
Current maturities of long-term obligations 675 640
Total Current Liabilities 79,669 87,618
Long-term Obligations 93,270 99,832
Deferred Income Taxes 17,836 16,683
Shareholders' Equity
Common stock 3,937 3,902
Additional capital 43,672 38,024
Retained earnings 326,757 320,915
Accumulated other comprehensive loss (8,103) (3,866)
Treasury stock, at cost (103,023) (98,130)
Total Shareholders' Equity 263,240 260,845
$454,015 $464,978
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended Nine Months Ended
Sept. 29 Sept. 30 Sept. 29 Sept. 30
(In thousands, except share data) 2001 2000 2001 2000
Net sales $138,126 $155,376 $434,948 $476,585
Other income, net 354 383 526 1,273
138,480 155,759 435,474 477,858
Cost and expenses:Cost of goods sold 99,077 106,169 311,497 324,082
Selling and administrative 28,481 27,872 85,479 85,281
Profit sharing 1,197 2,473 4,260 7,719
Interest 1,118 868 4,018 2,792
129,873 137,382 405,254 419,874
Earnings before income taxes 8,607 18,377 30,220 57,984
Income taxes 3,184 6,892 11,181 21,744
Net Earnings $5,423 $11,485 $19,039 $36,240
Net earnings per share-basic $0.16 $0.34 $0.56 $1.06
Net earnings per share-diluted $0.16 $0.33 $0.55 $1.05
Weighted average shares outstanding-basic 33,938,429 33,717,519 33,897,279 34,070,970
Weighted average shares outstanding-diluted 34,562,089 34,334,993 34,528,932 34,634,950
Dividends declared and paid per common share $0.13 $0.13 $0.39 $0.37
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Cash Flow (Unaudited)
Nine Months Ended
Sept. 29 Sept. 30
(In thousands) 2001 2000
Operating activities:
Net earnings $19,039 $36,240
Depreciation and amortization 15,174 15,014
Deferred income taxes 1,267 660
Changes in operating assets and liabilities:
Receivables 2,344 (12,112)
Inventories (1,022) (5,541)
Other current assets 5,414 3,738
Accounts payable 5,683 5,268
Accrued expenses (8,870) (5,505)
Income taxes (4,797) 721
Other, net (3,608) (4,494)
Net cash provided by operating activities 30,624 33,989
Investing activities:
Additions to property, plant and equipment (10,747) (12,811)
Net marketable securities sold 715 20,062
Net cash provided by (used in) investing activities (10,032) 7,251
Financing activities:
Net additions (reductions) of long-term obligations (6,527) 1,395
Unexpended debt proceeds 1 (12)
Dividends paid (13,232) (12,523)
Stock repurchases (2,289) (35,151)
Stock option plans 3,124 1,487
Net cash used in financing activities (18,923) (44,804)
Net increase (decrease) in cash & cash equivalents 1,669 (3,564)
Beginning cash and cash equivalents 5,868 12,103
Ending cash and cash equivalents $7,537 $8,539
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates Notes to Unaudited Condensed Consolidated Financial Statements September 29, 2001Basis of Presentation: The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements, and therefore should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 30, 2000. In the opinion of management, all adjustments (consisting only of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 29, 2001 may not be indicative of the results that may be expected for the fiscal year ending December 29, 2001.
Comprehensive Income:Total comprehensive income was approximately $3.7 million and $10.9 million for the third quarter of 2001 and 2000, respectively and was approximately $16.4 million and $35.0 million for the first nine months of 2001 and 2000, respectively. Cumulative translation adjustments and changes in the fair value of financial instruments utilized as cash flow hedges pursuant to SFAS No. 133 are the only significant items included in other comprehensive income.
Segment Reporting: The Company has only one reportable segment; therefore, the condensed consolidated financial statements reflect segment information.
Financial Derivatives: Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 138 became effective for fiscal years beginning after June 15, 2000. SFAS No. 133 defines derivative instruments and requires that they be recognized as assets or liabilities in the statement of financial position, measured at fair value. It further specifies the nature of changes in the fair value of the derivatives that are included in the current period results of operations and those that are included in other comprehensive income. The Company's adoption at December 31, 2000 has had no material impact on the consolidated financial statements.
Reclassifications: Certain prior-year amounts have been reclassified to conform to current-year presentation, with no effect on prior-year margins, net earnings or ratios.
The following table sets forth the computation of basic and diluted earnings per share (EPS):
Three Months Ended
(In thousands, except per share data) Sep 29, 2001 Sep 30, 2000
Numerator Reconciliation:
Net earnings $ 5,423 $ 11,485
Denominator Reconciliation:
The denominator for basic EPS:
Weighted average shares 33,938 33,718
Effect of dilutive securities:
Stock options 624 617
The denominator for diluted EPS-adjusted
weighted average shares 34,562 34,335
Basic earnings per share $ 0.16 $ 0.34
Diluted earnings per share $ 0.16 $ 0.33
Nine Months Ended
(In thousands, except per share data) Sep 29, 2001 Sep 30, 2000
Numerator Reconciliation:
Net earnings $ 19,039 $ 36,240
Denominator Reconciliation:
The denominator for basic EPS:
Weighted average shares 33,897 34,071
Effect of dilutive securities:
Stock options 632 564
The denominator for diluted EPS-adjusted
weighted average shares 34,529 34,635
Basic earnings per share $ 0.56 $ 1.06
Diluted earnings per share $ 0.55 $ 1.05
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of December 30, 2001 and has not yet determined what effect these tests will have on the earnings and financial position of the Company.
On March 16, 2001, the Company entered into a loan agreement (“the facility”) with a bank, which provides the Company up to $70 million of borrowing capacity. The facility is secured with Company’s trade accounts receivable and matures March 15, 2003. Interest is calculated at a relevant commercial paper rate plus applicable margin. At September 29, 2001 the Company had outstanding borrowings on the facility amounting to $52 million at an interest rate of 3.55%.
Third quarter 2001 sales declined 11.1% from third quarter 2000. For the first nine months, sales were down 8.7% from the same period last year. Gross and operating margins declined to 28.3% and 7.7%, respectively, compared to 31.7% and 13.7%, respectively in third quarter 2000. Gross and operating margins for the first nine months of 2001 were 28.4% and 8.7% compared to 32.0% and 14.1% in 2000. The difficult economic times have resulted in declines in orders during the first nine months of 2001.
Net earnings of $5.4 million for the third quarter decreased 52.8% from third quarter 2000. Nine months net earnings of $19.0 million were off 47.5% from the same period last year. Dilutedearnings per share of $0.16 declined 51.5% compared to the same quarter of 2000. Diluted EPS of $0.55 for the first nine months of 2001 was a 47.6% decline from 2000. Pretax earnings were 53.2% lower for the third quarter and 47.9% lower for the first nine months when compared to last year. Initiatives have been implemented to improve efficiencies and decrease costs. In addition, consolidations of the Plymouth, MN drives plant into Fort Smith, AR and the St. Louis, MO motor plant into other Baldor motor facilities are nearing completion and will enhance efficiencies and customer service in those areas.
Baldor’s financial position remains solid. The current ratio was 3.2 and the debt-to-total capital ratio was 26.2% as of September 29, 2001, compared to a current ratio of 3.0 and debt-to-total capital ratio of 27.7% at December 30, 2000. Working capital increased to $176.9 million at September 29, 2001 compared to $174.8 at December 30, 2000. Operating cash flows for the first nine months amounted to $30.6 million compared to $34.0 million for the same period last year, in spite of the nearly 53% decline in earnings. Annualized return on average equity is 11.2% as of September 29, 2001 versus 17.6% at December 30, 2000. During the first nine months of 2001 Baldor repurchased 121,200 shares under the stock repurchase program. To date approximately 4.3 million of the authorized 6.0 million shares have been repurchased since the stock repurchase program began in September of 1998.
The Company’s interest rate risk relates to its available-for-sale securities and long-term debt. An adverse ten percent change in market interest rates would not have a material effect on earnings in a given year.
The Company’s risk to foreign currency exchange rates has historically been minimal. Foreign affiliates comprise less than 10% of total assets. The Company does not anticipate the use of derivatives for managing foreign currency risk, but continues to monitor the effects of foreign currency exchange rates.
The Company utilizes short-term swaps and options to hedge against the fluctuations in copper and aluminum prices. The hedges are for materials to be used in production and are not speculative. A ten percent adverse movement in the price of related commodities would not result in a material effect on earnings in a given year.
There have been no material changes in market risk or market risk factors since the 2000 Annual Report to Shareholders.This document contains statements that are forward-looking, ie. not historical facts. The forward-looking statements (generally identified by words or phrases indicating a projection or future expectation such as “outlook”, “optimistic”, “trends”, “expect(s)”, “assuming”, “expectations”, “forecasted”, “estimates”, “expected”) are based on the Company’s current expectations and some of them are subject to risks and uncertainties, possibly including changes in economic conditions, competition, fluctuations in raw materials and other unanticipated events and conditions, the outcome of which could result in actual future performance being materially different from the performance indicated. These statements should be read in conjunction with the Company’s most recent annual report (as well as the Company’s Form 10-K and other reports filed with the Securities and Exchange Commission) containing a discussion of the Company’s business and of various factors that may affect it.
PART 2. OTHER INFORMATION
a. Exhibit Number Description
10 Stock Option Plan for Non-Employee Directors
b. The registrant did not file any reports on Form 8-K during the most recently completed
fiscal quarter.
S I G N A T U R E S
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BALDOR ELECTRIC COMPANY
(Registrant)
Date: November 13, 2001 By: /s/ Ronald E. Tucker
Ronald E. Tucker - Chief Financial Officer (on
behalf of the Registrant and as Chief
Financial Officer)