PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Baldor Electric Company and Affiliates
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data) March 30 December 29
Assets 2002 2001
Current Assets: Cash and cash equivalents $12,193 $5,564
Marketable securities 12,334 11,052
Receivables, less allowances for doubtful accounts
of $4,600,000 in 2002 and 2001. 90,430 83,182
Inventories:
Finished products 82,035 83,919
Work in process 10,120 10,155
Raw materials 56,019 56,751
148,174 150,825
LIFO valuation adjustment (24,604) (24,604)
123,570 126,221
Other current assets and deferred income taxes 21,989 25,262
Total Current Assets 260,516 251,281
Property, Plant Land and improvements 6,268 6,267
and Equipment: Buildings and improvements 55,134 54,372
Machinery and equipment 266,024 266,627
Allowances for depreciation and amortization (188,104) (185,151)
Net Property, Plant and Equipment 139,322 142,115
Other Assets: Goodwill 57,158 57,158
Other 6,365 6,973
$463,361 $457,527
Liabilities and Shareholders' Equity
Current Accounts payable $26,273 $28,830
Liabilities: Employee compensation 8,311 5,997
Profit sharing 1,239 5,102
Accrued warranty costs 6,625 6,625
Accrued insurance obligations 15,367 15,694
Other accrued expenses 10,632 14,670
Income taxes payable (recoverable) 1,560 (1,046)
Current maturities of long-term obligations 1,770 1,771
Total Current Liabilities 71,777 77,643
Long-Term Obligations 107,172 98,673
Deferred Income Taxes 19,032 18,726
Shareholders' Equity: Preferred stock, $.10 par value
Authorized shares: 5,000,000
Issued and outstanding shares: None
Common Stock, $.10 par value
Authorized shares: 150,000,000
Issued shares: (39,501,052 in 2002 3,950 3,941
and 39,411,473 in 2001)
Additional capital 45,401 44,224
Retained earnings 326,550 325,642
Accumulated other comprehensive income (6,744) (8,164)
Treasury stock (5,513,687 shares in 2002
and 5,493,053 shares in 2001), at cost (103,777) (103,158)
Total Shareholders' Equity 265,380 262,485
$463,361 $457,527
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended
March 30 March 31
(in thousands, except share data) 2002 2001
Net sales $133,510 $150,155
Other income, net 145 149
133,655 150,304
Cost and expenses: Cost of goods sold 96,354 107,545
Selling and administrative 26,580 28,296
Profit sharing 1,245 1,554
Interest 860 1,533
125,039 138,928
Earnings before income taxes 8,616 11,376
Income taxes 3,189 4,209
Net Earnings $5,427 $7,167
Net earnings per share-basic $0.16 $0.21
Net earnings per share-diluted $0.16 $0.21
Weighted average shares outstanding-basic 33,950,268 33,850,276
Weighted average shares outstanding-diluted 34,556,770 34,495,933
Dividends declared and paid per common share $0.13 $0.13
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Cash flows (Unaudited)
Three Months Ended
March 30 March 31
(In thousands) 2002 2001
Operating activities:
Net earnings $5,427 $7,167
Depreciation 4,472 4,155
Amortization 381 850
Deferred income taxes 1,413 329
Changes in operating assets and liabilities:
Receivables (7,248) 1,686
Inventories 2,651 136
Other current assets 2,166 3,761
Accounts payable (2,557) (2,133)
Accrued expenses and other liabilities (5,914) (11,636)
Income taxes 2,606 1,130
Other - net 1,788 (1,212)
Net cash from operating activities 5,185 4,233
Investing activities:
Additions to property, plant and equipment (1,923) (2,273)
Marketable securities purchased (3,030) (310)
Marketable securities sold 1,748 4,612
Net cash (used in) provided by investing activities (3,205) 2,029
Financing activities:
Additional long-term obligations 14,000 44,000
Reduction of long-term obligations (5,502) (45,631)
Unexpended debt proceeds (1) (5)
Dividends paid (4,415) (4,407)
Common stock repurchased 0 (785)
Stock option plans 567 1,724
Net cash provided by (used in) financing activities 4,649 (5,104)
Net increase in cash and cash equivalents 6,629 1,158
Beginning cash and cash equivalents 5,564 5,868
Ending cash and cash equivalents $12,193 $7,026
See notes to unaudited condensed consolidated financial statements.
Baldor Electric Company and Affiliates
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2002
Note A Significant Accounting Policies
Basis 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 29, 2001. 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 three months ended March 30, 2002 may not be indicative of the results that may be expected for the fiscal year ending December 28, 2002.
Comprehensive Income:Total comprehensive income was approximately $6.3 million and $6.5 million for the first quarter of 2002 and 2001, 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:Effective December 31, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) as amended. This statement requires the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings (fair value hedges), or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative’s change in fair value is recognized in earnings.
The Company uses derivatives to moderate the commodity market risks of its business operations. Derivative products, such as futures and option contracts, are considered to be a hedge against changes in the amount of future cash flows related to commodities procurement. The amount recognized on cash flow hedges in first quarter 2002 did not have a material effect on the consolidated financial statements.
At March 30, 2002 and December 29, 2001, the Company had derivative related balances with a fair value of approximately $1,861,000 and ($769,000), respectively, recorded in other current assets. The Company had corresponding net after-tax gains (losses) of approximately $427,000 and ($1,400,000) recorded in other comprehensive income (loss) at March 30, 2002 and December 29, 2001, respectively. The Company expects that net after-tax losses, totaling approximately $69,000 included in other comprehensive income at March 30, 2002, related to cash flow hedges, will be recognized in cost of sales within the next twelve months. The Company generally does not hedge anticipated transactions beyond 18 months.
Note B Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (EPS):
Three Months Ended
(In thousands, except per share data) Mar 30, 2002 Mar 31, 2001
Numerator Reconciliation:
Net earnings $ 5,427 $ 7,167
Denominator Reconciliation:
The denominator for basic EPS:
Weighted average shares 33,950 33,850
Effect of dilutive securities:
Stock options 607 646
The denominator for diluted EPS-adjusted
weighted average shares 34,557 34,496
Basic earnings per share $ 0.16 $ 0.21
Diluted earnings per share $ 0.16 $ 0.21
Note C Recent and Proposed Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS 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 new rules on accounting for goodwill and other intangible assets became effective for the Company beginning in the first quarter of 2002. The amount of goodwill amortization recognized in the first quarter of 2001 was not material to the Company’s financial results. Prior to the end of the second quarter of 2002, the Company, as required by SFAS No. 142, will complete 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.
In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supercedes SFAS 121. Generally, SFAS 144 retains the fundamental provisions of SFAS 121 related to the recognition and measurement of the impairment of long-lived assets, except for the indefinite-lived intangible assets, which are covered by SFAS 142. However, SFAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale be classified as “held and used” until it is disposed of, and establishes more restrictive criteria to classify an asset as “held for sale.” SFAS 144 became effective for the Company beginning December 30, 2001.
Note D Credit Facilities
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, 2004. Interest is calculated at a relevant commercial paper rate plus applicable margin. At March 30, 2002 the Company had outstanding borrowings on the facility amounting to $47 million at an interest rate of 1.80%.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations
First quarter 2002 sales were down 11.1% from first quarter 2001. Gross and operating margins declined to 27.8% and 7.9%, respectively, compared to 28.4% and 9.5%, respectively in first quarter 2001.
Net earnings of $5.4 million for the first quarter decreased 24.3% from first quarter 2001. Diluted earnings per share of $0.16 declined 24.3% compared to the same quarter of 2001. Pretax earnings were 24.3% lower for the first quarter when compared to last year. While margins were down compared to the same period in 2001, the Company’s cost reduction program and continued investments in productivity were reflected in improved operating, pretax, and net margins when compared to the fourth quarter and third quarter of 2001.
Liquidity and Capital Resources
The Company’s financial position remains solid. The current ratio was 3.6 and the debt-to-total capital ratio was 28.8% as of March 30, 2002, compared to a current ratio of 3.0 and debt-to-total capital ratio of 27.3% at December 29, 2001. Working capital increased to $188.7 million at March 30, 2002 compared to $173.6 at December 29, 2001. Operating cash flows for the first three months amounted to $5.2 million compared to $4.2 million for the same period last year. Annualized return on average equity is 7.8% as of March 30, 2002 versus 8.6% at December 29, 2001. The Company’s average interest rate on outstanding debt was less than 3.0% at March 30, 2002.
Forward-looking Statements
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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to the Company's operations result primarily from changes in commodity prices, interest rates and foreign exchange rates. To maintain stable pricing for its customers, the Company enters into various hedging transactions as described below.As a purchaser of certain commodities, primarily copper, aluminum and steel, the Company periodically utilizes commodity futures and options for hedging purposes to reduce the effect of changing commodity prices and as a mechanism to procure materials. Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts that are highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting, as described in Note A to the financial statements.
The Company’s interest rate risk is related to its available-for-sale securities and long-term debt. Due to the short-term nature of the Company’s securities portfolio, anticipated interest rate risk is not considered material. The Company’s debt obligations include certain notes payable to banks bearing interest at a quarterly variable rate. The Company does not currently utilize derivatives for managing interest rate risk, but continues to monitor changes in market interest rates.
Although the Company has risk related to changes in foreign currency exchange rates, foreign affiliates comprise less than 10% of the Company’s 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.
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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: May 14, 2002 By: /s/ Ronald E. Tucker
Ronald E. Tucker - Chief Financial Officer
(on behalf of the Registrant and as Chief
Financial Officer)
