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 April 4, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7284
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BALDOR ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
Missouri 43-0168840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5711 R.S. Boreham, Jr Street, Fort Smith, Arkansas 72908
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(Address of principal executive offices) (Zip Code)
(501) 646-4711
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(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 April 4, 1998, there were 37,141,992 shares of the registrant's common stock
outstanding.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
BALDOR ELECTRIC COMPANY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
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APRIL 4 MARCH 29
(In thousands, except share data) 1998 1997
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<S> <C> <C>
Net sales $ 154,209 $ 129,914
Other income (net) 503 575
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154,712 130,489
Cost and expenses: Cost of goods sold 107,626 90,837
Selling and administrative 25,526 21,702
Profit sharing 2,507 2,086
Interest 375 590
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136,034 115,215
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Earnings before income taxes 18,678 15,274
Income taxes 7,098 5,882
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NET EARNINGS $ 11,580 $ 9,392
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Net earnings per share-diluted $ 0.31 $ 0.26
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Net earnings per share-basic $ 0.32 $ 0.27
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Weighted average shares outstanding-diluted 37,810,122 36,315,651
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Weighted average shares outstanding-basic 36,427,538 34,999,062
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Dividends paid per common share $ 0.10 $ 0.08
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</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
BALDOR ELECTRIC COMPANY AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
APRIL 4 JANUARY 3
1998 1998
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<S> <C> <C>
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 8,983 $ 9,575
Marketable securities 11,221 11,900
Receivables, less allowances
of $4,050 and $3,300, respectively. 97,611 88,740
Inventories: Finished products 73,923 71,616
Work in process 10,344 10,675
Raw materials 42,145 41,793
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126,412 124,084
LIFO valuation adjustment
(deduction) (27,548) (27,543)
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98,864 96,541
Other current and deferred tax assets 12,713 12,684
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TOTAL CURRENT ASSETS 229,392 219,440
OTHER ASSETS 29,023 32,352
NET PROPERTY, PLANT AND EQUIPMENT 104,429 104,097
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$ 362,844 $ 355,889
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,956 $ 19,935
Employee compensation 8,303 5,684
Profit sharing 2,495 8,858
Anticipated warranty costs 5,500 5,200
Accrued insurance obligations 16,700 13,836
Other accrued expenses 18,735 22,003
Income Taxes 3,103 1,586
Current portion of long-term obligations 1,070 1,070
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TOTAL CURRENT LIABILITIES 77,862 78,172
LONG-TERM OBLIGATIONS 27,929 27,929
DEFERRED INCOME TAXES 6,089 6,354
SHAREHOLDERS' EQUITY
Common stock 3,816 3,795
Additional capital 28,285 44,606
Retained earnings 243,976 233,637
Cumulative translation adjustment (4,939) (617)
Treasury stock , at cost (20,174) (37,987)
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TOTAL SHAREHOLDERS' EQUITY 250,964 243,434
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$ 362,844 $ 355,889
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</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
BALDOR ELECTRIC COMPANY AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
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APRIL 4 MARCH 29
1998 1997
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(In thousands)
<S> <C> <C>
Operating activities:
Net earnings $ 11,580 $ 9,392
Depreciation and amortization 5,570 4,495
Deferred income taxes 823 (1,042)
Changes in operating assets and liabilities:
Receivables (8,197) (4,607)
Inventories (1,671) 2,679
Other current assets 9 2,035
Accounts payable 1,776 (2,206)
Accrued expenses (5,436) (256)
Income taxes 1,847 6,719
Other, net (1,535) (1,453)
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Net cash from operating activities 4,766 15,756
Investing activities:
Additions to property, plant and equipment (4,340) (2,730)
Marketable securities purchased (6,344) (5,985)
Marketable securities sold 7,023 3,853
Cash acquired in acquisition 732
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Net cash used in investing activities (2,929) (4,862)
Financing activities:
Reduction of long-term obligations (3,021)
Unexpended debt proceeds (97) (97)
Dividends paid (3,707) (2,887)
Stock option plans 1,375 1,009
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Net cash used in financing activities (2,429) (4,996)
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Net (decrease) increase in cash & cash equivalents (592) 5,898
Beginning cash and cash equivalents 9,575 7,950
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Ending cash and cash equivalents $ 8,983 $ 13,848
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</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
BALDOR ELECTRIC COMPANY AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 4, 1998
Note A Significant Accounting Policies
Basis of Presentation: The unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 January 3, 1998. 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 April 4, 1998, may not be
indicative of the results that may be expected for the fiscal year ending
January 2, 1999.
Comprehensive Income: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. This statement requires companies to classify components
of other comprehensive income by their nature in a financial statement and
disclose the accumulated balance of other comprehensive income separately in the
equity section of the balance sheet. The Company's only other comprehensive
income item is the cumulative translation adjustment and historically it is not
material to the Company's results of operation.
Segment Reporting: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information. The statement requires public
companies to report financial and descriptive information about their reportable
operating segments. Currently, the Company has only one reportable segment;
therefore, management expects the adoption of this statement to have no material
effect.
Acquisition: In March 1998, the Company acquired Northern Magnetics, Inc.
(Normag) of Santa Clarita, California in a transaction accounted for as a
pooling. Becausr the financial results of operations for Normag for prior years
are not material, the Company's financial statments for prior years have not
been restated.
Reclassifications: The Company has reclassified the presentation of certain
prior year information to be consistent with the presentation in the current
year.
Note B Earnings Per Share
<TABLE>
The following table sets forth the computation of basic and diluted earnings per
share (EPS):
<CAPTION>
April 4, 1998 March 29, 1997
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<S> <C> <C>
Numerator Reconciliation:
The numerator is the same for basic
and diluted EPS:
Net earnings (in thousands) ......... $ 11,580 $ 9,392
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Denominator Reconciliation:
The denominator for basic EPS:
Weighted average shares ............. 36,427,538 34,999,062
Effect of dilutive securities:
Stock options ................. 1,382,584 1,316,589
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The denominator for diluted EPS-adjusted
weighted average shares ............. 37,810,122 36,315,651
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Basic earnings per share ..................... $ 0.32 $ 0.27
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Diluted earnings per share ................... $ 0.31 $ 0.26
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</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Baldor continues to post record sales and earnings for the 25th consecutive
quarter, resulting in net earnings for the quarter totaling $11,580,000 or $0.31
per share. Sales for the first quarter of 1998 were $154,209,000, up 18.7% over
sales of $129,914,000 for the first quarter of 1997. Sales from international
operations (foreign affiliates and exports), which comprise 15.7% of first
quarter sales, were up 42.8% over the same period last year. The increase from
international operations included double digit sales growth in Europe, Mexico
and Latin America, with lighter growth in Canada. Sales in Australia and the Far
East were weaker due to the condition of these economies.
Sales growth was broad-based with growth across several product lines,
industries, and geographic regions. North American sales increased almost 14.9%.
Sales of motor products were up 12.4%, while drive sales increased 34.6%
comparing the first quarter of 1998 to 1997. Distributor and OEM sales increased
13.6% and 15.9% over the first quarter of 1997, while the mix remained stable
with Distributor comprising approximately 48% and OEM representing 52%.
First quarter 1998 net earnings of $11,580,000 were up 23.3% over first quarter
1997 net earnings of $9,392,000. The first quarter 1998 gross margin was 30.2%
compared to 30.1% for the first quarter of 1997. First quarter 1998 selling and
administrative expense, as a percent of sales, was 16.6% down slightly from
16.7% for the same period in 1997. Profit margin increased to 7.5% in 1998
compared to 7.2% in 1997, coupled with a decrease in the effective tax rate in
the first quarter of 1998 of 38.0% from 38.5% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continues to remain strong through the first
three months of 1998. Cash and marketable securities were $20.2 million at the
first quarter of 1998 compared to $21.5 million at January 4, 1998. Working
capital increased to $151.5 million at quarter end, from $141.3 million at year
end 1997. The ratio of debt to capitalization (shareholders' equity and
long-term borrowings) was 10.0% at April 4, 1998, compared to 10.3% at January
4, 1998. The current ratio remained relatively flat comparing 2.9 at April 4,
1998, to 2.8 at January 4, 1998.
YEAR 2000
The Company continues its previously announced implementation of a new,
fully-integrated company-wide information system that has been certified by the
vendor to be Year 2000 compliant. Full implementation is scheduled by early
1999. Strategic business partners are being contacted to ensure that they are
becoming Year 2000 compliant. Contingency plans will be developed as needed.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
On March 5, 1998, the Company acquired all of the outstanding shares of common
stock of Northern Magnetics, Inc. ("Normag"), a California corporation, in
consideration of 951,053 shares of Baldor common stock, in a transaction
accounted for as a pooling. The consideration shares were treasury shares.
During the first quarter of 1998, certain District Managers exercised
non-qualified stock options previously granted to them under the Baldor Electric
Company 1990 Stock Option Plan for District Managers (the DM Plan). The exercise
price paid by the District Manager equaled the fair market value on the date of
grant. The total amount of shares granted under the DM Plan is less than 1% of
the outstanding shares of Baldor common stock.
None of the transactions involving the sale and transfer of common stock,
referenced above, were registered under the Securities Act of 1933, as amended
(the "Act"), in reliance upon the exemption from registration afforded by
Section 4(2) of the Act. The Company deems this exemption to be appropriate
given that there are a limited number of shareholders for Normag and a limited
number of participants in the DM Plan and all parties are knowledgeable about
the Company.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Number Description
11 Computation of Earning per Common
Share-Incorporated by reference in Note B of
the Form 10-Q for April 4, 1998.
27 Financial Data Schedules-filed herewith in
electronic filing of Form 10-Q.
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
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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 18, 1998 By: /s/ Lloyd G. Davis
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Lloyd G. Davis - Executive Vice President-
Finance, Chief Financial Officer,Secretary
and Treasurer(on behalf of the Registrant
and as principal financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
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11 Computation of Earnings Per Common Share- filed
by reference in Note B of Form 10-Q.
27 Filed in electronic format only.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
In accordance with FAS 128, EPS amounts have been restated for the quarter
ending March 29, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-02-1999 JAN-03-1998
<PERIOD-END> APR-04-1998 MAR-29-1997
<CASH> 8983 13848
<SECURITIES> 11221 20024
<RECEIVABLES> 101661 87990
<ALLOWANCES> 4050 3300
<INVENTORY> 98864 89707
<CURRENT-ASSETS> 229392 224539
<PP&E> 232627 204737
<DEPRECIATION> 128198 111018
<TOTAL-ASSETS> 362844 331080
<CURRENT-LIABILITIES> 77862 73192
<BONDS> 0 0
0 0
0 0
<COMMON> 3816 2868
<OTHER-SE> 247148 206539
<TOTAL-LIABILITY-AND-EQUITY> 362844 331080
<SALES> 154209 129914
<TOTAL-REVENUES> 154712 130489
<CGS> 107626 90837
<TOTAL-COSTS> 135659 114625
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 75 34
<INTEREST-EXPENSE> 375 590
<INCOME-PRETAX> 18678 15274
<INCOME-TAX> 7098 5882
<INCOME-CONTINUING> 11580 9392
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11580 9392
<EPS-PRIMARY> .32 .27
<EPS-DILUTED> .31 .26
</TABLE>
