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 3, 1999
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 April 3, 1999, there were 36,178,916 shares of the registrant's common stock
outstanding.
<PAGE>
Index
Baldor Electric Company and Affiliates
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of earnings-Three months ended
April 3, 1999 and April 4, 1998
Condensed consolidated balance sheets-April 3, 1999 and
January 2, 1999
Condensed consolidated statements of cash flow-Three months
ended April 3, 1999 and April 4, 1998
Notes to condensed consolidated financial statements-April 3, 1999
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 2. Recent Sales of Unregistered Securities
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Baldor Electric Company and Affiliates
Condensed Consolidated Statement of Earnings (Unaudited)
Three Months Ended
----------------------------------
April 3 April 4
(In thousands, except share data) 1999 1998
------------- --------------
Net sales $ 142,133 $ 154,209
Other income (net) 524 503
------------- --------------
142,657 154,712
Cost and expenses:
Cost of goods sold 98,494 107,626
Selling and administrative 23,850 25,526
Profit sharing 2,321 2,507
Interest 684 375
------------- --------------
125,349 136,034
------------- --------------
Earnings before income taxes 17,308 18,678
Income taxes 6,577 7,098
------------- --------------
NET EARNINGS $ 10,731 $ 11,580
============= ==============
Net earnings per share-diluted $0.29 $0.31
============= ==============
Net earnings per share-basic $0.30 $0.32
============= ==============
Weighted average shares outstanding-diluted 37,146,814 37,810,122
============= ==============
Weighted average shares outstanding-basic 36,373,226 36,427,538
============= ==============
Dividends paid per common share $0.11 $0.10
============= ==============
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Baldor Electric Company and Affiliates
Condensed Consolidated Balance Sheets
April 3 January 2
1999 1999
----------- -----------
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 18,676 $ 24,793
Marketable securities 13,415 13,996
Receivables, less allowance of $4,350 92,999 90,045
Inventories:
Finished products 73,572 74,561
Work in process 12,513 12,939
Raw materials 44,835 42,477
----------- -----------
130,920 129,977
LIFO valuation adjustment (deduction) (25,926) (26,170)
----------- -----------
104,994 103,807
Other current and deferred tax assets 18,746 23,847
----------- -----------
TOTAL CURRENT ASSETS 248,830 256,488
OTHER ASSETS 33,433 32,301
NET PROPERTY, PLANT AND EQUIPMENT 122,640 123,137
=========== ===========
$ 404,903 $ 411,926
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 20,478 $ 18,900
Employee compensation 7,354 5,620
Profit sharing 2,293 9,420
Anticipated warranty costs 5,925 5,925
Accrued insurance obligations 14,864 15,960
Other accrued expenses 17,188 20,052
Income Taxes 8,603 3,505
Current portion of long-term obligations 910 980
----------- -----------
TOTAL CURRENT LIABILITIES 77,615 80,362
LONG-TERM OBLIGATIONS 57,098 57,015
DEFERRED INCOME TAXES 10,531 10,257
SHAREHOLDERS' EQUITY
Common stock 3,854 3,841
Additional capital 32,925 31,495
Retained earnings 271,294 264,545
Accumulated other comprehensive income (963) (428)
Treasury stock , at cost (47,451) (35,161)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 259,659 264,292
----------- -----------
$ 404,903 $ 411,926
=========== ===========
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Cash Flow
Three Months Ended
--------------------------
April 3 April 4
1999 1998
--------- -------
(In thousands)
Operating activities:
Net earnings $ 10,731 $ 11,580
Depreciation and amortization 5,178 5,570
Deferred income taxes 823
Changes in operating assets and liabilities:
Receivables (2,954) (8,197)
Inventories (1,187) (1,671)
Other current assets 5,101 9
Accounts payable 1,578 1,776
Accrued expenses (9,353) (5,436)
Income taxes 5,098 1,847
Other, net (3,436) (1,535)
--------- --------
Net cash from operating activities 10,756 4,766
Investing activities:
Additions to property, plant and equipment (2,568) (4,340)
Marketable securities purchased (5,709) (6,344)
Marketable securities sold 6,290 7,023
Cash acquired in acquisition 732
--------- --------
Net cash used in investing activities (1,987) (2,929)
Financing activities:
Reduction of long-term obligations 13
Unexpended debt proceeds (71) (97)
Dividends paid (3,981) (3,707)
Stock repurchases (11,531)
Stock option plans 684 1,375
--------- --------
Net cash used in financing activities (14,886) (2,429)
--------- --------
Net decrease in cash & cash equivalents (6,117) (592)
Beginning cash and cash equivalents 24,793 9,575
--------- --------
Ending cash and cash equivalents $ 18,676 $ 8,983
========= ========
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Baldor Electric Company and Affiliates
Notes to Unaudited Condensed Consolidated Financial Statements
April 3, 1999
Note A Significant Accounting Policies
Basis of Presentation: The unaudited condensed 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 2,
1999. 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 3, 1999,
may not be indicative of the results that may be expected for the fiscal year
ending January 1, 2000.
Comprehensive Income: Total comprehensive income was approximately $10.4 million
and $9.5 million for the first quarter of 1999 and 1998. Cumulative translation
adjustments are the only significant items included in other comprehensive
income.
Segment Reporting: The Company has only one reportable segment; therefore, the
consolidated financial statements reflect segment information.
Computer Software Costs: In 1998, the AICPA issued Statement of Position (SOP)
98-1, Accounting For the Costs of Computer Software Developed For or Obtained
For Internal-Use. The Company adopted the SOP during the second quarter of 1998.
The adoption of SOP 98-1 did not have a material effect on the Company's results
of operations.
Financial Derivatives: In 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement becomes effective
for fiscal year 2000. The Statement will require companies to recognize all
derivatives on the balance sheet at fair value. The Company's use of derivatives
is minimal, and management continues to study the effects of adopting the
standard and currently believes the adoption will not have a material effect.
Note B Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (EPS):
(In thousands, except per share data) April 3, 1999 April 4, 1998
------------- -------------
Numerator Reconciliation:
Net earnings $ 10,731 $ 11,580
======== ========
Denominator Reconciliation:
The denominator for basic EPS:
Weighted average shares 36,373,226 36,427,538
Effect of dilutive securities:
Stock options 773,588 1,382,584
------- ---------
The denominator for diluted EPS-adjusted
weighted average shares 37,146,814 37,810,122
========== ==========
Basic earnings per share $ 0.30 $ 0.32
====== ======
Diluted earnings per share $ 0.29 $ 0.31
====== ======
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Sales for the 1st quarter of 1999 decreased 7.8% compared to the same period in
1998, due to a decrease in volume. Sales increased 4.7% over the 4th quarter of
1998. Gross margin improved to 30.7% for the 1st quarter of 1999 compared to
30.2% for same period in 1998. The operating margin for 1999 was 13.9% compared
to 13.7% for the 1st quarter in 1998. This was the best operating margin since
1981.
First quarter 1999 net earnings of $10,731,000 were down 7.3% over 1998 net
earnings of $11,580,000. Pre-tax margins were 12.2% for the first quarter
compared to 12.1% for the same period last year. The mix between Distributor and
OEM sales remained constant at 49% and 51% of consolidated sales. Motor products
were 78.5% of consolidated sales in 1999 compared to 75.1% in 1998.
Sales from foreign affiliates were 14.5% of consolidated sales for the 1st
quarter of 1999 compared to 15.7% of sales for the same period in 1998. The Far
East returned to profitability by doubling sales in the 1st quarter of 1999.
Liquidity and Capital Resources
Baldor's financial position remains solid with cash and marketable securities at
$32.1 million compared to a balance of $38.8 million at the end of 1998. The
current ratio remained strong at 3.2 and the debt-to-capitalization ratio was
18.0% compared to 17.7% at the end of 1998. Baldor has announced a 10% dividend
increase and has repurchased 1,250,000 shares since our stock repurchase program
was authorized in September 1998.
Year 2000
The Company's comprehensive Year 2000 initiative is being managed internally.
The Company's goal is to ensure that there is no material adverse effect on
operations and that transactions with customers, vendors and financial
institutions will be operational in the year 2000. A new Company-wide
information system that is certified by the vendor to be Year 2000 compliant was
purchased in 1996. This fully integrated information reporting system was
purchased to improve visibility and reaction time to customer orders, reduce
lead times, support international operations, improve productivity and better
manage inventory. The Company is adhering to its implementation schedule with
90% completion as of the first quarter of 1999, with the remaining scheduled for
completion in mid 1999.
The only product that the Company presently produces that utilizes a real-time
clock and a date stamp is the Baldor "SmartMotor". This date stamp is used only
for run time and fault logging. It is not used in any control function and in
this capacity will function in the year 2000.
<PAGE>
The Company has evaluated other potential areas, such as vendor compliance, shop
floor technology, and other infrastructure such as phone and alarm systems.
These non-information systems are expected to function properly in the year
2000. The cost of addressing these systems for the year 2000 is not expected to
be material.
Recently, a review of vendors was completed with written verification of their
compliance status. Based on the certifications received, the Year 2000 problem
is not expected to have a material adverse effect on business operations with
our vendors. The Company's financial institutions have provided reasonable
assurance, they are Year 2000 operational. While we can not guarantee the
performance of outside parties, we will establish contingency plans, when
needed, in an attempt to minimize disruptions.
Based upon the procedures described and results achieved, the Company does not
anticipate a materially adverse affect from the Year 2000. We will continue to
monitor our vendors, customers and financial institutions for any adverse
reactions to their Year 2000 compliance. If the situation arises, we will
establish contingency plans to address complications.
This Form 10-Q may contain statements which may constitute "forward-looking
statements". Such statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Prospective investors are
cautioned that actual results and experience may differ materially from the
forward-looking statements as a result of many factors, possibly including
changes in economic conditions, competition, fluctuations in raw materials, and
other unanticipated events and conditions. These statements are only as of the
date of this Form 10-Q.
Item 3. Market Risk
There have been no material changes in market risk or market risk factors since
the 1998 Annual Report to Shareholders.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
During the first quarter of 1999, 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 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 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
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
---------------------------
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 6, 1999 By: /s/ Lloyd G. Davis
----------- ----------------------
Lloyd G. Davis - Executive Vice President-
Finance, Chief Financial Officer, Secretary and
Treasurer(on behalf of the Registrant and
as principal financial officer)
<PAGE>
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