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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File Number:
December 30, 2000 01-07284
B A L D O R E L E C T R I C C O M P A N Y
(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. St, Fort Smith, Arkansas 72901 (501) 646-4711
(Address of principal executive offices) (Zip Code) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
Common Stock, $0.10 Par Value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price on February 28, 2001, was $515,957,001.
At February 28, 2001, there were 33,891,487 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended December 30, 2000 (the "Annual Report to Shareholders for 2000"), are incorporated
by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 2001 (the "2001 Proxy Statement"), are incorporated by reference
into Part III.
PART I
Item 1. Business
Baldor Electric Company ("Baldor" or the "Company") was incorporated in Missouri in 1920. The Company operates in one industry segment, which includes the
design, manufacture, and sale of electric motors and drives and related products. Baldor has made several small acquisitions; however, the majority of its
growth has come internally through broadening its markets and product lines.
Products
The AC motor product and controls line presently ranges in size from 1/50 up to 1500 horsepower. The DC motor product line presently ranges from 1/50
through 800 horsepower. The adjustable speed controls product line ranges from 1/50 to 700 horsepower. The Company's industrial control products include
servo products, DC controls, position controls, and inverter and vector drives. With these products, the Company provides its customers the ability to
purchase a "drive" from one manufacturer. Baldor defines a "drive" as an industrial motor and an electronic control. Sales of industrial electric motors
represented approximately 79% of the Company's business in each of the years 2000 and 1999, and 76% in 1998. The bulk of the remaining sales include
power generators, speed reducers, industrial grinders, buffers, polishing lathes, stampings, castings, and repair parts.
Baldor's motors and drives are designed, manufactured, and marketed for general purpose uses ("stock products") and to individual customer requirements and
specifications ("custom products"). Stock products represented approximately 65% of total product sales in 2000 and 63% for each of the years 1999 and 1998.
Most stock product sales are to customers who place their orders for immediate shipment from current inventory. Custom products generally are shipped within
two weeks from the date of order. Because of these and other factors, the Company does not believe that its backlog represents an accurate indication of future
shipments.
Sales and Marketing
The products of the Company are marketed throughout the United States and in more than 60 foreign countries. The Company's field sales organization,
comprised of independent manufacturer's representatives and Company sales personnel, consists of more than 51 groups, including 40 in North America. The
remainder of the Company's representatives are located in various parts of the world including Europe, Latin America, Australia, and the Far East.
Custom products and stock products are sold to original equipment manufacturers ("OEMs"). Stock products are also sold to independent distributors for
resale, often as replacement components in industrial machinery, which is being modernized or upgraded for improved performance.
No single customer accounted for more than 5% of sales; therefore, the Company does not believe that the loss of any single customer would have a material
effect on its total business.
Competition
The Company faces substantial competition in the sale of its products in all markets served. Some of the Company's competitors are larger in size or are
divisions of large diversified companies and have substantially greater financial resources. The Company competes by providing its customers better value
through product quality and efficiency and better services including product availability, shorter lead-times, on-time delivery, product literature, and
training.
The Company is not aware of any industry-wide statistics from which it can precisely determine its relative position in the industrial electric motor
industry. In the United States certain industry statistics are available from the U.S. Department of Commerce and the National Electric Manufacturers
Association. However, these sources do not include all competitors or all sizes of motors. The Company believes that it is a significant factor in the
markets it serves and that its share of the market has increased over the past several years.
Manufacturing
The Company manufactures many of the components used in its products including laminations, motor hardware, and aluminum die castings. Manufacturing many
of its own components permits the Company to better manage cost, quality, and availability. In addition to the manufacturing of components, the Company's
motor manufacturing operations include machining, welding, winding, assembling, and finishing operations.
The raw materials necessary for the Company's manufacturing operations are available from several sources. These materials include steel, copper wire, gray
iron castings, aluminum, and insulating materials, many of which are purchased from more than one supplier. The Company believes that alternative sources
are available for such materials.
Research and Engineering
The Company's design and development of electric motors and drives includes both the development of products which extend the product lines and the
modification of existing products to meet new application requirements. Additional development work is done to improve production methods. Costs
associated with research, new product development, and product and cost improvements are treated as expenses when incurred and amounted to $24,987,000 in
2000, $24,881,000 in 1999 and $25,300,000 in 1998.
Environment
Compliance with laws relating to the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a
material effect on capital expenditures, earnings, or the financial position of the Company and is not expected to have such an effect.
Employees
As of December 30, 2000, the Company had 4,066 employees.
Executive Officers of the Registrant
Information regarding executive officers is contained in Part III, Item 10, and incorporated herein by reference.
International Operations
Sales from international operations (foreign affiliates and exports) were approximately 14% of total sales in 2000 and 1999 and 15% of total sales in 1998.
See also Note H on page 24 of the Annual Report to Shareholders for 2000.
The Company's products are distributed in more than 60 foreign countries, principally in Canada, Mexico, Europe, Australia, the Far East, and Latin America.
In April 1997, the Company acquired the UK-based Optimised Control Ltd. This wholly-owned affiliate has sales offices and a development and
manufacturing facility in the UK. Baldor and its affiliates in Europe have sales offices in Switzerland, Germany and Italy, and development operations
in Germany. The Company owns majority interests in Australian Baldor Pty. Limited, which has locations in Sydney and Melbourne. The Company wholly owns Baldor
Electric (Far East) Pte. Ltd., located in Singapore, and in the last two years, the Company has opened sales offices in Taiwan, Japan, and the Philippines.
The Company also wholly owns Baldor de Mexico, S.A. de C.V., located in Leon, Mexico.
The Company believes that it is in a position to act on global opportunities as they become available. The Company also believes that there are additional
risks attendant to international operations, including currency fluctuations and possible restrictions on the movement of funds. However, these risks have
not had a significant adverse effect on the Company's business.
Item 2. Properties
The Company believes that its facilities, including equipment and machinery, are in good condition, suitable for current operations, adequately maintained
and insured, and capable of sufficient additional production levels. The following table contains information with respect to the Company's properties.
AREA
LOCATION PRIMARY USE (SQ. FT.)
Fort Smith, AR AC motor production 294,969
Distribution and service center 208,000
Administration and engineering offices 79,675
Aluminum die casting 79,330
Drives production center 162,000
St. Louis, MO Metal stamping and engineering toolroom 108,560
DC and miscellaneous motor production 78,825
Columbus, MS AC motor production 156,000
Westville, OK AC and DC motor production 207,250
Fort Mill, SC DC motor, AC motor 108,000
and tachometer production
Clarksville, AR Subfractional motor, gear motor, *165,735
and worm-gear speed reducer production
Ozark, AR AC motor production 151,783
Five other Metal stamping and motor, drives,
domestic locations servomotor and generator production 253,158
Ten foreign Sales and distribution centers
locations and servodrive production 99,200
2,152,485
*This property is leased pursuant to an Industrial Revenue Bond agreement. The Company also has approximately 350,000 sq. ft. of space available
for expansion currently fully leased to outside firms.
Item 3. Legal Proceedings
The Company is party to a number of legal proceedings incidental to its business, none of which is deemed to be material to its operations or business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters
Information under the captions "Ticker", "Dividends paid", "Common stock price range", and "Shareholders" on page 29 of the Annual Report to Shareholders
for 2000 is incorporated herein by reference.
Item 6. Selected Financial Data
Information concerning net sales, net earnings, net earnings per share, dividends per share, long-term obligations, and total assets for the years ended
1996 through 2000 is contained under the caption "Eleven-Year Summary of Financial Data" on page 14 of the Annual Report to Shareholders for 2000 and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information under the captions "Management's Discussion and Analysis of Financial Condition" and "Results of Operations" on pages 16 and 17 of the Annual
Report to Shareholders for 2000 is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Information under the sub-caption "Market Risk" of the captions "Management's Discussion and Analysis of Financial Condition" and "Results of Operations" on
page 17 of the Annual Report to Shareholders for 2000 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and related notes on pages 18 through 26, the "Report of Ernst & Young LLP, Independent Auditors" on
page 27, and the "Summary of Quarterly Results of Operations (Unaudited)" on page 19 of the Annual Report to Shareholders for 2000 are incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information contained in the 2001 Proxy Statement under the caption "Proposal 1- Election of Directors" is incorporated herein by reference. The current
executive officers of the Company, each of whom is elected for a term of one year or until his successor is elected and qualified, are:
Served as
Officer
Name Age Position Since
R. S. Boreham, Jr. 76 Chairman 1961
R. L. Qualls 67 Vice Chairman 1986
John A. McFarland 49 President and 1990
Chief Executive Officer
Lloyd G. Davis 53 Executive Vice President, 1992
Chief Operating Officer, and
Secretary
Ronald E. Tucker 43 Chief Financial Officer and 1997
Treasurer
Charles H. Cramer 56 Vice President - Personnel 1984
Gene J. Hagedorn 53 Vice President - Materials 1994
Randy L. Colip 41 Vice President - Sales 1997
Jerry D. Peerbolte 44 Vice President - Marketing 1990
Randal G. Waltman 51 Vice President - Motor 1997
Engineering and Operations
John L. Peeples, III 48 Vice President - International 1998
Thomas J. McGuire, Jr. 49 Vice President - Generator Division 2001
Randall P. Breaux 38 Vice President - Customer Service 2001
Each of the executive officers has served as an officer or in a management capacity with the Company for the last five years. There are no family
relationships among the directors or executive officers.
Item 11. Executive Compensation
Information contained in the 2001 Proxy Statement under the caption "Executive Compensation", except for the information contained in the sub-captions
"Report of the Board of Directors on Executive Compensation" and "Performance Graph", is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The security ownership by officers, directors and beneficial owners of more than five percent of the Company's Common Stock included under the caption
"Security Ownership of Certain Beneficial Owners and Management" of the 2001 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The following consolidated financial statements of Baldor Electric Company and its affiliates, included in the Annual Report to Shareholders for
2000, are incorporated by reference in Item 8 of this Report:
o Consolidated Balance Sheets
- December 30, 2000 and January 1, 2000
o Consolidated Statements of Earnings
- for each of the three years in the period ended December 30, 2000
o Consolidated Statements of Cash Flows
- for each of the three years in the period ended December 30, 2000
o Consolidated Statements of Shareholders' Equity
- for each of the three years in the period ended December 30, 2000
o Notes to Consolidated Financial Statements
(2) The following consolidated financial statement schedule of Baldor Electric Company and its affiliates is included in Item 14(d) of this Report:
o Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable.
(3) See Exhibit Index at page 13 of this Report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period covered by this Report.
(c) Exhibits
See Exhibit Index at page 13 of this Report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section of this Report at page 12 hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ John A. McFarland
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 23, 2001
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. S. Boreham, Jr., R. L. Qualls, and John A.
McFarland, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this Report and any and all amendments to this Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ R. S. Boreham, Jr. Chairman and March 23, 2001
R. S. Boreham, Jr. Director
/s/ R. L. Qualls Vice Chairman and March 23, 2001
R. L. Qualls Director
/s/ John A. McFarland President, March 23, 2001
John A. McFarland Chief Executive Officer, and
Director
(Principal Executive Officer)
/s/ Lloyd G. Davis Executive Vice President, March 23, 2001
Lloyd G. Davis Chief Operating Officer, and
Secretary
/s/ Ronald E. Tucker Chief Financial Officer and March 23, 2001
Ronald E. Tucker Treasurer
(Principal Financial Officer)
/s/ Jefferson W. Asher, Jr. Director March 23, 2001
Jefferson W. Asher, Jr.
/s/ Merlin J. Augustine, Jr. Director March 23, 2001
Merlin J. Augustine, Jr.
/s/ Fred C. Ballman Director March 23, 2001
Fred C. Ballman
/s/ Richard E. Jaudes Director March 23, 2001
Richard E. Jaudes
/s/ Robert J. Messey Director March 23, 2001
Robert J. Messey
/s/ Robert L. Proost Director March 23, 2001
Robert L. Proost
BALDOR ELECTRIC COMPANY AND AFFILIATES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
Additions
Charged to Charged to
Balance at Costs Other Balance
Beginning and Accounts Deductions at End of
Description of Period Expenses Describe Describe Period
Deducted from current assets:
Allowance for doubtful accounts
2000 $ 4,350 $ 520 $ 270 (A) $ 4,600
1999 $ 4,350 $ 568 $ 568 (A) $ 4,350
1998 $ 3,525 $ 511 $(314)(A) $ 4,350
Included in current liabilities:
Anticipated warranty costs
2000 $ 5,925 $ 0 $ 700(C) $ 6,625
1999 $ 5,925 $ 0 $ 5,925
1998 $ 5,200 $ 725(B) $ 5,925
(A) Net uncollectible accounts written off (recovered) during year.
(B) Additions to reserve for anticipated warranty costs, net of expenses incurred.
(C) Additions to reserve for acquisition, net of expenses incurred.
BALDOR ELECTRIC COMPANY AND AFFILIATES
INDEX OF EXHIBITS
Exhibit No. Description
3(i) * Articles of Incorporation (as restated and amended) of Baldor Electric Company, effective May 2, 1998, filed as Exhibit 3(i) to the
Registrant's Current Report on Form 10-Q for the quarter ended July 4, 1998.
3(ii) * Bylaws of Baldor Electric Company (as restated and amended), dated August 2, 1999, filed as Exhibit 3(ii) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 2, 1999.
4(i) * Rights Agreement, dated May 6, 1998, between Baldor Electric Company and Wachovia Bank of North Carolina, N.A. (formerly Wachovia Bank &
Trust Company, N.A.), as Rights Agent, originally filed as Exhibit 1 to the Registrant's Current Report on Form 8-K dated May 13, 1988,
and refiled as Exhibit 4(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
4(ii) * Amendment Number 1 to the Rights Agreement, dated February 5, 1996, filed as Exhibit 2 to the Registrant's Registration Statement on
Form 8-A/A dated March 21, 1996.
4(iii) * Amendment Number 2 to the Rights Agreement, dated June 1, 1999, filed as Exhibit 4(i)(c) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended July 3, 1999.
10(i) * + 1982 Incentive Stock Option Plan, originally filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for year ended
December 31, 1981, refiled as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1991.
10(ii) * + Officers Compensation Plan, originally filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for year ended December 31,
1988, and refiled as Exhibit 10(iii)(A)(2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10(iii) * + 1987 Incentive Stock Plan, originally filed as Appendix A to Registrant's Proxy Statement dated April 3, 1987, and refiled as Exhibit
10(iii)(A)(3) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
(continued on next page)
BALDOR ELECTRIC COMPANY AND AFFILIATES
INDEX OF EXHIBITS
(continued from previous page)
Exhibit No. Description
10(iv) * + 1989 Stock Option Plan for Non-Employee Directors, as restated and amended at the Board of Directors Meeting on August 10, 1998, filed
as Exhibit 10(iii)A.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
10(v) * + 1994 Incentive Stock Option Plan, as restated and amended at the Company's Annual Meeting on May 2, 1998, filed as Exhibit 10(iii)A.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
10(vi) * + 1996 Stock Option Plan for Non-Employee Directors, as restated and amended at the Board of Directors Meeting on August 10, 1998, filed
as Exhibit 10(iii)A.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
11 Computation of Earnings Per Share, incorporated by reference in Note J of the Annual Report to Shareholders for 2000 filed as Exhibit 13.
13 Portions of the Annual Report to Shareholders for 2000. The Annual Report is being filed as an exhibit solely for the purpose of
incorporating certain provisions thereof by reference. Portions of the Annual Report not specifically incorporated are not deemed
"filed" for the purposes of the Securities Exchange Act of 1934, as amended.
21 Affiliates of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney (set forth on signature page hereto).
27 Financial Data Schedule.
The Registrant agrees to furnish to the Securities and Exchange Commission, upon request, pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of
instruments defining the rights of the holders of long-term debt of the Registrant and its consolidated affiliates.
- --------------
* Previously filed.
+ Management contract or compensatory plan or arrangement.
EXHIBIT 21
BALDOR ELECTRIC COMPANY AND AFFILIATES
AFFILIATES OF THE REGISTRANT
NAME OF AFFILIATE LOCATION
Baldor of Arkansas, Inc. Arkansas
Baldor of Nevada, Inc. Nevada
BEC Business Trust Massachusetts
Baldor of Texas, L.P. Texas
Baldor International, Inc. U.S.Virgin Islands
Southwestern Die Casting Company, Inc. Arkansas
Baldor UK Holdings, Inc. Delaware
Baldor Optimised Control Limited United Kingdom
Baldor Optimized Control (NZ) Ltd. New Zealand
Baldor Holdings, Inc. Delaware
Baldor de Mexico, S.A. de C.V. Mexico
Baldor ASR AG Switzerland
Baldor ASR GmbH fur Antriebstechnik Germany
Baldor ASR U.K. Limited United Kingdom
Baldor Italia S.r.l. Italy
Australian Baldor Pty Limited Australia
Baldor Electric (Far East) PTE, Ltd. Singapore
Baldor Electric (Thailand) Ltd. Thailand
Baldor Industrial Automation PTE. Ltd. Singapore
Northern Magnetics, Inc. California
Baldor Japan Corporation Japan
Baldor (Taiwan) Ltd Taiwan
Pow'R Gard Generator Corp. Wisconsin
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Baldor Electric Company and affiliates of our report dated February 2,
2001, included in the 2000 Annual Report to Shareholders of Baldor Electric Company and affiliates.
Our audits also included the financial statement schedule of Baldor Electric Company and affiliates listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statements (Form S-8, No. 2-77046) pertaining to the Baldor Electric Company 1982
Incentive Stock Option Plan, (Form S-8, No. 33-16766) pertaining to the Baldor Electric Company 1987 Incentive Stock Plan, (Form S-8, No. 33-28239)
pertaining to the Baldor Electric Company Employee Savings Plan, (Form S-8, No. 33-36421) pertaining to the Baldor Electric Company 1989 Stock Option Plan
for Non-Employee Directors, (Forms S-8, No. 33-59281, No. 33-60731, and No. 333-62331) pertaining to the Baldor Electric Company 1994 Incentive Stock Plan,
(Form S-8, No. 333-33109) pertaining to the Baldor Electric Company 1996 Stock Option Plan for Non-Employee Directors, and (Form S-8, No. 333-33287)
pertaining to the Baldor Electric Company Employees' Profit Sharing and Savings Plan of our report dated February 2, 2001, with respect to the consolidated
financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Baldor Electric Company and affiliates.
Ernst & Young LLP
/s/ Ernst & Young LLP
Little Rock, Arkansas
March 21, 2001
ELEVEN YEAR SUMMARY OF FINANCIAL DATA
(In thousands, except percentages and per-share data)
PER SHARE DATA
PERCENT
COST DILUTED BASIC RETURN ON LONG
NET GOODS NET NET NET AVERAGE SHAREHOLDERS' TOTAL TERM WORKING
SALES SOLD EARNINGS EARNINGS EARNINGS DIVIDENDS EQUITY EQUITY ASSETS OBLIGATIONS CAPITA
L
2000 621,243 423,861 46,263 1.34 1.36 0.50 17.6% 260,845 464,978 99,832 174,803
1999 585,551 399,833 43,723 1.19 1.21 0.45 16.5% 266,109 423,941 56,305 183,956
1998 596,660 410,748 44,610 1.17 1.21 0.40 17.6% 264,292 411,926 57,015 176,126
1997 564,756 389,711 40,365 1.09 1.13 0.36 18.2% 243,434 355,889 27,929 141,268
1996 508,526 353,345 35,173 0.97 1.00 0.30 17.1% 200,325 325,486 45,027 146,975
1995 478,315 334,306 32,305 0.84 0.88 0.26 16.3% 211,377 313,462 25,255 145,069
1994 422,714 297,212 26,359 0.69 0.73 0.21 15.3% 184,262 283,155 26,303 118,550
1993 360,195 255,557 19,426 0.52 0.54 0.17 12.7% 160,539 237,950 22,474 108,601
1992 322,038 229,686 15,264 0.42 0.43 0.14 10.9% 145,226 211,941 23,209 97,343
1991 289,121 206,953 11,922 0.33 0.34 0.14 9.3% 133,663 203,277 24,376 84,740
1990 296,630 211,342 14,137 0.40 0.41 0.14 11.9% 123,932 200,694 25,299 75,306
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Summary
In 2000, Baldor achieved record sales and net earnings, both increasing 6% from 1999. Continuing our efforts from 1999, Baldor
improved margins through increased productivity, reduced manufacturing costs and improved quality of products and services for our
customers. Record gross and operating margins coupled with the Company's stock repurchase program helped to increase earnings per
share to $1.34 from $1.19 in 1999, the 9th consecutive year of increased EPS. Also during 2000, the Company raised quarterly
dividends 8% from $.12 per share to $.13 per share. Total dividends paid in 2000, amounting to $.50 per share, was an 11% increase
over 1999.
Net Sales
Baldor's 2000 sales were $621.2 million, climbing 6% from 1999 sales of $585.6 million. Sales in 1998 were $589.7 million. Over the
past three years, sales to distributor and Original Equipment Manufacturer (OEMs) customers have remained at approximately 50% each.
Baldor serves many industries and geographic regions by selling to a broad base of distributors and OEMs both domestically and in
more than 60 countries around the world. No single customer accounted for more than 5% of sales in any year covered by this report.
Net Earnings
Net earnings in 2000 were a record $46.3 million, advancing 6% from 1999 earnings of $43.7 million. Net earnings in 1998 were $44.6
million. Gross margins, operating margins and pre-tax margins have continued to improve over the past three years.
Gross margin improved to 31.8% in 2000 from 31.7% in 1999 and 30.3% in 1998. Manufacturing costs continued to improve in 2000
compared to the prior two years. Selling and administrative costs as a percent of sales were 18.0% in 2000 compared to 17.9% in 1999
and 17.8% in 1998. The Company's concentration on improvements resulted in a record operating margin of 13.8% in 2000, slightly
higher than 1999 and compared to 12.6% in 1998. Pre-tax margins were 11.9% for 2000 compared to 12.0% in 1999 and 12.2% in 1998. Our
tax rate improved to 37.5% for 2000 compared to 38.0% in 1999 and 1998.
International Operations
Sales from international operations (foreign affiliates and exports) grew to $86.4 million in 2000 from $80.3 million in 1999.
International operations accounted for $90.0 million in 1998. Mexico, England and the Far East all experienced sales increases for
2000 over 1999. We experienced decreased sales in our European operations due to a weak economy, strengthening of the U.S. dollar
against the local currency, and transitional issues related to the consolidation of German and U.K. manufacturing facilities to
Bristol, England. While this consolidation has been expensive, it will be beneficial to earnings after its completion in the first
quarter of 2001.
Environmental Remediation
Management believes, based on their internal reviews and other factors, that the future costs relating to environmental remediation
and compliance will not have a material effect on the capital expenditures, earnings or competitive position of the Company.
Year 2000
The Company's comprehensive Year 2000 initiative was implemented timely and successfully with no significant problems from the new
millennium. We did not experience any disruptions from our suppliers or financial institutions nor has any Baldor product been
affected by the 2000 date. We have now begun to utilize our new company-wide information system to improve visibility and reaction
time to customer orders, reduce lead times, support international operations, improve productivity and better manage inventory.
Financial Position
Summary
Baldor's financial position remained strong through 2000. We maintained our financial strength by expanding research and development
for new and existing products, by making capital investments in our manufacturing facilities and by continuing to invest in both our
employees and customers through education and training. The Company's 6 million-share stock repurchase program announced in 1998 and
expanded in 2000 is more than two-thirds complete with 4.1 million shares repurchased as of December 30, 2000.
Our financial strength is an important competitive advantage, providing a strong base to better serve our customers and finance
future growth opportunities. Based upon our continued financial strength in 2000, the Board of Directors approved an 8% dividend
increase during the year.
Investments
Baldor believes the investment in our employees through training and education is a key to continued success and improved shareholder
value. Baldor continues to be a leader not only in employee education, but also in customer training.
Investments in property, plant and equipment amounted to $22.6 million in 2000, $14.3 million in 1999 and $38.2 million in 1998.
These investments in property, plant and equipment were made to centralize operations, increase capacity and improve quality and
productivity, resulting in improved margins.
Baldor's commitment to research and development continues to help it maintain a leadership position in the marketplace and to satisfy
customers' needs. Baldor continues its investments in research and development, amounting to $25.0 million in 2000, $24.9 million in
1999 and $25.3 million in 1998. We also continue to make investments in our existing products for improved performance, increased
energy efficiency and manufacturability.
Current Liquidity
Baldor's liquidity position remained strong in 2000 with solid working capital and a current ratio of 3.0. Working capital was $174.8
million at year-end 2000 compared to $184.0 million at the end of 1999. Liquidity was also strengthened by cash flows from
operations of $46.4 million in 2000, $52.9 million in 1999 and $50.5 million in 1998. The Company also has available lines of credit
to support operations, if needed.
Long-Term Debt and Shareholders' Equity
Long-term debt as a percent of total capital was 27.7% at year-end 2000 and 17.5% at year-end 1999. Baldor repurchased 2,172,434
shares of common stock during 2000. During the first quarter of 2000, the Board of Directors approved the repurchase of an additional
1.5 million shares of stock that will expire December 31, 2001. This brings the total shares authorized for repurchase since
September 1998 to 6.0 million of which 4.1 million have been repurchased as of December 30, 2000. Shareholders' equity was $260.8
million at year-end 2000 compared to $266.1 million at the end of 1999. Return on average shareholders' equity improved to 17.6% in
2000 from 16.5% in 1999.
Dividend Policy
Annual dividends per share for 2000 increased 11% over 1999, which increased 12% over 1998. There have been seven dividend increases
in the last five years. These increases were in line with Baldor's policy of making increases periodically, as earnings and financial
strength warrant, and reinvesting a major portion of earnings to finance growth opportunities. The objective is for shareholders to
obtain dividend increases over time while also participating in the growth of the Company.
Market Risk
The Company's interest rate risk relates from its available-for-sale securities and long-term debt. Approximately 30% of the
Company's securities portfolio matures within three years. Due to the short-term nature of these securities, anticipated interest rate
risk is not considered material. The Company's fixed rate debt is 40% of the total debt obligations. An adverse ten percent change in
the end-of-year market rates would not materially affect 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 prices. The hedges are for materials
to be used in production and are not speculative. A 10% adverse movement in the price of copper would not result in a material
affect on earnings in a given year.
Forward-looking Statements
This annual report and other written reports and oral statements made from time to time by the Company and its representatives may
contain forward-looking statements with respect to their current views and estimates of future economic circumstances, industry
conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and
uncertainties which could cause the Company's actual results and experiences to differ materially from the anticipated results and
expectations expressed in such forward-looking statements. You are cautioned that actual results and experiences 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.
Consolidated Balance Sheets
Baldor Electric Company and Affiliates
DECEMBER 30 JANUARY 1
ASSETS (In thousands, except share data) 2000 2000
CURRENT ASSETS: Cash and cash equivalents $ 5,868 12,103
Marketable securities 9,137 30,805
Receivables, less allowances for doubtful
accounts of $4,600 and $4,350, respectively 100,494 98,470
Inventories: Finished products 81,979 75,351
Work-in-process 10,506 9,728
Raw materials 54,582 47,677
147,067 132,756
LIFO valuation adjustment (deduction) (26,116) (26,571)
120,951 106,185
Other current assets and deferred income taxes 25,971 24,767
TOTAL CURRENT ASSETS 262,421 272,330
OTHER ASSETS 63,737 26,809
PROPERTY, PLANT Land and improvements 6,217 5,957
AND EQUIPMENT: Buildings and improvements 50,314 43,644
Machinery and equipment 253,426 231,437
Allowances for depreciation and amortization
(deduction) (171,137) (156,236)
Net property, plant and equipment 138,820 124,802
$464,978 $423,941
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT Accounts payable $ 26,813 26,774
LIABILITIES: Employee compensation 6,154 6,021
Profit sharing 9,717 9,417
Accrued warranty costs 6,625 5,925
Accrued insurance obligations 14,409 15,675
Other accrued expenses 17,813 18,205
Income taxes 5,447 5,752
Current maturities of long-term obligations 640 605
TOTAL CURRENT LIABILITIES 87,618 88,374
LONG-TERM OBLIGATIONS 99,832 56,305
DEFERRED INCOME TAXES 16,683 13,153
SHAREHOLDERS' EQUITY: Preferred stock, $0.10 par value
Authorized shares: 5,000,000
Issued and outstanding shares: None
Common stock, $0.10 par value
Authorized shares: 150,000,000
Issued shares: 2000 - 39,020,528; 1999 - 38,722,508 3,902 3,872
Additional capital 38,024 34,971
Retained earnings 320,915 291,741
Accumulated other comprehensive income (3,866) (2,676)
Treasury stock at cost (5,251,894 in 2000
and 3,130,950 shares in 1999) (98,130) (61,799)
TOTAL SHAREHOLDERS' EQUITY 260,845 266,109
$464,978 $423,941
See notes to consolidated financial statements.
Consolidated Statements of Earnings
Baldor Electric Company and Affiliates
Years ended
December 30 January 1 January 2
(In thousands, except share data) 2000 2000 1999
Net sales $621,242 $585,551 $589,660
Other income, net 1,838 1,943 2,019
623,080 587,494 598,679
Costs and expenses: Cost of goods sold 423,861 399,833 410,747
Selling and administrative 111,611 104,903 104,820
Profit sharing 9,747 9,445 9,439
Interest 3,840 2,790 1,721
549,059 516,971 526,727
Earnings before income taxes 74,021 70,523 71,952
Income taxes 27,758 26,800 27,342
NET EARNINGS $ 46,263 $ 43,723 $ 44,610
Net earnings per share-diluted $1.34 $1.19 $1.17
Net earnings per share-basic $1.36 $1.21 $1.21
Weighted average shares outstanding-diluted
34,570,328 36,787,349 38,067,014
Weighted average shares outstanding-basic 33,980,529 36,077,484 36,911,175
See notes to consolidated financial statements.
Summary of Quarterly Results of Operations (unaudited)
Baldor Electric Company and Affiliates
Quarter
(In thousands, except per share data): First Second Third Fourth Total
2000: Net sales $158,019 $163,190 $155,376 $144,657 $621,242
Gross profit 50,959 52,337 49,207 44,878 197,381
Net earnings 12,220 12,535 11,485 10,023 46,263
*Net earnings per share-diluted 0.35 0.36 0.33 0.29 1.34
Net earnings per share-basic 0.35 0.37 0.34 0.30 1.36
1999: Net sales $144,094 $154,312 $146,596 $140,549 $585,551
Gross profit 45,600 48,518 46,485 45,115 185,718
Net earnings 10,731 11,030 11,043 10,919 43,723
Net earnings per share-diluted 0.29 0.30 0.30 0.30 1.19
*Net earnings per share-basic 0.30 0.30 0.31 0.31 1.21
*The sum of the quarter amounts does not
agree to the total due to rounding.
Consolidated Statements of Cash Flow
Baldor Electric Company and Affiliates
Years ended
December 30 January 1 January 2
(In thousands) 2000 2000 1999
Operating activities:
Net earnings $46,263 $43,723 $44,610
Adjustments Depreciation and amortization 19,838 20,767 20,511
to reconcile Deferred income taxes 3,690 2,832 2,968
net earnings Changes in Receivables (65) (8,425) (931)
to net cash operating Inventories (10,888) (2,378) (7,312)
from operating assets and Other current
activities: liabilities: assets (481) (856) (9,851)
Accounts payable (2,621) 7,874 (1,280)
Accrued expenses (3,514) (1,734) (617)
Income taxes (1,715) 2,247 2,249
Other, net (4,154) (11,108) 191
Net cash from operating activities 46,353 52,942 50,538
Investing activities:
Additions to property, plant and equipment (22,577) (14,298) (38,210)
Marketable securities purchased (4,597) (35,052) (17,996)
Marketable securities sold 26,266 18,243 15,900
Acquisitions (net of cash acquired) (40,272) 0 732
Net cash used in investing activities (41,180) (31,107) (39,574)
Financing activities:
Additional long-term borrowings 41,362 6,000 30,750
Reduction of long-term obligations (2,605) (7,085) (1,754)
Unexpended debt proceeds (7) 5,890 466
Dividends paid (16,910) (16,199) (14,832)
Stock option plans 2,063 2,001 3,073
Common stock repurchased (35,311) (25,132) (13,449)
Net cash from (used in) financing activities (11,408) (34,525) 4,254
Net increase (decrease) in cash and cash equivalents (6,235) (12,690) 15,218
Beginning cash and cash equivalents 12,103 24,793 9,575
Ending cash and cash equivalents $5,868 $12,103 $24,793
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Baldor Electric Company and Affiliates
Other
Accumulated Treasury
Common Stock Additional Retained Comprehensive Stock
(In thousands, except per share amounts) Shares Amount Capital Earnings Income (at cost) Total
BALANCE AT JANUARY 3, 1998 36,029 $3,795 $44,606 $233,602 $(582) $(37,987) $243,434
Comprehensive income
Net earnings 44,610 44,610
Other comprehensive income
Securities valuation adjustment,
net of taxes of $54 87 87
Translation adjustments,
net of taxes of $41 67 67
Total other comprehensive income 154
Total comprehensive income $ 48,505
Stock option plans (net of shares exchanged) 355 46 5,547 (2,520) 3,073
Cash dividends at $0.40 per share (14,832) (14,832)
Common stock repurchased (656) (13,449) (13,449)
Acquisition and other 949 (18,658) 1,165 18,795 1,302
BALANCE AT JANUARY 2, 1999 36,677 3,841 31,495 264,545 (428) (35,161) 264,292
Comprehensive income
Net earnings 43,723 43,723
Other comprehensive income
Securities valuation adjustment,
net of taxes of $169 (274) (274)
Translation adjustments,
net of taxes of $1,209 (1,974) (1,974)
Total other comprehensive income (2,248)
Total comprehensive income $ 41,475
Stock option plans (net of shares exchanged) 236 31 3,476 (1,506) 2,001
Cash dividends at $0.45 per share (16,199) (16,199)
Common stock repurchased (1,321) (25,132) (25,132)
Other (328) (328)
BALANCE AT JANUARY 1, 2000 35,592 3,872 34,971 291,741 (2,676) (61,799) 266,109
Comprehensive income
Net earnings 46,263 46,263
Other comprehensive income
Securities valuation adjustment,
net of taxes of $158 263 263
Translation adjustments,
net of taxes of $2,325 (1,453) (1,453)
Total other comprehensive income (1,190)
Total comprehensive income $ 45,073
Stock option plans (net of shares exchanged) 234 30 3,275 (1,242) 2,063
Cash dividends at $0.50 per share (16,910) (16,910)
Common stock repurchased (2,057) (222) (35,089) (35,311)
Other (179) (179)
BALANCE AT DECEMBER 30, 2000 33,769 $3,902 $38,024 $320,915 $(3,866) $(98,130) $260,845
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Baldor Electric Company and Affiliates o December 30, 2000
NOTE A
SIGNIFICANT ACCOUNTING POLICIES
Line of Business: The Company operates in one industry segment which includes the design, manufacture and sale of electric motors
and drives.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the statements and accompanying notes. Actual
results may differ from those estimates.
Consolidation: The consolidated financial statements include the accounts of the Company and all its affiliates. Intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest to December 31 which results in a 52- or 53-week year. Fiscal
years 2000, 1999 and 1998 contained 52 weeks. In 1998, the Company changed the fiscal year end of certain foreign affiliates from
November 30 to December 31. The extra month was recorded as an adjustment to retained earnings.
Cash Equivalents: Cash equivalents consist of highly liquid investments having original maturities of three months or less and are
valued at cost which approximates market.
Marketable Securities: All marketable securities are classified as available-for-sale and are available to support current operations
or to take advantage of other investment opportunities. Those securities are stated at estimated fair value based upon market quotes.
Unrealized gains and losses, net of tax, are computed on the basis of specific identification and are included in Accumulated Other
Comprehensive Income. Realized gains, realized losses and declines in value, judged to be other than temporary, are included in Other
Income. The cost of securities sold is based on the specific identification method and interest earned is included in Other Income.
Inventories: The Company values inventories at the lower of cost or market, cost being determined principally by the last-in,
first-out method (LIFO), except for $15,718,000 in 2000 and $12,886,000 in 1999, at foreign locations, valued by the first-in,
first-out method (FIFO).
Property, Plant and Equipment: Property, plant and equipment, including assets under capital leases, are stated at cost.
Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets
ranging from three to thirty-nine years and the remaining term of capital leases, respectively.
Fair Value of Financial Instruments: The Company's methods and assumptions used to estimate the fair value of financial instruments
include quoted market prices for marketable securities and discounted cash flow analysis for fixed long-term debt. The Company
estimates that the fair value of its financial instruments approximates carrying value at December 30, 2000 and January 1, 2000.
Long-Lived Assets: Impairment losses are recognized on long-lived assets when information indicates the carrying amount of these
assets, intangibles and any goodwill related to long-lived assets will not be recovered through future operations or sale.
Benefit Plans: The Company has a profit-sharing plan covering most employees with more than two years of service. Baldor contributes
12% of earnings before income taxes of participating companies to the Plan.
Income Taxes: Income taxes are provided based on the liability method of accounting. Deferred income taxes are provided for the
expected future tax consequences of temporary differences between the basis of assets and liabilities reported for financial and tax
purposes.
Research and Engineering: Costs associated with research, new product development and product cost improvements are treated as
expenses when incurred and amounted to approximately $24,987,000 in 2000, $24,881,000 in 1999 and $25,300,000 in 1998.
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 will become 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 which are included in the
current period results of operations and those which are included in other comprehensive income. Management has assessed the impact
of SFAS No. 133 and determined that the Company's adoption at December 31, 2000 will not have a material impact on the consolidated
financial statements of the Company based on the hedges currently in place.
Shipping and Handling Costs: In July, 2000, The Financial Accounting Standards Board issued EITF 00-10, Accounting for Shipping and
Handling Fees and Costs, effective for Baldor in the fourth quarter of 2000. EITF 00-10 requires companies to classify all amounts
billed to customers in a sale transaction, related to shipping and handling, as revenue. The Company has historically classified
freight charges billed to customers as an offset to gross freight costs. The Company adopted EITF 00-10 in the fourth quarter of
2000. Accordingly, net sales and selling and administrative expenses have been restated for all periods presented. Costs included in
selling and administrative expenses related to shipping and handling amounted to $23,986,000 in 2000, $22,048,000 in 1999 and
$21,070,000 in 1998.
Reclassification: The Company has reclassified the presentation of certain prior year information to be consistent with the
presentation in the current year.
NOTE B~LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
(In thousands) 2000 1999
Industrial Development Bonds:
due through 2004 at 5.50% fixed rate $ 2,790 $ 3,395
due through 2004 at 4.3% variable rate 2,300 2,300
due through 2010 at 4.5% variable rate 3,440 3,440
due through 2010 at 4.3% variable rate 2,025 2,025
Notes payable to banks:
due January 19, 2001 at 7.2% fixed rate 38,000
due January 2, 2001 at 7.6% variable rate 3,200
due January 3, 2001 at 7.3% variable rate 1,000
due January 4, 2001 at 7.5% variable rate 1,000
due January 19, 2001 at 7.2% variable rate 6,000 6,000
due February 7, 2001 at 7.06% variable rate 14,750 14,750
due October 23, 2001 at 5.07% fixed rate 25,000 25,000
due September 30, 2005 at 8.27% fixed rate 304
due February 1, 2005 at 8.0% fixed rate 333
due on demand at prime rate 330
100,472 56,910
Less current maturities 640 605
$ 99,832 $56,305
Certain long-term obligations are collateralized by property, plant and equipment with a net book value of $4,439,000 at
December 30, 2000.
Maturities of long-term obligations during each of the five fiscal years ending 2005 are: 2001 - $640,000; 2002 - $1,760,000; 2003
- - $1,880,000; 2004 - $810,000; 2005 and thereafter - $94,415,000.
Certain long-term obligations require that the Company maintain certain financial ratios. These financial ratios were all met for
2000 and 1999. At December 30, 2000, the Company had outstanding letters of credit totaling $8,634,000.
Interest paid was $2,899,000 in 2000, $3,117,000 in 1999 and $2,233,000 in 1998.
The Company had lines of credit aggregating $22,500,000 available at December 30, 2000, with $11,200,000 borrowed under these lines
at December 30, 2000. These arrangements do not have termination dates but are renewed annually. Interest on these lines of credit is
at rates mutually agreed upon at the time of borrowing.
The Company has negotiated commitments to renew notes payable to banks of $38,000,000, $14,750,000 and $25,000,000 on or before
their due dates.
NOTE C MARKETABLE SECURITIES
Baldor currently invests in only high-quality, short-term investments which it classifies as available-for-sale. Differences
between amortized cost and estimated fair value at December 30, 2000 and January 1, 2000 are not material and are included in
Accumulated Other Comprehensive Income. Because investments are predominantly short-term and are generally allowed to mature,
realized gains and losses for both years have been minimal.
The following table presents the estimated fair value breakdown of investments by category:
(In thousands) 2000 1999
Municipal debt securities $ 4,661 $18,128
U.S. corporate debt securities 351 11,183
U.S. Treasury & agency securities 4,269 8,441
Other debt securities 217 1,219
9,498 38,971
Less cash equivalents 361 8,166
$ 9,137 $30,805
The estimated fair value of marketable debt and equity securities at December 30, 2000 was $622,000 due in one year or less,
$2,058,000 due in one to three years and $6,817,000 due after three years. Because of the short-term nature of the investments,
expected maturities and contractual maturities are generally the same.
NOTE D INCOME TAXES
The Company made income tax payments of $25,775,000 in 2000, $22,743,000 in 1999 and $23,694,000 in 1998. Income tax expense
consists of the following:
(In thousands) 2000 1999 1998
Current: Federal $21,626 $20,725 $20,820
State 1,932 2,690 2,646
Foreign 510 553 908
Deferred: 3,690 2,832 2,968
$27,758 $26,800 $27,342
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The sources of these differences relate primarily to
depreciation, certain liabilities and bad debt expense.
The following table reconciles the difference between the Company's effective income tax rate and the federal corporate statutory
rate:
2000 1999 1998
Statutory federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 2.1 2.6 2.8
Other 0.4 0.4 0.2
Effective income tax rate 37.5% 38.0% 38.0%
The principal components of deferred tax assets (liabilities) follow:
2000 1999
Property, plant, equipment and intangibles $(18,680) $(17,666)
Accrued liabilities 6,003 8,607
Employee compensation and benefits 2,092 2,164
Total deferred tax liabilities $(10,585) $ (6,895)
Notes to Consolidated Financial Statements (continued)
NOTE E FINANCIAL DERIVATIVES
Hedging of Copper and Aluminum Requirements
The Company purchases significant amounts of copper and aluminum, key ingredients in its motor production, under short-term firm
price contracts which are renegotiated annually. In order to hedge itself from exposure to price fluctuations on these two metals,
the Company utilizes options and swaps for quantities of metal estimated to be used in our product in the future. Option costs are
carried in Other Current Assets, net of realized gains deferred, and are amortized to Cost of Goods Sold over the period that the
metal is used. Gains and losses on swaps are recorded in Cost of Goods Sold when the contracts are settled.
The off-balance sheet fair values and net unamortized costs with respect to the Company's metal hedging programs were not material at
December 30, 2000 and January 2, 2000.
NOTE F SHAREHOLDERS' EQUITY
The Company maintains a shareholder rights plan intended to encourage a potential acquirer to negotiate directly with the Board of
Directors. The purpose of the plan is to ensure the best possible treatment for all shareholders. Under the terms of the plan, one
Common Stock Purchase Right (a Right) is associated with each outstanding share of common stock. If an acquiring person acquires
20% or more of the Baldor common stock then outstanding, the Rights become exercisable and would cause substantial dilution.
Effectively, each such Right would entitle its holder (excluding the 20% owner) to purchase shares of Baldor common stock for half of
the then current market price, subject to certain restrictions under the plan. A Rights holder is not entitled to any benefits of the
Right until it is exercised. The Rights, which expire in May 2008, may be redeemed by the Company at any time prior to someone
acquiring 20% or more of Baldor's outstanding common stock and in certain events thereafter.
NOTE G COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases certain computers, buildings and other equipment under operating lease agreements. Related rental expense was
$5,400,000 in 2000, $4,800,000 in 1999 and 1998. Future minimum payments for operating leases having noncancelable lease terms in
excess of one year are: 2001 - $3,287,000; 2002 - $2,996,000; 2003 - $2,628,000; 2004 - $397,000; and 2005 - $258,000.
Legal Proceedings
The Company is subject to a number of legal actions arising in the ordinary course of business. In management's opinion, the ultimate
resolution of these actions will not materially affect the Company's financial position or results of operations.
NOTE H FOREIGN OPERATIONS
The Company's foreign operations include both export sales and the results of its foreign affiliates in Europe, Australia, Singapore
and Mexico. Consolidated sales, earnings before income taxes, and identifiable assets consist of the following:
(In thousands) 2000 1999 1998
Net Sales:
United States Companies
Domestic customers $534,796 $505,477 $506,644
Export customers 39, 054 36,981 41,855
573,850 542,458 548,499
Foreign Affiliates 47,378 43,091 48,161
$621,228 $585,549 $596,660
Earnings Before Income Taxes:
United States Companies $ 71,462 $ 68,772 $ 69,164
Foreign Affiliates 2,559 1,751 2,788
$ 74,021 $ 70,523 $ 71,952
Assets:
United States Companies $444,907 $394,610 $378,468
Foreign Affiliates 20,071 29,331 33,458
$464,978 $423,941 $411,926
Assets and liabilities of foreign affiliates are translated into U.S. dollars at year-end exchange rates. Income statement items
are generally translated at average exchange rates prevailing during the period. Translation adjustments are recorded in
Accumulated Other Comprehensive Income in Shareholders' Equity.
NOTE I STOCK PLANS
The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Grants can and have included: (1) incentive stock options to purchase shares at prices not less than the
market value at grant date, and/or (2) non-qualified stock options to purchase shares of restricted stock equal to and less than the
stock's market value at grant date. Grants from the 1990 Plan expire six years from the grant date. All other grants expire 10 years
from the date of grant. The 1981, 1987 and 1989 Plans have expired except for options outstanding. A summary of the Company's stock
plans follows.
1990 Plan - Only non-qualified options can be granted from this plan. Options vest and become 50% exercisable at the end of one year
and 100% exercisable at the end of two years. There are no charges to income.
1981, 1987 and 1994 Plans - Incentive stock options vest and become fully exercisable with continued employment of six months for
officers and three years for non-officers. Restrictions on non-qualified stock options normally lapse after a period of five years or
earlier under certain circumstances. Related compensation expense for the non-qualified stock options is amortized over the
applicable compensatory period.
1996 Plan - Each non-employee director is granted an annual grant consisting of non-qualified stock options to purchase: (1) 3,240
shares at a price equal to the market value at grant date, and (2) 2,160 shares at a price equal to 50% of the market value at grant
date. These options are immediately exercisable and related. Related compensation expense on the options granted at 50% of market is
amortized over the applicable compensatory period.
Plan Type Administrator Recipients Status
1981 Non-compensatory Board of Directors Employees Expired
1987 Compensatory Stock Option Committee Employees Expired
1989 Compensatory Executive Committee Non-employee directors Expired
1990 Non-compensatory Stock Option Committee District Managers Active
1994 Compensatory Stock Option Committee Employees Active
1996 Compensatory Executive Committee Non-employee directors Active
The alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, requires the use of an option valuation model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options and requires input of highly subjective assumptions. Traded options
have no vesting restrictions and are fully transferable. The Company's stock options have characteristics significantly different
from those of traded options and the assumptions can materially affect the fair value estimate. Therefore, in management's opinion,
the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, net income and earnings per share required by SFAS No. 123 have been determined as if the
Company had accounted for its stock options under SFAS No. 123 using the Black-Scholes model. The fair value for these options was
estimated as of the grant date. The estimated fair value of the option is amortized to expense over the options' vesting periods. The
initial impact on pro forma net income and net income per share may not be representative of the compensation expense in future
years when the effect of the amortization of multiple awards would be reflected in the pro forma disclosure. A summary of the
Company's weighted average variables, pro forma information, and stock option activity for fiscal years 2000, 1999 and 1998 follows.
2000 1999 1998
Weighted Average Variables
Volatility 3.6% 2.3% 16.6%
Risk-free interest rates 6.6% 5.1% 5.7%
Dividend yields 2.8% 2.1% 1.7%
Expected option life 7.0 years 6.9 years 7.0 years
Remaining contractual life 5.9 years 6.1 years 6.3 years
Fair value per share price granted during year
At market price $ 3.56 $ 3.03 $ 6.24
At less than market price $ 5.59 $ 8.54 $ 9.31
Pro Forma Information
Pro forma net income (in thousands) $45,048 $41,728 $41,602
Pro forma earnings per share $1.31 $1.14 $1.10
Stock Option Activity Weighted Weighted Weighted
Average Average Average
Shares Price/Share Shares Price/Share Shares Price/Share
Total options outstanding
Beginning Balance 2,710,817 $14.85 2,680,603 $13.74 2,766,005 $11.44
Granted 358,833 16.13 414,250 17.27 497,400 21.67
Exercised (298,020) 8.02 (313,373) 8.12 (459,768) 7.57
Canceled (101,731) 17.93 (70,663) 20.25 (123,034) 17.12
Ending Balance 2,669,899 15.67 2,710,817 14.85 2,680,603 13.74
Shares authorized for grant 11,991,600 11,991,600 11,991,600
Shares exercisable 2,135,299 2,029,852 1,704,866
Shares reserved for future grants 2,128,435 2,403,253 2,745,305
Notes to Consolidated Financial Statements (continued)
NOTE J EARNINGS PER SHARE
The Company's presentation of financial results now includes both diluted earnings per share and basic earnings per share in
accordance with SFAS No. 128, Earnings Per Share.
Basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share
includes all common stock equivalents. The table below details earnings per share for the years indicated:
2000 1999 1998
Numerator Reconciliation:
The numerator is the same for
diluted and basic EPS:
Net earnings (in thousands) $46,263 $43,723 $44,610
Denominator Reconciliation:
The denominator for basic
earnings per share:
Weighted average shares 33,980,529 36,077,484 36,911,175
Effect of dilutive securities:
Stock options 589,799 709,865 1,155,839
The denominator for diluted
earnings per share:
Adjusted weighted
average shares 34,570,328 36,787,349 38,067,014
Basic Earnings Per Share $1.36 $1.21 $1.21
Diluted Earnings Per Share $1.34 $1.19 $1.17
NOTE K ACQUISITIONS
On November 27, 2000, the Company acquired Pow'R Gard Generator Corporation for cash in the amount of $40 million. The acquisition
has been accounted for as a purchase. Goodwill associated with the acquisition is being amortized on a straight-line basis over 40
years. Pow'R Gard's annual sales for the year ended December 30, 2000 were approximately $25 million. Pow'R Gard's results of
operations are not material to the Company's consolidated financial statements. Accordingly, pro forma information has not been
presented. The Company's consolidated financial statements include the results of operations and the assets and liabilities of Pow'R
Gard after November 27, 2000.
On March 5, 1998, the Company issued 951,000 shares of common stock for all of the outstanding stock of Northern Magnetics, Inc., a
motor manufacturer. The transaction was accounted for as a pooling of interests. Northern Magnetics' results of operations in prior
years was not material to the Company's consolidated financial statements. As such, prior year financial statements have not been
restated.
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors, Baldor Electric Company and Affiliates
We have audited the accompanying consolidated balance sheets of Baldor Electric Company and affiliates as of December 30, 2000
and January 1, 2000, and the related consolidated statements of earnings, cash flows and shareholders' equity for each of the three
years in the period ended December 30, 2000. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Baldor Electric Company and affiliates at December 30, 2000 and January 1, 2000, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States.
Little Rock, Arkansas
February 2, 2001
Report of Management on Responsibility for Financial Reporting
Baldor management is responsible for the integrity and objectivity of the financial information contained in this annual report.
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying
informed judgments and estimates where appropriate.
Baldor maintains a system of internal accounting controls that provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles.
The Audit Committee of the Board of Directors is composed solely of outside directors and is responsible for recommending to the
Board the independent accounting firm to be retained for the coming year. The Audit Committee meets regularly with the independent
auditors, with the Director of Audit Services, as well as with Baldor management, to review accounting, auditing, internal
accounting controls and financial reporting matters. The independent auditors, Ernst & Young LLP, and the Director of Audit
Services, have direct access to the Audit Committee without the presence of management to discuss the results of their audits.
Ernst & Young LLP, independent certified public accountants, have audited Baldor's financial statements. Management has made
available to Ernst & Young LLP all of the Company's financial records and related data, as well as the minutes of shareholders' and
directors' meetings.
/s/ R. S. BOREHAM, JR. /s/ R. L. QUALLS /s/ JOHN McFARLAND /s/ LLOYD G. DAVIS /s/ RONALD E. TUCKER
Chairman of the Board Vice Chairman President and Executive Vice President, Chief Financial Officer
Chief Executive Officer Chief Operating Officer and Treasurer
and Secretary
Board of Directors
Roland S. Boreham, Jr.,Chairman
Chairman of the Board since 1981.
Former Chief Executive Officer.
Officer since 1961.
Director since 1961.
Chairman - Executive Committee.
Member - Nominating Committee.
R. L. Qualls, Vice Chairman
Vice Chairman of the Board since 1996.
Former Chief Executive Officer.
Officer from 1986 through 2000.
Director since 1987.
Member - Executive Committee.
John A. McFarland, President
and Chief Executive Officer
Officer since 1990.
Director since 1996.
Member - Executive Committee.
Chairman - Nominating Committee.
Jefferson W. Asher, Jr.
Independent management consultant.
Director since 1973.
Chairman - Audit Committee.
Merlin J. Augustine, Jr.
Associate Vice Chancellor for
Finance and Administration at the
University of Arkansas in Fayetteville.
Chairman of the Board of Arkansas
Science and Technology Authority.
Founder and Chief Executive Officer
of the M&N Augustine Foundation
for Human Development, Inc.
Director since 2000.
Member - Nominating Committee.
Fred C. Ballman
Former Chairman of the Board.
Former Chief Executive Officer.
Director from 1944 to 1982 and since 1992.
Richard E. Jaudes
Partner, Thompson Coburn LLP,
Attorneys at Law.
Director since 1999.
Member - Stock Option Committee.
Robert J. Messey
Senior Vice President and
Chief Financial Officer of
Arch Coal, Inc. (NYSE).
Director since 1993.
Chairman - Stock Option Committee.
Member - Audit Committee.
Robert L. Proost
Financial Consultant and Lawyer.
Former Corporate Vice President,
Chief Financial Officer, and
Director of Administration of
A.G. Edwards & Sons, Inc.
Director since 1988.
Member - Audit Committee.
Member - Stock Option Committee.
Officers
Randall P. Breaux
Vice President - Customer Service
Officer since 2001.
Randy L. Colip
Vice President - Sales
Officer since 1997.
Charles H. Cramer
Vice President - Personnel
Officer since 1984.
Lloyd G. Davis
Executive Vice President,
Chief Operating Officer and Secretary
Officer since 1992.
Gene J. Hagedorn
Vice President - Materials
Officer since 1994.
Thomas J. McGuire, Jr.
Vice President - Generator Division
Officer since 2001.
John L. Peeples, III
Vice President - International
Officer since 1998.
Jerry D. Peerbolte
Vice President - Marketing
Officer since 1990.
Ronald E. Tucker
Chief Financial Officer
and Treasurer
Officer since 1997.
Randal G. Waltman
Vice President - Motor Engineering
and Operations
Officer since 1997.
Shareholder Information
Dividend policy
Baldor's dividend policy is to periodically increase dividends as earnings and financial strength warrant, but also to reinvest a
major portion of earnings to help finance growth opportunities. The objective is for shareholders to obtain dividend increases over
time while also participating in the growth of the Company.
Dividends paid
Baldor's annual dividend rate for 2000 increased 11% over 1999. There have been 7 dividend increases in the last five years, and 13
increases in the last ten years.
2000 1999 1998
1st quarter $0.12 $0.11 $0.10
2nd quarter 0.12 0.11 0.10
3rd quarter 0.13 0.11 0.10
4th quarter 0.13 0.12 0.10
Year $0.50 $0.45 $0.40
Common stock price range
2000 1999
HIGH LOW HIGH LOW
1st quarter $19.1875 $14.8750 $20.5000 $18.8750
2nd quarter 19.1875 17.5000 21.6875 18.2500
3rd quarter 21.0625 18.1250 20.2500 17.2500
4th quarter 22.5000 19.2500 20.5000 17.0000
Shareholders
At December 30, 2000, there were 5,715 shareholders of record including employee shareholders through participation in the benefit
plans.
Independent auditors
Ernst & Young LLP
425 west Capitol - Suite 3600
Little Rock, Arkansas 72201
General Counsel
Thompson Coburn LLP
1 Mercantile Center
St. Louis, Missouri 63101
Ticker
The common stock of Baldor Electric Company trades on the New York Stock Exchange (NYSE) with the ticker symbol BEZ.
Form 10-K report
Baldor's Form 10-K report is filed with the Securities and Exchange Commission and the NYSE. Shareholders may obtain a copy fo the Form 10-K
report, including the financial statements and financial statement schedules, by written request (without charge) from
the Company's Investor Relations Department at the address under shareholder inquiries.
Shareholder incquiries
To request additional copies of the Annual Report, or other materials and information about Baldor Electric Company,
please contact us at:
Baldor Electric Company
Attn: Investor Relations
P.O. Box 2400
Fort Smith, Arkansas 72902
Phone: (501) 646-4711
Fax: (501) 648-5752
Internet: www.baldor.com
Transfer agent and registrar
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
(800)509-5586