[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 29, 2001 01-07284
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. St., Fort Smith, Arkansas 72901 (479) 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 March 6, 2002, was $649,193,503.
At March 6, 2002, there were 33,964,718 shares of the registrant's common stock outstanding.
Portions of the Annual Report to Shareholders for the fiscal year ended December 29, 2001 (the "2001 Annual Report to Shareholders"), are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 20, 2002 (the "2002 Proxy Statement"), are incorporated by reference into Part III.
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, drives, generators 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.
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 81% of the Company’s business in 2001 and 79% in each of the years 2000 and 1999. The bulk of the remaining sales included power generators, drives, 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 2001 and 2000, and 63% in 1999. 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.
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.
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, local support, 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.
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, insulating materials, and diesel engines, many of which are purchased from more than one supplier. The Company believes that alternative sources are available for such materials.
The Company’s design and development of electric motors, drives, and generators include 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 $24,415,000 in 2001, $24,987,000 in 2000, and $24,881,000 in 1999.
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.
Information regarding executive officers is contained in Part III, Item 10, and incorporated herein by reference.
Sales from international operations (foreign affiliates and exports) were approximately 14% of total sales in each of the years 2001, 2000, and 1999. See also Note I on page 26 of the 2001 Annual Report to Shareholders.
The Company's products are distributed in more than 60 foreign countries, principally in Canada, Mexico, Europe, Australia, the Far East, and Latin America. Baldor's wholly-owned affiliate, UK-based Optimised Control Ltd., has sales offices and a development and manufacturing facility in the UK. Baldor and its affiliates in Europe have sales offices in Switzerland and Italy, as well as sales 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 has 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.
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 187,385
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, DC motor *165,735
and worm-gear speed reducer production
Ozark, AR AC motor production 151,783
Four other Metal stamping and motor, drives,
domestic locations servomotor and generator production 225,798
Ten foreign Sales and distribution centers
locations and servo drive production 99,200
2,125,125
*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.
Information under the captions “Ticker”, “Dividends paid”, “Common stock price range”, and “Shareholders”, on page 29 of the 2001 Annual Report to Shareholders, is incorporated herein by reference.
Information concerning net sales, net earnings, net earnings per share, dividends per share, long-term obligations, and total assets for the years ended 1991 through 2001 is contained under the caption “Eleven-Year Summary of Financial Data” on page 14 of the 2001 Annual Report to Shareholders and is incorporated herein by reference.
Information under the captions “Management’s Discussion and Analysis of Financial Condition” and “Results of Operations” on pages 16 and 17 of the 2001 Annual Report to Shareholders is incorporated herein by reference.
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 2001 Annual Report to Shareholders is incorporated herein by reference.
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 2001 Annual Report to Shareholders are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Information contained in the 2002 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. 77 Chairman 1961
John A. McFarland 50 President and 1990
Chief Executive Officer
Lloyd G. Davis 54 Executive Vice President, 1992
Chief Operating Officer, and
Secretary
Ronald E. Tucker 44 Chief Financial Officer and 1997
Treasurer
Charles H. Cramer 57 Vice President - Personnel 1984
Gene J. Hagedorn 55 Vice President - Materials 1994
Randy L. Colip 43 Vice President - Sales 1997
Randal G. Waltman 52 Vice President - Motor 1997
Engineering and Operations
John L. Peeples, III 49 Vice President - International 1998
Randall P. Breaux 39 Vice President - Marketing 2001
Roger V. Bullock 52 Vice President - Drives 2002
Jeffrey R. Hubert 48 Vice President - Sales 2002
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.
Information contained in the 2002 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.
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 2002 Proxy Statement is incorporated herein by reference.
(a) (1) The following consolidated financial statements of Baldor Electric Company
and its affiliates, included in the 2001 Annual Report to Shareholders, are
incorporated by reference in Item 8 of this Report:
o Consolidated Balance Sheets
- December 29, 2001 and December 30, 2000
o Consolidated Statements of Earnings
- for each of the three years in the period ended December 29, 2001
o Consolidated Statements of Cash Flows
- for each of the three years in the period ended December 29, 2001
o Consolidated Statements of Shareholders' Equity
- for each of the three years in the period ended December 29, 2001
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
John A. McFarland
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 18, 2002
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. S. Boreham, Jr. 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 PAGE FOR FORM 10-K FOR YEAR ENDED DECEMBER 29, 2001.
Signature Title Date
/s/ R.S. Boreham, Jr. Chairman and March 18, 2002
R. S. Boreham, Jr. Director
/s/ John A. McFarland President, March 18, 2002
John A. McFarland Chief Executive Officer, and
Director
(Principal Executive Officer)
/s/ Lloyd G. Davis Executive Vice President, March 18, 2002
Lloyd G. Davis Chief Operating Officer, and
Secretary
/s/ Ronald E. Tucker Chief Financial Officer and March 18, 2002
Ronald E. Tucker Treasurer
(Principal Financial Officer)
/s/ Jefferson W. Asher, Jr. Director March 18, 2002
Jefferson W. Asher, Jr.
/s/ Merlin J. Augustine, Jr. Director March 18, 2002
Merlin J. Augustine, Jr.
/s/ Richard E. Jaudes Director March 18, 2002
Richard E. Jaudes
/s/ Robert J. Messey Director March 18, 2002
Robert J. Messey
/s/ Robert L. Proost Director March 18, 2002
Robert L. Proost
/s/ R.L. Qualls Director March 18, 2002
R. L. Qualls
/s/ Barry K. Rogstad Director March 18, 2002
Barry K. Rogstad
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
2001 $ 4,600 $ 1,043 $ 1,043(A) $ 4,600
2000 $ 4,350 $ 520 $ 270(A) $ 4,600
1999 $ 4,350 $ 568 $ 568(A) $ 4,350
(A) Uncollectible accounts written off (net of recoveries) during year.
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 @amp; 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.
10(vii) * + Stock Option Plan for Non-Employee Directors, as approved by the Company's Board of Directors on February 5, 2001,
filed as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 29, 2001.
11 Computation of Earnings Per Share, incorporated by reference in Note J of the 2001 Annual Report to Shareholders
filed as Exhibit 13.
13 Portions of the 2001 Annual Report to Shareholders. 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).
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.
ELEVEN YEAR SUMMARY OF FINANCIAL DATA
(In thousands, except percentages and per-share data)
PER SHARE DATA
PERCENT
COST DILUTED BASIC RETURN ON
NET GOODS NET NET NET AVERAGE SHAREHOLDERS'
SALES SOLD EARNINGS EARNINGS EARNINGS DIVIDENDS EQUITY EQUITY
2001 557,459 401,471 22,385 0.65 0.66 0.52 8.6% 262,485
2000 621,243 423,861 46,263 1.34 1.36 0.50 17.6% 260,845
1999 585,551 399,833 43,723 1.19 1.21 0.45 16.5% 266,109
1998 596,660 410,748 44,610 1.17 1.21 0.40 17.6% 264,292
1997 564,756 389,711 40,365 1.09 1.13 0.36 18.2% 243,434
1996 508,526 353,345 35,173 0.97 1.00 0.30 17.1% 200,325
1995 478,315 334,306 32,305 0.84 0.88 0.26 16.3% 211,377
1994 422,714 297,212 26,359 0.69 0.73 0.21 15.3% 184,262
1993 360,195 255,557 19,426 0.52 0.54 0.17 12.7% 160,539
1992 322,038 229,686 15,264 0.42 0.43 0.14 10.9% 145,226
1991 289,121 206,953 11,922 0.33 0.34 0.14 9.3% 133,663
LONG
TOTAL TERM WORKING
ASSETS OBLIGATIONS CAPITAL
2001 457,527 98,673 173,638
2000 464,978 99,832 174,803
1999 423,941 56,305 183,956
1998 411,926 57,015 176,126
1997 355,889 27,929 141,268
1996 325,486 45,027 146,975
1995 313,462 25,255 145,069
1994 283,155 26,303 118,550
1993 237,950 22,474 108,601
1992 211,941 23,209 97,343
1991 203,277 24,376 84,740
Difficult economic conditions and corresponding declines in customer orders resulted in decreased sales and earnings in 2001. For the year, sales declined 10.3% from the record sales levels of 2000. Gross and operating margins were 28.0% and 8.0%, respectively, compared to 31.8% and 13.8% a year ago. After nine consecutive years of increasing earnings per share, diluted EPS decreased to $.65 from a record $1.34 in 2000. Total dividends paid in 2001 amounted to $.52 per share, a 4% increase over 2000.
Baldor’s 2001 sales were $557.5 million, falling 10.3% from 2000 sales of $621.2 million. Sales in 1999 were $585.6 million. Over the past three years, sales to distributor and Original Equipment Manufacturer (OEM’s) 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.
Gross margin dipped to 28.0% in 2001 compared to 31.8% in 2000 and 31.7% in 1999. Operating margin for 2001fell to 8.0% from record margins of approximately 13.8% in 2000 and 1999. Pre-tax margin was 6.4% for 2001 compared to 11.9% in 2000 and 12.0% in 1999. The effective tax rate improved to 37.0% for 2001 compared to 37.5% in 2000 and 38.0% in 1999.
Sales from international operations (foreign affiliates and exports) amounted to $78.1 million in 2001, $86.4 million in 2000 and $80.3 million in 1999. The Company experienced modest sales increases in the Far East while sales declined in the Australian, Mexican and European markets.
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.
Baldor’s financial position remained strong through 2001. We maintained our financial strength while continuing research and development for new and existing products, making capital investments in our manufacturing facilities, and continuing to invest in both our employees’ and customers’ education and training. The Company’s 6 million-share stock repurchase program announced in 1998 and expanded in 2000 and 2001is more than two-thirds complete with 4.3 million shares repurchased as of December 29, 2001.
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 were $19.4 million in 2001, $22.6 million in 2000 and $14.3 million in 1999. These investments in property, plant and equipment were made to centralize operations, increase capacity, and improve quality and productivity.Baldor’s commitment to research and development continues to help it maintain a leadership position in the marketplace and to satisfy customers’ needs. Investments in research and development amounted to $24.4 million in 2001, $25.0 million in 2000 and $24.9 million in 1999. The Company continues to make investments in our existing products for improved performance, increased energy efficiency, and manufacturability.
Baldor’s liquidity position remained strong in 2001 with solid working capital and a current ratio (current assets divided by current liabilities) of 3.2:1. Working Capital was $173.6 million at year-end 2001 compared to $174.8 million at the end of 2000. Liquidity was supported by cash flows from operations of $38.3 million in 2001, $46.4 million in 2000 and $52.9 million in 1999. The Company also has available lines of credit to support operations, if needed.
Long-term debt as a percentage of total capital was 27.3% at year-end 2001 and 27.7% at year-end 2000. Baldor repurchased 121,300 shares of common stock during 2001. As of December 29, 2001, 4.3 million shares had been purchased of the 6.0 million shares authorized since September 1998. During the fourth quarter of 2001, the Board of Directors approved the repurchase of an additional 2.0 million shares of stock beginning January 1, 2002 that will expire on December 31, 2003. Shareholders’ equity was $262.5 million at year-end 2001 compared to $260.8 million at the end of 2000. Return on average shareholders’ equity was 8.6% in 2001 and 17.6% in 2000.
Annual dividends per share for 2001 increased 4.0% over 2000, which increased 11.0% over 1999. There have been five 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 to finance growth opportunities. The objective is for shareholders to obtain dividend increases over time while also participating in the growth of the Company.
The Company is a purchaser of certain commodities, primarily copper, aluminum, and steel, and periodically utilizes commodity futures and options for hedging purposes to reduce the effects of changing commodity prices. Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts that are highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting.
The Company’s interest rate risk is related to its available-for-sale securities and long-term debt. Due to the short-term nature of the Company’s securities portfolio, anticipated interest rate risk is not considered material. The Company’s debt obligations include certain notes payable to banks bearing interest at a quarterly variable rate. The Company does not currently utilize derivatives for managing interest rate risk, but continues to monitor changes in market interest rates.
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.
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, “Business Combinations” (SFAS 141), and No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and requires any business combination completed after June 30, 2001, to be accounted for by the purchase method. Additionally, SFAS 141 changes the criteria to recognize intangible assets apart from goodwill. Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Separable intangible assets with finite lives will continue to be amortized over their useful lives. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001, and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption, whereas new goodwill and other indefinite lived intangible assets acquired June 30, 2001, are not amortized. Companies are required to adopt SFAS 142 in their fiscal year beginning after December 15, 2001. Accordingly, the Company will adopt SFAS 142 for its fiscal year beginning December 30, 2001.
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. The forward-looking statements (generally identified by words or phrases indicating a projection or future expectation such as “outlook”, “optimistic”, “trends”, “expect(s)", “assuming”, “expectations”, “forecasted”, “estimates”, “expected”) are based on the Company’s current expectations and some of them are subject to risks and uncertainties. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, but are not limited to, the following: (i) changes in economic conditions, (ii) developments or new initiatives by our competitors in the markets in which we compete, (iii) fluctuations in the costs of select raw materials, (iv) the success in increasing sales and maintaining or improving the operating margins of the Company, and (v) other factors including those identified in the Company’s filings made from time to time with the Securities and Exchange Commission.
Consolidated Balance Sheets
Baldor Electric Company and Affiliates
December 29 December 30
ASSETS (In thousands, except share data) 2001 2000
CURRENT ASSETS: Cash and cash equivalents $5,564 $5,868
Marketable securities 11,052 9,137
Receivables, less allowances for doubtful accounts
of $4,600,000 in 2001 and 2000. 83,182 100,494
Inventories:
Finished products 83,919 83,709
Work in process 10,155 10,506
Raw materials 56,751 53,047
150,825 147,067
LIFO valuation adjustment (24,604) (26,116)
126,221 120,951
Other current assets and deferred income taxes 25,262 25,971
TOTAL CURRENT ASSETS 251,281 262,421
OTHER ASSETS: Goodwill 57,158 60,358
Other 6,973 3,379
PROPERTY, PLANT Land and improvements 6,267 6,217
AND EQUIPMENT: Buildings and improvements 54,372 50,314
Machinery and equipment 266,627 253,426
Allowances for depreciation and amortization (185,151) (171,137)
NET PROPERTY, PLANT AND EQUIPMENT 142,115 138,820
$457,527 $464,978
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT Accounts payable $28,830 $26,813
LIABILITIES: Employee compensation 5,997 6,154
Profit sharing 5,102 9,717
Accrued warranty costs 6,625 6,625
Accrued insurance obligations 15,694 14,409
Other accrued expenses 14,670 17,813
Income taxes payable (receivable) (1,046) 5,447
Current maturities of long-term obligations 1,771 640
TOTAL CURRENT LIABILITIES 77,643 87,618
LONG-TERM OBLIGATIONS 98,673 99,832
DEFERRED INCOME TAXES 18,726 16,683
SHAREHOLDERS' Preferred stock, $.10 par value
EQUITY: Authorized shares: 5,000,000
Issued and outstanding shares: None
Common Stock, $.10 par value
Authorized shares: 150,000,000
Issued shares: 2001 - 39,411,473;
2000 - 39,020,528 3,941 3,902
Additional capital 44,224 38,024
Retained earnings 325,642 321,026
Accumulated other comprehensive income (8,164) (3,977)
Treasury stock (5,493,053 shares in 2001
and 5,251,894 shares in 2000) (103,158) (98,130)
TOTAL SHAREHOLDERS' EQUITY 262,485 260,845
$457,527 $464,978
See notes to consolidated financial statements.
Consolidated Statements of Earnings
Baldor Electric Company and Affiliates
Year Ended
December 29 December 30 January 1
(In thousands, except share data) 2001 2000 2000
Net sales $557,459 $621,242 $585,551
Other income, net 839 1,838 1,943
558,298 623,080 587,494
Cost and expenses: Cost of goods sold 401,471 423,861 399,833
Selling and administrative 111,253 111,611 104,903
Profit sharing 5,136 9,747 9,445
Interest 4,906 3,840 2,790
522,766 549,059 516,971
Earnings before income taxes 35,532 74,021 70,523
Income taxes 13,147 27,758 26,800
NET EARNINGS $22,385 $46,263 $43,723
Net earnings per share-basic $0.66 $1.36 $1.21
Net earnings per share-diluted $0.65 $1.34 $1.19
Weighted average shares outstanding-basic 33,896,164 33,980,529 36,077,484
Weighted average shares outstanding-diluted 34,505,550 34,570,328 36,787,349
See notes to unaudited condensed consolidated financial statements.
Summary of Quarterly Results of Operations (Unaudited)
Baldor Electric Company and Affiliates
Quarter
First Second Third Fourth Total
2001:Net sales $150,155 $146,668 $138,125 $122,511 $557,459
Gross profit 42,610 41,793 39,048 32,537 155,988
Net earnings 7,167 6,449 5,423 3,346 22,385
Net earnings per share-basic 0.21 0.19 0.16 0.10 0.66
* Net earnings per share- diluted 0.21 0.19 0.16 0.10 0.65
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-basic 0.35 0.37 0.34 0.30 1.36
* Net earnings per share- diluted 0.35 0.36 0.33 0.29 1.34
*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
Year Ended
December 29 December 30 January 1
(In thousands) 2001 2000 2000
Operating activities: Net earnings $22,385 $46,263 $43,723
Adjustments Depreciation 18,555 18,686 19,597
to reconcile Amortization 2,124 1,152 1,170
net earnings Deferred income taxes 1,800 3,690 2,832
to net cash Changes in Receivables 17,312 (65) (8,425)
from operating Inventories (5,270) (10,888) (2,378)
operating assets and Other current assets 1,586 (481) (856)
activities: liabilities: Accounts payable 2,017 (2,621) 7,874
Accrued expenses and other liabilities (6,629) (3,514) (1,734)
Income taxes (6,187) (1,715) 2,247
Other - net (9,443) (4,154) (11,108)
Net cash from operating activities 38,250 46,353 52,942
Investing activities: Additions to property, plant and equipment (19,361) (22,577) (14,298)
Marketable securities purchased (7,941) (4,597) (35,052)
Marketable securities sold 6,125 26,266 18,243
Acquisitions (net of cash acquired) (925) (40,272) 0
Net cash used in investing activities (22,102) (41,180) (31,107)
Financing activities: Additional long-term obligations 65,500 41,362 6,000
Reduction of long-term obligations (65,529) (2,605) (7,085)
Unexpended debt proceeds 7 (7) 5,890
Dividends paid (17,641) (16,910) (16,199)
Common stock repurchased (2,337) (35,311) (25,132)
Stock option plans 3,548 2,063 2,001
Net cash used in financing activities (16,452) (11,408) (34,525)
Net decrease in cash and cash equivalents (304) (6,235) (12,690)
Beginning cash and cash equivalents 5,868 12,103 24,793
Ending cash and cash equivalents $5,564 $5,868 $12,103
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Baldor Electric Company and Affiliates
Accumulated
Other Treasury
Common Stock Additional Retained Comprehensive Stock
(In thousands, except share data) Shares Amount Capital Earnings Income (at cost) Total
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 (loss)
Securities valuation adjustment,
net of taxes of $169 (274) (274)
Translation adjustments (1,974) (1,974)
Total other comprehensive income (loss) (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 $.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 (loss)
Securities valuation adjustment,
net of taxes of $158 263 263
Translation adjustments (1,453) (1,453)
Total other comprehensive income (loss) (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 $.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
Comprehensive income
Net earnings 22,385 22,385
Other comprehensive income (loss)
Securities valuation adjustment,
net of taxes of $37 61 61
Translation adjustments (2,999) (2,999)
Derivative unrealized loss,
net of tax benefit of $870 (1,360) (1,360)
Total other comprehensive income (loss) (4,298)
Total comprehensive income $18,087
Stock option plans (net of shares exchanged) 270 39 6,200 (2,691) 3,548
Cash dividends at $.52 per share (17,641) (17,641)
Common stock repurchased (121) (2,337) (2,337)
Other (17) (17)
BALANCE AT DECEMBER 29, 2001 33,918 $3,941 $44,224 $325,642 ($8,164) ($103,158) $262,485
See notes to consolidated financial statements.
Line of Business: The Company operates in one industry segment that includes the design, manufacture and sale of electric motors, drives and generators.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 2001, 2000 and 1999 contained 52 weeks.
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 value.
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, with cost being determined principally by the last-in, first-out method (LIFO), except for $19,412,000 in 2001 and $15,718,000 in 2000, 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 rate long-term debt. The Company estimates that the fair value of its financial instruments approximates carrying value at December 29, 2001 and December 30, 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. The Company 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 $24,415,000 in 2001, $24,987,000 in 2000 and $24,881,000 in 1999.
Financial Instruments: Periodically, the Company uses derivative financial instruments to reduce its exposure to various market risks. The Company does not regularly engage in speculative transactions, nor does the Company regularly hold or issue financial instruments for trading purposes. Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation and are recorded using hedge accounting. Instruments that do not meet the criteria for hedge accounting are marked to fair value with unrealized gains or losses reported currently in earnings.
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 the Company 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 had 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 $22,516,000 in 2001, $23,986,000 in 2000 and $22,048,000 in 1999.
Revenue Recognition: The Company recognizes revenue from product sales upon delivery to customers. Reclassification: Certain prior year amounts have been reclassified to conform to current year presentation.
Long-term obligations consist of the following:
(In thousands) 2001 2000
Industrial Development Bonds:
Due through 2010 at variable rates ranging from 4.3% to 5.5% $9,915 $10,555
Notes payable to banks:
Due January 19, 2001 at 7.2% fixed rate 0 38,000
Due January and February 2001 at variable rates ranging from 7.06% to 7.5% 0 26,280
Due October 23, 2003 at 4.97% fixed rate 25,000 25,000
Due September 30, 2005 at 8.27% fixed rate 0 304
Due February 1, 2005 at 8.0% fixed rate 0 333
Due January 4, 2002 at 2.58% variable rate 500 0
Due January 8, 2002 at 2.86% variable rate 13,000 0
Due March 15, 2003 at 2.48% variable rate 52,000 0
Due November 1, 2004 at 10.16% fixed rate 29 0
100,444 100,472
Less current maturities 1,771 640
$98,673 $99,832
Certain long-term obligations are collateralized by property, plant and equipment with a net book value of $3,967,000 at December 29, 2001.
Maturities of long-term obligations during each of the five fiscal years ending 2006 are 2002 - $1,772,000; 2003 - $78,892,000; 2004 - $816,000; 2005 - $0, 2006 and thereafter - - $18,965,000.
Certain long-term obligations require that the Company maintain certain financial ratios. These financial ratios were all met for 2001 and 2000. At December 29, 2001, the Company had outstanding letters of credit totaling $8,667,000.
Interest paid was $5,172,000 in 2001, $2,899,000 in 2000 and $3,117,000 in 1999.
The Company had lines of credit aggregating $25,000,000 available at December 29, 2001, with $13,500,000 borrowed under these lines. 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 a note payable to bank of $52,000,000, which is secured by the Company’s accounts receivable.
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 29, 2001 and December 30, 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) 2001 2000
Municipal debt securities $9,924 $4,661
U.S. corporate debt securities 0 351
U.S. Treasury & agency securities 1,128 4,269
Other debt securities 611 217
11,663 9,498
Less cash equivalents 611 361
$11,052 $9,137
The estimated fair value of marketable debt and equity securities at December 29, 2001 was $1,800,000 due in one
year or less, $8,156,000 due in one to five years and $1,707,000 due after five years. Because of the short-term
nature of the investments, expected maturities and contractual maturities are generally the same.
The Company made income tax payments of $16,065,000 in 2001, $25,775,000 in 2000 and $22,743,000 in 1999. Income tax expense consists of the following:
(in thousands) 2001 2000 1999
Current: Federal $10,398 $21,626 $20,725
State 1,483 1,932 2,690
Foreign (534) 510 553
Deferred: 1,800 3,690 2,832
$13,147 $27,758 $26,800
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:
2001 2000 1999
Statutory federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 2.7% 2.1% 2.6%
Other (0.7%) 0.4% 0.4%
Effective income tax rate 37.0% 37.5% 38.0%
The principal components of deferred tax assets (liabilities) follow:
2001 2000
Property, plant, equipment and intangibles ($18,726) ($16,683)
Accrued liabilities 5,428 6,003
Employee compensation and benefits 1,746 2,092
Total deferred tax liabilities ($11,552) ($10,585)
Effective December 31, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) as amended. This statement requires the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings (fair value hedges), or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative’s change in fair value is recognized in earnings.
At December 29, 2001, the Company had derivative related balances with a fair value liability of $769,000 recorded as a reduction in other current assets. The cumulative effect of adoption of SFAS 133 on December 31, 2000 did not have a material effect on the consolidated financial statements of the Company.The Company uses derivatives to moderate the commodity market risks of its business operations. Derivative products, such as futures and option contracts, are considered to be a hedge against changes in the amount of future cash flows related to commodities procurement. The amount recognized on cash flow hedges in 2001 did not have a material effect on the consolidated financial statements. The Company expects that after-tax losses, totaling approximately $1.4 million recorded in other comprehensive income (loss) at December 29, 2001, related to cash flow hedges, will be recognized in cost of sales within the next twelve months. The Company generally does not hedge anticipated transactions beyond 18 months.
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 Company’s 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 the Company’s outstanding common stock and in certain events thereafter.
The Company leases certain computers, buildings and other equipment under operating lease agreements. Related rental expense was $5,100,000 in 2001, $5,400,000 in 2000 and $4,800,000 in 1999. Future minimum payments for operating leases having non-cancelable lease terms in excess of one year are: 2002 - $2,933,000; 2003 - $2,783,000; 2004 - $2,072,000; 2005 - $2,025,000; and 2006 - $1,101,000.
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.
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. All outstanding options granted from the 1981 Plan expired in 2001. The 1987, 1989, and 1996 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.
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 with option price less than market value at grant date is amortized over the applicable compensatory period.
1996 and 2001 Plans – Each non-employee director receives 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. 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 Expired 2001 Compensatory Executive Committee Non-employee directors ActiveThe 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’ applicable compensatory 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 2001, 2000 and 1999 follows.
2001 2000 1999
Weighted Average Variables
- --------------------------
Volatility 3.5% 3.6% 2.3%
Risk-free interest rates 5.1% 6.6% 5.1%
Dividend yields 2.4% 2.8% 2.1%
Expected option life 6.9 years 7.0 years 6.9 years
Remaining contractual life 5.7 years 5.9 years 6.1 years
Fair value per share price
granted during year
At market price $2.94 $3.56 $3.03
At less than market
price $8.09 $5.59 $8.54
Pro Forma Information
- ---------------------
Pro forma net income (in
thousands) $21,306 $45,048 $41,728
Pro forma earnings per share $0.62 $1.31 $1.14
Weighted Weighted Weighted
Average Average Average
Stock Option Activity Shares Price/Share Shares Price/Share Shares Price/Share
- ---------------------
Total options outstanding
Beginning Balance 2,669,899 $15.67 2,710,817 $14.85 2,680,603 $13.74
Granted 398,500 19.72 358,833 16.13 414,250 17.27
Exercised (390,945) 12.69 (298,020) 8.02 (313,373) 8.12
Canceled (76,220) 19.86 (101,731) 17.93 (70,663) 20.25
Ending Balance 2,601,234 16.62 2,669,899 15.67 2,710,817 14.85
Shares authorized for grant 12,191,600 11,991,600 11,991,600
Shares exercisable, at year end 2,083,384 2,135,299 2,029,852
Shares reserved for future
grants,
at year end 1,973,555 2,128,435 2,403,253
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) 2001 2000 1999
Net Sales:
United States Companies
Domestic customers $479,362 $534,796 $505,477
Export customers 38,445 39,054 36,981
517,807 573,850 542,458
Foreign Affiliates 39,652 47,378 43,091
$557,459 $621,228 $585,549
Earnings Before Income Taxes:
United States Companies $ 37,220 $ 71,462 $ 68,772
Foreign Affiliates (1,688) 2,559 1,751
$ 35,532 $ 74,021 $ 70,523
Assets:
United States Companies $439,445 $444,907 $394,610
Foreign Affiliates 18,082 20,021 29,331
$457,527 $464,978 $423,941
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.
The Company's presentation of financial results 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:
2001 2000 1999
Numerator Reconciliation:
The numerator is the same for Diluted and basic EPS:
Net earnings (in thousands) $22,385 $46,263 $43,723
Denominator Reconciliation:
The denominator for basic earnings per share:
Weighted average shares 33,896,164 33,980,529 36,077,484
Effect of dilutive securities:
Stock options 609,386 589,799 709,865
The denominator for diluted earnings per share:
Adjusted weighted average shares 34,505,550 34,570,328 36,787,349
Basic Earnings Per Share $0.66 $1.36 $1.21
Diluted Earnings Per Share $0.65 $1.34 $1.19
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 results of operations for the year ended December 30, 2000 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.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS no. 140 replaces SFAS No. 125, issued in June, 1996. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures, but otherwise carries over most of the provisions of SFAS no. 125 without reconsideration. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating securitization transactions and collateral for fiscal years ending after December 15, 2000. Certain provisions of SFAS. No. 140 are effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company's adoption of SFAS No. 140 had no material effect on its consolidated financial position, results of operations or cash flows.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of December 30, 2001 and has not yet determined what effect these tests will have on the earnings and financial position of the Company.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supercedes SFAS 121. Generally, SFAS 144 retains the fundamental provisions of SFAS 121 related to the recognition and measurement of the impairment of long-lived assets, except for the indefinite-lived intangible assets, which are covered by SFAS 142. However, SFAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset (group) as "held for sale." SFAS 144 will become effective for the Company beginning December 30, 2001.
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
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/ JOHN McFARLAND /s/ LLOYD G. DAVIS /s/ RONALD E. TUCKER
Chairman of the Board 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. Director since 1961. Officer since 1961. Chairman - Executive Committee. Member - Nominating Committee. John A. McFarland, President and Chief Executive Officer Director since 1996. Officer since 1990. 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 and Director of Customer Relations at the University of Arkansas in Fayetteville. Member 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. 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. R. L. Qualls Former Chief Executive Officer. Officer from 1986 through 2000. Director since 1987. Member - Executive Committee. Barry K. Rogstad President of the American Business Conference. Director since 2001. Fred C. Ballman Director Emeritus Former Chairman of the Board. Former Chief Executive Officer. Director from 1944 to 1982. Director from 1992 to 2001. Director Emeritus since 2001. Officers Roland S. Boreham, Jr. Chairman Officer since 1961. John A. McFarland President and Chief Executive Officer Officer since 1990. Lloyd G. Davis Executive Vice President, Chief Operating Officer and Secretary Officer since 1992. Randall P. Breaux Vice President - Marketing Officer since 2001. Randy L. Colip Vice President - Sales Officer since 1997. Charles H. Cramer Vice President - Personnel Officer since 1984. Gene J. Hagedorn Vice President - Materials Officer since 1994. Jeffrey R. Hubert Vice President - Sales Officer since 2002 John L. Peeples, III Vice President - International Sales 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.
Baldor’s dividend policy is to periodically increase dividends as earnings and financial strength warrant, while investing a 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.
Baldor’s annual dividend rate for 2001 increased 4% over 2000. There have been 5 dividend increases in the last five years and 13 increases in the last ten years.
2001 2000 1999
1st quarter $0.13 $0.12 $0.11
2nd quarter 0.13 0.12 0.11
3rd quarter 0.13 0.13 0.11
4th quarter 0.13 0.13 0.12
Year $0.52 $0.50 $0.45
Common stock price range
2001 2000
HIGH LOW HIGH LOW
1st quarter $23.2500 $19.5000 $19.1875 $14.8750
2nd quarter 25.1500 20.0000 19.1875 17.5000
3rd quarter 22.5800 18.0000 21.0625 18.1250
4th quarter 21.5000 18.8100 22.5000 19.2500
The common stock of Baldor Electric Company trades on the New York Stock Exchange (NYSE) with the ticker symbol BEZ.
Independent auditors
Ernst & Young LLP
425 West Capitol - Suite 3600
Little Rock, Arkansas 72201
General counsel
Thompson Coburn LLP
One Firstar Plaza - Suite 3500
St. Louis, Missouri 63101-1693
Baldor’s Form 10-K report is filed with the Securities and Exchange Commission and the NYSE. Shareholders may obtain a copy of 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 inquiries
To request additional copies of the Annual Report to Shareholders, or other materials and
information about Baldor Electric Company, please contact us at:
Attn: Investor Relations Phone: 479-646-4711
Baldor Electric Company Fax: 479-648-5752
P O Box 2400 Internet:www.baldor.com
Fort Smith, Arkansas 72902
The following services are offered to Baldor shareholders and are administered by the transfer agent. For more information regarding any of the services listed below, or to receive help with other questions you may have about your account, write or call the transfer agent.
Continental Stock Transfer & Trust Company
17 Battery Place - Floor 8
New York, New York 10004
Toll-free phone: 800-509-5586
Phone: 212-509-4000 or 212-845-3200
Fax: 212-509-5150
Internet: www.continentalstock.com
Services offered:
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Dividend reinvestment and direct stock purchase plan
Direct deposit of dividends
Address changes
Account consolidations
Lost certificate replacement
Registration changes
Dividend check replacement
Issuance of 1099-DIV