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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:
January 2, 1999 1-7284
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 72908 (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 common stock held by non-affiliates of the
registrant based on the closing price on February 27, 1999, was $ 505,116,323.
At February 27, 1999, there were 36,222,522 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended January
2, 1999 (the "Annual Report to Shareholders for 1998"), are incorporated by
reference into Part I and Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held May 1, 1999 (the "1999 Proxy Statement"), are incorporated by reference
into Parts I and 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. In addition to electric
motors and drives, products include speed reducers, industrial grinders,
buffers, polishing lathes, stampings, castings, and repair parts. Baldor has
made several small acquisitions; however, the majority of its growth has come
internally through broadening its markets and product lines.
Products
Sales of industrial electric motors represented approximately 76% of the
Company's net sales in 1998, 1997 and 1996. The AC motor product and controls
line presently ranges in size from 1/50 up to 1000 horsepower. The DC motor
product line presently ranges from 1/50 through 700 horsepower.
The Company also sells industrial control products, which include servo
products, DC controls, position controls, and inverter and vector drives. The
Company's line of adjustable speed controls ranges from 1/50 to 800 horsepower.
With these products, the Company provides its customers the ability to purchase
a "Drive" which Baldor defines as an industrial motor and an electronic control,
from one manufacturer. Sales of drives were approximately 23% of total 1998 and
1997 sales, and 22% of total 1996 sales.
Baldor's motors and drives are designed, manufactured, and marketed for general
purpose uses ("stock products") and for individual customer requirements and
specifications ("custom products"). Stock product sales represented
approximately 63% of sales for 1998, 1997 and 1996. Most stock product sales are
to customers who place their orders for immediate shipment from current
inventory. Custom products generally are shipped within three 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
offices, consists of more than 51 groups, including 37 in the United States. The
remainder of the Company's representatives are located in various parts of the
world, including Canada, 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 4% 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 sales 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
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 manufacture 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 $25,300,000 in 1998, $22,900,000 in
1997, and $19,900,000 in 1996.
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 January 2, 1999, the Company had 3,865 employees.
Executive Officers of the Registrant
Information regarding executive officers is contained in Part III, Item 10, and
incorporated herein by reference.
International Operations
For each of the three fiscal years in the period ended January 2, 1999, export
and international sales revenues have increased and represented approximately
15% of consolidated sales. See also Note H on page 24 of the Annual Report to
Shareholders for 1998, incorporated by reference.
The Company's products are distributed in more than 60 foreign countries,
principally in Canada, Europe, Australia, the Far East, and Latin America. The
Company's international operations include the Baldor Europe group of companies
which was acquired in 1983. Baldor Europe has sales offices in Switzerland,
Germany, Italy, and the United Kingdom. Baldor Europe also has development and
manufacturing operations in Germany. In April 1997, the Company acquired the
UK-based Optimised Control Ltd to create Baldor England. Baldor England has
sales offices and two development and manufacturing facilities. The Company also
owns majority interests in Baldor Electric (Far East) Pte. Ltd., located in
Singapore, and Australian Baldor Pty. Limited which has locations in Sydney and
Melbourne. The Company 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 Company
also has other properties for possible future expansion. The following table
sets forth certain information with respect to the Company's properties.
AREA
LOCATION PRIMARY USE (SQ. FT.)
- -------- ----------- ---------
Fort Smith, AR AC motor production 298,150
Distribution and service center 208,000
Administration and engineering offices 70,950
Aluminum die casting 76,400
Drives production center 98,500
St. Louis County, MO Metal stamping and engineering toolroom 133,850
DC and miscellaneous motor production 55,600
Columbus, MS AC motor production 191,000
Westville, OK AC and DC motor production 207,900
Fort Mill, SC DC motor, AC motor 108,000
and tachometer production
Clarksville, AR Subfractional motor, gear motor, 167,000
and worm-gear speed reducer production
Ozark, AR AC motor production 84,050
Four other Metal stamping and motor, drives,
domestic locations and servomotor production 85,900
Ten foreign Sales and distribution centers
locations and servodrive production 84,200
---------
1,869,500
=========
Certain properties listed above (430,400 sq. ft. in the aggregate) are leased,
principally pursuant to Industrial Revenue Bond agreements, and where material,
are accounted for as capitalized lease obligations. Certain lease agreements
contain purchase options at varying prices and/or renewal options at reduced
rentals for extended additional periods.
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 "Dividends paid", "Common stock price
range", and "Shareholders" on page 29 of the Annual Report to Shareholders for
1998 is incorporated herein by reference.
During the forth quarter of 1998, certain District Managers exercised
non-qualified stock options previously granted to them under the Baldor Electric
Company 1990 Stock Option Plan for District Managers (the DM Plan). The exercise
price paid by the District Manager equaled the fair market value on the date of
grant. The total amount of shares granted under the DM Plan is less than 1% of
the outstanding shares of Baldor common stock.
None of the transactions were registered under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemption from registration afforded
by Section 4(2) of the Act. The Company deems this exemption to be appropriate
given that there are a limited number of participants in the DM Plan and all
parties are knowledgeable about the Company.
Item 6. Selected Financial Data
Information under the caption "Eleven-Year Summary of Financial Data" only for
years 1994 through 1998 for net sales, net earnings, net earnings per share,
dividends per share, long-term obligations, and total assets on page 14 of the
Annual Report to Shareholders for 1998 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 16 and 17 of the Annual Report to Shareholders
for 1998, is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Information under the caption "Market Risk" of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 17 of the
Annual Report to Shareholders for 1998, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company on pages 18 through 26, the
"Report of Ernst & Young LLP, Independent Auditors," on page 26, and the
"Summary of Quarterly Results of Operations (Unaudited)" on page 19 of the
Annual Report to Shareholders for 1998, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information contained in the 1999 Proxy Statement under the caption "Proposal 1
- -- Election of Directors -- Information Regarding the Nominees for Directors to
be Elected in 1999 for Terms Ending in 2002" and under the caption "--
Information the Directors who are Not Nominees for Election and Whose Terms
Continue Beyond 1999 or Expire during 1999," 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. 74 Chairman of the Board 1961
R. L. Qualls 65 Vice Chairman 1986
John A. McFarland 47 President 1990
Charles H. Cramer 54 Vice President-Personnel 1984
Lloyd G. Davis 51 Chief Financial Officer, 1992
Executive Vice President - Finance,
Secretary, and Treasurer
Gene J. Hagedorn 51 Vice President - Materials 1994
James R. Kimzey 60 Executive Vice President - 1984
Research and Engineering
Randy L. Colip 39 Vice President - Sales 1997
Jerry D. Peerbolte 42 Vice President - Marketing 1990
Randal G. Waltman 49 Vice President - Engineering 1997
and Motor Operations
Ronald E. Tucker 41 Controller 1997
John L. Peeples, III 46 Vice President-International 1998
Eddie L. Holderfield 59 Vice President-Fort Smith 1999
Motor Manufacturing
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 1999 Proxy Statement under the caption "Information
About the Board of Directors and Committees of the Board -- Director
Compensation" and information under the caption "Executive Compensation" and all
sub-captions thereof, except for the information contained in sub-captions
"Report of the Executive and Stock Option Committees" and "Performance Graph" is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" of the 1999 Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information about Mr. Richard E. Jaudes under the caption "Proposal 1 --
Election of Directors -- Information Regarding the Nominees for Directors to be
Elected in 1999 for Terms Ending in 2002" and information about Mr. Robert L.
Proost under the caption "-- Information the Directors who are Not Nominees for
Election and Whose Terms Continue Beyond 1999 or Expire during 1999," is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this Report at page 13 hereof.
(3) Listing of Exhibits
Exhibit 3(i) - The Restated Articles of Incorporation (as amended)
of Baldor Electric Company, incorporated herein by reference as
Exhibit 3(i) to Form 10-Q for the quarter ended July 4, 1998.
Exhibit 3(ii) - Bylaws of Baldor Electric Company (as amended)
incorporated herein by reference as Exhibit 3(ii) to Form 10-Q for the
quarter ended October 3, 1998.
Exhibit 4(i)(a) - Rights Agreement dated May 6, 1988, 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 Registrant's Form 8-K Current Report, dated May 13,
1988, and refiled as Exhibit 4(i) to Form 10-K for the year ended
December 31, 1994.
Exhibit 4(i)(b) - Amendment Number 1 to the Shareholders' Rights
Agreement dated February 5, 1996 filed as Exhibit 2 to Registrant's
Form 8-A/A dated March 21, 1996.
Exhibit 4(iii) - 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.
Exhibit (10) - Exhibits 10(iii)(A)(1) through 10(iii)(A)(6) were
previously submitted as exhibits and are incorporated herein by
reference:
o 10(iii)(A)(1) 1982 Incentive Stock Option Plan (originally filed
as Exhibit 10.8 to Form 10-K for year ended December 31, 1981,
filed as Exhibit 10.1 to Form10-K for the year ended December 28,
1991).
o 10(iii)(A)(2) Officers Compensation Plan (originally filed as
Exhibit 10.6 to Form 10-K for year ended December 31, 1988, and
filed as Exhibit 10(iii)(A)(2) to Form 10-K for the year ended
December 31, 1994).
o 10(iii)(A)(3) 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 Form 10-K for the year
ended December 31, 1994.
o 10(iii)(A)(4) 1989 Stock Option Plan for Non-Employee Directors
(as amended) incorporated herein by reference to Exhibit 10 (iii)
A.2 to Form 10-Q for quarter ended July 4,1998.
o 10(iii)(A)(5) 1994 Incentive Stock Option Plan as (amended)
incorporated herein by reference as Exhibit 10(iii)A.1 to Form
10-Q for the quarter ended July 4, 1998.
o 10(iii)(A)(6) 1996 Stock Option Plan for Non-Employee Directors
(as amended) incorporated herein by reference as Exhibit A
(iii)A.3 to Form 10-Q for the quarter ended July 4, 1998).
For a listing of all management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K, see
the exhibits listed above under Exhibit 10.
Exhibit (11) - Incorporated by reference in Note J of the Annual
Report to Shareholders for 1998 filed as Exhibit (13).
Exhibit (13) - Portions of the Annual Report to Shareholders for 1998.
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.
Exhibit (21) - Affiliates of the Registrant filed herewith.
Exhibit (23) - Consent of Independent Auditors filed herewith.
Exhibit (24) - Powers of Attorney. Included on signature pages 11 and
12.
(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 16 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 14 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/ R. S. Boreham, Jr.
---------------------------
Chairman
(Principal Executive Officer)
Date: March 26, 1999
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 Director March 26, 1999
- ----------------------
R. S. Boreham, Jr. (Principal Executive Officer)
/s/ R. L. Qualls Vice Chairman and Director March 26, 1999
- ----------------
R. L. Qualls
/s/ John A. McFarland President and Director March 26, 1999
- ---------------------
John A. McFarland
/s/ Lloyd G. Davis Chief Financial Officer, March 26, 1999
- ------------------
Lloyd G. Davis Executive Vice President -
Finance, Secretary, and
Treasurer (Principal Financial
and Accounting Officer)
/s/ Jefferson W. Asher, Jr. Director March 26, 1999
- ---------------------------
Jefferson W. Asher, Jr.
/s/ Fred C. Ballman Director March 26, 1999
- -------------------
Fred C. Ballman
/s/ O. A. Baumann Director March 26, 1999
O. A. Baumann
/s/ Robert J. Messey Director March 26, 1999
- --------------------
Robert J. Messey
/s/ Robert L. Proost Director March 26, 1999
- --------------------
Robert L. Proost
/s/ Willis J. Wheat Director March 26, 1999
- -------------------
Willis J. Wheat
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
YEAR ENDED JANUARY 2, 1999
BALDOR ELECTRIC COMPANY
FORT SMITH, ARKANSAS
FORM 10-K, ITEM 14(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
BALDOR ELECTRIC COMPANY AND AFFILIATES
The following consolidated financial statements of Baldor Electric Company and
Affiliates, included in the Annual Report to Shareholders for 1998, are
incorporated by reference in Item 8:
o Consolidated Balance Sheets
- January 2, 1999 and January 3, 1998
o Consolidated Statements of Earnings
- for the three years in the period ended January 2, 1999
o Consolidated Statements of Cash Flows
- for the three years in the period ended January 2, 1999
o Consolidated Statements of Shareholders' Equity
- for the three years in the period ended January 2, 1999
o Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Baldor Electric
Company and Affiliates is included in Item 14(d):
o Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
BALDOR ELECTRIC COMPANY AND AFFILIATES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
---------------------------
Charged to Charged to
Balance at Costs Other Balance
Beginning and Accounts Additions at End of
Description of Period Expenses Describe Describe Period
- ----------- --------- -------- -------- -------- ------
(In thousands)
Deducted from current assets:
Allowance for doubtful accounts
1998 $3,525 $ 511 $206(A) $520(C) $4,350
1997 3,200 509 184(A) 3,525
1996 2,800 695 295(A) 3,200
Included in current liabilities:
Anticipated warranty costs
1998 $5,200 $ 725(B) $5,925
1997 4,500 700(B) 5,200
1996 4,100 400(B) 4,500
(A) Net uncollectible accounts written off 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
NUMBER DESCRIPTION
---------- ---------------------
11 Computation of Earnings Per Common Share - Incorporated by
reference in Note J of the Annual Report to Shareholders
for 1998 in Exhibit (13)
13 Portions of the Annual Report to Shareholders for 1998-
filed herewith
21 Affiliates of the Registrant - filed herewith
23 Consent of Independent Auditors - filed herewith
24 Powers of Attorney - Included on signature pages 11 and 12
27 Financial Data Schedules - filed herewith