UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 01-07284
Baldor Electric Company
Exact name of registrant as specified in its charter
| Missouri | 43-0168840 | |
| State or other jurisdiction of incorporation | IRS Employer Identification No | |
| 5711 R. S. Boreham Jr, St Fort Smith, Arkansas |
72901 | |
| Address of principal executive offices | Zip Code | |
479-646-4711
Registrant’s telephone number, including area code
N/A
Former name or former address, if changed since last report
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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
At April 3, 2004, there were 32,926,518 shares of the registrant’s common stock outstanding.
Baldor Electric Company and Affiliates
Index
2
Baldor Electric Company and Affiliates
Condensed Consolidated Balance Sheets (Unaudited)
| (in thousands, except share data)
|
Apr 3, 2004 |
Jan 3, 2004 |
||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 8,218 | $ | 10,635 | ||||
| Marketable securities |
41,562 | 36,654 | ||||||
| Receivables, less allowances for doubtful accounts of $3,870 |
96,929 | 83,200 | ||||||
| Inventories: |
||||||||
| Finished products |
77,101 | 73,668 | ||||||
| Work in process |
11,680 | 10,721 | ||||||
| Raw materials |
49,718 | 51,295 | ||||||
| 138,499 | 135,684 | |||||||
| LIFO valuation adjustment |
(24,232 | ) | (23,561 | ) | ||||
| 114,267 | 112,123 | |||||||
| Prepaid expenses |
4,058 | 3,703 | ||||||
| Other current assets and deferred income taxes |
23,039 | 28,578 | ||||||
| Total Current Assets |
288,073 | 274,893 | ||||||
| Property, Plant and Equipment: | ||||||||
| Land and improvements |
6,287 | 6,287 | ||||||
| Buildings and improvements |
59,570 | 59,530 | ||||||
| Machinery and equipment |
289,058 | 286,629 | ||||||
| Allowances for depreciation and amortization |
(221,110 | ) | (216,812 | ) | ||||
| Net Property, Plant and Equipment |
133,805 | 135,634 | ||||||
| Other Assets: |
||||||||
| Goodwill |
62,845 | 62,845 | ||||||
| Other |
3,526 | 3,583 | ||||||
| $ | 488,249 | $ | 476,955 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current Liabilities: | ||||||||
| Accounts payable |
$ | 38,303 | $ | 28,966 | ||||
| Employee compensation |
9,107 | 6,820 | ||||||
| Profit sharing |
1,560 | 5,436 | ||||||
| Accrued warranty costs |
6,625 | 6,625 | ||||||
| Accrued insurance obligations |
11,918 | 12,515 | ||||||
| Dividends payable |
0 | 4,595 | ||||||
| Other accrued expenses |
8,127 | 7,494 | ||||||
| Income taxes payable |
10,465 | 4,821 | ||||||
| Current maturities of long-term obligations |
25,819 | 25,819 | ||||||
| Total Current Liabilities |
111,924 | 103,091 | ||||||
| Long-Term Obligations |
79,462 | 79,465 | ||||||
| Deferred Income Taxes |
31,537 | 32,911 | ||||||
| Shareholders’ Equity: |
||||||||
| Preferred stock, $.10 par value |
||||||||
| Authorized shares: 5,000,000 |
||||||||
| Issued and outstanding shares: None |
||||||||
| Common stock, $.10 par value |
||||||||
| Authorized shares: 150,000,000 |
||||||||
| Issued shares: April 3, 2004 - 40,196,071; |
4,021 | 4,002 | ||||||
| January 3, 2004 - 40,018,261 |
||||||||
| Additional capital |
56,833 | 53,683 | ||||||
| Retained earnings |
341,526 | 338,696 | ||||||
| Accumulated other comprehensive loss |
(911 | ) | (675 | ) | ||||
| Treasury stock, at cost: April 3, 2004 - 7,269,553; January 3, 2004 - 7,188,523 |
(136,143 | ) | (134,218 | ) | ||||
| Total Shareholders’ Equity |
265,326 | 261,488 | ||||||
| $ | 488,249 | $ | 476,955 | |||||
See notes to unaudited condensed consolidated financial statements.
3
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Earnings (Unaudited)
| Three Months Ended | ||||||
| (in thousands, except per share data)
|
Apr 3, 2004 |
Mar 29, 2003 | ||||
| Net sales |
$ | 152,823 | $ | 137,389 | ||
| Other income, net |
505 | 452 | ||||
| 153,328 | 137,841 | |||||
| Cost and expenses: |
||||||
| Cost of goods sold |
110,635 | 100,010 | ||||
| Selling and administrative |
28,555 | 25,852 | ||||
| Profit sharing |
1,560 | 1,352 | ||||
| Interest |
773 | 823 | ||||
| 141,523 | 128,037 | |||||
| Earnings before income taxes |
11,805 | 9,804 | ||||
| Income taxes |
4,365 | 3,639 | ||||
| Net Earnings |
$ | 7,440 | $ | 6,165 | ||
| Net earnings per share-basic |
$ | 0.23 | $ | 0.18 | ||
| Net earnings per share-diluted |
$ | 0.22 | $ | 0.18 | ||
| Weighted average shares outstanding-basic |
32,902 | 33,428 | ||||
| Weighted average shares outstanding-diluted |
33,439 | 33,882 | ||||
| Dividends declared and paid per common share |
$ | 0.14 | $ | 0.13 | ||
See notes to unaudited condensed consolidated financial statements.
4
Baldor Electric Company and Affiliates
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Three Months Ended |
||||||||
| (in thousands)
|
Apr 3, 2004 |
Mar 29, 2003 |
||||||
| Operating activities: |
||||||||
| Net earnings |
$ | 7,440 | $ | 6,165 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
| Gains on sales of marketable securities |
0 | (195 | ) | |||||
| Depreciation |
4,381 | 4,102 | ||||||
| Amortization |
468 | 430 | ||||||
| Deferred income taxes |
(1,319 | ) | (481 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Increase in receivables |
(13,729 | ) | (4,527 | ) | ||||
| Increase in inventories |
(2,144 | ) | (2,797 | ) | ||||
| Decrease in other current assets |
4,833 | 4,721 | ||||||
| Increase in accounts payable |
9,337 | 5,387 | ||||||
| Decrease in accrued expenses and other liabilities |
(6,148 | ) | (2,179 | ) | ||||
| Increase in income taxes payable |
5,644 | 4,143 | ||||||
| Change in other, net |
(717 | ) | 1,320 | |||||
| Net cash provided by operating activities |
8,046 | 16,089 | ||||||
| Investing activities: |
||||||||
| Additions to property, plant and equipment |
(2,499 | ) | (2,477 | ) | ||||
| Marketable securities purchased |
(7,733 | ) | (6,577 | ) | ||||
| Marketable securities sold |
3,138 | 18,190 | ||||||
| Acquisitions |
0 | (5,551 | ) | |||||
| Net cash (used in) provided by investing activities |
(7,094 | ) | 3,585 | |||||
| Financing activities: |
||||||||
| Reduction of long-term obligations |
(3 | ) | 0 | |||||
| Unexpended debt proceeds |
0 | (1 | ) | |||||
| Dividends paid |
(4,609 | ) | (4,247 | ) | ||||
| Common stock repurchased |
0 | (26,686 | ) | |||||
| Stock option plans |
1,243 | 385 | ||||||
| Net cash used in financing activities |
(3,369 | ) | (30,549 | ) | ||||
| Net decrease in cash and cash equivalents |
(2,417 | ) | (10,875 | ) | ||||
| Beginning cash and cash equivalents |
10,635 | 24,515 | ||||||
| Ending cash and cash equivalents |
$ | 8,218 | $ | 13,640 | ||||
See notes to unaudited condensed consolidated financial statements.
5
Baldor Electric Company and Affiliates
Notes to Unaudited Condensed Consolidated Financial Statements
April 3, 2004
NOTE A - Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements, and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended January 3, 2004. In the opinion of management, all adjustments (consisting only of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the three months ended April 3, 2004, may not be indicative of the results that may be expected for the fiscal year ending January 1, 2005.
Segment Reporting
The Company has only one reportable segment; therefore, the condensed consolidated financial statements reflect segment information.
Financial Derivatives
The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If the derivative is a cash flow hedge, changes in the fair value are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. If a hedge transaction is terminated, any unrealized gain (loss) at the date of termination is carried in other comprehensive income (loss) until the hedged item is recognized as earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings in the period of change.
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. Net (reductions) increases in cost of sales, related to cash flow hedges, in the first quarter 2004 and 2003 amounted to approximately ($2,295,000) and $82,300, respectively.
At April 3, 2004, and January 3, 2004, the Company had derivative related balances with a fair value of approximately $1,941,000 and $2,426,000, respectively, recorded in other current assets. The Company had corresponding net after-tax gains of approximately $1,184,000 and $1,500,000 recorded in accumulated other comprehensive income (loss) at April 3, 2004, and January 3, 2004, respectively. The Company expects that net after-tax gains, totaling approximately $1,184,000 included in accumulated other comprehensive income (loss) at April 3, 2004, 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.
6
Comprehensive Income
Total comprehensive income was approximately $7.2 million and $6.5 million for the first quarter of 2004 and 2003, respectively. The components of comprehensive income are illustrated in the table below:
| Three Months Ended |
||||||||
| (in thousands)
|
Apr 3, 2004 |
Mar 29, 2003 |
||||||
| Net income |
$ | 7,440 | $ | 6,165 | ||||
| Other comprehensive income, net of tax: |
||||||||
| Unrealized gains on securities: |
||||||||
| Unrealized holding gains arising during period |
197 | 49 | ||||||
| Reclassification adjustment for gains included in net income |
0 | (123 | ) | |||||
| Net change in current period hedging transactions |
(296 | ) | 240 | |||||
| Foreign currency translation adjustment |
(137 | ) | 140 | |||||
| Other comprehensive income, net of tax |
(236 | ) | 306 | |||||
| Total comprehensive income |
$ | |||||||