-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GhisVKCGFd7366RZJ4AIFbZ6wUvbDVjh+ySuiJsMBYMlEN5mvPJBfCFRn1tfg18i JnwIl/w1W/a4DgRAx/zl8Q== 0000009342-96-000007.txt : 19960329 0000009342-96-000007.hdr.sgml : 19960329 ACCESSION NUMBER: 0000009342-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDOR ELECTRIC CO CENTRAL INDEX KEY: 0000009342 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 430168840 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07284 FILM NUMBER: 96539685 BUSINESS ADDRESS: STREET 1: 5711 R S BOREHAM JR ST STREET 2: P O BOX 2400 CITY: FORT SMITH STATE: AR ZIP: 72902-2400 BUSINESS PHONE: 5016464711 10-K 1 BALDOR ELECTRIC COMPANY'S 1995 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K ---------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File Number December 30, 1995 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 72902 (501) 646-4711 - ------------------------------------------------------ --------------- (Address of principal executive offices) (Zip Code) (Telephone Number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of Each Class which registered - ------------------------------- ------------------------ Common Stock, $0.10 Par Value New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price on February 23, 1996, was $409,926,203. At February 23, 1996, there were 25,851,846 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 30, 1995 (the "Annual Report to Shareholders for 1995") are incorporated by reference into Part II. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 4, 1996 (the "1996 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 primarily 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 electric motors represented approximately 82% of the Company's business in 1995, 84% in 1994, and 85% in 1993. The AC motor product line presently ranges in size from 1/50 through 600 horsepower. The DC motor product line presently ranges from 1/50 through 700 horsepower. Industrial control products, which include servo products, brushless DC and SCR controls, and inverter and vector drives, accounted for approximately 16% of the Company's total sales in 1995, 13% in 1994, and 11% in 1993. The Company's line of adjustable speed controls ranges from 1/50 to 600 horsepower. With these products, the Company provides its customers the ability to purchase industrial motors and electronic controls (which constitute drives) from one manufacturer. Sales of drives were estimated to be slightly more than 20% of total 1995 sales compared to just under 18% of total 1994 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 62% of the Company's 1995 business. Most stock product sales are to customers who place orders for immediate shipment from current inventory. Custom products generally are shipped within four 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 55 foreign countries. The Company's field sales organization consists of more than 50 independent manufacturer's representatives including 26 in the United States and the remainder 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 manufac- turers ("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. The Company conducts business with a large number of customers and it does not believe that the loss of any single customer would have a material effect on its total business. - 2 - 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 portion of 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 in- cluding 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, stamping, 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. Although some materials are purchased from a single supplier, the Company believes that alternate sources are available for such materials. Research and Development 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 approximately $17,200,000 in 1995, $14,800,000 in 1994, and $12,900,000 in 1993. - 3 - Environment Compliance with laws relating to the discharge of materials into the envi- ronment 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 At December 30, 1995, the Company had 3,580 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 December 30, 1995, export and international sales revenues have increased and represented 14.0% of consolidated sales in 1995, 13.1% in 1994, and 13.4% in 1993. See also Note J on page 26 of the Annual Report to Shareholders for 1995. The Company's products are distributed in more than 55 foreign countries, principally in Canada, Europe, Australia, the Far East, and Latin America. The Company's international operations include the Baldor ASR group of companies which was acquired in 1983. Baldor ASR has sales offices located in Switzerland, Germany, Italy and the United Kingdom. Baldor ASR also has development and manufacturing operations in Germany. The Company has majority interests in Baldor Electric (Far East) Pte. Ltd., located in Singapore, Baldor Electric (Thailand) Ltd., located in Bangkok, Baldor Electric (Indonesia) Ltd., located in Jakarta, and Australian Baldor Pty. Limited which has locations in Sydney and Melbourne. Finally, the Company wholly owns Baldor de Mexico, S.A. de C.V., located in Mexico City. The Company believes that it is in a position to act on global opportunities as they become available. The Company also believes that there are additional risks attendant to international operations including currency fluctuations and possible restrictions on the movement of funds. However, these risks have not had a significant adverse effect on the Company's business. Item 2. Properties - ------------------- The Company believes that its facilities, including equipment and machinery, are in good condition, suitable for current operations, adequately maintained and insured, and capable of sufficient additional production levels. The following table sets forth certain information with respect to the Company's properties. - 4 - AREA LOCATION PRIMARY USE (SQ. FT.) Fort Smith, AR AC motor production 296,542 Distribution and service center 159,500 Administration and engineering offices 69,800 Aluminum die casting 76,400 St. Louis County, MO Metal stamping and engineering toolroom 121,700 DC and miscellaneous motor production 55,600 Columbus, MS AC motor production 140,300 Westville, OK AC and DC motor production 155,000 Fort Mill, SC DC motors, AC motors 110,000 and tachometer production Knoxville, AR Worm-gear speed reducers 100,000 Clarksville, AR Subfractional motor and 86,750 gear motor production Ozark, AR AC motor production 77,300 Five other Metal stamping and motor, drives, domestic locations and servomotor production 130,325 Eight foreign Sales and distribution centers 37,900 locations and servodrive production --------- 1,617,117 Certain properties listed above (528,750 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. In mid 1996, the Company expects to replace the leased Knoxville, Arkansas, facility with a Company owned 83,000 square foot facility to be constructed at the Clarksville, Arkansas, plant site. 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. - 5 - 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 1995 is incorporated herein by reference. Item 6. Selected Financial Data - -------------------------------- Information under the caption "Eleven Year Summary of Financial Data" only for years 1991 through 1995 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 1995 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 18 and 19 of the Annual Report to Shareholders for 1995 is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The consolidated financial statements of the Company on pages 20 through 26, the report thereon of Ernst & Young LLP, Independent Auditors, on page 27, and the "Summary of Quarterly Results of Operations (Unaudited)" on page 21 of the Annual Report to Shareholders for 1995 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ------------------------------------------------------------------------ Not applicable. - 6 - PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ 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. 71 Chairman of the Board 1961 R.L. Qualls 62 President and Chief Executive 1986 Officer Theodore W. Atkins 57 Vice President - Industry 1986 Relations and Government Affairs D. Christine Clemons 31 Controller 1995 Charles H. Cramer 51 Vice President - Personnel 1984 Lloyd G. Davis 48 Chief Financial Officer, 1992 Vice President - Finance, Secretary, and Treasurer Gene J. Hagedorn 48 Vice President - Materials 1994 James R. Kimzey 57 Vice President - Research 1984 and Engineering John A. McFarland 44 Vice President - Sales 1990 Robert L. Null, Jr. 53 Vice President - Manufacturing 1990 Jerry D. Peerbolte 39 Vice President - Marketing 1990 Each of the executive officers has served as an officer or in a management capacity with Baldor Electric Company for the last five years. There are no family relationships among the directors or executive officers. The information under the caption "Election of Directors" of the 1996 Proxy Statement is incorporated herein by reference. Item 11. Executive Compensation - -------------------------------- Information contained in the 1996 Proxy Statement under the caption "Information About the Board of Directors and Committees of the Board" and information under the caption "Executive Compensation", except for the information contained in the 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 - ------------------------------------------------------------------------ The security ownership by officers and directors included under the caption "Security Ownership of Certain Beneficial Owners and Management" of the 1996 Proxy Statement is incorporated herin by reference. - 7 - Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- Information under the caption "Certain Transactions" of the 1996 Proxy Statement 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 of Baldor Electric Company, effective March 14, 1995, filed as Exhibit 3(i) to Form 10-K for the year ended December 31, 1994. Exhibit 3(ii) - Bylaws of Baldor Electric Company (as amended) dated February 6, 1995, filed as Exhibit 3(ii) to Form 10-K for the year ended December 31, 1994. 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. - 8 - Exhibit (10) - Exhibits 10(iii)(A)(1) through 10(iii)(A)(5) were previously submitted as exhibits and are incorporated herein by reference: . 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, refiled as Exhibit 10.1 to Form 10-K for the year ended December 28, 1991.) . 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.) . 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. . 10(iii)(A)(4) 1989 Stock Option Plan for Non-Employee Directors (filed as Exhibit 10 to Form 10-Q for quarter ended September 29, 1990.) . 10(iii)(A)(5) 1994 Incentive Stock Plan (filed as Exhibit A to Registrant's Proxy Statement dated April 4, 1994). 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) - Computation of earnings per common share filed herewith. Exhibit (13) - Portions of the Annual Report to Shareholders for 1995. 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 10 and 11. (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 15 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 13 hereof. - 9 - 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. L. Qualls ------------------------------------- President and Chief Executive Officer (Chief Executive Officer) Date: March 28, 1996 -------------- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. S. Boreham, Jr. and R. L. Qualls, 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. - 10 - Signature Title Date --------- ----- ---- /s/ R. S. Boreham, Jr. Chairman of the Board of ) - ---------------------------- Directors and Chairman of ) R. S. Boreham, Jr. the Executive Committee ) ) ) /s/ R. L. Qualls President, Chief Executive ) - ---------------------------- Officer, and Director ) R. L. Qualls (Principal Executive Officer) ) ) ) /s/ Lloyd G. Davis Chief Financial Officer, ) - ---------------------------- Vice President - Finance, ) Lloyd G. Davis Secretary, and Treasure ) (Principal Financial ) and Accounting Officer) ) ) /s/ Jefferson W. Asher, Jr. Director )March 28, 1996 - ---------------------------- ) Jefferson W. Asher, Jr. ) ) ) /s/ Fred C. Ballman Director ) - --------------------------- ) Fred C. Ballman ) ) ) /s/ O. A. Baumann Director ) - ---------------------------- ) O. A. Baumann ) ) ) /s/ Robert J. Messey Director ) - --------------------------- ) Robert J. Messey ) ) ) /s/ Robert L. Proost Director ) - ---------------------------- ) Robert L. Proost ) ) ) /s/ Willis J. Wheat Director ) - --------------------------- ) Willis J. Wheat ) - 11 - ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS YEAR ENDED DECEMBER 30, 1995 BALDOR ELECTRIC COMPANY FORT SMITH, ARKANSAS - 12 - FORM 10-K, ITEM 14(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES BALDOR ELECTRIC COMPANY AND AFFILIATES The following consolidated financial statements of Baldor Electric Company and Affiliates, included in the Annual Report to Shareholders for 1995, are incorporated by reference in Item 8: Consolidated Balance Sheets - December 30, 1995 and December 31, 1994 Consolidated Statements of Earnings - for the three years in the period ended December 30, 1995 Consolidated Statements of Cash Flows - for the three years in the period ended December 30, 1995 Consolidated Statements of Shareholders' Equity - for the three years in the period ended December 30, 1995 Notes to Consolidated Financial Statements The following consolidated financial statement schedules of Baldor Electric Company and Affiliates are included in Item 14(d): Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accoun- ting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. - 13 - 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 Deductions at End of Description of Period Expenses Describe Describe Period - ----------- --------- -------- -------- -------- --------- (In thousands) Deducted from current assets: Allowance for doubtful accounts 1995 $2,250 $ 886 $ 336(A) $2,800 1994 1,800 623 173(A) 2,250 1993 1,200 1,197 597(A) 1,800 Included in current liabilities: Anticipated warranty costs 1995 $3,700 $ 400(B) $4,100 1994 2,750 950(B) 3,700 1993 2,500 250(B) 2,750 - ----------------- (A) Net uncollectible accounts written off during year. (B) Additions/(reductions) to reserve for anticipated warranty costs, net of expenses incurred. - 14 - BALDOR ELECTRIC COMPANY AND AFFILIATES INDEX OF EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 Omitted - Inapplicable 3(i) Omitted - Inapplicable 3(ii) Omitted - Inapplicable 4(i) Omitted - Inapplicable 9 Omitted - Inapplicable 10 Omitted - Inapplicable 11 Computation of Earnings Per Common Share - filed herewith 12 Omitted - Inapplicable 13 Annual Report to Shareholders for 1995 - filed herewith 16 Omitted - Inapplicable 18 Omitted - Inapplicable 21 Affiliates of the Registrant - filed herewith 22 Omitted - Inapplicable 23 Consent of Independent Auditors - filed herewith 24 Powers of Attorney - Included on signature pages 10 and 11 27 Financial Data Schedules - filed herewith 28 Omitted - Inapplicable 99 Omitted - Inapplicable - 15 - EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE FYE 12/30/95 EXHIBIT 11 BALDOR ELECTRIC COMPANY AND AFFILIATES COMPUTATION OF EARNINGS PER COMMON SHARE FISCAL YEAR ----------------------------------- 1995 1994 1993 (In thousands, except per share amounts) Primary Weighted average shares outstanding 27,647 27,266 26,797 Dilutive stock options based on the treasury stock method using the average market price 1,244 1,237 1,269 ------ ------ ------ Total 28,891 28,503 28,066 ====== ====== ====== Net Earnings $32,305 $26,359 $19,426 ======= ======= ======= Per Share Earnings $1.12 $0.92 $0.69 ===== ===== ===== Fully Diluted Weighted average shares outstanding 27,647 27,266 26,797 Dilutive stock options based on the treasury stock method using the year-end market price, if higher than average market price 1,202 1,345 1,489 ------ ------ ------ Total 28,849 28,611 28,286 ====== ====== ====== Net Earnings $32,305 $26,359 $19,426 ======= ======= ======= Per Share Earnings $1.12 $0.92 $0.69 ===== ===== ===== - ------------------------ Note:Amounts for 1994-93 have been restated for a three-for-two stock split effected in the form of a 50% stock dividend which was declared during the third quarter 1995. See Note F to Annual Report to Shareholders for 1995. EX-13 3 CERTAIN PORTIONS OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS Management's Discussion and Analysis Results of Operations Summary In 1995, Baldor posted its fourth consecutive yearly record sales and earnings performance. A 13.1% sales increase was leveraged into a 22.6% earnings increase. Baldor believes its inventory availability, improved productivity, reduced manufacturing costs, and aggressive new product introductions are important competitive advantages which are helping to expand market share and provide better value to its customers and shareholders. Net Sales Baldor serves many industries by selling to a broad base of distributors and OEMs both domestically and in more than 55 countries. No single customer accounts for more than 3.0% of 1995 sales. Sales of $473.1 million in 1995 were up 13.1% over 1994 sales of $418.2 million. Sales in 1993 were $356.6 million. The increase in 1995 sales over 1994 sales was about evenly split between improved pricing, increased volumes and product mix shifts. Energy-efficiency remains important in our industry. Sales of drives grew at more than double the 1995 overall sales growth rate and sales of Super-E(tm) premium-efficient motors also continued strong. Overall, sales of new products introduced in the past five years accounted for well over 25% of 1995 sales. In 1995, distributor sales increased approximately 14% over 1994 levels and OEM sales increased approximately 17% over 1994 levels. The 1994 sales increase of 17.3% over 1993 sales was due in part to the sales of new products, including drives products and Super-E(tm) premium- efficient motors, both of which grew significantly faster than the overall sales growth rate. Price improvement averaged just over 2% in 1994. Net Earnings Net earnings of $32.3 million in 1995 exceeded 1994 net earnings of $26.4 million by $5.9 million or 22.6%. Net earnings in 1993 were $19.4 million. The gross margin percentage increased to 29.3% in 1995 from 28.9% in 1994 and 28.3% in 1993. The gross margin percentages in 1995 and 1994 improved due to increased volumes, continued productivity improvements, and better teamwork throughout the organization in both years. Increases in raw material prices were offset by increases in selling prices in both years. Selling and administrative costs as a percentage of sales improved to 16.9% in 1995, from 17.3% in 1994, and 18.2% in 1993. As the result of a continued emphasis on productivity improvements, Baldor has managed to achieve increases in sales without significant increases in support costs in these areas. The 1995 pre-tax margin of 11.2% shows good improvement over the 1994 pre-tax margin of 10.3% and the 1993 pre-tax margin of 9.1%. This improvement is due to the increased volumes, improved pricing, and continued emphasis on productivity and cost improvements. International Operations Sales from international operations (foreign affiliates and exports) were $66.0 million in 1995, up 20.9% from 1994 sales of $54.6 million. Sales in 1993 from international operations were $47.6 million. International sales were particularly strong in Europe for both 1995 and 1994. Foreign pre-tax earnings for 1995 decreased to $1.2 million from $1.7 million in 1994 due mainly to the decline in the Mexican peso. Foreign pre-tax earnings were $1.6 million in 1993. Impact of Inflation Inflation had a nominal impact on operations during the last three years. Pressures on margins due to increases in raw material prices were offset through increases in selling prices over the last three years. Other increases in operating costs were consistent with the general inflation rate, and were more than offset by productivity improvements. Baldor values its inventory principally on the LIFO basis, which more closely matches current costs with current revenues and has resulted in a more conservative valuation of inventory over time. Almost half of Baldor's machinery and equipment has been acquired during the last 5 years; thus depreciation expense approximates the effect of current costs. Environmental Remediation Management believes, based on their internal reviews and other factors, that the future costs relating to environmental remediation and compliance will not have a material effect on the capital expenditures, earnings, or competitive position of the Company. Financial Position Summary Baldor improved its already strong financial condition in 1995. The Company's high liquidity and low debt ratios provide a strong base for better serving its customers, financing growth opportunities, and maintaining flexibility. During 1995, Baldor continued to invest in its future by expanding research and development for new and existing products, by continuing capital investments for capacity, productivity and cost improvements, and by making additional investments in its employees and customers through education and training. Based on the Company's strong financial condition, 1995 saw a three-for-two stock split and an increase in the dividend rate. Investments In 1995, Baldor invested $23.1 million in property, plant and equipment. Capital investments were made to improve product quality, increase productivity, lower manufacturing costs, increase capacity, and support new products. Investments in property, plant and equipment for 1996 should be approximately the same as 1995. This includes a new plant in Clarksville, Arkansas, to house gear production and an expansion of the finished goods warehouse in Fort Smith. Baldor's cash flow and financial strength are expected to be adequate to fund these anticipated future investments. In 1995, Baldor also increased its investments in research and development to $17.2 million from $14.8 million in 1994 and $12.9 million in 1993. Baldor's commitment to research and development continues to help it maintain a leadership position in the marketplace and to satisfy its customers' needs. Current Liquidity Cash flow from operations continues to provide the principal source of the Company's liquidity. Due mainly to increased finished goods levels, 1995 cash flow from operating activities decreased to $24.2 million from $31.9 million in 1994. Working capital was $145.1 million at the end of 1995 compared to $118.6 million at the end of 1994. The current ratio increased to 3.2 compared to 2.9 at the end of 1994. Baldor also has available lines of credit of $30 million to support operations. There were no borrowings under these lines at the end of 1995 or 1994. Long-Term Debt and Shareholders' Equity Long-term obligations were 10.7% of total capitalization at the end of 1995 compared to 12.5% at the end of 1994. The 1995 weighted average interest rate on long-term debt was 6.5%. Shareholders' equity continues to increase and at December 30, 1995 was at a record level for Baldor. This strong capital base gives the Company an excellent opportunity to finance expansion opportunities as they arise. Return on average shareholders' equity increased to 16.3% for 1995 from 15.3% in 1994. In the third quarter of 1995, there was a three-for-two stock split effected in the form of a 50% stock dividend. All per share amounts have been restated to reflect this split. The cash dividend was also increased 12.5% during 1995. This is in addition to the 20.0% increase during 1994. Subsequent to year end, on February 16, 1996, Baldor purchased 2,000,000 shares of its common stock from the Estate of Mr. G. A. Shock for $19.00 per share. This purchase was at a discount to the market and was funded with a mid-term bank loan. CONSOLIDATED BALANCE SHEETS BALDOR ELECTRIC COMPANY AND AFFILIATES DECEMBER 30 DECEMBER 31 1995 1994 ----------- ----------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,322 $ 8,848 Marketable securities 28,487 25,996 Receivables, less allowances of $2,800 and $2,250, respectively 77,768 71,003 Inventories: Finished products 61,681 48,516 Work-in-process 11,978 11,933 Raw materials 36,972 29,408 ---------- ---------- 110,631 89,857 LIFO valuation adjustment (deduction) (26,942) (25,759) ---------- ---------- 83,689 64,098 Other current and deferred tax assets 15,829 11,227 ---------- ---------- TOTAL CURRENT ASSETS 212,095 181,172 OTHER ASSETS 12,296 20,481 PROPERTY, PLANT AND EQUIPMENT Land and improvements 3,558 3,303 Buildings and improvements 29,587 27,745 Machinery and equipment 149,069 131,991 Allowances for depreciation and amortization (deduction) (93,143) (81,537) ---------- ---------- NET PROPERTY, PLANT AND EQUIPMENT 89,071 81,502 ---------- ---------- $ 313,462 $ 283,155 ========== ========== See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS BALDOR ELECTRIC COMPANY AND AFFILIATES DECEMBER 30 DECEMBER 31 1995 1994 ----------- ----------- (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 18,996 $ 18,802 Employee compensation 5,110 5,776 Profit sharing 7,168 5,789 Anticipated warranty costs 4,100 3,700 Accrued insurance obligations 12,627 9,156 Other accrued expenses 16,080 15,697 Income taxes 1,967 2,777 Current maturities of long-term obligations 978 925 ---------- ---------- TOTAL CURRENT LIABILITIES 67,026 62,622 LONG-TERM OBLIGATIONS 25,255 26,303 DEFERRED INCOME TAXES 9,804 9,968 SHAREHOLDERS' EQUITY: Preferred stock, $0.10 par value Authorized shares: 5,000,000 Issued and outstanding shares: None Common stock, $0.10 par value Authorized shares: 50,000,000 Issued and outstanding shares: 1995--27,870,297; 1994--27,465,644 (excluding 297,741 shares held in treasury in 1995 and 158,015 shares held in treasury in 1994) 2,787 1,831 Additional capital 24,990 21,958 Retained earnings 182,354 160,024 Cumulative translation adjustments 1,246 449 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 211,377 184,262 ---------- ---------- $ 313,462 $ 283,155 ========== ========== See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF EARNINGS BALDOR ELECTRIC COMPANY AND AFFILIATES YEARS ENDED ------------------------------------------ DECEMBER 30 DECEMBER 31 JANUARY 1 1995 1994 1994 ------------------------------------------ (In thousands, except share data) Net sales $ 473,103 $ 418,152 $ 356,595 Other income, net 2,596 1,668 1,398 --------- --------- --------- 475,699 419,820 357,993 Costs and expenses Cost of goods sold $ 334,306 297,212 255,557 Selling and administrative 80,019 72,329 64,807 Profit sharing 7,168 5,788 4,284 Interest 1,260 1,279 975 ---------- --------- --------- 422,753 376,608 325,623 Earnings Before Income Taxes 52,946 43,212 32,370 Income taxes 20,641 16,853 12,944 ---------- --------- --------- NET EARNINGS $ 32,305 $ 26,359 $ 19,426 ========== ========= ========= NET EARNINGS PER COMMON SHARE $1.12 $0.92 $0.69 ===== ===== ===== Weighted average common shares outstanding 28,891,293 28,503,273 28,066,290 ========== ========== ========== See notes to consolidated financial statements. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (Unaudited) BALDOR ELECTRIC COMPANY AND AFFILIATES QUARTER --------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- ------- (In thousands, except share data) 1995 Net sales $114,585 $121,839 $120,044 $116,635 $473,103 Gross profit 33,558 35,698 35,190 34,351 138,797 Net earnings 7,671 8,261 8,276 8,097 32,305 Net earnings per common share 0.26 0.29 0.29 0.28 1.12 1994 Net sales $97,476 $104,812 $105,432 $110,432 $418,152 Gross profit 27,905 30,145 30,646 32,244 120,940 Net earnings 5,678 6,602 6,818 7,261 26,359 Net earnings per common share 0.20 0.23 0.24 0.25 0.92 CONSOLIDATED STATEMENTS OF CASH FLOWS BALDOR ELECTRIC COMPANY AND AFFILIATES YEARS ENDED ---------------------------------------- DECEMBER 30 DECEMBER 31 JANUARY 1 1995 1994 1994 ---------------------------------------- (In thousands) Operating activities: Net earnings $ 32,305 $ 26,359 $ 19,426 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15,583 13,121 12,220 Deferred income taxes (1,979) (3,882) (2,192) Changes in operating assets and liabilities: Receivables (7,315) (11,887) (8,765) Inventories (19,591) (10,480) (3,944) Other current assets (3,020) (52) (843) Accounts payable 194 6,113 3,350 Accrued expenses 4,967 12,017 6,662 Income taxes (810) 656 1,588 Other, net 3,851 (70) 258 ---------- ---------- -------- Net cash from operating activities 24,185 31,895 27,760 Investing activities: Additions to property, plant and equipment (23,112) (22,131) (14,983) Marketable securities purchased (50,881) (45,153) (22,914) Marketable securities sold 48,987 41,388 16,812 ---------- --------- --------- Net cash used in investing activities (25,006) (25,896) (21,085) Financing activities: Additional long-term borrowings 6,000 Reduction of long-term obligations (995) (1,737) (931) Unexpended debt proceeds 5,641 (5,220) 472 Dividends paid (9,416) (7,648) (6,190) Stock option plans 3,065 4,144 1,363 ---------- ---------- -------- Net cash used in financing activities (1,705) (4,461) (5,286) Net increase (decrease) in cash and cash equivalents (2,526) 1,538 1,389 Beginning cash and cash equivalents 8,848 7,310 5,921 ---------- ----------- --------- Ending cash and cash equivalents $ 6,322 $ 8,848 $ 7,310 ========== ========== ========= See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY BALDOR ELECTRIC COMPANY AND AFFILIATES
Common Stock Cumulative ------------ Additional Retained Translation Shares Amount Capital Earnings Adjustments Total ------ ------ ------- -------- ----------- -------- (In thousands, except per share amounts) BALANCE AT JANUARY 2, 1993 14,825 $1,483 $15,440 $128,792 $(489) $145,226 Stock option plans, net of shares exchanged 102 10 1,353 1,363 Translation adjustments (346) (346) Net earnings 19,426 19,426 Purchase of Sweo Controls, Inc. 47 5 1,055 1,060 Six-for-five common stock split effected in the form of a 20% stock dividend 2,994 299 (299) Cash dividends at $0.23 per common share (6,190) (6,190) ------ ------ ------- -------- ----- ------- BALANCE AT JANUARY 1, 1994 17,968 1,797 17,848 141,729 (835) 160,539 Stock option plans, net of shares exchanged 342 34 4,110 4,144 Translation adjustments 1,284 1,284 Net earnings 26,359 26,359 Securities valuation adjustment, net of deferred taxes of $267 (416) (416) Cash dividends at $0.28 per common share (7,648) (7,648) ------ ------ ------- -------- ----- ------- BALANCE AT DECEMBER 31, 1994 18,310 1,831 21,958 160,024 449 184,262 Stock option plans, net of shares exchanged 332 33 3,032 3,065 Translation adjustments 797 797 Net earnings 32,305 32,305 Securities valuation adjustment, net of deferred taxes of $233 364 364 Three-for-two common stock split effected in the form of a 50% stock dividend 9,228 923 (923) Cash dividends at $0.34 per common share (9,416) (9,416) ------ ------ ------- --------- ------ -------- BALANCE AT DECEMBER 30, 1995 27,870 $2,787 $24,990 $182,354 $1,246 $211,377 ====== ====== ======= ======== ====== ======== See notes to consolidated financial statements.
ELEVEN-YEAR SUMMARY OF FINANCIAL DATA (In thousands, except percentages and per-share data) PER SHARE DATA ----------------------- LONG- NET NET NET TOTAL TERM SALES EARNINGS EARNINGS DIVIDENDS ASSETS OBLIGATIONS 1995 $473,103 $32,305 $1.12 $0.34 $313,462 $25,255 1994 418,152 26,359 0.92 0.28 283,155 26,303 1993 356,595 19,426 0.69 0.23 237,950 22,474 1992 318,930 15,264 0.56 0.19 211,941 23,209 1991 286,495 11,922 0.44 0.18 203,277 24,376 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BALDOR ELECTRIC COMPANY AND AFFILIATES December 30, 1995 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Line of Business: The Company operates primarily in one industry segment which includes the design, manufacture and sale of electric motors and drives. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the statements and accompanying notes. Actual results may differ from those estimates. Consolidation: The consolidated financial statements include the accounts of the Company and all its affiliates. Intercompany accounts and transactions have been eliminated in consolidation. Fiscal Year: The Company's fiscal year ends on the Saturday nearest to December 31 which results in a 52 or 53 week year. Fiscal years 1993, 1994 and 1995 all 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. 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. These 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 retained earnings. Realized gains, realized losses, and declines in value, judged to be other-than- temporary, are included in Other Income. The cost of securities sold is based on the specific identification method and interest earned is included in Other Income. Inventories: The Company values inventories at the lower of cost or market, cost being determined principally by the last-in, first-out method (LIFO), except for $9,513,000 in 1994 and $10,836,000 in 1995 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 and the remaining term of capital leases, respectively. Long-Lived Assets: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company will adopt this statement in the first quarter of 1996 and, based on current circumstances, does not believe the effect of the adoption will be material. Benefit Plans: The Company has a profit sharing plan covering most employees with over two years service. Baldor contributes 12% of earnings before income taxes of participating companies to the Plan. Income Taxes: Income taxes are provided based on the liability method of accounting. Deferred income taxes are provided for the expected future tax consequences of temporary differences between the basis of assets and liabilities reported for financial and tax purposes. Net Earnings Per Common Share: Net earnings per common share are computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents (dilutive stock options) outstanding during the year. Since the dilutive effect of common stock options is similar in both calculations, net earnings per common share reflects both primary and fully diluted earnings per share. Research and Development: Costs associated with research, new product development and product cost improvements are treated as expenses when incurred and amounted to approximately $12,900,000 in 1993, $14,800,000 in 1994, and $17,200,000 in 1995. Reclassification: The Company has reclassified the presentation of certain prior year information to be consistent with the presentation in the current year. NOTE B -- LONG-TERM OBLIGATIONS Long-term obligations consist of the following: 1995 1994 ---- ---- (in thousands) due through 2004 at 6.0% fixed rate $ 308 $ 431 due through 2004 at 8.25% fixed rate 4,365 4,685 due through 2004 at 5.35% variable rate 2,300 2,300 due through 2004 at 5.29% fixed rate 5,525 6,000 due through 2009 at 7.75% fixed rate 3,000 3,000 due through 2009 at 7.875% fixed rate 7,200 7,200 due through 2010 at 5.15% variable rate 3,440 3,440 Notes payable to banks due November 1, 2003 at 11.8% 95 172 ------- ------- 26,233 27,228 Less current maturities 978 925 ------- ------- $25,255 $26,303 ======= ======= At December 30, 1995, Industrial Development Bond proceeds of $6,742,000 are included in Other Assets. Certain long-term obligations are collateralized by property, plant and equipment with a net book value of $16,139,000 at December 30, 1995. Maturities of long-term obligations during each of the five fiscal years ending 2000 are: 1996--$978,000; 1997--$1,488,000; 1998--$1,475,000; 1999--$1,585,000; and 2000--$1,690,000. Industrial Development Bonds include capital lease obligations of $7,673,000 at December 30, 1995. Aggregate future minimum capital lease payments at December 30, 1995, are $11,163,000 including interest of $3,490,000. Certain long-term obligations require, among other things, that the Company maintain certain financial ratios and restrict cumulative cash dividends and other distributions. Retained earnings of $42,409,000 at December 30, 1995, were unrestricted. At December 30, 1995, the Company had outstanding letters of credit totaling $7,850,000. Interest paid was $1,730,000 in 1995, $1,565,000 in 1994, and $1,420,000 in 1993. The Company had lines of credit aggregating $30,000,000 available at December 30, 1995. These arrangements do not have termination dates but are reviewed annually. Interest on these lines of credit is at rates mutually agreed upon at the time of borrowing. There were no outstanding borrowings under these lines at December 30, 1995. NOTE C -- MARKETABLE SECURITIES Baldor currently invests in only high quality, short-term investments which it classifies as available-for-sale. As such, there were no significant differences between amortized cost and estimated fair value at December 30, 1995 or December 31, 1994. Additionally, because investments are short-term and are generally allowed to mature, realized gains and loss for both years have been minimal. The following table presents the estimated fair value breakdown of investment by category. December 30, December 31, 1995 1994 ------------ ------------ (In thousands) Municipal debt securities $18,079 $ 4,164 U.S.corporate debt securities 10,970 17,171 U.S.Treasury & agency securities 2,938 5,647 Other debt securities 4,871 1,976 ------- ------- 36,858 28,958 Less cash equivalents 8,371 2,962 ------- ------- $28,487 $25,996 ======= ======= The estimated fair value of debt and marketable equity securities at December 30, 1995 was $23,552,000 due in one year or less, $1,997,000 due in one to three years, and $2,938,000 due after three years. Because of the short-term nature of the investments, expected maturities and contractual maturities are normally the same. NOTE D -- INCOME TAXES The Company made income tax payments of $21,643,000 in 1995, $18,830,000 in 1994, and $13,219,000 in 1993. Income tax expense consists of the following: 1995 1994 1993 ---- ---- ---- (in thousands) Current: Federal $19,125 $18,679 $12,906 State 2,614 1,757 1,429 Foreign 776 566 448 Deferred (1,874) (4,149) (1,839) ------- ------- ------- $20,641 $16,853 $12,944 ======= ======= ======= 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: 1995 1994 1993 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 3.3 3.4 3.4 Other 0.7 0.6 1.6 ---- ---- ---- Effective income tax rate 39.0% 39.0% 40.0% NOTE E -- FINANCIAL DERIVATIVES Hedging of Foreign Exchange Risks - --------------------------------- As a result of having various foreign operations, the Company engages in a limited amount of hedging to minimize the effects of fluctuating foreign currencies on its intercompany pricing. The Company's investment in foreign currency options is included in Other Current Assets at cost, less realized gains deferred, and is amortized to Other Income over the period in which intercompany sales to foreign affiliates occur; generally within the following twelve months. At December 30, 1995 and December 31, 1994 the investments in foreign currency derivatives were not significant. Hedging of Copper and Aluminum Requirements - ------------------------------------------- The Company purchases significant amounts of copper and aluminum, key ingredients in its motor production, under short-term firm price contracts which are renegotiated annually. In order to hedge itself from exposure to price fluctuations on these two metals, the Company purchases various options, the cost of which is carried in Other Current Assets, net of realized gains deferred, and is amortized to Cost of Goods Sold over the period that the metal is used. The net unamortized costs with respect to the Company's metal hedging programs were not material at December 30, 1995 and December 31, 1994. NOTE F -- SHAREHOLDERS' EQUITY On August 7, 1995, the Company's Board of Directors authorized a three- for-two stock split effected in the form of a 50% stock dividend payable September 6, 1995 to shareholders of record on August 18, 1995. This resulted in the issuance of 9,228,086 additional shares of common stock. All per share and weighted average share amounts have been restated to reflect this stock split. The Company maintains a shareholder rights plan intended to encourage a potential acquiror to negotiate directly with the Board of Directors. The purpose of the plan is to ensure the best possible treatment for all shareholders. Under the terms of the plan, one Common Stock Purchase Right (a Right) is associated with each outstanding share of common stock. If an acquiring person acquires 20% or more of the Baldor common stock then outstanding, the Rights become exercisable and would cause substantial dilution. Effectively, each such Right would entitle its holder (excluding the 20% owner) to purchase shares of Baldor common stock for half of the then current market price, subject to certain restrictions per the plan. Until a Right is exercised, the holder of the Right is not entitled to any of the benefits of being a shareholder of the Company. NOTE G -- SUBSEQUENT EVENTS On February 16, 1996, Baldor purchased 2,000,000 shares of its common stock from the estate of Mr. G. A. Shock for $19.00 per share. This purchase was at a discount to the market and was funded with a mid-term bank loan. At their February 5, 1996 meeting, the Board of Directors updated the shareholder rights plan by extending the expiration date to May 2008 and by modifying certain other plan definitions to make the plan more effective. NOTE H -- STOCK PLANS The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company has four plans under which various types of stock options may be granted. Additionally, the Company has one plan that expired November 9, 1991 except as to options then outstanding. Under two plans, the Company has granted non-compensatory stock options to employees and district managers at prices equal to market value at the date of grant. Outstanding options expire either five or ten years from the date of grant. There are no charges to income in connection with the non-compensatory stock option plans. In addition to the two non-compensatory plans, there are three compensatory plans which are administered by the Option Committee of the Board of Directors. These plans can grant shares to employees and non- employee directors. Under these plans, grants can include incentive stock options, non-qualified stock options, restricted shares, formula price shares and stock appreciation rights. The Committee has granted incentive options to purchase shares at prices not less than market value at the date of grant and non-qualified options to purchase shares of restricted stock at 50% of the stock's market value at the date of grant. Restrictions lapse on these shares after five years or if the Company is acquired. Related compensaton expense is amortized over the restriction period. A summary of information regarding the stock plans follows: NUMBER OF SHARES --------------------------------------- Non- Compensatory Compensatory Total Plans Plans --------- ------------ ------------ Shares available for grant 7,343,700 3,413,700 3,930,000 Options outstanding: Balance at January 1, 1995, at $2.701-$17.667 per share 2,258,118 866,991 1,391,127 Granted at $8.958-$19.583 per share 314,100 314,100 Exercised at $2.778-$18.083 per share (461,839) (229,763) (232,076) Canceled at $12.569-$18.083 per share (21,750) (21,750) --------- --------- --------- Balance at December 30, 1995, at $2.701-$19.583 per share 2,088,629 637,228 1,451,401 ========= ========= ========= Shares exercisable at December 30, 1995 1,602,260 594,291 1,007,969 Shares reserved for future grants: December 31, 1994 1,974,288 149,400 1,824,888 December 30, 1995 1,678,967 149,400 1,529,567 NOTE I -- OPERATING LEASES The Company leases certain computers, buildings, and other equipment under operating lease agreements. Related rental expense was $4,300,000 in 1995, $3,900,000 in 1994, and $3,500,000 in 1993. Future minimum payments for operating leases having noncancelable lease terms in excess of one year are: 1996--$2,123,000, 1997--$1,982,000, 1998--$846,000, 1999--$726,000, 2000--$688,000; and decline substantially thereafter. NOTE J -- FOREIGN OPERATIONS The Company's foreign operations include both export sales and the results of its foreign affiliates in Europe, Australia, Singapore and Mexico. Consolidated sales, earnings before income taxes and identifiable assets consist of the following: 1995 1994 1993 ---- ---- ---- (in thousands) Net Sales: United States Companies Domestic customers $407,078 $363,548 $308,949 Export customers 25,068 21,232 19,262 -------- -------- -------- 432,146 384,780 328,211 Foreign Affiliates 40,957 33,372 28,384 -------- -------- -------- $473,103 $418,152 $356,595 ======== ======== ======== Earnings Before Income Taxes: United States Companies $ 51,723 $ 41,508 $ 30,746 Foreign Affiliates 1,223 1,704 1,624 -------- -------- -------- $ 52,946 $ 43,212 $ 32,370 ======== ======== ======== Assets: United States Companies $285,381 $261,984 $218,509 Foreign Affiliates 28,081 21,171 19,441 -------- -------- -------- $313,462 $283,155 $237,950 ======== ======== ======== 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 the Cumulative Translation Adjustment account in shareholders' equity. SHAREHOLDERS AND BOARD OF DIRECTORS BALDOR ELECTRIC COMPANY AND AFFILIATES We have audited the accompanying consolidated balance sheets of Baldor Electric Company and affiliates as of December 30, 1995 and December 31, 1994, and the related consolidated statements of earnings, cash flows and shareholders' equity for each of the three years in the period ended December 30, 1995. 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 generally accepted auditing standards. 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, 1995, and December 31, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP - --------------------- St. Louis, Missouri February 2, 1996 Except for Note G, as to which the date is February 16, 1996 REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING Baldor management is responsible for the integrity and objectivity of the financial information contained in this Annual Report. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying informed judgements and estimates where appropriate. Baldor maintains a system of internal accounting control that provides 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 the corporation's financial records and related data, as well as the minutes of shareholders' and directors' meetings. /s/ R. S. Boreham, Jr. ------------------------------------- R. S. Boreham, Jr. Chairman of the Board and Chairman of the Executive Committee /s/ R. L. Qualls ------------------------------------- R. L. Qualls President and Chief Executive Officer /s/ Lloyd G. Davis ------------------------------------- Lloyd G. Davis Chief Financial Officer, Vice President - Finance, Secretary, and Treasurer SHAREHOLDER INFORMATION DIVIDEND POLICY To periodically increase dividends as earnings and financial strength warrant, but also to reinvest a major portion of earnings to help finance growth opportunities. The objective being for shareholders to obtain dividend increases over time, while also participating in the growth of the Company. DIVIDENDS PAID 1995 1994 1993 1st quarter $ .08 $ .06 $ .05 2nd quarter .08 .07 .05 3rd quarter .09 .07 .06 4th quarter .09 .08 .07 ----- ----- ----- Year $ .34 $ .28 $ .23 COMMON STOCK PRICE RANGE NYSE SYMBOL-BEZ 1995 1994 ---------------------- ----------------------- High Low High Low 1st quarter 19-1/2 17-1/4 18-3/8 15-1/8 2nd quarter 19-7/8 18-3/8 16-1/2 14-1/8 3rd quarter 26-1/2 19-1/8 16-1/2 14-5/8 4th quarter 25-1/4 20 18 16-1/8 SHAREHOLDERS 3,981 at December 30, 1995 including shareholders of record and employees through benefit plans. DIRECTORS & OFFICERS (Photo) Roland S. Boreham, Jr. Chairman of the Board Director since 1961 (Photo) R. L. Qualls President and Chief Executive Officer Director since 1987 (Photo) Jefferson W. Asher, Jr. Independent Management Consultant Director since 1973 (Photo) Fred C. Ballman Former Chairman and Chief Executive Officer (retired) Director from 1944 to 1982 and since 1992 (Photo) O. A. Baumann Former Manufacturer's Representative for the Company (retired) Director since 1961 (Photo) Robert J. Messey Senior Vice President, Chief Executive Officer and Director of Sverdrup Corporation Director since 1993 (Photo) Robert L. Proost Corporate Vice President and Director of Administration of A.G. Edwards & Sons, Inc. Director since 1988 (Photo) Willis J. Wheat Professor of Management and Marketing at Oklahoma City University Director since 1991 (Photo) Theodore W. Atkins Vice President - Industry Relations & Governmental Affairs (Photo) D. Christine Clemons Controller (Photo) Charles H. Cramer Vice President - Personnel (Photo) Lloyd G. Davis Vice President - Finance, Chief Financial Officer, Secretary, and Treasurer (Photo) Gene J. Hagedorn Vice President - Materials (Photo) James R. Kimzey Vice President - Research & Engineering (Photo) John A. McFarland Vice President - Sales (Photo) Robert L. Null, Jr. Vice President - Manufacturing (Photo) Jerry D. Peerbolte Vice President - Marketing EX-21 4 AFFILIATES OF BALDOR ELECTRIC COMPANY EXHIBIT 21 BALDOR ELECTRIC COMPANY AND AFFILIATES AFFILIATES OF THE REGISTRANT PLACE OF ORGANIZATION NATURE OF NAME OF AFFILIATE OR INCORPORATION OWNERSHIP - ----------------- --------------------- --------- Baldor of Arkansas Arkansas 100% Baldor of Nevada, Inc. Nevada 100% BEC Business Trust Massachusetts 100% (1) Baldor of Texas, L.P Texas 100% (2) Baldor International, Inc. U.S.Virgin Islands 100% Carolina Capacitors, Inc. South Carolina 100% Southwestern Die Casting Co.,Inc. Arkansas 100% Sweo Controls, Inc. Washington 100% Baldor Holdings, Inc. Delaware 100% Baldor de Mexico,S.A.de C.V. Mexico 100% (3) Baldor ASR, AG Switzerland 100% (3) Baldor ASR GmbH fuer Antriebstechnik Germany 100% (3) Baldor ASR U.K. Limited United Kingdom 100% (3) Baldor Italia S.R.L. Italy 100% (4) Australian Baldor Pty. Limited Australia 60% Baldor Electric (Far East) PTE. Ltd. Singapore 60% Baldor Electric (Thailand) Ltd. Thailand 100% (5) Baldor Industrial Automation PTE.Ltd. Singapore 100% (5) Baldor Electric (Indonesia) Ltd. Indonesia 100% (5) (1) 100% owned by Baldor of Nevada (2) 99% owned by BEC Business Trust (LP) and 1% owned by Baldor of Arkansas (GP) (3) 100% owned by Baldor Holdings, Inc. (4) 98% owned by Baldor Holdings, Inc., 2% owned by Baldor ASR GmbH fuer Antriebstechnik. (5) 100% owned by Baldor Electric (Far East) PTE. Ltd. EX-23 5 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Baldor Electric Company and affiliates of our report dated February 2, 1996 (except for Note G, as to which the date is February 16, 1996), included in the 1995 Annual Report to Shareholders of Baldor Electric Company and affiliates. Our audits also included the financial statement schedules of Baldor Electric Company and affiliates listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8, No. 2-77046) pertaining to the Baldor Electric Company 1982 Incentive Stock Option Plan, (Form S-8, No. 33-16766) pertaining to the Baldor Electric Company 1987 Incentive Stock Plan, (Form S-8, No. 33-28239) pertaining to the Baldor Electric Company Employee Savings Plan, (Form S-8, No. 33-36421) pertaining to the Baldor Electric Company 1989 Stock Option Plan for Non-Employee Directors and (Forms S-8, No. 33-59281 and No. 33-60731) pertaining to the Baldor Electric Company 1994 Incentive Stock Plan of our report dated February 2, 1996, (except for Note G, as to which the date is February 16, 1996), with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Baldor Electric Company and affiliates. /s/ Ernst & Young LLP - --------------------- St. Louis, Missouri March 28, 1996 EX-27 6
5 Audited amounts from fiscal year ended December 30, 1995. 0000009342 BALDOR ELECTRIC COMPANY 1000 YEAR YEAR DEC-30-1995 DEC-31-1994 DEC-30-1995 DEC-31-1994 6322 8848 28487 25996 80568 73253 2800 2250 83689 64098 212095 181172 182214 163039 93143 81537 313462 283155 67026 62622 25255 26303 2787 1831 0 0 0 0 208590 182431 313462 283155 473103 418152 475699 419820 334306 297212 422753 376608 0 0 886 623 1260 1279 52946 43212 20641 16853 32305 26359 0 0 0 0 0 0 32305 26359 1.12 .92 1.12 .92
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