-----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, WG7296s8sKr1FKD1cxi0m4RghiGQW3BVnkRnPx/f5jVX0/xNWFtj/3NGHLHh0DYE RRqNuF8Jw5I+cgHOi0ClmA== 0000009342-97-000009.txt : 19970329 0000009342-97-000009.hdr.sgml : 19970329 ACCESSION NUMBER: 0000009342-97-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970327 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: 97565950 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 1996 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: Commission File Number: December 28, 1996 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. [ ] The aggregate market value of voting stock held by non-affiliates of the regis- trant based on the closing price on February 21, 1997, was $476,165,105. At February 21, 1997, there were 26,239,308 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 28, 1996 (the "Annual Report to Shareholders for 1996"), are incorporated by reference into Part II. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 3, 1997 (the "1997 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 industrial electric motors represented approximately 76% of the Company's business in 1996, 78% in 1995, and 80% in 1994. The AC motor product line presently ranges in size from 1/50 through 800 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, and inverter and vector drives. The Company's line of adjustable speed controls ranges from 1/50 through 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 22% of total 1996 sales, 20% of total 1995 sales, and 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 63% of the Company's total sales in 1996, 62% in 1995, and 63% in 1994. 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 25 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. - 2 - 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. The Company conducts business with a large number of customers and 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. Although some materials are purchased from a single supplier, the Company believes that alternate sources are avail- able 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 $19,900,000 in 1996, $17,200,000 in 1995, and $14,800,000 in 1994. - 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 28, 1996, the Company had 3,645 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 28, 1996, export and international sales revenues have increased and represented 14.5% of consolidated sales in 1996, 14.0% in 1995, and 13.1% in 1994. See also Note H on page 25 of the Annual Report to Shareholders for 1996. 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 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 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. - 4 - 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. 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 St. Louis County, MO Metal stamping and engineering toolroom 131,700 DC and miscellaneous motor production 55,600 Columbus, MS AC motor production 141,000 Westville, OK AC and DC motor production 166,300 Fort Mill, SC DC motor, AC motor 108,000 and tachometer production Clarksville, AR Subfractional motor, gear motor, 166,000 and worm-gear speed reducer production Ozark, AR AC motor production 77,300 Five other Metal stamping and motor, drives, domestic locations and servomotor production 123,100 Eight foreign Sales and distribution centers 37,900 locations and servodrive production --------- 1,660,400 Certain properties listed above (436,200 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. - 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 1996 is incorporated herein by reference. Item 6. Selected Financial Data - -------------------------------- Information under the caption "Eleven-Year Summary of Financial Data" only for years 1992 through 1996 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 1996 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 1996 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 1996 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. 72 Chairman of the Board 1961 R. L. Qualls 63 Vice Chairman and 1986 Chief Executive Officer John A. McFarland 45 President 1990 Robert D. Butler 54 Vice President - Operations 1996 D. Christine Clemons 32 Controller 1995 Charles H. Cramer 52 Vice President - Personnel 1984 Lloyd G. Davis 49 Chief Financial Officer, 1992 Executive Vice President - Finance, Secretary, and Treasurer Gene J. Hagedorn 49 Vice President - Materials 1994 James R. Kimzey 58 Executive Vice President - 1984 Research and Engineering Robert L. Null, Jr. 54 Vice President - Manufacturing 1990 Jerry D. Peerbolte 40 Vice President - Marketing 1990 Each of the executive officers, except Robert D. Butler, has served as an officer or in a management capacity with Baldor Electric Company for the last five years. Mr. Butler, who joined the Company in 1996, previously operated Manufacturing Services International which provided manufacturing consulting services to small and medium sized U.S. based companies for more than the previous five years. There are no family relationships among the directors or executive officers. The information under the caption "Election of Directors" of the 1997 Proxy Statement is incorporated herein by reference. - 7 - Item 11. Executive Compensation - -------------------------------- Information contained in the 1997 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 1997 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- NONE - 8 - 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. Exhibit (10) - Exhibits 10(iii)(A)(1) through 10(iii)(A)(6) 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 refiled as Exhibit 10(iii)(A)(2) to Form 10-K for the year ended December 31, 1994.) - 9 - - 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)(a) 1994 Incentive Stock Option Plan (filed as Exhibit A to Registrant's Proxy Statement dated April 4, 1994). - 10(iii)(A)(5)(b) Amendment #1 to the 1994 Incentive Stock Option Plan - filed herewith. - 10(iii)(A)(6) 1996 Stock Option Plan for Non-Employee Directors (filed as Exhibit A to Registrant's Proxy Statement dated March 28, 1996). 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 1996. 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. - 10 - 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 ------------------------------------- Vice Chairman and Chief Executive Officer (Chief Executive Officer) Date: March 27, 1997 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. - 11 - Signature Title Date --------- ----- ---- /s/ R. S. Boreham, Jr. Chairman of the Board of ) - ---------------------------- Directors ) R. S. Boreham, Jr. ) ) ) /s/ R. L. Qualls Vice Chairman, Chief Executive ) - ---------------------------- Officer, and Director ) R. L. Qualls (Principal Executive Officer) ) ) ) /s/ John A. McFarland President and Director ) - ---------------------------- ) John A. McFarland ) ) ) /s/ Lloyd G. Davis Chief Financial Officer, ) - ---------------------------- Executive Vice President - ) Lloyd G. Davis Finance, Secretary, and ) Treasurer (Principal Financial ) and Accounting Officer) ) ) ) /s/ Jefferson W. Asher, Jr. Director ) March 27, 1997 - ---------------------------- ) 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 ) - 12 - 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 28, 1996 BALDOR ELECTRIC COMPANY FORT SMITH, ARKANSAS - 13 - 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 1996, are incorporated by reference in Item 8: - Consolidated Balance Sheets - December 28, 1996 and December 30, 1995 - Consolidated Statements of Earnings - for the three years in the period ended December 28, 1996 - Consolidated Statements of Cash Flows - for the three years in the period ended December 28, 1996 - Consolidated Statements of Shareholders' Equity - for the three years in the period ended December 28, 1996 - 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 accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. - 14 - 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 1996 $2,800 $ 695 $ 295(A) $3,200 1995 2,250 886 336(A) 2,800 1994 1,800 623 173(A) 2,250 Included in current liabilities: Anticipated warranty costs 1996 $4,100 $ 400(B) $4,500 1995 3,700 400(B) 4,100 1994 2,750 950(B) 3,700 - ----------------- (A) Net uncollectible accounts written off during year. (B) Additions/(reductions) to reserve for anticipated warranty costs, net of expenses incurred. - 15 - 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(iii)(A)(5)(b)Amendment #1 to the 1994 Incentive Stock Option Plan - filed herewith 11 Computation of Earnings Per Common Share - filed herewith 12 Omitted - Inapplicable 13 Portions of the Annual Report to Shareholders for 1996 - 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 11 and 12 27 Financial Data Schedules - filed herewith - 16 - EX-10 2 AMENDMENT #1 TO 1994 STOCK OPTION PLAN AMENDMENT #1 TO THE BALDOR ELECTRIC COMPANY 1994 INCENTIVE STOCK PLAN Baldor Electric Company (the "Company") adopted the 1994 Incentive Stock Option Plan (the "1994 Plan") to aid in maintaining and developing strong management capable of assuring the future success of the Company. WHEREAS, the Section 2(e) of the 1994 Plan currently reads in its entirety as follows: 2. (e) "Eligible Employee" means a salaried employee of the Company or a Subsidiary, including a director of the Company or a Subsidiary who is a salaried employee of the Company or a Subsidiary. WHEREAS, the Company now desires to make benefits of the 1994 Plan available to any employee of the Company or a Subsidiary. NOW THEREFORE, the 1994 Plan is hereby amended to re-define the meaning of the term "Eligible Employee" and Section 2(e) of the 1994 Plan is hereby amended in its entirety as follows: 2. (e) "Eligible Employee" means any employee of the Company or a Subsidiary, including a director of the Company or a Subsidiary who is an employee of the Company or a Subsidiary; EX-11 3 EARNING PER SHARE FOR FYE 12/28/1996 EXHIBIT 11 BALDOR ELECTRIC COMPANY AND AFFILIATES COMPUTATION OF EARNINGS PER COMMON SHARE FISCAL YEAR ------------------------------ 1996 1995 1994 (In thousands, except per share amounts) Primary Weighted average shares outstanding 26,318 27,647 27,266 Dilutive stock options based on the treasury stock method using the average market price 899 1,244 1,237 ------ ------ ------ Total 27,217 28,891 28,503 ====== ====== ====== Net Earnings $35,173 $32,305 $26,359 ======= ======= ======= Per Share Earnings $1.29 $1.12 $0.92 ===== ===== ===== Fully Diluted Weighted average shares outstanding 26,318 27,647 27,266 Dilutive stock options based on the treasury stock method using the year-end market price, if higher than average market price 1,101 1,202 1,345 ------ ------ ------ Total 27,419 28,849 28,611 ====== ====== ====== Net Earnings $35,173 $32,305 $26,359 ======= ======= ======= Per Share Earnings $1.28 $1.12 $0.92 ===== ===== ===== - ------------------------ Note: Amounts for 1994 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 1996. EX-13 4 PORTIONS OF BALDOR'S 1996 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Summary Baldor extended its growth trend for the fifth consecutive year by posting record sales and earnings for 1996. A modest 6.3% increase in sales was leveraged into an 8.9% increase in net earnings. Increased sales and improved productivity, together with a 2.2 million share stock repurchase, yielded an earnings per share increase of 15.2% -- one way in which Baldor has provided bettervalue for its shareholders. The year of 1996 was one of improved balance for Baldor -- better balance in the inventories of products demanded by our customers, better balance in the sales between our OEM and Distributor distribution channels, better balance in our production capacity, and a more balanced availability of people to serve our customers through the addition of four new North American sales offices. Financial strength and good balance have positioned us to meet the aggressive growth strategies that we have set forth in this report. Net Sales Baldor reached a record sales level of $502.9 million in 1996, a 6.3% increase over 1995 sales of $473.1 million. Sales in 1994 were $418.2 million. Sales to distributor customers in 1996 increased 8.7%, while sales to OEM customers in 1996 increased 5.9%, which brings us to a balanced mix between selling channels. In 1995, salesto distributors increased 14.2% over 1994 levels and OEM sales increased 17.5% over 1994 levels. Baldor serves many industries and geographic regions by selling to a broad base of distributors and OEMs, both domestically and in more than 55 countries around the world. No single customer accounted for more than 4.0% of sales in any year covered by this report. During 1996, we saw modest growth in motor products for pumps, blowers, fans, conveyers, and crane and hoist equipment. Growth in 1996 was especially good for a number of our products such as Super-E7 premium-efficient motors, farm products, and most of our drives products. These products grew at over twice our overall rate. Sales of products introduced in the previous five years accounted for over 25% of 1996 and 1995 sales. Volume increase accounted for approximately 75% of the 1996 sales growth. Baldor's last announced price increase was 3.3% in October 1995. The increase in 1995 sales over 1994 levels was about evenly split between improved pricing, increased volumes, and product mix shifts. Sales of drives grew at more than double the overall 1995 sales growth rate and sales of Super-E7 premium-efficient motors were also strong. Net Earnings Net earnings of $35.2 million in 1996 exceeded 1995 net earnings of $32.3 million by 8.9%. Net earnings in 1994 were $26.4 million. A modest sales growth in 1996 was leveraged into a good increase in net earnings through improvements in both the manufacturing and the sales and administrative areas. The gross margin percentage improved to 29.7% in 1996 from 29.3% in 1995 and 28.9% in 1994. Baldor benefited from manufacturing productivity improvements in both 1996 and 1995. Selling and administrative costs as a percent of sales improved to 16.8% in 1996 from $16.9% in 1995 and 17.3% in 1994. Baldor continues to increase its sales volumes without corresponding increases in administrative support costs. Pre-tax margins improved to 11.4% in 1996 from 11.2% in 1995 and 10.3% in 1994. Our tax rate was lowered to 38.5% in 1996 from 39.0% in 1995 and 1994. International Operations Sales from international operations (foreign affiliates and exports) were $72.8 million in 1996, up from $66.0 million in 1995 and $54.6 million in 1994. This marks our fifth consecutive year of double-digit sales growth in our international operations. Our export sales to many countries were particularly strong in 1996, most notably export sales into Canada. In addition, we saw good sales increases from our Australian and Latin American operations in 1996. Sales in Europe were particularly strong for both 1995 and 1994, but were essentially flat in 1996. Foreign pre-tax earnings were $2.0 million in 1996, compared to $1.2 million in 1995 and $1.7 million in 1994. The decline in 1995 was due primarily to the decline in the Mexican peso that year. 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 In 1996, Baldor continued to strengthen its position through reinvestment in our company -- our people, our products and manufacturing facilities, and our Company's stock. In 1996, we expanded our manufacturing capacity, continued to make investments in training and in research and development, and repurchased 2.2 million shares of Baldor common stock. In addition, we increased our dividend during 1996 -- twice. This makes seven increases in the past five years. Investments In 1996, Baldor completed a 2.2 million share repurchase. Two million shares were purchased from the estate of the late Mr. G.A. Schock in February of 1996. An additional 200,000 shares were purchased on the open market over the course of 1996. In the fourth quarter of 1996, the Board of Directors authorized the Company to repurchase an additional 1.0 million shares of Baldor common through December 31, 1997. Investments in property, plant and equipment for 1996 were $23.2 million, compared to $23.1 million in 1995. In 1996, we completed an 84,000 square foot expansion of our Clarksville facility to house our expanded gear production, and we completed a 46,000 square foot expansion of the finished goods warehouse in Fort Smith. We also leased additional space in Seattle, Washington, to expand our larger horsepower drives manufacturing -- all of which contribute to a better manufacturing balance to meet our customers' needs. In 1996, Baldor also increased its investments in research and development to $19.9 million from $17.2 million in 1995 and $14.8 million in 1994. Baldor's commitment to research and development continues to help it maintain a leadership position in the marketplace and to satisfy its customers' needs. Over the past three years Baldor has introduced many new product lines to the marketplace. We also continue to make investments in our existing products for greater performance, energy efficiency improvements, and manufacturability. Current Liquidity Cash flow from operations improved to $42.6 million in 1996 from $24.2 million in 1995. In 1996, we increased inventory and receivables only $11.5 million , compared to $26.9 million in 1995. Working Capital was $146.9 million at the end of 1996, compared to $145.1 million and $118.6 million at the end of 1995 and 1994, respectively. The current ratio was 3.1 at the end of 1996 compared to 3.2 at the end of 1995. Baldor also has available lines of credit of $30 million to support operations. There were no borrowings outstanding under these lines at the end of 1996 or 1995. Long-Term Debt and Shareholder's Equity Long-term obligations increased to 18.4% of total capitalization at the end of 1996. The increase over the 1995 level of 10.7% reflects the mid-term loan that funded the purchase of stock from Mr. Schock's estate. The 1996 weighted average interest rate on long-term debt was 6.0%. Shareholders' equity decreased from $211.4 million at the end of 1995 to $200.3 million at the end of 1996 due to the share repurchases. Return on average shareholders' equity increased to 17.1% in 1996 from 16.3% in 1995 and from 15.3% in 1994. Dividend Policy In the fourth quarter of 1996, the Board of Directors approved a 10% increase in the quarterly cash dividend. This was in addition to the 11% increase approved in the second quarter of 1996. The cash dividend was also increased 12.5% in 1995 and 20% in 1994. These increases were in line with Baldor's policy of making increases periodically, as earnings and financial strength warrant, but also of reinvesting a major portion of earnings to finance growth opportunities. The objective is for shareholders to obtain dividend increases over time while also participating in the growth of the Company. CONSOLIDATED BALANCE SHEETS BALDOR ELECTRIC COMPANY AND AFFILIATES DECEMBER 28 DECEMBER 30 1996 1995 ----------- ----------- ASSETS (In thousands) CURRENT ASSETS: Cash and cash equivalents $ 7,950 $ 6,322 Marketable securities 17,892 28,487 Receivables, less allowances of $3,200 and $2,800, respectively 80,183 77,768 Inventories: Finished products 66,528 61,681 Work-in-process 13,483 11,978 Raw materials 39,162 36,972 -------- -------- 119,173 110,631 LIFO valuation adjustment(deduction) (26,786) (26,942) -------- -------- 92,387 83,689 Other current and deferred tax assets 19,745 15,829 -------- -------- TOTAL CURRENT ASSETS 218,157 212,095 OTHER ASSETS 11,965 12,296 PROPERTY, PLANT AND EQUIPMENT: Land and improvements 3,869 3,558 Buildings and improvements 32,059 29,587 Machinery and equipment 166,542 149,069 Allowances for depreciation and amortization (deduction) (107,106) (93,143) -------- -------- NET PROPERTY, PLANT AND EQUIPMENT 95,364 89,071 -------- -------- $ 325,486 $ 313,462 ======== ======== See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS BALDOR ELECTRIC COMPANY AND AFFILIATES DECEMBER 28 DECEMBER 30 1996 1995 ----------- ----------- (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 20,314 $ 18,996 Employee compensation 5,932 5,110 Profit sharing 7,645 7,168 Anticipated warranty costs 4,500 4,100 Accrued insurance obligations 14,286 12,627 Other accrued expenses 16,626 16,080 Income taxes 766 1,967 Current maturities of long-term obligations 1,113 978 --------- --------- TOTAL CURRENT LIABILITIES 71,182 67,026 LONG-TERM OBLIGATIONS 45,027 25,255 DEFERRED INCOME TAXES 8,952 9,804 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 shares: 1996-28,617,688; 1995-28,168,038 2,862 2,817 Additional capital 37,112 32,476 Retained earnings 207,064 182,354 Cumulative translation adjustments 346 1,246 Treasury Stock at Cost (2,417,247 shares in 1996 and 297,741 shares in 1995) (47,059) (7,516) --------- --------- TOTAL SHAREHOLDERS' EQUITY 200,325 211,377 --------- --------- $ 325,486 $ 313,462 ========= ========= See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF EARNINGS BALDOR ELECTRIC COMPANY AND AFFILIATES YEARS ENDED --------------------------------------- DECEMBER 28 DECEMBER 30 DECEMBER 31 1996 1995 1994 --------------------------------------- (In thousands, except share data) Net sales $ 502,875 $ 473,103 $ 418,152 Other income, net 2,497 2,596 1,668 --------- --------- --------- 505,372 475,699 419,820 Costs and expenses: Cost of goods sold 353,345 334,306 297,212 Selling and administrative 84,522 80,019 72,329 Profit sharing 7,645 7,168 5,788 Interest 2,668 1,260 1,279 --------- --------- --------- 448,180 422,753 376,608 Earnings Before Income Taxes 57,192 52,946 43,212 Income taxes 22,019 20,641 16,853 --------- --------- --------- NET EARNINGS $ 35,173 $ 32,305 $ 26,359 ========= ========= ========= NET EARNINGS PER COMMON SHARE $1.29 $1.12 $0.92 ========= ========= ========= Weighted average common shares outstanding 27,217,741 28,891,293 28,503,273 ========== ========== ========== 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) 1996 Net sales $121,553 $129,906 $125,111 $126,305 $502,875 Gross profit 35,811 38,425 37,310 37,984 149,530 Net earnings 8,327 8,971 8,733 9,142 35,173 Net earnings per common share 0.30 0.33 0.32 0.34 1.29 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 CONSOLIDATED STATEMENTS OF CASH FLOWS BALDOR ELECTRIC COMPANY AND AFFILIATES YEARS ENDED --------------------------------------- DECEMBER 28 DECEMBER 30 DECEMBER 31 1996 1995 1994 --------------------------------------- (In thousands) Operating activities: Net earnings $ 35,173 $ 32,305 $ 26,359 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 17,277 15,583 13,121 Deferred income taxes (1,943) (1,979) (3,882) Changes in operating assets and liabilities: Receivables (2,815) (7,315) (11,887) Inventories (8,698) (19,591) (10,480) Other current assets (2,826) (3,020) (52) Accounts payable 1,318 194 6,113 Accrued expenses 7,149 4,967 12,017 Income taxes (1,201) (810) 656 Other, net (873) 3,851 (70) --------- --------- --------- Net cash from operating activities 42,561 24,185 31,895 Investing activities: Additions to property, plant and equipment (23,183) (23,112) (22,131) Marketable securities purchased (33,315) (50,881) (45,153) Marketable securities sold 43,910 48,987 41,388 --------- --------- --------- Net cash used in investing activities (12,588) (25,006) (25,896) Financing activities: Additional long-term borrowings 38,000 6,000 Reduction of long-term obligations (18,093) (995) (1,737) Unexpended debt proceeds 353 5,641 (5,220) Dividends paid (10,498) (9,416) (7,648) Stock option plans 3,902 3,065 4,144 Common stock repurchased (42,009) --------- --------- --------- Net cash used in financing activities (28,345) (1,705) (4,461) Net increase (decrease) in cash and cash equivalents 1,628 (2,526) 1,538 Beginning cash and cash equivalents 6,322 8,848 7,310 --------- --------- --------- Ending cash and cash equivalents $ 7,950 $ 6,322 $ 8,848 ========= ========= ========= See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY BALDOR ELECTRIC COMPANY AND AFFILIATES
Cumulative Treasury Common Stock Additional Retained Translation Stock Shares Amount Capital Earnings Adjustments (at cost) Total ------ ------ ---------- -------- ----------- ---------- --------- (In thousands, except per share amounts) BALANCE AT JANUARY 1, 1994 17,968 $1,809 $20,830 $141,729 $ (835) $ (2,994) $160,539 Stock option plans, net of shares exchanged 342 38 5,041 (935) 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 1,847 25,871 160,024 449 (3,929) 184,262 Stock option plans, net of shares exchanged 332 47 6,605 (3,587) 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 2,817 32,476 182,354 1,246 (7,516) 211,377 Stock option plans, net of shares exchanged 380 45 5,290 (1,433) 3,902 Translation adjustments (900) (900) Net earnings 35,173 35,173 Securities Valuation Adjustment, net of deferred Taxes of $11 35 35 Cash dividends at $0.40 per common share (10,498) (10,498) Common stock repurchased (2,210) (42,009) (42,009) Contributions to benefit plans 160 (654) 3,899 3,245 ------ ------ ---------- -------- ---------- -------------- --------- BALANCE AT DECEMBER 28, 1996 26,200 $2,862 $37,112 $207,064 $ 346 $(47,059) $200,325 ====== ====== ========== ======== ========== ============== ========= See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BALDOR ELECTRIC COMPANY AND AFFILIATES December 28, 1996 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 1996, 1995 and 1994 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. Those securities are stated at estimated fair value based upon market quotes. Unrealized gains and losses, net of tax, are computed on the basis of specific identification and are included in 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 $14,166,000 in 1996 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 fiscal year 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires impairment losses to be recognized when information indicates the carrying amount of long-lived assets, intangibles and any goodwill related to those assets will not be recovered through future operations or sale. SFAS No. 121 was applied prospectively from the date of adoption and the effect of adoption was not 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. Stock-Based Compensation: In fiscal year 1996, the Company adopted Statement of Financial Accounting Standards No.123 (SFAS No. 123), Accounting for Stock-Based Compensation, which establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 requires that the fair value of employee stock-based compensation plans be recorded as a component of compensation expense as of the grant date or, in lieu of expense recognition under SFAS No. 123, companies may follow current guidance under Accounting Principals Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Companies electing to remain with APB 25 accounting guidance must provide pro forma disclosures of net income and earnings per share as if the fair value based method defined in SFAS No. 123 had not been applied. The Company has elected to continue accounting for its stock-based compensation under the provisions of APB 25. As such, SFAS No. 123 did not have an effect on the Company's reported financial results for 1996. Research and Engineering: Costs associated with research, new product development and product cost improvements are treated as expenses when incurred and amounted to approximately $19,900,000 in 1996, $17,200,000 in 1995, and $14,800,000 in 1994. 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: 1996 1995 ---- ---- (in thousands) Industrial Development Bonds: due through 1997 at 6.0% fixed rate $ 113 $ 245 due through 2004 at 5.29% fixed rate 5,030 5,525 due through 2004 at 4.35% variable rate 2,300 2,300 due through 2004 at 6.0% fixed rate 57 63 due through 2004 at 8.25% fixed rate(paid in 1996) 4,365 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 4.15% variable rate 3,440 3,440 Notes payable to banks: due March 1, 1999 at 5.85% variable rate 25,000 due November 1, 2003 at 11.8% (paid in 1996) 95 ------- ------- 46,140 26,233 Less current maturities 1,113 978 ------- ------- $45,027 $25,255 ======= ======= At December 28, 1996, Industrial Development Bond proceeds of $6,389,000 are included in Other Assets. Certain long-term obligations are collateralized by property, plant and equipment with a net book value of $11,863,000 at December 28, 1996. Maturities of long-term obligations during each of the five fiscal years ending 2001 are: 1997--$1,113,000; 1998--$1,070,000; 1999--$26,145,000; 2000--$1,215,000; and 2001--$1,290,000. Industrial Development Bonds include capital lease obligations of $3,170,000 at December 28, 1996. Aggregate future minimum capital lease payments at December 28, 1996, are $6,187,000 including interest of $3,017,000. 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 $13,955,000 at December 28, 1996, were unrestricted. At December 28, 1996, the Company had outstanding letters of credit totaling $6,709,000. Interest paid was $2,988,000 in 1996, $1,730,000 in 1995 and, $1,565,000 in 1994. The Company had lines of credit aggregating $30,000,000 available at December 28, 1996. 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 28, 1996. 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 28, 1996 or December 30, 1995. Additionally, because investments are short-term and are generally allowed to mature, realized gains and losses for both years have been minimal. The following table presents the estimated fair value breakdown of investments by category: December 28 December 30 1996 1995 ----------- ----------- (In thousands) Municipal debt securities $12,843 $18,079 U.S. corporate debt securities 2,925 10,970 U.S. Treasury & agency securities 7,331 2,938 Other debt securities 5,039 4,871 ----------- ----------- 28,138 36,858 Less cash equivalents 10,246 8,371 ----------- ----------- $17,892 $28,487 =========== =========== The estimated fair value of marketable debt and equity securities at December 28, 1996, was $10,799,000 due in one year or less, $2,243,000 due in one to three years, and $4,850,000 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 $22,718,000 in 1996, $21,643,000 in 1995, and $18,830,000 in 1994. Income tax expense consists of the following: 1996 1995 1994 ---- ---- ---- (in thousands) Current: Federal $19,887 $19,125 $18,679 State 2,591 2,614 1,757 Foreign 637 776 566 Deferred (1,096) (1,874) (4,149) -------- -------- -------- $22,019 $20,641 $16,853 ======== ======== ======== 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: 1996 1995 1994 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 3.0 3.3 3.4 Other 0.5 0.7 0.6 ---- ---- ---- Effective income tax rate 38.5% 39.0% 39.0% 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, net of realized gains deferred, and is amortized to Other Income over the period in which intercompany sales of foreign affiliates occur, generally within the following twelve months. At December 28, 1996 and December 30, 1995, 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 28, 1996, and December 30, 1995. 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. 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. The Company maintains a shareholder rights plan intended to encourage a potential acquirer to negotiate directly with the Board of Directors. The purpose of the plan is to ensure the best possible treatment for all shareholders. Under the terms of the plan, one Common Stock Purchase Right a Right) is associated with each outstanding share of common stock. If an acquiring person acquires 20% or more of the Baldor common stock then outstanding, the Rights become exercisable and would cause substantial dilution. Effectively, each such Right would entitle its holder (excluding the 20% owner) to purchase shares of Baldor common stock for half of the then current market price, subject to certain restrictions under the plan. 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. The Rights, which expire in May 2008, may be redeemed by the Company at any time prior to someone acquiring 20% or more of Baldor's outstanding common stock and in certain events thereafter. NOTE G -- OPERATING LEASES The Company leases certain computers, buildings, and other equipment under operating lease agreements. Related rental expense was $4,800,000 in 1996, $4,300,000 in 1995, and $3,900,000 in 1994. Future minimum payments for operating leases having noncancelable lease terms in excess of one year are: 1997 -- $2,225,000; 1998 -- $1,885,000; 1999 -- $1,761,000; 2000 -- $1,681,000; 2001 -- $609,000; and decline substantially thereafter. NOTE H -- FOREIGN OPERATIONS The Company's foreign operations include both export sales and the results of its foreign affiliates in Europe, Australia, Singapore and Mexico. Consolidated sales, earnings before income taxes and identifiable assets consist of the following: 1996 1995 1994 ---- ---- ---- (in thousands) Net Sales: United States Companies Domestic customers $430,014 $407,078 $363,548 Export customers 30,831 25,068 21,232 -------- -------- -------- 460,845 432,146 384,780 Foreign Affiliates 42,030 40,957 33,372 -------- -------- -------- $502,875 $473,103 $418,152 ======== ======== ======== Earnings Before Income Taxes: United States Companies $ 55,160 $ 51,723 $ 41,508 Foreign Affiliates 2,032 1,223 1,704 -------- -------- -------- 57,192 $ 52,946 43,212 ======== ======== ======== Assets: United States Companies $297,496 $285,381 $261,984 Foreign Affiliates 27,990 28,081 21,171 -------- -------- -------- $325,486 $313,462 $283,155 ======== ======== ======== 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. NOTE I -- STOCK PLANS The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations as discussed in more detail below. Incentive stock options to purchase shares at prices not less than the market value at the date of grant and non-qualified stock options to purchase shares of restricted stock equal to and less than the stock's market value at the date of grant have been granted. The grants made from each plan expire ten years from date of grant except for grants made from the 1990 plan which expire six years from date of grant. A summary of the Company's current stock option plans is below: PLAN PLAN ADMINISTRATOR RECIPIENTS ----------------------------------------------------------- Compensatory Plans (see note 1) 1987 Stock Option Committee Employees 1994 Stock Option Committee Employees 1989 (see note 3) Executive Committee Non-employee directors 1996 Executive Committee Non-employee directors Non-compensatory Plans (see note 2) 1981 (see note 3) Board of Directors Employees 1990 Board of Directors District Managers Note 1: Under the 1987 plan and the 1994 plan, incentive stock options vest and become fully exercisable at the end of six months or three years of continued employment for officers and non-officers, respectively. Grants can include incentive stock options, non-qualified stock options, restricted shares, formula price shares, and stock appreciation rights. Restrictions on non-qualified stock options normally lapse after a period of five years or earlier under certain circumstances. Related compensation expense for the non-qualified stock options is amortized over the restriction period. Under the 1996 plan, each non-employee director is granted an annual grant consisting of a non-qualified stock option to purchase 1,620 shares at prices equal to the market value at the date of grant and a non-qualified stock option to purchase 1,080 shares at prices equal to 50% of the market value at the date of grant. These options become exercisable in five equal installments beginning on the grant's first anniversary. Related compensation expense on the options granted at 50% of market is amortized over the restriction period. Note 2: Under the 1990 plan, only non-qualified options can be granted and options vest and become 50% exercisable at the end of one year and 100% exercisable at the end of two years. There are no charges to income in connection with the non-compensatory stock option plans. Note 3: This plan has expired except for unexercised options outstanding. The alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, requires the use of option valuation models. The Company uses the Black-Scholes option valuation model which was developed for use in estimating the fair value of traded options. Traded options have no vesting restrictions and are fully transferable. The Black-Scholes model also requires the input of highly subjective assumptions including the expected stock price volatility and the estimated life of the option. The Company's employee stock options have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimate. Therefore, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The pro forma information regarding net income and earnings per share required by SFAS No. 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1995 and 1996, respectively: risk-free interest rates of 7.9% and 5.7%; dividends yields of 1.8% for both years; volatility factors of the expected market price of the Company's common stock of 19.2% and 20.0%; and weighted average expected option life of 7.1 years and 6.4 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The initial impact on pro forma net income and net income per share may not be representative of the compensation expense in future years when the effect of the amortization of multiple awards would be reflected in the pro forma disclosure. A summary of the Company's stock option activity and the Company's pro forma earnings information for fiscal 1996 and fiscal 1995 follows: 1996 1995 --------------------- --------------------- Weighted Weighted Average Price Average Price STOCK OPTION ACTIVITY Shares per Share Shares per Share --------------------- --------------------- --------------------- Total options outstanding: Beginning Balance 2,088,629 $ 9.688 2,258,118 $12.120 Granted 609,800 18.514 314,100 16.807 Exercised (546,480) 6.587 (461,839) 6.987 Canceled (48,863) 14.468 (21,750) 14.815 ---------- ---------- Ending Balance 2,103,086 12.799 2,088,629 9.688 ========== ========== Shares available for grant: 7,493,700 7,343,700 Shares exercisable: 1,358,856 1,602,260 Shares reserved for future grants: 1,154,630 1,678,967 Weighted average remaining contractual life 6.6 years 6.0 years Weighted average fair value per share of options granted during the year At market price $5.34 $6.29 At less than market price $10.57 $10.84 PRO FORMA INFORMATION (in thousands, except for earnings per share information) Pro forma net income $33,989 $31,781 Pro forma earnings per share $1.26 $1.10 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS SHAREHOLDERS AND BOARD OF DIRECTORS BALDOR ELECTRIC COMPANY AND AFFILIATES We have audited the accompanying consolidated balance sheets of Baldor Electric Company and affiliates as of December 28, 1996 and December 30, 1995, and the related consolidated statements of earnings, cash flows and shareholders' equity for each of the three years in the period ended December 28, 1996. 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 28, 1996 and December 30, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ---------------------- Little Rock, Arkansas January 31, 1997 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 of the Company's financial records and related data, as well as the minutes of shareholders' and directors' meetings. --------------------------- ------------------------- R. S. Boreham, Jr. R. L. Qualls Chairman of the Board Vice Chairman and Chief Executive Officer ----------------------------- -------------------------- John McFarland Lloyd G. Davis President Chief Financial Officer, Executive 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 1996 1995 1994 1st quarter $.09 $.08 $.06 2nd quarter .10 .08 .07 3rd quarter .10 .09 .07 4th quarter .11 .09 .08 ---- ---- ---- Year $.40 $.34 $.28 COMMON STOCK PRICE RANGE NYSE SYMBOL-BEZ 1996 1995 ----------- ------------ High Low High Low 1st quarter 22-3/8 18-1/2 19-1/2 17-1/4 2nd quarter 25 19 19-7/8 18-3/8 3rd quarter 22-1/2 19-1/8 26-1/2 19-1/8 4th quarter 24-3/4 18-5/8 25-1/4 20 SHAREHOLDERS 4,568 at December 28, 1996 including shareholders of record and employees through benefit plans. TRANSFER AGENT AND REGISTRAR Wachovia Bank of North Carolina, N.A. Wachovia Shareholder Services P.O. Box 8217 Boston, Massachusetts 02266-8217 (800) 633-4236 INDEPENDENT AUDITORS Ernst & Young LLP 425 West Capitol - Suite 3600 Little Rock, Arkansas 72201 GENERAL COUNSEL Peper, Martin, Jensen, Maichel and Hetlage 720 Olive Street St. Louis, Missouri 63101 FORM 10-K REPORT Shareholders may obtain additional financial information about Baldor from the Company's Form 10-K report filed with the Securities and Exchange Commission. Copies are available on request without charge. INVESTOR INFORMATION INQUIRIES Requests for additional copies of the Annual Report, or other materials and information you may wish regarding the condition and prospects of the Company, should be directed to: Investor Relations, Baldor Electric Company, P.O. Box 2400, Fort Smith, Arkansas 72902. SHAREHOLDERS' ANNUAL MEETING The Annual Meeting of the Shareholders of Baldor Electric Company will be held at 10:30 a.m., Saturday, May 3, 1997, at the Holiday Inn, 700 Rogers Avenue, Fort Smith, Arkansas 72901. EX-21 5 BALDOR ELECTRIC COMPANY'S AFFILIATES EXHIBIT 21 BALDOR ELECTRIC COMPANY AND AFFILIATES AFFILIATES OF THE REGISTRANT NAME OF AFFILIATE 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% Southwestern Die Casting Co.,Inc. Arkansas 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 6 1996 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 January 31, 1997, included in the 1996 Annual Report to Shareholders of Baldor Electric Company and affiliates. Our audits also included the financial statement schedule of Baldor Electric Company and affiliates listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8, No. 2-77046) pertaining to the Baldor Electric Company 1982 Incentive Stock Option Plan, (Form S-8, No. 33-16766) pertaining to the Baldor Electric Company 1987 Incentive Stock Plan, (Form S-8, No. 33-28239) pertaining to the Baldor Electric Company Employee Savings Plan, (Form S-8, No. 33-36421) pertaining to the Baldor Electric Company 1989 Stock Option Plan for Non- Employee Directors 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 January 31, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the proceeding 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 - --------------------- Little Rock, Arkansas March 27, 1997 EX-27 7 BALDOR ELECTRIC COMPANY'S 1996 FDS
5 Audited amounts from fiscal year ended December 28, 1996. 0000009342 BALDOR ELECTRIC COMPANY 1000 YEAR YEAR DEC-28-1996 DEC-30-1995 DEC-28-1996 DEC-30-1995 7950 6322 17892 28487 83383 80568 3200 2800 92387 83689 218157 212095 202470 182214 107106 93143 325486 313462 71182 67026 45027 25255 0 0 0 0 2862 2817 197463 208561 325486 313462 502875 473103 505372 475699 353345 334306 448180 422753 0 0 695 886 2668 1260 57192 52946 22019 20641 35173 32305 0 0 0 0 0 0 35173 32305 1.29 1.12 1.29 1.12
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