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