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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________
Commission File Number 1-10404
RELIANCE ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 34-1538687
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6065 Parkland Blvd., Cleveland, OH 44124-6106
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(Address of principal executive offices) (Zip code)
(216) 266-5800
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at March 31, 1994
- - ------------------------------------ -----------------------------
Class A Common Stock, $.01 par value 32,892,289 shares
Class B Common Stock, $.01 par value 3,161,032 shares
Class C Common Stock, $.01 par value 5,250,000 shares
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<TABLE>
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions, except per share amounts)
================================================================================================================
<CAPTION>
Three Months Ended March 31, 1994 1993
- - ---------------------------- ---- ----
<S> <C> <C>
Net Sales
Industrial......................... 295 287
Telecommunications................. 109 102
Eliminations....................... (1) (1)
---- ----
Total 403 388
Costs and Expenses:
Cost of Sales
Industrial......................... 222 215
Telecommunications................. 80 78
Eliminations....................... (1) (1)
---- ----
Total 301 292
Selling, general and administrative... 70 66
Other expense, net.................... 1 2
---- ----
Earnings Before Interest and Taxes..... 31 28
Interest expense....................... 6 7
---- ----
Earnings Before Taxes.................. 25 21
Provision for income taxes............. 12 9
---- ----
Earnings before cumulative effect of
accounting change .................... 13 12
Cumulative effect of accounting change
(net of income tax effect)............ (2) -0-
---- ----
Net Earnings .......................... $ 11 $ 12
==== ====
Net earnings per equivalent share of
common stock (Exhibit A):
Earnings before cumulative effect of
accounting change..................... $ .26 $ .23
Cumulative effect of accounting change. (.05) -0-
---- ----
Net earnings .......................... $ .21 $ .23
==== ====
Weighted average equivalent shares of
common stock outstanding (in thousands) (A) 50,727 50,798
====== ======
<FN>
(A) Weighted average equivalent share amounts give effect to the
conversion of each share of Class C Common Stock into 2.708 shares of
Class A Common Stock, as well as the exercise of nonqualified stock
options when the effect of such exercise is dilutive.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
RELIANCE ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions, except per share amounts)
(Shares in thousands)
=========================================================================================================================
<CAPTION>
Assets March 31, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents.................... $ 35 $ 41
Accounts receivable, net..................... 234 217
Inventories.................................. 347 328
Other........................................ 28 29
----- -----
Total Current Assets...................... 644 615
Goodwill, net................................ 208 209
Investments and other........................ 87 73
Property, plant and equipment................ 652 625
Less accumulated depreciation............... (348) (327)
----- -----
304 298
----- -----
Total Assets.............................. $1,243 $1,195
===== =====
Liabilities and Stockholders' Equity
Notes payable and current maturities of
long-term debt.............................. $ -0- $ -0-
Accounts payable............................. 71 78
Other........................................ 197 186
----- -----
Total Current Liabilities................. 268 264
Long-term debt............................... 362 351
Other........................................ 221 199
Stockholders' equity
Common stock (convertible, $.01 par value):
Class A, 32,892 and 32,865 shares issued at
March 31, 1994 and December 31, 1993,
respectively.............................. 339 339
Class B, 3,161 and 3,180 shares issued at
March 31, 1994 and December 31, 1993,
respectively.............................. 1 1
Class C, 5,250 shares issued............... 4 4
Retained earnings.......................... 48 37
Other stockholders' equity................. -0- -0-
----- -----
Total Stockholders' Equity................ 392 381
----- -----
Total Liabilities and Stockholders' Equity $1,243 $1,195
====== =====
<FN>
Commitments and contingencies (Part II., Item 1)
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
===========================================================================================================
<CAPTION>
Three Months Ended March 31, 1994 1993
- - ---------------------------- ---- ----
<S> <C> <C>
CASH PROVIDED FROM OPERATIONS
Net Earnings .......................................... $ 11 $ 12
Adjustments to reconcile to net cash
provided from operations:
Cumulative effect of accounting change............... 2 -0-
Depreciation and amortization........................ 11 15
Debenture accretion and fee amortization............. -0- 1
Provision for deferred income taxes.................. 1 (1)
Changes in operating assets and liabilities:
Accounts receivable................................. (17) (17)
Inventories......................................... (19) (15)
Accounts payable.................................... (7) -0-
Income taxes payable................................ 7 3
Advances from customers............................. (2) -0-
Other................................................ 11 (2)
--- ---
Net Cash Provided from Operations....................... (2) (4)
CASH PROVIDED FROM INVESTING ACTIVITIES
Capital expenditures................................... (15) (13)
Other.................................................. -0- 1
--- --
Net Cash Provided from Investing Activities............. (15) (12)
CASH PROVIDED FROM FINANCING ACTIVITIES
Net proceeds/payments on New Credit Facility........... 38 -0-
Net proceeds/payments from money market lines of credit (27) -0-
Net proceeds/payments on term loan..................... -0- (14)
Proceeds from Revolving Credit Facility................ -0- 55
Payments on Revolving Credit Facility.................. -0- (48)
Tax benefit from option exercises...................... -0- 10
--- ---
Net Cash Provided from Financing Activities............. 11 3
--- ---
Net Increase (Decrease) in Cash and Cash
Equivalents............................................ (6) (13)
Cash and Cash Equivalents at January 1.................. 41 32
--- ---
Cash and Cash Equivalents at March 31................... $ 35 $ 19
=== ===
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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RELIANCE ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information as of and for the three months
ended March 31, 1994 and 1993 is unaudited)
======================================================================
1. Basis of Presentation of Financial Statements
The data for the three months ended March 31, 1994 and 1993 are
unaudited and, in the opinion of management, include all adjustments
(which are normal and recurring in nature) necessary for a fair
presentation of financial position and results of operations. The
statements, which do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements, should be read in conjunction with the audited
consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
2. Inventories
Inventories consist of:
March 31, 1994 December 31, 1993
-------------- -----------------
(Dollars in millions)
Raw materials............ $ 98 $104
Work in process.......... 84 68
Finished goods........... 77 68
-- ---
Total (approximates
replacement cost)....... 259 240
Difference to LIFO....... 88 88
--- ---
LIFO..................... $347 $328
=== ===
3. Supplemental Information to the Consolidated Statement of Cash Flows
Cash interest paid during the three months ended March 31, 1994 and
1993 was $3 million and $5 million, respectively. The decrease in
interest paid was due to the timing of interest payments on the 6.8%
Notes issued during the second quarter of 1993. The Company also paid
$4 million and $2 million of income taxes during the three months
ended March 31, 1994 and 1993, respectively. Also, a $4 million refund
of U.S. federal taxes, generated by tax benefits from the exercise of
stock options in late 1992, was received in March 1993.
4. Adoption of Accounting Pronouncements
The Company adopted Statement of Financial Standards No. 112 -
"Employers' Accounting for Postemployment Benefits" ("SFAS 112") in
the first quarter of 1994. SFAS 112 establishes accounting standards
for employers who provide certain benefits to former or inactive
employees, their beneficiaries, and covered dependents. The
Company's primary liability under SFAS 112 is for salary continuation
plans provided to certain employees. The actuarial present value of
these obligations was determined to be $4 million, using a 7.5%
discount rate. There is no effect on cash flows. The cost of these
benefits had previously been recognized when they were paid.
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The Company adopted the provisions set forth in SEC Staff Accounting
Bulletin No. 92, "Accounting and Disclosures Related to Loss
Contingencies" ("SAB 92") in the first quarter of 1994. SAB 92
requires separate presentation of the gross liability for a loss
contingency from the related claim for recovery. The Company's primary
contingent liabilities relate to environmental actions naming a
non-operating subsidiary as a defendant or potentially responsible
party. These estimated liabilities heretofore had been shown net of
the expected recovery under an indemnity agreement covering
substantially all related claims. A more detailed description of these
liabilities and the related indemnity agreement referred to above is
set forth in Note 14 to the Company's consolidated financial
statements for the year ended December 31, 1993. The March 31, 1994
balance sheet reflects the gross estimated unpaid liability of $20
million and the gross estimated recovery of $16 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
Industrial segment sales were $295 million for the three months ended March 31,
1994, versus $287 million for the comparable 1993 period. All businesses,
except for transformers, had year over year sales increases. Most of the sales
increases are attributable to the general economic recovery, with first quarter
price increases in portions of the electrical equipment and mechanical power
transmission products business also beginning to contribute. Within the
electrical equipment business, sales increases by most individual units more
than offset the continued weakness in the drive systems portion caused by the
shift away from large, engineered systems to more distributed power systems,
both domestically and in Europe. The decline in transformer sales reflects
lower 1992 and early 1993 bookings and customer-requested rescheduling; 1994
bookings have shown improvement.
Telecommunications segment net sales were $109 million for the quarter ended
March 31, 1994 versus $102 million for the comparable 1993 quarter. Sales
volume increases were driven by increased demand for most products,
particularly newer products, and a reduction of backlog.
The Industrial segment gross profit margin was 24.7% for the three months
ended March 31, 1994, versus 25.1% for the comparable 1993 period. The margin
decrease was primarily attributable to reduced sales volume and related lower
cost recovery within engineered drive systems, as well as both lower volume and
the continued cyclical weakness in larger, higher margin transformers. Margins
for mechanical power transmission and motion control products improved.
The Telecommunications segment gross profit margin was 26.6% for the three
month period ended March 31, 1994 versus 23.5% for the comparable 1993 period.
Lower plant spending and favorable product mix contributed to the margin
increase.
Consolidated selling, general and administrative ("SG&A") expenses were 17.3%
of net sales for the three months ended March 31, 1994 versus 17.0% for the
same period of 1993. Within the Industrial segment, SG&A spending is down in
both absolute dollars and as a percentage of sales due to general cost
containment measures. In the Telecommunications segment, SG&A spending has
increased by $4 million in the first quarter of 1994 compared to the first
quarter of 1993. This increase is largely for research and development spending
to identify and bring-to-market new applied technologies, and for additional
sales/marketing expenses to increase penetration in selected markets and expand
coverage into the emerging broadband markets.
The restructuring actions initiated during the second and fourth
quarters of 1993 within the Industrial segment have provided a very modest cost
reduction as their impact began to be felt late in the quarter ended March 31,
1994. More substantial cost reductions will be realized in subsequent quarters.
The restructuring action announced by the Telecommunications segment in the
fourth quarter of 1993, primarily a plant closure, is scheduled to be completed
at the end of the second quarter of 1994.
Interest expense decreased by $1 million in the first quarter of 1994 compared
to the first quarter of 1993. This is primarily due to a lower amount of
average debt during the quarter and lower interest rates.
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The worldwide effective tax rates were 46.5% and 44.5% for the quarters ended
March 31, 1994 and 1993, respectively, versus the U.S. statutory rate of 35%
for 1994 and 34% in 1993. The effective tax rates were higher than the
statutory rate primarily due to permanent differences between book and taxable
income and the effects of state, local and non-U.S. taxes. The increase in the
effective tax rates from 1993 to 1994 reflects the higher statutory rate and
other impacts of the 1993 U.S. tax legislation.
The Company adopted Statement of Financial Standards No. 112 - "Employers'
Accounting for Postemployment Benefits" ("SFAS 112") in the first quarter of
1994. SFAS 112 establishes accounting standards for employers who provide
certain benefits to former or inactive employees, their beneficiaries, and
covered dependents. The Company's primary liability under SFAS 112 is for
salary continuation plans provided to certain employees. The actuarial present
value of these obligations was determined to be $4 million, using a 7.5%
discount rate. There is no effect on cash flows. The cost of these benefits
had previously been recognized when they were paid.
The Company adopted the provisions set forth in SEC Staff Accounting Bulletin
No. 92, "Accounting and Disclosures Related to Loss Contingencies" ("SAB 92")
in the first quarter of 1994. SAB 92 requires separate presentation of the
gross liability for a loss contingency from the related claim for recovery. The
Company's primary contingent liabilities relate to environmental actions naming
a non-operating subsidiary as a defendant or potentially responsible party.
These estimated liabilities heretofore had been shown net of the expected
recovery under an indemnity agreement covering substantially all related
claims. A more detailed description of these liabilities and the related
indemnity agreement referred to above is set forth in Note 14 to the Company's
consolidated financial statements for the year ended December 31, 1993. The
March 31, 1994 balance sheet reflects the gross estimated unpaid liability of
$20 million and the gross estimated recovery of $16 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED FROM OPERATIONS
Operations used $2 million of cash for the three months ended March 31,
1994 versus $4 million for the three months ended March 31, 1993. The decrease
in cash used is primarily due to the timing of the interest payments on the
6.8% notes issued the second quarter of 1993 and an increase in income taxes
payable. These were offset by a reduction in accounts payable, lower
year-over-year depreciation and amortization and an increase in inventory.
INVESTING ACTIVITIES
Capital expenditures were $15 million for the first three months of 1994,
compared to $13 million for the comparable period in 1993. The Company expects
to continue to invest in capital expenditures to broaden manufacturing
improvement programs and implement new technologies. Management believes that
cash provided from operations and available funds under existing credit
facilities will be sufficient to fund interest payments and capital
expenditures for the foreseeable future.
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FINANCING ACTIVITIES
During the three months ended March 31, 1994, the Company increased borrowings
by $11 million compared to reductions in borrowing of $7 million for the
comparable 1993 period. Also, the Company realized, for cash flow purposes, $10
million of tax benefits related to stock option exercises in the first quarter
of 1993.
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<TABLE>
RELIANCE ELECTRIC COMPANY
EXHIBIT A
COMPUTATION OF NET EARNINGS PER EQUIVALENT SHARE OF COMMON STOCK
(Dollars in millions, except per share amounts)
(Shares in thousands)
==========================================================================================================================
==
<CAPTION>
Three Months Ended March 31, 1994 1993
- - --------------------------- ---- ----
<S> <C> <C>
Weighted average number of common
shares outstanding..................... 41,298 41,052
Add: Net shares issuable pursuant to
conversion of Class C Common
Stock into Class A Common Stock
on a one share to 2.708 shares
basis............................ 8,967 8,967
Weighted average of nonqualified
stock options.................... 462 779
------ ------
Weighted average equivalent shares of
common stock outstanding............... 50,727 50,798
====== ======
Earnings before cumulative effect of
accounting change for computation of
net earnings per equivalent share of
common stock........................... $ 13 $ 12
Cumulative effect of accounting change.. (2) -0-
---- ----
Net earnings available for common stock. $ 11 $ 12
==== ====
Net earnings per equivalent share of
common stock:
Earnings before cumulative effect of
accounting change...................... $ .26 $ .23
Cumulative effect of accounting change.. (.05) -0-
---- ----
Net earnings ........................... $ .21 $ .23
==== ====
</TABLE>
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RELIANCE ELECTRIC COMPANY
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
No material changes have occurred in any of the pending legal
proceedings that were discussed in the Annual Report on Form
10-K for the year ended December 31, 1993. These proceedings
are not expected to have a material effect on the Company's
financial position, results of operations, or cash flows.
SIGNATURES
Pursuant to the requirements 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.
Reliance Electric Company
---------------------------
(Registrant)
Dated: May 9, 1994 /s/ J. A. Guseilo
------------ ----------------------------------------
J. A. Guseilo
Vice President and Controller (Duly
Authorized and Principal
Accounting Officer)
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