<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-10404
RELIANCE ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Delaware
-------------------------------------------------
(State or other jurisdiction of
incorporation or organization)
6065 Parkland Boulevard, Cleveland, Ohio
-------------------------------------------------
(Address of principal executive offices)
34-1538687
-------------------------------------------------
(I.R.S. Employer
Identification No.)
44124-6106
-------------------------------------------------
(Zip Code)
Registrant's telephone number, including area code: (216) 266-5800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
----------------------------------------------------------------------------------------------
<S><C> <C>
Class A Common Stock, New York Stock Exchange
par value $.01 per share
</TABLE>
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 (or for such shorter period that the
registrant was required to file such reports), 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. / /
As of February 28, 1994, the registrant had 32,886,289 shares of Class A
voting Common Stock, 3,161,032 shares of Class B non-voting Common Stock and
5,250,000 shares of Class C non-voting Common Stock outstanding. As of that
date, the aggregate market value of the shares of Class A voting Common Stock
held by non-affiliates was $518,340,610 (based upon the closing price of $17.25
per share of Class A Common Stock on the New York Stock Exchange on February 28,
1994). For purposes of this calculation, the registrant deems the 2,837,558
shares of Class A Common Stock held by all of its Directors and executive
officers to be the shares of Class A Common Stock held by affiliates. There is
no established public trading market for the non-voting Class B Common Stock and
non-voting Class C Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on April 21, 1994
are incorporated by reference into Part III of this Form 10-K Annual Report.
Except as otherwise stated, the information contained in this Form 10-K
Annual Report is as of December 31, 1993.
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS; ITEM 2. PROPERTIES; AND ITEM 3. LEGAL PROCEEDINGS.
THE COMPANY
Reliance Electric Company (the "Company" or "Reliance") was organized in
December 1986 as a Delaware corporation by a group of investors including senior
management of the Company for the purpose of acquiring the Company's predecessor
from Exxon Corporation ("Exxon"). A predecessor of the Company, originally
formed in 1904, had been acquired by Exxon in 1979. As used herein, the terms
"Company" or "Reliance" mean Reliance Electric Company, its subsidiaries and
investments, and the business activities of its predecessor, unless the context
otherwise indicates. The Company's executive offices are located at 6065
Parkland Boulevard, Cleveland, Ohio 44124-6106, and its telephone number is
(216) 266-5800.
RECAPITALIZATION TRANSACTIONS
The Company completed several recapitalization transactions during 1993. In
April 1993, the Company issued $150 million in principal amount of ten year 6.8%
notes, after registering $200 million of debt securities under the Securities
Act of 1933. Net proceeds of approximately $149 million were applied to reduce
indebtedness outstanding under the Company's former Term Loan and Revolving
Credit Facility (the "Former Facility").
Also in April 1993, the Company entered into a New Competitive Advance and
Revolving Credit Facility (the "New Credit Facility"), borrowed $209 million
under the New Credit Facility and applied these proceeds to repay the remaining
indebtedness outstanding under the Former Facility. The Former Facility was then
terminated.
For a description of the material terms of the New Credit Facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included herein at Exhibit 99.3.
BUSINESS
Reliance is a U.S.-based manufacturer of industrial motors and related
controls, generators, transformers, mechanical power transmission products and
systems, and telecommunications equipment. Reliance is organized into two
business segments: Industrial and Telecommunications. For additional information
regarding the amounts of the Company's net sales, earnings and identifiable
assets attributable to each such business segment during the three years ended
December 31, 1993, see Note 16 to the Consolidated Financial Statements of the
Company included herein at Exhibit 99.4.
INDUSTRIAL
Reliance's Industrial segment, with net sales of $1,172 million, or
approximately 73% of the Company's total net sales in 1993, designs,
manufactures, markets and services a broad range of products and provides
related services to a variety of industries. Its four operating groups are
Electrical, Mechanical, North American Transformer and Motion Control. Each
group has its own manufacturing, marketing and administrative operations.
Because the Electrical, Mechanical and Motion Control Groups sell to customers
in similar industries, the Company is able to offer these customers a
comprehensive line of products and systems designed to meet a wide range of
their needs.
1
<PAGE> 3
ELECTRICAL GROUP
Overview. The Electrical Group designs, manufactures, sells and services
industrial motors, generators, electrical variable speed drives, engineered
drive systems, and industrial control products throughout the world. The
Electrical Group is organized into three U.S. product divisions and two
international divisions. The organization of each of its domestic business
divisions is configured around a logical family of products targeted to the
specific served markets. While the divisions are decentralized, interaction
among them is fostered by a combined force of approximately 425 domestic sales
engineers and support personnel and a service organization providing field
technical services, aftermarket parts, customer training, and electronic and
motor repair services. The two electrical international divisions are Europe and
the rest of the world outside of North America. Coordination also is enhanced by
the Company's research and development "Centers of Excellence" located in the
United States, Switzerland and Japan.
The Electrical Group is headquartered in Euclid, Ohio, with 20
manufacturing facilities located in: Euclid, Ohio; Ashtabula, Ohio; Bogart,
Georgia; Cuyahoga Heights, Ohio; Athens, Georgia (two); Gainesville, Georgia;
Madison, Indiana; Mankato, Minnesota; Kings Mountain, North Carolina; Sydney and
Melbourne, Australia; Sao Paulo, Brazil; Stratford, Ontario, Canada; Kempen and
Krefeld, Germany; Yokohama, Japan (a 45% Company-owned venture); Seoul, Korea;
Dierikon, Switzerland; and Telford, United Kingdom. The Electrical Group also
serves its customers through eight regional engineering locations, 19 service
facilities and 20 parts depots.
Markets and Products. Process industries are the primary markets for
Reliance's electrical products. The Electrical Group serves customers in the
metals, mining, pulp and paper, plastics, petrochemical, flat glass, food,
utilities, water treatment, textile and the heating, ventilation and air
conditioning industries, as well as specialized naval and shipping applications.
Reliance's strategy is to compete on the basis of product differentiation,
reliability and quality, and attentive customer service. The majority of the
Electrical Group's sales is made to original equipment manufacturers ("OEMs")
and end-users. Reliance complements these direct sales by the use of a network
of independent distributors who typically carry products for more standard
applications.
A description is set forth below of the operating divisions and their
competitors.
INDUSTRIAL MOTORS. From its inception, Reliance has been a manufacturer of
industrial motors. The Industrial Motors division provides a full range of AC
motors with particular focus in the fractional to 500 horsepower ("hp") range.
The Company's strategy with regard to its industrial motors is to integrate the
manufacture of its motors with specific custom designs and to provide reliable
and expedient delivery. For example, a motor manufacturing plant in Bogart,
Georgia has significantly reduced manufacturing times for custom-designed
motors. The Industrial Motors division recently introduced a new line of energy
efficient motors called the E-Master product line. This product line was
designed specifically to meet the Energy Policy Act. In addition, Reliance has
recently been announced as a Charter Partner of the motor challenge program
sponsored by the United States Department of Energy. Significant competitors of
this division include Baldor, Emerson Electric, General Electric and Siemens.
ENGINEERED MOTORS AND GENERATORS. The Engineered Motors and Generators
division designs and manufactures customized large AC (500 to 15,000 hp) and
large DC (500 to 3,500 hp) motors, including mining and hermetic motors, at
facilities in Kings Mountain, North Carolina and Stratford, Ontario, Canada.
These motors are manufactured to customer specifications and require substantial
customer interaction throughout manufacturing and delivery. Successful recent
developments include large AC motors in totally enclosed, water cooled and
weather protected enclosures. Motors with higher efficiencies and lower noise
levels also have been developed. Specialty medium motors, including variable
speed AC (5 to 500 hp) and DC ( 1/8 to 500 hp) submersible, nuclear, navy,
mining and hermetic motors are produced in facilities in Gainesville, Georgia,
Ashtabula, Ohio and Euclid, Ohio. As in the other Electrical Group divisions,
Reliance's strategy is to provide its customers with premium components and
systems for standard and custom applications. Significant competitors in this
division include General Electric, MagneTek, Siemens and Westinghouse.
2
<PAGE> 4
The Engineered Motors and Generators division includes the Kato Engineering
business which produces synchronous generators and motors in sizes up to 13
megawatts. New product developments have focused on larger sizes of generators
and generators for special locomotive, mining and prime power applications. Kato
Engineering's major competitors include Ideal Electric, Leroy Somer, MagneTek
and Marathon.
North American Service Centers in 19 locations provide after-market support
for Electrical Group products. They have responsibility for on-site services,
equipment repairs and parts. Significant competitors include Eastern Electric,
General Electric, MagneTek and independent service shops.
DRIVES AND SYSTEMS. The Drives and Systems division combines adjustable
speed electric drive capabilities of its VS Drives business and controls
capabilities of its industrial controls business. This division uses
competencies in the design, manufacture and application of standard drives,
motion control and industrial control products to supply customer solutions for
increased productivity. Products include a broad line of AC (inverter), DC and
Motion Control drives ranging from fractional to 2,000 hp. These products are
sold for various customer applications throughout the world with an increasing
emphasis on global designs. The division designs its products to be
"configurable," allowing digital drives to be adapted and incorporated on a
custom basis from standard products in a wide variety of applications and
industries. Allen Bradley (Rockwell International), Emerson Electric, MagneTek
and Siemens are significant competitors in both AC and DC drives.
The Drives and Systems business combines Reliance's expertise in motors,
drives and controls, and markets this combination to a variety of process
industry users. Reliance's focus in this division is on product integration,
project management and application engineering capabilities. This approach has
resulted in business particularly within the pulp and paper, and metals
industries. The Drives and Systems division's design capabilities have enabled
users to integrate Reliance products with other manufacturers' products into
Reliance systems. Project management focuses on consulting with customers with
regard to plant layout, and installation and repair efficiency. Project
management follows through with fully tested, rapid start-up and post
commissioning service and training. Application engineers provide specific
industry expertise to maximize custom production through the application of the
proper digital controls and motors tailored to individual process lines.
Reliance competes primarily with ABB, Allen Bradley, General Electric and
Siemens in its Drives and Systems business.
The Drives and Systems division also designs and manufactures logic
controllers used to control a wide variety of manufacturing processes. The
AutoMate controller and AutoMax controller provide customers with precise
industrial control. These two lines of controllers are integral parts of the
Electrical Group's overall Drive Systems business. The Company's strategy is to
establish the integration potential of Reliance's controls with drive products
to increase productivity in various manufacturing processes. Significant
competitors include Allen Bradley, General Electric, Modicon (AEG) and Siemens.
EUROPE. The Europe division develops, designs, manufactures, markets and
services AC and DC drives, drive systems, motors and alternators. This division
serves a broad range of industries including power generation, marine, metals,
paper, textile, converting, plastic and food.
Significant competitors with this division are ABB, AEG, Cegelec, Siemens
and a large number of companies located in other countries.
INTERNATIONAL. The International division concentrates on the Asian Pacific
and South American markets with fully owned affiliate plants in Brazil and
Australia and joint ventures in Japan and Korea. Approximately half the sales
are exports from North American operations and the remainder are sold,
engineered and produced in the affiliate operations. The affiliates produce
drive systems combining Reliance expertise and components in motors, drives,
controls and application know-how to serve a broad variety of process industry
users.
3
<PAGE> 5
The joint venture operation in Japan develops and manufactures AC
(inverter), DC and Motion Control drives ranging from fractional to 220
kilowatts. A large portion of these products are sold to Japanese OEM's and
industrial users. Selected products also are produced for Reliance's worldwide
operations.
Reliance competes primarily with ABB, Allen Bradley, General Electric,
Siemens, Toshiba and Yaskawa in the full spectrum of Reliance's product mix in
Asia. In South America the primary competitors are ABB and Siemens.
MECHANICAL GROUP
Overview. The Mechanical Group, portions of which have been in operation
since 1878 (Reeves), designs, manufactures and sells mechanical power
transmission products primarily under the Dodge, Reeves and Master brand names.
The Mechanical Group is organized around three principal product areas: (i)
mounted bearings, (ii) enclosed gearing and mechanical adjustable speed drives
and (iii) drive components, couplings and electric clutch brakes. The Mechanical
Group's three divisions use an integrated approach to sales and marketing, and
share a common distribution channel. The Mechanical Group markets most of its
products through a network of distributors and the balance through direct sales.
Reliance has established a distributor network with over 200 distributors having
approximately 1,400 branch outlets.
The Mechanical Group works closely with its customers to enhance service.
For example, it markets electronic software to both OEM customers and
distributors. This software enables customers to enter specifications for
applications and order parts directly from the Mechanical Group via electronic
data interchange. In addition, the Mechanical Group has computerized application
and selection programs for its customers which detail methods of writing
specifications, installation and product use. The Mechanical Group was the
recipient of the Power Transmission Distributors Association 1993 Trailblazer
Award for customer service excellence.
The Mechanical Group is headquartered in Greenville, South Carolina, and
has nine manufacturing facilities located in: Greenville, South Carolina;
Belton, South Carolina; Rogersville, Tennessee; Asheville, North Carolina;
Mishawaka, Indiana; Columbus, Indiana (two); Seattle, Washington; and
Guadalajara, Mexico. The Mechanical Group operates eight major distribution
centers in the United States.
Markets and Products. The Mechanical Group distinguishes itself in the
mechanical power transmission market by providing products which are used in a
wide variety of industrial applications, and by providing technical support to
the distributor and end-user. The Mechanical Group has focused its efforts on
developing and improving engineering and manufacturing capabilities. The primary
end-users of the Mechanical Group's products are process industries, such as
aggregates and mining, food, packaging, air and unit handling, and waste water.
The Mechanical Group's sales are primarily in the United States and Canada.
A description of the Mechanical Group's products and major competitors
within its three principal product areas are as follows:
BEARINGS. The Bearings division manufactures mounted bearings, including
ball, roller, sleeve and Sleevoil bearings. Reliance does not participate in the
market for "naked" bearings, i.e., bearings without mountings. In 1993, Dodge
introduced its new mounted spherical roller bearing family, providing features
most requested by customers, such as patented seals, cast closed-end housings,
corrosion resistant coatings, the highest load ratings in the world and
electronic monitoring capabilities. The Mechanical Group's largest customers for
mounted bearings and conveyor components are companies in the unit handling,
bulk material handling and air handling industries. Significant competitors in
this market include EPT (division of Emerson Electric), Rexnord (a subsidiary of
BTR) and Torrington/FAFNIR (a subsidiary of Ingersoll-Rand).
4
<PAGE> 6
ENCLOSED GEARING AND MECHANICAL ADJUSTABLE SPEED DRIVES. The Gearing
division produces four major gear products, including Dodge torque arm reducers,
parallel gear boxes, right angle gear boxes and the Reeves mechanical adjustable
speed devices. Each product line may be sold separately or in an integrated
system. The flagship product of this division is the Dodge Torque-Arm shaft
mounted reducer. The Company believes that direct mounting of this reducer to
driven shafts through a hollow output bore can result in considerable cost
savings and flexibility for the customer. In 1992, the Company introduced a
compact and efficient concentric parallel reducer, the Dodge Maxum reducer.
Right angle reducers include worm gears and worm helical combinations. The
Reeves Motodrive is a motorized enclosed variable pitch belt drive coupled with
a speed reducer. The Motodrive provides variable speed capability in more
difficult constant torque applications where high starting torque is required or
overload service factor is required. The Mechanical Group's mechanical
adjustable speed drives are built to provide simple maintenance requirements for
the user. Significant competitors include Boston Gear, Falk (a division of
Sunstrand) and SEW Eurodrives.
DRIVE COMPONENTS AND ELECTRIC CLUTCH BRAKES. The Drive Components division
produces drive components including sheaves, shaft couplings and bushings.
Typical applications utilizing drive components' products include fans,
compressors, pumps, mixers, crushers, conveyors and machine tools. The division
also produces clutches and motor brakes. The Mechanical Group's largest
customers for clutches and motor brakes are companies in the baggage handling,
unit handling, packing, wrapping and other motion control industries.
Significant competitors include EPT, Rexnord and T. B. Woods.
NORTH AMERICAN TRANSFORMER
North American Transformer ("NAT") manufactures mid-range (12 to 650
megavoltamps) power transformers used by domestic electric utilities and
independent power producers for the distribution of electricity. NAT conducts
its manufacturing operations at a facility located in Milpitas, California. NAT
sells its products through approximately 40 agents located throughout the United
States and in selected foreign countries.
NAT's sales result from electric load growth, utility system upgrades,
increased tie-ins between utilities, and regional changes in electricity demand.
NAT has historically targeted the medium to large transformer market to
capitalize on its capability to design and build the larger, more complex
transformers. As a result of recent decreased demand in the medium to large
transformer market, NAT has also targeted the smaller transformer market (as
small as 30 megavoltamps) and has increased its participation in international
markets. Domestically NAT's main competitors are General Electric and MagneTek
in medium transformers and ABB and the McGraw Edison division of Cooper
Industries in large transformers.
MOTION CONTROL
Motion Control was created in 1991 as a result of a purchase of several
businesses from Robbins & Myers, Inc., a Dayton, Ohio-based company. The
businesses which make up Motion Control manufacture and distribute fractional
horsepower motors and small clutch/brake components for a variety of commercial
applications, and programmable servo drives for industrial factory automation
applications. Motion Control attempts to differentiate itself by emphasizing
easy-to-use servo products with the ability to customize motors.
Reliance believes that these products complement Reliance's existing motor
and control technologies and product lines and provide Reliance access to new
markets. Motion Control has five manufacturing facilities located in: Eden
Prairie, Minnesota; Gallipolis, Ohio; Collinsville, Connecticut; and Crewe and
Welshpool, United Kingdom. Significant competitors in this market include
Indramat, Siemens and Yaskawa.
5
<PAGE> 7
BACKLOG
At December 31, 1993, the Industrial segment's backlog of firm sales orders
amounted to approximately $338 million compared with $343 million at December
31, 1992. The Company anticipates that substantially all of this 1993 backlog
will be shipped during 1994.
IDENTIFIABLE ASSETS
The Industrial segment's identifiable assets amounted to $581 million at
December 31, 1993 and $526 million at December 31, 1992.
TELECOMMUNICATIONS
The Telecommunications segment, with net sales of $439 million, or
approximately 27>% of the net sales of the Company in 1993, is known in the
industry as Reliance Comm/Tec ("Comm/Tec"). Comm/Tec produces power, connection,
protection and distribution devices and transmission products and systems.
Comm/Tec serves the telephone operating companies ("telcos") including AT&T, the
regional Bell operating companies ("RBOCs"), other independent telephone
companies as well as other suppliers of communications equipment and services
including cable television system operators, competitive access providers and
wireless communications suppliers. Comm/Tec provides access products and
services for use in rapidly changing communications networks which extend from
public network access points (for example, central offices in the telephone
industry or head end connections in cable television) to an end user's premises.
Comm/Tec is headquartered in Cleveland, Ohio, and is organized into four
operating divisions: Lorain Products, Reliable Electric, Transmission Systems
and Network Services/Engineered Systems. Comm/Tec's products are sold primarily
through a centralized direct sales force which is responsible for the sale of
all Comm/Tec products and receives specialized support from marketing
professionals at each of the respective operating units. Comm/Tec also provides
specific coverage for national and OEM accounts. Comm/Tec's products also are
sold through distributors. Non-United States sales are handled primarily by
representatives located throughout the world.
LORAIN PRODUCTS
Lorain Products ("Lorain") develops and manufactures power conversion
equipment and components, including AC-DC battery chargers, ringing generators
(DC-AC), inverters (DC-AC), interrupters, monitoring systems and DC-DC
converters. Lorain combines variations of these products with fuses, circuit
breakers and controls to form complete telecommunications power systems, ranging
from small units used in remote switching units and carrier systems to very
large units used to supply power to central offices and cellular radio sites.
Lorain also markets uninterruptible power systems to telephone central offices,
resells batteries and markets embedded power equipment to OEMs. Lorain is
headquartered in Lorain, Ohio, and has three manufacturing facilities located in
Lorain, Ohio, St. Thomas, Ontario, Canada and Mexico City, Mexico.
Lorain sells power equipment to the regulated United States
telecommunications market, comprised of telcos, AT&T and the RBOCs. Lorain has
focused on utilizing both its knowledge of the RBOCs' power equipment
requirements and its product engineering capabilities to position itself as an
alternative supplier to AT&T for the RBOCs. Lorain also sells in the
non-regulated market, composed of a variety of OEMs, cellular OEMs and users,
other common carriers, private networks and export sales. Significant
competitors include Argus, AT&T, Northern Telecom, Power Conversion Products and
a number of smaller independent companies.
RELIABLE ELECTRIC
Reliable Electric ("Reliable") manufactures and markets products and
hardware principally for the subscriber loop segment of the telecommunications
market. Reliable offers more than 3,000 products, consisting of enclosures
(buried, aerial, pedestals, cabinets and controlled environmental vaults) and
connection and protection devices (cross-connects, terminal blocks, building
entrance
6
<PAGE> 8
terminals, arrestors and protection modules). Reliable is headquartered in
Franklin Park, Illinois, and conducts its manufacturing operations in five
facilities located in Franklin Park, Illinois; Milwaukee, Wisconsin; Toccoa,
Georgia; St. Stephen, South Carolina; and Greenville, Mississippi. Significant
competitors include ADC Telecommunications, Coil, Northern Telecom and Raynet (a
division of Raychem).
Reliable targets primarily the outside plant segment of the telephone
market and is actively involved in a number of other telecommunications areas
including cable television, wireless and competitive access. The Company
believes that Reliable's introduction of sealed plant products, fiber optic
products and an expanded electronic equipment cabinet capability enhances its
competitive position in these dynamic market segments.
TRANSMISSION SYSTEMS
Transmission Systems develops, designs, produces and services electronic
transmission systems for use in the local subscriber loop. Transmission Systems
is composed of three business units: its primary engineering and manufacturing
facility in Bedford, Texas, near Fort Worth; Test Systems in Carrollton, Texas,
near Dallas; and Poynting Systems in Scottsdale, Arizona. Transmission Systems
designs and manufactures analog and digital subscriber loop carrier systems
including its DISCS next-generation digital loop carrier ("DLC"), which is
compatible with both copper and fiber optic cable distribution systems. DISCS
also features fully integrated SONET (Synchronous Optical NETwork) and
Fiber-in-the-Loop products. In addition, Transmission Systems designs and
manufactures products for the distribution, or remote, end of the Fiber-in-the-
Loop and video broadband markets. Test Systems manufactures a family of
microprocessor-based remote line testing units which enable the telcos to
automatically test subscriber lines out of the central office exchange, as well
as those served from digital remote and DLC systems. Poynting Systems performs
research and development activities in connection with the development of SONET
high-speed multiplexers.
The telecommunications industry has been shifting from the use of copper
wire toward the use of fiber optic cable. The non-regulated service providers
and telcos are incorporating these newer technologies (digital products and
optical fiber) into the subscriber loop to offer the user the most
cost-efficient and flexible services. By moving the intelligence out of the
switch in the central office and into the loop via DLCs, the non-regulated
service providers and telcos will have greater flexibility in meeting specific
customer needs for a wide variety of voice, video and data requirements.
Significant competitors include ADC Telecommunications, AT&T, DSC
Communications, Fujitsu, Northern Telecom, Pulsecom and Raynet.
NETWORK SERVICES/ENGINEERED SYSTEMS
Network Services provides installation and service support for all Comm/Tec
products in all market segments. These services include installation
engineering, product and system installation, training and field service and
repair. The Network Services division operates 13 regional service centers in
the United States with additional service centers in Mexico and Canada. Network
Services complements Comm/Tec's product capability with the complete service
required to compete as a supplier in both regulated and non-regulated markets.
Engineered Systems provides turnkey systems for customers in all Comm/Tec
market segments. These systems can include network application engineering,
system design, product selection, system configuration and total project
management. Engineered Systems delivers a custom engineered, manufactured and
installed package designed to solve a unique telecommunication application
problem requiring total project management from inception through final
acceptance. Engineered Systems operates out of the Bedford, Texas facility and
maintains field engineers and project managers in regional offices throughout
the United States.
7
<PAGE> 9
Competitors of Network Services/Engineered Systems include AT&T, Northern
Telecom, smaller product-based companies, third-party engineering firms and a
number of third-party installation and service companies.
BACKLOG
At December 31, 1993, the Telecommunications segment's backlog of firm
sales orders amounted to approximately $70 million, compared with approximately
$66 million at December 31, 1992. The Company anticipates that substantially all
of this 1993 backlog will be shipped during 1994.
IDENTIFIABLE ASSETS
The Telecommunications segment's identifiable assets amounted to $591
million at December 31, 1993 and $596 million at December 31, 1992.
SEASONALITY
The Company's businesses are not materially affected by seasonal
considerations.
PATENTS AND TRADEMARKS
Although the Company has a number of patents, trademarks and/or licenses
related to each segment's activities, none of them is considered by the Company
to be materially important. In general, each industry segment depends on
technological capabilities, manufacturing quality control and application of
know-how rather than patents in the conduct of its business.
RAW MATERIALS AND COMPONENTS
The Company manufactures the major portion of the products it sells. Raw
materials and components such as laminating steel, aluminum, castings, copper,
magnetic wire, finished steel forms, powdered metal, insulating materials,
magnetic steel ball and roller bearings, brushes, belts, plastics and resins,
electronic parts and control devices are purchased from multiple sources of
supply, subjecting the Company to potential price fluctuations for these raw
materials and components. While the Company at this time is experiencing some
selective tightening in supply, it foresees no acute shortages of those items
that would have a material adverse effect on its operations.
ENGINEERING, INCLUDING RESEARCH AND DEVELOPMENT
During the fiscal years 1993, 1992 and 1991, the Company spent
approximately $112 million, $103 million and $94 million, respectively, on
application engineering, including research and development activities. Of these
amounts, approximately $43 million, $40 million and $34 million was spent in
1993, 1992 and 1991, respectively, on research and development, including the
development of new products, improvement of existing products and systems
design. The customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL CONTROLS
The Company believes its facilities are generally in compliance with
environmental protection requirements. The nature of the Company's present
operations is such that it does not expect expenditures for environmental
compliance to be material. See "Business -- Legal Proceedings."
8
<PAGE> 10
EMPLOYEES
As of January 31, 1994, the Company employed approximately 14,000
employees, of whom approximately half were hourly rated. Of these hourly rated
employees, less than half were represented by labor unions under contracts that
expire at varying times in the future. The Company is subject to potential
work-related actions by its employees. The Company, however, believes that its
relations with its employees are good. The Company is a party to one collective
bargaining agreement which expires in December 1994 covering approximately 365
employees. The Company expects to negotiate a contract which is suitable to the
Company.
FACILITIES
The Company has 44 manufacturing locations worldwide, with 15 located in
nine countries outside the United States. The Company occupies a total of
approximately 8.1 million square feet, with the majority, approximately 7.2
million square feet, devoted to manufacturing, assembly and storage. This space
is occupied by industry segments as follows: 84% Industrial and 16%
Telecommunications. Of the approximately 8.1 million square feet occupied, 6.3
million square feet are owned, and 1.8 million square feet are occupied under
operating leases. The Company considers its manufacturing facilities suitable
and adequate for the purposes for which they are used.
The majority of Reliance production facilities has earned the universally
recognized ISO 9000 series quality assurance certification as established by the
International Organization for Standardization ("ISO"). ISO is a specialized
international agency for standardization that is comprised of the national
standards bodies of 91 countries. The object of ISO is to promote the
development of standardization and related world activities with a view to
facilitating international exchange of goods and services and to developing
cooperation in the sphere of intellectual, scientific, technological and
economic activity. Reliance is committed to obtaining ISO certification in all
of its production facilities.
LEGAL PROCEEDINGS
In March 1990, the United States Department of Justice filed suit in the
United States District Court for the District of Massachusetts against a
nonoperating subsidiary of the Company, Federal Pacific Electric Co. ("FPE") and
a number of other defendants to recover costs for environmental response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA") at the Re-Solve Superfund site in North Dartmouth,
Massachusetts. These costs include unrecovered costs in settlements reached with
other parties alleged to have arranged for disposal of hazardous substances at
the site, costs of overseeing clean-up at the site and attorney's fees and costs
incurred in litigation.
In July 1992, the United States Department of Justice filed suit in the
United States District Court for the District of Massachusetts against FPE and
Cornell-Dubilier Electronics Corporation, a former FPE subsidiary ("CDE"), to
recover costs for environmental response actions under CERCLA in connection with
the investigation and remediation of one operable unit at the Sullivan's Ledge
Superfund site in New Bedford, Massachusetts. The Department of Justice seeks to
recover certain unreimbursed response costs in connection with the site.
In August 1992, the United States Department of Justice filed suit in the
United States District Court for the District of Massachusetts against FPE, CDE
and other defendants seeking to recover costs it incurred or will incur for
environmental response actions under CERCLA in connection with the Norwood
Superfund site in Norwood, Massachusetts. In October 1992, the Commonwealth of
Massachusetts also filed suit against FPE, CDE and others for recovery of
response costs in connection with the Norwood site, attorney's fees and an
injunction requiring the defendants to remove all hazardous materials from the
site. The complaint also requests that the court treble all costs expended in
assessing, containing and removing hazardous materials from the site.
9
<PAGE> 11
The Company also has been named as a potentially responsible party at
several other CERCLA sites.
Pursuant to the December 29, 1986 Stock Purchase Agreement (the
"Agreement") with the Company, Exxon agreed to indemnify and hold harmless the
Company against substantially all losses, liabilities, claims, obligations,
damages (including any governmental penalty or punitive damages) or deficiencies
arising out of or resulting from any environmental claim relating to the
operations of FPE and certain of its subsidiaries, including CDE. No action or
claim for damages pursuant to this indemnity may be brought or made by the
Company after the expiration of a 20-year period from December 30, 1986, except
that such time limitation does not apply to any claims which have been the
subject of a written notice from the Company to Exxon prior to the expiration of
such period. Pursuant to the Agreement, Exxon is liable for the first $10
million of any damages incurred by the Company, 95% of the next $100 million and
100% of any damages in excess of $110 million. As a result of the foregoing the
Company expects to be indemnified by Exxon for substantially all settlement
amounts attributable to FPE and CDE. While there can be no assurance as to the
future compliance with the Agreement, Exxon has been and is indemnifying the
Company for these environmental matters.
The Company is also a party, in the ordinary course of business, to various
legal actions related to performances under contracts and product liability
suits, and proceedings relating to a wide range of matters, several of which
claim substantial damages. The Company believes that these legal actions
(including the environmental claims described above) will not have a material
adverse effect on the financial position, results of operations or cash flows of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The name, age, principal occupation and the material occupations,
positions, offices or employments for the past five years of each executive
officer of the Company are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND DIRECTORSHIPS(1)
- --------------------- --- --------------------------------------------------------------
<S> <C> <C>
John C. Morley 62 President and Chief Executive Officer since 1980 and a
Director of the Company. Held numerous executive positions
with Exxon from 1958 to 1980, including President of Exxon
Chemical USA and Senior Vice President of Exxon, USA.
Peter J. Tsivitse 64 Vice President, Technology and Corporate Development since
1989, Operating and Group Vice President from 1978 to 1989.
Joined Reliance in 1952 as a design engineer.
Dudley P. Sheffler 49 Vice President, Telecommunications since 1981 and a Director
of the Company. President of Reliance Comm/Tec since 1989.
Joined Reliance in 1970 as a plant controller.
William R. Norton 50 Vice President, General Counsel and Secretary since 1991 and
Associate General Counsel and Assistant Secretary from 1978 to
1991. Joined Reliance in 1976 as an attorney.
E. Scott Dalton 53 Vice President, Human Resources and Community Affairs since
1986, Group Employee Relations Manager from 1985 to 1986 and
Director of Personnel Administration and Compensation from
1977 to 1985. Joined Reliance in 1977 as Director of
Compensation.
John D. Hutson 61 Vice President since March 1993 and Treasurer since 1992.
Assistant Treasurer from 1977 to 1992. Joined Reliance in 1956
as a management trainee.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE AND DIRECTORSHIPS(1)
- --------------------- --- --------------------------------------------------------------
<S> <C> <C>
James A. Guseilo 47 Vice President and Controller since March 1993. Controller of
Reliance Comm/Tec since 1989. Joined Reliance in 1976 as
supervisor of corporate accounting.
Robert L. Matejka 51 Assistant Controller since March 1993. Director of Accounting
and Control since 1989. Joined Reliance in 1973 as a member of
the corporate accounting staff.
Albin A. Muren 55 Vice President since October 1993. General Manager of Reli-
ance's Electrical Group since 1986. Joined Reliance in 1963 as
a sales trainee.
Joseph D. Swann 52 Vice President since October 1993. General Manager of Reli-
ance's Mechanical Group since 1982. Joined Reliance in 1969 as
a technical service manager.
</TABLE>
- ---------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
(1) The descriptions of the principal occupation of the executive officers
include their employment history with both the Company and its predecessor.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included herein at Exhibit 99.1 to
this Form 10-K Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included herein at Exhibit 99.2 to
this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is included herein at Exhibit 99.3 to
this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included herein at Exhibits 99.1
and 99.4 to this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding Directors appearing under the caption "Election
of Directors" in the registrant's definitive Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on April 21, 1994
(the "1994 Proxy Statement") is incorporated herein by reference. The
information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 appearing under the caption "Compliance With Section 16(a) of the
Securities Exchange Act of 1934" in the 1994 Proxy Statement is incorporated
herein by reference. Information regarding executive officers of the registrant
is set forth in Part I of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
to "Executive Compensation" in the 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference
to "Stock Ownership of Principal Holders and Management" in the 1994 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by reference
to "Certain Transactions" in the 1994 Proxy Statement.
12
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following financial statements and supplementary quarterly information
are filed as part of this Form 10-K Annual Report herein at Exhibits 99.1 and
99.4 as indicated:
<TABLE>
<CAPTION>
ITEM
- -------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants
Consolidated Statement of Earnings for the Years Ended December 31, 1993, 1992 and
1991
Consolidated Balance Sheet as of December 31, 1993 and 1992
Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1992 and
1991
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Quarterly Information (unaudited)
</TABLE>
2. Financial Statement Schedules.
See the Index to Financial Statement Schedules at page FS-1 of this Form
10-K Annual Report.
3. Exhibits.
See the Index to Exhibits at page E-1 of this Form 10-K Annual Report.
(b) Reports on Form 8-K.
The registrant did not file any Current Reports on Form 8-K during the
fourth quarter of 1993.
13
<PAGE> 15
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.
RELIANCE ELECTRIC COMPANY
By: /s/ JOHN C. MORLEY
John C. Morley,
President and Chief Executive Officer
Date: March 3, 1994
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.
<TABLE>
<S> <C>
/s/ JOHN C. MORLEY /s/ H. VIRGIL SHERRILL
John C. Morley, H. Virgil Sherrill,
President, Chief Executive Officer Chairman of the Board of Directors
and a Director
(Principal Executive Officer)
/s/ DUDLEY P. SHEFFLER /s/ ANTHONY C. HOWKINS
Dudley P. Sheffler Anthony C. Howkins,
Vice President Director
and a Director
/s/ JOHN D. HUTSON /s/ ALFRED M. RANKIN, JR.
John D. Hutson, Alfred M. Rankin, Jr.,
Vice President Director
and Treasurer
(Principal Financial Officer)
/s/ JAMES A. GUSEILO /s/ E. MANDELL DE WINDT
James A. Guseilo, E. Mandell de Windt,
Vice President Director
and Controller
(Principal Accounting Officer)
</TABLE>
Date: March 3, 1994
14
<PAGE> 16
RELIANCE ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
DESCRIPTION PAGE
------------------------------------------------------------------------------
<S> <C> <C>
Report of Independent Accountants on Financial Statement Schedules................. FS-2
Schedule VIII --Valuation and Qualifying Accounts............................... FS-3
Schedule IX --Short-Term Borrowings........................................... FS-4
Schedule X --Supplementary Income Statement Information...................... FS-5
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
FS-1
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Reliance Electric Company
Our audits of the consolidated financial statements referred to in our
report dated February 3, 1994, appearing on page 1 of Exhibit 99.4 of this
Annual Report on Form 10-K also included an audit of the Financial Statement
Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
As discussed in Note 1 of the consolidated financial statements included
herein at Exhibit 99.4 of this Annual Report on Form 10-K, the Company changed
its method of accounting for income taxes and postretirement benefits other than
pensions.
PRICE WATERHOUSE
Cleveland, Ohio
February 3, 1994
FS-2
<PAGE> 18
RELIANCE ELECTRIC COMPANY
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN
COLUMN A COLUMN B COLUMN C D COLUMN E
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER OTHER END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS CHANGES OF PERIOD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS TO WHICH THEY
APPLY:
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1993 $ 8 $ 1 $ - $ - $ 9
Year ended December 31, 1992 7 1 - - 8
Year ended December 31, 1991 8 - (1) - 7
ALLOWANCE FOR AMORTIZATION --
GOODWILL:
Year ended December 31, 1993 $ 37 $ 6 $ - $ - $ 43
Year ended December 31, 1992 31 6 - - 37
Year ended December 31, 1991 25 6 - - 31
ALLOWANCE FOR AMORTIZATION --
PATENTS AND OTHER INTANGIBLES:
Year ended December 31, 1993 $ 37 $ 2 $ - $ (19)(A) $ 20
Year ended December 31, 1992 35 2 - - 37
Year ended December 31, 1991 29 6 - - 35
VALUATION ALLOWANCE ON DEFERRED
TAX ASSETS:
Year ended December 31, 1993 $ 6 $ 1 $ - $ - $ 7
Year ended December 31, 1992 6 - - - 6
Year ended December 31, 1991 6 - - - 6
</TABLE>
- ---------------
(A) Approximately $19 million of fully amortized intangible assets were written
off in 1993.
Financial data for 1992 and 1991 has been restated to reflect retroactive
adoption of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
FS-3
<PAGE> 19
RELIANCE ELECTRIC COMPANY
SCHEDULE IX -- SHORT-TERM BORROWINGS
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END INTEREST DURING DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD RATE (A) THE PERIOD PERIOD (B) PERIOD (A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Notes payable to banks (Non-U.S.).. $ - $ - $ 2 $ 1 $ -
DECEMBER 31, 1992
Notes payable to banks (Non-U.S.).. - - 2 - -
DECEMBER 31, 1991
Notes payable to banks (Non-U.S.).. - - 1 1 -
</TABLE>
(A) A weighted average interest rate for the combined various non-United States
short-term borrowings does not provide a relevant interest rate due to
varying foreign exchange rates and currencies borrowed.
(B) Average amount outstanding during the period is computed by dividing the
total of month-end outstanding principal balances by 12.
FS-4
<PAGE> 20
RELIANCE ELECTRIC COMPANY
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B
<S> <C> <C> <C>
- -------------------------------------------------------------------------
<CAPTION>
CHARGED TO COSTS AND
EXPENSES
----------------------
YEARS ENDED DECEMBER
31,
----------------------
ITEM 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs........................ $23 $21 $19
Taxes other than payroll and income............ 18 15 12
</TABLE>
There were no other items not presented elsewhere which exceeded one percent of
consolidated net sales.
FS-5
<PAGE> 21
RELIANCE ELECTRIC COMPANY
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ---------------------------------------------------------------- ----------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company as filed (A)
with the Secretary of State of Delaware on February 1, 1993.
3.2 By-Laws of the Company, as amended May 11, 1988. (B)
4.1 Competitive Advance and Revolving Credit Facility Agreement, (C)
dated as of April 21, 1993, among the Company, the Lenders named
therein and Chemical Bank, as Administrative Agent.
4.2 Indenture, dated as of April 1, 1993, between the Company and (C)
Bankers Trust Company as Trustee (the "Indenture").
4.2.1 First Supplemental Indenture, dated as of April 14, 1993, (C)
between the Company and Bankers Trust Company, supplementing the
Indenture.
4.3 Specimen Certificate for the Company's 6.80% Notes due April 15, (C)
2003.
4.4 Specimen certificate of the Company's Class A Common Stock. (A)
4.5 Specimen certificate of the Company's Class B Common Stock. (D)
4.6 Specimen certificate of the Company's Class C Common Stock. (D)
10.1 Letter of Credit Facility Agreement, dated as of April 21, 1993, (C)
between the Company and Society National Bank.
10.2 Stock Purchase Agreement, dated April 8, 1987 among Court Square (D)
Capital Ltd. ("Citicorp"), Prudential Securities Incorporated
("Prudential") and the Company.
10.3 Registration Rights Agreement, dated April 8, 1987 among (D)
Citicorp, Prudential, the management participants in the
Employee Stock Purchase Plan and the Employee Stock
Redistribution Plans and the Company.
10.3.1 Amendment No. 1 to Registration Rights Agreement, dated (B)
September 15, 1988.
10.4 Registration Rights Agreement, dated April 29, 1992 among (A)
Citicorp, Prudential and the Company.
10.5* Form of 1990 Severance Agreement of the Company with Messrs. (E)
Morley, Dalton, Sheffler, Tsivitse, Hutson, Norton, Swann, Muren
and Matejka.
10.5.1* Form of Amendment to 1990 Severance Agreement of the Company (E)
with Messrs. Morley, Dalton, Sheffler, Tsivitse, Hutson, Norton,
Swann, Muren and Matejka.
10.6* Form of Indemnity Agreement of the Company. (B)
10.7* Deferred Compensation Plan of the Company, as amended February (F)
20, 1991.
10.8* Form of Savings and Investment Plan of the Company, as amended
and restated.
10.9* Defined Benefit Pension Plan of the Company. (D)
</TABLE>
E-1
<PAGE> 22
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ---------------------------------------------------------------- ----------------
<S> <C> <C>
10.10* Employee Stock Purchase Plan of the Company and the related (D)
Non-Qualified Stock Option Agreement (Exhibit B thereto as
revised) between the Company and the management participants in
the Employee Stock Purchase Plan and the Employee Stock
Redistribution Plan.
10.10.1* Employee Stock Redistribution Plan of the Company. (B)
10.10.2* Employee Stock Redistribution Plan of March 1, 1990 of the (G)
Company.
10.11 Outside Director Stock Option Plan of the Company. (D)
10.11.1 Form of Amendment No. 1 to Outside Director Stock Option Plan of (H)
the Company.
10.11.2 Form of Amendment No. 2 to Outside Director Stock Option Plan of (D)
the Company.
10.12* Key Employee Stock Option Plan of 1990. (I)
10.13* Retirement Plan of the Company. (J)
10.14* Agreement relating to Golden Parachute Excise Tax. (I)
10.15* Reliance Electric Company Supplemental Retirement Plan for Key (F)
Employees, as amended September 5, 1990.
10.16* Reliance Electric Company Special Retirement Program for Elected (F)
Officers, as amended January 1, 1991.
21.1 Subsidiaries of the Registrant. **
23.1 Consent of Price Waterhouse. **
99.1 Quarterly Financial and Stockholder Information. **
99.2 Selected Financial Data. **
99.3 Management's Discussion and Analysis of Results of Operations **
and Financial Condition.
99.4 Consolidated Financial Statements of the Company listed under **
Item 14(a)(1).
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement identified pursuant
to Item 14(c) of this Form 10-K.
**Filed herewith.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1992.
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1988.
(C) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-Q for the quarter ended March 31, 1993.
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 declared effective on August
6, 1987 (Reg. No. 33-14048), and as amended by Post-Effective Amendment No.
1 on May 5, 1988, Post-Effective Amendment No. 2 on April 13, 1989 and
Post-Effective Amendment No. 3 on May 1, 1990.
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1991.
(F) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1990.
E-2
<PAGE> 23
EXHIBIT INDEX -- CONTINUED
(G) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-8 declared effective on June 6,
1990 (Reg. No. 33-34976).
(H) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-8 declared effective on December
2, 1987 (Reg. No. 33-18410).
(I) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 declared effective on December
13, 1989 (Reg. No. 33-31612).
(J) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1987.
E-3
<PAGE> 1
EXHIBIT 10.8
RELIANCE ELECTRIC COMPANY
SAVINGS AND INVESTMENT PLAN
RESTATEMENT EFFECTIVE JANUARY 1, 1989
<PAGE> 2
<TABLE>
INDEX
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS 1
ARTICLE II PARTICIPATION 14
ARTICLE III EMPLOYEE CONTRIBUTIONS 17
ARTICLE IV EMPLOYER CONTRIBUTIONS 21
ARTICLE V INVESTMENT PROVISIONS 30
ARTICLE VI VALUATION OF ACCOUNTS 40
ARTICLE VII VESTING 42
ARTICLE VIII DISTRIBUTION OF BENEFITS 47
ARTICLE IX WITHDRAWALS DURING EMPLOYMENT 54
ARTICLE X LOANS 60
ARTICLE XI PAYMENT OF BENEFITS 65
ARTICLE XII REEMPLOYMENT 67
ARTICLE XIII ADMINISTRATION OF THE PLAN 68
ARTICLE XIV CERTAIN RIGHTS AND OBLIGATIONS 72
ARTICLE XV AMENDMENTS 75
ARTICLE XVI NON-ALIENATION OF BENEFITS 77
ARTICLE XVII TOP-HEAVY PROVISIONS 78
ARTICLE XVIII MISCELLANEOUS 83
</TABLE>
<PAGE> 3
ARTICLE I
DEFINITIONS
1.01 "Account" means the account maintained for each Participant
which reflects separately his Basic Employee Contributions, Basic Salary
Reduction Contributions, Supplemental Employee Contributions, his portion of
Matching Employer Contributions, and his portion of Supplemental Employer
Contributions, investments in Fund A, Fund B, Fund C, Fund D, the Exxon Fund
and the Company Stock Fund, with any earnings, interest, dividends, and profits
or losses, realized or unrealized, thereon, and which also reflects any
distributions to, loans to or withdrawals by such Participant or his
Beneficiary.
1.02 "Administrative Committee" means the committee appointed to
administer the Plan in accordance with Section 13.03 of the Plan.
1.03 "Appraisal Date" means the date as of which the value of a share
of Company Stock is determined by the Administrative Committee or its designee.
1.04 "Basic Employee Contributions" means the contributions made by a
Participant as a condition of participation in the Prior Reliance Electric
Plan, as provided in Section 3.02 of the Prior Reliance Electric Plan.
1.05 "Basic Salary Reduction Contributions" means the contributions
of the Employer to the Reliance Electric Plan and the Plan as a result of a
written Compensation reduction agreement with
1
<PAGE> 4
a Participant, as provided in Section 3.01 of the Reliance Electric Plan and
the Plan.
1.06 "Beneficiary" means, if a Participant is married, the
Participant's Eligible Surviving Spouse unless such Eligible Surviving Spouse
consents to waiving his or her right to receive a death benefit under the Plan
upon his or her death and consents to the designation of another beneficiary.
If there is no Eligible Surviving Spouse, or the Eligible Surviving Spouse
consents to waiving his or her right to receive a death benefit, the
Beneficiary means any person, estate, trust or organization (other than a
business corporation) designated by a Participant to receive a death benefit
under the Plan in the event of his death.
The Administrative Committee shall prescribe the form for the written
designation of beneficiary and, upon the Participant's filing the form with the
Administrative Committee, it effectively shall revoke all designations filed
prior to that date by the same Participant. If under any circumstance, there
shall be a failure of the primary and contingent designees, such as the death
of designees before the deceased or simultaneously with the deceased, the
Eligible Surviving Spouse of the deceased shall be the designated beneficiary,
but if there is no such Eligible Surviving Spouse, then the designated
beneficiary shall be the deceased's surviving children and they shall share
such death benefit equally, but if there shall be no surviving children, then
the designated beneficiary shall be those who would take under the intestate
laws of the jurisdiction in which the deceased was domiciled at the time of his
death.
2
<PAGE> 5
1.07 "Board of Directors" means the Board of Directors of the Company.
1.08 "Code" means the Internal Revenue Code of 1986, as amended.
1.09 "Company" means Reliance Electric Company, a Delaware
corporation.
1.10 "Company Stock" means any Class of common stock of the Company
which qualifies as a "qualifying employer security" within the meaning of
Section 407(d)(5) of ERISA.
1.11 "Compensation" means (a) the nondeferred remuneration of an
Employee for services rendered to the Employer, inclusive of Basic Salary
Reduction Contributions, inclusive of regularly scheduled paid bonuses and
sales commissions, exclusive of overtime, shift differential and incentive
earnings, and exclusive of compensation for work rendered in excess of 40 hours
per week and the Employer's cost for any employee benefit plan (which cost is
not included in the gross income of the Employee), including the Plan, except
as provided in this Section, and (b) in the case of an Eligible Employee,
described in the second paragraph of Section 1.15, an amount determined by the
Administrative Committee, using as a guideline to be uniformly and consistently
applied, that nondeferred remuneration which would be considered as his basic
rate of compensation if his services were performed in a similar position in
the United States for the Company, but in no event shall "Compensation", as
determined by the Administrative Committee, exceed the nondeferred remuneration
actually received by such an Eligible Employee. For purposes of this Plan, the
amount
3
<PAGE> 6
of a Participant's Compensation for any Plan Year shall not exceed Two Hundred
Thousand Dollars ($200,000), as indexed by the Internal Revenue Service.
1.12 "Disability Date" means the first day of the month coincident
with or next following the termination of service of a Participant or Inactive
Participant with the Employer due to a physical or mental disability which will
permanently disable such Participant from performing the customary duties of
his regular job with the Employer. Such permanent disability is to be
determined by a licensed physician provided by or acceptable to the
Administrative Committee.
1.13 "Early Retirement Date" means the date of a Participant's or
Inactive Participant's termination of service, provided it occurs on or after
his 55th birthday, but prior to his Normal Retirement Date, and after his
completion of ten (10) Years of Credited Service.
1.14 "Effective Date of the Plan" means (a) March 1, 1978 for each
Employer authorized to participate under the Prior Reliance Electric Plan on
such date, and (b) such other date after March 1, 1978, which is the first date
an Employer is authorized to participate under the Prior Reliance Electric Plan
or the Plan.
1.15 "Eligible Employee" means an Employee who is employed on or
after the Restatement Date by an Employer and who has completed a Year of
Credited Service and is neither covered by a collective bargaining agreement
(unless that collective bargaining agreement expressly provides for the
employee's eligibility) nor eligible to
4
<PAGE> 7
participate in any other defined contribution plan maintained by an Employer or
to which an Employer contributes.
Lastly, the Plan excludes an Employee of an Employer which
is a "foreign subsidiary" (described in Section 406(a) of the Code and to
which an agreement entered into under Section 3121(1) of the Code applies)
or a "domestic subsidiary" (described in Section 407(a) of the Code)
and who is not a citizen of the United States -- other than a person
employed by a Subsidiary authorized to participate in the Plan by the
Administrative Committee.
1.16 "Eligible Surviving Spouse" means the husband or wife to who
the Participant was married on the date of the Participant's death.
1.17 "Employee" means any person who is employed by an Employer.
1.18 "Employer" means a division of the Company or any corporation
(or division of such a corporation) within Reliance Electric Company, which, in
each instance, is authorized by the Administrative Committee to participate in
the Plan.
1.19 "Employment Commencement Date" means the first date on which an
Employee performs an Hour of Service.
1.20 "ERISA" means Public Law No. 93-406, the Employee Retirement
Income Security Act of 1974, any regulations thereunder and any amendments
thereto and any successor statutes or regulations which may be enacted or
promulgated from time to time.
1.21 "Excluded Entity" means a division of the Company or any
corporation (or division of such a corporation) within the Company
5
<PAGE> 8
which, in each instance, is not authorized by the Administrative Committee to
participate in the Plan.
1.22 "Exxon Corporation" means Exxon Corporation, a New Jersey
corporation.
1.23 "First Day of the Calendar Quarter" means either January 1,
April 1, July 1 or October 1, whichever is appropriate.
1.24 "Former Participant" means any person who is entitled to
benefits from the Trust and who ceases to be employed by Reliance Electric
Company.
1.25 "Hour of Service" means an hour for which an Employee is
directly or indirectly paid, or entitled to payment by the Employer for the
performance of duties.
1.26 "Inactive Participant" means any Participant who ceases to be an
Eligible Employee, but who nonetheless remains in the employment of Reliance
Electric Company.
1.27 "Initial Public Offering" means the first public offering of
Company Stock pursuant to a registration statement filed with the United States
Securities and Exchange Commission pursuant to the provisions of the Federal
Securities Act of 1933.
1.28 "Management Investor" means a Participant who on October 31,
1989 held in the aggregate in excess of 4,999 shares of Company Stock and/or
options to purchase Company Stock under either the Reliance Electric Company
Employee Stock Purchase Plan or the Reliance Electric Company Employee Stock
Redistribution Plan.
1.29 "Matching Employer Contributions" mean the contributions made to
the Plan by the Employer, as provided in Sections 4.01, 4.09, 4.10 and 4.11
hereof.
6
<PAGE> 9
1.30 "Normal Retirement Age" means the attainment of age
Participant or Inactive Participant.
1.31 "Normal Retirement Date" means the first day of the month
coincident with or next following a Participant's or Inactive Participant's
65th birthday.
1.32 "One Year Period of Severance" means any of the successive
twelve consecutive month periods commencing on an Employee's Severance from
Service Date and ending on the anniversary of such date provided that during
such period the Employee does not perform an Hour of Service.
1.33 "Participant" means any person participating in the Plan as
provided in Article II.
1.34 "Pendency of an Initial Public Offering" shall mean the period
commencing on the date (at which date Company Stock is not Publicly Traded) the
Company publicly announces its intention to effect an Initial Public Offering
and ending on either the date the Initial Public Offering is consummated or the
date the Company publicly announces that the contemplated Initial Public
Offering will not take place.
1.35 "Period of Service" means a period of service commencing on an
Employee's Employment Commencement Date or Reemployment Commencement Date,
whichever is applicable, and ending on his Severance from Service Date. Except
as otherwise provided in the Plan, all non- successive Periods of Service shall
be aggregated and less than whole year Periods of Service shall be aggregated
on the basis that twelve months of service or 365 days of service equal a whole
year.
7
<PAGE> 10
1.36 "Period of Severance" means the period of time commencing on an
Employee's Severance from Service Date and ending on his Reemployment
Commencement Date.
1.37 "Plan" means the Reliance Electric Company Savings and
Investment Plan as set forth herein and as from time to time amended.
1.38 "Plan Year" means, as provided in the Prior Document, the twelve
month period commencing on January 1, 1981 and each January 1 thereafter.
1.39 "Prior Document" means the Reliance Electric Company Savings and
Investment Plan, as amended and restated as of January 1, 1981, including
amendments of January 1, 1979, April 1, 1979, April 25, 1980 and October 1,
1980.
1.40 "Publicly Traded" shall mean, with respect to any shares of
Company Stock, either
(a) the listing of such shares on a nationally-recognized
stock exchange; or
(b) the listing of such shares on the NASDAQ National
Market System.
1.41 "Qualified Domestic Relations Order (QDRO)" means any judgment,
decree or order (including approval of a property settlement agreement) which
is made pursuant to a State Domestic Relations Law (including a community
property law) and which:
(i) relates to provision of child support, alimony
payments, or marital property rights of a spouse,
former spouse, child or other dependent of a
Participant, and which
8
<PAGE> 11
(ii) recognizes or creates an alternate payee's right to,
or assigns an alternative payee the right to receive
all or a portion of the benefits payable with respect
to a Participant under this Plan, and which
(iii) clearly specifies
(a) name and last known address of the
Participant and of each alternate payee
(b) the amount, percentage or manner in which
such could be determined, of the
Participant's benefits to be paid to such
alternate payee by the Plan
(c) the number of payments or time period the
QDRO covers, and
(d) each Plan to which the QDRO applies.
A QDRO cannot require the Plan to provide a type or form of
benefit, or any option not otherwise provided by the Plan, nor can it require
the Plan to provide increased benefits. A QDRO cannot require payment to an
alternate payee of benefits required to be paid to another alternate payee by
virtue of a previous QDRO. A written procedure will be established to
determine the qualified status of QDRO's and to administer distributions
thereunder.
1.42 "Reemployment Commencement Date" means the first date on which
an Employee performs an Hour of Service following a Period of Severance.
1.43 "Reliance Electric Company" means all corporations which, with
the Company, are members of a controlled group of
9
<PAGE> 12
corporations within the meaning of Section 1563(a), determined without regard
to Section 1563(a)(4) and (e)(3)(C), of the Code, provided, however, the phrase
"more than 50 percent" shall be substituted for the phrase "at least 80
percent" wherever it appears in Section 1563(a)(1) of the Code.
1.44 "Reliance Electric Plan" means the Reliance Electric Company
Savings and Investment Plan, as amended and restated effective as of October 1,
1983, and thereafter amended.
1.45 "Severance from Service Date" means the date on which an
Employee quits, retires, is discharged or dies, or, if earlier, the first
anniversary of the first date of a period in which an Employee remains absent
from service with the Employer for any other reason.
The "Severance from Service Date" for a Participant who is
absent from work for Maternity or Paternity reasons, shall be the second
anniversary of the first date of such absence. The period between the first
and second anniversaries of the first date of absence for Maternity or
Paternity reasons shall not constitute a "Period of Severance". For purposes
of this paragraph, an absence from work for Maternity or Paternity reasons
means an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of the birth of a child of the Employee,
(iii) by reason of the placement of a child with the
Employee in connection with the adoption of such
child by such Employee, or
(iv) for purposes of caring for such child for a period
immediately following such birth or placement.
10
<PAGE> 13
An absence will not be considered a "Maternity or Paternity
Absence" unless the Employee provides the Administrative Committee with
information within 10 working days demonstrating that the absence is for one of
the four permitted reasons outlined above. At the end of such absence, the
Employee must provide the Administrative Committee with a record of the number
of days of such absence.
Nothing in this Plan shall require the Employer to grant a paid
leave of absence to any Employee.
1.46 "Supplemental Employee Contributions" means contributions to
the Reliance Electric Plan and the Plan as provided in Section 3.02
of the Reliance Electric Plan and the Plan or contributions to the Prior
Reliance Electric Plan in excess of the Maximum Basic Employee Contributions as
provided in Section 3.03 of the Prior Reliance Electric Plan.
1.47 "Trust" means the Reliance Electric Company Savings and
Investment Trust, as adopted and subsequently amended, and as the same forms
part of the Plan.
1.48 "Trust Fund" means the fund established under Section 13.01.
1.49 "Trustee" means the trustee as provided in Section 13.01.
1.50 "Valuation Date" means the last business day of each month.
1.51 "Vested Interest" means that portion of an Account in which an
individual has a fully vested and nonforfeitable right, as provided in Article
VII.
11
<PAGE> 14
1.52 "Year of Credited Service" means each whole year of an
Employee's Period of Service, whether or not such Period of Service is
completed consecutively.
1.53 "Year of Vested Service" means, for purposes of determining a
Participant's nonforfeitable interest in Employer contributions, each whole
year of his Period of Service, whether or not such Period of Service was
completed consecutively, provided, however, that a "Year of Vested Service"
shall not include:
(a) any portion of a Participant's Period of Service or
employment by an Excluded Entity prior to March 1,
1978, and
(b) prior to July 1, 1980, any portion of a Participant's
Period of Service with respect to which the
Participant did not
make Basic Employee Contributions under the Prior
Reliance Electric Plan;
and, further provided, however, that a "Year of Vested Service" shall include:
(c) employment by an Excluded Entity on March 1, 1978 and
thereafter of a person who, on or after that date,
either ceases to be (i) an Employee of an Employer
and becomes employed by an Excluded Entity, or (ii)
employed by an Excluded Entity and becomes an
Employee of an Employer, except that if on or after
March 1, 1978 an Employer or Excluded Entity is for
the first time included within the definition oF
"Reliance Electric Company", the Administrative
Committee shall determine, in a
12
<PAGE> 15
uniform nondiscriminatory manner, what portion, if
any, of service prior to inclusion within such
definition shall be included under this paragraph (c).
13
<PAGE> 16
ARTICLE II
PARTICIPATION
2.01 Each Eligible Employee shall be so notified by his Employer and
shall elect to participate or not to participate by signing such forms as the
Administrative Committee may require and which forms shall be delivered to the
Administrative Committee, or its designated representative, within 30 days
after such notice of eligibility, or such shorter period as established by the
Administrative Committee.
2.02 Each Eligible Employee who is employed by an Employer on the
Effective Date (including an Eligible Employee whose participation under the
Reliance Electric Plan had been suspended) and who elects to participate, in
accordance with Section 2.01, in the Plan as of the Effective Date shall become
a Participant as of the Effective Date. Each Eligible Employee who is employed
by an Employer after the Effective Date and who elects to participate when
first eligible, in accordance with Section 2.01, shall become a Participant as
of the First Day of the Calendar Year Quarter coincident with or next following
his eligibility date. Notwithstanding the preceding sentence, each Eligible
Employee who is employed by an Employer after January 1, 1991 and who elects to
participate when first eligible, in accordance with Section 2.01, shall become
a Participant as of the first day of the month coincident with or next
following his eligibility date.
2.03 Each Eligible Employee who elects not to become a Participant
when first eligible (including an Eligible Employee whose participation under
the Reliance Electric Plan had been
14
<PAGE> 17
suspended) may at any time after his eligibility date elect to become a
Participant as of the First Day of the Calendar Year Quarter next following the
date of his election to participate by completing and delivering such forms as
the Administrative Committee may require, in accordance with Section 2.01.
Notwithstanding the preceding sentence, effective January 1, 1991, each such
Eligible Employee may elect to become a Participant as of the first day of the
month next following the date of his election to participate by completing and
delivering such forms as the Administrative Committee may require, in
accordance with Section 2.01.
2.04 Except as specifically provided for herein, if a Participant
terminates his service with the Employer for any reason, his participation
shall terminate.
2.05 Interruptions in service in case of up to one year of layoff or
authorized leave of absence will not be considered termination of service for
the purposes of the Plan, but no Basic Salary Reduction Contributions or
Supplemental Employee Contributions may be made for periods of absence or
layoff unless the Participant receives nondeferred remuneration for such
periods.
2.06 If a Participant is transferred to service with an Excluded
Entity, he shall be an Inactive Participant and no Basic Salary Reduction
Contributions or Supplemental Employee Contributions may be made until he again
becomes an Eligible Employee.
2.07 In the event that the Company shall acquire the control of any
organization by purchases of assets or stock, merger, amalgamation,
consolidation or any other similar event, the Board
15
<PAGE> 18
of Directors or the Administrative Committee may authorize such organization to
participate in the Plan upon agreement that contributions shall be made as
required under the Plan, and shall determine to what extent, if any, credit for
employment with such organization shall be granted to the employees of such
organization for the purpose of determining eligibility hereunder.
16
<PAGE> 19
ARTICLE III
EMPLOYEE CONTRIBUTIONS
3.01 Each Eligible Employee wishing to participate in the Plan must
elect to make Basic Salary Reduction Contributions (upon which Matching
Employer contributions will be made in accordance with the Plan) of no less
than 1% and no more than 12% of his Compensation; however, at no time during
any Plan Year shall a Participant's Basic Salary Reduction Contributions exceed
the maximum annual deferral limit for 401(k) plans as provided in Section
402(g) of the Code. Each Participant shall enter into a written Compensation
reduction agreement with the Employer which shall provide that the Participant
agrees to accept a reduction in Compensation equal to the amount elected by the
Participant as his Basic Salary Reduction Contribution. In consideration of
such agreement, the Employer will make contributions to the Trust Fund on
behalf of the Participant for each Plan Year, in an amount equal to the amount
by which the Participant's Compensation was reduced with respect to each pay
period. In the event that the amount so contributed with respect to a
Participant during any Plan Year is less or more than the amount elected by the
Participant in his Compensation reduction agreement, an appropriate adjustment
shall be made within a reasonable period of time.
3.02 As established by the Administrative Committee, a time period
may be designated for a Participant to make a Supplemental Employee
Contribution from his own funds, provided, however, in no event may the total
Supplemental Employee Contributions, from whatever source, exceed 10% of such
Participant's aggregate
17
<PAGE> 20
nondeferred remuneration during the period of his participation in any
qualified employee benefit plan maintained by Reliance Electric Company.
3.03 A Participant may elect to increase or decrease the rate of
Basic Salary Reduction Contributions to be deducted from his Compensation,
effective as of the First Day of any Calendar Quarter, provided that the
Administrative Committee receives notice from him in writing, at least thirty
(30) days in advance, unless said notice is waived by the Administrative
Committee, and provided further that not more than two (2) increases or
decreases in the rate may be made in any one Plan Year. Notwithstanding the
preceding sentence, effective January 1, 1991, any such election by a
Participant to increase or decrease the rate of Basic Salary Reduction
Contributions to be deducted from his Compensation shall be effective the first
day of any month, provided that the Administrative Committee receives notice
from him in writing, at least thirty (30) days in advance, unless said notice
is waived by the Administrative Committee, and provided further that not more
than two (2) increases or decreases in the rate may be made in any one Plan
Year. Notwithstanding either of the preceding sentences, the Administrative
Committee may, pursuant to Section 13.13, permit an additional increase or
decrease in the contribution rate during a Plan Year.
3.04 A Participant may suspend his Basic Salary Reduction
Contributions as of the first day of any Calendar Quarter, by giving at least
thirty (30) days prior written notice to the Administrative Committee (as
determined by the date notice is
18
<PAGE> 21
received by the Administrative Committee). Notwithstanding the preceding
sentence, effective January 1, 1991, a Participant may suspend his Basic Salary
Reduction Contributions as of the first day of any month by giving prior
written notice to the Administrative Committee (as determined by the date
notice is received by the Administrative Committee). He shall be deemed to be
an Inactive Participant during the period of suspension of his Basic Salary
Reduction Contributions. He may resume such Basic Salary Reduction
Contributions, effective for notices received before January 1, 1991 on the
First Day of the Calendar Quarter and for notices received on or after January
1, 1991 on the first day of any month, which is at least three full calendar
months after the date the suspension commenced, by giving at least thirty (30)
days prior written notice to the Administrative Committee (as determined by the
date such notice is received by the Administrative Committee).
3.05 No Basic Salary Reduction Contributions may be made by a
Participant who is:
(a) not receiving Compensation,
(b) no longer an Eligible Employee,
(c) an Inactive Participant, or
(d) a Former Participant.
3.06 Notwithstanding the foregoing provisions of this Article, the
Administrative Committee shall have the right at any time to amend the
Compensation reduction agreement between the Employer and a Participant -- by
means of a retrospective or prospective reduction or rollback of the amount
elected by such
19
<PAGE> 22
Participant as his Basic Salary Reduction Contribution -- if the Administrative
Committee determines that such amendment is necessary to assure that the
Participant's Basic Salary Reduction Contribution for any Plan Year will not
exceed the limits which may be imposed by the Administrative Committee, from
time to time and in its sole discretion, so as to assure satisfaction of the
discrimination tests of Section 401(k) of the Code and/or regulations issued
thereunder. Any retrospective reduction or rollback of the amount elected by a
Participant as his Basic Salary Reduction Contribution, in accordance with the
preceding sentence, shall be deemed to have been caused by an administrative
error and shall be refunded by the Trust to the Employer. Thereafter, the
Employer shall pay the amount refunded to it, in accordance with the preceding
sentence, as Compensation to such Participant.
20
<PAGE> 23
ARTICLE IV
EMPLOYER CONTRIBUTIONS
4.01 For each month after the Restatement Date during which the Plan
is in effect, subject to the provisions of Section 9.02, the Employer shall
make Matching Employer Contributions to the Trust Fund in an amount which, when
added to forfeitures, if any, will be equal to 50% of each Participant's Basic
Salary Reduction Contributions for the corresponding month, provided, however
that for this purpose Basic Salary Reduction Contributions in excess of 6% of
Compensation shall not be taken into account. No Matching Employer
Contributions shall be made with respect to the Participant's Supplemental
Employee Contributions. The Employer may make its Matching Employer
Contributions for any month prior to the time the Basic Salary Reduction
Contributions are made for such month.
4.02 The Employer also shall contribute during each Plan Year such
amounts as are reinstated pursuant to Article XII.
4.03 Contributions to the Plan generally shall be made in the form
of cash. Notwithstanding the foregoing, effective January 1, 1990,
subject to Section 4.05, fifty percent (50%) of the Matching Employer
Contributions to the Plan pursuant to Section 4.01 hereof on behalf of those
Participants who are not Management Investors shall be made either in the form
of Company Stock or in the form of cash, which cash amount shall be invested by
the Trustee in Company Stock to the extent available. Effective April 1, 1992,
subject to Section 4.05, fifty percent (50%) of all Matching Employer
Contributions to the Plan pursuant to Section 4.01 hereof shall be
21
<PAGE> 24
made either in the form of Company Stock or in the form of cash, which cash
amount shall be invested by the Trustee in Company Stock to the extent
available. Notwithstanding the foregoing, effective upon the first day of the
month during which an Initial Public Offering is completed, subject to Section
4.05, one hundred percent (100%) of the Matching Employer Contributions to the
Plan pursuant to Section 4.01 hereof shall be made either in the form of
Company Stock or in the form of cash, which cash amount shall be invested by
the Trustee in Company Stock to the extent available.
4.04 Effective July 1, 1990, subject to Section 4.05, Participants
who are not Management Investors shall have the right to elect to have that
portion of the Matching Employer Contribution to the Plan on their behalf
pursuant to Section 4.01 hereof which is not automatically invested in Company
Stock pursuant to Section 4.03 hereof invested in Company Stock to the extent
available. Effective April 1, 1992, subject to Section 4.05, all Participants
shall be entitled to elect to have that portion of the Matching Employer
Contribution to the Plan on their behalf pursuant to Section 4.01 hereof, which
is not automatically invested in Company Stock pursuant to Section 4.03 hereof,
invested in Company Stock to the extent available. Notwithstanding the
foregoing, effective upon the first day of the month during which an Initial
Public offering is completed, subject to Section 4.05, one hundred percent
(100%) of the Matching Employer Contributions to the Plan pursuant to Section
4.01 hereof shall be made either in the form of Company Stock or in the form of
cash, which cash amount shall be invested by the Trustee in Company Stock to
the extent available.
22
<PAGE> 25
4.05 Notwithstanding the provisions of Sections 4.03 and 4.04, during
the Pendency of an Initial Public Offering the Company shall neither make a
Matching Employer Contribution in the form of Company Stock or make available
Company Stock for purchase by the Trustee. The Trustee shall purchase Company
Stock from any other available source during the Pendency of an Initial Public
Offering, but only to the extent the price of any share of Company Stock does
not exceed the value determined as of the most recent Appraisal Date. Any
Matching Employer Contributions which are not, pursuant to this Section 4.05,
immediately invested in Company Stock, shall be invested in a short term
interest fund. At the end of the Pendency of the Initial Public Offering, all
such amounts shall be invested in Company Stock, either in the Initial Public
Offering, or as soon thereafter as practicable taking account of prevailing
market conditions.
4.06 In addition to the contributions to be made pursuant to Sections
4.01, 4.02, 4.09, 4.10, and 4.11, the Employer shall pay all expenses
reasonably incurred in administering the Plan.
4.07 Subject to the provisions of Section 14.06, all contributions
made to the Plan by the Employer shall be irrevocable, except that
contributions made on account of a mistake in fact shall be returned to the
Employer, without interest, within one year of such contribution.
Contributions shall be held in the Trust Fund to be used in accordance with the
provisions of the Plan in providing the benefits, and, subject to the last
sentence of Section 7.07, neither such contributions nor any income therefrom
shall be used for or diverted to purposes other than for the
23
<PAGE> 26
exclusive benefit of Participants, Inactive Participants, and Former
Participants and their Beneficiaries under the Plan.
4.08 Notwithstanding the foregoing provisions of this Article,
with respect to a Participant the following provisions shall apply:
(a) If no Benefit Plan covering the Participant is
maintained by Reliance Electric Company during said
Plan Year, the Annual Addition for said Plan Year to
all Contribution Plans maintained by Reliance
Electric Company (including the Plan) shall not
exceed the Annual Addition Limitation.
(b) If a Benefit Plan covering the Participant is
maintained by Reliance Electric Company during said
Plan Year, the Annual Addition for said Plan Year to
all Contribution Plans maintained by Reliance
Electric Company (including the Plan) shall be
limited so that the sum of the Contribution Plan
Fraction and the Benefit Plan Fraction does not
exceed 1.
If, despite the foregoing limitations, the Annual Addition
with respect to a Participant would exceed such limitations as a
result of, for instance, the allocation of forfeitures, a reasonable
error in determining a Participant's Compensation or other limited
facts and circumstances which the Internal Revenue Service findsjustifiable,
said Annual Addition shall be reduced to the extent necessary to bring
24
<PAGE> 27
said Annual Addition within such limitations in the following manner:
(a) First, contributions by the Participant which are
included in the Annual Addition for the Plan Year
shall be returned to the Participant;
(b) Second, the amount of contributions by Reliance
Electric Company in excess of said limitations shall
not be allocated to such Participant's Account, but
shall be reallocated to the Accounts of other
Participants (in proportion to annual total
nondeferred remuneration for all Participants) until
the allocations to the Accounts of all Participants
reach such limitations; and
(c) Third, if after said reallocation, such contributions
by Reliance Electric Company would cause such
limitations to be exceeded for any Participant, the
amount of the contributions of Reliance Electric
Company in excess of such limitations shall be held
in a suspense account by the Trustee and, before
further contributions by Reliance Electric Company
are allocated to such Participant, the amount in such
suspense account shall be allocated to such
Participant's Account in the first succeeding Plan
Year or Plan Years in which such amount or a portion
thereof may be allocated without exceeding such
limitations.
25
<PAGE> 28
For the application of the foregoing provisions, the following
terms are defined as:
(i) "Annual Addition" means with respect to a Participant
the sum for said Plan Year of--
(a) contributions by Reliance Electric Company
to all Contribution Plans,
(b) the sum of the Participant's contributions
under all Benefit Plans and Contribution Plans, and
(c) forfeitures, if any allocated to such
Participant under all Contribution Plans.
(ii) "Annual Addition Limitation" means with respect to a
Participant the lesser of--
(a) in 1978, $30,050 in 1979, $32,700; in 1980,
$36,875; in 1981, $41,500; in 1982 and 1983, $45,475
and in 1984 and thereafter $30,000 (as the same may be
adjusted by the Secretary of the Treasury), and
(b) 25% of the Participant's nondeferred
remuneration.
(iii) "Benefit Plan" means a plan maintained by Reliance
Electric Company which is described in Section 401(a)
or 403(a) of the Code and which is not a Contribution
Plan.
(iv) "Benefit Plan Fraction" means a fraction, the
numerator of which is the projected annual benefit
26
<PAGE> 29
of the Participant under all Benefit Plans
(determined as of the close of the Plan Year), and
the denominator of which is the lesser of: (a) the
product of 1.25multiplied by the dollar limitation in
effect under Section 415(b)(1)(A) of the Code for
said Plan Year, or (b) the product of 1.4multiplied
by the amount which may be taken into account under
Section 415(b)(1)(B) of the Code with respect to such
Participant for said Plan Year.
(v) "Contribution Plan" means a plan maintained by
Reliance Electric Company which is described in
Section 401(a) of the Code and which provides for an
individual account for each participant and for
benefits based solely on the amount contributed to
the Participant's Account and any income, expenses,
gains and losses, and any forfeitures of accounts of
other Participants which may be allocated to such
Participant's Account.
(vi) "Contribution Plan Fraction" means a fraction, the
numerator of which is the sum of the Annual Additions
to the Participant's Accounts under all Contribution
Plans as of the close of the Plan Year and the
denominator of which is the sum of the lesser of the
following amounts determined for said Plan Year and
each prior year of service: (a) the product of 1.25
multiplied by the dollar limitation in effect under
Section 415(c)(1)(A) of the Code,
27
<PAGE> 30
or (b) the product of 1.4 multiplied by the amount which
may be taken into account under 415(c)(1)(B) of the Code
with respect to such Participant.
4.09 Notwithstanding the foregoing provisions of this Article, the
Employer may contribute to the Trust Fund additional amounts which are to be
credited to the Accounts of Participants who are not "highly compensated
employees", as defined in Section 414(g) of the Code and/or the regulations
issued thereunder, as additional Matching Employer Contributions so as to
assure satisfaction of the discrimination tests of Section 401(k) of the Code
and/or the regulations issued thereunder.
4.10 Effective January 1, 1989 and ending December 31, 1989, a
Participant's Account that is eligible to receive a supplemental Matching
Employer Contribution as of the last day of the Calendar Quarter, shall be
credited with a supplemental Matching Employer Contribution of One Hundred
Dollars ($100.00). A Participant shall be eligible to receive a supplemental
Matching Employer Contribution if said Participant (a) contributes in each
month of the quarter, (b) could not contribute in each month of the quarter due
to layoff, or (c) is unable to contribute because his contribution exceeds the
maximum amount specified in Section 402(g) of the Code as adjusted for changes
in the cost of living.
4.11 Effective July 1, 1990, and ending on the first day of the month
during which an Initial Public Offering is completed, a Participant who shall
make the election described in Section 4.04 hereof shall be entitled to have
made on his behalf an additional Matching Employer Contribution equal to twenty
percent (20%) of the
28
<PAGE> 31
amount described in said Section 4.04. Subject to Section 4.05, additional
Matching Employer Contributions to the Plan shall be made either in the form of
Company Stock or in the form of cash, which cash amount shall be invested by
the Trustee in Company Stock to the extent available.
Notwithstanding the foregoing, a Participant shall be ineligible
to receive all or a portion of the additional Matching Employer Contribution in
the event the Participant is a "highly compensated employee" as defined in
Section 414(q) of the Code and, in the reasonable opinion of the Administrative
Committee, allocation of all or a portion of such Matching Employer
Contribution would violate Section 401(a) or 401(m) of the Code.
29
<PAGE> 32
ARTICLE V
INVESTMENT PROVISIONS
5.01 The Administrative Committee shall direct the Trustee to
establish the following Funds for investment of contributions under this Plan:
(1) Fund A - Aetna Variable Fund Accumulation Account, a
registered mutual fund which will be invested under a
contract or contracts, approved by the Administrative
Committee, between the Trustee and Aetna Life
Insurance and Annuity Company for the investment of
the Assets of Fund A into a diversified portfolio
consisting of common stocks and securities
convertible into common stocks.
(2) Fund B - Interest Accumulation Fund, which will be
invested under a contract or contracts, approved by
the Administrative Committee, between the Trustee and
an insurance or other financial company or companies
selected by the Administrative Committee. Such
contract or contracts shall contain, among other
things, provisions relating to the return on
investment which such insurance or other financial
company or companies shall provide on invested
monies, and the repayment of invested monies in the
event of distributions, transfers and consolidating
transfers made in accordance with the provisions of
the Plan or in the event of termination or
discontinuance of such contract or contracts or in
30
<PAGE> 33
the event of dissolution or bankruptcy of any such
company.
(3) Fund C - Merrill Lynch Basic Value Fund, which will
be invested by the Trustee in shares of the Merrill
Lynch Basic Value Fund Inc., a diversified,
open-ended investment company seeking capital
appreciation and, secondarily, income by investing in
securities, primarily equities, that the management
of Merrill Lynch Basic Value Fund Inc. believes are
undervalued and therefore represent basic investment
value. Particular emphasis is placed on securities
which provide an above-average dividend return and
sell at a below-average price earnings ratio.
(4) Fund D - Equity Index Fund of the General Employee
Benefit Trust of Bankers Trust Company, which shall
be invested by the Trustee in shares of the Equity
Index Fund of the General Employee Benefit Trust of
Bankers Trust Company, a fund composed of a portfolio
of common stocks constructed and maintained with the
objective of providing investment results which
approximate the overall performance of the common
stocks included in the Standard & Poor's Composite
Index of 500 stocks.
(5) Exxon Stock Fund, which shall consist of shares of
the common stock of Exxon Corporation purchased by
the Trustee for a Participant under the Fund A -
31
<PAGE> 34
Common Stock Fund provision of the Prior Reliance
Electric Plan. Participants will not be allowed to
elect to have their Basic Salary Reduction
Contribution, Supplemental Employee Contribution,
Matching Employer Contribution, and Supplemental
Employer Contribution invested in the Exxon Stock
Fund and the Trustee shall make no investment in
the Exxon Stock Fund except for the reinvestment of
cash dividends on shares of the common stock of
Exxon Corporation and the investment of the interest
earned by the short term interest fund maintained by
the Trustee to generate interest income on cash
transactions related to the sale of Exxon shares
liquidated for loans, distributions, and withdrawals.
(6) Company Stock Fund, which, effective January 1, 1990,
shall consist of shares of Company Stock which shall
be acquired by the Plan pursuant to Sections 4.03,
4.04, 4.11, 5.02, 5.04, 5.05 and 5.06 hereof. Prior
to completion of an Initial Public Offering, the
Trustee shall make no other investment in the Company
Stock Fund except for the reinvestment of cash
dividends on shares of the Company Stock and the
investment of cash (and interest thereon) in a short
term interest fund maintained by the Trustee for the
purpose of generating income on cash transactions
related to
32
<PAGE> 35
the purchase or sale of Company Stock pursuant to
the Plan.
5.02 Basic Salary Reduction Contributions, Supplemental Employee
Contributions and, except as otherwise provided in Sections 4.03, 4.04, and
4.11 hereof, Matching Employer Contributions credited to a Participant's
Account shall be invested in whole in Fund A, Fund B, Fund C or Fund D, or in
25% increments to such Funds, pursuant to the election of the Participant.
Notwithstanding the preceding sentence, effective as of January 1, 1991, Basic
Salary Reduction Contributions, Supplemental Employee Contributions and, except
as otherwise provided in Sections 4.03, 4.04 and 4.11 hereof, Matching Employer
Contributions credited to a Participant's Account shall be invested in whole in
Fund A, Fund B, Fund C or Fund D, or in 5% increments to such Funds, pursuant
to the election of the Participant. Effective the first day of the month
following the completion of an Initial Public Offering, Basic Salary Reduction
Contributions and Supplemental Employee Contributions credited to a
Participant's Account may also be invested, in whole or in 5% increments, in
the Company Stock Fund, pursuant to the election of the Participant.
Notwithstanding the second sentence of this Section 5.02 if during the Pendency
of an Initial Public Offering,
(a) a Participant receives a distribution of his Account
pursuant to Article VIII, or makes a withdrawal from
his Account pursuant to Article IX, to the extent the
Participant receives an amount of
33
<PAGE> 36
cash representing his interest in the Company Stock
Fund, or
(b) amounts credited to a Participant's Account are
forfeited pursuant to Section 7.07, to the extent
forfeited amounts represent the Participant's
interest in the Company Stock Fund,
such Participant's interest in the Company Stock Fund shall be reallocated
among the remaining Participants who receive Matching Employer Contributions
with respect to the month in which the distribution or withdrawal occurred and
each remaining Participant shall have his investment in the Company Stock Fund
increased as though his Matching Employer Contribution for such month was
invested in the Company Stock Fund provided, however, that the shares of
Company Stock available for reallocation shall be equitably prorated among the
remaining Participants based on their relative Matching Employer Contributions
for such month and, to the extent applicable, consistent with their elections
under Section 4.04 as in effect immediately prior to the commencement of the
Pendency of the Initial Public Offering. The Participants assume all risk
inherent in investment, including the risk connected with any decrease in the
market price or income yield of the securities in said Account.
5.03 Effective January 1, 1989, a Participant may two (2) times in
any Plan Year change any election pursuant to Section 5.02 effective on the
First Day of any Calendar Quarter, provided that written notice of such change
is received by the Administrative Committee at least thirty (30) days prior to
the First Day of such
34
<PAGE> 37
Calendar Quarter. Effective January 1, 1991, a Participant may two (2) times
in any Plan Year change any election pursuant to Section 5.02 effective on the
first day of any month, provided that written notice of such change is received
by the Administrative Committee at least thirty (30) days prior to the first
day of such month. Effective the first day of the month following completion
of an Initial Public Offering June 1, 1992, a Participant may four (4) times in
any Plan Year (but not more frequently than once in any three (3) month period)
change any election pursuant to Section 5.02, effective on the first day of any
calendar month, provided that written notice of such change is received by the
Administrative Committee at least thirty (30) days prior to the first day of
such month (unless such notice requirement is waived by the Administrative
Committee).
5.04 Effective January 1, 1989, a Participant or Inactive Participant
(and effective January 1, 1991, any Former Participant) shall be permitted two
(2) times during a Plan Year to direct a change with respect to the existing
balance of his Account in Fund A, Fund B, Fund C, Fund D, the Exxon Stock Fund,
or the Company Stock Fund (subject to the subsequent provisions of this Section
5.04) in accordance with the rules and procedures established by the
Administrative Committee, uniformly and nondiscriminatorily applied. Effective
the first day of the month following completion of an Initial Public Offering,
a Participant, Inactive Participant or Former Participant shall be permitted
four (4) times in any Plan Year (but not more frequently than once in any three
(3) month period) to direct a change with respect to the existing
35
<PAGE> 38
balance of his Account in Fund A, Fund B (subject to subsequent provisions of
this Section 5.04), Fund C, Fund D, the Exxon Stock Fund or the Company Stock
Fund (subject to the subsequent provisions of this Section 5.04), in accordance
with the rules and procedures established by the Administrative Committee,
uniformly and nondiscriminatorily applied. A Participant, Inactive Participant
or Former Participant shall only be permitted to direct a change with respect
to the existing balance of his Account which is invested in Fund B to the
extent permitted under the contract or contracts entered into pursuant to
Section 5.01(1). A Participant, Inactive Participant or Former Participant
shall not be permitted to direct a change with respect to the existing balance
of his Account which is invested in the Company Stock Fund except to the extent
such balance was derived from some source other than Matching Employer
Contributions. Notwithstanding any other provision of the Plan, the
Administrative Committee shall have the authority, in its sole discretion, to
place such restrictions upon the investment directions of any person who is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (an
"Insider"), as shall be necessary or desirable to facilitate compliance with
said Section 16(b) and rules and regulations issued thereunder. Such
restrictions shall include, but not be limited to:
(a) a requirement that investment directions relating to
the Company Stock Fund shall be given by Insiders
only on a semi- annual date (see below) which is at
least six (6) months after the date of
36
<PAGE> 39
the most recent investment direction received from
said Insider relating to the Company Stock Fund; and
(b) in the event an Insider shall receive shares
of Company Stock in connection with a withdrawal
pursuant to Article IX hereof, a prohibition on such
Insider directing the investment of amounts credited
to his accounts into or out of the Company Stock Fund
during the six (6) month period commencing on the
date of such withdrawal.
The words "semi-annual date" shall mean a date which is within the period that
begins on the third business day following the date on which the Company's
first fiscal quarter and third fiscal quarter summary statements of sales and
earnings respectively shall be released, and which ends on the twelfth business
day following each such release date.
5.05 Notwithstanding Section 5.04 above, during the Pendency of the
Initial Public Offering under uniform rules and procedures prescribed by the
Administrative Committee and subject to such terms and conditions as the
Administrative Committee may prescribe, Participants may be permitted to direct
that amounts which are credited to their Accounts and invested in Fund A, Fund
B, Fund C, Fund D, or the Exxon Stock Fund instead be invested in the Company
Stock Fund. In the event that Participants are permitted to reallocate their
Account balances among the existing investment funds pursuant to the preceding
sentence so that Company Stock may be purchased for their Accounts in the
Initial Public Offering, the
37
<PAGE> 40
Administrative Committee shall promulgate uniform rules and procedures so that
the available shares of Company Stock which may be purchased in the Initial
Public Offering will be allocated among the Accounts of all similarly situated
Participants in a fair and equitable manner; provided, however, that no Former
Participant may direct that any amounts credited to his Account which are not
already invested in the Company Stock Fund be transferred to the Company Stock
Fund for the purpose of purchasing shares of Company Stock in the Initial
Public Offering.
5.06 Except as provided in Sections 4.03, 4.04, 4.05, and 4.11
hereof, Matching Employer Contributions with respect to a Participant's Account
shall be credited to the same fund as the other contributions which are
credited to the Participant's Account. Cash dividends and the cash proceeds of
any other distributions received on funds held in Fund A, Fund C, Fund D, the
Exxon Stock Fund or the Company Stock Fund shall be invested in accordance with
the terms of Fund A, Fund C, Fund D, the Exxon Stock Fund or the Company Stock
Fund. The return on investment of Fund B shall be invested in accordance with
the terms of Fund B.
5.07 Before an annual or special meeting of its shareholders, Exxon
Corporation shall furnish to each Participant, Inactive Participant and Former
Participant who is participating in the Exxon Stock Fund at such time, a proxy
form with related material and a request that the proxy be signed and returned.
Upon receipt of the signed proxy, the shares credited to the Participant's
Account in the Exxon Stock Fund shall be voted in the manner
38
<PAGE> 41
directed. Any shares as to which no proxy is received may be voted by the
Trustee in its discretion.
5.08 The shares of Company Stock allocated to Participants' Accounts
shall be made subject to that certain Voting Trust Agreement dated as of April
8, 1987 between certain of the Company's shareholders and the Voting Trustees
named therein. The Voting Trustees under the Voting Trust Agreement shall have
the full power and discretion to vote or to give or withhold consent in respect
of any and all shares of Company Stock held in the Company Stock Fund for all
matters which shall be submitted to the stockholders of the Company for their
approval or consent.
If the shares of Company Stock held in the Company Stock Fund
are Publicly Traded, then the Company shall furnish to each Participant,
Inactive Participant and Former Participant who is participating in the Company
Stock Fund at such time, before an annual or special meeting of its
shareholders, a proxy form with related material and a request that the proxy
be signed and returned. Upon receipt of the signed proxy, the shares credited
to the Participant's Account in the Company Stock Fund shall be voted in the
manner directed. Any shares as to which no proxy is received may be voted by
the Trustee in its discretion.
39
<PAGE> 42
ARTICLE VI
VALUATION OF ACCOUNTS
6.01 The Administrative Committee shall determine the value of each
Participant's account based on the fair market value of Funds A, B, C, D, the
Exxon Stock Fund and, to the extent Company Stock is Publicly Traded, the
Company Stock Fund not less frequently than as of the end of each month. To
the extent Company Stock is not Publicly Traded, the Administrative Committee
shall determine the fair market value of the Company Stock Fund not less
frequently than annually as of a uniform Appraisal Date.
6.02 In making any determination under Section 6.01 as to the fair
market value of any shares of Company Stock which are not Publicly Traded and
are held as part of the Company Stock Fund hereunder, the Administrative
Committee shall obtain one or more appraisals by independent appraisers meeting
the requirements of regulations issued under Section 170(a)(1) of the Code, and
to the extent any Participant's Account is invested in the Company Stock Fund,
to that extent its value on any date shall be based on the fair market value of
a share of Company Stock determined by the Administrative Committee as of the
most recent Appraisal Date.
6.03 As soon as practicable following the end of each Plan Year, and
at such other times as the Administrative Committee deems appropriate, the
Administrative Committee shall deliver or mail to each Participant, Inactive
Participant, Former Participant and Beneficiary who is entitled to receive a
benefit under the Plan a statement setting forth the fair market value of his
Account in
40
<PAGE> 43
Funds A, B, C, D, the Exxon Stock Fund and the Company Stock Fund as of the end
of such Plan Year.
41
<PAGE> 44
ARTICLE VII
VESTING
7.01 Each Participant, Inactive Participant, Former Participant and
Beneficiary shall be fully and immediately vested in that portion of his
Account which is attributable to any contributions made by him or on his behalf
except that portion of his Account which is attributable to either Matching
Employer Contributions made pursuant to Sections 4.01, 4.02, 4.10 and 4.11
hereof.
7.02 Except as set forth elsewhere in this Article VII, each
Participant, Inactive Participant and Former Participant shall be 100% (fully)
vested after completion of three (3) Years of Vested Service in the value of
the Matching Employer Contributions credited or to be credited to his Account
pursuant to Sections 4.01, 4.02, 4.10 and 4.11 hereof.
7.03 In determining a Participant's Period of Service, for the
purpose of determining under Section 7.02 the total Years of Vested Service of
a Participant, the Plan shall take into account Periods of Severance if the
Participant completes an Hour of Service within twelve (12) months:
(a) of his Severance from Service Date, in the case of a
Participant who severs from service by reason of a
quit, discharge or retirement; or
(b) of the date on which he was first absent from
service, in the case of a Participant who severs from
service by reason of a quit, discharge or retirement
during an absence from service of 12
42
<PAGE> 45
months or less for any reason other than a quit,
discharge or retirement.
7.04 For the purpose of determining under Section 7.02 the total
Years of Vested Service a Participant has completed, all of the Participant's
Period of Service (including Periods of Severance required to be taken into
account under Section 7.03) with an Employer shall be taken into account,
except that the following shall be disregarded:
(a) In the case of a Participant who has a One Year
Period of Severance, Periods of Service before such
severance, unless and until such Participant has
completed a one year Period of Service after he is
rehired by an Employer;
(b) in the case of a Participant who does not have a
Vested Interest, under Section 7.02, when he
terminates employment with an Employer, and who has a
One Year Period of Severance, Periods of Service
before such severance, unless the Participant's
Period of Service prior to such severance exceeds his
consecutive Periods of Severance; and
(c) Periods of Service after a One Year Period of
Severance solely for the purpose of determining the
nonforfeitable percentage applicable to the
Participant, under Section 7.02, prior to such One
Year Period of Severance.
43
<PAGE> 46
(d) If a Former Employee is reemployed, his Period of
Service prior to such Severance from Service Date
shall be restored only if the number of consecutive
one year Periods of Severance, prior to such
reemployment, was less than the greater of (i) five
(5) or (ii) the aggregate number of years of Periods
of Service before such Severance from Service Date.
An Employee whose prior service is restored shall
receive service from the date of reemployment.
7.05 If a Former Participant who was not fully vested at the time of
his Severance from Service Date is deemed to have received a single lump sum
distribution upon his becoming a Former Participant, in accordance with Section
7.07 hereof, upon rehire of such Former Participant his Period of Service with
respect to which such a distribution was made shall be disregarded for the
purpose of Section 7.02, unless he is rehired prior to his incurring five (5)
consecutive One Year Periods of Severance.
7.06 Notwithstanding the provisions of Section 7.02, Participants and
Inactive Participants shall become fully vested in Matching Employer
Contributions credited to their Accounts at:
(a) Normal Retirement Age,
(b) Early Retirement Date,
(c) Disability Date,
(d) death,
(e) termination of the Plan,
44
<PAGE> 47
(f) complete discontinuance of Matching Employer
Contributions to the Plan, or
(g) termination of employment due to the closing or
divestment (including the closing of a plant or
facility) of any Employer (but only with respect to
Eligible Employees of such Employer).
7.07 If a Participant's Vested Interest is less than 100% of the
amount credited to his Account, an amount equal to the excess of:
(a) the amount credited to his Account; over
(b) his Vested Interest;
shall be forfeited as of the first to occur of (i) the date on or after the
Participant's Severance from Service Date on which the Participant receives a
distribution of his Account pursuant to Article VIII hereof, or (ii) the date
on which the Participant incurs five (5) consecutive One Year Periods of
Severance, or (iii) the date the Participant dies. Notwithstanding the
preceding provisions of this Section 7.07, if a Participant's Vested Interest
under the Plan is zero (0), then such Participant shall be deemed to have
received a lump sum distribution from the Plan in such amount in full discharge
of the Plan's liability in respect to payment of his Account and the amount
credited to his Account shall
45
<PAGE> 48
be forfeited. Such distribution and such forfeiture shall be deemed to have
occurred on the date of the Participant's Severance from Service Date. Any
forfeiture shall be used to reduce the Matching Employer Contributions which
are otherwise required to be made on and after the date of forfeiture.
46
<PAGE> 49
ARTICLE VIII
DISTRIBUTION OF BENEFITS
8.01 A Participant who retires can elect to receive a distribution of
his Account in a single lump sum distribution (a) as soon as practicable
following his date of retirement, (b) during the month of January which
immediately follows the calendar year in which he retires, (c) if Company Stock
is not then Publicly Traded, as soon as practicable following the first to
occur of either completion of the next appraisal of Company Stock which occurs
after his retirement or the date Company Stock becomes Publicly Traded, or (d)
except as provided in Section 8.07, on any date on or after his attainment of
age 65.
A Participant who separates from service prior to his Normal
Retirement Date or Early Retirement Date can elect to receive a distribution
of his Vested Interest in a single lump sum (a) as soon as practicable
following his Severance from Service Date, (b) if Company Stock is not then
Publicly Traded as soon as practicable following the first to occur of either
completion of the next appraisal of Company Stock which occurs after his
Severance from Service Date or the date Company Stock becomes Publicly Traded,
(c) except as provided in Section 8.07 on any date on or after his attainment
of age 65, or (d) if the Participant has completed ten (10) Years of Credited
Service, on his 55th birthday.
Notwithstanding the foregoing, if a Participant retires or
separates from service and, prior to the time he elects to receive a
distribution of his Account pursuant to this Section 8.01 above, the Pendency
of an Initial Public Offering commences, then,
47
<PAGE> 50
in addition to the choices of the Participant is given under this Section 8.01
above, the Participant may elect to receive his Vested Interest either:
(a) in two distributions, with the value of his Account
which is not invested in the Company Stock Fund
distributed to him as soon as practicable following
his retirement or Severance from Service Date, and
the value of his Account which is invested in the
Company Stock Fund distributed to him as soon as
practicable following the end of the Pendency of the
Initial Public Offering; or
(b) in a single lump sum distribution as soon as
practicable following the end of the Pendency of the
Initial Public Offering.
Notwithstanding the foregoing, if the value of a Participant's
Account does not exceed $3,500, distribution shall be made to such Participant
in the form of a single lump sum distribution as soon as practicable following
his retirement or Severance from Service Date; provided, however, that if such
a Participant retires or separates from service during the Pendency of an
Initial Public Offering, such a Participant may elect to receive his Vested
Interest:
(a) in a single lump sum distribution as soon as
practicable following his retirement or Severance
from Service Date, or
(b) in two distributions, with the value of his
account which is not invested in the Company Stock
Fund
48
<PAGE> 51
distributed to him as soon as practicable following
his retirement or Severance from Service Date, and
the value of his Account which is invested in the
Company Stock Fund distributed to him as soon as
practicable following the end of the Pendency of the
Initial Public Offering; or
(c) in a single lump sum distribution as soon as
practicable following the end of the Pendency of the
Initial Public Offering.
8.02 If a Participant has elected a time of distribution pursuant
to Section 8.01 and, after such election is made and prior to the time the
distribution is made, the Pendency of an Initial Public Offering commences, if
such distribution is scheduled to be made while the Pendency of the Initial
Public Offering exists, such Participant may elect to either:
(a) receive his distribution at the scheduled date; or
(b) receive the value of his Vested Interest, to the
extent it is not invested in the Company Stock Fund,
on the scheduled date, and the value of his Vested
Interest, to the extent it is invested in the Company
Stock Fund, as soon as practicable following the end
of the Pendency of the Initial Public Offering.
(c) receive his entire distribution at the end of the
Pendency of the Initial Public Offering.
8.03 A Participant generally shall receive payment of his entire
Vested Interest in the form of cash; provided, however, that
49
<PAGE> 52
if sufficient cash is not available to make cash distributions to all similarly
situated Participants who have a Vested Interest in the Exxon Fund and/or the
Company Stock Fund, the Administrative Committee shall have the discretion to
direct the Trustee to make distributions to such Participants in the form of
whole shares of Exxon Stock and/or Company Stock, as appropriate, plus cash for
the value of any fractional shares. In addition, any Participant may elect in
writing to receive that portion of his Vested Interest in the Exxon Fund in
whole shares of Exxon Stock, plus cash for the value of any fractional shares.
If Company Stock is Publicly Traded, any Participant may elect in writing to
receive that portion of his Vested Interest which is invested in the Company
Stock Fund in whole shares of Company Stock, plus cash for the value of any
fractional shares.
8.04 Participants who Sever from Service or retire shall be required
to complete such forms as the Administrative Committee shall prescribe.
8.05 If a Participant, Inactive Participant or Former Participant
shall die before complete distribution of his Vested Interest, the
undistributed balance of such Vested Interest shall be distributed to his
Beneficiary.
8.06 Each Participant shall have the right from time to time to file
with the Administrative Committee:
(a) a designation of Beneficiary to receive death benefits,
and
(b) a direction to the Administrative Committee that
50
<PAGE> 53
the death benefits are to be distributed to his
Beneficiary:
(i) in the form of a lump sum distribution; or
(ii) in approximately equal annual installments
over more than one (1) year but not more than
five (5) years; subject to any generally
applicable restrictions in the Plan.
8.07 Notwithstanding any other provisions of this Plan, distributions
hereunder shall be subject to the following restrictions:
(a) in the case of a living Participant or Former
Participant distribution must commence on or before
the April 1 following the end of the calendar year
in which:
(i) he attains age seventy and one-half (70-1/2)
or retires, whichever is later, if the
Participant shall have attained age seventy
and one-half (70-1/2) prior to January 1,
1988 and was not a five percent (5%) owner at
any time after the beginning of the Plan Year
that ends in the calendar year during which
he attained age sixty-six and one-half
(66-1/2); or
(ii) he attains age seventy and one-half (70-1/2)
in all other cases; and
51
<PAGE> 54
(b) in the case of a deceased Participant or Former
Participant, distributions after his death shall be
payable either:
(i) within five (5) years of the date of his
death; or
(ii) if distributions commence to his Beneficiary,
then:
(A) within one (1) year of the date of
his death or on a later date
permitted under any lawful
regulations by the Secretary of the
Treasury; or
(B) if his spouse is his Beneficiary, by
the date such Participant would have
attained age seventy and one-half
(70-1/2); over a period not extending
beyond the life expectancy of such
Beneficiary; and
(c) in the case of the death of a Beneficiary who is the
surviving spouse of a deceased Participant, a
distribution commencing after the death of the
spouse shall be payable either:
(i) within five (5) years of the date of the
spouse's death; or
(ii) if distribution commences to the spouse's
Beneficiary within one (1) year of the
spouse's death or on a later date permitted
under any lawful regulations issued by the
Secretary of the Treasury,
52
<PAGE> 55
over a period not extending beyond the life
expectancy of such Beneficiary; or
(d) in the event payments are made to a Participant's
child, for purpose of this Section 8.06 such
payments shall be deemed to be paid to the
Participant's spouse if such payments will become
payable to such spouse upon such child's reaching
majority or any other event permitted under any
lawful regulations issued by the Secretary of the
Treasury.
The life expectancy of a Participant, Former Participant or
spouse thereof may be redetermined from time to time but not more frequently
than annually.
8.08 Upon termination of the Plan, complete discontinuance of
Employer contributions, or closing or divestment of any Employer (but only with
respect to Eligible Employees of such Employer), Vested Interests of
Participants shall be distributed at the time and in the manner as may be
decided on by the Administrative Committee upon rules that will be uniformly
and nondiscriminatorily applied.
53
<PAGE> 56
ARTICLE IX
WITHDRAWALS DURING EMPLOYMENT
9.01 (a) A Participant or Inactive Participant who attains age
59-1/2 may withdraw up to his entire Vested Interest.
(b) A Participant or Inactive Participant, not described
in (a) above, may withdraw that portion of his Account
attributable to Basic Employee Contributions or
Supplemental Employee Contributions.
(c) Effective January 1, 1989, a participant or Inactive
Participant not described in (a) above may withdraw
his Vested Interest attributable to Matching Employer
Contributions (other than Matching Employer
Contributions invested in the Company Stock Fund)
provided that the amounts to be withdrawn were
contributed to the Plan at least 24 months prior to
the date of withdrawal. Notwithstanding the
foregoing, in the event a Participant or Inactive
Participant not described in (a) above has been a
Participant in the Plan for a five year period, such
Participant or Inactive Participant may withdraw 100%
of his Vested Interest attributable to Matching
Employer Contributions (other than Matching Employer
Contributions invested in the Company Stock Fund
54
<PAGE> 57
and Matching Employer Contributions made pursuant to
Section 4.09).
(d) Effective January 1, 1989, in the case of financial hardship,
a Participant or Inactive Participant, even though described
in (a) above, may withdraw his Vested Interest attributable to
Matching Employer Contributions as described in Section
9.01(c) above (including Matching Employer Contributions made
pursuant to Section 4.08 but excluding Matching Employer
Contributions invested in the Company Stock Fund) and that
part of the balance of his pre-tax Account (including earnings
on the Basic Salary Reduction Contributions through December
31, 1988) which is not attributable to Matching Employer
Contributions. For the purpose of this paragraph, a
withdrawal will be on account of financial hardship if the
withdrawal is necessary in light of an immediate and heavy
financial need of the Participant or Inactive Participant and
is necessary to satisfy such financial need. Such withdrawal
based upon financial hardship cannot exceed the amount
required to meet the financial need created by the hardship.
The determination of the existence of financial hardship and
the amount required to meet the financial need shall take into
account all non-hardship distributions and nontaxable loans
available under the Plan and shall be made in accordance with
the hardship provisions of Section 401(k) of the Internal
Revenue Code and with uniform and nondiscriminatory standards
55
<PAGE> 58
established by the Administrative Committee. In accordance with the
foregoing, the Administrative Committee has established that a
Participant or Inactive Participant will be deemed to have an
immediate and heavy financial need and, therefore, will qualify for a
financial hardship withdrawal if the purpose of the withdrawal is on
account of the following:
(i) Medical expenses of the Participant, Inactive
Participant, spouse or dependent of the type
that are eligible for tax deductions,
(ii) Down payment for principal residence of the
Participant or Inactive Participant,
(iii) Tuition payments for the next semester or
quarter of post-secondary education for
the Participant, Inactive Participant,
spouse, children or dependents, or,
(iv) The need for the Participant or Inactive
Participant to avoid eviction from or
foreclosure on the Participant's or Inactive
Participant's principal residence.
(e) Withdrawals of a Vested Interest, to the extent
permitted, shall be made only in the following order
of priority, and only after the funds of a higher
priority have been completely withdrawn shall funds
of the next following priority be withdrawn:
56
<PAGE> 59
(i) Supplemental Employee Contributions,
(ii) Basic Employee Contributions,
(iii) Earnings credited to Supplemental Employee
Contributions and Basic Employee
Contributions,
(iv) Matching Employer Contributions (other than
Matching Employer Contributions made pursuant
to Section 4.09), together with earnings
thereon, if any,
(v) Basic Salary Reduction Contributions and
Matching Employer Contributions made pursuant
to Section 4.09,
(vi) Earnings credited to Basic Salary Reduction
Contributions and Matching Employer
Contributions made pursuant to Section 4.09,
(vii) Subsequent to a determination of the order of
priority for purposes of withdrawals of a
Vested Interest as determined in subsection
(i) through subsection (vi) above,
withdrawals of a Vested Interest shall be
made only in the following order of priority
from Funds A, B, C, D the Exxon Stock Fund
and the Company Stock Fund (to the extent
permitted) as follows:
1. Fund B - Interest Accumulation Fund
2. Exxon Stock Fund
57
<PAGE> 60
3. Fund A - Aetna Variable Fund
Accumulation Account
4. Fund C - Merrill Lynch Basic Value
Fund
5. Fund D - Equity Index Fund of the
General Employee Benefit Trust of
Bankers Trust Company
6. Company Stock Fund
(f) Upon thirty (30) days written notice to the
Administrative Committee withdrawals shall be made as
of the next forthcoming First Day of the Calendar
Year Quarter in such form as the Administrative
Committee may direct. Notwithstanding the preceding
sentence, effective January 1, 1991, upon thirty (30)
days written notice to the Administrative Committee
withdrawals shall be made as of the next forthcoming
first day of the month in such form as the
Administrative Committee may direct. Notwithstanding
the above, the Administrative Committee may pursuant
to Section 13.13 suspend the above requirements to
provide for a "special withdrawal period".
9.02 If a Participant withdraws an amount from his Account for any
reason other than a financial hardship, there shall be a six (6) month
suspension of Matching Employer Contributions with respect to such
Participant's Basic Salary Reduction Contributions. If a Participant withdraws
an amount from his Account in the case
58
<PAGE> 61
of a financial hardship, there shall be a twelve (12) month suspension of all
contributions to his Account.
59
<PAGE> 62
ARTICLE X
LOANS
10.01 A Participant, an Inactive Participant or Former Participant
who is a party-in-interest within the meaning of Section 3(14) of ERISA, or the
Beneficiary of such an individual, may apply to the Administrative Committee
for a loan from the Plan. Loans shall be permitted under the Plan for any
purpose. If the Administrative Committee determines that a borrower and the
proposed loan to such borrower satisfy the requirements set forth below for
loan approval, the Administrative Committee shall direct the Trustee to make a
loan to such borrower. The amount of any such loan shall be determined by the
Administrative Committee; provided, however, that any such loan shall be for an
amount not less than $1,000.00 nor more than 50% of the value of the borrower's
Account which is attributable to his Basic Salary Reduction Contributions. In
addition, any such loan shall not, when combined with outstanding loans made
under other qualified retirement plans, if any, maintained by the Employer,
exceed $50,000.00 reduced by the highest outstanding loan balance to the
borrower during the immediately preceding 12-month period (ending the day
before the new loan is granted).
All loans from the Plan must comply with the following terms and
conditions:
(a) An application for a loan shall be made in writing to
the Administrative Committee or its agent, whose
action thereon shall be final;
60
<PAGE> 63
(b) the interest rate shall be determined by the
Administrative Committee and shall be not less than
the rate which would be charged to the borrower by a
lending institution, were such institution to make a
personal loan to the borrower on which the borrower
were to pledge identical or substantially similar
collateral;
(c) the Administrative Committee receives assurances that
the borrower intends to repay the loan in accordance
with its terms;
(d) the borrower provides adequate security consisting of
not more than 50% of the value of the borrower's
Account which is attributable to his Basic Salary
Reduction Contributions and/or such other security as
the Administrative Committee may require;
(e) the borrower shall execute appropriate loan documents;
(f) the term of any loan shall be arrived at by mutual
agreement between the borrower and the Administrative
Committee and shall not exceed five (5) years. All
loans shall provide for the substantially level
amortization of the loan, with payments made not less
frequently than quarterly, over the term of the loan;
(g) repayment of any loan made to an Employee shall be by
payroll deduction, unless the Administrative
Committee and the Employee mutually agree to
61
<PAGE> 64
another procedure. Repayment of any loan made to a
person who is not an Employee shall be made by
certified check or money order;
(h) a borrower shall be in default if he fails to make
two payments of principal or interest when due or if
his collateral becomes inadequate to secure the loan
and he does not provide substitute collateral
satisfactory to the Administrative Committee within
ten (10) days after a request therefor by the
Administrative Committee. In the event of default by
a borrower, his loan shall be accelerated and:
1. If his collateral security in the Plan is
adequate to cover all or part of the
outstanding principal and interest,
and if distribution of such amount
would not, in the opinion of the
Administrative Committee, put at risk the tax
qualified status of the Plan or the Basic
Salary Reduction Contribution portion
thereof, the Trustee shall execute upon such
Plan collateral; and
2. If his collateral security described in
paragraph (h)(1) is not adequate to cover all
of the outstanding principal and interest, or
if execution upon such collateral would, in
the opinion of the Administrative Committee,
put at risk the tax qualified status of the
Plan or the Basic Salary Reduction
Contribution portion thereof, the Trustee
shall commence appropriate collection action
against the borrower to recover the amounts
owed.
Expenses of collection, including legal fees, if any,
of any loan in default shall be borne by the borrower
or his Account;
(i) except as provided below, each loan shall be treated
as a separate investment of the funds credited to
such borrower's Account and the Administrative
Committee shall reduce such borrower's Account in the
following order of priority:
1. Fund B - Interest Accumulation Fund
2. Exxon Stock Fund
3. Fund A - Aetna Variable Fund Accumulation
Account
4. Fund C - Merrill Lynch Basic Fund
5. Fund D - Equity Index Fund of the
General Employee Benefit Trust of Bankers
Trust Company
6. Company Stock Fund Payments by a
borrower on any such loan shall be credited
to such borrower's Account in the Funds
listed above in the same proportions as the
borrower's current investment option
election with respect to such Funds at the
time loan payments are made;
62
<PAGE> 65
(j) no distribution shall be made to any Participant,
Inactive Participant, eligible Former Participant, or
to a Beneficiary of any such individual, unless and
until all unpaid loans to such Participant, Inactive
Participant, eligible Former Participant, or
Beneficiary, including accrued interest thereon, have
been paid;
(k) a Participant, Inactive Participant, eligible Former
Participant or Beneficiary cannot have more than one
loan outstanding at any time; and
(l) the Administrative Committee shall notify a borrower
that, to the extent his loan is secured by his Basic
Salary Reduction Contributions, no interest deduction
is allowable.
63
<PAGE> 66
ARTICLE XI
PAYMENT OF BENEFITS
11.01 If the Administrative Committee receives evidence satisfactory
to it that a person entitled to receive any benefit under the Plan is
physically or mentally incompetent to receive such benefit and to give a valid
release therefor, or is a minor, and that another person or an institution is
then maintaining or has custody of such person, unless claim shall have been
made therefor by a duly appointed guardian, committee or other legal
representative, the Administrative Committee may authorize payment of such
benefit to such other person or institution and the release of such other
person or institution shall be a valid and complete discharge for the payment
of such benefit.
11.02 Every person before becoming entitled to any benefits under the
Plan shall furnish the Administrative Committee with such information as it may
require, including, but not limited to, proof of age relating to himself and
any person nominated as a Beneficiary.
11.03 The benefits under the Plan shall be payable solely from the
Trust Fund and each Participant, Inactive Participant, Former Participant,
Beneficiary or other person who shall claim the right to any payment under the
Plan shall be entitled to look only to that fund for such payment. No
liability for the payment of benefits or any other payments under the Plan
shall be imposed upon the Administrative Committee, Reliance Electric Company,
the Company, Employer, or the officers, directors or stockholders of the
Company.
64
<PAGE> 67
11.04 Except as expressly provided in the Plan, no Participant,
Inactive Participant, Beneficiary or other person entitled to benefits may
withdraw or receive any monies from the Trust Fund.
65
<PAGE> 68
ARTICLE XII
REEMPLOYMENT
12.01 A Participant or Inactive Participant, whose service is
terminated prior to retirement and who is subsequently reemployed by an
Employer, shall be eligible for participation on his date of reemployment.
An Eligible Employee who had been a Former Participant whose
service terminated prior to attaining a fully vested interest in his Account,
as provided in Section 7.02, shall have the dollar value of that portion of his
Account which was forfeited pursuant to Section 7.07 reinstated if he is
rehired prior to incurring five (5) consecutive One Year Periods of Severance
after such termination of service.
66
<PAGE> 69
ARTICLE XIII
ADMINISTRATION OF THE PLAN
13.01 A Trust Fund shall be established by a Trustee or Trustees
appointed and/or removed from time to time by the Board of Directors into which
shall be deposited all assets of the Plan. The Company may, without reference
to any Participant or other party, enter into a trust agreement and make such
amendment to such trust agreement or such further amendments as it in its sole
discretion may deem necessary or desirable to carry out the Plan. The corpus
and income of the Trust Fund shall be used to provide benefits under the Plan
and no part thereof shall be used for or diverted to purposes other than for
the exclusive benefit of Participants, Inactive Participants, Former
Participants and their Beneficiaries.
13.02 The Trustee or Trustees appointed by the Board of Directors
shall have sole authority to sell Exxon Stock held in the Exxon Stock Fund and
Company Stock held in the Company Stock Fund for the Participants for the
purposes of making a distribution of the value of the Exxon Stock and/or
Company Stock to a Participant as required under the terms of the Plan. The
Trustee or Trustees also shall conform to procedures established by the
Administrative Committee for disbursal of funds of the Plan. The Trustee or
Trustees shall not be liable for any act performed while subject to directions
of the Administrative Committee made in accordance with the terms of the Plan.
13.03 The Company shall be the named fiduciary and Administrator of
the Plan as such terms are defined by ERISA. The
67
<PAGE> 70
general administration of the Plan and the responsibility for carrying out its
provisions shall be placed in an Administrative Committee consisting of not
less than three persons who shall be appointed from time to time by the Board
of Directors to serve at its pleasure. The members of the Administrative
Committee may authorize one or more of their number or any agent to make any
payment on their behalf or to execute or deliver any instrument or do any act
on behalf of the Committee.
13.04 The Administrative Committee shall, at a meeting duly called
for the purpose, establish a funding policy and method consistent with the
objectives of the Plan and the requirements of Title I of ERISA and shall meet
annually to review such funding policy and method. All actions taken with
respect to such funding policy and method and the reasons therefor shall be
recorded in the minutes of the Administrative Committee's meetings.
13.05 The Administrative Committee shall hold meetings upon such
notice, at such place and at such time as it may determine. A majority of the
members of the Administrative Committee shall constitute a quorum for the
transaction of business, and the action of a majority of such majority
expressed from time to time by voting at a meeting shall constitute the action
of the Committee. In lieu thereof, the action of a majority of the members of
the Administrative Committee expressed in writing without a meeting shall
constitute the action of the Committee.
13.06 Subject to the limitations of the Plan, the Administrative
Committee from time to time shall adopt administrative rules and regulations
and prescribe such forms and applications as
68
<PAGE> 71
are appropriate to the administration of the Plan. The determination of the
Administrative Committee as to any disputed questions shall, subject to the
provisions of ERISA, be conclusive.
13.07 The Administrative Committee shall determine the procedures to
be followed in connection with the disbursal of the funds of the Plan and shall
establish a reasonable claims procedure.
13.08 Each member of the Administrative Committee, the Company, or
any director, officer or Employee thereof, shall be entitled to rely
conclusively on all tables, valuations, certificates, opinions and reports
which shall be furnished by any expert who shall be employed or engaged by the
Company or the Administrative Committee.
13.09 All rules and decisions of the Administrative Committee in
administering the Plan shall, to the extent practicable and reasonable, be
uniformly and consistently applied to all Participants in similar
circumstances. In particular, in exercising its powers hereunder, the
Administrative Committee shall pursue uniform policies and shall not
discriminate in favor of or against any Participant or group of Participants,
except to the extent the Committee may consider necessary in order to meet any
requirements of the Code or of regulations issued thereunder or of ERISA or
other applicable law.
13.10 No member of the Administrative Committee shall receive any
compensation from the funds held under the Plan for his services as such, and
no bond or other security need be required of him in such capacity in any
jurisdiction.
69
<PAGE> 72
13.11 Reliance Electric Company shall indemnify and hold harmless all
present and future fiduciaries of the Plan, including the Administrative
Committee and Trustee, from any and all liability imposed, whether individually
or jointly, under ERISA and under any similar legislation, with respect to any
action or omission as a fiduciary of the Plan, unless such persons have
knowingly participated in or have knowingly undertaken to conceal an act or
omission knowing that such act or omission was a breach of their fiduciary
duty.
13.12 Shares of Exxon Stock shall not be purchased by the Plan from
or sold to Reliance Electric Company.
13.13 The Administrative Committee may, once a year, suspend the
requirements of Section 9.01(f) of the Plan to provide for a "special
withdrawal period" which shall be subject to the limitations of the Plan and/or
permit an additional increase or decrease in the contribution rate as stated in
Section 3.03 of the Plan.
70
<PAGE> 73
ARTICLE XIV
CERTAIN RIGHTS AND OBLIGATIONS
14.01 It is the intention that the Plan continue and that
contributions be made regularly each year, but all contributions of the Plan
shall be voluntary, and not a legal obligation.
14.02 The Plan may be terminated at any time by the Board of
Directors. Upon complete or partial termination, the rights of all affected
Participants and Inactive Participants to the amounts credited to their
Accounts are fully vested and nonforfeitable. Following such termination the
Administrative Committee may require persons entitled thereto to withdraw
amounts allocated to them in cash or otherwise as it, in its discretion, may
determine.
14.03 The Company may, with the consent of the Board of Directors
withdraw from the Plan at any time, and the Board of Directors may in its
discretion at any time withdraw the authorization of any subsidiary or any
Employer to participate in the Plan. In either of such events, the affected
Employees shall cease to be Participants under the Plan, and the Administrative
Committee shall arrange for the withdrawal or segregation of such Employees'
share of the assets of the Plan, as determined by a valuation as of the date of
the event. The Administrative Committee shall have the full discretion as to
the nature of the funds to be withdrawn or segregated, and its valuation
thereof for that purpose shall be conclusive. Unless a savings and investment
plan substantially similar in form to the Plan or such other form as may be
approved by the Internal Revenue Service under Section 401(a) of the Code is
continued by a successor corporation for its employees, the Plan
71
<PAGE> 74
shall be deemed to have terminated with respect to such Employees and such
segregated assets shall be fully vested to them in accordance with the
provisions of Section 14.02. The Administrative Committee shall arrange for
the disposition of such assets through transfers to a successor trust, an
assignment of all or a portion of the rights under any insurance contract or by
any other means it shall determine.
14.04 The establishment of the Plan shall not be construed as
conferring any legal rights upon any Employee or any person for a continuation
of employment, nor shall it interfere with the rights of the Employer to
discharge any Employee and to treat him without regard to the effect which such
treatment might have upon him under the provisions of the Plan.
14.05 In the event, and effective as of the date, of any merger or
consolidation with, or transfer of assets or liabilities to, any other plan or
to this Plan if applicable, each Participant of the Plan will (if the other
plan is then terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit the
Participant would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan/plan had then terminated).
14.06 If the Internal Revenue Service determines that the Plan and
Trust do not qualify initially under Sections 401(a) and/or 401(k) of the Code,
within one year after the date of such denial of qualification and upon written
request by the Company filed with the Trustee, Supplemental Employee
Contributions, if any, shall be returned to the Employees by the Trustee and
Matching
72
<PAGE> 75
Employer Contributions, Supplemental Employer Contributions, and Basic Salary
Reduction Contributions shall be returned to the Employer by the Trustee.
Thereafter, the Employer shall pay the amount of Basic Salary Reduction
Contributions refunded to it, in accordance with the preceding sentence, as
Compensation to the Employees. Notwithstanding any provision in this Plan to
the contrary, no Participant or Beneficiary shall have any right or claim to
any asset of the Trust or to any benefit under the Plan before the Internal
Revenue Service determines that the Plan and Trust qualify under the provisions
of Section 401(a) and 401(k) of the Code. Upon the return of all contributions
to the Employer and Employees as provided herein, the Trust shall terminate and
the Trustee shall be discharged from all obligations under the Trust.
73
<PAGE> 76
ARTICLE XV
AMENDMENTS
15.01 The Company reserves the right at any time and from time to
time by action of its President or any Vice President to modify or amend in
whole or in part any or all of the provisions of the Plan; provided, that no
modification or amendment may be made which will deprive any Participant,
Inactive Participant, Former Participant, Beneficiary or other person receiving
a benefit under the Plan to which he would otherwise be entitled by reason of
his participation in the Plan of any vested benefit; provided, however, that
any amendment to the Plan which is deemed necessary or appropriate to bring the
Plan into conformity with Governmental regulations may be made (retroactively
if necessary) in order to qualify the Plan under the Code. The Company shall
furnish a copy of any amendment to the Plan to the Trustee as soon as
practicable following the adoption thereof.
15.02 Any such amendment, modification or alteration shall be
expressed in an instrument executed by the President or by a Vice President of
Reliance Electric Company, and shall become effective as of the date designated
in such instrument. Furthermore, unless proper exemption is granted, any
amendment to be effective for a Plan Year must be adopted no later than 2-1/2
months after the close of the Plan Year, or such longer period as is permitted
by the Internal Revenue Service and/or the Department of Labor of the U.S.
Government, and, if such amendment reduces the accrued benefit of any Employee,
such amendment shall not be effective unless approved by the Secretary of Labor
or unless he fails to take
74
<PAGE> 77
action disapproving such amendment within ninety (90) days after receiving
notice of it. Finally, no Plan amendment shall affect the vesting of any
Participant's benefits adversely.
75
<PAGE> 78
ARTICLE XVI
NON-ALIENATION OF BENEFITS
16.01 No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void; nor shall any such benefit
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled to such benefit, except as
specifically provided in the Plan, or except as provided by a Qualified
Domestic Relations Order.
16.02 If any Participant, Inactive Participant, Former Participant,
Beneficiary, or any other person entitled to benefits under the Plan becomes
bankrupt or makes an assignment for the benefit of creditors, or in any way
suffers a lien or judgment against his personal assets or attempts to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
benefit under the Plan, except as specifically provided in the Plan, then such
benefit shall, in the discretion of the Administrative Committee, cease and
terminate, and in that event the Administrative Committee may hold or apply the
same or any part thereof to or for the benefit of such Participant, his spouse,
descendants (including any person adopted by such person or his descendants,
and descendants of such adopted persons), other dependents, other persons or
any of them, in such manner and in such proportion as the Administrative
Committee may think proper.
76
<PAGE> 79
ARTICLE XVII
TOP-HEAVY PROVISIONS
17.01 If the Plan is determined to be a Top-Heavy Plan with respect
to any Plan Year, the provisions of this Article XVII shall govern
notwithstanding any contrary provisions in the Plan.
17.02 As of any Determination Date, as defined herein, the Plan will
be determined to be a Top-Heavy Plan if the sum of contributions due as of the
Determination Date on behalf of Key Employees, as defined herein, and the
aggregate of the balances of Accounts (as of the most recent Valuation Date
within the twelve-month period ending on the Determination Date) of Key
Employees exceeds 60% of a like sum of all Participants under the Plan or, if
the Plan is required to be included in an Aggregation Group, as set forth
herein, and such Aggregation Group is a Top-Heavy Group, as defined herein.
17.03 With respect to Section 17.02, the following definitions
shall apply:
(a) "Key Employee" means any Employee who, at any time
during the Plan Year or any of the four preceding
Plan Years, is --
(i) an officer of the Employer,
(ii) one of the ten Employees owning (or
considered as owning within the meaning of
Section 318 of the Code) the largest
interests in the Employer,
(iii) a 5% owner of the Employer, or
77
<PAGE> 80
(iv) a 1% owner of the Employer having annual
Compensation from the Employer of more than $150,000.
For purposes of clause (i), no more than 50 Employees (or, if
lesser, the greater of 3 or 10% of the Employees) shall be
treated as officers. For purposes of clause (iii), the term
"5% owner" means any person who owns (or is considered as
owning within the meaning of Section 318 of the Code) more
than 5% of the outstanding stock of the Employer or stock
possessing more than 5% of the total combined voting power of
all stock of the Employer. For purposes of clause (iv), the
term "1% owner" means any person who would be described above
if "1%" were substituted for "5%" each place it appears. For
purposes of this paragraph, a Beneficiary of a Key Employee
shall be deemed to be a Key Employee and subparagraph (C) of
Section 318(a)(2) of the Code shall be applied by substituting
"5%" for "50%".
(b) A plan, including the Plan, shall be required to be included
in an Aggregation Group if it is described in (i) or (ii).
An "Aggregation Group" means--
(i) a qualified employee benefit plan of the
Employer in which a Key Employee is a participant, and
(ii) each other qualified employee benefit plan of
the Employer which enables any plan described
78
<PAGE> 81
in clause (i) to meet the requirements of Section 401(a)(4) or
410 of the Code.
(c) "Top-Heavy Group" means any Aggregation Group if--
(i) the sum (as of any Determination Date) of:
(a) the present value of the cumulative
accrued benefits for Key Employees
under all defined benefit plans
included in such Aggregation Group,
and
(b) the aggregate of the Accounts of Key
Employees under all defined
contribution plans included in such
Aggregation Group,
(ii) exceeds 60% of a similar sum determined for
all Employees.
For purposes of this paragraph, the present value of the
cumulative accrued benefit for any Employee, or the amount of
the Account of any Employee shall be increased by the
aggregate distributions made with respect to such Employee
under a plan during the five-year period ending on the
Determination Date.
For purpose of this paragraph, except to the extent
provided in regulations, any rollover contribution
(or similar transfer) initiated by an Employee and made after
December 31, 1983 to a plan shall not be taken into account
with respect to the transferee plan for purposes of
determining whether such plan is a Top-Heavy Plan (or whether
any Aggregation Group which includes such plan is a Top-Heavy
Group). For purpose of this paragraph, if an
79
<PAGE> 82
individual is a Non-Key Employee with respect to any plan for
any plan year, but such individual was a Key Employee with
respect to such plan for any prior plan year, any accrued
benefit for such Employee (and the Account of such Employee)
shall not be taken into account.
(d) "Determination Date" means, with respect to any
Plan Year--
(i) the last day of the preceding Plan Year, or
(ii) in the case of the first Plan Year, the last
day of such Plan Year.
(e) "Non-Key Employee" means any Employee who is not a
Key Employee.
(f) For purposes of this Section 17.03, "Employer" means
all corporations which, with the Company, are members
of a controlled group of corporations within the
meaning of Section 1563(a), determined without regard
to Sections 1563(a)(4) and (e)(3)(C) of the Code and
"Employee" means an employee of the Employer.
17.04 If the Plan is determined to be a Top-Heavy Plan with respect
to any Plan Year, the Employer contributions for such Plan Year for each
Participant who is a Non-Key Employee shall not be less than 3% of such
Participant's Compensation (and for this purpose, Basic Salary Reduction
Contributions shall not be taken into account).
17.05 If the Plan is determined to be a Top-Heavy Plan, the
definition of "Benefit Plan Fraction" and "Contribution Plan
80
<PAGE> 83
Fraction" in Section 4.09(iv) and 4.09(vi) shall be applied by substituting
"1.0" for "1.25".
17.06 Notwithstanding the provisions of Section 17.05, if the Plan is
determined to be a Top-Heavy Plan, "1.0" shall not be substituted for "1.25",
as otherwise required by Section 17.05 if "4%" is substituted for "3%" in
Section 17.04 and if the Plan would not be a Top-Heavy Plan if "90%" were
substituted for "60% in Section 17.02.
81
<PAGE> 84
ARTICLE XVIII
MISCELLANEOUS
18.01 This Plan, and any trust agreement entered into pursuant to
Section 13.01 hereof, shall be construed, whenever possible, to be in
conformity with the requirements of the Code and ERISA. To the extent not in
conflict with the preceding sentence, the Plan and, unless otherwise provided
therein, any trust agreement, shall be construed according to the laws of the
State of Ohio (where the Company's principal office is located) and all
provisions thereof shall be administered according to the laws of such State,
and all persons accepting or claiming benefits under the Plan or any trust
agreement shall be deemed to consent to these provisions.
18.02 Whenever appropriate, the use of the masculine shall include
the feminine or neuter, the singular shall include the plural, and the plural
shall be restricted to mean the singular.
IN WITNESS WHEREOF, the Company has caused this document to be
executed at Cleveland, Ohio this 1st day of May, 1992.
RELIANCE ELECTRIC COMPANY
By: __________________________
091/10226AQB.390
82
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
%
COUNTRY OWNERSHIP
------------ ----------
<S> <C> <C>
Reliance Electric Industrial Company.......................... U.S. 100%
Reliance Electric (Hong Kong) Limited....................... Hong Kong 100%
Reliance Electric A.G. ..................................... Switzerland 100%
Reliance Electric GmbH................................... Austria 100%
Reliance Electric (U.K.) Ltd. ........................... England 100%
Electro-Craft Limited.................................. England 100%
Reliance Electric S.p.A. ................................ Italy 100%
Reliance Electric GmbH................................... Germany 100%
Reliance Electric SARL................................... France 100%
Reliance Electric Scandinavia A.p.S. .................... Denmark 100%
Reliance Electric S.A. ..................................... Spain 100%
Reliance Eletrica Ltda. .................................... Brazil 100%
Grupo Industrias Reliance S.A. de C.V. ..................... Mexico 100%
Industrias Reliance S.A. de C.V. ........................ Mexico 99.9%
Administrativa Industrias Reliance S.A. de C.V. ....... Mexico 100%
Productos Lorain de Mexico S.A. de C.V. ............... Mexico 100%
Reliance Electric & Engineering Co. de Mexico S.A. de
C.V. ............................................... Mexico 100%
Dodge de Mexico S.A. de C.V. .......................... Mexico 100%
Reliance Exportel, S.A. de C.V. ....................... Mexico 100%
Reliance Automation Pty. Ltd. .............................. Australia 100%
Reliance Electric Limited................................... Japan 45%
Reliance Electric Service Ltd. ........................ Japan 100%
Renix Co. Ltd. ........................................ Japan 82%
Reliance Electric Limited................................... Canada 100%*
Reliance Electric Canada Ltd. (Inactive).................... Canada 100%
Wrenford Insurance Company Ltd. ............................ Bermuda 20%
Reliance Electric International Corporation................. Guam 100%
North American Transformer, Inc. ........................... U.S. 100%
Inertia Dynamics Incorporated............................... U.S. 100%
Reliance Electric Limited (Inactive)........................ New Zealand 100%
Federal Pacific Electric Company............................ U.S. 100%
Reliance Motion Control, Inc. .............................. U.S. 100%
Reliance Electric (Singapore) Pte. Ltd. .................... Singapore 100%
Yonjun-Reliance Electric Co., Ltd. ......................... Korea 71.9%
Reliance Comm/Tec Corporation................................. U.S. 100%
Suntech Company, Ltd. ...................................... Japan 49.2%
Vermont Reserve Insurance Company............................. U.S. 100%
REC Holding, Inc. ............................................ U.S. 100%
- ---------------
* Owned Jointly:
Reliance Electric Industrial Company 76.8%
Reliance Comm/Tec Corporation 23.2%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-60066) and
the Registration Statements on Form S-8 (Nos. 33-18410, 33-34976, 33-45830,
33-45831 and 33-45832) of Reliance Electric Company of our report dated February
3, 1994, appearing on page 1 of Exhibit 99.4 of this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears on page FS-2 of this Form 10-K.
PRICE WATERHOUSE
Cleveland, Ohio
March 3, 1994
<PAGE> 1
EXHIBIT 99.1
QUARTERLY FINANCIAL AND STOCKHOLDER INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Millions, First Quarter Second Quarter Third Quarter Fourth Quarter
except per share amounts) 1993 1992 1993 1992 1993 1992 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 388 $ 373 $ 413 $ 383 $ 402 $ 398 $ 405 $ 399
Gross Profit 96 97 99 100 92 100 98 100
Earnings before
extraordinary items 12 6 9 12 10 15 1 14
Per equivalent share
of common stock .23 .04 .19 .18 .19 .22 .03 .23
Net Earnings (Loss) 12 6 2 (10) 10 15 1 14
Per equivalent share
of common stock .23 .03 .05 (.33) .19 .21 .03 .23
Dividends per share
of common stock - - - - - - - -
Price range per share
of Class A common
High 23 7/8 - 21 7/8 20 5/8 20 3/4 19 1/2 18 1/2 20 7/8
Low 19 3/4 - 18 3/4 16 3/8 16 3/4 16 3/8 16 3/8 15 1/4
</TABLE>
The Company's Class A Common Stock began trading on the New York Stock Exchange
on May 6, 1992. Prior to that time, there was no public trading market for the
Class A Common Stock. At December 31, 1993, the Company estimates that there
were more than 10,000 beneficial owners of the Company's Class A Common Stock.
There is no public trading market for the Company's Class B and Class C Common
Stock. At December 31, 1993, there were eleven stockholders and one stockholder
of record of the Company's Class B and Class C Common Stock, respectively.
It is the Company's current plan to retain earnings and not to pay cash
dividends on common stock in the foreseeable future.
The Company incurred restructure charges totalling $16 million in 1993, of
which $4 million was recorded in the second quarter and $12 million was
recorded in the fourth quarter.
The effective income tax rate for the fourth quarter of 1993 was 79.1% as a
result of fixed tax charges on lower earnings.
All 1992 financial information has been restated to reflect the retroactive
adoption of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
-1-
<PAGE> 1
EXHIBIT 99.2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,608 $1,553 $1,516 $1,547 $1,411 $1,303 $1,170
Earnings before interest and taxes 92 131 148 176 165 150 121
Earnings from continuing operations
before extraordinary items 32 47 34 47 32 30 1
Earnings (loss) from
discontinued operation - - - - - (3) (5)
Gain on sale of discontinued operation - - - - 21 - -
Extraordinary items (7) (22) - (1) (5) - 8
Net earnings 25 25 34 46 48 27 4
Preferred stock dividends
and accretion - 16 19 20 11 18 13
Per equivalent share of common stock:
Earnings (loss) from
continuing operations
before extraordinary items $.64 $.73 $.44 $.83 $.56 $.30 $ (.58)
Discontinued operation - - - - - (.08) (.15)
Gain on sale of
discontinued operation - - - - .52 - -
Extraordinary items (.14) (.51) - (.03) (.12) - .34
-----------------------------------------------------------------------------
Net earnings (loss) $ .50 $ .22 $ .44 $ .80 $ .96 $ .22 $ (.39)
Dividends per share of common stock - - - - - - -
Total assets $1,195 $1,151 $1,176 $1,188 $1,176 $1,392 $1,542
Long-term obligations:
Long-term debt $ 351 $ 369 $ 586 $ 603 $ 648 $ 798 $ 887
Other 199 187 177 160 155 152 175
$1.40 Senior Exchangeable
Preferred Stock - - - - - 86 84
$1.50 Junior Exchangeable
Preferred Stock - - 89 93 85 - -
-----------------------------------------------------------------------------
Total $ 550 $ 556 $ 852 $ 856 $ 888 $1,036 $1,146
</TABLE>
All financial information for 1992 and earlier periods has been restated to
reflect the retroactive adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
-1-
<PAGE> 1
EXHIBIT 99.3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OPERATING RESULTS
Consolidated net sales were $1,608 million in 1993, a $55 million or 4%
increase over 1992, and a $92 million or 6% increase over 1991. Within the
Industrial segment, sales increased by $19 million or 2% over both 1992 and
1991 sales of $1,153 million. Significant sales increases of mechanical power
transmission and motion control products, coupled with a modest increase in
electrical equipment sales, more than offset a relatively sharp decline in
transformer sales. The sales increases for mechanical power transmission
products followed the general economic recovery. The increased sales of motion
control products were driven by new products and the penetration of new
markets. Within the electrical equipment business, all product lines showed
year-over-year improvement with the exception of engineered drive systems,
where demand was soft, both domestically and in Europe. Transformer sales were
down from historically high levels in 1992 and 1991.
In 1992, Industrial segment net sales of $1,153 million duplicated the 1991
results. Increased sales of mechanical power transmission products and
transformers, along with the inclusion of a full year's sales for a motion
control business acquired in 1991, combined to offset the reduction in
electrical equipment sales. The decline in electrical equipment sales included
most areas of the business and was attributable to general economic
uncertainty.
Telecommunications segment net sales increased to $439 million in 1993, a $37
million or 9% improvement over 1992, and a $74 million increase over 1991.
Sales increases in 1993 were driven by greater demand for newer product
offerings and to a lesser degree by modest gains in the more traditional
products. The sales increase from 1991 to 1992 was attributable to new product
development and commercialization efforts to position products with targeted
customers.
Reliance's consolidated gross profit margin declined to 23.9% in 1993 from
25.6% in 1992 and 26.8% in 1991. In the Industrial segment, the gross profit
margin in 1993 was 23.6%, versus 25.4% in 1992 and 27.4% in 1991. The margin
erosion primarily was concentrated within the engineered drive systems unit,
where cost/price/mix pressures have been particularly acute. To a lesser
degree, lower volume and a changing product mix in transformers contributed to
the lower margin, along with increased plant spending across the entire
electrical equipment business. Comparing 1992 with 1991 shows lower volume
across most of the electrical equipment business, and lower margins on
engineered drive systems and in the industrial motor portion of the electrical
equipment business. This, combined with the full year's inclusion of the
business acquired in 1991, which has historically lower margins, more than
offset margin increases in mechanical power transmission products and
transformers.
In the Telecommunications segment, the 1993 gross profit margin of 25.3%
declined compared to 1992's 26.2%, but increased slightly relative to 1991's
25.2%. Margins have been reduced to increase market share for new products and
to establish longer-term relationships with existing customers. Some
manufacturing inefficiencies also contributed to the lower margins. The margin
increase from 1991 to 1992 was primarily due to manufacturing cost
improvements.
-1-
<PAGE> 2
Consolidated selling, general, and administrative ("SG&A") expenses increased
$9 million in 1993 over 1992 but remained at a constant 16.9% of sales. In the
Industrial segment, 1993 SG&A expenses were essentially flat compared to 1992,
which, in turn, were up primarily due to the business acquired in 1991. In the
Telecommunications segment, SG&A spending increased by approximately $11
million over 1992. These increases were largely for research and development
spending to identify and bring to market new technologies, and for additional
sales and marketing expenses to increase penetration into selected markets,
including the emerging broadband multi-media markets. Telecommunications
segment SG&A spending increased about $4 million in 1992 over 1991, as a result
of additional marketing efforts to support both new customers and new products
and, secondarily, for additional engineering expenses.
The Company incurred $16 million of restructure charges in 1993. Approximately
$11 million of these restructure charges were recorded by the Electrical
Group of the Industrial segment for workforce reductions, consolidation of
manufacturing capacity and international structure changes. In the
Telecommunications segment, restructure charges were approximately $5 million,
largely for the consolidation of redundant manufacturing capacity. These
actions are aligning the Company's manpower, manufacturing capacity, and
structure with current and expected market conditions, and will improve
productivity, capacity, and administrative efficiency. Restructure charges of
$1 million in 1992 and $1 million in 1991 related to the movement of certain
product lines and administrative functions to different facilities.
Interest expense decreased substantially in both 1993 and 1992, primarily due
to the Company's recapitalization in the second quarter of 1992. This
recapitalization eliminated the Company's high cost subordinated debt using
proceeds from an initial public offering of Class A Common Stock and Term Loan
and Revolving Credit Facilities. The 1993 refinancing provided greater
financial flexibility.
Worldwide effective income tax rates were 50.8%, 45.3% and 46.9% in 1993, 1992,
and 1991, respectively, versus the 35% statutory rate in 1993 and the 34%
statutory rate in 1992 and 1991. 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. income taxes. The
permanent differences result from charges which are not deductible for income
tax purposes, primarily goodwill. Due to the fixed amount of permanent
differences between book and taxable income, lower earnings before taxes result
in a relatively higher effective tax rate.
The Company recognized extraordinary charges, net of tax benefits, of $7
million in 1993 and $22 million in 1992. The 1993 extraordinary charge
resulted from the Company's refinancing, and includes accelerated amortization
of issuance fees and interest rate swap costs related to the
-2-
<PAGE> 3
termination of the Term Loan Facility. The 1992 extraordinary charges were
generated by the recapitalization of the Company and prepayments on the Term
Loan Facility, and include premiums paid on the redeemed subordinated
debentures, accelerated amortization of debt issuance costs, interest, and
administrative fees.
LIQUIDITY AND CAPITAL RESOURCES
Cash Provided From Operations - Cash provided from operations was $90 million
in 1993 versus $108 million in 1992 and $172 million in 1991. In 1993, accounts
receivable balances and inventories increased due to higher sales and slower
asset turnover. In 1992, the decrease was primarily due to the completion of
the accretion on the 14% Discount Subordinated Debentures and changes in
accounts receivable and inventory balances. Accounts receivable balances
increased due to higher sales and a slight increase in collection periods.
Although inventory turnover improved in 1992, the Company generated relatively
less cash from inventory compared to 1991.
Financing Activities - After registering $200 million of debt securities under
a shelf registration statement, the Company issued $150 million principal
amount ten-year 6.8% notes in 1993. Net proceeds of approximately $149 million
were applied to reduce the Term Loan Facility.
In April 1993, the Company and a bank syndicate entered into a five-year
Competitive Advance and Revolving Credit Facility (the "New Credit Facility")
whereby the Company may borrow an aggregate of up to $350 million. The Company
initially borrowed $209 million under the New Credit Facility, applying these
proceeds to the remaining Term Loan and Revolving Credit Facilities' balances.
The Term Loan and Revolving Credit Facilities were established in 1992 and have
been terminated. The maximum borrowing under the New Credit Facility at any
time during 1993 was $217 million. The Company had $122 million outstanding at
3.45%, and $228 million available under the New Credit Facility at December 31,
1993.
In 1993, the Company also established money market lines of credit, an
unsecured, uncommitted form of financing. The money market lines of credit and
the New Credit Facility are used interchangeably based on the Company's cash
requirements and available terms. These lines of credit totalled $205 million
at December 31, 1993, and the maximum borrowing during the year under these
lines was $118 million. At year-end 1993, $70 million was outstanding at a rate
of 3.44%.
In addition, during 1993 the Company entered into letter of credit facilities
totalling $38 million. At December 31, 1993, the Company had $28 million of
outstanding letters of credit supported by these facilities and $1 million
under a previously existing letter of credit facility.
During 1992, the Company completed an initial public offering of Class A Common
Stock and replaced its Senior Debt with a $600 million credit facility,
comprised of $440 million available under a Term Loan Facility and $160 million
available under a Revolving Credit Facility. Proceeds from the sale of Class A
Common Stock together with borrowings under the Term Loan Facility were used
during the remainder of 1992 to redeem the 14.25% Junior Subordinated
Debentures, the 11.75% Senior Subordinated Debentures, the 14% Discount
Subordinated Debentures, the $1.40 Junior Preferred Stock and the $1.50 Junior
Exchangeable Preferred Stock and to pay outstanding borrowings under previous
bank financing facilities and fees related to these transactions.
-3-
<PAGE> 4
During the year ended December 31, 1993 the Company realized $11 million of tax
benefits related to stock option exercises. Of the $11 million tax benefit, $9
million was attributable to 1992 stock option exercises and the remaining $2
million was attributable to 1993 stock option exercises.
The Company reduced to 7.5% the discount rate used to determine its obligations
for pensions and postretirement benefits other than pensions, to reflect
prevailing long-term market interest rates at December 31, 1993. This discount
rate change increased these obligations by approximately $51 million in total,
which will be amortized beginning in 1994.
Capital Expenditures - Capital expenditures in 1993 were $68 million versus
$49 million in 1992 and $35 million in 1991. The additional capital expenditures
have increased capacity at selected mechanical power transmission plants,
expanded manufacturing capabilities through improved flexibility and speed, and
updated process technology. The funds for these expenditures were provided by
operating cash generation. The Company expects to modestly increase the level
of capital expenditures over the next few years to broaden manufacturing
improvement programs and implement new technologies.
Management believes that cash provided from operations and funds available from
the New Credit Facility and the money market lines of credit will be sufficient
to fund capital expenditures and operating requirements for the foreseeable
future.
Other Investing Activities - During 1991, the Company expended $22 million for
business acquisitions. Funds for these acquisitions were provided by bank
financing and existing cash balances.
ENVIRONMENTAL MATTERS
The Company has been designated as a potentially responsible party relating to
a non-operating subsidiary. The Company has also been named as a potentially
responsible party at several CERCLA sites. As explained in Note 14, management
believes that these contingent liabilities will not have a material adverse
effect on the Company's financial position, results of operations or cash flows,
as the Company has an indemnity agreement covering substantially all claims
arising from the non-operating subsidiary.
EFFECTS OF CHANGES IN ACCOUNTING STANDARDS
Postretirement Benefits - The Company adopted Statement of Financial Accounting
Standards No. 106 - "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106") for its U.S. postretirement benefit plans effective
as of January 1, 1993. SFAS 106 requires the accrual method of accounting for
postretirement benefits. Postretirement benefits, which are unfunded, consist
principally of health care and life insurance benefits for certain eligible
employees. The impact of adopting SFAS 106 is approximately $3 million of
transition obligation which is being amortized over 20 years. At December 31,
1993 the Company had $127 million accrued for postretirement benefits.
-4-
<PAGE> 5
The Company is reviewing the impact of non-U.S. postretirement benefit plans;
SFAS 106 requires that such costs be accrued no later than 1995.
Income Taxes - Effective January 1, 1993, the Company also adopted Statement of
Financial Accounting Standards No. 109 - "Accounting for Income Taxes" ("SFAS
109"). The adoption of SFAS 109 changes the Company's method of accounting for
income taxes from the deferred method to an asset and liability method. The
asset and liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities. The
effects on financial position of adopting SFAS 109 retroactively were the
recording of additional goodwill, deferred tax liabilities (principally
relating to inventories), and the gross-up of certain assets and liabilities
which heretofore had been reflected net of tax; the impact on stockholders'
equity was not material.
Financial information for years prior to 1993 has been restated to reflect
retroactive adoption of SFAS 109 back to the Company's formation on
December 30, 1986.
Postemployment Benefits - Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS 112") was issued in
November 1992. SFAS 112 requires accrual accounting for benefits such as
severance, disability, health insurance and training, offered to inactive
employees after employment but before retirement. The Company will adopt SFAS
112 in 1994. Preliminary analysis indicates that adoption of SFAS 112 will not
have a material effect on the Company's financial position, results of
operations or cash flows.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the results of operations or the
value of the Company's assets and liabilities because the general rate of
inflation has been relatively low since the December 1986 formation of the
Company and related purchase price allocation. Also, the Company uses the LIFO
inventory valuation method which normally matches current costs against current
revenues.
OUTLOOK FOR 1994
As we enter 1994, business activity, as measured by many economists, appears
to be improving and conditions seem favorable for a continuation of the
moderately-paced economic upturn. There is, however, some uncertainty in the
degree and timing of a pick-up in our later cycle businesses and in the rate of
change in capital spending by the Company's electric utility customers.
The Company has aggressively addressed the cost and profit issues related to
underperforming business units. Our restructure actions in 1993, coupled with
ongoing cost reduction efforts in all areas of the Company, will improve our
operating efficiency and profits as we move forward in 1994. While it will not
be a quick fix, with the level and mix of backlog in our electric transformer
and large engineered drive systems businesses impacting the first half of 1994,
the Company continues to improve productivity and leverage our increasing sales
for improved profits.
-5-
<PAGE> 6
In the Telecommunications segment, the Company has accelerated research and
development programs to continue to strengthen our offerings in the rapidly
evolving broadband multi-media markets. This spending, coupled with our strong
local loop presence and announced alliances, better positions the Company
within these markets.
-6-
<PAGE> 1
REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 99.4
Price Waterhouse
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF RELIANCE ELECTRIC COMPANY
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Reliance Electric Company and its subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1, in 1993 the Company changed its method of accounting
for income taxes and postretirement benefits other than pensions.
/s/ Price Waterhouse
Cleveland, Ohio
February 3, 1994
- 1 -
<PAGE> 2
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(Dollars in millions, except per share amounts) 1993 1992 1991
<S> <C> <C> <C>
NET SALES $ 1,608 $ 1,553 $ 1,516
Costs and expenses:
Cost of sales 1,223 1,156 1,110
Selling, general and administrative 272 263 251
Restructure 16 1 1
Other expense, net 5 2 6
-----------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 92 131 148
Interest expense 27 45 84
-----------------------------------------
EARNINGS BEFORE TAXES 65 86 64
Provision for income taxes 33 39 30
-----------------------------------------
EARNINGS BEFORE EXTRAORDINARY ITEMS 32 47 34
Extraordinary items (7) (22) -
-----------------------------------------
NET EARNINGS $ 25 $ 25 $ 34
Net earnings $ 25 $ 25 $ 34
Less preferred stock dividends and accretion - 16 19
Net earnings available for common stock $ 25 $ 9 $ 15
Net earnings per equivalent share of common
stock (after preferred stock dividends and
accretion):
Earnings before extraordinary items $ .64 $ .73 $ .44
Extraordinary items (.14) (.51) -
Net Earnings $ .50 $ .22 $ .44
Weighted average equivalent shares of common
stock outstanding 50,664,080 43,433,306 33,252,251
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 2 -
<PAGE> 3
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
(Dollars in millions, except per share amounts) 1993 1992
<S> <C> <C>
ASSETS
Cash (including cash equivalents of $14 and $15) $ 41 $ 32
Accounts receivable, net 217 210
Inventories 328 320
Other 29 17
------------------------
TOTAL CURRENT ASSETS 615 579
Goodwill, net 209 216
Other intangible assets, net 10 11
Property, plant and equipment, net 298 287
Deferred income taxes 28 21
Other 35 37
------------------------
TOTAL ASSETS $ 1,195 $ 1,151
liabilities and stockholders' equity
Notes payable and current maturities of long-term debt $ - $ 5
Accounts payable 78 72
Income taxes payable 42 28
Other 144 132
------------------------
TOTAL CURRENT LIABILITIES 264 237
Long-term debt 351 369
Pension and other postretirement benefits 169 154
Other 30 33
Stockholders' equity
Common stock (convertible, $.01 par value):
Class A, 32,865,159 (1993) and 32,363,083 (1992) shares issued 339 337
Class B, 3,179,712 (1993) and 3,419,528 (1992) shares issued 1 1
Class C, 5,250,000 shares issued 4 4
Retained earnings 37 12
Minimum pension liability (3) -
Currency translation adjustments 3 4
------------------------
TOTAL STOCKHOLDERS' EQUITY 381 358
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,195 $ 1,151
</TABLE>
Commitments and contingencies (Note 14)
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1992 1991
(Dollars in millions, except per share amounts)
CASH PROVIDED FROM OPERATIONS
<S> <C> <C> <C>
Net Earnings $ 25 $ 25 $ 34
Adjustments to reconcile to net cash
provided from operations:
Extraordinary items 7 22 -
Restructure 16 1 1
Depreciation and amortization 61 58 61
Debenture accretion and fee amortization 1 16 51
Provision for deferred income taxes (16) (14) (13)
Changes in operating assets and liabilities:
Accounts receivable (7) (10) 8
Inventories (7) 4 26
Accounts payable 6 7 (5)
Income taxes payable 8 10 7
Advances from customers (1) (4) (14)
Other (3) (7) 16
------------------------
NET CASH PROVIDED FROM OPERATIONS 90 108 172
------------------------
CASH PROVIDED FROM INVESTING ACTIVITIES
Capital expenditures (68) (49) (35)
Business acquisitions - - (22)
Other (1) (2) -
------------------------
NET CASH PROVIDED FROM INVESTING ACTIVITIES (69) (51) (57)
------------------------
CASH PROVIDED FROM FINANCING ACTIVITIES
Proceeds from issuance of 6.8% Notes Due April 15, 2003 149 - -
Net proceeds/payments from New Credit Facility 122 - -
Proceeds from initial public offering - 309 -
Net proceeds/payments from money market lines of credit 70 - -
Net proceeds/payments on Term Loan Facility (364) 364 (55)
Proceeds from Revolving Credit Facility 71 71 -
Payments on Revolving Credit Facility (71) (71) -
Proceeds from accounts receivable facility - 50 160
Payments on accounts receivable facility - (50) (180)
Redemption of Senior Subordinated Debentures - (131) -
Redemption of Junior Subordinated Debentures - (89) -
Redemption of Discount Subordinated Debentures - (386) -
Redemption of $1.40 Junior Preferred Stock - (31) (2)
Redemption of $1.50 Junior Exchangeable Preferred Stock - (101) (6)
Payment of refinancing fees - (15) -
Tax benefit from option exercises 11 13 -
Payment of preferred dividends - (17) (19)
Sale of treasury stock - - 7
Other - 1 (2)
------------------------
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
NET CASH PROVIDED FROM FINANCING ACTIVITIES (12) (83) (97)
---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9 (26) 18
CASH AND CASH EQUIVALENTS AT JANUARY 1 32 58 40
---------------------------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 41 $ 32 $ 58
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock
----------------------------------------
$1.40 Junior Nonqualified
Preferred Stock Class A Class B Class C Stock Options
--------------- ------- ------- ------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Amount
BALANCE AT
JANUARY 1, 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,147 $ 31 10,640 $ 3 9,631 $ 3 5,250 $ 4 $ 1
Net earnings - - - - - - - - -
Preferred stock dividends
and accretion - - - - - - - - -
Shares sold - - - - - - - - -
Shares repurchased - - - - - - - - -
Shares converted - - (15) - 15 - - - -
Other direct charges - - - - - - - - -
Currency translation
adjustments - - - - - - - - -
BALANCE AT
DECEMBER 31, 1991 3,147 $ 31 10,625 $ 3 9,646 $ 3 5,250 $ 4 $ 1
Net earnings - - - - - - - - -
Preferred stock dividends
and accretion - - - - - - - - -
Shares issued 3 - 20,656 333 - - - - (1)
Shares converted - - 3,283 2 (3,283) (2) - - -
Shares retired (3,150) (31) (2,201) (1) (2,943) - - - -
Preferred stock
redemptions - - - - - - - - -
Currency translation
adjustments - - - - - - - - -
BALANCE AT
DECEMBER 31, 1992 - $ - 32,363 $ 337 3,420 $ 1 5,250 $ 4 $ -
Net earnings - - - - - - - - -
Shares issued - - 262 2 - - - - -
Shares converted - - 240 - (240) - - - -
Currency translation
adjustments - - - - - - - - -
Minimum pension liability - - - - - - - - -
</TABLE>
<TABLE>
CONSOLIDATION STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY, continued
<CAPTION>
Minimum Currency
Retained Pension Translation Treasury Stock
Earnings Liability Adjustments at Cost
---------- --------- ----------- -------------
BALANCE AT Amount Amount Amount Amount
JANUARY 1, 1991
<S> <C> <C> <C> <C>
$ 64 $ - $ 15 $(69)
Net earnings 34 - - -
Preferred stock dividends
and accretion (19) - - -
Shares sold - - - 7
Shares repurchased - - - (3)
Shares converted - - - -
Other direct charges (1) - - -
Currency translation
adjustments - - (2) -
BALANCE AT
DECEMBER 31, 1991 $78 $ - $ 13 $(65)
Net earnings 25 - - -
Preferred stock dividends
and accretion (16) - - -
Shares issued - - - -
Shares converted - - - -
Shares retired (61) - - 65
Preferred stock
redemptions (14) - - -
Currency translation
adjustments - - (9) -
BALANCE AT
DECEMBER 31, 1992 $ 12 $ - $ 4 $ -
Net earnings 25 - - -
Shares issued - - - -
Shares converted - - - -
Currency translation
adjustments - - (1) -
Minimum pension liability - (3) - -
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1993 - $ - 32,865 $ 339 3,180 $ 1 5,250 $ 4 $ - $ 37 $ (3) $ 3 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated financial statements include affiliates in which the Company owns
in excess of 50% of the common stock. Ownership positions of 20% to 50% are
accounted for using the equity method while positions of less than 20% are
carried at cost.
All financial information for 1992 and earlier periods has been restated to
reflect retroactive adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109").
The Company acquired certain U.S. assets and a non-U.S. subsidiary of Robbins &
Myers, Inc.'s Motion Control Group for $19 million in September 1991.
Cash equivalents, representing investments purchased with a maturity of three
months or less, are stated at cost which approximates market value.
Inventories are stated at the lower of cost or market. Cost is determined
primarily by the last in, first out method (LIFO).
Deferred income taxes are provided for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities. U.S. income and foreign withholding taxes are accrued for
undistributed earnings of non-U.S. affiliates where repatriation of such
earnings is expected.
Effective January 1, 1993, the Company adopted SFAS 109. The adoption of SFAS
109 changes the Company's method of accounting for income taxes from the
deferred method to an asset and liability method. The effects on financial
position of adopting SFAS 109 retroactively were the recording of additional
goodwill, deferred tax liabilities (principally relating to inventories), and
the gross-up of certain assets and liabilities which heretofore had been
reflected net of tax; the impact on stockholders' equity was not material.
Goodwill is amortized over 40 years using the straight-line method.
Other intangible assets, such as certain technology and computer software, are
amortized using the straight-line method over estimated useful lives ranging
from 2 to 17 years.
Property, plant and equipment are recorded at cost. Plant and equipment are
depreciated using the straight-line method over useful lives ranging from 3 to
12 years for machinery and equipment, and up to 45 years for buildings. Net
gains or losses related to asset dispositions are recognized in earnings in the
period in which the dispositions occur.
Postretirement benefits other than pensions, principally health care and life
insurance benefits, are provided to eligible retired employees. The Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") for
U.S. plans on January 1, 1993. Prior to the adoption of SFAS 106,
postretirement benefits had been accounted for on an accrual method, which
included amortization of unrecognized actuarial gains and losses. Slight
refinements in methodology were required in order to conform to the provisions
of SFAS 106. The impact of adopting SFAS 106 is approximately $3 million of
transition obligation which is being amortized over 20 years. The Company is
reviewing the impact of non-U.S. postretirement benefit plans; SFAS 106
requires that such costs be accrued no later than 1995.
-8-
<PAGE> 9
In a related area, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112") in November 1992. SFAS 112 requires
accrual accounting for benefits, such as severance, disability, health
insurance and training, offered to inactive employees after employment but
before retirement. SFAS 112 is effective for years beginning after December 15,
1993. The Company will adopt SFAS 112 in 1994. Preliminary analysis indicates
that adoption of SFAS 112 will not have a material effect on the Company's
financial position, results of operations or cash flows.
Deferred debt issuance costs are amortized using the effective interest rate
method.
Foreign currency translation of substantially all assets and liabilities of
non-U.S. affiliates is computed using year-end currency exchange rates. Income
and expenses are translated using average exchange rates for the year.
Cumulative translation adjustments are presented as a separate component of
stockholders' equity. Foreign currency translation adjustments relating to
hyperinflationary currencies are included in other income and expense.
Forward contracts for future purchases or sales of foreign currencies are
entered into as a hedge against exchange rate changes on firm commitments.
Resulting gains and losses are deferred and recognized when the transaction for
which the hedge was entered into is finalized. As of December 31, 1993, the
Company had commitments to purchase $13 million and to sell $27 million in
various non-U.S. currencies. These contracts are entered into with financial
institutions and mature throughout 1994. The Company is exposed to credit risk
in the event of nonperformance by these financial institutions.
Financial instruments consist primarily of cash and cash equivalents, trade
receivables, trade payables, debt instruments, interest rate swaps and foreign
currency contracts. The Company determines the fair values of financial
instruments and includes this additional information in the notes to
consolidated financial statements when the fair value is different than the
book value of those financial instruments. When the fair value is equal to the
book value, no additional disclosure is made. The Company received quoted
market prices or quotes for instruments with similar terms to calculate these
fair values.
Revenues generally are recognized when goods are shipped or services are
provided.
Other income and expense includes interest income, amortization of goodwill,
equity income and losses, the effects of foreign currency translation and
transactions, and other items.
Net earnings per equivalent share of common stock are calculated by dividing
net earnings, less preferred stock dividends and accretion, by the weighted
average number of shares of common stock outstanding. For the calculation, each
share of Class C Common Stock is converted to 2.708 shares of Class A Common
Stock in accordance with its conversion feature. Nonqualified stock options are
included as common stock equivalents when the effect is dilutive.
2. CAPITAL AND REFINANCING TRANSACTIONS
During 1992, the Company completed several recapitalization transactions,
including the sale of 17,250,000 shares of Class A Common Stock in an initial
public offering.
-9-
<PAGE> 10
The $309 million net proceeds from the sale, together with borrowings
under a Term Loan Facility were used during the remainder of 1992 to redeem the
14.25% Junior Subordinated Debentures, the 11.75% Senior Subordinated
Debentures, the 14% Discount Subordinated Debentures, the $1.40 Junior
Preferred Stock and the $1.50 Junior Exchangeable Preferred Stock and to pay
outstanding borrowings under previous bank financing facilities and fees
related to the transactions.
As a result of the subordinated debt redemptions and optional prepayments under
the Term Loan Facility, the Company incurred a $22 million extraordinary
charge, net of tax benefits of $15 million, in 1992. This charge was generated
by redemption premiums paid, accelerated amortization of debt issuance fees,
interest, and administrative fees related to the redemption transactions. The
Company also incurred charges totalling $14 million to retained earnings,
primarily for premiums and accelerated fee amortization related to the
redemption of the preferred stock issues.
In April 1993, the Company issued $150 million principal amount ten-year 6.8%
notes ("Notes"), after registering $200 million of debt securities under the
Securities Act of 1933. Net proceeds of approximately $149 million were applied
to reduce the Term Loan Facility balance.
Also in April 1993, the Company entered into the New Credit Facility, borrowed
$209 million thereunder and applied these proceeds to the remaining Term Loan
and Revolving Credit Facilities' balances. The Term Loan and Revolving Credit
Facilities were then terminated. The Company recorded a $7 million
extraordinary charge, net of a related tax benefit of $4 million, in the second
quarter of 1993 due primarily to the accelerated amortization of issuance fees
and interest rate swap costs related to the Term Loan Facility.
The Company also established money market lines of credit totalling $205
million and letter of credit facilities totalling $38 million in 1993.
3. MISCELLANEOUS FINANCIAL INFORMATION
<TABLE>
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
Allowance for doubtful accounts receivable $ 9 $ 8
Accumulated amortization of goodwill 43 37
Accumulated amortization of intangible assets 20 37
</TABLE>
The Company's accounts receivable are spread across a wide variety of
industries, minimizing the potential credit risk due to nonpayment.
Approximately $19 million of fully amortized intangible assets were written off
in 1993.
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(Dollars in millions)
<S> <C> <C> <C>
Depreciation $ 53 $ 50 $49
Amortization of goodwill 6 6 6
Amortization of intangibles 2 2 6
Amortization of debt issue costs 1 3 4
Engineering:
Research and development expenses $ 43 $ 40 $34
Application engineering 69 63 60
Total Engineering $112 $103 $94
</TABLE>
-10-
<PAGE> 11
<TABLE>
<S> <C> <C>
4. INVENTORY
Inventory consists of:
December 31 1993 1992
(Dollars in millions)
Raw materials $104 $ 85
Work in process 68 78
Finished goods 68 66
Total (approximates replacement cost) 240 229
Difference to LIFO 88 91
Total LIFO value income taxes $328 $320
</TABLE>
5. INCOME TAXES
The current and noncurrent components of deferred taxes are:
<TABLE>
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
Deferred Tax Assets
Postretirement benefits $ 49 $ 45
Inventory capitalization 23 21
Pensions 12 10
Self insurance reserves 8 8
Vacation reserves 5 5
Group insurance reserves 5 5
Restructure reserves 5 -
State tax NOL carryforwards 5* 4*
Warranty reserves 4 3
Inventory reserves 4 3
Federal capital loss carryforwards 2* 2*
Accounts receivable reserve 3 3
State income tax 2 1
Legal reserves 1 2
Other 7 6
Gross deferred tax assets 135 118
Valuation allowance on deferred tax asset (7)* (6)*
Total deferred tax assets 128 112
Deferred Tax Liabilities
Acquisition inventory valuation adjustments 45 45
Property, plant and equipment 33 35
Unrepatriated non-U.S. earnings 4 5
Pension assets 4 3
Favorable financing intangibles 2 2
Total deferred tax liabilities 88 90
Net deferred tax assets $ 40 $ 22
* A valuation allowance has been recognized on these deferred tax assets
because it has been determined that it is more likely than not that such assets
will not be realized. Federal capital loss carryforwards expire in 1994 and the
state tax net operating loss carryforwards expire through 2007.
Earnings before taxes consist of:
</TABLE>
-11-
<PAGE> 12
Earnings before taxes consist of:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(Dollars in millions)
<S> <C> <C> <C>
Earnings before taxes:
U.S. $ 63 $ 76 $ 34
Non-U.S. 2 10 30
Total $ 65 $ 86 $ 64
Provisions for income taxes include:
Years ended December 31 1993 1992 1991
(Dollars in millions)
Current taxes:
U.S. federal $ 39 $ 42 $ 27
State and local 8 6 5
Non-U.S. 2 5 11
Total 49 53 43
Deferred taxes:
U.S. (16) (13) (14)
Non-U.S. - (1) 1
Total (16) (14) (13)
Total tax provision $ 33 $ 39 $ 30
</TABLE>
The 1993 provision for deferred taxes of $16 million differs from the $18
million increase in net deferred tax assets due to the $2 million of additional
deferred tax assets associated with the recognition of the minimum liability
for pensions, recorded as a component of Stockholders' Equity.
Income taxes differ from amounts computed at the U.S. statutory rate due to:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992* 1991*
(Dollars in millions)
<S> <C> <C> <C>
Expected tax at statutory rate $ 23 $ 29 $ 22
State and local taxes, net of federal income
tax benefit 5 4 2
Nondeductible amortization 2 2 2
Effect of rate change on deferred tax assets (1) - -
Other, net 4 4 4
Total tax provision $ 33 $ 39 $ 30
</TABLE>
The U.S. statutory tax rate increased from 34% in 1991 and 1992 to 35% in 1993.
Income taxes paid in 1993, 1992, and 1991 totalled $32 million, $27 million and
$34 million, respectively.
Retained earnings of non-U.S. affiliates on which U.S. income and foreign
withholding taxes have not been provided totalled $32 million at December 31,
1993.
-12-
<PAGE> 13
These taxes have not been provided for, as such earnings are not expected to be
repatriated. The associated income and withholding taxes are $13 million.
The Company's tax returns are audited in the normal course of business. During
1993, the Internal Revenue Service completed their audit of the Company's tax
returns from its formation through 1988 and proposed certain adjustments.
Management and independent tax counsel believe most of the proposed adjustments
will not be sustained. Management believes that the outcome of all audits of
its tax returns will not have a material adverse effect on the Company's
financial position or results of operations.
<TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
Land $ 25 $ 25
Buildings 156 151
Machinery and equipment 444 394
625 570
Accumulated depreciation (327) (283)
Total $ 298 $ 287
</TABLE>
<TABLE>
7. OTHER CURRENT LIABILITIES
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
Compensation and employee benefits $ 52 $ 52
Advances from customers 19 20
Warranties 13 12
Other 60 48
Total $144 $132
</TABLE>
<TABLE>
8. LEASE COMMITMENTS
<CAPTION>
Commitments due under long-term operating lease agreements are:
(Dollars in millions)
<S> <C>
1994 $ 16
1995 11
1996 7
1997 4
1998 3
After 1998 5
Total $ 46
</TABLE>
Net rent expense totalled $25 million in 1993 and $27 million in both 1992 and
1991.
<TABLE>
9. LONG-TERM DEBT
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
6.8% Notes Due April 15, 2003 $149 $ --
New Credit Facility 222 --
Money market lines of credit 70 --
Term Loan Facility -- 364
Other 10 10
Total long-term debt 351 374
Less current maturities -- 5
Total $351 $369
</TABLE>
- 13 -
<PAGE> 14
The Notes are due April 15, 2003 and interest on the Notes is payable on each
October 15 and April 15, beginning October 15, 1993. The Notes are not callable
and have no sinking fund requirement.
In April 1993, the Company and a bank syndicate entered into a five-year New
Credit Facility, whereby the Company may borrow an aggregate of up to $350
million. Upon request of the Company, the New Credit Facility may be extended
for additional one-year periods with the consent of all members of the bank
syndicate. Annual facility fees are 0.25% of the total available New Credit
Facility. The New Credit Facility is subject to variable interest rates based
on LIBOR, certificate of deposit or adjusted base rates. The adjusted base rate
is defined in the New Credit Facility and is essentially equal to the prime
rate. Covenants contained in the New Credit Facility relate to consolidated net
worth, interest coverage and leverage.
The Company also established money market lines of credit in 1993. The money
market lines of credit are an uncommitted, unsecured form of financing where
amounts are borrowed for periods typically ranging from overnight to 60 days,
with a maximum possible term of 180 days.
Although the money market lines of credit are short-term in nature, the
Company has the ability and intent to maintain all, or substantially all, of
the $70 million principal amount through renewals or through the New Credit
Facility on a long-term basis. The money market lines of credit and the New
Credit Facility are used interchangeably based on the Company's cash
requirements and available terms. Accordingly, such amounts have been
classified as long-term debt.
- 14 -
<PAGE> 15
The aggregate fair value of long-term debt at December 31, 1993 was $349
million, $2 million less than the carrying value.
The Company maintains interest rate swap agreements to reduce the impact of
potential interest rate increases. Present swap agreements have remaining lives
of one to four years and cover a notional principal amount of $200 million.
Amounts payable or receivable by the Company are recognized over the life of
the swap agreements. During 1993, the Company recognized $5 million of interest
expense attributable to the swap agreements. At December 31, 1993, the
aggregate fair value of the interest rate swaps, all of which are payable, is
$4 million.
The Company had $29 million of outstanding letters of credit at December 31,
1993, supported by $39 million of letter of credit facilities.
Including fee amortization and interest expense recognized under the
swap agreements, the 1993 effective interest rate on all long-term debt
instruments was 6.64%. Cash interest paid totalled $21 million, $39 million and
$31 million in 1993, 1992 and 1991, respectively.
Scheduled maturities of long-term debt are:
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
1994 $ -
1995 -
1996 -
1997 -
1998 192
After 1998 159
Total $351
</TABLE>
10. STOCKHOLDERS' EQUITY
Stockholders' equity includes Classes A, B and C Common Stock and options to
purchase Class A Common Stock ("Options"). On February 24, 1992, the Board of
Directors approved the retirement of all treasury shares of Class A and B
Common Stock and $1.40 Junior Preferred Stock (2,201,000, 2,943,000 and
248,000 shares, respectively), reducing contributed capital and retained
earnings. While the retirement had no effect on total stockholders' equity,
retained earnings were reduced by $61 million. On April 15, 1992, the
stockholders approved a three-for-two split of the Company's Class A, B and C
Common Stock and an increase in the number of authorized shares of Class A and
B Common Stock to 100,000,000 shares each. Retroactive effect has been given to
the common stock split in all share and per share data in these financial
statements.
At December 31, 1993, share data (in thousands) were:
<TABLE>
<CAPTION>
Authorized Issued Outstanding Par Value
<S> <C> <C> <C> <C>
Class A Common 100,000 32,865 32,865 $.01
Class B Common 100,000 3,180 3,180 .01
Class C Common 12,000 5,250 5,250 .01
Preferred 15,000 0 0 .10
</TABLE>
- 15 -
<PAGE> 16
Each share of Class A Common Stock has one vote. Class B and Class C Common
Stock have no voting rights. Class A Common Stock may be converted into Class B
Common Stock on a one share to one share basis. Each share of Class B Common
Stock may be converted into one share of Class A Common Stock. Each share of
Class C Common Stock may be converted to 2.708 shares of Class A Common Stock
upon the satisfaction of certain conditions. The weighted average number of
common shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(Shares in thousands)
<S> <C> <C> <C>
Weighted average number of
common shares 41,194 31,907 20,132
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 8,967
Weighted average of nonqualified
stock options 503 2,559 4,153
Weighted average equivalent shares of
common stock outstanding 50,664 43,433 33,252
</TABLE>
Pursuant to employee stock purchase plans, members of management have purchased
Options for shares of Class A Common Stock in exchange for $.27 of cash or
deferred compensation for each Option. The remaining exercise prices range from
$.07 to $1.07 for these Options, which expire ten years from the grant date. As
of December 31, 1993, the Company has reserved 342,415 shares of Class A Common
Stock for these Options. No further Options will be granted under these plans.
A Key Employee Stock Option Plan was adopted effective January 1, 1990. Under
this plan, employees may be granted Options through December 31, 1994 to
purchase Class A Common Stock. The maximum number of shares for which Options
may be granted under this plan is 900,000. As of December 31, 1993, the Company
has issued 873,450 Options, net of cancellations, and reserved 894,600 shares
of Class A Common Stock for this plan. Options terminate ten years after the
date of grant. The exercise price per share equals the share's fair value on
the date the Option is granted.
In May 1990 the Company granted 66,750 Options under this plan at an exercise
price of $12.56 per Option. During 1993, 3,700 of these Options were exercised
and 750 were cancelled, leaving a vested balance of 61,050 at December 31,
1993.
In March 1992 the Company granted 646,050 Options under this plan at a
grant price of $17.27 per Option. During 1993, 69,300 of these Options were
cancelled and 450 were exercised. As of December 31, 1993, 286,875 of these
Options were exercisable, with the remaining 287,325 Options becoming
exercisable in September 1994.
In December 1993 the Company granted 232,800 Options under this plan at an
exercise price of $17.25. These Options will be exercisable starting
in December 1995.
-16 -
<PAGE> 17
Two outside directors of the Company each received Options in April 1987, under
the Company's Common Stock Option Plan for Outside Directors, to purchase
75,000 shares of Class A Common Stock at an exercise price of $0.33 per share,
exercisable until April 1997. In 1993, none of these options were exercised.
The Company has reserved 75,000 shares of Class A Common Stock for this plan at
December 31, 1993.
The Company recorded a $2 million increase in equity in 1993 as a result of the
tax benefits relating to employee stock option exercises.
Option activity for the three years ended December 31, 1993 was as follows:
<TABLE>
<CAPTION>
Employee Key Outside
Stock Employee Director
(Options in thousands) Plans Plan Plan
<S> <C> <C> <C>
Balance at January 1, 1991 3,960 67 150
Cancelled (32) - -
Balance at December 31, 1991 3,928 67 150
Cancelled - (2) -
Exercised (3,327) (1) (75)
Granted - 646 -
Balance at December 31, 1992 601 710 75
Cancelled - (71) -
Exercised (259) (4) -
Granted - 233 -
Balance at December 31, 1993 342 868 75
Exercisable at December 31, 1993 342 348 75
</TABLE>
11. RETIREMENT AND SAVINGS PLANS
The Company sponsors defined benefit pension plans which provide benefits
generally based on years of service and compensation to substantially all U.S.
employees of the Company. Annual contributions to U.S. plans equal or exceed
the minimum funding requirements of the Employee Retirement Income Security
Act. Funds are contributed as necessary to provide for current service and any
unfunded projected benefit obligation over a reasonable period. Assets of the
plans consist primarily of marketable securities.
A Supplemental Retirement Plan for Key Employees covers elected officers of the
Company and individuals named key employees by the Board of Directors. The plan
provides pension benefits that are excluded from qualified plans due to
compensation deferral, annual compensation limits, and the benefit limit under
Section 415 of the Internal Revenue Code. Upon retirement, benefits from the
plan are paid over the life of the participant. Lump sum payments may be made
to selected current retirees upon the occurrence of certain events.
Net periodic pension cost was determined using an 8.5% discount rate and
includes:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(Dollars in millions)
<S> <C> <C> <C>
Benefits earned during the year $ 18 $ 15 $ 15
Interest accrued on projected
benefit obligation 18 17 14
Actual return on plan assets (19) (17) (34)
Net amortization and deferral - - 21
Net pension cost for the year $ 17 $ 15 $ 16
</TABLE>
- 17 -
<PAGE> 18
The Company uses the projected unit credit actuarial method for determining
pension costs. The actuarial present values of projected benefit obligations
are determined using weighted average discount rates of 7.5% at December 31,
1993 and 8.5% at December 31, 1992. The effect of the discount rate change was
to increase the pension obligations by approximately $34 million at December
31, 1993. Future compensation levels are assumed to increase 5% annually. The
expected long-term rate of return on plan assets is assumed to be 9.5%.
The funded status of defined benefit pension plans and the amounts recognized
in the consolidated balance sheet were:
<TABLE>
<CAPTION>
December 31 1993 1992
Over Under Over Under
Funded Funded Funded Funded
(Dollars in millions) Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Plan assets at fair value $ 156 $ 104 $ 173 $ 57
Actuarial present value:
Vested benefits 119 133 129 57
Nonvested benefits 5 18 7 18
Accumulated benefit obligation 124 151 136 75
Additional amounts related to
projected salary increases 11 22 9 29
Projected benefit obligation 135 173 145 104
Plan assets in excess of (less
than) projected benefit obligation 21 (69) 28 (47)
Transition obligation (5) 3 (6) 3
Amounts necessary to reconcile
excess pension assets and
liabilities included in the
balance sheet:
Unrecognized prior service cost 6 17 8 15
Adjustment required to recognize minimum
liability - (12) - (3)
Unrecognized net (gains) losses (8) 14 (16) (6)
Net pension assets (liabilities)
included in the balance sheet $14 $(47) $ 14 $(38)
</TABLE>
The Company sponsors a Savings and Investment
Plan covering substantially all U.S. nonbargaining unit
- 18 -
<PAGE> 19
employees. Company contributions and expenses related to the plan totalled $8
million in 1993, and $7 million in both 1992 and 1991.
12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement benefits other than pensions, primarily
health care and life insurance, for certain eligible U.S. retirees. The
estimated present values of these benefits recorded as liabilities were $127
million and $119 million at December 31, 1993 and 1992, respectively. Of these,
$9 million and $8 million were classified as current liabilities at December
31, 1993 and 1992, respectively. Postretirement benefits are unfunded.
Net postretirement benefit costs were calculated using an 8.5% discount rate
and include:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(Dollars in millions)
<S> <C> <C> <C>
Service Cost $ 2 $ 3 $ 4
Interest Cost 12 11 9
Net amortization and deferral 2 1 (1)
Net periodic postretirement benefit cost $16 $15 $12
</TABLE>
The reconciliation of the postretirement benefit obligation with the amount
recorded on the balance sheet is:
<TABLE>
<CAPTION>
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants $112 $ 96
Fully eligible active plan participants 17 15
Other active plan participants 43 29
Accumulated postretirement benefit obligation 172 140
Unrecognized actuarial gains and (losses) (42) (21)
Unrecognized transition obligation (3) --
Net postretirement benefit liability
recognized in the balance sheet $127 $119
</TABLE>
The actuarial present value of the accumulated postretirement benefit
obligation was determined using a weighted average discount rate of 7.5% at
December 31, 1993 and 8.5% at December 31, 1992. The effect of the discount
rate change was to increase the postretirement benefit obligations by
approximately $17 million at December 31, 1993. Health care cost inflation is
assumed to be 13.75% in 1993, declining gradually to 6.5% in 2007 and
thereafter. A 1% increase in the assumed health care cost rates would increase
the service and interest cost components by approximately $2 million and
increase the accumulated postretirement benefit obligation by approximately $19
million.
13. MANAGEMENT INCENTIVE PROGRAMS
The Company provides an incentive compensation plan based on attaining certain
objectives to officers and their key management personnel. Expense under this
plan totalled $4 million, $5 million, and $4 million in 1993, 1992 and 1991,
respectively.
- 19 -
<PAGE> 20
14. CONTINGENT LIABILITIES
The Company's primary contingent environmental liabi-lity relates to
governmental and private actions which name Federal Pacific Electric Company
("FPE"), a nonoperating subsidiary of the Company, as a defendant or
potentially responsible party. These liabilities include several CERCLA sites,
the investigation of possible remediation actions at former FPE facilities and
a number of other less significant environmental matters. The gross estimated
unpaid liability for these environmental matters at December 31, 1993 is
approximately $20 million. As described below, the Company is indemnified for a
substantial portion of these environmental claims.
Pursuant to the December 29, 1986 Stock Purchase Agreement ("Agreement") with
the Company, Exxon Corporation ("Exxon") agreed to indemnify and hold harmless
the Company against substantially all losses, liabilities, claims, obligations,
damages (including any governmental penalty or punitive damages) or
deficiencies (collectively "Losses") arising out of or resulting from any
environmental claim relating to the operations of FPE and certain of its
subsidiaries including Cornell-Dubilier Electronics Corporation. No action or
claim for damages pursuant to this indemnity may be brought or made by the
Company after the expiration of a twenty year period from December 30, 1986,
except that such time limitation does not apply to any claims which have been
the subject of a written notice from the Company to Exxon prior to the
expiration of such period. Pursuant to the Agreement, Exxon is liable for the
first $10 million of any such damages incurred by the Company, 95% of the next
$100 million and 100% of any such damages in excess of $110 million. While
there can be no assurance as to the future compliance with the Agreement, Exxon
has been and is indemnifying the Company for these environmental matters. After
effect to this indemnification, the gross estimated liability referred to above
is reduced to approximately $4 million, the amount which is reflected in the
Company's December 31, 1993 balance sheet.
The Company is subject to various legal actions, performances under contracts,
pending litigation and proceedings relating to a wide range of matters, several
of which claim substantial damages. In the opinion of management, after
reviewing the information which is currently available with respect to such
matters and consulting with the Company's counsel, any liability which may
ultimately be incurred will not materially affect the consolidated financial
position, results of operations or cash flows of the Company.
15. RELATED PARTY TRANSACTIONS
Court Square Capital Limited (an affiliate of Citicorp, together with other
affiliates "Citicorp") and Prudential Securities Inc. (an affiliate of The
Prudential Insurance Company of America, together with other affiliates
"Prudential") are related parties to the Company. At December 31, 1993,
Citicorp owned all outstanding shares of Class C Common Stock. During 1991 the
Company paid $2.5 million for Citicorp's 32% interest in the Company's Mexican
affiliates.
Prudential owned 2,466,968 shares of Class B Common Stock at December 31, 1993.
Prudential acted as a broker for the Company's March 1992 purchase of
- 20 -
<PAGE> 21
approximately $18 million principal amount of its 14% Discount
Subordinated Debentures. The Company also engaged Prudential as one of three
managing underwriters involved in the May 1992 initial public offering and
engaged Prudential as one of the two managing underwriters involved in the
April 1993 offering of the 6.8% Notes due April 15, 2003. Prudential received
commissions and fees in connection with these transactions on a basis
consistent with standard industry practice.
In 1991, the Company hired Prudential to assist in the investigation of the
potential sale or merger of the Company; this investigation was terminated in
December 1991. Also during 1991, the Company repurchased 200,000 shares of
$1.40 Junior Preferred Stock from Citicorp in a transaction brokered by
Prudential.
In 1991, Reliance Electric Limited, a Canadian corporation and a wholly owned
subsidiary of the Company, entered into two separate agreements with Citicorp.
Pursuant to agency agreements, the Company engaged Citicorp to act as its agent
in purchases and sales of approximately $3 million of U.S. Treasury Bonds. The
Company took steps to determine that all of the above transactions were handled
on a basis no less favorable than could have been obtained from unrelated
parties.
16. BUSINESS SEGMENT INFORMATION
The Company is comprised of Industrial and Telecommunications business
segments. Industrial segment business units develop, manufacture, market and
service motors, electrical drives, mechanical power transmission products, and
utility transformers. Telecommunications segment business units develop,
manufacture, market and service specialty telecommunications products.
Consolidated net sales and earnings by business segment include sales to
unaffiliated customers and inter-segment sales, which are accounted for at
prices approximating market. Operating income represents sales less operating
expenses, including restructure charges. Operating income excludes general
corporate expense, interest and miscellaneous income, interest expense, income
taxes and equity earnings of unconsolidated affiliates. Goodwill has been
allocated to the segments.
<TABLE>
<CAPTION>
By Geographic Location 1993 1992 1991
(Dollars in millions)
Net Sales
<S> <C> <C> <C>
U.S. $1,478 $1,394 $1,336
Non-U.S. 170 190 209
Eliminations (40) (31) (29)
Total $1,608 $1,553 $1,516
Earnings
U.S. $ 109 $ 138 $ 137
Non-U.S. (2) 6 26
Operating income 107 144 163
Corporate expense 16 15 16
Interest expense 27 45 84
Other (income) expense (1) (2) (1)
Earnings Before Taxes $ 65 $ 86 $ 64
Identifiable Assets
U.S. $ 1,056 $1,007 $1,005
Non-U.S. 116 115 138
Corporate 23 29 33
Total $ 1,195 $1,151 $1,176
</TABLE>
- 21 -
<PAGE> 22
<TABLE>
<CAPTION>
By Segment 1993 1992 1991
(Dollars in millions)
Net Sales
<S> <C> <C> <C>
Industrial $1,172 $1,153 $1,153
Telecommunications 439 402 365
Eliminations (3) (2) (2)
Total $1,608 $1,553 $1,516
Earnings
Industrial $ 92 $ 118 $ 150
Telecommunications 15 26 13
Operating income 107 144 163
Corporate expense 16 15 16
Interest expense 27 45 84
Other (income) expense (1) (2) (1)
Earnings Before Taxes $ 65 $ 86 $ 64
Identifiable Assets
Industrial $ 581 $ 526 $ 553
Telecommunications 591 596 590
Corporate 23 29 33
Total $1,195 $1,151 $1,176
Depreciation and Amortization
Industrial $ 38 $ 35 $ 38
Telecommunications 23 23 23
Corporate -- -- --
Total $ 61 $ 58 $ 61
Capital Expenditures
Industrial $ 52 $ 39 $ 27
Telecommunications 15 10 8
Corporate 1 -- --
Total $ 68 $ 49 $ 35
Research and Development Expense
Industrial $ 22 $ 23 $ 18
Telecommunications 21 17 16
Corporate -- -- --
Total $ 43 $ 40 $ 34
</TABLE>
17. RESTRUCTURE CHARGES
The Company incurred $16 million of restructure charges in 1993. The
Electrical Group of the Industrial segment recorded approximately $11 million
of these charges for workforce reductions, consolidation of manufacturing
capacity and international structure changes. The Telecommunications segment
charges were approximately $5 million, largely for consolidation of redundant
manufacturing capacity. The majority of the $16 million provision represents
projected cash expenditures. These actions align the Company's manpower,
manufacturing capacity and structure with current and expected market
conditions, and improve productivity, capacity and administrative efficiency.
- 22 -
