<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________
Commission File Number 1-10404
RELIANCE ELECTRIC COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1538687
- - ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6065 Parkland Blvd., Cleveland, OH 44124-6106
---------------------------------------------------
(Address of principal executive offices) (Zip code)
(216) 266-5800
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at June 30, 1994
- - ------------------------------------ ----------------------------
Class A Common Stock, $.01 par value 32,894,189 shares
Class B Common Stock, $.01 par value 3,161,032 shares
Class C Common Stock, $.01 par value 5,250,000 shares
Page 1 of 13
<PAGE> 2
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions, except per share amounts)
============================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30, 1994 1993
- - --------------------------- ---- ----
<S> <C> <C>
Net Sales
Industrial......................... $ 314 $ 302
Telecommunications................. 114 112
Eliminations....................... -0- (1)
---- ----
Total 428 413
Costs and Expenses:
Cost of Sales
Industrial......................... 234 231
Telecommunications................. 83 84
Eliminations....................... -0- (1)
---- ----
Total 317 314
Selling, general and administrative... 72 69
Restructure........................... -0- 4
Other expense, net.................... 2 -0-
---- ----
Earnings Before Interest and Taxes..... 37 26
Interest expense....................... 6 7
---- ----
Earnings Before Taxes.................. 31 19
Provision for income taxes............. 14 10
---- ----
Earnings Before Extraordinary Items.... 17 9
Extraordinary Items.................... -0- (7)
---- ----
Net Earnings .......................... $ 17 $ 2
==== ====
Net earnings per equivalent share of
common stock (Exhibit A):
Earnings before extraordinary items.... $ .33 $ .19
Extraordinary items.................... -0- (.14)
---- ----
Net earnings .......................... $ .33 $ .05
==== ====
Weighted average equivalent shares of
common stock outstanding (in thousands) (A) 50,733 50,739
====== ======
<FN>
(A) Weighted average equivalent share amounts give effect to the
conversion of each share of Class C Common Stock into 2.708 shares of
Class A Common Stock, as well as the exercise of nonqualified stock
options when the effect of such exercise is dilutive.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE> 3
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions, except per share amounts)
============================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994 1993
- - ------------------------- ---- ----
<S> <C> <C>
Net Sales
Industrial......................... $ 609 $ 589
Telecommunications................. 223 214
Eliminations....................... (1) (2)
---- ----
Total 831 801
Costs and Expenses:
Cost of Sales
Industrial......................... 456 446
Telecommunications................. 163 162
Eliminations....................... (1) (2)
---- ----
Total 618 606
Selling, general and administrative... 142 135
Restructure........................... -0- 4
Other expense, net.................... 3 2
---- ----
Earnings Before Interest and Taxes..... 68 54
Interest expense....................... 12 14
---- ----
Earnings Before Taxes.................. 56 40
Provision for income taxes............. 26 19
---- ----
Earnings Before Extraordinary Items
and Cumulative effect of Accounting
Change................................ 30 21
Extraordinary Items.................... -0- (7)
Cumulative effect of accounting change
(net of income tax effect)............ (2) -0-
---- ----
Net Earnings .......................... $ 28 $ 14
==== ====
Net earnings per equivalent share of
common stock (Exhibit A):
Earnings before extraordinary items
and cumulative effect of accounting
change................................ $ .59 $ .42
Extraordinary items.................... -0- (.14)
Cumulative effect of accounting change. (.05) -0-
---- ----
Net earnings .......................... $ .54 $ .28
==== ====
Weighted average equivalent shares of
common stock outstanding (in thousands) (A) 50,729 50,733
====== ======
<FN>
(A) Weighted average equivalent share amounts give effect to the
conversion of each share of Class C Common Stock into 2.708 shares of
Class A Common Stock, as well as the exercise of nonqualified stock
options when the effect of such exercise is dilutive.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE> 4
RELIANCE ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions, except per share amounts)
(Shares in thousands)
============================================================================
<TABLE>
<CAPTION>
Assets June 30, 1994 December 31, 1993
------------- -----------------
<S> <C> <C>
Cash and cash equivalents.................... $ 37 $ 41
Accounts receivable, net..................... 242 217
Inventories.................................. 353 328
Other........................................ 24 29
----- -----
Total Current Assets...................... 656 615
Goodwill, net................................ 206 209
Investments and other........................ 87 73
Property, plant and equipment................ 655 625
Less accumulated depreciation............... (347) (327)
----- -----
308 298
----- -----
Total Assets.............................. $1,257 $1,195
===== =====
Liabilities and Stockholders' Equity
Notes payable and current maturities of
long-term debt.............................. $ -0- $ -0-
Accounts payable............................. 74 78
Other........................................ 188 186
----- -----
Total Current Liabilities................. 262 264
Long-term debt............................... 361 351
Other........................................ 224 199
Stockholders' equity
Common stock (convertible, $.01 par value):
Class A, 32,894 and 32,865 shares issued at
June 30, 1994 and December 31, 1993,
respectively.............................. 339 339
Class B, 3,161 and 3,180 shares issued at
June 30, 1994 and December 31, 1993,
respectively.............................. 1 1
Class C, 5,250 shares issued............... 4 4
Retained earnings.......................... 65 37
Other stockholders' equity................. 1 -0-
---- -----
Total Stockholders' Equity................ 410 381
----- -----
Total Liabilities and Stockholders' Equity $1,257 $1,195
====== =====
<FN>
Commitments and contingencies (Part II., Item 1)
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE> 5
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
============================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994 1993
- - ------------------------- ---- ----
<S> <C> <C>
CASH PROVIDED FROM OPERATIONS
Net Earnings .......................................... $ 28 $ 14
Adjustments to reconcile to net cash
provided from operations:
Extraordinary items.................................. -0- 7
Cumulative effect of accounting change............... 2 -0-
Depreciation and amortization........................ 22 32
Provision for deferred income taxes.................. 1 (4)
Changes in operating assets and liabilities:
Accounts receivable................................. (25) (21)
Inventories......................................... (25) (21)
Accounts payable.................................... (4) -0-
Income taxes payable................................ 1 (2)
Advances from customers............................. -0- -0-
Other................................................ 17 16
--- ---
Net Cash Provided from Operations....................... 17 21
CASH PROVIDED FROM INVESTING ACTIVITIES
Capital expenditures................................... (31) (30)
Other.................................................. -0- (1)
--- ---
Net Cash Provided from Investing Activities............. (31) (31)
CASH PROVIDED FROM FINANCING ACTIVITIES
Proceeds from issuance of 6.8% Notes Due April 15, 2003 -0- 149
Net proceeds/payments on New Credit Facility........... 44 200
Net proceeds/payments from money market lines of credit (34) -0-
Net proceeds/payments on term loan..................... -0- (364)
Proceeds from Revolving Credit Facility................ -0- 71
Payments on Revolving Credit Facility.................. -0- (71)
Tax benefit from option exercises...................... -0- 11
--- ---
Net Cash Provided from Financing Activities............. 10 (4)
--- ---
Net Increase (Decrease) in Cash and Cash
Equivalents............................................ (4) (14)
Cash and Cash Equivalents at January 1.................. 41 32
--- ---
Cash and Cash Equivalents at June 30................... $ 37 $ 18
=== ===
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE> 6
RELIANCE ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information as of and for the three months
ended June 30, 1994 and 1993 is unaudited)
======================================================================
1. Basis of Presentation of Financial Statements
The data as of June 30, 1994 and for the three months and six months
ended June 30, 1994 and 1993 are unaudited and, in the opinion of
management, include all adjustments (which are normal and recurring in
nature) necessary for a fair presentation of financial position and
results of operations. The statements, which do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements, should be read in
conjunction with the audited consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
2. Inventories
Inventories consist of:
June 30, 1994 December 31, 1993
------------- -----------------
(Dollars in millions)
[S] [C] [C]
Raw materials............ $ 98 $104
Work in process.......... 91 68
Finished goods........... 76 68
-- ---
Total (approximates
replacement cost)....... 265 240
Difference to LIFO....... 88 88
--- ---
LIFO..................... $353 $328
=== ===
3. Supplemental Information to the Consolidated Statement of Cash Flows
Cash interest paid during the six months ended June 30, 1994 and 1993
was $10 million and $9 million, respectively. The increase in interest
paid was due to the timing of interest payments on the 6.8% Notes
issued during the second quarter of 1993. The Company also paid $23
million and $14 million of income taxes during the six months ended
June 30, 1994 and 1993, respectively. The increase in cash taxes paid
is primarily attributable to higher earnings. In addition, 1993 cash
taxes paid were lower due to the benefits associated with stock
option exercises in late 1992.
4. Adoption of Accounting Pronouncements
The Company adopted Statement of Financial Standards No. 112 -
"Employers' Accounting for Postemployment Benefits" in the first
quarter of 1994. The Company also adopted the provisions set forth in
SEC Staff Accounting Bulletin No. 92, "Accounting and Disclosures
Related to Loss Contingencies" in the first quarter of 1994. See Form
10-Q for the quarterly period ended March 31, 1994 for a discussion of
the impact of adopting these accounting pronouncements.
-6-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATING RESULTS
Industrial segment sales were $314 million and $609 million for the three and
six month periods ended June 30, 1994, versus $302 and $589 million for the
comparable 1993 periods. For the quarter, strong sales of mechanical power
transmission products, transformers and motion control products offset a small
decline in overall electrical equipment sales. Within the electrical equipment
business, strength in motors and generators was not enough to offset the
continuing shift away from large, engineered projects to more distributed
power, both domestically and in Europe. Favorable currency exchange rates
accounted for approximately $2 million of the year-to-date sales increase
within the Industrial segment.
For the six months ended June 30, 1994, all businesses except transformers had
year-over-year sales increases, with a modest increase in overall electrical
equipment sales and robust increases in mechanical and motion control products.
The decline in transformer sales reflects lower 1992 and early 1993 bookings
and the timing of finished product shipments. For the electrical equipment
business, the year-to-date sales pattern follows the quarterly results with
worldwide weakness in large, engineered drive systems projects offsetting
strength in the other product lines. Most of the sales increases are
attributable to the general economic recovery, except for motion control
products which have had strong new business activity, particularly overseas.
First quarter 1994 price increases in portions of the electrical equipment and
mechanical power transmission products business also contributed to the
increased sales.
Telecommunications segment net sales were $114 and $223 million for the three
and six months ended June 30, 1994 versus $112 and $214 million for the
corresponding 1993 periods For both the quarter and the half year ended June
30, 1994 domestic sales increases, particularly for newer products, more than
offset some weakness in Canada and Mexico. Backlog also increased during the
quarter.
The Industrial segment gross profit margins of 25.5% and 25.1% for the three
and six months ended June 30, 1994, respectively, compare favorably with the
margins of 23.5% and 24.3% for the corresponding 1993 periods. For the quarter,
all business units had improved margins, primarily because costs increased at
a lower rate than volume increased. Restructure actions announced during 1993
are also beginning to contribute to increased margins. On a year-to-date basis,
margins for mechanical power transmission and motion control products have
improved, whereas the second quarter improvements in electrical equipment and
transformer margins were not enough to offset lower first quarter margins.
The Telecommunications segment gross profit margins of 27.2% and 26.9% for the
three month and six month periods ended June 30, 1994 compared with 25.0% and
24.3% for the comparable 1993 periods. Lower plant spending and favorable
product mix contributed to the margin increase on both a quarterly and a
year-to-date basis.
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<PAGE> 8
Consolidated selling, general and administrative ("SG&A") expenses were 16.8%
and 17.1% of net sales for the three and six month periods ended June 30, 1994
versus 16.7% and 16.9% for the same periods of 1993. For the quarter ended June
30, 1994, actual SG&A spending within the Industrial segment has increased
marginally and has decreased as a percentage of sales due to general cost
containment measures and restructure actions. On a year-to-date basis,
Industrial segment SG&A spending is essentially flat in dollar terms and is
down as a percentage of sales.
In the Telecommunications segment, second quarter 1994 SG&A spending has
increased by $2 million over the second quarter of 1993 and, on a year-to-date
basis, 1994 spending increased by $6 million over 1993. This increase is
largely for continuing research and development spending, and for additional
sales/marketing expenses to increase penetration in selected markets and expand
coverage into the emerging broadband markets.
The restructuring actions initiated during the second and fourth quarters of
1993 within the Industrial segment have provided nearly a $4 million cost
reduction for the first six months of 1994 as their impact increased in the
quarter ended June 30, 1994. This amount should increase as the year
progresses. The restructuring action announced by the Telecommunications
segment in the fourth quarter of 1993, primarily a plant closure, was completed
at the end of the second quarter of 1994.
Interest expense decreased by $1 million in the second quarter of 1994 compared
to the first quarter of 1993 and by $2 million on a year-to-date basis. This
is primarily due to the refinancing in the second quarter of 1993 which
resulted in a lower effective interest rate.
The worldwide effective tax rates were 45.8% and 49.7% for the quarters ended
June 30, 1994 and 1993, respectively, versus the U.S. statutory rate of 35% for
1994 and 34% in 1993. During the first six months of 1994 and 1993 the
effective tax rates were 46.2% and 46.9% versus the U.S. statutory rates of
35% for 1994 and 34% for 1993. The effective tax rates were higher than the
statutory rate primarily due to permanent differences between book and taxable
income and the effects of state, local and non-U.S. taxes. The 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, higher earnings before taxes result in a
relatively lower tax rate, even after taking the increase in the U.S. statutory
rate into account.
During the second quarter of 1993, the Company recognized a $7 million
extraordinary charge, net of a related tax benefit of $4 million, in connection
with refinancing activities carried out during that period. This charge was due
primarily to the accelerated amortization of issuance fees and interest rate
swaps related to a previous credit facility.
The Company adopted Statement of Financial Standards No. 112 - "Employers'
Accounting for Postemployment Benefits" in the first quarter of 1994. The
Company also adopted the provisions set forth in SEC Staff Accounting Bulletin
No. 92, "Accounting and Disclosures Related to Loss Contingencies" in the first
quarter of 1994. See Form 10-Q for the quarterly period ended March 31, 1994
for a discussion of the impact of adopting these accounting pronouncements.
-8-
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED FROM OPERATIONS
Operations generated $17 million of cash for the six months ended June 30, 1994
versus $21 million for the six months ended June 30, 1993. The decrease in
cash generation is primarily due to increased inventory, which supports higher
production levels and acts as a hedge against anticipated shortages, and
increased accounts receivable balances, which results from higher sales and a
slowdown of receivable turnover. Programs have been implemented to manage
inventory levels more closely, where appropriate, and inventory levels are
expected to decreases in the third and fourth quarters. Year-over-year
depreciation is lower as assets acquired at the Company's formation become
fully depreciated.
INVESTING ACTIVITIES
Capital expenditures were $31 million for the first six months of 1994,
compared to $30 million for the comparable period in 1993. The Company expects
to continue to invest in capital expenditures to broaden manufacturing
improvement programs and implement new technologies. Management believes that
cash provided from operations and available funds under existing credit
facilities will be sufficient to fund interest payments and capital
expenditures for the foreseeable future. Capital expenditures are expected to
accelerate in the second half of 1994.
FINANCING ACTIVITIES
During the three months ended June 30, 1994, the Company increased borrowing by
$10 million compared to reductions in borrowing of $15 million for the
comparable 1993 period. Also, the Company realized, for cash flow purposes, $11
million of tax benefits related to stock option exercises in the first half of
1993.
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<PAGE> 10
RELIANCE ELECTRIC COMPANY
EXHIBIT A
COMPUTATION OF NET EARNINGS PER EQUIVALENT SHARE OF COMMON STOCK
(Dollars in millions, except per share amounts)
(Shares in thousands)
============================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30, 1994 1993
- - -------------------------- ---- ----
<S> <C> <C>
Weighted average number of common
shares outstanding..................... 41,304 41,205
Add: Net shares issuable pursuant to
conversion of Class C Common
Stock into Class A Common Stock
on a one share to 2.708 shares
basis............................ 8,967 8,967
Weighted average of nonqualified
stock options.................... 462 567
------ ------
Weighted average equivalent shares of
common stock outstanding............... 50,733 50,739
====== ======
Earnings before extraordinary items for
computation of net earnings per
equivalent share of common stock....... $ 17 $ 9
Extraordinary items..................... -0- (7)
---- ----
Net earnings available for common stock. $ 17 $ 2
==== ====
Net earnings per equivalent share of
common stock:
Earnings before extraordinary items .... $ .33 $ .19
Extraordinary items..................... -0- (.14)
Net earnings ........................... $ .33 $ .05
==== ====
</TABLE>
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<PAGE> 11
RELIANCE ELECTRIC COMPANY
EXHIBIT A
COMPUTATION OF NET EARNINGS PER EQUIVALENT SHARE OF COMMON STOCK
(Dollars in millions, except per share amounts)
(Shares in thousands)
============================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994 1993
- - ------------------------ ---- ----
<S> <C> <C>
Weighted average number of common
shares outstanding..................... 41,301 41,129
Add: Net shares issuable pursuant to
conversion of Class C Common
Stock into Class A Common Stock
on a one share to 2.708 shares
basis............................ 8,967 8,967
Weighted average of nonqualified
stock options.................... 461 637
------ ------
Weighted average equivalent shares of
common stock outstanding............... 50,729 50,733
====== ======
Earnings before extraordinary items and
cumulative effect of accounting change
for computation of net earnings per
equivalent share of common stock....... $ 30 $ 21
Extraordinary items..................... -0- (7)
Cumulative effect of accounting change.. (2) -0-
---- ----
Net earnings available for common stock. $ 28 $ 14
==== ====
Net earnings per equivalent share of
common stock:
Earnings before extraordinary items and
cumulative effect of accounting
change................................. $ .59 $ .42
Extraordinary items..................... -0- (.14)
Cumulative effect of accounting change.. (.05) -0-
---- ----
Net earnings ........................... $ .54 $ .28
==== ====
</TABLE>
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<PAGE> 12
RELIANCE ELECTRIC COMPANY
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
No material changes have occurred in any of the pending legal
proceedings that were discussed in the Annual Report on Form
10-K for the year ended December 31, 1993 or in Part II, Item
1 of Form 10-Q for the period ended March 31, 1994. These
proceedings are not expected to have a material effect on the
Company's financial position, results of operations, or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on
April 21, 1994. The following matters were voted on at the
meeting:
1. Election of E. Mandell deWindt, Anthony C. Howkins,
John C. Morley, H. Virgil Sherrill, Alfred M. Rankin, and
Dudley P. Sheffler as Directors of the Company. The nominees
were elected with the following vote:
E. Mandell deWindt Anthony C. Howkins
------------------ ------------------
For 27,685,589 For 27,740,999
Withheld 91,747 Withheld 36,337
John C. Morley H. Virgil Sherrill
-------------- ------------------
For 27,682,589 For 27,734,439
Withheld 94,747 Withheld 42,897
Alfred M. Rankin Dudley P. Sheffler
---------------- ------------------
For 27,738,439 For 27,685,649
Withheld 38,897 Withheld 91,687
2. Ratification of the appointment of Price Waterhouse
as the Company's independent accountants for the fiscal year
ending December 31, 1994. This proposal was approved with the
following vote:
For 27,715,319
Against 31,396
Abstain 30,621
Broker Non-Votes 0
3. Proposal to approve and adopt the 1994 Reliance
Electric Company Executive Stock Option Plan. This proposal
was approved with the following vote:
For 26,401,691
Against 1,252,047
Abstain 123,598
Broker Non-Votes 0
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<PAGE> 13
4. Proposal to approve and adopt the 1994 Reliance
Electric Company Outside Directors Stock Option Plan. This
proposal was approved with the following vote:
For 26,135,952
Against 1,520,093
Abstain 121,291
Broker No-Votes 0
5. Proposal to approve and adopt the 1994 Reliance
Electric Company Executive Long Term Incentive Plan. This
proposal was approved with the following vote:
For 26,707,565
Against 963,114
Abstain 106,657
Broker Non-Votes 0
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reliance Electric Company
-------------------------
(Registrant)
Dated: July 28, 1994
-------------- ----------------------------------------
J. A. Guseilo
Vice President and Controller
(Duly Authorized and Principal
Accounting Officer)
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