<PAGE> 1
- --------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 7, 1994
ROCKWELL INTERNATIONAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 1-1035 95-1054708
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
2201 Seal Beach Boulevard, Seal Beach, California 90740-8250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 565-4090
(Office of the Secretary)
Not Applicable
(Former name or former address, if changed since last report)
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(Page 1 of 5 Pages)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
On December 7, 1994, ROK Acquisition Corporation ("ROK"), a Delaware
corporation and a wholly-owned subsidiary of Rockwell International Corporation
("Rockwell"), accepted for payment all shares of Class A Common Stock, par
value $.01 per share ("Class A Shares"), of Reliance Electric Company, a
Delaware corporation ("Reliance"), and Class B Common Stock, par value $.01 per
share ("Class B Shares"), of Reliance tendered pursuant to, and following the
expiration of, ROK's tender offer, as amended (the "Offer"), to purchase all
outstanding Class A Shares, Class B Shares and shares of Class C Common Stock,
par value $.01 per share ("Class C Shares" and, together with Class A Shares
and Class B Shares, "Shares"), of Reliance for a purchase price of $31 per
Class A Share and Class B Share and $83.948 per Class C Share, in each case net
to the seller in cash. As a result of purchasing all Class A Shares and Class
B Shares tendered in the Offer, ROK owns 31,288,359 Class A Shares and 146,304
Class B Shares, representing approximately 62% of Reliance's outstanding common
stock on a fully-diluted basis and 88% of Reliance's outstanding voting common
stock. Pursuant to the Agreement and Plan of Merger, dated as of November 21,
1994 (the "Merger Agreement"), by and among Reliance, ROK and Rockwell,
Rockwell intends to cause ROK to merge with and into Reliance (the "Merger").
After the effective time of the Merger, each outstanding Share (other than
Shares then owned by Rockwell, ROK, any subsidiary of Rockwell or ROK, in the
treasury of Reliance or by any subsidiary of Reliance and Shares held by
stockholders, if any, who shall properly exercise appraisal rights with respect
thereto in accordance with Section 262 of the Delaware General Corporation Law)
will be converted into the right to receive $31 in cash (the "Class A Merger
Price") in the case of Class A Shares and Class B Shares, and $83.948 in cash,
in the case of Class C Shares. As a result of the Merger, the separate
corporate existence of ROK will cease and Reliance will be a direct,
wholly-owned subsidiary of Rockwell. Rockwell intends to determine the
feasibility of acquiring additional Shares, whether through private purchases
or otherwise, to enable it to cause the Merger to become effective without a
meeting of stockholders of Reliance pursuant to Section 253 of the Delaware
General Corporation Law. In the event that Rockwell determines that
acquisitions of such additional Shares are not feasible, Reliance will hold a
special meeting of stockholders to consider and vote upon the Merger Agreement,
at which Rockwell and ROK would vote all voting Shares held by them in favor of
the Merger.
The amended Offer was made and the Merger will be effected pursuant to
the Merger Agreement, which is filed as Exhibit 2a hereto. Pursuant to the
Merger Agreement, prior to the Merger becoming effective, each holder of then
outstanding options to purchase Class A Shares is to receive in settlement
thereof a cash payment from Reliance (or at Rockwell's option, from Rockwell or
ROK) in an amount equal to the product of (i) the excess, if any, of the Class
A Merger Price over the exercise price per share of the option and (ii) the
number of Class A Shares covered by such option.
(Page 2 of 5 Pages)
<PAGE> 3
The aggregate purchase price of the Shares purchased and to be
purchased pursuant to the Offer and the Merger and for the settlement of the
options to purchase Shares is approximately $1.6 billion. The amount of such
purchase price has been determined by adding (i) the product of the number of
Class A Shares and Class B Shares outstanding prior to the expiration of the
Offer, multiplied by $31, the cash consideration paid or to be paid per Class A
Share and Class B Share pursuant to the Offer and the Merger, (ii) the product
of the number of Class C Shares outstanding prior to the expiration of the
Offer, multiplied by $83.948, the cash consideration to be paid per Class C
Share pursuant to the Merger and (iii) the difference between (x) the product
of the number of Class A Shares covered by options prior to the expiration of
the Offer multiplied by $31, minus (y) the aggregate exercise price of Class A
Shares covered by options prior to the expiration of the Offer. The funds for
such purchase price were or will be obtained by ROK from Rockwell. Rockwell
obtained approximately $975 million of such funds through private placements of
Rockwell's commercial paper notes with financial institutions. Rockwell has
obtained or will obtain the remainder of such funds from funds available in its
cash accounts and/or borrowings under credit agreements that Rockwell entered
into on November 9, 1994 (a $1,500,000,000 Five-Year Credit Agreement among
Rockwell, the banks listed therein and Morgan Guaranty Trust Company of New
York, as Agent, and a $1,000,000,000 364-Day Credit Agreement among Rockwell,
the banks listed therein and Morgan Guaranty Trust Company of New York, as
Agent) or other borrowings.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial statements of businesses acquired.
The following report and audited financial statements of
Reliance and its subsidiaries are attached hereto as Appendix A:
(i) Report of Independent Accountants dated
February 3, 1994;
(ii) Consolidated Statement of Earnings for
the years ended December 31, 1993, 1992
and 1991;
(iii) Consolidated Balance Sheet as of December
31, 1993 and December 31, 1992;
(iv) Consolidated Statement of Cash Flows for
the years ended December 31, 1993, 1992
and 1991;
(v) Consolidated Statement of Changes in
Stockholders' Equity for the years ended
December 31, 1993, 1992 and 1991; and
(vi) Notes to Consolidated Financial
Statements.
(Page 3 of 5 Pages)
<PAGE> 4
The following unaudited financial statements of Reliance and
its subsidiaries are attached hereto as Appendix B:
(i) Consolidated Statement of Earnings
(unaudited) for the three months ended
September 30, 1994 and September 30, 1993;
(ii) Consolidated Statement of Earnings
(unaudited) for the nine months ended
September 30, 1994 and September 30, 1993;
(iii) Consolidated Balance Sheet (unaudited) as
of September 30, 1994 and December 31,
1993;
(iv) Consolidated Statement of Cash Flows
(unaudited) for the nine months ended
September 30, 1994 and September 30, 1993;
and
(v) Notes to Consolidated Financial
Statements.
(b) Pro forma financial information.
The following unaudited pro forma financial information of
Rockwell and Reliance is attached hereto as Appendix C:
(i) Introductory Note;
(ii) Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of September
30, 1994;
(iii) Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet;
(iv) Unaudited Pro Forma Condensed Consolidated
Statement of Income for the twelve months
ended September 30, 1994; and
(v) Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Income.
(c) Exhibits
2a. Agreement and Plan of Merger, dated as of
November 21, 1994, by and among Reliance, ROK
and Rockwell is incorporated herein by reference
to Exhibit (a)(24) to Amendment No. 9 to the
Tender Offer Statement on Schedule 14D-1 filed
on November 22, 1994 by Rockwell and ROK with
respect to the Offer.
23. Consent of Price Waterhouse LLP, independent
accountants.
(Page 4 of 5 Pages)
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ROCKWELL INTERNATIONAL CORPORATION
(Registrant)
By: William J. Calise, Jr.
----------------------
William J. Calise, Jr.
Senior Vice President,
General Counsel & Secretary
Dated: December 21, 1994
(Page 5 of 5 Pages)
<PAGE> 6
Appendix A
REPORT OF INDEPENDENT ACCOUNTANTS
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
Price Waterhouse
Cleveland, Ohio
February 3, 1994
-1-
<PAGE> 7
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> 8
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> 9
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> 10
<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> 11
<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>
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) -
</TABLE>
-6-
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
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>
<TABLE>
<S> <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> 13
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> 14
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> 15
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>
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<PAGE> 16
<TABLE>
4. INVENTORY
<CAPTION>
Inventory consists of:
December 31 1993 1992
(Dollars in millions)
<S> <C> <C>
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
<FN>
* 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.
</TABLE>
-11-
<PAGE> 17
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> 18
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.
-13-
<PAGE> 19
<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>
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
14. CONTINGENT LIABILITIES
The Company's primary contingent environmental liability 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> 26
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> 27
<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-
<PAGE> 28
Appendix B
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions, except per share amounts)
(Shares in thousands)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended September 30, 1994 1993
- -------------------------------- ---- ----
<S> <C> <C>
Net Sales
Industrial......................... $335 $287
Telecommunications................. 115 116
Eliminations....................... (1) (1)
---- ----
Total 449 402
Costs and Expenses:
Cost of Sales
Industrial......................... 248 224
Telecommunications................. 86 87
Eliminations....................... (1) (1)
---- ----
Total 333 310
Selling, general and administrative... 71 67
Other expense, net.................... 1 1
---- ----
Earnings Before Interest and Taxes..... 44 24
Interest expense....................... 6 6
---- ----
Earnings Before Taxes.................. 38 18
Provision for income taxes............. 17 8
---- ----
Net Earnings .......................... $ 21 $ 10
==== ====
Net earnings per equivalent share of
common stock (Exhibit 1):
Net earnings .......................... $.41 $.19
==== ====
Weighted average equivalent shares of
common stock outstanding (A) 50,960 50,732
====== ======
<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>
-1-
<PAGE> 29
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions, except per share amounts)
(Shares in thousands)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1994 1993
- ------------------------------- ---- ----
<S> <C> <C>
Net Sales
Industrial......................... $ 944 $ 876
Telecommunications................. 338 330
Eliminations....................... (2) (3)
------ ------
Total 1,280 1,203
Costs and Expenses:
Cost of Sales
Industrial......................... 704 670
Telecommunications................. 249 249
Eliminations....................... (2) (3)
------ ------
Total 951 916
Selling, general and administrative... 213 202
Restructure........................... -0- 4
Other expense, net.................... 4 3
------ ------
Earnings Before Interest and Taxes..... 112 78
Interest expense....................... 18 20
------ ------
Earnings Before Taxes.................. 94 58
Provision for income taxes............. 43 27
------ ------
Earnings Before Extraordinary Items
and Cumulative effect of Accounting
Change................................ 51 31
Extraordinary Items.................... -0- (7)
Cumulative effect of accounting change
(net of income tax effect)............ (2) -0-
------ ------
Net Earnings .......................... $ 49 $ 24
====== ======
Net earnings per equivalent share of
common stock (Exhibit 1):
Earnings before extraordinary items
and cumulative effect of accounting
change................................ $ 1.01 $ .61
Extraordinary items.................... -0- (.14)
Cumulative effect of accounting change. (.05) -0-
------ ------
Net earnings .......................... $ .96 $ .47
====== ======
Weighted average equivalent shares of
common stock outstanding (A) 50,956 50,698
====== ======
- ----------
(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>
-2-
<PAGE> 30
RELIANCE ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions, except per share amounts)
(Shares in thousands)
===============================================================================
<TABLE>
<CAPTION>
Assets September 30, 1994 December 31, 1993
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents.................... $ 30 $ 41
Accounts receivable, net..................... 254 217
Inventories.................................. 353 328
Other........................................ 24 29
------ ------
Total Current Assets...................... 661 615
Goodwill, net................................ 204 209
Investments and other........................ 87 73
Property, plant and equipment................ 667 625
Less accumulated depreciation............... (353) (327)
------ ------
314 298
------ ------
Total Assets.............................. $1,266 $1,195
====== ======
Liabilities and Stockholders' Equity
Notes payable and current maturities of
long-term debt.............................. $ -0- $ -0-
Accounts payable............................. 72 78
Other........................................ 203 186
------ ------
Total Current Liabilities................. 275 264
Long-term debt............................... 332 351
Other........................................ 225 199
Stockholders' equity
Common stock (convertible, $.01 par value):
Class A, 32,962 and 32,865 shares issued at
September 30, 1994 and December 31, 1993,
respectively.............................. 339 339
Class B, 3,161 and 3,180 shares issued at
September 30, 1994 and December 31, 1993,
respectively.............................. 1 1
Class C, 5,250 shares issued............... 4 4
Retained earnings.......................... 86 37
Other stockholders' equity................. 4 -0-
------ ------
Total Stockholders' Equity................ 434 381
------ ------
Total Liabilities and Stockholders' Equity $1,266 $1,195
====== ======
<FN>
Commitments and contingencies (Part II., Item 1)
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<PAGE> 31
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1994 1993
- ------------------------------- ---- ----
<S> <C> <C>
CASH PROVIDED FROM OPERATIONS
Net Earnings .......................................... $ 49 $ 24
Adjustments to reconcile to net cash
provided from operations:
Extraordinary items.................................. -0- 7
Cumulative effect of accounting change............... 2 -0-
Depreciation and amortization........................ 35 47
Provision for deferred income taxes.................. 4 (9)
Changes in operating assets and liabilities:
Accounts receivable................................. (37) (22)
Inventories......................................... (25) (12)
Accounts payable.................................... (6) (8)
Income taxes payable................................ 8 (1)
Advances from customers............................. 4 3
Other................................................ 19 13
---- ----
Net Cash Provided from Operations....................... 53 42
CASH PROVIDED FROM INVESTING ACTIVITIES
Capital expenditures................................... (46) (46)
Other.................................................. -0- -0-
---- ----
Net Cash Provided from Investing Activities............. (46) (46)
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........... 18 127
Net proceeds/payments from money market
lines of credit ..................................... (37) 69
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
Other.................................................. 1 3
---- ----
Net Cash Provided from Financing Activities............. (18) (5)
---- ----
Net Increase (Decrease) in Cash and Cash
Equivalents............................................ (11) (9)
Cash and Cash Equivalents at January 1.................. 41 32
---- ----
Cash and Cash Equivalents at September 30............... $ 30 $ 23
==== ====
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
-4-
<PAGE> 32
RELIANCE ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information as of and for the three months
ended September 30, 1994 and 1993 is unaudited)
==============================================================================
1. Basis of Presentation of Financial Statements
The data as of September 30, 1994 and for the three months and nine
months ended September 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:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ -----------------
(Dollars in millions)
<S> <C> <C>
Raw materials............ $100 $104
Work in process.......... 89 68
Finished goods........... 77 68
---- ----
Total (approximates
replacement cost)....... 266 240
Difference to LIFO....... 87 88
---- ----
LIFO..................... $353 $328
==== ====
</TABLE>
3. Supplemental Information to the Consolidated Statement of Cash Flows
Cash interest paid was $13 million for the nine months ended September
30, 1994, which equalled the $13 million cash interest paid for the
comparable period of 1993. The Company also paid $32 million and $27
million of income taxes during the nine months ended September 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 of credits 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.
-5-
<PAGE> 33
5. Other Event
On August 30, 1994 the Company announced that the boards of directors
of Reliance Electric Company and General Signal Corporation had agreed
to merge the two companies, subject to the approval of the
shareholders of both Reliance Electric and General Signal, and the
fulfillment of certain customary conditions including obtaining the
approval of appropriate regulatory agencies. Under the terms of the
merger agreement, Reliance Class A common stockholders would receive
.739 shares of General Signal Corporation stock for each share of
Reliance Electric Company Class A stock and an equivalent number of
shares for convertible shares.
6. Subsequent Event
On October 21, 1994 Rockwell International Corporation commenced an
all-cash tender offer for all shares of Reliance Electric Company at a
price of $30 per share of Class A common stock and an equivalent price
for convertible shares.
-6-
<PAGE> 34
Appendix C
ROCKWELL INTERNATIONAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introductory Note
-----------------
The following unaudited pro forma condensed consolidated financial statements
have been prepared by Rockwell's management. These statements reflect
Rockwell's acquisition of Reliance and combine the historical consolidated
financial statements of Rockwell and Reliance for the periods indicated, using
the purchase method of accounting.
The unaudited pro forma condensed consolidated balance sheet reflects
adjustments as if the acquisition had occurred on September 30, 1994. The
unaudited pro forma condensed consolidated statement of income has been
prepared assuming the acquisition of Reliance had occurred at the beginning of
Rockwell's fiscal year ended September 30, 1994. These pro forma statements
should be read in conjunction with the historical consolidated financial
statements and related notes of Rockwell and Reliance. The pro forma financial
statements include preliminary estimates and assumptions which Rockwell
management believes are reasonable. Pro forma adjustments to the condensed
consolidated statement of income reflecting anticipated cost savings and other
synergies resulting from the planned integration of Reliance and Rockwell's
Automation business are, under most circumstances, not permitted. As a result,
the pro forma results are not intended to be a projection of future results and
are not necessarily indicative of the results which would have occurred if the
business combination had been in effect on the dates presented. Rockwell
management believes the acquisition will have a positive earnings impact in the
first full year after the acquisition.
The pro forma condensed consolidated financial statements have been prepared
using the following facts and assumptions:
- Rockwell acquires all the common stock of Reliance for a total
cash payment of $1,580 million. Rockwell has acquired 62% of the outstanding
common stock of Reliance and expects to acquire the remaining shares in January
1995.
- Simultaneously with the acquisition of Reliance, Rockwell
sells the telecommunications business of Reliance to fund a portion of the
acquisition price. For purposes of these pro forma statements, it is assumed
the sales proceeds will be equal to the net book value of the
telecommunications business of $498 million. Rockwell expects the sale of the
telecommunications business of Reliance to occur by December 31, 1995 and the
actual sales proceeds may be higher or lower than the assumed amount.
1
<PAGE> 35
- Rockwell borrows $1,082 million to finance the remaining
portion of the $1,580 million acquisition price.
- In accordance with generally accepted accounting principles,
the purchase price of Reliance will be allocated to the assets and liabilities
of Reliance based upon their respective fair values. Such allocations will be
based upon appraisals, evaluations, estimations and other studies which are
still in process. For purposes of the accompanying pro forma statements, the
pro forma adjustments made have been reflected on an estimated basis using
information currently available. No adjustment has been made to allocate the
excess of cost over the net assets of Reliance to property, plant and equipment
or intangible assets since such fair values have not yet been determined.
Accordingly, the allocation of the purchase price to the acquired assets and
assumed liabilities of Reliance is subject to revision as a result of the final
determination of fair values.
2
<PAGE> 36
ROCKWELL INTERNATIONAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Pro Forma
---------
As Reported Business to Adjustments
----------- be Sold by Increase Pro Forma
Rockwell Reliance Rockwell(1) (Decrease) Combined
-------- -------- ----------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 628 $ 30 $ 498(1) $(498)(1) $ 658
Accounts receivable, net 2,267 254 (59) 2,462
Inventories 1,533 353 (85) $ 50(3a) 1,851
Other current assets 500 24 (19) 505
------ ------ ------- ----- -------
Total current assets 4,928 661 335 (448) 5,476
Excess of cost over
net assets acquired 589 204 (344) 1,193(3e,3g) 1,642
Other assets 1,961 87 (10) 2,038
Property, plant and
equipment, net 2,383 314 (60) 2,637
----- ------ ------- ----- -------
Total assets $9,861 $1,266 $ (79) $ 745 $11,793
====== ====== ======= ===== =======
</TABLE>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Short-term debt $ 160 $ 582(2) $ 742
Accounts payable 977 $ 72 $ (18) 81(3f) 1,112
Other current liabilities 1,883 203 (34) (5)(3c) 2,047
------ ------ ------- ----- -------
Total current liabilities 3,020 275 (52) 658 3,901
Long-term debt 831 332 500 (2) 1,663
Other liabilities 2,654 225 (27) 21 (3b) 2,873
Shareowners' equity 3,356 434 (434)(3d) 3,356
------ ------ ------- ----- -------
Total liabilities and
shareowners' equity $9,861 $1,266 $ (79) $ 745 $11,793
====== ====== ======= ===== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
3
<PAGE> 37
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The adjustments to give pro forma effect to Rockwell's acquisition of Reliance
and the estimated purchase price allocation at September 30, 1994 are as
follows:
1) The divestiture of Reliance's telecommunications business at
book value, simultaneous with the acquisition of Reliance by
Rockwell. The assumed sales proceeds are used to fund a
portion of the acquisition price.
2) Borrowings by Rockwell of $582 million of short-term and $500
million of long-term debt to finance the remaining portion of
the purchase price.
3) The allocation of the aggregate purchase price and the
recognition of the excess of aggregate purchase price over the
estimated fair value of net assets acquired, is as follows (in
millions):
<TABLE>
<S> <C> <C> <C>
a) Adjust inventories acquired to
estimated fair value $ 50
b) Adjust deferred income taxes (21)
c) Adjust liability for postretirement
benefits to reflect Rockwell's actuarial
assumptions 5
d) Eliminate net book value of Reliance
prior to pro forma adjustments 434
e) Eliminate goodwill of the continuing
businesses of Reliance 140
f) Recognition of liability for expenses
incurred by Reliance primarily
in connection with the abandonment of a
prior merger agreement (81)
g) Adjust for excess of purchase price
over book value of remaining net
assets acquired 1,053
------
Aggregate Purchase Price $1,580
======
</TABLE>
4
<PAGE> 38
ROCKWELL INTERNATIONAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Pro Forma
---------
As Reported Business to Adjustments
----------- be Sold by Increase Pro Forma
Rockwell Reliance(6) Rockwell(1) (Decrease) Combined
-------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Sales and other income $11,205 $1,685 $(447) $12,443
Costs and expenses:
Cost of sales 8,675 1,258 (327) 9,606
Selling, general and
administrative 1,412 284 (83) $ (4)(3) 1,609
Other expenses 17 (15) 30 (2) 32
Interest 97 24 83 (4) 204
------- ------ ----- ---- -------
Total costs and
expenses 10,184 1,583 (425) 109 11,451
------- ------ ----- ---- -------
Income before income
taxes 1,021 102 (22) (109) 992
Provision for income
taxes 387 49 (13) (30)(5) 393
------- ------ ----- ---- -------
Net income $ 634 $ 53 $ (9) $(79) $ 599
======= ====== ===== ==== =======
Earnings per common share (in dollars) (7):
Primary $ 2.87 $ 2.72
======= =======
Fully diluted $ 2.82 $ 2.67
======= =======
Average common shares outstanding (in millions):
Primary 220.5 220.5
===== =====
Fully diluted 224.5 224.5
===== =====
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statement
of income.
5
<PAGE> 39
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
1. To reflect the divestiture of Reliance's telecommunications business.
2. Amortize over an average period of 35 years the excess of purchase
price over the estimated fair value of net assets acquired.
3. Adjust expense for postretirement benefits to reflect Rockwell's
actuarial assumptions.
4. Recognize interest expense on borrowings to fund acquisition
(at assumed rates of 7.25% on short-term debt and 8.25%
on long-term debt).
5. Reduction in the provision for income taxes primarily associated with
the additional interest expense.
6. The historical net income of Reliance does not include the cumulative
effect of $2 million (net of tax) related to the adoption of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The historical results of operations do
include a $12 million restructuring charge recorded by Reliance in the
quarter ended December 31, 1993 of which $5 million related to the
telecommunications business.
7. Pro forma primary and fully diluted earnings per share are computed on
the same basis as historical amounts.
6
<PAGE> 40
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
2a -- Agreement and Plan of Merger,
dated as of November 21,
1994, by and among Reliance, ROK
and Rockwell is incorporated herein
by reference to Exhibit (a)(24) to
Amendment No. 9 to the Tender Offer
Statement on Schedule 14D-1 filed
on November 22, 1994 by Rockwell and
ROK with respect to the Offer.
23 -- Consent of Price Waterhouse LLP,
independent accountants.
<PAGE> 1
Exhibit 23
Consent Of Independent Accountants
We hereby consent to the inclusion in this Current Report on Form 8-K of
Rockwell International Corporation dated December 21, 1994 of our report dated
February 3, 1994 relating to the consolidated financial statements of Reliance
Electric Company and to the incorporation by reference of our report dated
February 3, 1994 relating to the consolidated financial statements of Reliance
Electric Company in (i) Rockwell International Corporation's Registration
Statement No. 33-49699 on Form S-3, (ii) Registration Statement No. 2-99494 (as
amended through Post-Effective Amendment No. 4 thereto) on Form S-8 relating to
Rockwell International Corporation's Savings Plan for Certain Represented
Hourly Employees, as amended, (iii) Registration Statement No. 33-27122 on Form
S-8 relating to Rockwell International Corporation's 1988 Long-Term Incentives
Plan, 1981 Incentive Stock Option Plan for Key Employees, as amended, and 1979
Stock Plan for Key Employees, as amended, and (iv) Registration Statement No.
33-32662 on Form S-8 relating to Rockwell International Corporation's Savings
Plan, as amended.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Cleveland, Ohio
December 21, 1994
- 1 -
