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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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):
June 29, 1998 (June 29, 1998)
ROCKWELL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-12383 25-1797617
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Anton Boulevard, Suite 700, Costa Mesa, California 92626-7147
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 424-4565
(Former name or former address, if changed since last report)
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(Page 1 of 3 Pages)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
Registrant's press release dated June 29, 1998 is filed herewith
as Exhibit 20 and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
20. Press release of Registrant dated June 29, 1998.
SIGNATURE
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.
ROCKWELL INTERNATIONAL CORPORATION
(Registrant)
By /s/ William J. Calise, Jr.
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William J. Calise, Jr.
Senior Vice President, General
Counsel and Secretary
Dated: June 29, 1998
(Page 2 of 3 Pages)
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
20 Press release of Registrant dated June 29,
1998.
(Page 3 of 3 Pages)
Exhibit 20
600 Anton Boulevard, Suite 700
Costa Mesa, CA 92626-7147
USA
714.424.4546
[ROCKWELL LOGO]
Contact: William D. Mellon
(714) 424-4546
ROCKWELL TO SPIN-OFF SEMICONDUCTOR UNIT TO SHAREHOLDERS; TAKE $625 MILLION
SPECIAL CHARGE FOR RESTRUCTURING TO IMPROVE COMPETITIVENESS; ELIMINATE 3,800
JOBS. COMPANY ALSO PRE-ANNOUNCES THIRD QUARTER EARNINGS. DISCUSSES FY 1998 AND
FY 1999 SALES AND EARNINGS OUTLOOK
COSTA MESA, Calif. (June 29, 1998)--Rockwell International Corporation's (NYSE:
ROK) Chairman and CEO, Don H. Davis, announced today in a letter to company
shareowners that the corporation will take a number of actions to improve the
consistency of its earnings and reposition itself for future global growth.
SPIN-OFF
- Rockwell Semiconductor Systems business will be spun-off to shareowners.
- The transaction is subject to ruling by the U.S. Internal Revenue Service
that it will qualify as a tax-free distribution.
- Shareowners will receive shares in the new company on a pro rata basis.
- Application to list on the NASDAQ.
- Transaction is expected to be completed at calendar year end.
- Semiconductor Systems with projected FY98 sales of $1.3 billion, employs
some 7,000 people
- Dwight W. Decker, president of Semiconductor Systems, will become
president and CEO of the new company.
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2-2-2
"The dynamics of Semiconductor Systems are very different from Rockwell's
other businesses, including its markets, products, and investment requirements.
We believe that by taking this strategic step to operate separately, and by
allowing each company to focus on its own products and markets, we can unlock
greater value for each of these businesses and enhance their ability to achieve
their full potential," Davis said.
Davis continued, "With this separation, investors will be able to focus on
the specific growth, market and value creation characteristics of each company."
RESTRUCTURING
- Record a pre-tax special charge in the third quarter of approximately $625
million for costs associated with reducing our worldwide workforce by
3,800 jobs, facility closures and consolidations, disposal of
non-strategic product lines, write-offs of certain intangible assets and
goodwill, and realignment of various administrative functions at both the
corporate offices and within our businesses.
- Because of significant asset write-off, including goodwill, actual cash
costs will be about $200M.
- Restructuring actions will be completed by end of 1999.
- Restructuring, combined with aggressive ongoing cost reduction
initiatives, will generate approximately $100 million of pre-tax savings,
or 33 cents per share in FY 1999.
- Expect actions will yield pre-tax savings of $200 million by 2001 and
annually thereafter.
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3-3-3
Davis said, "With all the strategic changes we've made to transform our
company during the past two years, we find ourselves with a higher cost
structure than I believe is necessary going forward."
Davis continued, "We must slim down to stay competitive in a very
competitive world. And as we implement this resizing, the next step will be to
change the way we run the company to ensure that our business structure provides
us with a competitive advantage."
THIRD QUARTER/FY 1998 AND 1999 SALES AND EARNINGS
Davis' shareowner letter also includes a third quarter earnings advisory.
"We expect that sales for continuing operations (which exclude Semiconductor
Systems) will be about $1.7 billion, up approximately 5 percent over last year's
third quarter. We also anticipate that Automation sales will be approximately
equal to last year's third quarter, while Avionics will increase about 18
percent, reflecting strong air transport market growth and higher sales from
passenger systems."
Davis continued, "Third quarter earnings for the continuing businesses
(excluding the special restructuring charge) are expected to be $.45 per share,
approximately 20 percent below 1997's third quarter results of $.56 per share.
Earnings will be adversely impacted by a $35 million government program charge
at Avionics. We also expect Automation's third quarter results to be about 10
percent below the third quarter of 1997."
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4-4-4
Discussing the company's full fiscal year, the Rockwell chairman added,
"For the full year, we expect earnings per share from continuing operations
(before special items) to be about $2.30, compared to $2.12, on sales of
approximately $6.8 billion."
Davis added that the preliminary outlook for continuing operations in FY
1999 is for about 7 percent revenue growth and between $2.90-3.00 earnings per
share from continuing businesses.
Regarding Semiconductor Systems, which Rockwell will treat as a
discontinued business, Davis said, "Semiconductor Systems will post operating
losses for the third quarter and full year. The third quarter loss is driven by
the weak PC modem market and a work stoppage at our Newport Beach, Calif.
facility. However, modem chipset and unit volume is trending upward and we are
encouraged that our new expansion product areas are continuing to meet growth
and profitability objectives."
Speaking on long term goals for Rockwell, he added, "we want our investors
to realize the highest returns available for these businesses. Our long-term
financial goals are to grow revenues at an 8 percent average annual rate, grow
earnings per share within a low double-digit percent average annual range,
generate free cash flow of $400 million annually, and achieve a return on equity
of at least 20 percent."
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5-5-5
This news release contains statements relating to future results that are
"forward-looking" as defined in the Private Securities Litigation Reform Act of
1995. Actual results may differ materially from those projected as a result of
certain risks and uncertainties, including but not limited to, those detailed
from time-to-time in the company's Securities and Exchange Commission filings.
Rockwell is a global electronic controls and communications company with
leadership positions in industrial automation, avionics and communications, and
electronic commerce, with projected fiscal 1998 sales of approximately $7
billion and 38,000 employees. The company announced in late June that it planned
to spin off to shareowners its Semiconductor Systems business at calendar year
end.
DAVIS COMPLETE LETTER TO SHAREOWNERS FOLLOWS:
<PAGE>
June 29, 1998
To My Fellow Shareowners:
Over the last 12 months we have witnessed some extraordinary changes in the
global marketplace. Favorable market factors include continued growth in the
airline industry and in the underlying fundamentals that drive long-term
opportunities in automation markets, while the Asian financial crisis and
dramatic changes in the personal computer industry have temporarily impacted our
businesses.
Our ability to demonstrate consistent earnings growth in this dynamic
business environment has been mixed (good at Avionics & Communications, slightly
below target at Automation, and well below plan at Semiconductor Systems). This
mixture of operating performance caused our earnings forecast miss in the second
quarter and will cause another shortfall in the third quarter.
This disappointing level of performance is not what you, our investors,
have come to expect from Rockwell, nor are these the kinds of results I planned
to deliver when I became chairman. That is why I'm writing you this letter to
describe what we're doing about this situation.
During the last year we have continually evaluated the long-range outlook
for each of our markets and our competitive positions going forward. Recently
the market changes I referred to above have become so significant, particularly
at Semiconductor Systems, that it has become necessary to promptly implement
several strategic actions to enhance our performance.
It would be easy just to make some minor adjustments to the business and
simply move on. After all, Rockwell has a strong balance sheet, excellent cash
flow, and serves growing global markets. More specifically, Rockwell Automation
is the number one supplier in North America and a major global player. Rockwell
Collins, likewise, is a leader in the worldwide avionics market.
And, despite the current issues in Semiconductor Systems, this business is
a leader in the personal communications chipset market. However, we are not
content to play the hand we have, and are going to act decisively to position
Rockwell for consistent earnings growth in the future. Here's how:
SEMICONDUCTOR SYSTEMS SPIN-OFF. We are announcing today that your board of
directors has approved the establishment of Semiconductor Systems as a new $1.3
billion, separately traded, publicly held company.
Semiconductor Systems, like many of its Silicon Valley based counterparts,
is a business with a rich heritage of innovation and technology leadership. It
also has excellent people, facilities, financial resources and an exciting array
of new products.
However, the dynamics of Semiconductor Systems are very different from
Rockwell's other businesses, including its markets, products, and investment
requirements. We believe that by taking this strategic step to operate
separately and allowing each company to focus on its own products and markets,
we can unlock greater value for each of these businesses and enhance their
ability to achieve their full potential. With this separation, investors will
also be able to focus on the specific growth, market and value creation
characteristics of each company.
Dwight W. Decker, currently president, Rockwell Semiconductor Systems, will
become president and chief executive officer of the new company.
Rockwell Electronic Commerce, which organizationally had reported to
Semiconductor Systems, will be retained by Rockwell, and we expect this business
to play an important role in Rockwell's future growth.
RESTRUCTURING. Our second strategic action is to restructure Rockwell to
make us leaner and more competitive than we've ever been. With all the strategic
changes we've made to transform our company during the past two years, we find
ourselves with a higher cost structure than I believe is necessary going
forward. We must slim down to stay competitive in a very competitive world. And
as we implement this resizing, the next step will be to change the way we run
the company to ensure that our business structure provides us with a competitive
advantage, and that's exactly what we're going to do.
In connection with this strategic action, we will be recording a pre-tax
special charge in the third quarter of approximately $625 million for costs
associated with reducing our worldwide workforce by 3,800 jobs, facility
closures and consolidations, disposal of non-strategic product lines, write-offs
of certain intangible assets and goodwill, and realignment of various
administrative functions at both the corporate offices and within our
businesses. Because of the significant amount of asset write-offs including
goodwill - actual cash costs will be about $200 million. These restructuring
actions will be substantially completed by the end of fiscal 1999.
So what will this mean to our Shareowners?
Since this restructuring is an important investment in our future, our
investors should know what return to expect. I am confident that the operating
efficiencies resulting from these actions, combined with our aggressive ongoing
cost reduction initiatives, will generate approximately $100 million of pre-tax
savings, or 33 cents per share, in fiscal 1999. We further expect that these
actions will yield pre-tax savings of $200 million by 2001 and annually
thereafter.
The special charge includes approximately $275 million of intangible asset
write-offs and goodwill related primarily to the motors business, $160 million
for severance and other employee separation related costs, $80 million of costs
associated with our decision to exit non-strategic businesses, $80 million for
costs related to facility closures and consolidation, and approximately $30
million resulting from the change from certain government to commercial
accounting practices at our Collins businesses.
Unfortunately, taking employment actions such as those outlined above are
always difficult. The people affected by this downsizing are good employees with
excellent skills. It is my hope that in today's strong job market these
individuals can transition to new opportunities with other employers very
quickly, and we have programs to assist these employees in every way we can.
THIRD-QUARTER OPERATING RESULTS. Results for Rockwell's fiscal 1998 third
quarter will be released in about three weeks. We expect that sales for
continuing operations (which exclude Semiconductor Systems) will be about $1.7
billion, up approximately 5 percent over last year's third quarter. We also
anticipate that Automation sales will be approximately equal to last year's
third quarter, while Avionics will increase about 18 percent, reflecting strong
air transport market growth and higher sales from passenger systems.
Third-quarter earnings for the continuing businesses (excluding the
restructuring charge) is expected to be about 45 cents per share, approximately
20 percent below 1997's third-quarter results of 56 cents per share. Earnings
will be adversely impacted by a $35 million government program charge at
Avionics. We also expect Automation's third-quarter results to be about 10
percent below the third quarter of 1997.
For the full year, we expect earnings per share from continuing operations
(before special items) to be about $2.30, compared to last year's $2.12, on
sales of approximately $6.8 billion.
Semiconductor Systems will post operating losses for the third quarter and
full year. The third quarter loss is driven by the weak PC modem market and a
work stoppage at our Newport Beach, California, facility. However, modem chipset
unit volume is trending upward and we are encouraged that our new expansion
product areas are continuing to meet growth and profitability objectives.
Although very preliminary at this juncture, our outlook for fiscal 1999 is
for about 7 percent revenue growth and between $2.90 - $3.00 earnings per share
from our continuing businesses.
THE NEW SEMICONDUCTOR SYSTEMS COMPANY. The new Semiconductor Systems
company will begin operations as a $1.3 billion leading supplier of chipsets and
other products for the personal communications electronics market. We expect to
maintain this leading position by generating top-line sales growth of at least
15 percent in this market. The foundation of the new company is its world-class
ability to provide digital communications solutions for transmission over analog
networks. This capability, which we call mixed signal computing, is now bridging
the analog and digital worlds to enable the next generation of communications
and media processing, and is at the core of the company's five product
platforms/market segments. These platforms and their key products are:
- DIGITAL INFOTAINMENT: These products facilitate the electronic delivery of
digital information and entertainment content to consumers via chipsets
and other components for TV digital set-top boxes, satellite receivers,
video games, digital VCRs, digital video disks and Internet access
products.
- NETWORK ACCESS: These products provide business enterprise solutions for
wide area networks and includes Internet service provider central site
modems, and a broad range of high-speed digital communications devices.
- PERSONAL COMPUTING: Includes PC modems, software modems and other products
for desktop, notebook and handheld computer applications.
- PERSONAL IMAGING: Semiconductor products used for such applications as
facsimile machines, multi-function peripherals (scanners, copiers, fax,
printers, telephones all combined in one product) and digital cameras.
- WIRELESS COMMUNICATIONS: These products include silicon and gallium
arsenide components, subsystems and devices used in cellular telephones,
digital cordless telephones, power amplifiers and global positioning
satellite receiver chipsets and subsystems.
With markets for these business segments, except personal computing,
growing at average annual rates of 25-40 percent, this strategy to broaden our
product portfolio is correct, and it will yield long term value to you, the
shareowners in this new company, as it returns to profitability next year.
ROCKWELL GOING FORWARD. For the long term, our strategy consists of the
following:
1. We will improve the returns of our core businesses.
2. We will be even more aggressive in our worldwide business development
and will build strong service businesses where we can leverage our
global scale and market presence.
3. We will make acquisitions which are complementary to our existing
businesses from a product and/or geographical perspective.
4. We will work aggressively to further change our business practices and
processes to ensure that our employees are unencumbered by bureaucracy
so that we can react swiftly to the needs of our customers.
Our continuing businesses of Automation, Avionics & Communications and
Electronic Commerce are global leaders today and at the top of their class. Over
the past five years, sales and operating earnings for these businesses have
grown at healthy rates of 19 and 20 percent, respectively. This proven
performance demonstrates that these are great organizations with excellent
market positions, well-known brands and global presence. Our financial strength
and our ability to focus even more intensely on these activities set the stage
for rapid growth and greater profitability. I also believe that there are
several key factors which our investors will find very compelling going forward:
- A FOCUSED STRATEGY: Rockwell will emerge from these actions with a sharp
concentration on markets where we've been leaders for many decades.
- A SOUND INVESTMENT: Our goal is simple. We want our investors to realize
the highest returns available for these businesses. Our long-term
financial goals are to grow revenues at an 8 percent average annual rate,
grow earnings per share within a low double-digit average annual percent
range, generate free cash flow of $400 million annually, and achieve a
return on equity of at least 20 percent.
- POSITIONED FOR GROWTH: Although North American automation markets are
somewhat sluggish today, and the current situation in Asia is troublesome,
we see excellent opportunities as these markets improve, along with
significant potential in Europe and Latin America. Going forward, global
expansion will represent about 50 percent of our planned revenue growth
during the next five years, at which time our overall non-U.S. content
will approach 40 percent.
- OUTSTANDING PEOPLE: In addition to enjoying significant market presence,
technology leadership, broad product portfolios and industry-leading
brands, our energetic, creative and dedicated employees are a key company
resource. Furthermore, we have an excellent team of experienced managers
and a unique Rockwell asset -- our world-class Rockwell Science Center.
SPIN-OFF DETAILS. The spin-off is subject to receipt of a ruling by the
U.S. Internal Revenue Service that the transaction will qualify as a tax-free
distribution. Rockwell shareowners will receive shares in the new Semiconductor
Systems company on a pro rata basis. These shares will be in addition to shares
they will continue to hold in Rockwell. Application will be made to list the new
shares on the NASDAQ, and we will move as quickly as possible to complete the
spin-off, which we believe will occur at the end of this calendar year. Until
the spin-off is completed, the two organizations will continue to operate as one
company, although Semiconductor Systems will be treated as a discontinued
business for financial reporting purposes.
We know that as Rockwell's senior leaders it's our job to maintain your
confidence and trust in this company. We also know that it is our deeds - not
words - that are the most important. I am committed to making our company
something that is truly admired for its market leadership, growth prospects,
profitable performance, and most importantly, for its ability to deliver value
to you, its shareowners.
Sincerely,
/s/ Don H. Davis
Don H. Davis
Chairman and
Chief Executive Officer
