<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000. COMMISSION FILE NUMBER 1-12383
------------------------
ROCKWELL INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1797617
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 EAST WISCONSIN AVENUE 53202
SUITE 1400 (ZIP CODE)
MILWAUKEE, WISCONSIN
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 212-5299 (OFFICE OF
THE SECRETARY)
------------------------
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $1 Par Value New York, Pacific and London Stock Exchanges
(including the associated
Preferred Share Purchase
Rights)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of registrant's voting stock held by
non-affiliates of registrant on October 31, 2000 was approximately $7.2 billion.
182,709,077 shares of registrant's Common Stock, par value $1 per share,
were outstanding on October 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting
of Shareowners of registrant to be held on February 7, 2001 is incorporated by
reference into Part III hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Rockwell International Corporation (the Company or Rockwell), a Delaware
corporation, is a global electronic controls and communications company with
leadership positions in industrial automation, avionics and communications and
automated call distribution systems. The Company was incorporated in 1996 and is
the successor to the former Rockwell International Corporation as a result of a
tax-free reorganization completed on December 6, 1996, pursuant to which the
Company divested its former Aerospace and Defense businesses (the A&D Business)
to The Boeing Company (Boeing). The predecessor corporation was incorporated in
1928. On September 30, 1997, the Company completed the spin-off of its
automotive component systems business (the Automotive Business) into an
independent, separately traded, publicly held company named Meritor Automotive,
Inc. (Meritor). On July 7, 2000, Meritor and Arvin Industries, Inc. merged to
form ArvinMeritor, Inc. (ArvinMeritor). On December 31, 1998, the Company
completed the spin-off of its semiconductor systems business (Semiconductor
Systems) into an independent, separately traded, publicly held company named
Conexant Systems, Inc. (Conexant). As used herein, the terms the "Company" or
"Rockwell" include subsidiaries and predecessors unless the context indicates
otherwise. Information included in this Annual Report on Form 10-K refers to the
Company's continuing businesses unless otherwise indicated.
For purposes hereof, whenever reference is made in any Item of this Annual
Report on Form 10-K to information under specific captions in Item 7,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (the MD&A), or in Item 8, CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA (the Financial Statements), or to information in the Proxy
Statement for the Annual Meeting of Shareowners of the Company to be held on
February 7, 2001 (the 2001 Proxy Statement), such information shall be deemed to
be incorporated therein by such reference.
PRODUCTS AND SERVICES
The Company's business segments are engaged in research and development,
manufacture, sale and service of electronic controls and communication products.
The Company is organized based upon products and services and has four business
segments consisting of Automation, Avionics & Communications, Electronic
Commerce and the Science Center.
The Automation business is a supplier of industrial automation products,
systems, software and services focused on helping customers control and power
manufacturing processes. Products include controllers, I/O (input/output)
systems, drives, sensors, power devices, packaged control products, operator
interface devices, software products and services, gear reducers, mounted
bearings, power transmission components, network monitoring products and motors.
These products are primarily marketed under the Rockwell Automation,
Allen-Bradley, Rockwell Software, Dodge, and Reliance Electric brand names.
Major markets served include consumer products, food and beverage,
transportation, metals, mining, cement, pulp and paper, petroleum, specialty
chemicals, pharmaceuticals, electric power, water treatment, infrastructure and
semiconductor fabrication.
The Avionics & Communications business is a supplier of electronic products
and systems, service, and support solutions to the commercial aerospace and
defense industries. Products include electronic equipment for flight control,
cockpit display, navigation, voice and data communications, cockpit management,
in-flight cabin management, communications and passenger entertainment, radar,
global positioning and other command, control and communications devices
marketed primarily under the Rockwell Collins brand name. Major customers
include airframe manufacturers, the United States government and most of the
world's airlines.
The Electronic Commerce business is a solutions supplier for companies that
interact with their customers over the telephone, the Internet, or both.
Products include automatic call distributors, computer telephony integration
software, information collection, reporting, queuing and management systems, and
call center systems and consulting services. The Science Center business is
engaged in the research, development,
1
<PAGE> 3
and manufacture of technologies in electronics, imaging and optics, material and
computational sciences, and information technology. Its broad range of
initiatives includes contract research, delivery of high-value products and
services, as well as licensing of selected technologies. Electronic Commerce has
been combined with the Science Center in "Other Businesses."
Financial information with respect to the Company's business segments,
including their contributions to sales and operating earnings for the three
years ended September 30, 2000, is contained under the caption RESULTS OF
OPERATIONS in the MD&A on pages 12-14 hereof, and in Note 17 of the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements.
COMPETITIVE POSTURE
The Company competes with many manufacturers which, depending on the
product involved, range from large diversified enterprises, comparable to or
greater than the Company in scope and resources, to smaller companies
specializing in particular products. Factors which affect the Company's
competitive posture are its research and development efforts, the quality of its
products and services and its marketing and pricing strategies.
The Company's products are sold by its own sales force and through
distributors and agents.
GOVERNMENT CONTRACTS
Approximately ten percent of the Company's sales is derived from United
States government contracts, primarily from its Avionics & Communications
business. The Avionics & Communications business supplies certain military
equipment to the United States government. In addition to normal business risks,
companies engaged in supplying military equipment to the United States
government are subject to unusual risks, including dependence on Congressional
appropriations and administrative allotment of funds, changes in governmental
procurement legislation and regulations and other policies which may reflect
military and political developments, significant changes in contract scheduling,
complexity of designs and the rapidity with which they become obsolete, constant
necessity for design improvements, intense competition for available United
States government business necessitating increases in time and investment for
design and development, difficulty of forecasting costs and schedules when
bidding on developmental and highly sophisticated technical work and other
factors characteristic of the industry. Changes are customary over the life of
United States government contracts, particularly development contracts, and
generally result in adjustments of contract prices.
Moreover, various claims (whether based on United States government or
Company audits and investigations or otherwise) have been or may be instituted
or asserted against the Company related to its United States government contract
work, including claims based on business practices and cost classifications.
Although such claims are usually resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, the cancellation of or
suspension of payments under one or more United States government contracts,
suspension or debarment proceedings affecting potential further business with
the United States government, or alteration of the Company's procedures relating
to the performance or obtaining of United States government contracts.
Management of the Company believes there are no claims, audits or investigations
currently pending which will have a material adverse effect on either the
Company's business or its financial condition.
ACQUISITIONS AND DISPOSITIONS
The Company regularly considers the acquisition or development of new
businesses and reviews the prospects of its existing businesses to determine
whether any should be modified, sold or otherwise discontinued.
During 2000, the Automation segment acquired Entek IRD International
Corporation, a provider of machinery condition monitoring solutions, and
acquired substantially all the assets and assumed certain
2
<PAGE> 4
liabilities of Systems Modeling Corporation, a software developer. The Avionics
& Communications segment acquired substantially all of the assets and assumed
substantially all of the liabilities of Sony Trans Com Inc., a producer of
in-flight entertainment systems for commercial aircraft. The total cost of these
acquisitions was $193 million, of which $97 million was allocated to intangible
assets, including developed technology, patents, assembled workforce and
goodwill. The intangible assets are being amortized on a straight-line basis
over periods ranging from five to fifteen years.
During 1999, the Automation segment acquired Anorad Corporation, U.K.-based
EJA Engineering Ltd., substantially all of the assets of Enterprise Technology
Group, Inc., a software business, and certain assets, principally intellectual
property, of Vancouver-based Dynapro. The Avionics & Communications segment
acquired Intertrade Limited and the remaining 50 percent interest in Flight
Dynamics. The total cost of these acquisitions was $241 million, of which $214
million was allocated to intangible assets, including developed technology,
patents, assembled workforce and goodwill. The intangible assets are being
amortized on a straight-line basis over periods ranging from six to thirty
years.
On December 31, 1998, the Company completed the spin-off of Semiconductor
Systems into an independent, separately traded, publicly held company by
distributing all of the outstanding shares of Conexant to the Company's
shareowners on a pro-rata basis. The Company also sold its railroad electronics
and North American Transformer businesses during 1999.
In the first quarter of 1998, the Avionics & Communications business
acquired the in-flight entertainment business of Hughes-Avicom International,
Inc. for $157 million. In connection with the acquisition, the Company recorded
a charge of $103 million ($63 million after tax) for purchased research and
development and recorded $70 million for other intangible assets, including
developed technology, patents, assembled workforce and goodwill, which are being
amortized on a straight-line basis over 10 years.
The net loss from operations of Semiconductor Systems has been presented on
the Company's Consolidated Statement of Operations included in the Financial
Statements as Loss from discontinued operations for 1999 and 1998.
Additional information relating to acquisitions and discontinued operations
is contained in the MD&A on page 14-15 hereof, and in Notes 2 and 18 of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements.
GEOGRAPHIC INFORMATION
The Company's principal markets outside the United States are in Australia,
Brazil, Canada, China, Denmark, France, Germany, Italy, Japan, Mexico,
Singapore, Spain, Sweden, Switzerland, The Netherlands and the United Kingdom.
In addition to normal business risk, operations outside the United States are
subject to other risks including, among other factors, the political, economic
and social environments, governmental laws and regulations, and currency
revaluations and fluctuations.
Selected financial information by major geographic area for each of the
three years in the period ended September 30, 2000 is contained in Note 17 of
the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements.
RESEARCH AND DEVELOPMENT
In addition to research and development activities conducted by each of the
Company's businesses, the Science Center conducts a basic research program to
support the strategies of the operating businesses and continues to provide
research services to Boeing, ArvinMeritor, Conexant and the United States
government. At September 30, 2000, the Company employed approximately 5,200
professional engineers and scientists and 2,600 supporting technical personnel.
3
<PAGE> 5
EMPLOYEES
At September 30, 2000, the Company had approximately 41,200 employees, of
whom approximately 8,800 were employed outside the United States.
RAW MATERIALS AND SUPPLIES
Raw materials essential to the conduct of each of the Company's business
segments generally are available at competitive prices. Many items of equipment
and components used in the production of the Company's products are purchased
from others. In addition, the Avionics & Communications business generally
subcontracts major portions of systems. Although the Company has a broad base of
suppliers and subcontractors, it is dependent upon the ability of its suppliers
and subcontractors to meet performance and quality specifications and delivery
schedules. During 2000, the Company experienced a shortage of certain electronic
components and displays which had an adverse effect on its ability to make
timely deliveries and resulted in increased material costs. If such a trend were
to continue, it could have an adverse effect on the operating results of the
Company.
ENVIRONMENTAL PROTECTION REQUIREMENTS
Information with respect to the effect on the Company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained in Note 16 of the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements. See also Item 3,
LEGAL PROCEEDINGS, on pages 5-7 hereof.
PATENTS, LICENSES AND TRADEMARKS
Numerous patents and patent applications are owned or licensed by the
Company and utilized in its activities and manufacturing operations. Various
claims of patent infringement have been made against the Company. Management
believes that none of these claims will have a material adverse effect on the
financial condition of the Company. See Item 3, LEGAL PROCEEDINGS, on pages 5-7
hereof. While in the aggregate the Company's patents and licenses are considered
important in the operation of its business, management does not consider them of
such importance that loss or termination of any one of them would materially
affect the Company's business.
The Company's name and its registered trademarks "Rockwell" and "Rockwell
International" are important to each of its business segments. In addition, the
Company owns a large number of other important trademarks applicable to only
certain of its products, such as "Collins" for navigation and communication
equipment, "Allen-Bradley" and "A-B" for electronic controls and systems for
industrial automation, "Reliance Electric" for electric motors and "Dodge" for
mechanical power transmission products.
SEASONALITY
None of the Company's business segments are seasonal.
4
<PAGE> 6
ITEM 2. PROPERTIES.
At September 30, 2000, the Company's businesses operated 87 plants and
research and development facilities throughout the United States and in Europe,
Africa, Asia Pacific, South America and Canada. These businesses also had
approximately 373 sales offices, warehouses and service centers. These
facilities had an aggregate floor space of approximately 20.4 million square
feet. Of this floor space, approximately 60 percent was owned by the Company and
approximately 40 percent was leased. At September 30, 2000, approximately
410,000 square feet of floor space was not in use, most of which was in owned
facilities. A summary of floor space of these facilities at September 30, 2000
is as follows:
<TABLE>
<CAPTION>
OWNED LEASED
LOCATION AND SEGMENTS FACILITIES FACILITIES TOTAL
--------------------- ---------- ---------- -----
(IN MILLIONS OF SQUARE FEET)
<S> <C> <C> <C>
United States:
Automation................................................ 8.2 3.5 11.7
Avionics & Communications................................. 2.8 1.3 4.1
Other Businesses.......................................... 0.3 0.2 0.5
Europe:
Automation................................................ 0.5 1.0 1.5
Avionics & Communications................................. 0.1 -- 0.1
South America:
Automation................................................ 0.1 0.5 0.6
Avionics & Communications................................. -- 0.1 0.1
Canada and other areas:
Automation................................................ 0.4 1.1 1.5
Corporate Offices........................................... -- 0.3 0.3
---- ---- ----
Total.................................................. 12.4 8.0 20.4
==== ==== ====
</TABLE>
There are no major encumbrances (other than financing arrangements which in
the aggregate are not material) on any of the Company's plants or equipment. In
the opinion of management, the Company's properties have been well maintained,
are in sound operating condition and contain all equipment and facilities
necessary to operate at present levels.
ITEM 3. LEGAL PROCEEDINGS.
Rocky Flats Plant. On January 30, 1990, a civil action was brought in the
United States District Court for the District of Colorado against the Company
and another former operator of the Rocky Flats Plant (the Plant), Golden,
Colorado, operated from 1975 through December 31, 1989 by the Company for the
Department of Energy (DOE). The action alleges the improper production, handling
and disposal of radioactive and other hazardous substances, constituting, among
other things, violations of various environmental, health and safety laws and
regulations, and misrepresentation and concealment of the facts relating
thereto. The plaintiffs, who purportedly represent two classes, sought
compensatory damages of $250 million for diminution in value of real estate and
other economic loss; the creation of a fund of $150 million to finance medical
monitoring and surveillance services; exemplary damages of $300 million; CERCLA
response costs in an undetermined amount; attorneys' fees; an injunction; and
other proper relief. On February 13, 1991, the court granted certain of the
motions of the defendants to dismiss the case. The plaintiffs subsequently filed
a new complaint, and on November 26, 1991, the court granted in part a renewed
motion to dismiss. The remaining portion of the case is pending before the
court. On October 8, 1993, the court certified separate medical monitoring and
property value classes. Effective August 1, 1996, the DOE assumed control of the
defense of the contractor defendants, including the Company, in the action.
Beginning on that date, the costs of the Company's defense, which had previously
been reimbursed to the Company by the DOE, have been and are being paid directly
by the DOE. The Company believes that it is entitled under applicable law and
its contract with the DOE to be indemnified for all costs and any liability
associated with this action.
5
<PAGE> 7
On November 13, 1990, the Company was served with a summons and complaint
in another civil action brought against the Company in the same court by James
Stone, claiming to act in the name of the United States, alleging violations of
the U.S. False Claims Act in connection with the Company's operation of the
Plant (and seeking treble damages and forfeitures) as well as a personal cause
of action for alleged wrongful termination of employment. On August 8, 1991, the
court dismissed the personal cause of action. On December 6, 1995, the DOE
notified the Company that it would no longer reimburse costs incurred by the
Company in defense of the action. On November 19, 1996, the court granted the
Department of Justice leave to intervene in the case on the government's behalf.
On April 1, 1999 a jury awarded the plaintiffs approximately $1.4 million in
damages. On May 18, 1999, the court entered judgment against the Company for
approximately $4.2 million, trebling the jury's award as required by the False
Claims Act, and imposing a civil penalty of $15,000. If the judgment is affirmed
on appeal, Mr. Stone may also be entitled to an award of attorney's fees but the
court refused to consider the matter until appeals from the judgment have been
exhausted. Both the plaintiffs and the Company have appealed the judgment, but
management believes that an outcome adverse to the Company will not have a
material effect on the Company's financial condition.
On January 8, 1991, the Company filed suit in the United States Claims
Court against the DOE, seeking recovery of $6.5 million of award fees to which
the Company alleges it is entitled under the terms of its contract with the DOE
for management and operation of the Plant during the period October 1, 1988
through September 30, 1989. On July 17, 1996, the government filed an amended
answer and counterclaim against the Company alleging violations of the U.S.
False Claims Act previously asserted in the civil action described in the
preceding paragraph. On March 20, 1997, the court stayed the case pending
disposition of the civil action described in the preceding paragraph.
On August 30, 1999, the court continued the stay pending appeal in that
civil action. The Company believes the government's counterclaim is without
merit, and believes it is entitled under applicable law and its contract with
the DOE to be indemnified for any liability associated with the counterclaim.
Hanford Nuclear Reservation. On August 6 and August 9, 1990, civil actions
were filed in the United States District Court for the Eastern District of
Washington against the Company and the present and other former operators of the
DOE's Hanford Nuclear Reservation (Hanford), Hanford, Washington. The Company
operated part of Hanford for the DOE from 1977 through June 1987. Both actions
purport to be brought on behalf of various classes of persons and numerous
individual plaintiffs who resided, worked, owned or leased real property, or
operated businesses, at or near Hanford or downwind or downriver from Hanford,
at any time since 1944. The actions allege the improper handling and disposal of
radioactive and other hazardous substances and assert various statutory and
common law claims. The relief sought includes unspecified compensatory and
punitive damages for personal injuries and for economic losses, and various
injunctive and other equitable relief.
Other cases asserting similar claims (the follow-on claims) on behalf of
the same and similarly situated individuals and groups have been filed from time
to time since August 1990, and may continue to be filed from time to time in the
future. These actions and the follow-on claims have been (and any additional
follow-on claims that may be filed are expected to be) consolidated in the
United States District Court for the Eastern District of Washington under the
name In re Hanford Nuclear Reservation Litigation. Because the claims and
classes of claimants included in the actions described in the preceding
paragraph are so broadly defined, the follow-on claims filed as of October 31,
2000 have not altered, and possible future follow-on claims are not expected to
alter, in any material respect the scope of the litigation.
Effective October 1, 1994, the DOE assumed control of the defense of
certain of the contractor defendants (including the Company) in the In re
Hanford Nuclear Reservation Litigation. Beginning on that date, the costs of the
Company's defense, which had previously been reimbursed to the Company by the
DOE, have been and are being paid directly by the DOE. The Company believes it
is entitled under applicable law and its contracts with the DOE to be
indemnified for all costs and any liability associated with these actions.
Russellville. On June 24, 1996, judgment was entered against the Company
in a civil action in the Circuit Court of Logan County, Kentucky on a jury
verdict awarding $8 million in compensatory and $210 million in punitive damages
for property damage. The action had been brought August 12, 1993 by
6
<PAGE> 8
owners of flood plain real property near Russellville, Kentucky allegedly
damaged by polychlorinated biphenyls (PCBs) discharged from a plant owned and
operated by the Company's Measurement & Flow Control Division prior to its
divestiture in March 1989. On January 14, 2000, the Kentucky Court of Appeals
reversed the lower court's judgment and directed entry of judgment in the
Company's favor on all claims as a matter of law. On November 16, 2000, the
Kentucky Supreme Court granted plaintiffs' motion for discretionary review of
the Appellate Court ruling.
On March 24, 1997, the Circuit Court of Franklin County, Kentucky in
Commonwealth of Kentucky, Natural Resources and Environmental Protection Cabinet
vs. Rockwell, an action filed in 1986 seeking remediation of PCB contamination
resulting from unpermitted discharges of PCBs from the Company's former
Russellville, Kentucky plant, entered judgment establishing PCB cleanup levels
for the former plant site and certain offsite property and ordering additional
characterization of possible contamination in the Mud River and its flood plain.
The Court deferred any decision on the imposition of fines and penalties pending
implementation of an appropriate remediation program. On August 13, 1999, the
Court of Appeals affirmed the trial court's judgment, a ruling that the Supreme
Court of the State of Kentucky has let stand. The Company has been proceeding
with remediation and characterization efforts consistent with the trial Court's
ruling while it was appealing that ruling.
Other. In July 1995, a federal grand jury impaneled by the United States
District Court for the Central District of California began an investigation
into a July 1994 explosion at the Santa Susana Field Laboratory operated by the
Company's former Rocketdyne Division in which two scientists were killed and a
technician was injured. On April 11, 1996, pursuant to an agreement between the
Company and the United States Attorney for the Central District of California,
the Company entered a plea of guilty to two counts of unpermitted disposal of
hazardous waste and one count of unpermitted storage of hazardous waste, all of
which are felony violations of the Resource Conservation and Recovery Act, and
paid a fine of $6.5 million to settle potential federal criminal claims arising
out of the federal government's investigation. Investigation under other U.S.
and California laws continues. While the Company has no information on the
status of these investigations, further civil sanctions could be imposed on the
current owner of the facility, Boeing, for which the Company would be required
to indemnify Boeing.
On December 27, 1995, one shareowner, purporting to act derivatively on
behalf of the Company, commenced an action in the Superior Court of the State of
California for the County of Orange against 13 of the Company's directors, and
the Company as a nominal defendant, alleging principally breaches of fiduciary
duties in failing properly to manage the business of the Company in a manner to
prevent certain violations of applicable federal and state laws, including
environmental laws, by certain named and unnamed employees or agents of the
Company. The action seeks declaratory judgment, damages suffered by the Company
as a result of the alleged conduct, plaintiffs' costs and expenses and other
proper relief.
On February 27, 1996, a similar suit, making similar allegations and
seeking similar relief, was filed against the Company and the same directors,
plus Don H. Davis, Jr., by two other shareowners in the Superior Court of the
State of California for the County of Los Angeles. On August 7, 1996, the Los
Angeles County action was dismissed voluntarily by the plaintiffs. On August 22,
1996, a First Amended Consolidated Complaint was filed in the Orange County
action, adding the plaintiffs from the dismissed Los Angeles County suit as
party plaintiffs to the Orange County suit. A Second Amended Consolidated
Complaint was filed in the Orange County action of November 27, 1996.
Subsequently, on February 4, 1997, plaintiffs voluntarily dismissed the action
with respect to two of the director-defendants, Judith L. Estrin and William H.
Gray, III. The Company and the director-defendants are defending the
consolidated action. On December 3, 1999, the court denied the defendant's
motion for summary judgment. Trial has been set to commence on November 27,
2000.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the Company relating to the conduct of its
business, including those pertaining to product liability, environmental, safety
and health, intellectual property, employment and government contract matters.
Although the outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of
7
<PAGE> 9
unfavorably to the Company, management believes the disposition of matters which
are pending or asserted will not have a material adverse effect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, office and position held with the Company and principal
occupations and employment during the past five years of each of the executive
officers of the Company as of October 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
<S> <C>
DON H. DAVIS, JR. -- Chairman of the Board of Rockwell since
February 1998 and Chief Executive Officer since October 1997;
President and Chief Operating Officer of Rockwell prior
thereto....................................................... 60
PATRICK E. ALLEN -- Vice President and Treasurer of Rockwell since
June 2000; Vice President, Financial Planning & Analysis of
Rockwell from June 1999 to June 2000; Assistant Controller of
Rockwell from August 1997 to June 1999; Director, External
Financial Reports of Rockwell from October 1996 to August 1997;
Manager, External Financial Reports of Rockwell prior thereto... 36
W. MICHAEL BARNES -- Senior Vice President, Finance & Planning and
Chief Financial Officer of Rockwell........................... 58
WILLIAM J. CALISE, JR. -- Senior Vice President, General Counsel
and Secretary of Rockwell..................................... 62
JOHN D. COHN -- Senior Vice President, Marketing and Communications
of Rockwell since July 1999; Vice President -- Global Strategy
Development of Rockwell Collins from February 1997 to June 1999;
Director, Global Business Development and Strategic Planning of
Rockwell Collins from November 1996 to February 1997; Regional
Director -- Europe and Africa of Rockwell Collins prior
thereto....................................................... 46
MICHAEL G. COLE -- Vice President & Chief Information Officer of
Rockwell since September 2000; Vice President, Corporate
Information Systems of Rockwell from July 1999 to September 2000;
Director -- Information Systems of Rockwell prior thereto..... 52
STEVEN S. GARDNER -- Vice President and General Tax Counsel of
Rockwell since March 1998; Associate General Tax Counsel of
Rockwell from October 1997 to March 1998; European Tax Counsel of
Rockwell from January 1996 to October 1997; European Area Tax
Counsel of Dow Corning (silicone products) prior thereto...... 45
JAMES E. HART -- Vice President, Strategic Sourcing & Chief
Procurement Officer of Rockwell since April 1999; Vice President
and Program Manager, Strategic Sourcing Initiative of Rockwell
from November 1998 to April 1999; Vice President, Finance,
Materials and Business Planning of Rockwell Automation, Control
and Information Group prior thereto........................... 51
CLAYTON M. JONES -- Senior Vice President of Rockwell and
President, Rockwell Collins since January 1999; Executive Vice
President of Rockwell Collins from November 1996 to January 1999;
Vice President and General Manager of Rockwell Collins Air
Transport Division prior thereto.............................. 51
KEITH D. NOSBUSCH -- Senior Vice President of Rockwell and
President, Rockwell Automation Control Systems since November
1998; Senior Vice President -- Automation Control and Information
Group of Rockwell Automation from February 1996 to November 1998;
Vice President -- Control Logic Business of Rockwell Automation
prior thereto................................................. 49
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
<S> <C>
GEORGE C. ODDEN -- Vice President, Corporate Development of
Rockwell since June 1999; Director, Mergers and Acquisitions of
Warburg Dillon Read LLC (investment banking) from April 1999 to
June 1999; Associate Director, Warburg Dillon Read LLC from
September 1997 to April 1999; Associate, Warburg Dillon Read LLC
prior thereto................................................. 35
JAMES P. O'SHAUGHNESSY -- Vice President & Chief Intellectual
Property Counsel of Rockwell since May 1996; partner of Foley &
Lardner (law firm) prior thereto.............................. 53
WILLIAM E. SANDERS -- Vice President & Controller of Rockwell since
August 1997; Assistant Controller of Rockwell from October 1996
to August 1997; Accounting Executive, Financial Reports of
Rockwell prior thereto........................................ 48
WILLIAM A. SANTE, II -- General Auditor of Rockwell............. 57
ALFRED J. SPIGARELLI -- Vice President -- Benefits & Administrative
Services of Rockwell since July 1999; Vice President,
Compensation and Benefits of Rockwell from February 1997 to July
1999; Director, Corporate Benefits Administration of Rockwell
prior thereto................................................. 60
JOHN R. STOCKER -- Vice President, Law of Rockwell.............. 59
JOEL R. STONE -- Senior Vice President, Human Resources of Rockwell
since December 1996; Vice President, Compensation & Benefits of
Rockwell prior thereto........................................ 56
JOSEPH D. SWANN -- Vice President of Rockwell and President,
Rockwell Automation Power Systems since June 1998; Senior Vice
President and General Manager -- Dodge Mechanical Group of
Rockwell Automation prior thereto............................. 59
</TABLE>
There are no family relationships, as defined, between any of the above
executive officers. No officer of the Company was selected pursuant to any
arrangement or understanding between him and any person other than the Company.
All executive officers are elected annually.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market on which the Company's Common Stock is traded is the
New York Stock Exchange. The Company's Common Stock is also traded on the
Pacific and London Stock Exchanges. On October 31, 2000, there were 49,529
shareowners of record of the Company's Common Stock.
The following table sets forth the high and low trading price of the
Company's Common Stock on the New York Stock Exchange -- Composite Transactions
reporting system during each quarter of the Company's fiscal years ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
FISCAL QUARTERS HIGH LOW HIGH LOW
--------------- ---- ---- ---- ---
<S> <C> <C> <C> <C>
First................................................ 54 1/16 45 52 5/16 32 1/8
Second............................................... 51 15/16 38 3/8 49 7/16 39 15/16
Third................................................ 44 5/8 31 1/2 63 9/16 41 1/4
Fourth............................................... 41 1/16 28 1/8 64 15/16 48 7/8
</TABLE>
On December 6, 1996, each Rockwell shareowner became entitled to receive
.042 share (presently .084 share) of Boeing common stock for each share of
Rockwell Common Stock or Class A Common Stock owned. On September 30, 1997, each
Rockwell shareowner received one-third of a share of Meritor common stock for
each share of Rockwell Common Stock owned. On July 7, 2000, Meritor and Arvin
Industries, Inc. merged to form ArvinMeritor. Under the terms of the merger
agreement, each share of Meritor common stock was converted into the right to
receive three-quarters of a share of ArvinMeritor common stock. As a result, the
one-third of a share of Meritor common stock received by Rockwell shareowners on
September 30, 1997 now represents one-quarter of a share of ArvinMeritor common
stock. On December 31, 1998, each Rockwell shareowner received one-half of a
share (presently one share) of Conexant common stock for each share of Rockwell
Common Stock owned. At September 30, 2000, such fractional or whole shares of
Boeing, ArvinMeritor and Conexant common stock per Rockwell share had values of
$5.42, $3.67 and $41.88, respectively. Rockwell's current stock price does not
reflect the value of the Boeing, ArvinMeritor and Conexant fractional shares.
During the year ended September 30, 2000, the Company repurchased, through
open-market purchases, approximately eight million shares of Common Stock.
The following table sets forth the aggregate quarterly cash dividends per
common share (comprised of the Common Stock and, until February 23, 1997, the
date of its automatic conversion to Common Stock, Class A Common Stock) during
each of the Company's five fiscal years ended September 30, 2000:
<TABLE>
<CAPTION>
CASH DIVIDENDS PER
FISCAL YEAR COMMON SHARE(1)
----------- ------------------
<S> <C>
2000........................................................ $1.02
1999........................................................ 1.02
1998........................................................ 1.02
1997........................................................ 1.16
1996........................................................ 1.16
</TABLE>
---------------
(1) Upon the spin-off of Meritor on September 30, 1997, the Company's annual
$1.16 per share dividend was set at $1.02 for Rockwell and 14 cents for
Meritor. Per share dividend amounts indicated do not include dividends paid
on the fractional shares of Boeing and Meritor received on December 6, 1996
and September 30, 1997, respectively, by Rockwell shareowners.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth selected consolidated financial data in respect of
the Company's continuing operations. The data should be read in conjunction with
the MD&A and the Financial Statements. The statement of operations data for the
five years ended September 30, 2000 and the related balance sheet data have been
derived from the audited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30(a)
-------------------------------------------------
2000 1999 1998(b) 1997(c) 1996(d)
------ ------ ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................................... $7,151 $7,043 $6,752 $6,370 $5,784
Interest expense.............................. 73 84 58 27 22
Income (loss) from continuing operations
before accounting change.................... 636 579 (108) 432 363
Earnings (loss) per share from continuing
operations before accounting change:
Basic....................................... 3.38 3.05 (0.54) 2.01 1.66
Diluted..................................... 3.35 3.00 (0.54) 1.98 1.65
Cash dividends per share...................... 1.02 1.02 1.02 1.16 1.16
BALANCE SHEET DATA: (at end of year)
Total assets.................................. $6,390 $6,544 $7,076 $7,547 $8,460
Long-term debt................................ 924 911 908 156 156
Shareowners' equity........................... 2,669 2,540 3,151 4,716 4,166
</TABLE>
---------------
(a) During 2000, the Company changed its method of determining the cost of
certain Automation inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method. The change to the FIFO method has
been retroactively applied by restating the accompanying consolidated
financial statements. The effect of this change is summarized as follows (in
millions, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997 1996
------ ----- ------ ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Income (loss) from continuing operations before
accounting change.................................. $ (3) $ 1 $ (5) $ (1)
Earnings (loss) per share from continuing operations
before accounting change:
Basic.............................................. (0.01) 0.01 (0.03) (0.01)
Diluted............................................ (0.01) 0.01 (0.03) --
BALANCE SHEET DATA: (at end of year)
Total assets......................................... (97) (94) (95) (90)
Shareowners' equity.................................. (97) (94) (95) (90)
</TABLE>
(b) Includes pre-tax charges of $597 million ($508 million after tax, or $2.57
per diluted share) for costs associated with asset impairments and a
comprehensive restructuring program and $103 million ($63 million after tax,
or 31 cents per diluted share) relating to the write-off of purchased
research and development in connection with an acquisition.
(c) Includes a charge of $23 million (before and after tax, or 11 cents per
diluted share), relating to the write-off of purchased research and
development in connection with an acquisition.
(d) Includes a pre-tax charge of $76 million ($47 million after tax, or 22 cents
per diluted share) related to restructuring actions and a tax credit of $65
million, or 29 cents per diluted share, related to the settlement of
research and experimentation tax credit refund claims for years prior to
1996.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Summary of Results of Operations
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30(b)
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
SALES:
Automation................................................ $4,419 $4,411 $4,546
Avionics & Communications................................. 2,515 2,395 1,980
Other Businesses.......................................... 217 237 226
------ ------ ------
Total.................................................. $7,151 $7,043 $6,752
====== ====== ======
SEGMENT OPERATING EARNINGS(a):
Automation................................................ $ 667 $ 660 $ 639
Avionics & Communications................................. 447 414 270
Other Businesses.......................................... (9) 30 13
------ ------ ------
Total.................................................. 1,105 1,104 922
Goodwill amortization....................................... (50) (41) (47)
General corporate -- net.................................... (25) (161) (91)
(Loss) gain on disposition of businesses.................... (14) 68 --
Interest expense............................................ (73) (84) (58)
Special charges............................................. -- -- (597)
Purchased research and development.......................... -- -- (103)
------ ------ ------
Income from continuing operations before income taxes and
accounting change......................................... 943 886 26
Provision for income taxes.................................. (307) (307) (134)
------ ------ ------
Income (loss) from continuing operations before accounting
change.................................................... $ 636 $ 579 $ (108)
====== ====== ======
</TABLE>
---------------
(a) Information with respect to the composition of segment operating earnings is
contained in Note 17 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in
the Financial Statements.
(b) In 2000, the Company changed its method of determining the cost of certain
Automation inventories from the LIFO method to the FIFO method. For
additional information regarding this change, see Item 6, SELECTED FINANCIAL
DATA on Page 11 hereof and Note 1 of the NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS in the Financial Statements.
2000 Compared to 1999
Sales increased to $7.2 billion in 2000 from $7.0 billion in 1999,
primarily due to continued growth at Rockwell Collins. The composition of sales
was as follows (in billions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
U.S. Commercial............................................. $4.0 $4.1
International............................................... 2.5 2.2
U.S. Government............................................. 0.7 0.7
---- ----
Total.................................................. $7.2 $7.0
==== ====
</TABLE>
Earnings per share in 2000 of $3.35 were up 12 percent over comparable 1999
earnings of $3.00. The related income increased $57 million to $636 million from
$579 million. Earnings per share for 2000 reflect the benefits of the Company's
stock repurchase program and a lower effective income tax rate.
12
<PAGE> 14
Automation's sales of $4.4 billion in 2000 were slightly higher than 1999
despite continued sluggish North American markets, particularly automotive
related spending projects, a weaker euro and lower volume at the motors
business. The increase in sales attributable to businesses acquired in 2000 was
more than offset by the absence of sales from the North American Transformer
business disposed of during the fourth quarter of 1999. Automation achieved
record operating earnings of $667 million in 2000, driven by the benefits from
manufacturing process improvements and material cost reductions which more than
offset investments in new product development and material cost increases
resulting from certain part shortages. Operating earnings in 2000 included
approximately $15 million of charges associated with ongoing process improvement
and productivity initiatives. Operating earnings as a percent of sales was 15.1
percent in 2000 compared to 15.0 percent in 1999.
Avionics & Communications achieved both record sales and operating earnings
in 2000. Sales increased $120 million during 2000 to $2.5 billion from $2.4
billion in 1999. The business and regional systems, passenger systems,
government systems and aviation services businesses all posted sales increases
in 2000, including approximately $20 million of sales attributable to the Sony
Trans Com acquisition. The sales increases at those businesses more than offset
the expected decline at the air transport systems business which resulted from a
decrease in new aircraft production in the commercial air transport market.
Avionics & Communications' sales have increased nearly 30 percent since 1998.
Avionics & Communications also achieved record operating earnings of $447
million in 2000, an increase of $33 million over 1999's operating earnings of
$414 million. The increased operating earnings was primarily attributable to
higher sales at the business and regional systems business. Operating earnings
as a percent of sales was 17.8 percent in 2000 compared to 17.3 percent in 1999.
Sales for Rockwell Electronic Commerce and the Science Center, which are
combined in Other Businesses, were down $20 million to $217 million in 2000 from
$237 million in 1999 due to lower sales at Rockwell Electronic Commerce.
Rockwell Electronic Commerce and the Science Center experienced an operating
loss of $9 million in 2000, compared to operating earnings of $30 million in
1999. The results for 2000 include approximately $10 million of charges
associated with the realignment at Rockwell Electronic Commerce, which was aimed
at sharpening market focus, responding better to customer needs and optimizing
operating performance. Operating earnings in 1999 included a $14 million gain
resulting from the resolution of an intellectual property matter.
General corporate-net in 2000 included a gain of $32 million on the sale of
real estate in Colorado Springs, Colorado and a $28 million gain resulting from
the demutualization of Metropolitan Life Insurance Company. Corporate expenses
in 2000 included $11 million related to strategic investments in
SourceAlliance.com and the In-Flight Network joint venture with News
Corporation. General corporate-net in 1999 included charges of approximately $37
million for costs incurred in connection with the Company's relocation of its
corporate office and a $29 million loss associated with the write-off of its
investment in Goss Graphics Systems, Inc. preferred stock.
1999 Compared to 1998
Sales increased four percent in 1999 to $7.0 billion from $6.8 billion in
1998 due to strong growth at Rockwell Collins. The composition of sales was as
follows (in billions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
U.S. Commercial............................................. $4.1 $4.1
International............................................... 2.2 2.1
U.S. Government............................................. 0.7 0.6
---- ----
Total.................................................. $7.0 $6.8
==== ====
</TABLE>
Earnings per share from continuing operations in 1999 of $3.00 were up 29
percent over comparable 1998 earnings (before special items) of $2.34. The
related income increased $116 million to $579 million from $463 million in 1998.
13
<PAGE> 15
Automation's sales of $4.4 billion in 1999 were down three percent from
1998 due to a $130 million sales decline at the motors business. Despite
sluggish markets, Automation posted operating earnings of $660 million in 1999.
Automation's higher operating performance was driven by significant improvements
in manufacturing processes and material cost reductions, which more than offset
investments in new product development and launch costs. Operating earnings in
1999 also included a $9 million charge related to the consolidation of the power
systems businesses. Operating results for 1998 included a $16 million gain
related to the favorable resolution of certain environmental matters with Exxon
Corporation. Operating earnings as a percent of sales were 15.0 percent in 1999,
compared to 14.1 percent in 1998.
Avionics & Communications achieved a 21 percent increase in sales during
1999 to $2.4 billion from $2.0 billion in 1998. All of Rockwell Collins'
businesses, passenger systems, government systems, air transport and business
and regional systems, posted sales increases in 1999. Rockwell Collins also
generated a 34 percent increase in customer service and support revenue in 1999.
Rockwell Collins' operating earnings in 1999 of $414 million were up 36 percent
from 1998 operating earnings of $305 million, excluding a $35 million charge in
1998 for the estimated loss on a government systems contract. Higher operating
earnings in 1999 were driven by outstanding performance at the air transport and
business and regional systems businesses. Operating earnings as a percent of
sales in 1999 were 17.3 percent compared to 15.4 percent in 1998 (excluding the
$35 million contract charge).
Sales for Rockwell Electronic Commerce and the Science Center increased
five percent in 1999 to $237 million. Operating earnings in 1999 of $30 million
included approximately $14 million resulting from the favorable resolution of an
intellectual property matter.
The increase in general corporate expenses in 1999 was due to charges of
approximately $37 million for costs incurred in connection with the Company's
relocation of its corporate office and a $29 million loss associated with the
write-off of its investment in Goss Graphics Systems, Inc. preferred stock.
The special charges in 1998 related to the business segments are as
follows: Automation, $488 million; Avionics & Communications, $88 million; Other
Businesses, $11 million; and Corporate, $10 million.
On December 31, 1998, the Company completed the spin-off of Semiconductor
Systems into an independent, separately traded, publicly held company by
distributing all of the outstanding shares of Conexant to the Company's
shareowners on a pro-rata basis.
ACQUISITIONS
The Company completed three acquisitions during 2000 that complement the
Company's product offerings and strengthen its technologies. The total cost of
these acquisitions was $193 million, of which $97 million was allocated to
intangible assets, including developed technology, patents, assembled workforce
and goodwill. The intangible assets are being amortized on a straight-line basis
over periods ranging from five to fifteen years.
Rockwell Automation acquired Entek IRD International Corporation (Entek)
and acquired substantially all the assets and assumed certain liabilities of
Systems Modeling Corporation (SMC). Entek is a provider of machinery condition
monitoring solutions and its acquisition will increase Rockwell's ability to
provide value-added services that reduce customers' downtime and maintenance
costs at their manufacturing facilities. SMC is a developer of shop floor
scheduling, simulation and modeling software. The acquisition of SMC will help
Rockwell Automation round out its Manufacturing BusinessWare strategy by adding
additional capabilities.
Rockwell Collins acquired substantially all of the assets and assumed
substantially all of the liabilities of Sony Trans Com Inc. (STCI), a producer
of in-flight entertainment (IFE) systems for commercial aircraft. The
acquisition of STCI, which is now part of Rockwell Collins Passenger Systems,
will allow Rockwell Collins to tailor IFE systems for airlines' wide-body and
narrow-body fleets. The combined businesses are expected to generate revenues in
excess of $500 million in 2001.
14
<PAGE> 16
In October 2000, Rockwell Collins entered into an agreement to acquire
K-Systems Inc., the parent of Kaiser Aerospace and Electronics Corp. (KAEC).
KAEC is a leading supplier of cockpit display solutions for tactical aircraft,
optical technologies for instrumentation and communication and specialized
aircraft products for the defense and aerospace industry. The purchase price is
about $300 million and the acquisition should significantly strengthen the core
capabilities of Rockwell Collins. The transaction is expected to close in the
first quarter of 2001. The Company intends to finance the acquisition through
short-term borrowings.
INCOME TAXES
The Company's effective income tax rate declined to 32.6 percent in 2000
from 34.6 percent in 1999. This improvement reflects the benefits of the
development and implementation of strategies to achieve meaningful and
sustainable tax rate reductions. These strategies include utilization over the
next few years of foreign tax credit carryforwards, lower state income tax
rates, and lower taxes associated with the Company's growing international
business due to the rationalization of our European distribution, warehousing
and customer support operations. In addition, the effective income tax rate in
2000 and future years will benefit from the conversion of the Rockwell Salaried
Retirement Savings Plan to a tax-advantaged employee stock ownership plan.
Management believes the Company's effective income tax rate will continue to
benefit in 2001 and beyond from ongoing tax planning initiatives.
BENEFIT PLANS
The excess of pension assets over pension liabilities increased to $427
million at September 30, 2000, from $270 million in 1999 due to a higher
discount rate and continued strong investment returns. Assets in the pension
plans amounted to approximately $3.2 billion at September 30, 2000.
OUTLOOK FOR 2001
Management continues to expect earnings per share for 2001 to be in the
range of $3.10 to $3.20. Management has seen some improvement in automation
markets and now expects first quarter 2001 results to be somewhat better than
previous guidance of 65 cents per share. Expectations for 2001 include 20 cents
of dilution related to investments in joint ventures and acquisitions and 7
cents of dilution related to foreign currency exchange rates.
FINANCIAL CONDITION
Rockwell's strong cash flow and excellent financial condition provides
substantial flexibility for acquisitions and investments in new product
development and technologies. Cash generated by operations of $926 million in
2000 was about the same as 1999. Free cash flow in 2000 was $659 million, an
increase of $65 million over the $594 million of free cash flow in 1999. The
higher cash generation in 2000 was primarily driven by higher earnings and lower
capital expenditures. The Company defines free cash flow, an internal
performance measurement, as cash provided by operating activities, including
proceeds from dispositions of property and reduced by capital expenditures. The
Company's definition of free cash flow may be different from definitions used by
other companies. Management expects free cash flow in 2001 to approximate $500
million.
Cash used for investing activities was $449 million in 2000 compared to
$420 million in 1999. Capital expenditures in 2000 were $315 million and
consisted primarily of investments in facilities, machinery and equipment, and
integrated, enterprise-wide information systems to facilitate growth and
increase operating efficiencies. In addition, the Company used $193 million for
the acquisition of three new businesses in 2000. Capital expenditures in 2001
are expected to be somewhat higher than in 2000.
The Company continues to invest heavily in research and new product
development. Investments totaled $474 million in 2000, up 12 percent from $422
million in 1999. New product development at Rockwell Collins was up 15 percent
over 1999 primarily due to higher investment at the business and regional
systems business. The Company expects this level of product development to
continue in 2001.
15
<PAGE> 17
In addition to internally-generated cash, the Company has access to
existing financing sources, including the public debt markets and from the
approximately $1.2 billion of unsecured credit facilities with various banks.
The Company's debt-to-total-capital ratio at September 30, 2000 was 26 percent
compared to 30 percent at September 30, 1999.
During 2000, the Company completed the $250 million stock repurchase
program initiated in 1999 and the Board of Directors approved an additional $250
million stock repurchase program. The Company spent approximately $325 million
to purchase approximately eight million shares during 2000 in connection with
these programs. At September 30, 2000, there was approximately $167 million
remaining on its current $250 million stock repurchase program.
Cash dividends to shareowners were $192 million, or $1.02 per share, in
2000, compared to $194 million, or $1.02 per share, in 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk during the normal course of business
from changes in interest rates and foreign currency exchange rates. The exposure
to these risks is managed through a combination of normal operating and
financing activities and derivative financial instruments in the form of
interest rate swap contracts and foreign currency forward exchange contracts.
Interest Rate Risk
In addition to using cash provided by normal operating activities, the
Company utilizes a combination of short-term and long-term debt to finance
operations. The Company is exposed to interest rate risk on certain of these
debt obligations.
The Company had short-term debt obligations consisting of commercial paper
and bank borrowings with carrying values of $15 million and $187 million at
September 30, 2000 and 1999, respectively. The Company's results of operations
are affected by changes in market interest rates on these short-term
obligations. If market interest rates would have averaged 10 percent higher than
actual levels in either 2000 or 1999, the effect on the Company's results of
operations would not have been material. The fair values of these obligations
approximated their carrying values at September 30, 2000 and 1999, and would not
have been materially affected by changes in market interest rates.
At September 30, 2000 and 1999, the Company had outstanding fixed rate
long-term debt obligations with carrying values of $925 million and $913
million, respectively. The fair value of this debt was $843 million and $836
million at September 30, 2000 and 1999, respectively. The potential loss in fair
value on such fixed-rate debt obligations from a hypothetical 10 percent
increase in market interest rates would not be material to the overall fair
value of the debt. The Company currently has no plans to repurchase outstanding
fixed-rate instruments and, therefore, fluctuations in market interest rates
would not have an effect on the Company's results of operations or shareowners'
equity.
In February 2000, the Company entered into an interest rate swap contract
(the Swap) which effectively converted certain fixed rate debt to floating rate
debt. On October 24, 2000, the Swap was terminated at a net gain of $16 million.
The gain will be amortized as a reduction of interest expense over the remaining
term of the Company's 6.15% notes, payable in 2008.
Foreign Currency Risk
The Company is a global electronic controls and communications company and
conducts a significant portion of its business activities outside the United
States in currencies other than the United States dollar. The Company enters
into foreign currency forward exchange contracts (contracts) in the ordinary
course of business to protect itself from adverse currency rate fluctuations on
firm foreign currency transactions. In addition, the Company enters into
contracts to conservatively hedge certain forecasted foreign currency
transactions. These contracts are executed with creditworthy banks and are
denominated in currencies of major industrial countries. It is the policy of the
Company not to enter into derivative financial instruments for
16
<PAGE> 18
speculative purposes. Effective July 1, 2000, the Company accounts for
derivatives under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, which requires the
Company to record all derivatives on the balance sheet at fair value regardless
of the purpose or intent for holding them. Derivatives that are not hedges are
adjusted to fair value through earnings. For derivatives that are hedges,
depending on the nature of the hedge, changes in fair value are either offset by
changes in the fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value is immediately recognized in earnings.
At September 30, 2000 and 1999, the Company had outstanding foreign
currency forward exchange contracts with notional amounts of $992 million and
$708 million, respectively, primarily consisting of contracts to exchange the
euro, pound sterling, Canadian dollar, Australian dollar and Swiss franc.
Notional amounts are stated in the U.S. dollar equivalents at spot exchange
rates at the respective dates. A hypothetical 10 percent adverse change in
underlying foreign currency exchange rates associated with these contracts would
not be material to the financial condition, results of operations or
shareowners' equity of the Company.
CAUTIONARY STATEMENT
This Annual Report contains statements (including certain projections and
business trends) accompanied by such phrases as "believes," "estimates,"
"expect(s)," "could," "likely," "anticipates," "will," "intends" and other
similar expressions, that are "forward-looking statements" 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 economic and political changes in international
markets where the Company competes, such as currency exchange rates, inflation
rates, recession, foreign ownership restrictions and other external factors over
which the Company has no control; domestic and foreign government spending,
budgetary and trade policies; demand for and market acceptance of new and
existing products; successful development of advanced technologies; competitive
product and pricing pressures; and the uncertainties of litigation, as well as
other risks and uncertainties, including but not limited to those detailed from
time to time in the Company's Securities and Exchange Commission filings. These
forward-looking statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
17
<PAGE> 19
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
2000 1999
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (includes time deposits and certificates of deposit:
2000, $33; 1999, $260).................................... $ 190 $ 356
Receivables (less allowance for doubtful accounts: 2000,
$48; 1999, $56)........................................... 1,250 1,294
Inventories................................................. 1,266 1,176
Deferred income taxes....................................... 276 364
Other current assets........................................ 224 229
------- -------
Total current assets................................... 3,206 3,419
------- -------
PROPERTY, NET............................................... 1,616 1,581
------- -------
INTANGIBLE ASSETS, NET...................................... 1,403 1,390
------- -------
OTHER ASSETS................................................ 165 154
------- -------
TOTAL.................................................. $ 6,390 $ 6,544
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Short-term debt............................................. $ 16 $ 189
Accounts payable............................................ 806 843
Compensation and benefits................................... 389 469
Income taxes payable........................................ 121 91
Other current liabilities................................... 488 516
------- -------
Total current liabilities.............................. 1,820 2,108
------- -------
LONG-TERM DEBT.............................................. 924 911
------- -------
RETIREMENT BENEFITS......................................... 620 653
------- -------
OTHER LIABILITIES........................................... 357 332
------- -------
SHAREOWNERS' EQUITY
Common stock (shares issued: 216.4)......................... 216 216
Additional paid-in capital.................................. 967 960
Retained earnings........................................... 3,363 2,937
Accumulated other comprehensive loss........................ (166) (153)
Restricted stock compensation............................... (2) --
Common stock in treasury, at cost (shares held: 2000, 32.9;
1999, 25.5)............................................... (1,709) (1,420)
------- -------
Total shareowners' equity.............................. 2,669 2,540
------- -------
TOTAL.................................................. $ 6,390 $ 6,544
======= =======
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 20
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
REVENUES:
Sales....................................................... $7,151 $7,043 $6,752
Other income, net........................................... 69 112 88
------ ------ ------
Total revenues.............................................. 7,220 7,155 6,840
------ ------ ------
COSTS AND EXPENSES:
Cost of sales (Note 19)..................................... 4,916 4,915 5,205
Selling, general and administrative (Note 19)............... 1,288 1,270 1,448
Purchased research and development (Note 2)................. -- -- 103
Interest.................................................... 73 84 58
------ ------ ------
Total costs and expenses.................................... 6,277 6,269 6,814
------ ------ ------
Income from continuing operations before income taxes and
accounting change......................................... 943 886 26
Income tax provision........................................ 307 307 134
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE ACCOUNTING
CHANGE.................................................... 636 579 (108)
Loss from discontinued operations........................... -- (20) (301)
Cumulative effect of accounting change...................... -- -- (17)
------ ------ ------
NET INCOME (LOSS)........................................... $ 636 $ 559 $ (426)
====== ====== ======
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations before accounting change............ $ 3.38 $ 3.05 $(0.54)
Discontinued operations................................... -- (0.11) (1.52)
Cumulative effect of accounting change.................... -- -- (0.09)
------ ------ ------
Net income (loss)......................................... $ 3.38 $ 2.94 $(2.15)
====== ====== ======
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations before accounting change............ $ 3.35 $ 3.00 $(0.54)
Discontinued operations................................... -- (0.11) (1.52)
Cumulative effect of accounting change.................... -- -- (0.09)
------ ------ ------
Net income (loss)......................................... $ 3.35 $ 2.89 $(2.15)
====== ====== ======
AVERAGE OUTSTANDING SHARES:
Basic..................................................... 187.8 190.5 197.9
====== ====== ======
Diluted................................................... 189.9 193.6 197.9
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING ACTIVITIES
Income (loss) from continuing operations before accounting
change.................................................... $ 636 $ 579 $(108)
Adjustments to arrive at cash provided by operating
activities:
Depreciation.............................................. 276 258 227
Amortization of intangible assets......................... 93 79 79
Deferred income taxes..................................... 166 11 (44)
Retirement benefit expense, net of contributions.......... (22) (11) 33
Net gain on dispositions of property and businesses (Note
13).................................................... (15) (68) (15)
Loss on investment (Note 13).............................. -- 29 --
Special charges (Note 19)................................. -- -- 597
Purchased research and development (Note 2)............... -- -- 103
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency
adjustments:
Receivables............................................ 4 (77) (126)
Inventories............................................ (69) (21) (37)
Accounts payable....................................... (33) 97 79
Income taxes........................................... 66 26 (76)
Compensation and benefits.............................. (80) (75) 34
Other assets and liabilities........................... (96) 104 (23)
----- ----- -----
CASH PROVIDED BY OPERATING ACTIVITIES.................. 926 931 723
----- ----- -----
INVESTING ACTIVITIES
Property additions.......................................... (315) (377) (408)
Acquisitions of businesses, net of cash acquired............ (193) (241) (158)
Proceeds from the dispositions of property and businesses... 59 198 101
----- ----- -----
CASH USED FOR INVESTING ACTIVITIES..................... (449) (420) (465)
----- ----- -----
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings................ (173) 21 107
Payments of long-term debt.................................. -- -- (3)
Long-term borrowings........................................ -- -- 751
----- ----- -----
Net (decrease) increase in debt........................... (173) 21 855
Purchases of treasury stock................................. (325) (172) (980)
Cash dividends.............................................. (192) (194) (202)
Proceeds from the exercise of stock options................. 20 125 75
----- ----- -----
CASH USED FOR FINANCING ACTIVITIES..................... (670) (220) (252)
----- ----- -----
Effect of exchange rate changes on cash..................... 27 9 --
----- ----- -----
CASH (USED FOR) PROVIDED BY CONTINUING OPERATIONS........... (166) 300 6
Cash Used for Discontinued Operations....................... -- (47) (172)
----- ----- -----
(DECREASE) INCREASE IN CASH................................. (166) 253 (166)
CASH AT BEGINNING OF YEAR................................... 356 103 269
----- ----- -----
CASH AT END OF YEAR......................................... $ 190 $ 356 $ 103
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK (no shares issued during years)................ $ 216 $ 216 $ 216
------- ------- -------
ADDITIONAL PAID-IN CAPITAL
Beginning balance........................................... 960 923 901
Shares issued under incentive plans......................... 7 37 22
------- ------- -------
Ending balance.............................................. 967 960 923
------- ------- -------
RETAINED EARNINGS
Beginning balance........................................... 2,937 3,603 4,314
Net income (loss)........................................... 636 559 (426)
Cash dividends (per share: $1.02)........................... (192) (194) (202)
Shares issued under incentive plans......................... (18) (118) (83)
Spin-off of Conexant (Note 18).............................. -- (913) --
------- ------- -------
Ending balance.............................................. 3,363 2,937 3,603
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning balance........................................... (153) (135) (103)
Other comprehensive loss.................................... (13) (18) (32)
------- ------- -------
Ending balance.............................................. (166) (153) (135)
------- ------- -------
RESTRICTED STOCK COMPENSATION
Beginning balance........................................... -- -- --
Restricted stock grants..................................... (2) -- --
------- ------- -------
Ending balance.............................................. (2) -- --
------- ------- -------
TREASURY STOCK
Beginning balance........................................... (1,420) (1,456) (612)
Purchases................................................... (325) (172) (980)
Shares issued under incentive plans......................... 36 208 136
------- ------- -------
Ending balance.............................................. (1,709) (1,420) (1,456)
------- ------- -------
TOTAL SHAREOWNERS' EQUITY................................... $ 2,669 $ 2,540 $ 3,151
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
2000 1999 1998
----- ----- ------
<S> <C> <C> <C>
Net income (loss)........................................... $636 $559 $(426)
Other comprehensive loss:
Unrealized gains on cash flow hedges (net of tax of $6)... 12 -- --
Currency translation adjustments (net of tax benefit of
$0, $(3), and $(2)).................................... (29) (16) (30)
Pension adjustments (net of tax expense (benefit) of $2,
$(1) and $(1))......................................... 4 (2) (2)
---- ---- -----
Other comprehensive loss.................................... (13) (18) (32)
---- ---- -----
Comprehensive income (loss)................................. $623 $541 $(458)
==== ==== =====
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
Except as indicated, amounts reflected in the consolidated financial
statements or the notes thereto relate to the continuing operations of Rockwell
International Corporation (Rockwell or the Company). Certain prior year amounts
have been reclassified to conform with the current year presentation.
Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and all majority-owned subsidiaries in which the Company has
control. All significant intercompany accounts and transactions are eliminated
in consolidation.
Use of Estimates
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements. Actual results could differ from those estimates.
Revenue Recognition
Sales are generally recorded as products are shipped or services are
rendered, except sales under certain contracts requiring performance over
several periods, which are accounted for under the percentage-of-completion
method of accounting. Anticipated losses on contracts accounted for under the
percentage-of-completion method are recognized in full in the period that the
losses become evident.
Cash
Cash includes time deposits and certificates of deposit with original
maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using first-in,
first-out (FIFO) or average methods. Market is determined on the basis of
estimated realizable values.
Property
Property is stated at cost. Depreciation of property is provided based on
estimated useful lives generally using accelerated and straight-line methods.
Significant renewals and betterments are capitalized and replaced units are
written off. Maintenance and repairs, as well as renewals of minor amounts, are
charged to expense.
Purchased Intangibles
Goodwill and other intangible assets generally result from business
acquisitions. The Company accounts for business acquisitions under the purchase
method by assigning the purchase price to tangible and intangible assets and
liabilities, including research and development projects which have not yet
reached technological feasibility and have no alternative future use (purchased
research and development). Assets acquired and liabilities assumed are recorded
at their fair values; the appraised value of purchased research and development
is immediately charged to expense, and the excess of the purchase price over the
amounts assigned is recorded as goodwill.
Goodwill is amortized using the straight-line method over periods generally
ranging from ten to forty years. Trademarks, patents, product technology, and
other intangibles are amortized on a straight-line basis over their estimated
useful lives, generally ranging from five to forty years.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ACCOUNTING POLICIES -- (CONTINUED)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or circumstances
indicate that the carrying amount of a long-lived asset may not be recoverable,
and for all assets to be disposed of. Long-lived assets held for use are
reviewed for impairment by assessing their net realizable values based on
estimated undiscounted cash flows over their remaining useful lives. If
impairment is indicated, the carrying amount of the asset is reduced to its fair
value.
Derivative Financial Instruments
The Company uses derivative financial instruments in the form of foreign
currency forward exchange contracts and interest rate swap contracts to manage
foreign currency and interest rate risks. Foreign currency forward exchange
contracts are used to hedge changes in the amount of future cash flows
associated with intercompany transactions generally forecasted to occur within
one year (cash flow hedges) and changes in fair value of certain assets and
liabilities resulting from intercompany loans and other transactions with third
parties denominated in foreign currencies. Interest rate swap contracts are used
to manage the balance of fixed and floating rate debt. It is the policy of the
Company to execute such instruments with creditworthy banks and not to enter
into derivative financial instruments for speculative purposes. All foreign
currency forward exchange contracts are denominated in currencies of major
industrial countries. Effective July 1, 2000, the Company accounts for
derivative financial instruments in accordance with Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133).
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Compensation expense resulting from grants of restricted stock is
recognized generally during the period the service is performed.
Environmental Matters
The Company records accruals for environmental matters in the accounting
period in which its responsibility is established and the cost can be reasonably
estimated. Revisions to the accruals are made in the periods in which the
estimated costs of remediation change. At environmental sites in which more than
one potentially responsible party has been identified, the Company records a
liability for its estimated allocable share of costs related to its involvement
with the site as well as an estimated allocable share of costs related to the
involvement of insolvent or unidentified parties. At environmental sites in
which the Company is the only responsible party, the Company records a liability
for the total estimated costs of remediation. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
If recovery from insurers or other third parties is determined to be probable,
the Company records a receivable for the estimated recovery.
New Accounting Standards
Effective July 1, 2000, the Company adopted SFAS 133. SFAS 133 requires the
Company to record all derivatives on the balance sheet at fair value regardless
of the purpose or intent for holding them. Derivatives that are not hedges are
adjusted to fair value through earnings. For derivatives that are hedges,
depending on the nature of the hedge, changes in fair value are either offset by
changes in the fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value is immediately recognized in earnings. The effect of adopting SFAS
133 was not material to the Company's financial position, results of operations
or shareowners' equity.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ACCOUNTING POLICIES -- (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB 101).
The Company will adopt SAB 101 effective October 1, 2000 and believes the effect
of adoption will not be material to its results of operations or shareowners'
equity.
Accounting Changes
During 2000, the Company changed its method of determining the cost of
certain inventories from the last-in, first-out (LIFO) method to the FIFO
method. As a result of operating efficiencies and cost reductions, the Company
believes that the FIFO method better measures the current cost of such
inventories and provides a more appropriate matching of revenues and expenses.
The change to the FIFO method has been retroactively applied by restating the
accompanying consolidated financial statements. The effect of this change on the
consolidated balance sheet as of September 30 and the consolidated statement of
operations for the years ended September 30 is summarized as follows (in
millions, except per share data):
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Balance sheet:
Inventories............................................... $ (163) $(159)
Deferred income taxes..................................... 63 61
Retained earnings......................................... (97) (94)
Statement of operations:
Net income (loss)......................................... (3) 1
Earnings per share:
Basic.................................................. (0.01) 0.01
Diluted................................................ (0.01) 0.01
</TABLE>
The change resulted in a decrease of $95 million to the beginning of year
balance of retained earnings for 1998.
Effective October 1, 1997, Rockwell changed its method of accounting for
certain general and administrative costs related to government contracts to
expense these costs as incurred. Under the previous accounting method, these
costs were included in inventory. The amount of general and administrative costs
included in inventory as of October 1, 1997 was $27 million ($17 million
after-tax, or nine cents per share) and is presented as the cumulative effect of
an accounting change in the consolidated statement of operations for the year
ended September 30, 1998.
2. ACQUISITIONS OF BUSINESSES
In March 2000, the Automation segment acquired Entek IRD International
Corporation, a provider of machinery condition monitoring solutions. In April
2000, the Automation segment acquired substantially all the assets and assumed
certain liabilities of Systems Modeling Corporation, a software developer. In
July 2000, the Avionics & Communications segment acquired substantially all of
the assets and assumed substantially all of the liabilities of Sony Trans Com
Inc., a producer of in-flight entertainment systems for commercial aircraft.
Assets acquired and liabilities assumed have been recorded at estimated
fair values based on information currently available. The aggregate purchase
price for all acquisitions during 2000 was $193 million, of which $97 million
was allocated to intangible assets, including developed technology, patents,
assembled workforce and goodwill. The intangible assets are being amortized on a
straight-line basis over periods ranging from five to fifteen years.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS OF BUSINESSES -- (CONTINUED)
During 1999, the Company acquired six businesses for an aggregate purchase
price of $241 million of which $214 million was allocated to intangible assets.
The intangible assets are being amortized on a straight-line basis over periods
ranging from six to thirty years.
In December 1997, the Avionics & Communications segment acquired the
in-flight entertainment business of Hughes-Avicom International, Inc. In
connection with the acquisition, the Company recorded a charge of $103 million
($63 million after tax) for purchased research and development.
These acquisitions were accounted for as purchases and, accordingly, the
results of operations of these businesses have been included in the consolidated
statement of operations since their respective dates of acquisition. Pro forma
financial information is not presented as the combined effect of these
acquisitions was not material to the Company's results of operations or
financial position.
3. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Finished goods.............................................. $ 379 $ 348
Work in process............................................. 330 380
Raw materials, parts, and supplies.......................... 557 448
------ ------
Inventories................................................. $1,266 $1,176
====== ======
</TABLE>
4. PROPERTY, NET
Property, net is summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Land........................................................ $ 54 $ 55
Land and leasehold improvements............................. 93 87
Buildings................................................... 603 569
Machinery and equipment..................................... 1,651 1,509
Information systems and equipment........................... 763 625
Construction in progress.................................... 142 244
------ ------
Total.................................................. 3,306 3,089
Less accumulated depreciation............................... 1,690 1,508
------ ------
Property, net............................................... $1,616 $1,581
====== ======
</TABLE>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS, NET
Intangible assets, net are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Goodwill.................................................... $1,225 $1,168
Trademarks, patents, product technology, and other
intangibles............................................... 767 736
------ ------
Total.................................................. 1,992 1,904
Less accumulated amortization............................... 589 514
------ ------
Intangible assets, net...................................... $1,403 $1,390
====== ======
</TABLE>
6. SHORT-TERM DEBT
Short-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Commercial paper............................................ $ -- $ 150
Short-term bank borrowings.................................. 15 37
Current portion of long-term debt........................... 1 2
------ ------
Short-term debt............................................. $ 16 $ 189
====== ======
</TABLE>
Weighted average interest rates on short-term borrowings:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Commercial paper............................................ -- 5.9%
Short-term bank borrowings.................................. 2.4% 2.9%
</TABLE>
At September 30, 2000, the Company had $1 billion of unsecured credit
facilities with various banks to support commercial paper borrowings. There were
no significant commitment fees or compensating balance requirements under these
facilities. Short-term credit facilities available to foreign subsidiaries
amounted to $190 million at September 30, 2000 and consisted of arrangements for
which there are no significant commitment fees.
7. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Contract reserves and advance payments...................... $ 170 $ 192
Product warranty costs...................................... 125 139
Taxes other than income taxes............................... 46 48
Other....................................................... 147 137
------ ------
Other current liabilities................................... $ 488 $ 516
====== ======
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
2000 1999
----- -----
<S> <C> <C>
6.8% notes, payable in 2003................................. $150 $150
6.15% notes, payable in 2008................................ 350 350
6.70% debentures, payable in 2028........................... 250 250
5.20% debentures, payable in 2098........................... 200 200
Other....................................................... 28 19
Less unamortized discount................................... (53) (56)
---- ----
Total.................................................. 925 913
Less current portion........................................ 1 2
---- ----
Long-term debt.............................................. $924 $911
==== ====
</TABLE>
The 6.15% notes, payable in 2008 were effectively converted to floating
rate debt (see Note 9).
9. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, short- and long-term
debt, foreign currency forward exchange contracts and an interest rate swap
contract. The fair values of cash and short-term debt approximate the carrying
values due to the short-term nature of these instruments. At September 30, 2000
and 1999, the carrying value of long-term debt was $925 million and $913
million, respectively. The fair value of long-term debt, based upon quoted
market prices for the same or similar issues, was $843 million and $836 million
at September 30, 2000 and 1999, respectively.
Foreign currency forward exchange contracts provide for the purchase or
sale of foreign currencies at specified future dates at specified exchange
rates. At September 30, 2000 and 1999, the Company had outstanding foreign
currency forward exchange contracts with notional amounts of $992 million and
$708 million, respectively, primarily consisting of contracts for the euro,
pound sterling, Canadian dollar, Australian dollar, and Swiss franc. Notional
amounts are stated in the U.S. dollar equivalents at spot exchange rates at the
respective dates. At September 30, 2000, the net carrying value of foreign
currency forward exchange contracts of $39 million was equal to its fair value
based upon quoted market prices for contracts with similar maturities. As of
September 30, 2000, the foreign currency forward exchange contracts are recorded
in Other Current Assets and Other Current Liabilities in the amounts of $55
million and $16 million, respectively. The Company does not anticipate any
material adverse effect on its results of operations or financial position
relating to these foreign currency forward exchange contracts. Upon adoption of
SFAS 133, the Company designated certain foreign currency forward exchange
contracts related to forecasted intercompany transactions as cash flow hedges.
The amount recognized in earnings as a result of the ineffectiveness of cash
flow hedges was not material.
In February 2000, the Company entered into an interest rate swap contract
(the Swap) which effectively converted its $350 million aggregate principal
amount of 6.15% notes, payable in 2008, to floating rate debt based on 90 day
LIBOR (5.42% at September 30, 2000). At September 30, 2000, the fair value of
the Swap, based upon quoted market prices for contracts with similar maturities,
was approximately $13 million. Upon adoption of SFAS 133, the Company designated
the Swap as a fair value hedge. Accordingly, the fair value of the Swap was
recorded as an asset and the carrying value of the underlying debt was adjusted
by an equal amount in accordance with SFAS 133. On October 24, 2000, the Swap
was terminated at a net gain of $16 million. The gain will be amortized as a
reduction of interest expense over the remaining term of the 6.15% notes,
payable in 2008.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREOWNERS' EQUITY
Common Stock
At September 30, 2000, the authorized stock of the Company consisted of one
billion shares of common stock, par value $1 per share, and 25 million shares of
preferred stock, without par value. At September 30, 2000, 34 million shares of
common stock were reserved for various employee incentive plans.
Changes in outstanding common shares are summarized as follows (in
millions):
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Beginning balance........................................... 190.9 190.6 206.8
Treasury stock purchases.................................... (8.0) (3.5) (18.5)
Stock option exercises...................................... 0.5 3.8 2.3
Restricted stock grants..................................... 0.1 -- --
----- ----- -----
Ending balance.............................................. 183.5 190.9 190.6
===== ===== =====
</TABLE>
For 2000 and 1999, dilutive stock options resulted in an increase in
average outstanding shares of 2.1 million and 3.1 million, respectively. In
1998, dilutive and basic per share amounts are identical, as the loss from
continuing operations resulted in stock options being antidilutive.
Preferred Share Purchase Rights
Each outstanding share of common stock provides the holder with one
Preferred Share Purchase Right (Right). The Rights will become exercisable only
if a person or group acquires, or offers to acquire, 20% or more of the common
stock, although the Company is authorized to reduce the 20% threshold for
triggering the Rights to not less than 10%. Upon exercise, each Right entitles
the holder to 1/100th of a share of Series A Junior Participating Preferred
Stock of the Company (Junior Preferred Stock) at a price of $250, subject to
adjustment.
Upon an acquisition of the Company, each Right (other than Rights held by
the acquiror) will generally be exercisable for $500 worth of either common
stock of the Company or common stock of the acquiror for $250. In certain
circumstances, each Right may be exchanged by the Company for one share of
common stock or 1/100th of a share of Junior Preferred Stock. The Rights will
expire on December 6, 2006, unless earlier exchanged or redeemed at $0.01 per
Right.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
2000 1999
----- -----
<S> <C> <C>
Unrealized gains on cash flow hedges........................ $ 12 $ --
Currency translation adjustments............................ (173) (144)
Pension adjustments......................................... (5) (9)
----- -----
Accumulated other comprehensive loss........................ $(166) $(153)
===== =====
</TABLE>
Approximately $11 million of the unrealized gains on cash flow hedges will
be reclassified into earnings during fiscal 2001. Management expects that these
unrealized gains will be offset when the hedged items are recognized in
earnings.
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTIONS
Options to purchase common stock of the Company have been granted under
various incentive plans to directors, officers and other key employees at prices
equal to or above the fair market value of such stock on the dates the options
were granted. The plans provide that the option price for certain options
granted under the plans may be paid in cash, shares of common stock or a
combination thereof.
Under the 2000 Long-Term Incentives Plan, the Company may grant up to 16
million shares of Company common stock as non-qualified options, incentive stock
options, stock appreciation rights and restricted stock. Shares available for
future grant or payment under various incentive plans were 16 million at
September 30, 2000. None of the incentive plans presently permits options to be
granted after November 30, 2009. Stock options generally expire ten years from
the date they are granted and vest over three years (time-vesting options) with
the exception of performance-vesting options.
During 2000 and 1999, the Company granted performance-vesting options.
These options expire ten years from the date they are granted and vest at the
earlier of (a) the date the market price of the Company's common stock reaches a
specified level for a pre-determined period of time or certain other financial
performance criteria are met or (b) a period of six to nine years from the date
they are granted. No performance-vesting options vested during 2000. During
1999, approximately 0.9 million of the performance-vesting options vested.
Information relative to stock options is as follows (shares in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
WTD. AVG. WTD. AVG. WTD. AVG.
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Number of shares under option:
Outstanding at beginning of
year........................ 11,564 $31.13 13,419 $36.27 12,837 $31.67
Granted:
Time-vesting................ 2,523 51.04 2,169 37.05 3,031 47.93
Performance-vesting......... 880 52.48 1,023 35.22 -- --
Adjustments:
Conexant adjustment......... -- -- 669 -- -- --
Conversion to Conexant
options................... -- -- (1,621) 48.97 -- --
Exercised...................... (561) 24.62 (3,750) 23.68 (2,238) 24.59
Canceled or expired............ (408) 40.31 (345) 39.60 (211) 47.08
------ ------ ------
Outstanding at end of year..... 13,998 36.04 11,564 31.13 13,419 36.27
====== ====== ======
Exercisable at end of year..... 8,584 30.52 7,419 28.69 8,809 29.80
====== ====== ======
</TABLE>
In connection with the spin-off of the Company's former semiconductor
systems business (Semiconductor Systems), for certain of the outstanding
options, the number of options and the exercise prices of such options were
adjusted in order to preserve the intrinsic value of the options that were
outstanding as of the date of the spin-off. For certain other options, option
holders received a combination of Rockwell and Conexant Systems, Inc. (Conexant)
options with adjustments made to the number of options outstanding and the
exercise prices of those options to preserve the intrinsic value of the Rockwell
and Conexant options that were outstanding after the date of the spin-off.
Additionally, Rockwell options granted to Semiconductor Systems employees were
converted into Conexant options.
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTIONS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 2000 (shares in thousands; remaining life in years):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- -------------------
WEIGHTED AVERAGE
--------------------- WTD. AVG.
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
------------------------ ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
$16.78 to $24.41........................ 3,547 2.9 $21.97 3,547 $21.97
$25.78 to $35.54........................ 4,371 7.1 30.37 2,970 31.50
$36.16 to $51.63........................ 2,781 7.1 42.78 1,975 43.07
$52.50 to $60.81........................ 3,299 9.0 53.11 92 58.89
------ -----
13,998 8,584
====== =====
</TABLE>
The Company's net income and earnings per share would have been reduced,
and net loss and loss per share increased, to the following pro forma amounts if
the Company accounted for its stock-based plans using the fair value method
provided by SFAS No. 123, Accounting for Stock-Based Compensation (in millions,
except per share amounts):
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ----------------- ------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)................ $ 636 $ 611 $ 559 $ 478 $ (426) $ (443)
Basic earnings (loss) per
share.......................... $3.38 $3.26 $2.94 $2.51 $(2.15) $(2.24)
Diluted earnings (loss) per
share.......................... $3.35 $3.22 $2.89 $2.47 $(2.15) $(2.24)
</TABLE>
The 1999 pro forma net income includes $87 million ($57 million after tax,
or 29 cents per diluted share) of pro forma compensation expense related to the
spin-off of Semiconductor Systems. The pro forma effect of stock options on net
income for 2000 may not be indicative of the pro forma effect on net income in
future years.
The weighted average fair value of options granted was $16.30, $9.55 and
$13.68 per share in 2000, 1999 and 1998, respectively. The fair value of each
option was estimated on the date of grant or subsequent date of option
adjustment using the Black-Scholes pricing model and the following assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
------ -------------------- ------
CONEXANT
SPIN-OFF
GRANTS ADJUSTMENT GRANTS GRANTS
------ ---------- ------ ------
<S> <C> <C> <C> <C>
Average risk-free interest rate..................... 6.06% 4.66% 4.51% 5.68%
Expected dividend yield............................. 2.29% -- 2.23% 2.23%
Expected volatility................................. 0.33 0.44 0.29 0.29
Expected life (years)............................... 5 5 5 5
</TABLE>
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RETIREMENT BENEFITS
The Company sponsors pension and other postretirement benefit plans for its
employees. The pension plans cover most of the Company's employees and provide
for monthly pension payments to eligible employees upon retirement. Pension
benefits for salaried employees generally are based on years of credited service
and average earnings. Pension benefits for hourly employees generally are based
on specified benefit amounts and years of service. The Company's policy is to
fund its pension obligations in conformity with the funding requirements of
applicable laws and governmental regulations. Other postretirement benefits are
in the form of retirement medical plans and cover most of the Company's United
States employees and provide for the payment of certain medical costs of
eligible employees and dependents upon retirement.
The components of net periodic benefit cost are as follows (in millions):
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------- --------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost........................... $ 75 $ 84 $ 65 $ 11 $ 10 $ 9
Interest cost.......................... 187 170 145 38 31 49
Expected return on plan assets......... (243) (215) (172) (1) -- --
Amortization:
Prior service cost................... 10 10 10 (24) (26) (6)
Net transition asset................. (7) (10) (10) -- -- --
Net actuarial loss................... 5 16 2 3 -- --
----- ----- ----- ---- ---- ---
Net periodic benefit cost.............. $ 27 $ 55 $ 40 $ 27 $ 15 $52
===== ===== ===== ==== ==== ===
</TABLE>
The Company recognized a curtailment gain of $10 million and $16 million
and special termination benefit charges of $3 million and $11 million in 2000
and 1999, respectively.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RETIREMENT BENEFITS -- (CONTINUED)
Benefit obligation, plan asset, funded status, and net liability
information is summarized as follows (in millions):
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year.................. $2,681 $2,716 $ 531 $ 493
Service cost............................................. 75 84 11 10
Interest cost............................................ 187 170 38 31
Discount rate change..................................... (173) (262) (26) (46)
Actuarial losses......................................... 101 57 47 82
Plan amendments.......................................... 1 5 (30) 22
Benefits paid............................................ (107) (89) (59) (63)
Other (including currency translation)................... (34) -- 1 2
------ ------ ----- -----
Benefit obligation at end of year........................ 2,731 2,681 513 531
------ ------ ----- -----
Plan assets at beginning of year......................... 2,951 2,811 16 14
Actual return on plan assets............................. 336 227 2 2
Company contributions.................................... 14 15 59 63
Benefits paid............................................ (107) (89) (62) (66)
Other (including currency translation)................... (36) (13) 3 3
------ ------ ----- -----
Plan assets at end of year............................... 3,158 2,951 18 16
------ ------ ----- -----
Funded status of plans................................... 427 270 (495) (515)
Unamortized amounts:
Prior service cost..................................... 29 37 (207) (200)
Net transition asset................................... (13) (20) -- --
Net actuarial (gain) loss.............................. (451) (287) 140 122
------ ------ ----- -----
Net liability on balance sheet........................... $ (8) $ -- $(562) $(593)
====== ====== ===== =====
Net liability on balance sheet consists of:
Prepaid benefit cost..................................... $ 94 $ 95 $ -- $ --
Accrued benefit liability................................ (120) (123) (562) (593)
Deferred tax asset....................................... 2 4 -- --
Intangible asset......................................... 11 15 -- --
Accumulated other comprehensive loss..................... 5 9 -- --
------ ------ ----- -----
Net liability on balance sheet........................... $ (8) $ -- $(562) $(593)
====== ====== ===== =====
</TABLE>
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RETIREMENT BENEFITS -- (CONTINUED)
The Company uses an actuarial measurement date of June 30 to measure its
benefit obligations. Significant assumptions used in determining these benefit
obligations are summarized as follows (in weighted averages):
<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------ --------------
2000 1999 2000 1999
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate............................................... 8.0% 7.5% 8.0% 7.5%
Compensation increase rate.................................. 4.5% 4.5% -- --
Expected return on plan assets.............................. 9.5% 9.5% 9.5% 9.5%
Health care cost trend rate*................................ -- -- 7.0% 7.0%
</TABLE>
---------------
* Decreasing to 5.5% after 2015.
Pension Benefits
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of the fair value of plan assets (underfunded plans) were $139
million, $120 million and $1 million, respectively, as of September 30, 2000 and
$145 million, $130 million and $7 million, respectively, as of September 30,
1999.
Other Postretirement Benefits
Assumed health care cost trend rates have a significant effect on amounts
reported for the retiree medical plans. A one-percentage point change in assumed
health care cost trend rates would have the following effect (in millions):
<TABLE>
<CAPTION>
ONE-PERCENTAGE ONE-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) to total of service and interest cost
components............................................... $ 5 $ 5 $ (5) $ (5)
Increase (decrease) to postretirement benefit obligation... 35 38 (30) (33)
</TABLE>
Defined Contribution Savings Plans
The Company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $45 million, $43 million,
and $42 million for 2000, 1999, and 1998, respectively.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER INCOME, NET
The components of other income, net are as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net gain on dispositions of property and businesses......... $15 $ 68 $15
Demutualization income...................................... 28 -- --
Loss on investment.......................................... -- (29) --
Interest income............................................. 11 10 13
Royalty income.............................................. 14 11 6
Other....................................................... 1 52 54
--- ---- ---
Other income, net........................................... $69 $112 $88
=== ==== ===
</TABLE>
During 2000, the Company recorded a $32 million gain on the sale of real
estate and recorded $28 million of income resulting from the demutualization of
Metropolitan Life Insurance Company.
In 1999, the Company recorded a loss of $29 million associated with the
write-off of its investment in Goss Graphic Systems, Inc. (Goss) preferred
stock, which the Company received in connection with the sale of its graphic
systems business.
14. INCOME TAXES
The components of the income tax provision are as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current:
United States............................................. $100 $221 $140
Non-United States......................................... 26 32 20
State and local........................................... 15 43 21
---- ---- ----
Total current............................................... 141 296 181
---- ---- ----
Deferred:
United States............................................. 133 (3) (41)
Non-United States......................................... 11 11 (3)
State and local........................................... 22 3 (3)
---- ---- ----
Total deferred.............................................. 166 11 (47)
---- ---- ----
Income tax provision........................................ $307 $307 $134
==== ==== ====
</TABLE>
Net current deferred income tax benefits at September 30, 2000 and 1999
consist of the tax effects of temporary differences related to the following (in
millions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Compensation and benefits................................... $ 57 $ 64
Product warranty costs...................................... 43 47
Assets held for sale........................................ 3 45
Inventory................................................... 66 64
Allowance for doubtful accounts............................. 17 22
Contract loss reserves...................................... 21 24
Other -- net................................................ 69 98
---- ----
Current deferred income taxes............................... $276 $364
==== ====
</TABLE>
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES -- (CONTINUED)
Net long-term deferred income taxes included in Other Liabilities in the
balance sheet at September 30, 2000 and 1999 consist of the tax effects of
temporary differences related to the following (in millions):
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
Retirement benefits......................................... $(211) $(225)
Property.................................................... 161 153
Intangible assets........................................... 78 88
Loss carryforwards.......................................... (9) (28)
Foreign tax credit carryforwards............................ (71) (91)
Other -- net................................................ 102 36
----- -----
Subtotal.................................................... 50 (67)
Valuation allowance......................................... 80 119
----- -----
Long-term deferred income taxes............................. $ 130 $ 52
===== =====
</TABLE>
Management believes it is more likely than not that current and long-term
deferred tax assets will be realized through the reduction of future taxable
income. Significant factors considered by management in its determination of the
probability of the realization of the deferred tax assets include: (a) the
historical operating results of the Company ($1.1 billion of United States
taxable income over the past three years), (b) expectations of future earnings,
and (c) the extended period of time over which the retirement medical liability
will be paid. The valuation allowance represents the amount of tax benefits
related to net operating loss and foreign tax credit carryforwards that have not
yet been recognized. The carryforward period for net operating losses ends
between 2001 and 2006. The carryforward period for all of the foreign tax
credits ends in 2002.
The consolidated income tax provision differed from income tax at the
United States statutory tax rate for the reasons set forth below (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income tax expense at thirty-five percent................... $330 $310 $ 9
State and local income taxes................................ 25 30 1
Non-United States taxes..................................... 8 7 2
Foreign tax credit utilization.............................. (31) (25) 3
Non-deductible goodwill write-off........................... -- -- 136
Non-deductible goodwill amortization........................ 10 9 11
Property donation........................................... -- -- (16)
Foreign sales corporation benefit........................... (19) (12) (8)
Utilization of foreign loss carryforwards................... (9) (4) (3)
Other....................................................... (7) (8) (1)
---- ---- ----
Income tax provision........................................ $307 $307 $134
==== ==== ====
</TABLE>
The income tax provisions were calculated based upon the following
components of income (loss) from continuing operations before income taxes (in
millions):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
United States income (loss)................................. $835 $772 $(26)
Non-United States income.................................... 108 114 52
---- ---- ----
Total....................................................... $943 $886 $ 26
==== ==== ====
</TABLE>
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES -- (CONTINUED)
No provision has been made for United States, state, or additional foreign
income taxes related to approximately $255 million of undistributed earnings of
foreign subsidiaries which have been or are intended to be permanently
reinvested.
The Company's United States income tax returns for the years 1989 through
1997 are currently under examination. In connection with the divestiture of the
Company's aerospace and defense business ("the A&D Business"), the spin-off of
the Company's automotive components business ("Automotive") and the
Semiconductor Systems spin-off, the Company has retained all tax liabilities and
the right to all tax refunds related to United States and certain non-U.S.
operations of the A&D Business, Automotive and Semiconductor Systems for periods
prior to the respective divestiture dates. Management expects the examination of
the Company's 1989 through 1994 tax years will be completed during 2001.
Management believes adequate provision for income taxes has been made for all
years through 2000.
15. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Statement of cash flows information (in millions):
Income taxes paid........................................... $129 $111 $ 59
Interest payments........................................... 74 85 55
Statement of operations information (in millions):
Research and development:
Company-initiated......................................... 474 422 402
Customer-funded........................................... 202 192 184
Rental expense.............................................. 112 106 104
</TABLE>
Income taxes paid and interest payments related to discontinued operations
for 1999 and 1998 were not significant.
Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated $255 million as of
September 30, 2000 and are payable as follows (in millions): 2001, $55; 2002,
$45; 2003, $37; 2004, $33; 2005, $28; and after 2006, $57. Commitments from
third parties under sublease agreements having noncancelable lease terms in
excess of one year aggregated $47 million as of September 30, 2000 and are
receivable through 2008 at approximately $6 million per year.
16. CONTINGENT LIABILITIES
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have and will continue to have an effect on
the manufacturing operations of the Company. Thus far, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Company's liquidity and capital
resources, competitive position or financial condition.
The Company has been designated as a potentially responsible party at 21
Superfund sites, excluding sites as to which the Company's records disclose no
involvement or as to which the Company's potential liability has been finally
determined or assumed by third parties. Management estimates the total
reasonably possible costs the Company could incur for the remediation of
Superfund sites at September 30, 2000 to be about $14 million, of which $10
million has been accrued.
Various other lawsuits, claims and proceedings have been asserted against
the Company alleging violations of federal, state and local environmental
protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously owned properties. As of September 30,
2000, management has estimated the total reasonably possible costs the Company
could incur from these matters to be
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTINGENT LIABILITIES -- (CONTINUED)
about $63 million. The Company has recorded environmental accruals for these
matters of $37 million. In addition to the above matters, the Company assumed
certain other environmental liabilities in connection with the 1995 acquisition
of Reliance Electric Company (Reliance). The Company is indemnified by Exxon
Corporation (Exxon) for substantially all costs associated with these Reliance
matters. At September 30, 2000, the Company has recorded a liability of
approximately $29 million and a receivable of approximately $28 million for
these Reliance matters. Management estimates the total reasonably possible costs
for these matters to be approximately $37 million for which the Company is
substantially indemnified by Exxon.
Based on its assessment, management believes that the Company's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the Company's liquidity and capital resources, competitive
position or financial condition. Management cannot assess the possible effect of
compliance with future requirements.
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, intellectual property, safety and health
and employment matters. In connection with the divestiture of the A&D Business
to The Boeing Company (Boeing), Rockwell has agreed to indemnify Boeing for
certain government contract and environmental matters related to operations of
the A&D Business for periods prior to the divestiture. In connection with the
spin-offs of Automotive and Semiconductor Systems, the spun-off companies have
agreed to indemnify Rockwell for substantially all contingent liabilities
related to the respective businesses, including environmental and intellectual
property matters. Although the outcome of litigation cannot be predicted with
certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to the Company, management believes the disposition of matters which
are pending or asserted will not have a material adverse effect on the Company's
financial condition.
In the ordinary course of business, the Company has divested certain of its
businesses. As a result of such divestitures, there may be lawsuits, claims or
proceedings instituted or asserted against the Company related to the period
that the businesses were owned by the Company. Management believes that any
judgments against the Company related to such matters would not have a material
adverse effect on the Company's financial condition.
17. BUSINESS SEGMENT INFORMATION
Rockwell is an electronics and communications company with global
leadership positions in industrial automation, avionics and communications, and
automated call distribution systems. The Company is organized based upon
products and services and has four operating segments consisting of Automation,
Avionics & Communications, Electronic Commerce, and the Science Center.
The Automation segment is a supplier of industrial automation products,
systems, software and services focused on helping customers control and power
manufacturing processes. Products include controllers, I/O (input/output)
systems, drives, sensors, power devices, packaged control products, operator
interface devices, software products and services, gear reducers, mounted
bearings, power transmission components, network monitoring products and motors.
These products are primarily marketed under the Rockwell Automation,
Allen-Bradley, Rockwell Software, Dodge, and Reliance Electric brand names.
Major markets served include consumer products, food and beverage,
transportation, metals, mining, cement, pulp and paper, petroleum, specialty
chemicals, pharmaceutical, electric power, water treatment, infrastructure and
semiconductor fabrication.
The Avionics & Communications segment is a supplier of electronic products
and systems, service and support solutions to the commercial aerospace and
defense industries. Products include electronic equipment for flight control,
cockpit display, navigation, voice and data communication, cockpit management,
in-flight
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT INFORMATION -- (CONTINUED)
cabin management, communications and passenger entertainment, radar, global
positioning and other command, control and communications devices marketed
primarily under the Rockwell Collins brand name. Major customers include
airframe manufacturers, the United States government, and most of the world's
airlines.
The Electronic Commerce segment is engaged in the research, development,
and manufacture of technologies used in telephony and Internet applications. The
Science Center segment is engaged in research, development, and manufacture of
technologies in electronics, imaging and optics, material and computational
sciences, and information technology. Its broad range of initiatives includes
contract research, delivery of high-value products and services, as well as
licensing of selected technologies. The Electronic Commerce segment has been
combined with the Science Center segment in "Other Businesses."
The following tables reflect the sales and operating results of the
Company's reportable segments for the years ended September 30 (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Sales:
Automation................................................ $4,419 $4,411 $4,546
Avionics & Communications................................. 2,515 2,395 1,980
Other Businesses.......................................... 217 237 226
------ ------ ------
Total............................................. $7,151 $7,043 $6,752
====== ====== ======
Segment operating earnings:
Automation................................................ $ 667 $ 660 $ 639
Avionics & Communications................................. 447 414 270
Other Businesses.......................................... (9) 30 13
------ ------ ------
Total............................................. 1,105 1,104 922
Goodwill amortization....................................... (50) (41) (47)
General corporate-net....................................... (25) (161) (91)
(Loss) gain on disposition of businesses.................... (14) 68 --
Interest expense............................................ (73) (84) (58)
Special charges............................................. -- -- (597)
Purchased research & development............................ -- -- (103)
------ ------ ------
Income from continuing operations before income taxes....... $ 943 $ 886 $ 26
====== ====== ======
</TABLE>
Intersegment sales are not material and have been eliminated. Among other
considerations, the Company evaluates performance and allocates resources based
upon segment operating earnings before income taxes, interest expense, costs
related to the corporate offices, nonrecurring special charges, gains and losses
from the disposition of businesses, earnings and losses from equity affiliates,
amortization of goodwill, and purchased research and development charges. The
accounting policies used in preparing the segment information are consistent
with those described in Note 1. Special charges are discussed in Note 19 and the
purchased research and development charge is discussed in Note 2.
During 2000, management changed its method of evaluating segment
performance by excluding gains and losses from the disposition of businesses,
earnings and losses from equity affiliates, and amortization of goodwill from
segment operating earnings. Management believes the exclusion of these items
provides additional insight to the operating performance of the segments.
Earnings and losses from equity affiliates are included in general
corporate-net.
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT INFORMATION -- (CONTINUED)
The following tables summarize the identifiable assets at September 30, the
provision for depreciation and amortization and the amount of capital
expenditures for property for the years ended September 30 for each of the
reportable segments, Other Businesses and Corporate (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Identifiable assets:
Automation................................................ $3,700 $3,760 $3,758
Avionics & Communications................................. 1,777 1,668 1,446
Other Businesses.......................................... 165 152 151
Corporate................................................. 748 964 735
Net assets of discontinued operations..................... -- -- 986
------ ------ ------
Total............................................. $6,390 $6,544 $7,076
====== ====== ======
Depreciation and amortization:
Automation................................................ $ 206 $ 193 $ 173
Avionics & Communications................................. 92 82 67
Other Businesses.......................................... 16 15 14
Corporate................................................. 5 6 5
------ ------ ------
Total............................................. 319 296 259
Goodwill amortization..................................... 50 41 47
------ ------ ------
Total............................................. $ 369 $ 337 $ 306
====== ====== ======
Capital expenditures for property:
Automation................................................ $ 202 $ 220 $ 223
Avionics & Communications................................. 98 127 143
Other Businesses.......................................... 12 15 17
Corporate................................................. 3 15 25
------ ------ ------
Total............................................. $ 315 $ 377 $ 408
====== ====== ======
</TABLE>
Identifiable assets at Corporate consist principally of cash, net deferred
income tax assets, and property.
The Company is a global electronic controls and communications company and
conducts a significant portion of its business activities outside the United
States. The following tables reflect geographic sales and property, net by
geographic region (in millions):
<TABLE>
<CAPTION>
SALES PROPERTY, NET
-------------------------- --------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States.................... $5,573 $5,559 $5,357 $1,436 $1,401 $1,367
Europe........................... 778 815 748 107 106 113
Canada........................... 323 290 297 21 22 20
Asia-Pacific..................... 322 237 194 36 36 19
Latin America.................... 155 142 156 16 16 16
------ ------ ------ ------ ------ ------
Total............................ $7,151 $7,043 $6,752 $1,616 $1,581 $1,535
====== ====== ====== ====== ====== ======
</TABLE>
Sales are attributed to the geographic regions based on their location of
origin. United States sales include export sales to unaffiliated customers of
$888 million in 2000, $754 million in l999, and $660 million in l998.
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. DISCONTINUED OPERATIONS
On December 31, 1998, the Company spun-off Semiconductor Systems into an
independent, separately traded, publicly-held company by distributing all of the
outstanding shares of Conexant to the Company's shareowners on a pro-rata basis.
Summarized results of Semiconductor Systems are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
--------------
1999 1998
---- ------
<S> <C> <C>
Revenue..................................................... $289 $1,185
Loss before income taxes.................................... (29) (496)
Net loss.................................................... (20) (301)
</TABLE>
19. SPECIAL CHARGES
The Company recorded charges of $597 million ($508 million after tax, or
$2.57 per share) in 1998 in connection with asset impairments and the
implementation of a comprehensive restructuring program. These charges included
$100 million for severance and other employee separation costs associated with a
worldwide workforce reduction of approximately 3,100 employees and $84 million
related to facility closures and consolidations and exiting non-strategic
businesses and product lines. These actions were substantially completed at
December 31, 1999.
Total cash expenditures in connection with these actions will approximate
$120 million. The Company spent approximately $97 million through September 30,
2000, of which $60 million related to severance and other employee separation
costs. The Company expects to spend an additional $19 million through the end of
2001, principally related to severance for workforce reductions and lease
obligations for exited facilities. As a result of actions taken through
September 30, 2000, the workforce has been reduced by approximately 2,700
employees.
The special charges are reflected in the consolidated statement of
operations for the year ended September 30, 1998, in cost of sales and selling,
general and administrative expenses in the amounts of $455 million and $142
million, respectively.
Revenues and results of operations of businesses and product lines which
have been exited were not material.
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
2000 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH 2000
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales..................................... $1,660 $1,784 $1,820 $1,887 $7,151
Cost of sales............................. 1,123 1,227 1,255 1,311 4,916
Net income................................ 157 164 170 145 636
Earnings per share:
Basic................................... 0.83 0.87 0.91 0.79 3.38
Diluted................................. 0.81 0.85 0.90 0.78 3.35
</TABLE>
Net income for 2000 includes: (a) a net gain of $18 million ($12 million
after tax, or six cents per diluted share) resulting from the sale of real
estate in the second quarter which was partially offset by a loss on sale of a
business and (b) a gain of $28 million ($19 million after tax, or 10 cents per
diluted share) resulting from the demutualization of Metropolitan Life Insurance
Company in the third quarter.
<TABLE>
<CAPTION>
1999 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH 1999
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales..................................... $1,608 $1,701 $1,808 $1,926 $7,043
Cost of sales............................. 1,135 1,183 1,245 1,352 4,915
Income from continuing operations......... 134 143 150 152 579
Net income................................ 114 143 150 152 559
Basic earnings per share:
Continuing operations................... 0.71 0.75 0.79 0.80 3.05
Net income.............................. 0.60 0.75 0.79 0.80 2.94
Diluted earnings per share:
Continuing operations................... 0.70 0.74 0.77 0.78 3.00
Net income.............................. 0.59 0.74 0.77 0.78 2.89
</TABLE>
Net income for 1999 includes: (a) a gain of $36 million ($24 million after
tax, or 12 cents per diluted share) on the sale of the Company's railroad
electronics business in the first quarter, (b) a gain of $28 million ($18
million after tax, or nine cents per diluted share) on the sale of the Company's
North American Transformer business in the fourth quarter, and (c) a loss of $29
million ($19 million after tax, or 10 cents per diluted share) associated with
the write-off in the fourth quarter of the Company's investment in Goss
preferred stock, which the Company received in connection with the sale of its
graphic systems business in October 1996.
During 2000, the Company changed its method of determining the cost of
certain inventories from the LIFO method to the FIFO method. The change to the
FIFO method has been applied by retroactively restating the consolidated
financial statements. The effect of this change was to increase cost of sales by
$8 million for the fourth quarter and full year 1999 and decrease net income by
$3 million, or two cents per diluted share, for the fourth quarter and $3
million, or one cent per diluted share, for the full year.
Per share information is calculated for each quarterly and annual period
using average outstanding shares for that period. Therefore, the sum of the
quarterly per share amounts will not necessarily equal the annual per share
amounts presented.
42
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of
Rockwell International Corporation:
We have audited the accompanying consolidated balance sheet of Rockwell
International Corporation and subsidiaries as of September 30, 2000 and 1999,
and the related consolidated statements of operations, shareowners' equity, cash
flows, and comprehensive income (loss) for each of the three years in the period
ended September 30, 2000. Our audits also included the financial statement
schedule listed at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rockwell International
Corporation and subsidiaries at September 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2000
the Company changed its method of determining the cost of certain inventories
from the last-in, first-out method to the first-in, first-out method and,
retroactively, restated the 1999 and 1998 financial statements for the change.
In 1998, the Company changed its method of accounting for certain inventoriable
general and administrative costs related to government contracts.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 1, 2000
43
<PAGE> 45
See also the table under the caption Summary of Results of Operations in
the MD&A on page 12 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
See the information under the captions ELECTION OF DIRECTORS and
INFORMATION AS TO NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS on pages 4-7
of the 2001 Proxy Statement.
No nominee for director was selected pursuant to any arrangement or
understanding between the nominee and any person other than the Company pursuant
to which such person is or was to be selected as a director or nominee. See also
the information with respect to executive officers of the Company under Item 4a
of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the information under the captions EXECUTIVE COMPENSATION, OPTION
GRANTS and AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES on pages 11-13
and RETIREMENT PLANS on page 17 of the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information under the captions VOTING SECURITIES and OWNERSHIP BY
MANAGEMENT OF EQUITY SECURITIES on pages 3 and 10, respectively, of the 2001
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information under the caption BOARD OF DIRECTORS AND COMMITTEES on
pages 7-9 of the 2001 Proxy Statement.
44
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedule and Exhibits.
(1) Financial Statements (all financial statements listed below are
those of the Company and its consolidated subsidiaries).
Consolidated Balance Sheet, September 30, 2000 and 1999.
Consolidated Statement of Operations, years ended September 30,
2000, 1999 and 1998.
Consolidated Statement of Cash Flows, years ended September 30,
2000, 1999 and 1998.
Consolidated Statement of Shareowners' Equity, years ended September
30, 2000, 1999 and 1998.
Consolidated Statement of Comprehensive Income (Loss), years ended
September 30, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2000,
1999 and 1998.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II--Valuation and Qualifying Accounts.............. S-1
</TABLE>
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information
called for is shown in the consolidated financial statements or notes
thereto.
(3) Exhibits.
<TABLE>
<S> <C>
3-a-1 Restated Certificate of Incorporation of the Company, as
amended, filed as Exhibit 3-a-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1996,
is hereby incorporated by reference.
3-b-1 By-Laws of the Company, filed as Exhibit 3-b-2 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1998, are hereby incorporated by reference.
4-a-1 Rights Agreement, dated as of November 30, 1996, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, filed as Exhibit 4-c to Registration Statement
No. 333-17031, is hereby incorporated by reference.
4-b-1 Indenture dated as of April 1, 1993 between Reliance
Electric Company and Bankers Trust Company, as Trustee,
pursuant to which the 6.8% Notes of Reliance Electric
Company due April 15, 2003 have been issued, filed as
Exhibit 4.7 to Registration Statement No. 33-60066, is
hereby incorporated by reference.
4-b-2 First Supplemental Indenture dated April 14, 1993 to the
Indenture listed as Exhibit 4-b-1 above, filed as Exhibit
4.1 to Current Report on Form 8-K of Reliance Electric
Company dated April 19, 1993, is hereby incorporated by
reference.
4-b-3 Form of the 6.8% Notes of Reliance Electric Company due
April 15, 2003, filed as Exhibit 4-8 to Registration
Statement No. 33-60066, is hereby incorporated by reference.
4-c-1 Indenture dated as of December 1, 1996 between the Company
and The Chase Manhattan Bank (successor to Mellon Bank,
N.A.), as Trustee, filed as Exhibit 4-a to Registration
Statement No. 333-43071, is hereby incorporated by
reference.
</TABLE>
45
<PAGE> 47
<TABLE>
<S> <C>
4-c-2 Form of certificate for the Company's 6.15% Notes due
January 15, 2008, filed as Exhibit 4-a to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
4-c-3 Form of certificate for the Company's 6.70% Debentures due
January 15, 2028, filed as Exhibit 4-b to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
4-c-4 Form of certificate for the Company's 5.20% Debentures due
January 15, 2098, filed as Exhibit 4-c to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
*10-a-1 Copy of the Company's 1988 Long-Term Incentives Plan, as
amended through November 30, 1994, filed as Exhibit 10-d-1
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1994 (File No. 1-1035), is hereby
incorporated by reference.
*10-a-2 Copy of resolution of the Board of Directors of the Company,
adopted November 6, 1996, amending the Company's 1988
Long-Term Incentives Plan, filed as Exhibit 4-g-1 to
Registration Statement No. 333-17055, is hereby incorporated
by reference.
*10-a-3 Copy of resolution of the Board of Directors of the Company,
adopted November 5, 1997, increasing the number of shares
authorized for issuance under the Company's 1988 Long-Term
Incentives Plan, filed as Exhibit 10-b-2 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1997, is hereby incorporated by reference.
*10-a-4 Forms of Stock Option Agreements under the Company's 1988
Long-Term Incentives Plan for options granted prior to May
1, 1992, filed as Exhibit 10-d-2 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1988
(File No. 1-1035), are hereby incorporated by reference.
*10-a-5 Forms of Stock Option and Stock Appreciation Rights
Agreements under the Company's 1988 Long-Term Incentives
Plan for options and stock appreciation rights granted prior
to May 1, 1992, filed as Exhibit 10-d-3 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1988 (File No. 1-1035), are hereby incorporated by
reference.
*10-a-6 Form of Stock Option Agreement under the Company's 1988
Long-Term Incentives Plan for options granted after May 1,
1992 and prior to March 1, 1993, filed as Exhibit 28-a-1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992 (File No. 1-1035), is hereby
incorporated by reference.
*10-a-7 Forms of Stock Option Agreements under the Company's 1988
Long-Term Incentives Plan for options granted after March 1,
1993 and prior to November 1, 1993, filed as Exhibit 28-a to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993 (File No. 1-1035), are hereby
incorporated by reference.
*10-a-8 Forms of Stock Option Agreements under the Company's 1988
Long-Term Incentives Plan for options granted after November
1, 1993 and prior to December 1, 1994, filed as Exhibit
10-d-6 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1993 (File No. 1-1035), are hereby
incorporated by reference.
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
46
<PAGE> 48
<TABLE>
<S> <C>
*10-a-9 Forms of Stock Option Agreements under the Company's 1988
Long-Term Incentives Plan for options granted after December
1, 1994, filed as Exhibit 10-d-7 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994
(File No. 1-1035), are hereby incorporated by reference.
*10-b-1 Copy of the Company's 1995 Long-Term Incentives Plan, as
amended, filed as Exhibit 10-b-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998,
is hereby incorporated by reference.
*10-b-2 Forms of Stock Option Agreements under the Company's 1995
Long-Term Incentives Plan for options granted prior to
December 3, 1997, filed as Exhibit 10-e-2 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1994 (File No. 1-1035), are hereby incorporated by
reference.
*10-b-3 Forms of Stock Option Agreements under the Company's 1995
Long-Term Incentives Plan for options granted between
December 3, 1997 and August 31, 1998, filed as Exhibit
10-b-3 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, is hereby incorporated by
reference.
*10-b-4 Form of Stock Option Agreement under the Company's 1995
Long-Term Incentives Plan for options granted on April 23,
1998, filed as Exhibit 10-b-4 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1998, is
hereby incorporated by reference.
*10-b-5 Form of Stock Option Agreement under the Company's 1995
Long-Term Incentives Plan for options granted after August
31, 1998, filed as Exhibit 10-b-5 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998,
is hereby incorporated by reference.
*10-b-6 Form of Restricted Stock Agreement under the Company's 1995
Long-Term Incentives Plan, filed as Exhibit 10-e to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by
reference.
*10-b-7 Copy of Restricted Stock Agreement dated December 3, 1997
between the Company and Don H. Davis, Jr., filed as Exhibit
10-c-5 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1997, is hereby incorporated by
reference.
*10-c-1 Copy of the Company's Directors Stock Plan, as amended
February 2, 2000, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, is hereby incorporated by reference.
*10-c-2 Form of Stock Option Agreement under the Company's Directors
Stock Plan, filed as Exhibit 10-d to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996
(File No. 1-1035), is hereby incorporated by reference.
*10-c-3 Forms of Restricted Stock Agreements under the Company's
Directors Stock Plan between the Company and each of George
L. Argyros, William H. Gray, III, William T. McCormick, Jr.,
John D. Nichols and Joseph F. Toot, Jr., filed as Exhibit
10-f to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, are hereby incorporated by
reference.
*10-c-4 Form of Stock Option Agreement under the Directors Stock
Plan for options granted after February 2, 2000.
*10-c-5 Form of Restricted Stock Agreement under the Directors Stock
Plan for restricted stock granted after February 2, 2000.
*10-c-6 Form of Restricted Stock Agreement for payment of portion of
annual retainer for Board service by issuance of shares of
restricted stock.
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
47
<PAGE> 49
<TABLE>
<S> <C>
*10-d-1 Copy of resolution of the Board of Directors of the Company,
adopted November 6, 1996, adjusting outstanding awards under
the Company's (i) 1988 Long-Term Incentives Plan, (ii) 1995
Long-Term Incentives Plan and (iii) Directors Stock Plan,
filed as Exhibit 4-g-2 to Registration Statement No.
333-17055, is hereby incorporated by reference.
*10-d-2 Copy of resolution of the Board of Directors of the Company,
adopted September 3, 1997, adjusting outstanding awards
under the Company's (i) 1988 Long-Term Incentives Plan, (ii)
1995 Long-Term Incentives Plan and (iii) Directors Stock
Plan, filed as Exhibit 10-e-3 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1997, is
hereby incorporated by reference.
*10-d-3 Memorandum of Adjustments to Outstanding Options Under
Rockwell International Corporation's 1988 Long-Term
Incentives Plan, 1995 Long-Term Incentives Plan and
Directors Stock Plan approved and adopted by the Board of
Directors of the Company in connection with the spin-off of
Conexant, filed as Exhibit 10-d-3 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1999,
is hereby incorporated by reference.
*10-e-1 Copy of the Company's 2000 Long-Term Incentives Plan, filed
as Exhibit A to the Proxy Statement for the Company's 2000
Annual Meeting, is hereby incorporated by reference.
*10-e-2 Forms of Stock Option Agreements under the Company's 2000
Long-Term Incentives Plan.
*10-e-3 Form of Restricted Stock Agreement under the Company's 2000
Long-Term Incentives Plan, filed as Exhibit 4-d-3 to
Registration Statement No. 333-38444, is hereby incorporated
by reference.
*10-f-1 Copy of the Company's Incentive Compensation Plan, amended
and restated as of July 1, 1997, filed as Exhibit 10-f-1 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1997, is hereby incorporated by reference.
*10-g-1 Copy of the Company's Deferred Compensation Plan, as amended
effective as of October 1, 1992, filed as Exhibit 10-g-1 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1993 (File No. 1-1035), is hereby incorporated
by reference.
*10-g-2 Copy of the Company's Deferred Compensation Plan, amended
and restated as of June 1, 2000, filed as Exhibit 4-d to
Registration Statement No. 333-34826, is hereby incorporated
by reference.
*10-h-1 Copy of resolution of the Board of Directors of the Company,
adopted November 6, 1996, authorizing the assignment of
certain compensation and employee benefit plans to New
Rockwell International Corporation, including the Company's
(i) 1988 Long-Term Incentives Plan, (ii) 1995 Long-Term
Incentives Plan, (iii) Directors Stock Plan, (iv) Incentive
Compensation Plan, (v) Deferred Compensation Plan and (vi)
Annual Incentive Compensation Plan for Senior Executive
Officers, filed as Exhibit 4-g-3 to Registration Statement
No. 333-17055, is hereby incorporated by reference.
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
48
<PAGE> 50
<TABLE>
<S> <C>
*10-h-2 Copy of resolution of the Board of Directors of New Rockwell
International Corporation, adopted December 4, 1996,
assuming and adopting the Company's (i) 1988 Long-Term
Incentives Plan, (ii) 1995 Long-Term Incentives Plan, (iii)
Directors Stock Plan, (iv) Incentive Compensation Plan, (v)
Deferred Compensation Plan and (vi) Annual Incentive
Compensation Plan for Senior Executive Officers, filed as
Exhibit 10-h-2 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1996, is hereby
incorporated by reference.
*10-i-1 Copy of resolutions of the Board of Directors of the
Company, adopted November 3, 1993, providing for the
Company's Deferred Compensation Policy for Non-Employee
Directors, filed as Exhibit 10-h-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994
(File No. 1-1035), is hereby incorporated by reference.
*10-i-2 Copy of resolutions of the Compensation Committee of the
Board of Directors of the Company, adopted July 6, 1994,
modifying the Company's Deferred Compensation Policy for
Non-Employee Directors, filed as Exhibit 10-h-2 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1994 (File No. 1-1035), is hereby incorporated
by reference.
*10-i-3 Copy of resolutions of the Board of Directors of New
Rockwell International Corporation, adopted December 4,
1996, providing for its Deferred Compensation Policy for
Non-Employee Directors, filed as Exhibit 10-i-3 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is hereby incorporated by reference.
*10-j-1 Copy of resolutions of the Board of Directors of the
Company, adopted November 2, 1994, providing for the
Company's Retirement Policy for Non-Employee Directors,
filed as Exhibit 10-j-1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994 (File No.
1-1035), is hereby incorporated by reference.
*10-j-2 Copy of resolutions of the Board of Directors of the
Company, adopted December 6, 1995, rescinding the Company's
Retirement Policy for Non-Employee Directors (except to the
extent applicable to Directors then age 67 or older and
former Directors then retired), filed as Exhibit 10-j-2 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1995 (File No. 1-1035), is hereby incorporated
by reference.
*10-j-3 Copy of resolution of the Board of Directors of New Rockwell
International Corporation, adopted December 4, 1996,
assuming and adopting the Company's Retirement Policy for
Non-Employee Directors (applicable to Directors of the
Company who were age 67 or older on December 6, 1995 and
former Directors then retired), filed as Exhibit 10-j-3 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is hereby incorporated by reference.
*10-k-1 Copy of the Company's Annual Incentive Compensation Plan for
Senior Executive Officers, filed as Exhibit A to the
Company's Proxy Statement for its 1996 Annual Meeting of
Shareowners (File No. 1-1035), is hereby incorporated by
reference.
*10-l-1 Restricted Stock Agreement dated December 6, 1995 between
the Company and Don H. Davis, Jr., filed as Exhibit 10-l-1
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1995 (File No. 1-1035), is hereby
incorporated by reference.
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
49
<PAGE> 51
<TABLE>
<S> <C>
*10-m-1 Consulting Agreement dated September 30, 1999 between the
Company and Donald R. Beall, filed as Exhibit 10-1-2 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1999, is hereby incorporated by reference.
*10-m-2 Consulting Agreement dated September 6, 2000 between the
Company and Donald R. Beall.
*10-n-1 Form of Change of Control Agreements between the Company and
each of D.H. Davis, Jr., W.M. Barnes, W.J. Calise, Jr., J.D.
Cohn, C.M. Jones, K.D. Nosbusch, J.R. Stone and J.D. Swann,
filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, is hereby
incorporated by reference.
*10-n-2 Form of Change of Control Agreements between the Company and
certain other officers of the Company, filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, is hereby incorporated by
reference.
*10-n-3 Agreement and General Release dated as of March 2, 1999,
with E.S. Washington, filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, is hereby incorporated by reference.
10-o-1 Agreement and Plan of Distribution dated as of December 6,
1996, among Rockwell International Corporation (renamed
Boeing North American, Inc.), the Company (formerly named
New Rockwell International Corporation), Allen-Bradley Com-
pany, Inc., Rockwell Collins, Inc., Rockwell Semiconductor
Systems, Inc., Rockwell Light Vehicle Systems, Inc. and
Rockwell Heavy Vehicle Systems, Inc., filed as Exhibit 10-b
to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, is hereby incorporated by
reference.
10-o-2 Post-Closing Covenants Agreement dated as of December 6,
1996, among Rockwell International Corporation (renamed
Boeing North American, Inc.), The Boeing Company, Boeing NA,
Inc. and the Company (formerly named New Rockwell
International Corporation), filed as Exhibit 10-c to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by
reference.
10-o-3 Tax Allocation Agreement dated as of December 6, 1996, among
Rockwell International Corporation (renamed Boeing North
American, Inc.), the Company (formerly named New Rockwell
International Corporation) and The Boeing Company, filed as
Exhibit 10-d to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, is hereby
incorporated by reference.
10-p-1 Distribution Agreement dated as of September 30, 1997 by and
between the Company and Meritor Automotive, Inc., filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
50
<PAGE> 52
<TABLE>
<S> <C>
10-p-2 Employee Matters Agreement dated as of September 30, 1997 by
and between the Company and Meritor Automotive, Inc., filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
10-p-3 Tax Allocation Agreement dated as of September 30, 1997 by
and between the Company and Meritor Automotive, Inc., filed
as Exhibit 2.3 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
10-q-1 Distribution Agreement dated as of December 31, 1998 by and
between the Company and Conexant Systems, Inc., filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated January 12, 1999, is hereby incorporated by reference.
10-q-2 Amended and Restated Employee Matters Agreement dated as of
December 31, 1998 by and between the Company and Conexant
Systems, Inc., filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K dated January 12, 1999, is hereby
incorporated by reference.
10-q-3 Tax Allocation Agreement dated as of December 31, 1998 by
and between the Company and Conexant Systems, Inc., filed as
Exhibit 2.3 to the Company's Current Report on Form 8-K
dated January 12, 1999, is hereby incorporated by reference.
12 Computation of Ratio of Earnings to Fixed Charges for the
Five Years Ended September 30, 2000.
18 Letter regarding Change in Accounting Principle.
21 List of Subsidiaries of the Company.
23 Independent Auditors' Consent.
24 Powers of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors
and officers of the Company.
27 Financial Data Schedule for this Annual Report on Form 10-K.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
---------------
* Management contract or compensatory plan or arrangement.
51
<PAGE> 53
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ROCKWELL INTERNATIONAL CORPORATION
By /s/ WILLIAM J. CALISE, JR.
------------------------------------
WILLIAM J. CALISE, JR.
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
Dated: November 22, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON THE 22ND DAY OF NOVEMBER 2000 BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
DON H. DAVIS, JR.*
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
BETTY C. ALEWINE*
DIRECTOR
GEORGE L. ARGYROS*
DIRECTOR
DONALD R. BEALL*
DIRECTOR
J. MICHAEL COOK*
DIRECTOR
WILLIAM H. GRAY, III*
DIRECTOR
WILLIAM T. MCCORMICK, JR.*
DIRECTOR
JOHN D. NICHOLS*
DIRECTOR
BRUCE M. ROCKWELL*
DIRECTOR
ROBERT B. SHAPIRO*
DIRECTOR
JOSEPH F. TOOT, JR.*
DIRECTOR
W. MICHAEL BARNES*
SENIOR VICE PRESIDENT, FINANCE & PLANNING
AND
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
WILLIAM E. SANDERS*
VICE PRESIDENT & CONTROLLER (PRINCIPAL
ACCOUNTING OFFICER)
*By /s/ WILLIAM J. CALISE, JR.
---------------------------------
WILLIAM J. CALISE, JR.,
ATTORNEY-IN-FACT**
** BY AUTHORITY OF POWERS OF ATTORNEY FILED HEREWITH.
52
<PAGE> 54
SCHEDULE II
ROCKWELL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING NET CHARGE TO BALANCE AT
OF COSTS AND END OF
DESCRIPTION YEAR(a) EXPENSES DEDUCTIONS YEAR(a)
----------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended September 30, 2000
Allowance for doubtful accounts............. $60 $12 $21(b) $52
(1)(c)
Year ended September 30, 1999
Allowance for doubtful accounts............. 55 16 12(b) 60
(1)(c)
Year ended September 30, 1998
Allowance for doubtful accounts............. 56 7 8(b) 55
</TABLE>
---------------
(a) Includes allowances for commercial and other long-term receivables.
(b) Uncollectible accounts written off.
(c) Consists principally of amounts relating to businesses acquired, businesses
sold and foreign currency translation adjustments.
S-1
