<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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Commission file number 1-12383
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Rockwell International Corporation
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(Exact name of registrant as specified in its charter)
Delaware 25-1797617
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
777 East Wisconsin Avenue, Suite 1400, Milwaukee, Wisconsin 53202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (414) 212-5299
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(Office of the Corporate Secretary)
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
----- -----
185,107,184 shares of registrant's Common Stock, $1.00 par value, were
outstanding on July 31, 2000.
<PAGE> 2
ROCKWELL INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
No.
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheet--
June 30, 2000 and September 30, 1999........... 2
Consolidated Statement of Operations--
Three Months and Nine Months Ended
June 30, 2000 and 1999......................... 3
Consolidated Statement of Cash Flows--
Nine Months Ended June 30, 2000 and 1999....... 4
Notes to Consolidated Financial Statements..... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.............................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 11
Item 2. Changes in Securities and Use of Proceeds...... 11
Item 5. Other Information.............................. 11
Item 6. Exhibits and Reports on Form 8-K............... 12
Signatures......................................................... 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
June 30 September 30
2000 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash................................................... $ 224 $ 356
Receivables, net....................................... 1,233 1,294
Inventories, net....................................... 1,388 1,339
Deferred income taxes.................................. 295 364
Other current assets................................... 126 229
-------- -------
Total current assets........................... 3,266 3,582
Property (net of accumulated depreciation:
June 30, 2000, $1,629; September 30, 1999, $1,508)..... 1,550 1,581
Intangible assets (net of accumulated amortization:
June 30, 2000, $573; September 30, 1999, $514)......... 1,395 1,390
Other assets.............................................. 151 151
-------- -------
TOTAL............................ $ 6,362 $ 6,704
======== =======
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Short-term debt........................................ $ 23 $ 189
Accounts payable....................................... 729 843
Compensation and benefits.............................. 380 469
Income taxes payable................................... 131 91
Other current liabilities.............................. 478 516
-------- -------
Total current liabilities...................... 1,741 2,108
Long-term debt............................................ 910 911
Retirement benefits....................................... 635 653
Other liabilities......................................... 352 395
Shareowners' equity:
Common Stock (shares issued: 216.4).................... 216 216
Additional paid-in capital............................. 964 960
Retained earnings...................................... 3,316 3,034
Accumulated other comprehensive loss................... (164) (153)
Common Stock in treasury, at cost (shares held:
June 30, 2000, 30.1; September 30, 1999, 25.5)....... (1,608) (1,420)
-------- -------
Total shareowners' equity............. 2,724 2,637
-------- -------
TOTAL............................ $ 6,362 $ 6,704
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE> 4
ROCKWELL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------ -----------------
2000 1999 2000 1999
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales....................................... $ 1,820 $ 1,808 $ 5,264 $ 5,117
Other income, net........................... 32 21 72 92
------- ------- ------- -------
Total revenues............................ 1,852 1,829 5,336 5,209
------- ------- ------- -------
Costs and expenses:
Cost of sales............................... 1,255 1,245 3,605 3,563
Selling, general, and administrative........ 327 330 948 919
Interest.................................... 18 21 55 64
------- ------- ------- -------
Total costs and expenses.................. 1,600 1,596 4,608 4,546
------- -------- ------- -------
Income from continuing operations before
income taxes................................ 252 233 728 663
Income tax provision.......................... (82) (83) (237) (236)
------- ------- ------- ------
Income from continuing operations............. 170 150 491 427
Loss from discontinued operations............. - - - (20)
------- ------- ------- -------
Net income.................................... $ 170 $ 150 $ 491 $ 407
======= ======= ======= =======
Basic earnings per share:
Continuing operations ...................... $ 0.91 $ 0.79 $ 2.60 $ 2.25
Discontinued operations..................... - - - (0.11)
------- ------- ------- -------
Net income.................................. $ 0.91 $ 0.79 $ 2.60 $ 2.14
======= ======= ======= =======
Diluted earnings per share:
Continuing operations....................... $ 0.90 $ 0.77 $ 2.56 $ 2.21
Discontinued operations..................... - - - (0.10)
------- ------- ------- -------
Net income.................................. $ 0.90 $ 0.77 $ 2.56 $ 2.11
======= ======= ======= =======
Cash dividends per share (see note 1)......... $ 0.51 $ 0.255 $ 1.02 $ 1.02
======= ======= ======= =======
Weighted average outstanding shares:
Basic....................................... 187.2 190.8 188.9 190.2
======= ======= ======= =======
Diluted (includes effect of stock options).. 189.0 194.5 191.3 193.2
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE> 5
ROCKWELL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
-----------------
2000 1999
------- --------
<S> <C> <C>
Continuing Operations:
Operating Activities:
Income from continuing operations............................. $ 491 $ 427
Adjustments to arrive at cash provided by
operating activities:
Depreciation.............................................. 204 189
Amortization of intangible assets......................... 67 47
Net gain on dispositions of property and businesses....... (18) (31)
Changes in assets and liabilities, excluding
effects of acquisitions and divestitures:
Receivables........................................... 66 75
Inventories........................................... (47) (75)
Accounts payable...................................... (117) (50)
Income taxes payable.................................. 186 65
Compensation and benefits............................. (88) (113)
Other assets and liabilities.......................... (136) (11)
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Cash Provided by Operating Activities............... 608 523
------- ------
Investing Activities:
Property additions............................................ (207) (241)
Acquisitions of businesses, net of cash acquired.............. (76) (217)
Proceeds from dispositions of property and businesses......... 58 107
------- ------
Cash Used for Investing Activities.................. (225) (351)
------- ------
Financing Activities:
Net decrease in debt.......................................... (167) (24)
Purchases of treasury stock................................... (218) (111)
Cash dividends................................................ (145) (146)
Proceeds from the exercise of stock options................... 15 115
------- ------
Cash Used for Financing Activities.................. (515) (166)
------- ------
Cash (Used for) Provided by Continuing Operations............. (132) 6
------- -----
Cash Used for Discontinued Operations......................... - (47)
------- ------
Decrease in Cash.............................................. (132) (41)
Cash at Beginning of Period................................... 356 103
------- ------
Cash at End of Period......................................... $ 224 $ 62
======= ======
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE> 6
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management of Rockwell International Corporation (the
Company or Rockwell), the unaudited consolidated financial statements
contain all adjustments, consisting solely of adjustments of a normal
recurring nature, necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented. These
statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1999. The
results of operations for the three- and nine-month periods ended June
30, 2000 are not necessarily indicative of the results for the full
year. Certain prior year amounts have been reclassified to conform with
the current presentation.
It is the Company's practice at the end of each interim reporting period
to make an estimate of the effective tax rate expected to be applicable
for the full fiscal year. The rate so determined is used in providing
for income taxes on a year-to-date basis.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 will require
the Company to record all derivatives on the balance sheet at fair
value. Derivatives that are not hedges will be adjusted to fair value
through earnings. For derivatives that are hedges, depending on the
nature of the hedge, changes in fair value will be 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 will be immediately recognized in
earnings. In June 1999, the Financial Accounting Standards Board delayed
the effective date of SFAS 133 to fiscal year 2001, but early adoption
is permitted. When adopted, the Company believes the effect of this
standard will not be significant to its results of operations or equity.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
(SAB 101). The Company is in the process of evaluating the effect of SAB
101 but believes it will not be significant to its financial position,
results of operations or equity when adopted at the beginning of fiscal
year 2001.
During the 2000 third quarter, the Company declared a dividend of $0.255
per share payable June 5, 2000 to shareowners of record on May 15, 2000
and also declared its fourth quarter dividend of $0.255 per share
payable September 5, 2000 to shareowners of record on August 14, 2000.
During the 1999 third quarter, the Company declared its fourth quarter
dividend of $0.255 per share payable September 7, 1999.
2. Discontinued operations relate to the Company's former Semiconductor
Systems business (Semiconductor Systems) which was spun off on December
31, 1998 into an independent, separately traded, publicly-held company
by distributing all of the outstanding shares of Conexant Systems, Inc.
to the Company's shareowners. The revenues and net loss of Semiconductor
Systems for the three months ended December 31, 1998 were $289 million
and $20 million, respectively.
3. Inventories, net of reserves, are summarized as follows (in millions):
<TABLE>
<CAPTION>
June 30 September 30
2000 1999
-------- -------------
<S> <C> <C>
Finished goods..................................... $ 444 $ 415
Work in process.................................... 441 457
Raw materials, parts, and supplies................. 485 446
------- -------
Total............................................ 1,370 1,318
Adjustment to the carrying value of
certain inventories to a LIFO basis.............. 18 21
------- -------
Inventories, net................................. $ 1,388 $ 1,339
======= =======
</TABLE>
-5-
<PAGE> 7
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. The reconciliation of net income to comprehensive income is as follows
(in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net income............................ $ 170 $ 150 $ 491 $ 407
Other comprehensive loss:
Net foreign currency translation
adjustment......................... 1 (2) (11) (18)
------- ------- ------ -------
Comprehensive income.................. $ 171 $ 148 $ 480 $ 389
======= ======= ====== =======
</TABLE>
5. In March 2000, the Automation segment acquired Entek IRD International
Corporation, a leader in 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. These acquisitions were accounted for as purchases.
Assets acquired and liabilities assumed have been recorded at estimated
fair values determined by the Company's management based on information
currently available. The results of these businesses have been included
in the consolidated statement of operations since the date 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.
6. The Company recorded charges of $597 million 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 complete at December 31, 1999.
Total cash expenditures in connection with these actions will
approximate $140 million. The Company spent approximately $95 million
through June 30, 2000, of which $57 million related to severance and
other employee separation costs, and expects to spend an additional $31
million through June 2001. The remaining cash expenditures relate to
employee separation costs and lease obligations for vacant facilities.
Through June 30, 2000, the workforce has been reduced by approximately
2,700 employees.
Revenues and results of operations of businesses and product lines which
have been exited were not material for the three- or nine-month periods
ended June 30, 2000.
7. 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, environmental and employment matters. Rockwell has
indemnified The Boeing Company for certain government contract and
environmental matters related to operations of its former aerospace and
defense business for periods prior to its divestiture in fiscal 1997.
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 consolidated financial statements.
-6-
<PAGE> 8
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. In February 2000, the Company entered into an interest rate swap
contract 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. The effective rate the Company will pay through
October 16, 2000 is 5.42%. The Company entered into this contract to
achieve a more balanced mix of fixed and floating rate debt. The Company
accounts for interest rate swap contracts by accruing the underlying
payments and receipts as an adjustment to interest expense on the
underlying notes payable.
9. The sales and results of operations of the Company's reportable segments
are summarized as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------- ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales
Automation.................... $ 1,142 $ 1,134 $ 3,297 $ 3,258
Avionics & Communications..... 631 619 1,807 1,696
Other Businesses.............. 47 55 160 163
------- ------- ------- ------
Total....................... $ 1,820 $ 1,808 $ 5,264 $ 5,117
======= ======= ======= =======
Segment operating earnings
Automation.................... $ 161 $ 174 $ 505 $ 495
Avionics & Communications..... 118 109 324 295
Other Businesses.............. (1) 6 10 30
------- ------- ------- -------
Total....................... 278 289 839 820
Goodwill amortization........... (14) (11) (38) (30)
General corporate - net......... 6 (24) (4) (99)
(Loss) gain on disposition of
businesses.................... - - (14) 36
Interest expense................ (18) (21) (55) (64)
Provision for income taxes...... (82) (83) (237) (236)
------- ------- ------- -------
Income from continuing
operations.................... 170 150 491 427
Loss from discontinued
operations.................... - - - (20)
------- ------- ------- -------
Net income...................... $ 170 $ 150 $ 491 $ 407
======= ======= ======= =======
</TABLE>
Effective April 1, 2000, management changed its method of evaluating
segment performance by excluding goodwill amortization and earnings and
losses from equity affiliates from segment operating earnings.
Management believes the exclusion of these items provides additional
insight to the operating performance of the segments. Prior period
amounts have been reclassified to conform with the current presentation.
The loss on disposition of a business in 2000 relates to the sale of an
Automation business. The gain on disposition of a business in 1999
relates to the sale of an Avionics & Communications business.
-7-
<PAGE> 9
ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
2000 Third Quarter Compared to 1999 Third Quarter
Sales in the 2000 third quarter of $1.8 billion were slightly higher than the
same period a year ago. Income from continuing operations for the 2000 third
quarter was $170 million, or 90 cents per diluted share, compared to income from
continuing operations of $150 million, or 77 cents per diluted share, for the
third quarter of 1999. Earnings per diluted share were up 17 percent over the
prior year primarily due to continued strong profitability at each of the core
businesses, a lower effective income tax rate and lower weighted average
outstanding shares.
Automation
Automation's sales of $1.1 billion increased from last year's third quarter
primarily due to increased shipments in Europe, Asia Pacific and Canada which
more than offset sluggish markets in the United States and the adverse effect of
currency rate fluctuations. Automation's growing software and services business
posted a 15 percent sales increase over last year's third quarter and the
standard components and power systems businesses also achieved sales growth in
the 2000 third quarter. Third quarter operating earnings of $161 million were
$13 million less than last year's third quarter primarily due to approximately
$15 million of charges associated with ongoing process improvement and
productivity initiatives including the rationalization of certain drive systems
manufacturing operations and consolidations of European marketing, logistics and
warehousing operations. Third quarter 2000 operating earnings were adversely
effected by approximately $10 million of foreign currency translation losses
primarily associated with the euro exchange rate. Automation's return on sales
was 15.4 percent (excluding the $15 million charge) compared to 15.3 percent for
last year's third quarter.
Avionics & Communications
Avionics & Communications sales increased $12 million over the same period a
year ago to $631 million, with a 29 percent sales increase at business and
regional systems and a 21 percent sales increase at aviation services more than
offsetting a seven percent sales decline due to expected lower volume at the air
transport systems business. Third quarter operating earnings of $118 million
were up eight percent from 1999 due to higher volume at the business and
regional systems business and improved operating performance at the passenger
systems business. Avionics & Communications' return on sales was 18.7 percent in
the 2000 third quarter compared to 17.6 percent for the same period a year ago.
Other Businesses
Sales at Rockwell Electronic Commerce and Rockwell Science Center of $47 million
were down $8 million in the third quarter of 2000 and operating earnings
decreased $7 million due to lower volume, higher international marketing costs,
and lower royalty income.
General corporate - net in the third quarter of 2000 was lower than the same
period a year ago primarily due to a $28 million gain resulting from the
demutualization of Metropolitan Life Insurance Company which was partially
offset by $5 million of equity losses related to SourceAlliance.com.
The third quarter 2000 effective income tax rate of 32.5 percent was lower than
1999's third quarter rate of 35.6 percent. 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 large foreign tax credit carryforwards,
lower state income tax rates, and lower taxes associated with our growing
international business due to the rationalization of our European distribution,
warehousing and customer support operations.
-8-
<PAGE> 10
ROCKWELL INTERNATIONAL CORPORATION
Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999
Overall, sales were three percent higher in 2000 compared to sales in the same
period a year ago. Income from continuing operations for the first nine months
of 2000 was $491 million, or $2.56 per diluted share, compared to $427 million,
or $2.21 per diluted share, for the first nine months of 1999. Earnings per
diluted share were up 16 percent primarily due to higher sales volume, continued
strong performance at each of the core businesses, a lower effective income tax
rate and lower weighted average outstanding shares.
Automation
Automation's sales increased $39 million primarily due to increases at the
software, industrial services and integrated platforms businesses. Automation's
operating earnings for the first nine months of 2000 of $505 million were two
percent higher than for the same period a year ago. The benefits of
manufacturing process improvements, material cost reductions from the Company's
Strategic Sourcing Initiative and higher control systems volume more than offset
investments in new product development, SourceAlliance.com launch costs and the
$15 million charge in the 2000 third quarter. Automation's return on sales
increased to 15.3 percent from 15.2 percent a year ago.
Avionics & Communications
Avionics & Communications' sales increased $111 million due to strong increases
posted by the government systems and business and regional systems businesses
which more than offset the decline at the air transport systems business.
Avionics & Communications' operating earnings were $324 million, a ten percent
increase over operating earnings of $295 million for the first nine months of
1999. Avionics & Communications return on sales was 17.9 percent compared to
17.4 percent a year ago.
Other Businesses
Sales at Rockwell Electronic Commerce and Rockwell Science Center decreased to
$160 million from $163 million a year ago. Operating earnings for Other
Businesses were $10 million for the first nine months of 2000 compared to $30
million for the same period a year ago. Operating earnings in 1999 included a
$14 million gain resulting from the resolution of an intellectual property
matter.
General corporate - net for the first nine months of 2000 includes a gain of $32
million on the sale of real estate in the 2000 second quarter and a $28 million
gain resulting from the demutualization of Metropolitan Life Insurance Company
in the 2000 third quarter. General corporate - net for the first nine months of
1999 includes charges associated with relocation of the Company's corporate
office.
The effective income tax rate for the first nine months of 2000 of 32.6 percent
was lower than the 35.6 percent for the same period 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 large foreign tax credit carryforwards,
lower state income tax rates, and lower taxes associated with our growing
international business due to the rationalization of our European distribution,
warehousing and customer support operations.
Based upon the continued strong profitability at each of the core businesses
through the first nine months of 2000 and assuming continuation of current
global business conditions and relatively stable currency rates, management
continues to expect earnings per share ranging from $3.40 to $3.45 for fiscal
2000.
-9-
<PAGE> 11
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION
The major uses of cash for the first nine months of 2000 were $207 million for
property additions, $145 million for cash dividends paid to shareowners, $76
million for acquisitions of businesses and $218 million for the repurchase of
common stock in connection with the Company's stock repurchase programs.
In June 2000, the Board of Directors approved a $250 million stock repurchase
program (the "2000 Repurchase Program") to be utilized upon completion of the
$250 million stock repurchase program approved in 1999 (the "1999 Repurchase
Program"). At June 30, 2000, the Company had approximately $24 million remaining
under the 1999 Repurchase Program and $250 million remaining under the 2000
Repurchase Program.
Future significant uses of cash, which are expected to be funded by cash
generated by operating activities and commercial paper borrowings, are expected
to include property additions, dividends to shareowners, investments in the
In-Flight Network joint venture, acquisitions and the repurchase of common stock
in connection with the Company's stock repurchase programs.
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 on pages 38 and 39 in Note 18 of
the Notes to Consolidated Financial Statements in Item 8, Consolidated Financial
Statements and Supplementary Data of the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1999. Management believes that at June
30, 2000 there has been no material change to this information.
CAUTIONARY STATEMENT
This Quarterly Report may contain statements (including certain projections and
business trends) accompanied by such phrases as "believes", "estimates",
"expects", "could", "likely", "anticipates", 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.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Information with respect to the Company's exposure to interest rate risk and
foreign currency risk is contained in pages 16 and 17 in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1999. Management believes that at June 30, 2000, except as discussed below,
there has been no material change to this information.
In February 2000, the Company entered into an interest rate swap contract 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.
-10-
<PAGE> 12
ROCKWELL INTERNATIONAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 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 l989. On January 14, 2000,
the Kentucky Court of Appeals reversed the lower court's judgment and
directed entry of judgment in Rockwell's favor on all claims as a
matter of law. The plaintiffs have sought discretionary review of the
decision in the state supreme court.
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. In August 1996, the Los Angeles County action was dismissed
voluntarily by the plaintiffs, and 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. 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 defendants' motion for summary judgment.
Trial has been set to commence on November 13, 2000.
Item 2. Changes in Securities and Use of Proceeds
On April 7, 2000, the Company issued 3,000 shares of restricted stock
to J.P. O'Shaughnessy, a corporate officer, and 7,500 shares of
restricted stock to another employee. These shares were issued in
accordance with the Rockwell International Corporation 2000 Long-Term
Incentives Plan as compensation for future services as employees of the
Company. The issuance of these shares was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.
Item 5. Other Information
Government Contracts
For information on the Company's United States government contracting
business, certain risks of that business and claims related thereto,
see the information set forth under the caption Government Contracts in
Item 1, Business, on page 3 of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999.
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<PAGE> 13
ROCKWELL INTERNATIONAL CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
for the Nine Months Ended June 30, 2000.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K during the quarter ended June 30, 2000:
None
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROCKWELL INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
Date: August 11, 2000 By W. E. Sanders
------------------ -----------------------------
W. E. Sanders
Vice President and Controller
(Principal Accounting Officer)
Date: August 11, 2000 By W. J. Calise, Jr.
------------------ -----------------------------
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
