<PAGE>
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 December 31, 1994
Commission file number 1-1035
Rockwell International Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-1054708
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2201 Seal Beach Boulevard, Seal Beach, California 90740-8250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (412) 565-4090
(Office of the 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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
181,263,026 shares of registrant's Common Stock, $1.00 par value, and
35,924,602 shares of registrant's Class A Common Stock, $1.00 par value, were
outstanding on January 31, 1995.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Condensed Consolidated Balance Sheet--
December 31, 1994 and September 30, 1994........ 2
Statement of Consolidated Income--Three Months
Ended December 31, 1994 and 1993................ 3
Statement of Consolidated Cash Flows--
Three Months Ended December 31, 1994 and 1993... 4
Notes to Financial Statements................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 11
Other Financial Information..................... 15
Exhibit 11 - Computation of Earnings Per Share............ 16
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of
Security Holders................................ 17
Item 5. Other Information............................... 18
Item 6. Exhibits and Reports on Form 8-K................ 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
December 31 September 30
1994 1994
(Unaudited)
ASSETS (In millions)
Current assets:
Cash........................................... $ 653.6 $ 628.3
Receivables.................................... 2,264.1 2,267.2
Inventories.................................... 1,931.7 1,532.8
Other current assets........................... 560.8 499.5
Business held for sale......................... 498.0
Total current assets................... 5,908.2 4,927.8
Net property...................................... 2,630.2 2,383.4
Excess of cost over Reliance net assets acquired.. 1,011.1
Other assets...................................... 2,638.0 2,549.6
TOTAL.................... $12,187.5 $9,860.8
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt................................ $ 927.5 $ 160.2
Accounts payable - trade....................... 923.9 976.9
Payable to Reliance shareowners................ 590.7
Accrued compensation and benefits.............. 692.9 668.8
Advance payments from customers................ 271.2 294.6
Accrued income taxes........................... 245.3 137.6
Other current liabilities...................... 819.1 781.7
Total current liabilities.............. 4,470.6 3,019.8
Long-term debt.................................... 1,495.8 831.0
Accrued retirement benefits....................... 2,540.9 2,414.8
Other liabilities................................. 300.9 239.6
Total liabilities............. 8,808.2 6,505.2
Shareowners' equity:
Preferred stock ............................... 1.4 1.4
Common Stock (shares issued - 209.5 million)... 209.5 209.5
Class A Common Stock (shares issued:
December 31, 1994, 36.2 million;
September 30, 1994, 36.9 million)............ 36.2 36.9
Additional paid-in capital..................... 174.4 174.0
Retained earnings.............................. 3,849.3 3,762.3
Currency translation........................... (135.8) (97.1)
Common Stock in treasury, at cost (shares held:
December 31, 1994, 28.3 million;
September 30, 1994, 27.8 million).......... (755.7) (731.4)
Total shareowners' equity..... 3,379.3 3,355.6
TOTAL.................... $12,187.5 $9,860.8
See Notes to Financial Statements.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended
December 31
1994 1993
(In millions)
Revenues:
Sales............................................ $2,622.9 $2,600.9
Other income..................................... 22.7 15.6
Total revenues................................. 2,645.6 2,616.5
Costs and expenses:
Cost of sales.................................... 2,030.6 2,028.2
Selling, general and administrative.............. 319.1 313.5
Interest......................................... 23.0 26.0
Total costs and expenses....................... 2,372.7 2,367.7
Income before income taxes.......................... 272.9 248.8
Provision for income taxes.......................... 108.2 99.3
Net income.......................................... $ 164.7 $ 149.5
(In dollars)
Earnings per common share:
Primary.......................................... $ .76 $ .68
Fully diluted.................................... $ .74 $ .66
Cash dividends per common share..................... $ .27 $ .25
(In millions)
Average common shares outstanding:
Primary.......................................... 218.0 221.2
Fully diluted.................................... 221.4 225.2
See Notes to Financial Statements.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three Months Ended
December 31
1994 1993
(In millions)
OPERATING ACTIVITIES:
Net income......................................... $ 164.7 $ 149.5
Adjustments to net income to arrive at
cash provided by operating activities:
Depreciation.................................... 105.1 103.9
Amortization of intangible assets............... 14.2 12.9
Deferred income taxes........................... 26.6 7.9
Net pension income and contributions............ (20.2) (15.7)
Changes in assets and liabilities,
excluding effects of acquisitions
and foreign currency adjustments:
Receivables................................. 171.9 88.7
Inventories................................. (95.9) (1.3)
Accounts payable - trade.................... (114.3) (172.7)
Accrued compensation and benefits........... (24.6) (81.8)
Advance payments from customers............. (42.3) (19.5)
Income taxes................................ 46.9 45.1
Other assets and liabilities................ (106.9) (54.5)
Cash provided by operating activities..... 125.2 62.5
INVESTING ACTIVITIES:
Property additions................................. (108.2) (67.3)
Acquisition of businesses, net of $59.7 million
cash balances.................................... (1,576.8)
Proceeds from disposition of property.............. 12.3 2.2
Cash used for investing activities.......... (1,672.7) (65.1)
FINANCING ACTIVITIES:
Debt activity excluding the acquisition of
existing Reliance debt:
Increase in short-term borrowings.............. 544.5 20.8
Payable to Reliance shareowners................ 590.7
Increase in long-term debt..................... 544.7
Payments of long-term debt..................... (4.6) (3.8)
Net increase in debt......................... 1,675.3 17.0
Purchase of treasury stock......................... (44.7) (7.2)
Dividends.......................................... (59.0) (55.3)
Reissuance of common stock......................... 1.2 7.2
Cash provided by (used for) financing
activities.................................. 1,572.8 (38.3)
INCREASE (DECREASE) IN CASH........................ 25.3 (40.9)
CASH AT BEGINNING OF PERIOD........................ 628.3 772.8
CASH AT END OF PERIOD.............................. $ 653.6 $ 731.9
Income tax payments were $36.6 million and $44.1 million in the three months
ended December 31, 1994 and 1993, respectively.
See Notes to Financial Statements.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the company the unaudited 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 for the fiscal year ended
September 30, 1994. The results of operations for the three-month periods ended
December 31, 1994 and 1993 are not necessarily indicative of the results for the
full year.
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.
2. In November 1994 the company entered into a definitive agreement to acquire
all shares of common stock of Reliance Electric Company (Reliance), a major
manufacturer of industrial products and telecommunications equipment, for
$1,586 million. As of December 31, 1994 the company had acquired approximately
62% of the common stock of Reliance on a fully-diluted basis and the acquisition
was completed on January 27, 1995. The company has announced its intention to
fund a portion of the purchase price with proceeds from the sale of Reliance's
telecommunications business.
At December 31, 1994, the purchase price is presented in the accompanying
balance sheet as follows (in millions):
Short-term debt $ 495.4
Payable to Reliance shareowners 590.7
Long-term debt 500.0
Total purchase price 1,586.1
Less Business held for sale * 498.0
Net Estimated Borrowings $1,088.1
* Assumed proceeds from sale of telecommunications business.
Although the purchase price, including the payable to Reliance shareowners,
will be initially financed through short-term borrowings, $500 million is
classified as long-term debt because the company intends and has the ability to
refinance this debt on a long-term basis (see Note 9). The sale of the
telecommunications business is expected to occur in 1995 and the company's
results of operations will not include the results of this business or the
interest expense related to the incremental borrowings that are to be funded
from the assumed proceeds during the holding period.
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. (Continued)
The acquisition has been accounted for as a purchase as of
December 31, 1994 and the results of operations of Reliance (exclusive of its
telecommunications business) will be included in the company's statement of
consolidated income commencing January 1, 1995. At December 31, 1994 the assets
acquired and liabilities assumed have been recorded at estimated fair values
determined by the company's management based on information currently
available. The company has assumed the proceeds from the sale of the
telecommunications business to be equal to Reliance's carrying value of the
business and this amount has been reflected in the accompanying balance sheet
as "Business held for sale". Any difference between the actual sales proceeds
and the assumed sales proceeds will result in an adjustment to goodwill.
The allocation of the purchase price to the assets acquired and liabilities
assumed is subject to revision based on appraisals, evaluations, estimations
and other studies which are still in process. Currently the excess of cost
over net assets acquired is $1,011.1 million.
The following unaudited pro forma condensed consolidated results of
operations combine the historical results of operations of the company and
Reliance, assuming Reliance had been acquired and its telecommunications
business had been sold at the beginning of each period. The pro forma results
are presented for information purposes only and are not necessarily indicative
of the results which would have occurred if the business combination had been in
effect on the dates presented, or of the results which may occur in the future.
Further, the results do not reflect cost savings or other synergies expected to
result from the planned integration of Reliance and the company's Automation
business.
Three Months Ended December 31
1994 1993
(In millions, except per share amounts)
Sales and other income $ 2,975 $ 2,912
Net income 165 134
Earnings per common share:
Primary .76 .61
Fully Diluted .74 .59
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Receivables are summarized as follows (in millions):
December 31 September 30
1994 1994
Accounts and notes receivable:
Commercial, less allowance for doubtful
accounts (December 31, 1994, $77.6;
September 30, 1994, $68.0)............ $1,503.7 $1,364.2
United States Government................ 128.1 128.1
Unbilled costs and accrued profits, less
related progress payments
(December 31, 1994, $330.6;
September 30, 1994, $387.4)............. 632.3 774.9
Receivables............................. $2,264.1 $2,267.2
4. Inventories are summarized as follows (in millions):
December 31 September 30
1994 1994
Finished goods............................ $ 437.3 $ 355.5
Long-term contracts in process............ 365.4 300.0
Work in process........................... 756.3 619.5
Raw materials, parts and supplies......... 610.6 472.6
Total................................... 2,169.6 1,747.6
Less allowance to adjust the carrying
value of certain inventories to a
last-in,first-out (LIFO) basis.......... 70.5 67.8
Remainder................................. 2,099.1 1,679.8
Less related progress payments............ 167.4 147.0
Inventories............................. $1,931.7 $1,532.8
5. Other assets are summarized as follows (in millions):
December 31 September 30
1994 1994
Goodwill................................. $ 624.4 $ 589.3
Patents, product technology and
other intangibles...................... 190.9 187.7
Prepaid pension costs.................... 1,246.8 1,214.6
Deferred income taxes.................... 277.6 299.7
Customer finance receivables............. 136.5 137.3
Investments and other assets............. 161.8 121.0
Other assets........................... $2,638.0 $2,549.6
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. (Continued)
The increase in goodwill is due to the acquisition of ICOM, Inc., a major
supplier in the automation software industry. Goodwill relating to the Reliance
acquisition has been shown separately in the accompanying balance sheet as
"Excess of cost over Reliance net assets acquired" (see Note 2).
6. Short-term debt consisted of the following (in millions):
December 31 September 30
1994 1994
Short-term bank borrowings,
principally foreign.................... $ 129.1 $ 145.2
Commercial paper......................... 560.0
Revolving credit line.................... 105.0
Money market lines of credit............. 95.1
Current portion of long-term debt........ 38.3 15.0
Short-term debt......................... $ 927.5 $ 160.2
In December 1994 the company issued $1,060 million of short-term commercial
paper of which $995 million has been used to finance the acquisition of
Reliance. Because the company intends and has the ability to refinance $500
million of this debt on a long-term basis, $500 million is classified as
long-term debt in the accompanying balance sheet.
The revolving credit line and the money market lines of credit represent
debt of Reliance which has been refinanced with commercial paper borrowings of
the company in January 1995.
7. Other current liabilities are summarized as follows (in millions):
December 31 September 30
1994 1994
Accounts payable - other................... $242.9 $227.0
Accrued product warranties................. 209.3 217.4
Accrued taxes other than income taxes...... 72.2 81.8
Other...................................... 294.7 255.5
Other current liabilities................ $819.1 $781.7
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. Long-term debt consisted of the following (in millions):
December 31 September 30
1994 1994
8-7/8% notes, payable in 1999............ $ 300.0 $ 300.0
8-3/8% notes, payable in 2001............ 200.0 200.0
6-3/4% notes, payable in 2002............ 300.0 300.0
6.8% notes, payable in 2003.............. 136.7
Short-term debt to be refinanced on a
long-term basis (see Note 9)........... 500.0
Other obligations, principally foreign... 97.4 46.0
Total.................................. 1,534.1 846.0
Less current portion..................... 38.3 15.0
Long-term debt......................... $1,495.8 $ 831.0
The 6.8% notes, payable in 2003, represent $150 million of long-term debt
of Reliance which has been adjusted to reflect current interest rates. The
$13.3 million discount will be amortized over the remaining term of the debt
as interest expense.
9. The company's financial instruments (including those of Reliance) include
cash, notes receivable, short- and long-term debt, foreign currency forward
exchange contracts and interest rate swap agreements. At December 31, 1994, the
carrying values of the company's financial instruments approximate their fair
values based on current market rates.
In December 1994, in connection with the company's intention to issue
$500 million of long-term debt related to financing the Reliance acquisition,
the company entered into two forward interest rate swap agreements with a
creditworthy bank to protect itself against interest rate increases. Under
these agreements the company is to receive interest payments at a floating rate,
based on six-month LIBOR, and is to pay interest at fixed rates of 8.12% on a
notional principal amount of $300 million for three years and 8.21% on a
notional principal amount of $200 million for ten years. The interest rate swap
agreements will be terminated in connection with the issuance of the $500
million of long-term debt. The gain or loss will be based on the difference
between the market price of each swap when entered and when terminated and will
be deferred and amortized over the term of the related debt.
The company enters into foreign currency forward exchange contracts to
protect itself from adverse currency rate fluctuations on firm and identifiable
foreign currency commitments entered into in the ordinary course of business.
These foreign currency forward exchange contracts are executed with creditworthy
banks for terms of generally less than six months and are denominated in
currencies of major industrial countries. Outstanding foreign currency forward
exchange contracts (including those of Reliance), netted on a bank-by-bank
basis, amounted to approximately $165 million at December 31, 1994. 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.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Accrued retirement benefits consisted of the following (in millions):
December 31 September 30
1994 1994
Accrued retirement medical costs......... $2,577.7 $2,507.0
Accrued pension costs.................... 155.5 97.8
Total.................................. 2,733.2 2,604.8
Amount classified as current liability... 192.3 190.0
Accrued retirement benefits............ $2,540.9 $2,414.8
11. In the quarter ended December 31, 1994, the company purchased 1.3 million
shares of Common Stock for $45 million. Since the company's Common Stock
repurchase program began in 1984, the company has purchased 111.7 million shares
of Common Stock for $2.5 billion.
12. 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, environmental, safety and health,
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 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 statements.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
1995 First Quarter Compared to 1994 First Quarter
The contributions to sales and earnings by business segment of the company for
the first quarter of fiscal 1995 and 1994 are presented below (in millions).
Three Months Ended
December 31
1994 1993
Sales
Electronics
Automation $ 572 $ 461
Avionics 264 296
Telecommunications 159 162
Defense Electronics 185 265
Total 1,180 1,184
Aerospace
Space Systems 441 493
Aircraft 114 117
Total 555 610
Automotive
Heavy Vehicles 450 391
Light Vehicles 274 208
Total 724 599
Graphic Systems 164 155
Sales of ongoing business 2,623 2,548
Divested business 53
Total $2,623 $2,601
Operating Earnings
Electronics $ 161.6 $168.9
Aerospace 86.2 81.7
Automotive 48.9 35.1
Graphic Systems 16.8 8.9
Operating earnings of ongoing businesses 313.5 294.6
Divested business (0.1)
General corporate - net (17.6) (19.7)
Interest expense (23.0) (26.0)
Provision for income taxes (108.2) (99.3)
Total $ 164.7 $149.5<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (Continued)
Sales for the 1995 first quarter continue to reflect the significantly changing
composition of the company. Commercial and international sales, which grew a
strong 10 percent, now comprise 69 percent of total revenues compared to
64 percent in the first quarter of 1994. With the addition of Reliance to the
company's results commencing in the second quarter, commercial and international
sales are expected to approach 75 percent of total sales. The composition of
the company's sales by customer is as follows (in millions):
Three Months Ended
December 31
1994 1993
U.S. Commercial $ 894 $ 854
International 921 803
U.S. Government:
DOD 461 557
NASA 347 387
Total $2,623 $2,601
Excluding the divested Automotive Plastics business, first quarter 1995 sales
were up three percent over the same period in 1994, despite $135 million lower
sales in the company's Aerospace and Defense Electronics businesses.
Automotive's first quarter sales were up 21 percent over the year-earlier period
due to continuing strong North American truck sales and a recovery in the
European automotive market.
Electronics first quarter sales were about the same as 1994's first quarter as
Automation's 24 percent sales increase, due to strong markets and increased
market share, was offset by sales decreases in Avionics and Defense
Electronics. Avionics was affected by depressed air transport markets and
Defense Electronics sales were 30 percent lower than 1994's first quarter due
to the completion last year of a major contract. For the full fiscal year, the
company expects Defense Electronics sales to be at least equal to the prior
year.
Aerospace sales were down 9 percent due to reduced government spending levels
while Graphic Systems sales were up 6 percent due to increased sales of
newspaper printing presses.
Earnings per share for 1995's first quarter increased 12 percent from last
year's first quarter. This marks the eighth consecutive quarter the company has
achieved double-digit earnings per share growth. In its first quarter earnings
release the company's chairman and chief executive officer said, "Looking
forward this strong start to our 1995 fiscal year makes us confident we will
again achieve our goal of double-digit annual earnings per share growth.
Moreover, our current assessment of the operations of Reliance Electric Company
now indicates that this recent acquisition will contribute positively to 1995
earnings and will be increasingly accretive to future earnings as Rockwell
expands its leadership positions in global automation markets."
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (Continued)
First quarter earnings of the Electronics businesses were four percent below
last year's first quarter as Automation's major earnings increase was offset by
lower earnings in Avionics and Telecommunications. Earnings of the Automation
business were up 76 percent from last year's first quarter reflecting strong
markets and a continuing increase in market share. Automation's incoming orders
for the first quarter increased to a record $10.7 million per day. As expected,
first quarter earnings of the Avionics and Telecommunications businesses were
significantly below the first quarter a year ago. Avionics results continue to
be adversely affected by depressed air transport markets and new product
investments, including land transportation electronic systems for the trucking
industry. The Telecommunications business was affected by price erosion on
lower-speed data modem products and launch costs associated with its
next-generation very high-speed data modem product which is now ramping up to
full production. The company expects both Avionics and Telecommunications will
achieve earnings improvements in the second half of 1995. Defense Electronics
earnings were slightly below those of last year's first quarter as the impact of
lower sales was mostly offset by higher award fees and improved contract
performance.
Aerospace first quarter earnings were up six percent over 1994's first quarter
which included an $11 million cost adjustment on the AC-130U Gunship program.
Aerospace earnings as a percent of sales continue to be strong as vigorous,
ongoing cost reduction programs help offset reduced government spending levels.
Automotive's first quarter earnings were up 39 percent from 1994's first quarter
led by continuing strong North American truck sales and substantially improved
performance in the Heavy Vehicle Systems business. Earnings of Automotive's
Light Vehicle Systems business were up slightly from last year's first quarter
as the European automotive market recovers. Automotive's first quarter return
on sales improved to 6.8 percent compared to 5.9 percent in 1994's first
quarter.
Earnings of the Graphic Systems business nearly doubled 1994's first quarter,
primarily due to increased sales of higher-margin large newspaper printing
presses. Graphic Systems results are also benefitting from continuing cost
containment and productivity programs. Based on current delivery schedules, the
Company expects significantly higher Graphic Systems earnings in the first half
of 1995 than in the second half.
FINANCIAL CONDITION
Changes to the company's financial condition since its September 30, 1994 fiscal
year-end are principally related to the inclusion of the assets and liabilities
of Reliance and the financing of the company's acquisition of Reliance (see Note
2 of Notes to Financial Statements).
At December 31, 1994 the company had financed through short-term borrowings $995
million of the $1,586 million purchase price of Reliance. Since it is the
company's intention to refinance $500 million of these short-term borrowings on
a long-term basis, at December 31, 1994, $495 million is classified as short-
term debt and $500 million is classified as long-term debt. The company's total
debt to total capital ratio (debt as a percent of shareowners' equity plus debt)
increased to 42 percent at December 31, 1994 from 23 percent at September 30,
1994.<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION (Continued)
The remaining $591 million of the purchase price of Reliance is recorded as a
payable to Reliance shareowners at December 31, 1994. In connection with the
completion of the acquisition of Reliance in January 1995, this amount has been
substantially paid with the proceeds of further short-term borrowings. This
additional debt will increase the company's debt to total capital ratio to about
47 percent. With the strong annual cash flow generated by the company's
businesses and the proceeds from the company's anticipated sale of Reliance's
telecommunications business (classified as "Business held for sale" in the
December 31, 1994 balance sheet), the company expects this debt to total capital
ratio will return to the 25 to 35 percent range within a three-year period.
Including the interest expense associated with the short- and long-term
borrowings for the Reliance acquisition and the operating results of Reliance,
the company's ratio of earnings to fixed charges would have declined from 7.8 to
5.0 for the three months ended December 31, 1994.
The company's working capital at December 31, 1994 was $1,438 million, down
$470 million from working capital at September 30, 1994. The decrease is
principally due to the $495 million short-term financing of the Reliance
acquisition and the $591 million payable to Reliance shareowners at
December 31, 1994 offset by the $608 million in working capital of Reliance. The
following assets and liabilities of Reliance, including preliminary fair value
adjustments, were consolidated in the company's balance sheet at December 31,
1994 (in millions):
Current assets:
Cash........................................... $ 57.5
Receivables.................................... 182.5
Inventories.................................... 312.4
Other current assets........................... 21.1
Business held for sale......................... 498.0
Total current assets................... 1,071.5
Net property...................................... 261.6
Other assets...................................... 55.3
Total assets.................. $1,388.4
Current liabilities:
Short-term debt................................ $ 200.2
Accounts payable - trade....................... 69.9
Accrued compensation and benefits.............. 47.7
Advance payments from customers................ 18.2
Accrued income taxes........................... 62.9
Other current liabilities...................... 64.1
Total current liabilities.............. 463.0
Long-term debt.................................... 147.8
Accrued retirement benefits....................... 140.3
Other liabilities................................. 62.3
Total liabilities............. $ 813.4<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION (Continued)
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 under the caption Results of
Operations, Environmental Issues in Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, on pages 18 - 19 of the
company's Annual Report on Form 10-K for the fiscal year ended September 30,
1994. Management believes that at December 31, 1994 there has been no material
change to this information.
At December 31, 1994, Reliance had been designated as a potentially responsible
party at 18 Superfund sites for which an accrual of $3 million of estimated
costs has been recorded by Reliance. Reliance has also identified 13 sites
which will require remediation pursuant to other federal, state or local
environmental protection requirements for which an accrual of $18 million of
estimated costs has been recorded by Reliance. At December 31, 1994 Reliance
has recorded a receivable from Exxon Corporation of $17 million, Exxon having
agreed to pay for substantially all the environmental costs for certain sites.
Exxon has been fulfilling its indemnification obligation except for matters
related to one site for which Reliance expects its indemnification claims to
eventually total approximately $12 million, most of which is included in the
foregoing receivable. As noted in Note 2 of Notes to Financial Statements, the
company's assessment of the assets and liabilities of Reliance, including those
related to environmental matters, is still in process.
Other Financial Information
In January 1995 the company announced that it had decided to retain ownership of
its Switching Systems Division, concluding several months' evaluation of
ownership alternatives. The Division has shown steady performance improvements
during the past year and contributed to improved first quarter results.
The company's backlog on December 31, 1994 was $11.5 billion compared to
$12.4 billion on December 31, 1993. The backlog includes $4.5 billion of
commercial orders (including Reliance), $2.3 billion of funded government orders
and $4.8 billion of unfunded government orders. Backlog by major business
segment is as follows (in millions):
December 31 December 31
1994 1993
Aerospace
Space Systems $ 5,169 $ 6,518
Aircraft 1,976 1,642
7,145 8,160
Defense Electronics 1,318 1,582
Other 3,048 2,700
Total Backlog $11,511 $12,442
<PAGE>
EXHIBIT 11
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
December 31
1994 1993
(In millions, except
per share amounts)
Primary earnings per share:
Net income................................ $164.7 $149.5
Deduct dividend requirements on
preferred stock........................ 0.1 0.1
Total primary earnings.................... $164.6 $149.4
Average number of common shares
outstanding during the period.......... 218.0 221.2
Primary earnings per share................ $ .76 $ .68
Fully diluted earnings per share:
Net income................................ $164.7 $149.5
Average number of common shares
outstanding during the
period assuming full dilution:
Common stock......................... 218.0 221.2
Assumed issuance of stock under
award plans and conversion of
preferred stock.................... 3.4 4.0
Total fully diluted shares................ 221.4 225.2
Fully diluted earnings per share.......... $ .74 $ .66
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The regular annual meeting of shareowners of the registrant was held
February 1, 1995.
(c) At the annual meeting, the shareowners:
(i) voted to elect 13 directors of the company. Each nominee for
director was elected by a vote of the shareowners as follows:
Affirmative votes Votes withheld
Lew Allen, Jr. 431,061,518 6,876,306
Donald R. Beall 430,710,530 7,227,294
Richard M. Bressler 428,942,559 8,995,265
John J. Creedon 430,099,934 7,837,890
Robin Chandler Duke 428,036,290 9,901,534
Judith L. Estrin 429,641,189 8,296,635
William H. Gray, III 428,494,516 9,443,308
J. Clayburn La Force, Jr. 430,458,260 7,479,564
William T. McCormick, Jr. 431,258,040 6,679,784
John D. Nichols 431,064,195 6,873,629
Bruce M. Rockwell 430,945,573 6,992,251
William S. Sneath 430,675,590 7,262,234
Joseph F. Toot, Jr. 430,840,408 7,097,416
(ii) voted upon a proposal to approve the selection by the Board of
Directors of the firm of Deloitte & Touche LLP as auditors of the company. The
proposal was approved by a vote of the shareowners as follows:
Affirmative votes 428,547,284
Negative votes 4,014,212
Abstentions 5,376,328
(iii) voted upon a proposal to approve the adoption by the Board of
Directors of the 1995 Long-Term Incentives Plan. The proposal was approved by a
vote of the shareowners as follows:
Affirmative votes 364,059,945
Negative votes 49,977,367
Abstentions 12,369,568
Nonvotes 11,530,944
(iv) voted upon a proposal to approve the adoption by the Board of
Directors of the Directors Stock Plan. The proposal was approved by a vote of
the shareowners as follows:
Affirmative votes 369,162,217
Negative votes 41,968,284
Abstentions 15,276,379
Nonvotes 11,530,944
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 5. Other Information
The company's government contract operations are subject to
U.S. Government investigations of business practices and audits of contract
performance and cost classification from which claims have been or may be
asserted against the company. Although such claims are usually resolved through
fact-finding and negotiation, civil, criminal or administrative proceedings may
result and a contractor can be fined, as well as be suspended or debarred from
government contracts. Management believes there are no claims, audits or
investigations currently pending against the company which will have a material
adverse effect on either the company's business or its financial condition.
The company's financial statements have been prepared on the basis of
reasonable estimates, supported by the opinion of outside legal counsel, of the
revenue expected to be recovered from the company's claims against the
U.S. Government arising out of the government's termination of contracts for its
convenience and certain contractual disputes. While management cannot reasonably
estimate the length of time that will be required to resolve its claims or
whether they will be resolved through negotiation or litigation, it believes
their resolution will not have a material adverse effect on the company's
financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 2 - Agreement and Plan of Merger, dated as of
November 21, 1994, by and among Reliance, ROK
Acquisition Corporation ("ROK") and the
company, filed as Exhibit (a) (24) to
Amendment No. 9 to the Tender Offer
Statement on Schedule 14D-1 filed on
November 22, 1994 by the company and
ROK, is hereby incorporated by reference.
Exhibit 4-a-1 - Indenture, dated as of April 1, 1993, between
Reliance and Bankers Trust Company, as Trustee,
filed as Exhibit 4.1 to Reliance's Quarterly
Report on Form 10-Q for the quarterly period
ended March 31, 1993, is hereby
incorporated by reference.
Exhibit 4-a-2 - First Supplemental Indenture, dated as of
April 14, 1993, between Reliance and Bankers
Trust Company, as Trustee, filed as Exhibit
4.1.1 to Reliance's Quarterly Report on Form
10-Q for the quarterly period ended
March 31, 1993, is hereby incorporated
by reference.
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K (Continued)
Exhibit 4-a-3 - Specimen Certificate for Reliance 6.80% Notes
due April 15, 2003, filed as Exhibit 4.2 to
Reliance's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1993,
is hereby incorporated by reference.
Exhibit 12-a - Computation of Ratio of Earnings to Fixed
Charges and Computation of Pro Forma Ratio
of Earnings to Fixed Charges for the three
months ended December 31, 1994
Exhibit 12-b - Computation of Pro Forma Ratio of Earnings to
Fixed Charges for the twelve months ended
September 30, 1994
Exhibit 27 - Financial Data Schedule
Exhibit 99-a - Unaudited financial statements of Reliance and
its subsidiaries for the twelve months
ended December 31, 1994.
Exhibit 99-b - Unaudited pro forma condensed consolidated
statement of income of the company and
Reliance for the three months ended
December 31, 1994.
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K, dated
December 21, 1994, in respect of the acquisition of Reliance. The items
reported in such Current Report were Item 2 (Acquisition or Disposition of
Assets) and Item 7 (Financial Statements, Pro Forma Financial Information and
Exhibits). Audited financial statements of Reliance and its subsidiaries for
the years ended December 31, 1993 and 1992, unaudited financial statements of
Reliance and its subsidiaries for the three- and nine-month periods ended
September 30, 1994 and 1993, and certain unaudited pro forma financial
information in respect of the company and Reliance were filed therewith.
<PAGE>
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 February 9, 1995 By L. J. Komatz
L. J. Komatz
Vice President and Controller
(Principal Accounting Officer)
Date February 9, 1995 By W. J. Calise, Jr.
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
Exhibit 12-a
ROCKWELL INTERNATIONAL CORPORATION
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED DECEMBER 31, 1994
(In millions, except for ratios)
<CAPTION>
ProForma
Pro Forma Combined
Rockwell Reliance Adjustments Total
<S> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES:
Income Before income taxes and change in accounting $272.9 $(51.3) $53.5 (1) $275.1
Adjustments:
Undistributed (income) of affiliates............. (2.2) (2.2)
Minority interest in loss of subsidiaries........ 1.8 1.8
272.5 (51.3) 53.5 274.7
Add fixed charges included in earnings:
Interest expense............................... 23.0 6.0 20.6 49.6
Interest element of rentals.................... 14.8 2.5 17.3
Total........................................ 37.8 8.5 20.6 66.9
Total earnings available for fixed charges....... $310.3 $(42.8) $74.1 $341.6
FIXED CHARGES:
Fixed charges included in earnings.................. $ 37.8 $ 8.5 $20.6 $ 66.9
Capitalized interest................................ 2.0 2.0
Total fixed charges............................... $ 39.8 $ 8.5 $20.6 $ 68.9
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES 7.8 5.0
(1) Pro forma adjustments include the following (see Exhibit 99-b):
A) To reflect the divestiture of Reliance's telecommunications business $ (8.2)
B) Amortize over average period of 35 years the excess of purchase price
over the estimated fair value of net assets acquired (8.4)
C) Adjust expense for postretirement benefits to reflect Rockwell's
actuarial assumptions 1.0
D) Recognize interest expense on borrowings to fund acquisition (at
assumed rate of 7% on short-term debt and 8.2% on long-term debt) (20.6)
E) Remove unusual expenses incurred by Reliance relating to costs
associated with abandonment of a prior merger agreement and costs
associated with the acquisition by Rockwell 89.7
Total Adjustments to Income Before Taxes and Change in Accounting $ 53.5
(2) In computing the ratio of earnings to fixed charges, earnings are defined as
income before income taxes and change in accounting for retirement medical
benefits adjusted for minority interest in income or loss of subsidiaries,
undistributed earnings of affiliates and fixed charges exclusive of capitalized
interest. Fixed charges consist of interest on borrowings and that portion of
rentals deemed representative of the interest factor.
</TABLE>
Exhibit 12-b
<TABLE>
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(In millions, except for ratios)
<CAPTION>
Pro Forma Pro Forma
Rockwell Reliance Adjustments Combined
<S> <C> <C> <C> <C>
Earnings available for fixed charges:
Income before income taxes and change
in accounting $1,021.3 $102.1 $(131.9) (1) $ 991.5
Adjustments:
Undistributed (income) of affiliates.... (2.2) (0.3) (2.5)
Minority interest in loss of subsidiaries 6.1 6.1
1,025.2 101.8 (131.9) 995.1
Add fixed charges included in earnings:
Interest expense...................... 96.6 24.4 83.4 204.4
Interest element of rentals........... 59.2 9.1 68.3
Total............................... 155.8 33.5 83.4 272.7
Total earnings available for fixed charges $1,181.0 $135.3 $ (48.5) $1,267.8
FIXED CHARGES:
Fixed charges included in earnings.......... $ 155.8 $ 33.5 $ 83.4 $ 272.7
Capitalized interest........................ 4.3 4.3
Total fixed charges....................... $ 160.1 $ 33.5 $ 83.4 $ 277.0
RATIO OF EARNINGS TO FIXED CHARGES 7.4 4.6
(1) Pro forma adjustments include the following:
A) To reflect the divestiture of Reliance's telecommunications business $ (22.4)
B) Amortize over an average period of 35 years the excess of
purchase price over the estimated fair value of net assets acquired (30.1)
C) Adjust expense for postretirement benefits to reflect Rockwell's
actuarial assumptions 4.0
D) Recognize interest expense on borrowings to fund acquisition (at
assumed rates of 7% on short-term debt and 8.2% on long-term debt) (83.4)
Total adjustments to income before taxes and change in accounting $(131.9)
(2) In computing the ratio of earnings to fixed charges, earnings are defined as
income before income taxes and change in accounting for postemployment
benefits adjusted for minority interest in income or loss of subsidiaries,
undistributed earnings of affiliates and fixed charges exclusive of capitalized
interest. Fixed charges consist of interest on borrowings and that portion of
rentals deemed representative of the interest factor.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1994 CONSOLIDATED BALANCE SHEET, STATEMENT OF CONSOLIDATED
INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND NOTES TO FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 654
<SECURITIES> 0
<RECEIVABLES> 2264
<ALLOWANCES> 78
<INVENTORY> 1932
<CURRENT-ASSETS> 5908
<PP&E> 2630
<DEPRECIATION> 0
<TOTAL-ASSETS> 12188
<CURRENT-LIABILITIES> 4471
<BONDS> 1496
<COMMON> 246
0
1
<OTHER-SE> 3132
<TOTAL-LIABILITY-AND-EQUITY> 12188
<SALES> 2623
<TOTAL-REVENUES> 2646
<CGS> 2031
<TOTAL-COSTS> 2373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 273
<INCOME-TAX> 108
<INCOME-CONTINUING> 165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165
<EPS-PRIMARY> .76
<EPS-DILUTED> .74
</TABLE>
<TABLE>
Exhibit 99-a
RELIANCE ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions, shares in thousands)
<CAPTION>
<S>
December 31,
Assets 1994
<C>
Cash and cash equivalents........................................ $ 58
Accounts receivable, net......................................... 237
Inventories...................................................... 346
Other............................................................ 47
Total Current Assets......................................... 688
Goodwill, net.................................................... 202
Investments and others........................................... 80
Property, plant and equipment.................................... 676
Less accumulated depreciation.................................. (353)
323
Total Assets................................................... $1,293
Liabilities and Stockholders' Equity
Notes payable and current maturities of long-term debt........... $ 200
Accounts payable................................................. 94
Other............................................................ 225
Total Current Liabilities.................................... 519
Long-term debt................................................... 159
Other............................................................ 231
Stockholders' equity
Common stock (convertible, $.01 par value):
Class A, 35,577 shares issued................................ 342
Class B, 694 shares issued................................... 1
Class C, 5,250 shares issued................................. 4
Retained earnings............................................ 35
Other stockholders' equity................................... 2
Total Stockholders' Equity................................. 384
Total Liabilities and Stockholders' Equity................. $ 1,293
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
Twelve Months Ended December 31, 1994
(Dollars in millions)
<CAPTION>
<S> <C>
Net Sales
Industrial..................................................... $ 1,274
Telecommunications............................................. 458
Eliminations................................................... (3)
Total 1,729
Costs and Expenses:
Cost of Sales
Industrial................................................... 953
Telecommunications........................................... 338
Eliminations................................................. (3)
Total 1,288
Selling, general and administrative............................ 281
Unusual acquisition expenses................................... 90
Other expense, net............................................. 3
Earnings Before Interest and Taxes............................... 67
Interest expense................................................. 24
Earnings Before Taxes............................................ 43
Provision for income taxes....................................... 43
Earnings Before Cumulative Effect of Accounting Change........... -
Cumulative effect of accounting change
(net of income tax effect)..................................... (2)
Net Loss......................................................... $ (2)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
RELIANCE ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Twelve Months Ended December 31, 1994
(Dollars in millions)
<CAPTION>
<S> <C>
Cash Provided from Operations
Net Loss......................................................... $ (2)
Adjustments to reconcile to net cash provided from operations:
Cumulative effect of accounting change......................... 2
Depreciation and amortization.................................. 47
Provision for deferred income taxes............................ (8)
Changes in operating assets and liabilities:
Accounts receivable.......................................... (20)
Inventories.................................................. (18)
Accounts payable............................................. 13
Income taxes payable......................................... 14
Advances from customers...................................... 5
Other.......................................................... 34
Net Cash Provided from Operations.................................. 67
Cash Provided from Investing Activities
Capital expenditures............................................. (62)
Other............................................................ 1
Net Cash Provided from Investing Activities........................ (61)
Cash Provided from Financing Activities
Net payments on New Credit Facility.............................. (17)
Net proceeds from money market lines of credit................... 25
Tax benefit from option exercises................................ 2
Proceeds from option exercises................................... 1
Net Cash Provided from Financing Activities........................ 11
Net Increase in Cash and Cash Equivalents.......................... 17
Cash and Cash Equivalents at January 1............................. 41
Cash and Cash Equivalents at December 31........................... $ 58
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
RELIANCE ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Financial Statements
The data as of December 31, 1994 and for the twelve months ended
December 31, 1994 are unaudited and, in the opinion of management, include all
adjustments (which are normal and recurring in nature) necessary for a fair
presentation of financial position, results of operations and cash flows. The
statements, which do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements,
should be read in conjunction with the audited consolidated financial statements
contained in the Annual Report on Form 10-K of Reliance Electric Company (the
company) for the year ended December 31, 1993.
2. Rockwell Acquisition
In November 1994 the company entered into a definitive agreement to be purchased
by Rockwell International Corporation (Rockwell) for a purchase price of $31 per
share of Class A Common Stock and an equivalent price for convertible shares. As
of December 31, 1994 approximately 62% of the company's common stock on a fully
diluted basis was owned by Rockwell and the purchase was completed on
January 27, 1995. Assets and liabilities of the company, adjusted to
preliminary fair values, are included in Rockwell's balance sheet at
December 31, 1994. These financial statements have been prepared on Reliance's
historical basis of accounting.
Rockwell has announced its intention to divest the company's telecommunications
business. The company's financial statements at December 31, 1994 and for the
twelve months ended December 31, 1994 include the following amounts related to
the telecommunications business (in millions):
Total Assets $573
Total Liabilities 75
Net Assets $498
Sales $458
Earnings Before Taxes $ 26
3. Unusual Expenses
In the fourth quarter of 1994, the company incurred the following unusual
expenses (in millions):
Termination fee paid to General Signal Corporation
related to abandonment of prior merger agreement $55
Payment to buy back all outstanding stock options
as a result of the acquisition by Rockwell 20
Other merger-related costs, including investment
banking, legal and other professional services 15
Total $90
<PAGE>
RELIANCE ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Inventories
Inventories at December 31, 1994 consist of the following (in millions):
Raw Materials............................ $107
Work in process.......................... 83
Finished goods........................... 72
Total (approximates replacement cost).... 262
Difference to LIFO....................... 84
LIFO..................................... $346
5. Income Taxes
The consolidated effective tax rate was different from the United States
statutory rate due to amortization of goodwill and other expenses for which a
tax benefit has not yet been recognized.
6. Adoption of Accounting Pronouncements
The company adopted Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"("SFAS 112") in the first
quarter of 1994. SFAS 112 establishes accounting standards for employers who
provide certain benefits to former or inactive employees, their beneficiaries,
and covered dependents. The company's primary liability under SFAS 112 is for
salary continuation plans provided to certain employees. The actuarial present
value of these obligations was determined to be $4 million, using a 7.5%
discount rate. There is no effect on cash flows. The cost of these benefits had
previously been recognized when they were paid.
The company also adopted the provisions set forth in SEC Staff Accounting
Bulletin No. 92, "Accounting and Disclosures Related to Loss Contingencies"
("SAB92") in the first quarter of 1994. SAB 92 requires separate presentation
of the gross liability for a loss contingency from the related claim for
recovery. The company's primary contingent liabilities relate to environmental
actions naming a non-operating subsidiary as a defendant or potentially
responsible party. These estimated liabilities heretofore had been shown net of
the expected recovery under an indemnity agreement covering substantially all
related claims. A more detailed description of these liabilities and the
related indemnity agreement referred to above is set forth in Note 14 to the
company's consolidated financial statements for the year ended
December 31, 1993. The December 31, 1994 balance sheet reflects the gross
estimated unpaid liability of $21 million and the gross estimated
recovery of $17 million.
Exhibit 99-b
ROCKWELL INTERNATIONAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma condensed consolidated statement of income
has been prepared by Rockwell's management. This statement reflects Rockwell's
acquisition of Reliance and combines the historical consolidated income
statements of Rockwell and Reliance for the three months ending
December 31, 1994, using the purchase method of accounting.
The unaudited pro forma condensed consolidated statement of income has been
prepared assuming the acquisition of Reliance had occurred at the beginning of
Rockwell's fiscal year ending September 30, 1995. This pro forma statement
should be read in conjunction with the historical consolidated financial
statements and related notes of Rockwell and Reliance. The pro forma statement
includes preliminary estimates and assumptions which Rockwell management
believes are reasonable. Pro forma adjustments reflecting anticipated cost
savings and other synergies resulting from the planned integration of Reliance
and Rockwell's Automation business are, under most circumstances, not permitted.
As a result, the pro forma results are not intended to be a projection of
future results and are not necessarily indicative of the results which would
have occurred if the business combination had been in effect on the dates
presented. Rockwell management's current assessment of the operations of
Reliance now indicates that this acquisition will contribute positively to 1995
earnings and will be increasingly accretive to future earnings.
The pro forma condensed consolidated statement of income has been prepared using
the following facts and assumptions:
Rockwell acquires all the common stock of Reliance for a total cash payment
of $1,586 million. As of December 31, 1994, Rockwell had acquired 62% of the
common stock of Reliance on a fully-diluted basis and the acquisition was
completed January 27, 1995.
Simultaneously with the acquisition of Reliance, Rockwell sells the
telecommunications business of Reliance to fund a portion of the acquisition
price. For purposes of this pro forma statement, it is assumed the sales
proceeds will be equal to the net book value of the telecommunications business
of $498 million. Rockwell expects the sale of the telecommunications business of
Reliance to occur by December 31, 1995 and the actual sales proceeds may be
higher or lower than the assumed amount.
Rockwell borrows $1,088 million to finance the remaining portion of the
$1,586 million acquisition price.
In accordance with generally accepted accounting principles, the purchase
price of Reliance will be allocated to the assets and liabilities of Reliance
based upon their respective fair values. Such allocations will be based upon
appraisals, evaluations, estimations and other studies which are still in
process. For purposes of the accompanying pro forma statement, the pro forma
adjustments have been reflected on an estimated basis using information
currently available. No adjustment has been made to allocate the excess of
cost over the net assets of Reliance to property, plant and equipment
or intangible assets since such fair values have not yet been determined.
Accordingly, the allocation of the purchase price to the acquired assets
and assumed liabilities of Reliance is subject to revision as a result of
the final determination of fair values.<PAGE>
<TABLE>
ROCKWELL INTERNATIONAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED DECEMBER 31, 1994
(Dollars in Millions)
<CAPTION>
Pro Forma
As Reported Business Adjustments
Sold By Increase Pro Forma
Rockwell Reliance (7) Rockwell (1) (Decrease) Combined
<S> <C> <C> <C> <C> <C>
Sales and other income........................ $ 2,646 $ 449 $(120) $ 2,975
Costs and expenses:
Cost of sales............................... 2,031 337 (89) 2,279
Selling, general and administrative......... 319 68 (19) $ (1)(4) 367
Other expense, net.......................... 89 (3) 8 (2) 4
(90)(3)
Interest.................................... 23 6 21 (5) 50
Total costs and expenses.................. 2,373 500 (111) (62) 2,700
Income before income taxes.................... 273 (51) (9) 62 275
Provision for income taxes.................... (108) 5 (7)(6) (110)
Net income.................................... $ 165 $ (51) $ (4) $ 55 $ 165
Earnings per common share (in dollars) (8):
Primary..................................... $ .76 $ .76
Fully diluted............................... $ .74 $ .74
Average common shares outstanding (in millions):
Primary..................................... 218.0 218.0
Fully diluted............................... 221.4 221.4
See accompanying notes to unaudited pro forma condensed consolidated statement of income.
</TABLE>
<PAGE>
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
1. To reflect the divestiture of Reliance's telecommunications business.
2. Amortize over an average period of 35 years the excess of purchase price over
the estimated fair value of net assets acquired.
3. Remove unusual expenses incurred by Reliance relating to costs associated
with abandonment of a prior merger agreement and costs associated with the
acquisition by Rockwell.
4. Adjust expense for postretirement benefits to reflect Rockwell's actuarial
assumptions.
5. Recognize interest expense on borrowings to fund acquisition (at assumed
rates of 7% on short-term debt and 8.2% on long-term debt).
6. Increase in the provision for income taxes primarily associated with the
removal of unusual expenses noted in 3 above and reduced by the effect of
additional interest expense.
7. The historical net income of Reliance does not include the cumulative effect
of $2 million (net of tax) related to the adoption of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits."
8. Pro forma primary and fully-diluted earnings per share are computed on the
same basis as historical amounts.
