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, 1996
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
190,497,851 shares of registrant's Common Stock, $1.00 par value, and
27,949,464 shares of registrant's Class A Common Stock, $1.00 par value, were
outstanding on July 31, 1996.
ROCKWELL INTERNATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Condensed Consolidated Balance Sheet--
June 30, 1996 and September 30, 1995........... 2
Statement of Consolidated Income--Three Months
and Nine Months Ended June 30, 1996 and 1995.... 3
Statement of Consolidated Cash Flows--
Nine Months Ended June 30, 1996 and 1995........ 4
Notes to Financial Statements.................. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 10
Other Financial Information.................... 16
Exhibit 11 - Computation of Earnings Per Share........... 18
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.............................. 19
Item 5. Other Information.............................. 19
Item 6. Exhibits and Reports on Form 8-K............... 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30 September 30
1996 1995
ASSETS (In millions)
Current assets:
Cash........................................... $ 618 $ 655
Receivables.................................... 2,324 2,346
Inventories.................................... 2,127 1,847
Other current assets........................... 573 546
Net assets of discontinued operations.......... 541 569
Total current assets................... 6,183 5,963
Net property...................................... 3,003 2,847
Intangible assets................................. 1,837 1,868
Other assets...................................... 1,519 1,436
TOTAL.................... $12,542 $12,114
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt................................ $ 703 $ 654
Accounts payable - trade....................... 930 1,057
Accrued compensation and benefits.............. 762 729
Advance payments from customers................ 211 246
Accrued income taxes........................... 58 113
Other current liabilities...................... 1,081 918
Total current liabilities.............. 3,745 3,717
Long-term debt.................................... 1,763 1,775
Accrued retirement benefits....................... 2,501 2,536
Other liabilities................................. 343 304
Total liabilities............. 8,352 8,332
Shareowners' equity:
Preferred stock ............................... 1 1
Common Stock (shares issued - 209.5 million)... 210 210
Class A Common Stock (shares issued:
June 30, 1996, 28.2 million;
September 30, 1995, 32.9 million)........... 28 33
Additional paid-in capital..................... 197 186
Retained earnings.............................. 4,443 4,158
Currency translation........................... (130) (99)
Common Stock in treasury, at cost (shares held:
June 30, 1996, 19.4 million;
September 30, 1995, 25.4 million)........... (559) (707)
Total shareowners' equity..... 4,190 3,782
TOTAL.................... $12,542 $12,114
See Notes to Financial Statements.
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
(In millions)
Revenues:
Sales........................... $ 3,489 $ 3,292 $ 9,973 $ 8,908
Other income.................... 26 28 100 61
Total revenues................ 3,515 3,320 10,073 8,969
Costs and expenses:
Cost of sales................... 2,629 2,527 7,540 6,828
Selling, general, and
administrative................ 464 427 1,348 1,155
Interest........................ 46 51 143 117
Total costs and expenses...... 3,139 3,005 9,031 8,100
Income before income taxes........ 376 315 1,042 869
Provision for income taxes........ 147 125 408 345
Income from continuing
operations...................... 229 190 634 524
(Loss) Income from discontinued
operations, net of tax.......... (6) 7 (5) 29
Net income ....................... $ 223 $ 197 $ 629 $ 553
(In dollars)
Earnings per common share:
Primary........................
From continuing operations... $ 1.04 $ .87 $ 2.91 $ 2.41
From discontinued
operations................. (.02) .03 (.02) .13
Net income per common share.. $ 1.02 $ .90 $ 2.89 $ 2.54
Fully diluted..................
From continuing operations... $ 1.02 $ .86 $ 2.86 $ 2.37
From discontinued
operations................. (.02) .02 (.02) .12
Net income per common share.. $ 1.00 $ .88 $ 2.84 $ 2.49
Cash dividends per common share... $ .29 $ .27 $ .87 $ .81
(In millions)
Average common shares outstanding:
Primary........................ 217.7 216.8 217.3 217.3
Fully diluted.................. 221.3 221.8 221.1 222.5
See Notes to Financial Statements.
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
Nine Months Ended
June 30
1996 1995
(In millions)
OPERATING ACTIVITIES:
Net income........................................... $ 629 $ 553
Adjustments to net income to arrive at
cash provided by operating activities:
Depreciation..................................... 393 337
Amortization of intangible assets................ 73 70
Deferred income taxes............................ (2) 82
Net pension income and contributions............. (32) (61)
Changes in assets and liabilities, excluding
effects of acquisitions and foreign currency
adjustments:
Receivables.................................. 10 (89)
Inventories.................................. (297) (180)
Net assets of discontinued operations....... 28 40
Accounts payable - trade..................... (101) (130)
Accrued compensation and benefits............ 35 18
Advance payments from customers.............. (36) (31)
Income taxes................................. (32) (82)
Other assets and liabilities................. 13 15
Cash provided by operating activities..... 681 542
INVESTING ACTIVITIES:
Property additions................................... (582) (436)
Acquisition of businesses............................ (61) (1,615)
Proceeds from disposition of property and businesses. 82 27
Cash used for investing activities........ (561) (2,024)
FINANCING ACTIVITIES:
Debt activity:
Increase in short-term borrowings................ 60 914
Increase in long-term debt....................... - 827
Payments of long-term debt....................... (17) (43)
Net increase in debt........................... 43 1,698
Purchase of treasury stock.......................... (47) (120)
Dividends........................................... (189) (176)
Reissuance of common stock.......................... 36 42
Cash (used for) provided by
financing activities.................. (157) 1,444
DECREASE IN CASH..................................... (37) (38)
CASH AT BEGINNING OF PERIOD.......................... 655 612
CASH AT END OF PERIOD................................ $ 618 $ 574
Income tax payments were $416 million and $337 million in the nine months
ended June 30, 1996 and 1995, respectively.
See Notes to Financial Statements.
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, 1995. The results of operations for the
three- and nine-month periods ended June 30, 1996 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 April 1996, the company reached an agreement to sell its Graphic
Systems business segment for approximately $600 million. The sale is
expected to close by the end of 1996. The net proceeds from the sale
will exceed the net assets of the business. After giving consideration
to the tax basis of assets sold and accrued costs directly associated
with disposing of the business, the company expects the transaction to
have a minimal effect on its results of operations. The net assets of
the Graphic Systems business at June 30, 1996 and September 30, 1995 and
its net income for the three- and nine-month periods ended June 30, 1996
and 1995 have been presented as discontinued operations. The revenues of
the Graphic Systems business were $145 million and $165 million for the
three months ended June 30, 1996 and 1995, respectively, and $497
million and $540 million for the nine months ended June 30, 1996 and
1995, respectively.
3. In fiscal 1995, the company's acquisition of Reliance Electric Company
(Reliance) was accounted for as a purchase as of December 31, 1994 and
the results of operations of Reliance, exclusive of the divested
telecommunications business, were included in the company's statement of
consolidated income commencing January 1, 1995.
The following unaudited pro forma information has been prepared assuming
Reliance had been acquired at the beginning of fiscal 1995. The
pro forma information is presented for informational purposes and is not
necessarily indicative of what would have occurred if the acquisition
had been made as of that date. The pro forma information is not
intended to be a projection of future results.
Nine Months Ended
June 30, 1995
(In millions, except
per share amounts)
Revenues $9,298
Net income 553
Earnings per common share:
Primary 2.54
Fully diluted 2.49
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. On July 31, 1996, the company signed a definitive agreement under which
The Boeing Company (Boeing) will acquire the company's Aerospace
business, a substantial portion of the company's Defense Electronics
business, and certain other assets (Aerospace and Defense) for
approximately $3.2 billion, including approximately $.9 billion of
Boeing stock to the company's shareowners and the assumption by Boeing
of approximately $2.3 billion of liabilities of the company, principally
debt. The acquisition will be effected by means of a "Morris Trust"
transaction in which all of the company's businesses, other than
Aerospace and Defense, will first be contributed to a new subsidiary of
the company which will be spun off to the company's shareowners, after
which the company will merge with a subsidiary of Boeing. The
transaction is subject to approval by the company's shareowners, consent
of the company's noteholders, and the receipt of various regulatory
approvals.
Aerospace and Defense had revenues of $2,273 million and $2,350 million
for the nine-month periods ended June 30, 1996 and 1995, respectively,
and $797 million and $825 million for the three-month periods ended
June 30, 1996 and 1995, respectively.
In June 1996, the company announced an agreement to acquire
Brooktree Corporation, a designer and manufacturer of digital and
mixed-signal integrated circuits for computer graphics, multimedia,
imaging, and communications applications for approximately $275 million.
The transaction is expected to close in September 1996 and the company
will take a one-time after-tax charge of approximately $120 million at
the time of acquisition for in-process research and development.
5. Receivables are summarized as follows (in millions):
June 30 September 30
1996 1995
Accounts and notes receivable:
Commercial, less allowance for doubtful
accounts (June 30, 1996, $93;
September 30, 1995, $59)............... $ 1,624 $ 1,521
United States Government................. 120 142
Unbilled costs and accrued profits,
less related progress payments
(June 30, 1996, $221;
September 30, 1995, $235)................ 580 683
Receivables.............................. $ 2,324 $ 2,346
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. Inventories are summarized as follows (in millions):
June 30 September 30
1996 1995
Finished goods............................. $ 483 $ 454
Long-term contracts in process............. 348 289
Work in process............................ 910 765
Raw materials, parts, and supplies......... 523 488
Total.................................... 2,264 1,996
Less allowance to adjust the carrying value
of certain inventories to a last-in,
first-out (LIFO) basis................... 63 54
Remainder.................................. 2,201 1,942
Less related progress payments............. 74 95
Inventories.............................. $ 2,127 $ 1,847
7. Intangible assets are summarized as follows (in millions):
June 30 September 30
1996 1995
Goodwill.................................. $ 1,316 $ 1,328
Trademarks, patents, product technology,
and other intangibles................... 521 540
Intangible assets....................... $ 1,837 $ 1,868
8. Other assets are summarized as follows (in millions):
June 30 September 30
1996 1995
Prepaid pension costs..................... $ 1,370 $ 1,321
Investments and other assets.............. 149 115
Other assets............................ $ 1,519 $ 1,436
9. Short-term debt consisted of the following (in millions):
June 30 September 30
1996 1995
Commercial paper......................... $ 565 $ 535
Short-term bank borrowings,
principally foreign.................... 125 101
Current portion of long-term debt........ 13 18
Short-term debt......................... $ 703 $ 654
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Other current liabilities are summarized as follows (in millions):
June 30 September 30
1996 1995
Accounts payable - other................... $ 375 $ 297
Accrued product warranties................. 209 196
Accrued taxes other than income taxes...... 75 82
Other...................................... 422 343
Other current liabilities................ $ 1,081 $ 918
11. Long-term debt consisted of the following (in millions):
June 30 September 30
1996 1995
7-5/8% notes, payable in 1998............. $ 300 $ 300
8-7/8% notes, payable in 1999............. 300 300
8-3/8% notes, payable in 2001............. 200 200
6-3/4% notes, payable in 2002............. 300 300
6.8% notes, payable in 2003............... 139 138
7-7/8% notes, payable in 2005............. 200 200
6-5/8% notes, payable in 2005............. 300 300
Other obligations, principally foreign.... 37 55
Total................................... 1,776 1,793
Less current portion..................... 13 18
Long-term debt......................... $ 1,763 $ 1,775
12. The company's financial instruments include cash, short- and long-term
debt, and foreign currency forward exchange contracts. At June 30, 1996,
the carrying values of the company's financial instruments approximated
their fair values based on current market rates.
It is the policy of the company not to enter into derivative financial
instruments for speculative purposes. The company does enter into
foreign currency forward exchange contracts to protect itself from
adverse currency rate fluctuations on foreign currency commitments
entered into in the ordinary course of business. These commitments are
generally for terms of less than one year. The foreign currency forward
exchange contracts are executed with creditworthy banks and are
denominated in currencies of major industrial countries. The notional
amount of outstanding foreign currency forward exchange contracts
aggregated $862 million at June 30, 1996 and $681 million at
September 30, 1995. 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.
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
13. Accrued retirement benefits consisted of the following (in millions):
June 30 September 30
1996 1995
Accrued retirement medical costs......... $2,478 $2,539
Accrued pension costs.................... 222 196
Total.................................. 2,700 2,735
Amount classified as current liability... 199 199
Accrued retirement benefits............ $2,501 $2,536
14. In the quarter ended June 30, 1996, the company purchased .1 million
shares of Common Stock for $7 million. Since the company's Common Stock
repurchase program began in 1984, the company has purchased
114.8 million shares of Common Stock for $2.7 billion.
15. 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.
16. On July 1, 1996, the company redeemed all of its outstanding $4.75
Convertible Preferred Stock, Series A and $1.35 Convertible Preferred
Stock, Series B at redemption prices of $100.00 per share for the
Series A stock and $36.00 per share for the Series B stock.
Substantially all shares of Series A and B preferred stock were
converted into Common Stock and Class A Common Stock prior to the
redemption date.
ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
On July 31, 1996, the company signed a definitive agreement under which Boeing
will acquire Aerospace and Defense for approximately $3.2 billion, including
approximately $.9 billion of Boeing stock to the company's shareowners and the
assumption by Boeing of approximately $2.3 billion of liabilities of the
company, principally debt. The acquisition will be effected by means of a
"Morris Trust" transaction in which all of the company's businesses, other
than Aerospace and Defense, will first be contributed to a new subsidiary of
the company which will be spun off to the company's shareowners, after which
the company will merge with a subsidiary of Boeing. The transaction is
subject to approval by the company's shareowners, consent of the company's
noteholders, and the receipt of various regulatory approvals.
Aerospace and Defense had revenues of $2,273 million and $2,350 million for
the nine-month periods ended June 30, 1996 and 1995, respectively and
$797 million and $825 million for the three-month periods ended June 30, 1996
and 1995, respectively.
The company expects full year 1996 sales of approximately $14 billion and
earnings per share of at least $3.90. Sales of continuing operations, which
exclude the Aerospace and Defense and Graphic Systems businesses, are
projected to approximate $10.4 billion for the full year 1996 and the related
income from continuing operations and earnings per share are currently
projected to be approximately $675 million and $3.10 per share, respectively,
which exclude the interest expense related to the debt to be assumed by Boeing
and corporate overhead costs allocable to the Aerospace and Defense business.
The projected income from continuing operations and earnings per share amounts
exclude the effect of the one-time write-off of approximately $120 million
($.55 per share) of in-process research and development in connection with the
company's acquisition of Brooktree Corporation, which is expected to close in
September 1996.
The company's press release dated August 1, 1996 is filed herewith as
Exhibit 99 and is incorporated herein by reference. See also "Cautionary
Statement" in Item 5 of Part II of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
1996 Third Quarter Compared to 1995 Third Quarter
The contributions to sales and earnings by business segment of the company for
the third quarter of fiscal 1996 and 1995 are presented below (in millions).
Three Months Ended
June 30
1996 1995
Sales
Electronics
Automation $ 1,072 $ 1,029
Avionics 374 350
Semiconductor Systems 409 209
Defense Electronics 246 260
Total Electronics 2,101 1,848
Aerospace
Space Systems 457 474
Aircraft 130 133
Total Aerospace 587 607
Automotive
Heavy Vehicle Systems 461 510
Light Vehicle Systems 340 325
Total Automotive 801 835
Sales of ongoing businesses 3,489 3,290
Divested business - 2
Total $ 3,489 $ 3,292
Operating Earnings
Electronics
Automation $ 145 $ 139
Avionics 45 53
Semiconductor Systems 83 31
Defense Electronics 29 35
Total Electronics 302 258
Aerospace 105 83
Automotive 47 61
Operating earnings of ongoing businesses 454 402
Divested business - (3)
General corporate - net (32) (33)
Interest expense (46) (51)
Provision for income taxes (147) (125)
Income from continuing operations 229 190
(Loss) Income from discontinued operations,
net of tax (6) 7
Net income $ 223 $ 197
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Sales for the 1996 third quarter rose to $3.5 billion, up six percent from
$3.3 billion in 1995's third quarter. The quarter's results were led by the
continuing growth of the Semiconductor Systems business. Sales by the
Semiconductor Systems business increased $200 million over 1995's third
quarter. Current year third quarter sales increases were also achieved by the
Automation, Avionics, and Light Vehicle Systems Businesses; while lower sales
were recorded in the Aerospace, Defense Electronics, and Heavy Vehicle Systems
businesses. The sales growth continues to define the dramatic change in the
composition of Rockwell. In the quarter, commercial and international sales
were up nearly 10 percent from last year's third quarter and now comprise 75
percent of total sales compared to 72 percent in the third quarter of 1995.
Income from continuing operations for 1996's third quarter increased 21
percent from 1995's third quarter earnings from $190 million to $229 million.
The Semiconductor Systems business earnings more than doubled 1995's third
quarter earnings. Higher earnings were also recorded by the Automation and
Aerospace businesses.
Electronics:
The company's Electronics businesses accounted for 60 percent of total sales
and 67 percent of total operating earnings in the third quarter of 1996.
Semiconductor Systems earnings more than doubled last year's third quarter
fueled by the $200 million sales increase. The business continued to
experience strong demand for its very high-speed personal computer and fax
modem products and again achieved an excellent 20 percent return on sales in
the quarter. Historically, Semiconductor Systems' backlog has been equal to
three to four months of billings. During the recent period of capacity
constraints in the semiconductor industry, multiple orders were common.
During the fourth fiscal quarter, the company expects backlog to return to
more normal levels and new orders to equal billings. Sales of Semiconductor
Systems in the fourth quarter of 1996 are expected to be somewhat lower than
the third quarter of 1996.
Automation earnings increased as the business continued its trend of improved
profit margins. Automation's third quarter return on sales improved to 13.5
percent compared to 12.2 percent in the second quarter and 11.3 percent in the
first quarter.
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Electronics (Continued):
Avionics third quarter earnings were down 15 percent from 1995's third quarter
principally due to higher discretionary expenses. The business' General
Aviation division continues to record strong sales and earnings and Avionics
is beginning to see a strengthening in the air transport markets.
Defense Electronics third quarter sales and earnings were both down slightly
from the year earlier quarter.
Aerospace:
Aerospace third quarter earnings were up 26 percent over last year's third
quarter with equal earnings increases achieved by the Space Systems and
Aircraft businesses. Higher award fees and improved contract performance, as
well as last year's Space Systems earnings being reduced by a property
reserve, were the principal reasons for the earnings increase.
Automotive:
Automotive's earnings for the 1996 third quarter were 23 percent lower than
1995's third quarter due to an $11 million reserve for restructuring Light
Vehicle Systems European operations. Excluding this reserve, Automotive's
return on sales for the current quarter was 7.3 percent, the same as last
year's third quarter.
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
The contributions to sales and earnings by business segment of the company for
the nine months ended June 30, 1996 and 1995 are presented below (in
millions).
Nine Months Ended
June 30
1996 1995
Sales
Electronics
Automation $ 3,063 $ 2,575
Avionics 1,039 980
Semiconductor Systems 1,102 525
Defense Electronics 671 652
Total Electronics 5,875 4,732
Aerospace
Space Systems 1,336 1,397
Aircraft 369 397
Total Aerospace 1,705 1,794
Automotive
Heavy Vehicle Systems 1,386 1,473
Light Vehicle Systems 1,007 901
Total Automotive 2,393 2,374
Sales of ongoing businesses 9,973 8,900
Divested business - 8
Total $ 9,973 $ 8,908
Operating Earnings
Electronics
Automation $ 379 $ 368
Avionics 105 114
Semiconductor Systems 246 63
Defense Electronics 91 112
Total Electronics 821 657
Aerospace 289 255
Automotive 154 171
Operating earnings of ongoing businesses 1,264 1,083
Divested business - (8)
General corporate - net (79) (89)
Interest expense (143) (117)
Provision for income taxes (408) (345)
Income from continuing operations 634 524
(Loss) Income from discontinued operations,
net of tax (5) 29
Net income $ 629 $ 553
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Sales totaled $10 billion for the first nine months of this year compared to
$8.9 billion for the same period a year ago, an increase of 12 percent
primarily due to the continued rapid growth of the Semiconductor Systems
business and the inclusion of $338 million of first quarter sales of Reliance.
Earnings from continuing operations were $634 million, or $2.91 per share, an
increase of 21 percent over 1995's comparable earnings.
Electronics earnings for the first nine months of fiscal 1996 were up 25
percent from the same period a year ago due to substantial earnings increases
in the Semiconductor Systems business. Semiconductor Systems performance
reflects continued strong demand for its very high-speed personal computer and
fax modem products. Automation's earnings increased slightly, as the business
made significant investments in international marketing, new product launches,
and manufacturing and distribution facilities to improve customer service.
Avionics earnings reflected higher sales in its commercial aircraft businesses
but were eight percent below last year due to higher discretionary expenses
and a charge resulting from the bankruptcy of Fokker N.V. Defense Electronics
earnings were below those of last year's nine months due to unfavorable
contract adjustments.
As a result of higher award fees and improved contract performance, as well as
last year's Space Systems earnings being reduced by a property reserve,
Aerospace earnings for the first nine months of 1996 increased 13 percent over
the first nine months of 1995.
Automotive's earnings for the first nine months of 1996 decreased 10 percent
from last year's first nine months primarily due to depressed economic
conditions in Brazil and Mexico and an $11 million reserve for restructuring
Light Vehicle Systems European operations, which more than offset improved
cost performance in Heavy Vehicle Systems, volume improvement in Light Vehicle
Systems, and a gain on the sale of a plant.
Interest expense for the first nine months of 1996 increased due to borrowings
related to the Reliance acquisition.
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION
The company announced that due to current and forecasted favorable pricing in
the worldwide semiconductor silicon wafer fabrication marketplace, the
Semiconductor Systems business will delay by approximately 12 months the
production start-up of its new facility currently under construction in
Colorado Springs.
The company is in the process of evaluating the effect of the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Management anticipates that the adoption of this standard will not have
a material effect on the company's financial statements.
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
Environmental Issues in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, on pages 17-18 of the company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1995.
Management believes that at June 30, 1996 there has been no material change to
this information. See also Item 1. of Part II of this Quarterly Report on
Form 10-Q.
Other Financial Information
(a) The company's backlog on June 30, 1996 was $10.9 billion compared to
$10.7 billion on June 30, 1995. The backlog includes $5.3 billion of
commercial orders, $2.3 billion of funded government orders, and
$3.3 billion of unfunded government orders. Backlog by major businesses
is as follows (in millions):
June 30 September 30 June 30
1996 1995 1995
Electronics
Automation $ 657 $ 589 $ 617
Avionics 1,378 1,135 1,109
Semiconductor Systems 758 1,037 571
Defense Electronics 1,673 1,502 1,429
4,466 4,263 3,726
Aerospace
Space Systems 3,374 3,839 4,271
Aircraft 2,631 2,610 2,126
6,005 6,449 6,397
Automotive 456 563 538
Total Backlog $10,927 $11,275 $10,661
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION (CONTINUED)
Other Financial Information (Continued)
(b) The composition of the company's sales by customer is as follows (in
millions):
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
U.S. Commercial $1,378 $1,301 $4,017 $3,337
International 1,235 1,077 3,465 2,935
U.S. Government:
DOD 496 525 1,379 1,535
NASA 380 389 1,112 1,101
Total $3,489 $3,292 $9,973 $8,908
EXHIBIT 11
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
(In millions, except per share amounts)
Primary earnings per share:
Income from continuing operations... $229.0 $190.0 $634.0 $524.0
Deduct dividend requirements
on preferred stock................ .1 .1 .2 .2
Total primary earnings from
continuing operations............. $228.9 $189.9 $633.8 $523.8
Average number of common shares
outstanding during the period..... 217.7 216.8 217.3 217.3
Primary earnings per share from
continuing operations............. $ 1.04 $ .87 $ 2.91 $ 2.41
Primary earnings per share from
discontinued operations........... (.02) .03 (.02) .13
Net primary earnings per share ..... $ 1.02 $ .90 $ 2.89 $ 2.54
Fully diluted earnings per share:
Income from continuing operations... $229.0 $190.0 $634.0 $524.0
Average number of common shares
outstanding during the period
assuming full dilution:
Common stock................... 217.7 216.8 217.3 217.3
Assumed issuance of stock under
award plans and conversion of
preferred stock.............. 3.6 5.0 3.8 5.2
Total fully diluted shares.......... 221.3 221.8 221.1 222.5
Fully diluted earnings from
continuing operations............. $ 1.02 $ .86 $ 2.86 $ 2.37
Fully diluted earnings per share
from discontinued operations...... (.02) .02 (.02) .12
Net fully diluted earnings
per share......................... $ 1.00 $ .88 $ 2.84 $ 2.49
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 compensatory and punitive damages aggregating $218 million for
property damage. The action had been brought August 12, 1993 by owners of
flood plain real property near Russellville, Kentucky allegedly damaged by
PCB's discharged from a plant owned and operated by the company's
Measurement & Flow Control Division prior to its divestiture in March 1989.
The company believes that the verdict is unsupported by the evidence and, on
July 3, 1996, moved for judgment in its favor notwithstanding the
verdict or, in the alternative for a new trial.
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.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results (including certain projections and business trends)
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 changes in political and
economic conditions; domestic and foreign government spending,
budgetary and trade policies; demand for and market acceptance of new
and existing products; successful development of advanced
technologies; and competitive product and pricing pressures, 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges for the nine months ended June 30, 1996.
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Press Release dated August 1, 1996, "Rockwell
to Sell its Aerospace and Defense Businesses to Boeing"
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996.
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 14, 1996 By L. J. Komatz
L. J. Komatz
Vice President and Controller
(Principal Accounting Officer)
Date August 14, 1996 By W. J. Calise, Jr.
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
- - -21-
ROCKWELL INTERNATIONAL CORPORATION
INDEX OF EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Page
Exhibit 12 Computation of Ratio of Earnings to Fixed 23
Charges for the Nine Months Ended June 30, 1996
Exhibit 99 Press Release dated August 1, 1996, "Rockwell 24
to Sell its Aerospace and Defense Businesses to Boeing"
- - -22-
Exhibit 12
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED JUNE 30, 1996
(In millions, except ratio)
EARNINGS AVAILABLE FOR FIXED CHARGES:
Income from continuing operations before income taxes..... $1,042.0
Adjustments:
Undistributed income of affiliates..................... (8.6)
Minority interest in loss of subsidiaries.............. 7.9
1,041.3
Add fixed charges included in earnings:
Interest expense....................................... 143.0
Interest element of rentals............................ 51.8
194.8
Total earnings available for fixed charges................ $1,236.1
FIXED CHARGES:
Fixed charges included in earnings........................ $ 194.8
Capitalized interest...................................... 4.0
Total fixed charges.................................... $ 198.8
RATIO OF EARNINGS TO FIXED CHARGES (1)....................... 6.2
(1) In computing the ratio of earnings to fixed charges, earnings are
defined as income from continuing operations before income taxes
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.
- - -23-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 CONSOLIDATED BALANCE SHEET, STATEMENT OF CONSOLIDATED INCOME FOR THE NINE
MONTHS ENDED JUNE 30, 1996 AND NOTES TO FINANCIAL STATEMENTS AND IS QUALIFIED IN
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Exhibit 99
Contact: William A. Blanning
(310) 797-5819
Rockwell to Sell Its Aerospace and Defense Businesses to Boeing
-- Rockwell Accelerates Transformation to High-Growth Commercial and
International Company
-- Boeing Significantly Enhances its Position as Global Competitor in
Key Defense and Aerospace Markets
SEAL BEACH, Calif. (August 1, 1996) -- Rockwell International
Corporation (NYSE:ROK) and The Boeing Company (NYSE:BA) announced today that
they have signed a definitive agreement under which Boeing will acquire
Rockwell's Aerospace and Defense businesses for approximately $3.2 billion.
"This is a historic step in the continuing transformation of Rockwell,
which has been shifting strategic focus to higher growth commercial and
international businesses, with primary growth derived from its electronics
businesses," said Donald R. Beall, Rockwell chairman and chief executive
officer. "Rockwell's automation, avionics and communications, semiconductor
systems and automotive components businesses, leading global competitors with
strong market positions, just got stronger."
Phil Condit, Boeing president and chief executive officer, said, "The
assets and capabilities we are acquiring are an extremely good strategic fit
with our long-term objective of creating shareholder value. This merger
accelerates us on our way to achieving our 20-year vision, which calls for
Boeing to be a fully integrated aerospace company designing, producing and
supporting commercial airplanes, defense systems, and defense and civil space
systems."
Immediately prior to the transaction, Rockwell will transfer its
Automation, Avionics and Communications, Semiconductor Systems and Automotive
components businesses to a new company, which will retain the Rockwell name.
Shares of the new Rockwell will be distributed to Rockwell shareowners on the
effective date of the transaction on a one-for-one share basis. The new
Rockwell will be listed on the New York Stock Exchange.
In the transaction, which is intended to be tax free, Boeing will issue
approximately $860 million of its common stock and will assume $2.165 billion
of Rockwell debt and certain retiree liabilities.
Rockwell also announced that its Board of Directors has stated its
intention, when it becomes the Board of the new Rockwell, to authorize a
$1 billion stock repurchase program. This would in effect continue the program
under which Rockwell has repurchased $2.6 billion of its shares since 1984, at
an average price of $23 per share.
The New Rockwell
The new Rockwell comprises:
Rockwell Automation -- Milwaukee, Wis.
Rockwell Avionics and Communications
-- Collins Commercial Avionics -- Cedar Rapids, Iowa
-- Collins Avionics & Communications Division -- Cedar Rapids, Iowa
-- Communications Systems Division -- Richardson, Texas
Rockwell Semiconductor Systems -- Newport Beach, Calif.
Rockwell Automotive -- Troy, Mich.
-- Light Vehicle Systems
-- Heavy Vehicle Systems
Rockwell Science Center -- Thousand Oaks, Calif.
"Our businesses in automation, avionics and communications,
semiconductor systems, and automotive are global leaders today and at the top
of their class," Beall said. "These are great businesses, with leading market
positions, well-known brands and global presence. The new Rockwell's financial
strength and our ability to focus even more intensely on these businesses set
the stage for more rapid growth and greater profitability."
Beall outlined several key factors that will drive the new Rockwell's
future growth:
Financial firepower. The new Rockwell will be essentially debt-free and
well-positioned for significant investments in its leadership businesses.
With $4 billion in financial capacity, the company will be looking for even
larger investments in new products and market development, both large and
small acquisitions, and share repurchases.
Global growth. Nearly half of the new Rockwell sales are currently outside
the United States. "The new Rockwell is committed to continued expansion of
its presence worldwide as each of its businesses strives to be leading
suppliers to their respective markets in Asia-Pacific, Europe and the
Americas," Beall said.
Technology leadership, a Rockwell hallmark. The pace of development and
application of leading edge technologies will accelerate, as Rockwell's
businesses and the company's world-class Science Center in California, and
other research and development centers around the world, anticipate market
requirements and respond to customer needs. The Science Center will
continue its aerospace and defense R&D work under a shared resource
arrangement with Boeing.
Strong performance. The new Rockwell businesses have already demonstrated
their growth potential, achieving a 19 percent sales growth rate and a 29
percent operating profit growth rate over the past three years.
Further, Rockwell's operating performance has been equal to or better than
top global peer companies during the same period. "With our added financial
muscle and focus on these leadership businesses, we are well positioned to
see them reach their full potential," Beall said.
Outstanding employees. "Rockwell has always attracted high caliber
employees, and that pool of talent will continue to be vital to the
company's success," Beall said.
He added: "These key factors fuel my enthusiasm for the new Rockwell and
my high expectations for the future. We are well-positioned for significant
growth going into the next millennium. The new Rockwell is good news for our
customers, our shareholders, our employees and the communities where we live
and work."
Aerospace and Defense
"Our Aerospace and Defense businesses, with their strong franchises,
solid management, excellent technologies and outstanding employees, have
made strong contributions to Rockwell's success through their world class
performance," Beall said. "The benefits to those businesses, their customers
and their employees of the alliance with Boeing are compelling. The
complementary strengths of Boeing and our Aerospace and Defense businesses
create a $9 billion leading global competitor in this industry."
Beall concluded, "From a Rockwell shareowner value perspective, this
transaction compares very favorably to other recent aerospace and defense
industry consolidation actions."
The Rockwell Aerospace and Defense organization to be merged with Boeing
has combined sales of approximately $3 billion. These businesses and their
headquarters locations are:
Space Systems Division -- Downey, Calif.
Rocketdyne Division -- Canoga Park, Calif.
Autonetics & Missile Systems Division -- Anaheim, Calif.
North American Aircraft Division -- Seal Beach, Calif.
North American Aircraft Modification Division -- Anaheim, Calif.
Collins International Service Company -- Richardson, Texas
Systems Development Center -- Seal Beach, Calif.
Rockwell's 50% share of United Space Alliance, a joint venture with
Lockheed Martin Corporation -- Houston, Texas
Rockwell Australia -- Canberra, ACT, Australia
The acquired units will become a wholly-owned subsidiary of The Boeing
Company and will be called Boeing North American, Inc. The Rockwell Defense
and Aerospace businesses employ approximately 21,000 people, all of whom will
become part of Boeing's Defense & Space Group, reporting to its president,
Jerry King. Boeing North American will be headed by John A. McLuckey,
currently president and chief operating officer of Rockwell Aerospace &
Defense.
Rockwell's Seal Beach facilities, which currently include the company's
world headquarters, will become a Boeing facility. Rockwell will maintain its
world headquarters in Southern California at a new location to be selected.
The transaction is subject to approval by Rockwell's shareowners,
certain regulatory approvals, approval of holders of Rockwell debt and other
provisions generally applicable in similar transactions. A special Rockwell
shareowners meeting will be held in November and the transaction is expected
to be completed shortly thereafter.
Morgan Stanley & Co. and Dillon, Read & Co. Inc. are serving as
financial advisers to Rockwell and CS First Boston is advising Boeing.
The new Rockwell will be a global, technology-centered company with
leadership market positions in automation, avionics, commercial and government
communications, semiconductor systems, and automotive component systems, with
projected sales of approximately $10 billion.
- - -24-
