-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvJBHPr2yuXwZTLG6r78NS4I2+9Gp7vIG34GmDIxPwDRJ07r825VjqbKyplo2Juo gBmmVZMPqy7Rty5ak0EWWw== 0000084636-96-000029.txt : 19960918 0000084636-96-000029.hdr.sgml : 19960918 ACCESSION NUMBER: 0000084636-96-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKWELL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000084636 STANDARD INDUSTRIAL CLASSIFICATION: 3760 IRS NUMBER: 951054708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01035 FILM NUMBER: 96612296 BUSINESS ADDRESS: STREET 1: 2201 SEAL BEACH BOULEVARD CITY: SEAL BEACH STATE: CA ZIP: 90740 BUSINESS PHONE: 4125654004 MAIL ADDRESS: STREET 1: 2201 SEAL BEACH BOULEVARD CITY: SEAL BEACH STATE: CA ZIP: 90740 FORMER COMPANY: FORMER CONFORMED NAME: NORTH AMERICAN AVIATION INC DATE OF NAME CHANGE: 19671017 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 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- EX-12 2 EX-12-EARNINGS TO FIXED CHARGES 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- EX-27 3 EX-27 FINANCIAL DATA SCHEDULE
5 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 ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 618 0 2324 93 2127 6183 3003 0 12542 3745 1763 0 1 238 3951 12542 9973 10073 7540 9031 0 0 143 1042 408 634 (5) 0 0 629 2.89 2.84
EX-99 4 PRESS RELEASE DATED AUGUST 1, 1996 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- -----END PRIVACY-ENHANCED MESSAGE-----