1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended DecemberMarch 31, 1996
------------------------------1997
Commission file number 1-12383
------------------------
Rockwell International Corporation
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 25-1797617
- - ------------------------------------------------------------------------------
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__X No
_____
189,643,864213,072,478 shares of registrant's Common Stock, $1.00 par value, and
27,061,080 shares of registrant's Class A Common Stock, $1.00 par value, were
outstanding on January 31,April 30, 1997.
2
ROCKWELL INTERNATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Condensed Consolidated Balance Sheet--
DecemberMarch 31, 19961997 and September 30, 1996.......... 2
Statement of Consolidated Income--Three Months
and Six Months Ended DecemberMarch 31, 19961997 and 1995...................1996.. 3
Statement of Consolidated Cash Flows--
ThreeSix Months Ended DecemberMarch 31, 19961997 and 1995......1996...... 4
Notes to Financial Statements......................Statements.................. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................Operations.................................. 9
Other Financial Information...................... 11
Exhibit 11 - Computation of Earnings Per Share.............. 12Information.................... 13
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................... 13Proceedings.............................. 14
Item 4. Submission of Matters to a Vote of Security
Holders................................ 13Holders........................................ 15
Item 5. Other Information............................... 14Information.............................. 15
Item 6. Exhibits and Reports on Form 8-K................ 14
8-K............... 16
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
ASSETS (In millions)
Current assets:
Cash.........................................Cash........................................... $ 853693 $ 715695
Receivables (less allowance for doubtful
accounts: DecemberMarch 31, 1996, $110;1997, $88;
September 30, 1996, $98)................... 1,633 1,661
Inventories.................................. 1,795 1,780$83)..................... 1,165 1,176
Inventories.................................... 1,499 1,488
Deferred income taxes........................ 325 306taxes.......................... 231 211
Other current assets......................... 360 336assets........................... 325 290
Net assets of Automotive....................... 592 567
Net assets of Graphic Systems................Systems.................. - 560
------- -------
Total current assets................. 4,966 5,358assets................... 4,505 4,987
Net property.................................... 2,638 2,662property...................................... 2,033 2,001
Intangible assets............................... 1,803 1,809assets................................. 1,789 1,759
Other assets.................................... 268 236
------- -------
TOTAL..................assets...................................... 216 214
TOTAL.................... $ 9,675 $10,065
======= =======8,543 $ 8,961
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt..............................debt................................ $ 104246 $ 350324
Accounts payable............................. 1,027 1,220payable............................... 685 802
Accrued compensation and benefits............ 450 508benefits.............. 368 390
Accrued income taxes......................... 233 154taxes........................... 142 151
Other current liabilities.................... 835 740liabilities...................... 596 538
Net liabilities of A&D Business..............Business................ - 1,309
------- -------
Total current liabilities............ 2,649 4,281liabilities.............. 2,037 3,514
Long-term debt.................................. 163 161debt.................................... 154 156
Accrued retirement benefits..................... 1,104 1,096benefits....................... 762 753
Other liabilities...............................liabilities................................. 288 282
271
------- -------
Total liabilities........... 4,198 5,809
------- -------liabilities............. 3,241 4,705
Shareowners' equity:
Common Stock (shares issued: DecemberMarch 31, 1996, 191.8;1997,
216.4; September 30, 1996, 209.5)............... 192........... 216 210
Class A Common Stock (shares issued:
December 31, 1996, 27.2;
September 30, 1996, 27.9)................. 2727.9 million)........... - 28
Additional paid-in capital................... 855capital..................... 866 199
Retained earnings............................ 4,564earnings.............................. 4,504 4,466
Currency translation adjustments............. (101)adjustments............... (142) (103)
Common Stock in treasury, at cost (shares held:
DecemberMarch 31, 1996, 1.0;1997, 2.1 million;
September 30, 1996, 18.9)................. (60)18.9 million)........... (142) (544)
------- -------
Total shareowners' equity... 5,477equity..... 5,302 4,256
------- -------
TOTAL..................TOTAL.................... $ 9,675 $10,065
======= =======8,543 $ 8,961
See Notes to Financial Statements.
-2-
4
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended DecemberSix Months Ended
March 31 -------------------March 31
1997 1996 1995
------- -------1997 1996
(In millions)
Revenues:
Sales..............................................Sales........................... $ 2,6081,899 $ 2,3851,794 $ 3,752 $ 3,424
Other income.......................................income.................... 20 29
------- -------19 38 38
Total revenues................................... 2,628 2,414
------- -------revenues................ 1,919 1,813 3,790 3,462
Costs and expenses:
Cost of sales...................................... 1,943 1,810sales................... 1,325 1,274 2,610 2,400
Selling, general, and
administrative............... 390 350
Interest........................................... 5administrative................ 339 334 675 638
Interest........................ 6 ------- ------7 10 12
Total costs and expenses......................... 2,338 2,166
------- ------expenses...... 1,670 1,615 3,295 3,050
Income from continuing operations
before income taxes................................ 290 248taxes............. 249 198 495 412
Provision for income taxes....................... 111 96
------- -------taxes........ 94 77 186 160
INCOME FROM CONTINUING
OPERATIONS.................... 179 152OPERATIONS...................... 155 121 309 252
Income from discontinued
operations.............. - 40
------- -------
NET INCOME...........................................operations...................... 34 93 59 154
Net income ....................... $ 179189 $ 192
======= =======214 $ 368 $ 406
(In dollars)
Earnings per share:
Continuing operations...........................CONTINUING OPERATIONS.......... $ .82.72 $ .70.55 $ 1.42 $ 1.16
Discontinued operations......................... - .19
------- -------operations........ .15 .43 .27 .71
Net income......................................income................... $ .82.87 $ .89
======= =======.98 $ 1.69 $ 1.87
Cash dividends per common share... $ .29 $ .29 $ .58 $ .58
(In millions)
Average outstanding shares........................... 218.7 217.0
======= =======shares........ 216.2 217.3 217.4 217.2
See Notes to Financial Statements.
-3-
5
ROCKWELL INTERNATIONAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
ThreeSix Months Ended
DecemberMarch 31
------------------1997 1996 1995
------ ------
(In millions)
Continuing Operations:CONTINUING OPERATIONS:
Operating Activities
Income from continuing operations.......................operations.................... $ 179309 $ 152252
Adjustments to income from continuing operations
to arrive at cash provided by operating activities:
Depreciation........................................ 120 89Depreciation..................................... 178 135
Amortization of intangible assets................... 22 26assets................ 45 47
Deferred income taxes............................... 16 25taxes............................ (25) 50
Pension expense, net of contributions............... 22contributions............ 26 28
Changes in assets and liabilities, excluding
effects of acquisitions, divestitures, and
foreign currency adjustments:
Receivables..................................... 24 (2)
Inventories..................................... (17) (67)Receivables.................................. (25) (88)
Inventories.................................. (27) (96)
Accounts payable................................ (181) (162)payable............................. (93) (16)
Accrued Income taxes............................ 54 83income taxes......................... (26) (33)
Other assets and liabilities.................... (18) (135)
------- -------liabilities................. 12 (65)
Cash Provided byBy Operating Activities 221 37
------- -------Activities..... 374 214
Investing Activities
Property additions...................................... (113) (126)additions................................... (257) (279)
Acquisition of businesses (net of cash acquired)........ (14) -..... (23) (2)
Proceeds from disposition of property and businesses.... 559 8
------- -------businesses. 565 14
Cash Provided byBy (Used for)For)
Investing Activities................................. 432 (118)
------- -------Activities.................... 285 (267)
Financing Activities
(Decrease) increase in short-term borrowings............ (242) 41
Increase in long-term debt.............................. 2 -borrowings......... (61) 35
Payments of long-term debt.............................. (1) (2)
------- -------debt........................... (14) (15)
Net (decrease) increase in debt......................... (241) 39debt...................... (75) 20
Purchase of treasury stock.............................. (61) (18)
Dividends............................................... (63) (63)stock........................... (342) (40)
Dividends............................................ (126) (126)
Reissuance of common stock.............................. 14 9
------- -------stock........................... 33 31
Cash Used forFor Financing Activities........... (351) (33)
------- -------Activities........ (510) (115)
CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS....... 302 (114)
------- -------OPERATIONS.... 149 (168)
Discontinued Operations:
Operating activities............................. (107) (32)Activities............................. (45) 9
Investing activities............................. (9) (7)Activities............................. (67) (46)
Financing activities............................. (48) 21
------- -------Activities............................. (39) 133
Cash Used for(Used for) Provided By
Discontinued Operations........ (164) (18)
------- -------
INCREASE (DECREASE)Operations...................... (151) 96
DECREASE IN CASH............................. 138 (132)CASH..................................... (2) (72)
CASH AT BEGINNING OF PERIOD............................. 715 686
------- -------PERIOD.......................... 695 675
CASH AT END OF PERIOD...................................PERIOD................................ $ 853693 $ 554
======= =======603
Income tax payments were $28$264 million and $25$277 million in the threesix months ended
DecemberMarch 31, 19961997 and 1995,1996, respectively.
See Notes to Financial Statements.
-4-
6
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 on
Form 10-K for the fiscal year ended September 30, 1996. The results of
operations for the three-month periodthree- and six-month periods ended DecemberMarch 31, 19961997 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. Discontinued operations include the Automotive business (Automotive),
the Aerospace and Defense businesses (A&D Business) and the Graphic
Systems business (Graphic Systems).
In March 1997, the company announced its intention to spin-off
Automotive into a new, separately traded, publicly held company. The
spin-off is subject to several conditions including receipt of a ruling
by the U.S. Internal Revenue Service that the transaction will qualify
as a tax-free distribution. The shares of the new Automotive company
will be distributed to Rockwell shareowners with each shareowner
receiving one share of the new Automotive company for every three shares
of Rockwell owned. The transaction is expected to be completed by the
end of the company's 1997 fiscal year.
On December 6, 1996, the company completed the merger of its
Aerospace and
Defense businesses (AA&D Business)Business with The Boeing Company (Boeing) in a tax-free transaction
valued at approximately $3.2 billion, including the assumption by Boeing
of approximately $2.3 billion of liabilities, principally debt. Boeing
issued approximately $860 million of its stock in exchange for the
company's shareowners' interest in the A&D Business.
Immediately prior to the merger, the company transferred its Automation,
Avionics & Communications, Semiconductor Systems, and Automotive
businesses to a new company (New Rockwell), which has retained the
Rockwell name, and
is reflected in the financial statements as the continuing operations of
Rockwell for all periods presented.name. On the effective date of the transaction, shares of
New Rockwell were distributed to the company's shareowners on a
one-for-one basis, all shares of Common Stock held in treasury were
canceled, and the net liabilities of the A&D Business of approximately
$1.1 billion were recorded as an increase to shareowners' equity.
In October 1996, the company completed the sale of Graphic Systems to
an affiliate of Stonington Partners, Inc. for approximately $600 million.
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The revenuesfollowing table summarizes the results of discontinued operations
for the three- and six-month periods ended March 31, 1997 and 1996 (in
millions):
Three Months Ended Six Months Ended
March 31 March 31
1997 1996 1997 1996
Revenues:
Automotive.................. $ 827 $ 854 $1,594 $1,619
A&D Business................ - 797 535 1,477
Graphic Systems............. - 237 - 352
Total..................... 827 1,888 2,129 3,448
Income before income taxes:
Automotive.................. 56 64 100 97
A&D Business................ - 90 - (a) 159
Graphic Systems............. - 6 - 5
Total..................... 56 160 100 261
Net Income:
Automotive.................. 34 39 59 60
A&D Business................ - 52 - (a) 93
Graphic Systems............. - 2 - 1
Total..................... $ 34 $ 93 $ 59 $ 154
(a) The earnings of the A&D Business for the first two months of fiscal year
1997 were $535 million and revenues for the first quarter of fiscal year
1996 were $677 million. The earnings of the A&D Business for 1997
were entirely offset by expenses relatedrelating to the completion of the transaction.
In October 1996, the company completed the sale of its Graphic Systems
business to Stonington Partners, Inc. for approximately $600 million. The
revenues of the Graphic Systems business were $115 million for the three
months ended December 31, 1995.
-5-
7
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Inventories are summarized as follows (in millions):
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
Finished goods............................. $ 498386 $ 491377
Work in process............................ 875 880723 735
Raw materials, parts, and supplies......... 483 466
------- -------399 379
Total.................................... 1,856 1,8371,508 1,491
Less allowance to adjust the carrying value
of certain inventories to a last-in,
first-out (LIFO) basis................... 61 57
------- -------
Inventories................................(9) (3)
Inventories.............................. $ 1,7951,499 $ 1,780
======= =======1,488
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Intangible assets are summarized as follows (in millions):
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
Goodwill.................................. $ 1,3041,295 $ 1,2891,244
Trademarks, patents, product technology,
and other intangibles................... 499 520
------- -------494 515
Intangible assets....................... $ 1,8031,789 $ 1,809
======= =======1,759
5. Short-term debt consisted of the following (in millions):
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
Commercial paper......................... $ -190 $ 210
Short-term foreign bank borrowings,...... 88 123borrowings....... 54 100
Current portion of long-term debt........ 16 17
------- -------2 14
Short-term debt......................... $ 104246 $ 350
======= =======324
6. Other current liabilities are summarized as follows (in millions):
December 31 September 30
1996 1996
----------- ------------
Accrued product warranties................. $ 200 $ 215
Contract reserves and advance payments..... 143 131
Accrued taxes other than income taxes...... 65 73
Other...................................... 427 321
------- -------
Other current liabilities................ $ 835 $ 740
======= =======
-6-
8
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)March 31 September 30
1997 1996
Accrued product warranties................. $ 110 $ 110
Contract reserves and advance payments..... 131 130
Accrued taxes other than income taxes...... 48 49
Other...................................... 307 249
Other current liabilities................ $ 596 $ 538
7. Long-term debt consisted of the following (in millions):
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
6.8% notes, payable in 2003............... $ 139140 $ 139
Other obligations, principally foreign.... 40 39
------- -------16 31
Total................................... 179 178156 170
Less current portion..................... 16 17
------- -------portion...................... 2 14
Long-term debt.........................debt.......................... $ 163154 $ 161
======= =======156
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. The company's financial instruments include cash, short- and long-term
debt, and foreign currency forward exchange contracts. At DecemberMarch 31,
1996,1997, the carrying values of the company's financial instruments
approximated their fair values based on current market prices and 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 $496$506 million at DecemberMarch 31, 19961997 and $919 million at
September 30, 1996. The contracts outstanding at March 31, 1997 and
September 30, 1996 included contracts relating to the A&D and Graphic Systems
businesses.company's
discontinued operations. 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.
9. Accrued retirement benefits consisted of the following (in millions):
DecemberMarch 31 September 30
1997 1996 1996
----------- ------------
Accrued retirement medical costs......... $1,009 $1,008$ 682 $ 684
Accrued pension costs.................... 172 165
------ ------126 113
Total.................................. 1,181 1,173808 797
Amount classified as current liability... 77 77
------ ------46 44
Accrued retirement benefits............ $1,104 $1,096
====== ======$ 762 $ 753
-7-
9
ROCKWELL INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Claims have been asserted against the company for utilizing the
intellectual property rights of others in certain of the company's
products. The resolution of these matters may result in the negotiation
of a license agreement, a settlement or the legal resolution of such
claims. The company accrues the estimated cost of disposition of these
matters. Management believes that the resolution of these matters will
not have a material adverse effect on the company's financial
statements.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the company relating to the conduct of
its business, including those pertaining to product liability, safety
and health, environmental, employment, and government contract
matters. The company has agreed to indemnify Boeing and the A&D
Business for certain government contract and environmental matters
related to operations of the A&D Business for periods prior to the
merger. 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.
-8-
10
ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
1997 FirstSecond Quarter Compared to 1996 FirstSecond Quarter
The contributions to sales and earnings by business segment for the continuing
operations of the company for
the firstsecond quarter of fiscal 1997 and 1996 are presented below (in millions).
Three Months Ended
DecemberMarch 31
-------------------1997 1996 1995
------ ------
Sales
Electronics
Automation $ 1,0611,114 $ 9801,011
Avionics & Communications 374 339416 350
Semiconductor Systems 418 311
------- -------369 433
Total Electronics 1,853 1,630
------- -------
Automotive
Heavy Vehicle Systems 412 431
Light Vehicle Systems 343 324
------- -------
Total Automotive 755 755
------- -------
Totalsales $ 2,6081,899 $ 2,385
======= =======1,794
Operating Earnings
Electronics
Automation $ 131149 $ 111123
Avionics & Communications 59 4157 25
Semiconductor Systems 81 80
------- -------
Total Electronics 271 232
Automotive 41 38
------- -------71 82
Operating earnings 312 270277 230
General corporate - net (17) (16)(22) (25)
Interest expense (5) (6) (7)
Provision for income taxes (111) (96)
------- -------(94) (77)
INCOME FROM CONTINUING OPERATIONS 155 121
Income from continuing operationsdiscontinued operations:
Automotive 34 39
A&D and Graphic Systems businesses - 54
Total 34 93
Net Income $ 179189 $ 152
======= =======214
-9-Sales for 1997's second quarter were six percent higher than 1996's second
quarter. Both Automation and Avionics & Communications achieved double digit
sales growth which was partially offset by lower sales in Semiconductor
Systems due to the product transition to the new K56flex modem chipsets. For
the quarter, international sales accounted for 36 percent of total sales, the
same as last year's second quarter.
Income from continuing operations totaled $155 million for 1997's second
quarter, up 28 percent from $121 million in the comparable quarter last
year. Earnings per share from continuing operations for 1997's second quarter
was 72 cents, an increase of 31 percent over 1996's comparable second quarter
performance of 55 cents per share. The higher percentage increase in earnings
per share resulted from the company's stock repurchase program.
11
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Automation:
Automation earnings increased 21 percent over last year's second quarter as a
result of a 10 percent sales growth, principally in North America and Asia,
combined with continued productivity improvements and product cost
reductions. Automation's second quarter earnings as a percent of sales were
13 percent compared to 12 percent last year.
Avionics & Communications:
Avionics & Communications earnings were more than double 1996's second quarter
results primarily due to improved commercial air transport markets and last
year's $11 million charge related to the Fokker N.V. bankruptcy. Avionics &
Communications earnings as a percent of sales rose to 14 percent from
7 percent in last year's second quarter.
Semiconductor Systems:
Second quarter Semiconductor Systems earnings were 13 percent below last
year's second quarter due primarily to the transition to the new K56flex modem
chipsets. The 19 percent return on sales matched last year's second quarter
as investments to implement more cost-effective manufacturing processes have
reduced Semiconductor Systems' cost to produce wafers as compared to the
higher proportion of more expensive external foundry wafers required a year
ago.
Discontinued Operations:
For the 1997 second quarter, Automotive's sales totaled $822 million, slightly
below 1996's second quarter. Automotive's income, after tax, was $34 million
for the 1997 second quarter compared to $39 million in 1996's second quarter
which included an $8 million after-tax gain on the sale of a plant.
Including the discontinued Automotive business, net income for the
second quarter of 1997 totaled $189 million, or $.87 per share. Comparable
income for the same period in 1996 was $160 million, or $.74 per share. Last
year's net income including the earnings of the divested A&D and Graphic
Systems businesses, as well as the discontinued Automotive business, was
$214 million, or $.98 per share.
ROCKWELL INTERNATIONAL CORPORATION
Six Months Ended March 31, 1997 Compared to Six Months Ended March 31, 1996
The contributions to sales and earnings by business segment of the company for
the six months ended March 31, 1997 and 1996 are presented below (in
millions).
Six Months Ended
March 31
1997 1996
Sales
Automation $ 2,175 $ 1,991
Avionics & Communications 790 689
Semiconductor Systems 787 744
Total sales $ 3,752 $ 3,424
Operating Earnings
Automation $ 280 $ 234
Avionics & Communications 116 66
Semiconductor Systems 152 162
Operating earnings 548 462
General corporate - net (43) (38)
Interest expense (10) (12)
Provision for income taxes (186) (160)
INCOME FROM CONTINUING OPERATIONS 309 252
Income from discontinued operations:
Automotive 59 60
A&D and Graphic Systems businesses - 94
Total 59 154
Net Income $ 368 $ 406
Sales for the first six months of 1997 first quarterincreased 10 percent over the same
period a year ago. The results were up nine percent from 1996's first
quarter. Current year first quarter increases were achievedled by Automation, Avionics & Communications Semiconductor Systems,with a
15 percent increase in sales over last year due to improved commercial air
transport markets. Additionally, Automation recorded a nine percent increase
in sales, principally in North America and Light Vehicle Systems;
while lower sales were recorded in the Heavy Vehicle Systems business. With the
sale of the A&D Business and the Graphic Systems business, Rockwell has emerged
as primarily a commercial electronics firm, with its Automation, Semiconductor
Systems and Avionics & Communications businesses accounting for 71% of sales.
Sales from Automotive account for the other 29%. International sales account
for approximately 43% of total sales.Asia.
Income from continuing operations for 1997'sthe first quartersix months of 1997 totaled
$309 million, up 23 percent over last year's income of $252 million. On a per
share basis, earnings for the first six months of 1997 of $1.42 per share
increased 18%22 percent over 1996's. Eachlast year's per share earnings of $1.16.
Automation:
Automation earnings for the four businesses posted first quarter earnings increasessix months of 1997 increased 20 percent over
the same period a year ago due to increased sales volume of higher margin
products along with productivity improvements and product cost
reductions. Earnings were lowered by significant advances achieved by Automationinvestments in international
marketing and new product launches.
ROCKWELL INTERNATIONAL CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Avionics & Communications.
Electronics:
Electronics accounted for 87% of operating earnings in the first quarter of
1997.Communications:
Avionics & Communications earnings for the first six months of 1997 increased
44%75 percent over last year's first
quarteryear as a result of higherimproved sales, improved cost
performance in defense avionics, and an $11 million charge related to the
decision to exit several non-strategic product lines during
the prior year. Avionics & Communications margin increased from 12.1%Fokker N.V. bankruptcy recorded in 1996.
Semiconductor Systems:
Semiconductor Systems earnings decreased six percent for the first quartersix months
of 1997 compared to the first six months of 1996 to 15.8%, which the Company's management believes better
characterizes the earning power of this business. Automation earnings were up
18% over 1996's first quarter due to an eight percent increase in sales which
consisted primarily of higher margin products. Automation's first quarter
earnings as a percent of sales were 12.4% compared to 11.3% in last year's first
quarter. Semiconductor Systems profits were slightly ahead of last year's first
quarter with earnings on higher sales offsetting large investments in
new product development, particularly inthe new high-speed
56 kilobits-per-second (K56flex) modem chipsets and wireless communications
and internet access products.
Semiconductor
Systems earnings as a percentDiscontinued Operations:
For the first six months of 1997, Automotive's sales were 19.4% compared to 25.7% in last
year's first quarter reflecting lower pricing for modem products and higher
costs related to new product development.
Automotive:totaled $1,577, slightly
below 1996's comparable period. Automotive's earningsincome, after-tax, was
$59 million for the first quartersix months of 1997 were eight percent higher
thancompared to $60 million in 1996's
first quarter principallysix months which included an $8 million after-tax gain on the sale of a
plant.
Including the discontinued Automotive business, net income for the first
six months of 1997 totaled $368 million, or $1.69 per share. Comparable
income for the same period in 1996 was $312 million, or $1.44 per share. Last
year's net income including the earnings of the divested A&D and Graphic
Systems businesses, as a result of cost reduction programs inwell as the Heavy Vehicle Systemsdiscontinued Automotive business, and higher sales in the Light Vehicle
Systems business.was
$406 million, or $1.87 per share.
FINANCIAL CONDITION
The major sourceSources of cash for the first quartersix months of 1997 wasinclude the proceeds from
the sale of the Graphic Systems business for approximately $600 million,
consisting of $553 million in cash and $47 million in preferred stock. These
proceeds are being used to reduce short-term debt, fund the company's working
capital needs and repurchase Common Stock.
The net assets of Automotive at March 31, 1997 and September 30, 1996 and its
net income for the three- and six-month periods ended March 31, 1997 and 1996
have been presented as discontinued operations. Prior to the spin-off, the
new Automotive company will make a special dividend payment of approximately
$450 million to the company.
Following the completion of the divestiture of the A&D Business, the company
initiated a $1 billion Common Stock repurchase program which is expected to be
substantially completed by the end of thisthe fiscal year. Since the program was
announced, the company has purchased approximately one5.3 million shares of
common stock as of March 31, 1997 for approximately $341 million. Future
Common Stock for approximately $60 million.
-10-repurchases are expected to be financed by the operating
activities of continuing operations, the Automotive special dividend noted
above, and commercial paper borrowings if necessary.
The company's Class A Common Stock was converted into Common Stock in
accordance with its terms on February 23, 1997.
12
ROCKWELL INTERNATIONAL CORPORATION
FINANCIAL CONDITION (CONTINUED)
Information with respect to the effect on the company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained under the caption
Environmental Issues in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations of the company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996. Management believes that at December 31,
1996 there has been no material change to this information. See alsoAs discussed in
Item 1.1 of Part II of this Quarterly Report, a judgment was entered into with
respect to the company's remediation efforts at its former Russellville,
Kentucky plant. Management currently believes that the cost of these
remediation efforts will not have a material adverse effect on Form 10-Q.the company's
financial position or results of operations.
Other Financial Information
(a) The composition of the company's sales by customer is as follows (in
millions):
Three Months Ended DecemberSix Months Ended
March 31 ---------------------------March 31
1997 1996 1995
------ ------1997 1996
U.S. Commercial $1,349 $1,237$1,063 $1,029 $2,122 $1,992
International 1,124 1,018687 654 1,365 1,204
U.S. Government 135 130
------ ------149 111 265 228
Total $2,608 $2,385
====== ======$1,899 $1,794 $3,752 $3,424
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13
EXHIBIT 11
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
December 31
--------------------
1996 1995
-------- --------
(In millions, except
per share amounts)
Primary earnings per share:
Income from continuing operations................... $178.9 $152.0
Deduct dividend requirements on preferred stock..... - .1
------ ------
Total primary earnings from continuing operations... $178.9 $151.9
====== ======
Average number of common shares outstanding
during the period................................. 218.7 217.0
====== ======
Primary earnings per share from
continuing operations............................. $ .82 $ .70
Primary earnings per share from
discontinued operations........................... - .19
------ ------
Net primary earnings per share ..................... $ .82 $ .89
====== ======
Fully diluted earnings per share:
Income from continuing operations................... $178.9 $152.0
====== ======
Average number of common shares outstanding
during the period assuming full dilution:
Common stock................................... 218.7 217.0
Assumed issuance of stock under award plans
and conversion of preferred stock............ 3.2 3.3
------ ------
Total fully diluted shares.......................... 221.9 220.3
====== ======
Fully diluted earnings from continuing operations... $ .81 $ .69
Fully diluted earnings per share
from discontinued operations...................... - .18
------ ------
Net fully diluted earnings per share................ $ .81 $ .87
====== ======
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14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 27, 1995, Celeritas Technologies, Ltd., filed a suit
against the company in the United StatesU.S. District Court, Central District of
California, for patent infringement, misappropriation of trade
secrets and breach of contract relating to cellular telephone data
transmission technology utilized in certain modem products produced
by Rockwell Semiconductor Systems in 1995 and 1996. As previously
reported in the company's Form 10-Q for the quarter ended
December 31, 1996, the court entered judgment against the company on
January 27, 1997. On December 20,May 5, 1997, the court granted in part and
denied in part post-trial motions by the company for judgment
notwithstanding the verdict or, alternatively, a new trial. The
court vacated its prior damage award of $115 million and awarded
the company a new trial on damages unless the plaintiff accepts a reduction
in the award of damages that would result in a maximum judgment against the
company in this action of $57 million plus attorneys fees. The
plaintiff has not made its election. The company believes that the
original and revised verdicts are in error and will continue to
pursue appellate review.
On June 24, 1996, a jury
verdictjudgment was entered against the company in a civil
action in the Circuit Court of Logan County, Kentucky on a jury
verdict awarding $8 million in compensatory and $210 million in
punitive damages for $57 million onproperty damage. The action had been brought in
1993 by owners of floodplain real property near Russellville,
Kentucky allegedly damaged by PCBs discharged from a plant owned and
operated by the plaintiff's claims.Company's Measurement & Flow Control Division prior
to its divestiture in March 1989. On January 27, 1997,December 26, 1996, the court
ruled that Rockwell's
infringement was willful, awarded Celeritas enhanced damages of $57
million and entereddenied the company's post-trial motions for judgment againstnotwithstanding
the companyverdict or in the alternative for $115 million plus
attorneys' fees.a new trial. The company
believes that the verdict is unsupported by the evidence and judgment are
in error and hason
January 22, 1997, filed a notice of appeal.
On August 7, 1996,March 24, 1997, the shareowner derivative suitCircuit Court of Franklin County, Kentucky in
Commonwealth of Kentucky, Natural Resources and Environmental
Protection Cabinet vs. Rockwell, an action filed on February 2,
1996in 1986 seeking
remediation of PCB contamination resulting from unpermitted
discharges of PCBs from the company's former Russellville, Kentucky
plant, entered judgment establishing PCB cleanup levels for the
former plant site and certain offsite property and ordering
additional characterization of possible contamination in the
Superior Court of California for the County of Los AngelesMud River and disclosed in the company's quarterly report on Form 10-Q for the
period ended March 31, 1996 was dismissed voluntarily by the
plaintiffs. On August 22, 1996, a First Amended Consolidated Complaint
was filed in the shareowner derivative suit pending in the Superior
Court of California for the County of Orange and disclosed in the
company's quarterly report on Form 10-Q for the period ended December
31, 1995, adding the plaintiffs from the dismissed Los Angeles County
suit as party plaintiffs to the Orange County suit.its floodplain. The company and the
director defendants are defending the consolidated action, and the
parties areis proceeding with
discovery.additional remediation and characterization efforts consistent with
the Court's ruling. The Court deferred any decision on the
imposition of fines or penalties pending implementation of an
appropriate remediation program.
PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
(a) A specialThe regular annual meeting of shareowners of the former Rockwell
International Corporation ("Oldco")registrant was
held on December 4, 1996.
The Registrant is the successor to Oldco as the result of a
tax-free reorganization completed on December 6, 1996.
(b)February 5, 1997.
(c) At the specialannual meeting, the shareowners:
(i) voted upon a proposal to approve (1)elect four directors of the contribution of
Oldco's Automation, Avionics & Communications, Semiconductor
Systems and Automotive businesses to Registrant or to one or
more wholly-owned subsidiaries of Oldco that became
wholly-owned operating subsidiaries of Registrant and (2) the
distribution of all outstanding shares of Registrant on a
share-for-share basis to holders of record of Oldco shares at
the close of business on December 6, 1996, pursuant to an
Agreement and Plan of Distribution described in Registrant's
Proxy Statement-Prospectus (the "Proxy Statement-Prospectus")
dated October 29, 1996 filed as part of Registrant's
Registration Statement on Form S-4 (Registration No.
333-14969). The proposalcompany. Each
nominee for director was approvedelected by a vote of the
shareowners as follows:
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15
PART II. OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders (Continued)
Affirmative Votes
326,322,985
Negative Votes 6,530,698
Abstentions 3,099,691Withheld
Richard M. Bressler 356,109,541 4,913,727
Judith L. Estrin 356,011,824 5,011,444
James Clayburn La Force, Jr. 355,758,122 5,265,146
John D. Nichols 356,150,376 4,872,892
(ii) voted upon a proposal to approve and adopt the Agreement and
Planselection by the
Board of Merger datedDirectors of the firm of Deloitte & Touche LLP as
auditors of July 31, 1996 described in the Proxy Statement-Prospectus, pursuant to which The Boeing
Company acquired Oldco's A&D Business.company. The proposal was approved by a
vote of the shareowners as follows:
Affirmative Votes 327,248,839votes 355,744,742
Negative Votes 6,076,362votes 2,617,893
Abstentions 2,628,1732,660,633
Item 5. Other Information
Government Contracts
For information on the company's United States government contracting
business, certain risks of that business and claims related thereto,
see the information set forth under the caption "Government
Contracts" in Item 1, Business, on pages 4-5 of the company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996,
which is incorporated herein by reference.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results of the company (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,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 (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10a - Agreement and Plan of Merger dated as of July 31,
1996 among Rockwell International Corporation (now
named Boeing North American, Inc.), The Boeing
Company and Boeing NA, Inc., included as Appendix
III to the Registrant's Proxy Statement - Prospectus,
dated October 29, 1996, filed as part of
Registrant's registration statement on Form S-4
(Registration No. 333-14969), is hereby
incorporated by reference.
-14-
16
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (Continued)
Exhibit 10b - Agreement and Plan of Distribution dated as of
December 6, 1996, among Rockwell International
Corporation(now named Boeing North American, Inc.),
the Registrant (formerly named New Rockwell
International Corporation), Allen-Bradley Company,
Inc., Rockwell Collins, Inc., Rockwell Semiconductor
Systems, Inc., Rockwell Light Vehicle Systems, Inc.
and Rockwell Heavy Vehicle Systems, Inc.
Exhibit 10c - Post-Closing Covenants Agreement dated as of
December 6, 1996, among Rockwell International
Corporation (now named Boeing North American, Inc.),
The Boeing Company, Boeing NA, Inc. and the
Registrant (formerly named New Rockwell
International Corporation).
Exhibit 10d - Tax Allocation Agreement dated as of December 6,
1996, among Rockwell International Corporation (now
named Boeing North American, Inc.), the Registrant
(formerly named New Rockwell International
Corporation) and The Boeing Company.
Exhibit 10e - Form of Restricted Stock Agreement under the
Company's 1995 Long-Term Incentives Plan.
Exhibit 10f - Forms of Restricted Stock Agreement under the
Company's Directors Stock Plan.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges for the Three Months Ended Decembersix months ended March 31,
1996.1997.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Registrant filed a Current ReportThere were no reports on Form 8-K dated December 9,
1996 in respect offiled during the completion on December 6, 1996 of the
divestiture of its former A&D Business and the related
reorganization pursuant to which the Registrant succeeded to the
remaining businesses of its predecessor corporation.
-15-
17quarter
ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKWELL INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
Date February 12,May 15, 1997 By L. J. Komatz
------------------------ ------------------------------
L. J. Komatz
Vice President and Controller
(Principal Accounting Officer)
Date February 12,May 15, 1997 By W. J. Calise, Jr.
------------------------ ------------------------------
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
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18
ROCKWELL INTERNATIONAL CORPORATION
INDEX OF EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBERMARCH 31, 19961997
Page
----
Exhibit 10b11 - Agreement and PlanComputation of Distribution dated as of December 6, 18
1996, among Rockwell International Corporation (now named Boeing
North American, Inc.), the Registrant (formerly named New
Rockwell International Corporation), Allen-Bradley Company, Inc.,
Rockwell Collins, Inc., Rockwell Semiconductor Systems, Inc.,
Rockwell Light Vehicle Systems, Inc. and Rockwell Heavy Vehicle
Systems, Inc.
Exhibit 10c - Post-Closing Covenants Agreement dated as of December 6, 84
1996, among Rockwell International Corporation (now named Boeing
North American, Inc.), The Boeing Company, Boeing NA, Inc. and
the Registrant (formerly named New Rockwell International
Corporation).
Exhibit 10d - Tax Allocation Agreement dated as of December 6, 1996, 113
among Rockwell International Corporation (now named Boeing North
American, Inc.), the Registrant (formerly named New Rockwell
International Corporation) and The Boeing Company.
Exhibit 10e - Form of Restricted Stock Agreement under the Company's 1995 154
Long-Term Incentives Plan.
Exhibit 10f - Forms of Restricted Stock Agreement under the Company's 159
Directors Stock Plan.Earnings Per Share 19
Exhibit 12 - Computation of Ratio of Earnings to Fixed 20
Charges for the 167
ThreeSix Months Ended DecemberMarch 31,
19961997.
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