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 March 31, 2001
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Commission file number 1-12383
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Rockwell International Corporation
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(Exact name of registrant as specified in its charter)
Delaware 25-1797617
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
777 East Wisconsin Avenue, Suite 1400, Milwaukee, Wisconsin 53202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (414) 212-5299
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(Office of the Corporate Secretary)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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182,857,281 shares of registrant's Common Stock, $1.00 par value, were
outstanding on April 30, 2001.
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ROCKWELL INTERNATIONAL CORPORATION
INDEX
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet--
March 31, 2001 and September 30, 2000....................................................2
Condensed Consolidated Statement of Operations--
Three and Six Months Ended March 31, 2001 and 2000.......................................3
Condensed Consolidated Statement of Cash Flows--
Six Months Ended March 31, 2001 and 2000.................................................4
Notes to Condensed Consolidated Financial Statements.....................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................12
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.......................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.....................................13
Item 5. Other Information.......................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................13
Signatures.................................................................................................14
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)
March 31, September 30,
2001 2000
--------- -------------
ASSETS
------
Current assets:
Cash ...................................................... $ 190 $ 183
Receivables ............................................... 733 737
Inventories ............................................... 640 610
Deferred income taxes ..................................... 139 143
Other current assets ...................................... 143 201
Net current assets of Rockwell Collins .................... 746 569
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Total current assets ................................ 2,591 2,443
Property (net of accumulated depreciation:
March 31, 2001, $1,134; September 30, 2000, $1,060) ....... 1,148 1,194
Intangible assets (net of accumulated amortization:
March 31, 2001, $577; September 30, 2000, $539) ........... 1,232 1,255
Other assets ................................................. 47 54
Net long-term assets of Rockwell Collins ..................... 597 310
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TOTAL ...................................... $ 5,615 $ 5,256
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LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Short-term debt ........................................... $ 412 $ 16
Accounts payable .......................................... 384 480
Compensation and benefits ................................. 235 226
Income taxes payable ...................................... 99 119
Other current liabilities ................................. 188 216
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Total current liabilities ........................... 1,318 1,057
Long-term debt ............................................... 924 924
Retirement benefits .......................................... 200 216
Other liabilities ............................................ 379 390
Shareowners' equity:
Common stock (shares issued: 216.4) ....................... 216 216
Additional paid-in capital ................................ 974 967
Retained earnings ......................................... 3,507 3,363
Accumulated other comprehensive loss ...................... (177) (166)
Restricted stock compensation ............................. (2) (2)
Common stock in treasury, at cost (shares held:
March 31, 2001, 33.6, September 30, 2000, 32.9) ......... (1,724) (1,709)
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Total shareowners' equity ........................... 2,794 2,669
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TOTAL ...................................... $ 5,615 $ 5,256
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See Notes to Condensed Consolidated Financial Statements.
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ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
2001 2000 2001 2000
------- -------- ------- --------
Revenues:
Sales....................................................... $ 1,163 $ 1,169 $ 2,270 $ 2,268
Other income, net........................................... 8 28 21 35
------- ------- ------- -------
Total revenues............................................ 1,171 1,197 2,291 2,303
------- ------- ------- -------
Costs and expenses:
Cost of sales............................................... 778 767 1,522 1,484
Selling, general, and administrative........................ 263 262 519 502
Interest.................................................... 28 17 46 38
------- ------- ------- -------
Total costs and expenses.................................. 1,069 1,046 2,087 2,024
------- ------- ------- -------
Income from continuing operations before income taxes.......... 102 151 204 279
Income tax provision........................................... 31 49 64 90
------- ------- ------- -------
Income from continuing operations.............................. 71 102 140 189
Income from discontinued operations, net of tax................ 54 62 119 132
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Net income..................................................... $ 125 $ 164 $ 259 $ 321
======= ======= ======= =======
Basic earnings per share:
Continuing operations....................................... $ 0.39 $ 0.54 $ 0.77 $ 1.00
Discontinued operations..................................... 0.29 0.33 0.65 0.69
------- ------- ------- -------
Net income.................................................. $ 0.68 $ 0.87 $ 1.42 $ 1.69
======= ======= ======= =======
Diluted earnings per share:
Continuing operations....................................... $ 0.38 $ 0.53 $ 0.76 $ 0.98
Discontinued operations..................................... 0.29 0.32 0.64 0.69
------- ------- ------- -------
Net income.................................................. $ 0.67 $ 0.85 $ 1.40 $ 1.67
======= ======= ======= =======
Cash dividends per share....................................... $ 0.255 $ 0.255 $ 0.51 $ 0.51
======= ======= ======= =======
Weighted average outstanding shares:
Basic....................................................... 182.4 189.5 182.4 189.8
======= ======= ======= =======
Diluted (includes effect of stock options).................. 185.3 192.0 185.0 192.4
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
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ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
Six Months Ended
March 31,
------------------
2001 2000
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CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations .............................................. $ 140 $ 189
Adjustments to arrive at cash provided by operating activities:
Depreciation ................................................................ 99 95
Amortization of intangible assets ........................................... 38 37
Net gain on dispositions of property and businesses ......................... (9) (18)
Changes in assets and liabilities, excluding effects of acquisitions and
divestitures and foreign currency adjustments:
Receivables ............................................................. 2 18
Inventories ............................................................. (31) (21)
Accounts payable ........................................................ (96) (36)
Income taxes payable .................................................... 41 82
Compensation and benefits ............................................... 9 (55)
Other assets and liabilities ............................................ (45) (39)
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CASH PROVIDED BY OPERATING ACTIVITIES ................................. 148 252
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INVESTING ACTIVITIES:
Property additions ............................................................. (68) (98)
Acquisitions of businesses, net of cash acquired ............................... (6) (60)
Proceeds from the dispositions of property and businesses ...................... 13 57
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CASH USED FOR INVESTING ACTIVITIES .................................... (61) (101)
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FINANCING ACTIVITIES:
Increase (decrease) in debt .................................................... 395 (163)
Purchases of treasury stock .................................................... (63) (111)
Cash dividends ................................................................. (93) (97)
Proceeds from the exercise of stock options .................................... 24 14
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ...................... 263 (357)
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Effect of exchange rate changes on cash ........................................ 2 6
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CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS .............................. 352 (200)
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Cash (Used for) Provided by Discontinued Operations ............................ (345) 9
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INCREASE (DECREASE) IN CASH ................................................... 7 (191)
CASH AT BEGINNING OF PERIOD .................................................... 183 356
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CASH AT END OF PERIOD .......................................................... $ 190 $ 165
===== =====
See Notes to Condensed Consolidated Financial Statements.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management of Rockwell International Corporation (the
Company or Rockwell), the unaudited condensed consolidated financial
statements contain all adjustments, consisting solely of adjustments of
a normal recurring nature, necessary to present fairly the financial
position, results of operations, and cash flows for the periods
presented. These statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2000. The results of operations for the three- and six-month periods
ended March 31, 2001 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 determined is used in providing for
income taxes on a year-to-date basis.
2. In December 2000, the Company announced its intention to spin-off its
Rockwell Collins avionics and communications business unit into a
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 Rockwell Collins company will be
distributed to Rockwell shareowners on the basis of one Rockwell Collins
share for each Rockwell share. The transaction is expected to be
completed in June 2001.
The net assets of Rockwell Collins are summarized as follows (in
millions):
March 31, September 30,
2001 2000
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Cash ........................................ $ 10 $ 7
Receivables ................................. 517 513
Inventories ................................. 813 656
Other current assets ........................ 179 156
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Total current assets .................... 1,519 1,332
Accounts payable ............................ 206 220
Other current liabilities ................... 567 543
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Total current liabilities ............... 773 763
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Net current assets of Rockwell Collins ...... $ 746 $ 569
======= =======
Property .................................... $ 481 $ 422
Other assets ................................ 582 318
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Total long-term assets .................. 1,063 740
Long-term liabilities ....................... 466 430
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Net long-term assets of Rockwell Collins .... $ 597 $ 310
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In December 2000, Rockwell Collins acquired Kaiser Aerospace and
Electronics Corporation (KAEC). KAEC is a leading supplier of cockpit
display solutions for tactical aircraft, optical technologies for
instrumentation and communication, and specialized aircraft products for
the defense and aerospace industry. The purchase price, net of cash
acquired, was approximately $300 million, of which $292 million was paid
through March 31, 2001.
The acquisition has been accounted for as a purchase and, accordingly,
assets acquired and liabilities assumed have been recorded at estimated
fair values, on a preliminary basis, based on information currently
available. The results of operations of KAEC have been included in the
consolidated statement of operations since the date of acquisition. Pro
forma financial information is not presented, as the effect of the
acquisition was not material to the Company's results of operations or
financial position.
3. Inventories are summarized as follows (in millions):
March 31, September 30,
2001 2000
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Finished goods............................. $ 227 $ 220
Work in process............................ 170 167
Raw materials, parts, and supplies......... 243 223
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Inventories................................ $ 640 $ 610
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4 Short-term debt consisted of the following (in millions):
March 31, September 30,
2001 2000
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Commercial paper........................... $ 400 $ -
Short-term bank borrowings................. 11 15
Current portion of long-term debt.......... 1 1
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Short-term debt............................ $ 412 $ 16
========= =========
The weighted average interest rate of the commercial paper outstanding
at March 31, 2001 was 5.2 percent.
5. Comprehensive income for the three months ended March 31, 2001 was $96
million compared to $158 million for the three months ended March 31,
2000. Comprehensive income for the six months ended March 31, 2001 was
$238 million compared to $309 million for the six months ended March 31,
2000.
6. Various lawsuits, claims and proceedings have been or may be instituted
or asserted against the Company relating to the conduct of its business,
including those pertaining to product liability, intellectual property,
safety and health, environmental and employment matters. In addition,
Rockwell has indemnified The Boeing Company for certain government
contract and environmental matters related to operations of its former
aerospace and defense business for periods prior to its divestiture in
fiscal 1997. Although the outcome of litigation cannot be predicted with
certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to the Company, management believes the disposition of
matters which are pending or asserted will not have a material adverse
effect on the Company's consolidated financial statements.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. The sales and results of operations of the Company's reportable segments
are summarized as follows (in millions):
Three Months Ended March 31, Six Months Ended March 31,
--------------------------------- ---------------------------------
Sales Earnings Sales Earnings
---------------- --------------- --------------- ----------------
2001 2000 2001 2000 2001 2000 2001 2000
------- ------- ------- ------ ------ ------- ------- -------
Control Systems............................. $ 904 $ 911 $ 142 $ 158 $1,787 $ 1,783 $ 286 $ 324
Power Systems............................... 199 201 19 23 371 372 28 40
Other Businesses............................ 60 57 5 7 112 113 7 11
------- ------- ------- ------ ------ ------- ------- -------
Sales and Segment Operating Earnings........ 1,163 1,169 166 188 2,270 2,268 321 375
Goodwill & Purchase Accounting Items........ (21) (20) (40) (40)
General Corporate - Net..................... (15) 14 (31) (4)
Loss on Disposition of a Business........... - (14) - (14)
Interest Expense............................ (28) (17) (46) (38)
Provision for Income Taxes.................. (31) (49) (64) (90)
------- ------- ------- ------ ------ ------- ------- -------
Continuing Operations....................... 1,163 1,169 71 102 2,270 2,268 140 189
------- ------- ------- ------ ------ ------- ------- -------
Discontinued Rockwell Collins
Sales and Segment Operating Earnings........ 688 615 90 100 1,277 1,176 199 207
Goodwill & Purchase Accounting Items........ (10) (2) (21) (4)
Losses From Equity Affiliates............... - (6) - (6)
Provision for Income Taxes.................. (26) (30) (59) (65)
------- ------- ------- ------ ------ ------- ------- -------
Total Discontinued Rockwell Collins......... 688 615 54 62 1,277 1,176 119 132
------- ------- ------- ------ ------ ------- ------- -------
Sales/Net Income............................ $ 1,851 $ 1,784 $ 125 $ 164 $3,547 $ 3,444 $ 259 $ 321
======= ======= ======= ====== ====== ======= ======= =======
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ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
In December 2000, the Company announced its intention to spin-off its Rockwell
Collins avionics and communications business into a 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 Rockwell Collins company will
be distributed to Rockwell shareowners on the basis of one Rockwell Collins
share for each Rockwell share. The transaction is expected to be completed in
June 2001. As a result, Rockwell Collins is being presented as a discontinued
operation.
2001 SECOND QUARTER COMPARED TO 2000 SECOND QUARTER
COMBINED BUSINESSES
Sales in the 2001 second quarter of $1,851 million, including sales of the
discontinued Rockwell Collins business, were up $67 million from the 2000 second
quarter. Net income for the 2001 second quarter was $125 million, or 67 cents
per diluted share, compared to $164 million, or 85 cents per diluted share, for
the second quarter of 2000. Excluding a non-recurring after-tax charge related
to Rockwell Collins' In-Flight Network joint venture of $16 million, or nine
cents per diluted share, net income in the second quarter of 2001 was $141
million, or 76 cents per diluted share. Earnings per diluted share, excluding
the non-recurring charge, decreased from the prior year primarily due to lower
segment operating earnings in our continuing businesses, higher interest expense
resulting from increased commercial paper borrowings and higher amortization of
goodwill and other purchase accounting items resulting from recent acquisitions
at Rockwell Collins, which were partially offset by lower shares outstanding. In
addition, earnings per diluted share in the 2000 second quarter included a net
after-tax gain of $12 million, or six cents per diluted share, on the sale of
real estate which was partially offset by a loss on the sale of a Power Systems
business.
CONTINUING OPERATIONS
Sales of continuing operations were approximately $1.2 billion in the second
quarter of 2001 and 2000. Income from continuing operations in the 2001 second
quarter was $71 million, or 38 cents per diluted share, compared to $102
million, or 53 cents per diluted share, for the second quarter of 2000. Income
from continuing operations in the 2000 second quarter included a net after-tax
gain of $12 million, or six cents per diluted share, on the sale of real estate
which was partially offset by a loss on the sale of a Power Systems business.
CONTROL SYSTEMS
Control Systems' sales in the 2001 second quarter of $904 million were about the
same as the 2000 second quarter despite continued difficult market conditions
for automation products in North America. Shipments outside of North America,
before the effect of currency rate fluctuations, were higher in the 2001 second
quarter and included increases of seven percent in Europe, 17 percent in Asia
Pacific and 19 percent in Latin America. These improvements, combined with
higher LogixTM product sales, more than offset the effects of continued softness
in North American markets. Second quarter sales were reduced by about $20
million resulting from a stronger dollar in 2001, particularly against the euro,
relative to the same period a year ago.
Segment operating earnings in the 2001 second quarter of $142 million were $16
million lower than in the 2000 second quarter due to lower North American volume
and costs resulting from planned lower capacity utilization. Control Systems'
return on sales for the 2001 second quarter was 15.7 percent compared to 17.3
percent in the 2000 second quarter.
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ROCKWELL INTERNATIONAL CORPORATION
POWER SYSTEMS
Power Systems' sales in the 2001 second quarter of $199 million were about the
same as 2000 second quarter sales of $201 million, with a six percent sales
increase at the motors business offsetting lower volume in mechanical products.
Segment operating earnings in the 2001 second quarter of $19 million were down
from $23 million in the same period a year ago primarily due to product mix.
Power Systems' return on sales was 9.5 percent in the 2001 second quarter
compared to 11.4 percent in the 2000 second quarter.
OTHER BUSINESSES
Sales at Rockwell Electronic Commerce and Rockwell Science Center of $60 million
in the 2001 second quarter increased $3 million from the 2000 second quarter,
with increasing business activity at Rockwell Science Center more than
offsetting lower volume at Rockwell Electronic Commerce. Segment operating
earnings declined $2 million in the 2001 second quarter compared to the 2000
second quarter due to lower sales volume at Rockwell Electronic Commerce.
General corporate-net in the second quarter of 2000 included a $32 million gain
on the sale of real estate.
DISCONTINUED OPERATIONS
Rockwell Collins' sales in the 2001 second quarter of $688 million were up $73
million from the 2000 second quarter. The Kaiser Aerospace and Electronics and
Sony Trans Com acquisitions completed in December 2000 and July 2000,
respectively, contributed $81 million of sales in the 2001 second quarter.
Excluding acquisitions, sales in the second quarter of 2001 were slightly lower
than the 2000 second quarter, with a six percent increase in sales of commercial
avionics products offset by lower sales of wide-body in-flight entertainment
products and lower sales at the government systems business. Segment operating
earnings in the 2001 second quarter include a $24 million non-recurring charge
for the write-off of In-Flight Network inventory. Excluding this charge, segment
operating earnings were up 14 percent to $114 million due to earnings generated
by Kaiser Aerospace and Electronics and Sony Trans Com. Rockwell Collins' return
on sales was 16.6 percent in the 2001 second quarter, excluding the charge
related to In-Flight Network, compared to 16.3 percent in the 2000 second
quarter.
Income from discontinued operations, net of tax in the 2001 first quarter was
$54 million, or 29 cents per diluted share, compared to $62 million, or 32 cents
per diluted share, for the first quarter of 2000. Excluding the charge related
to In-Flight Network, income from discontinued operations, net of tax, was $70
million, or 38 cents per share, in the 2001 first quarter.
SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000
COMBINED BUSINESSES
Sales in the first six months of 2001 of $3,547 million, including sales of the
discontinued Rockwell Collins business, were up $103 million from the first six
months of 2000. Net income for the first six months of 2001 was $259 million, or
$1.40 per diluted share, compared to $321 million, or $1.67 per diluted share,
for the first six months of 2000. Excluding a non-recurring after-tax charge
related to the In-Flight Network joint venture of $16 million, or nine cents per
diluted share, net income in the first six months of 2001 was $275 million, or
$1.49 per diluted share. Earnings per diluted share, excluding the non-recurring
charge, decreased from the prior year primarily due to lower operating earnings
at our continuing businesses, higher interest expense resulting from increased
commercial paper borrowings and higher amortization of goodwill and other
purchase accounting items resulting from recent acquisitions at Rockwell
Collins, which were partially offset by lower shares outstanding. In addition,
earnings per diluted share in the first six months of 2000 included a net
after-tax gain of $12 million, or six cents per diluted share, on the sale of
real estate which was partially offset by a loss on the sale of a Power Systems
business.
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ROCKWELL INTERNATIONAL CORPORATION
CONTINUING OPERATIONS
Sales of continuing operations were approximately $2.3 billion in the first six
months of 2001 and 2000. Income from continuing operations in the first six
months of 2001 was $140 million, or 76 cents per diluted share, compared to $189
million, or 98 cents per diluted share, for the first six months of 2000. Income
from continuing operations in the first six months of 2000 included a net
after-tax gain of $12 million, or six cents per diluted share, on the sale of
real estate which was partially offset by a loss on the sale of a Power Systems
business.
CONTROL SYSTEMS
Control Systems' sales in the first six months of 2001 of $1.8 billion were
about the same as the first six months of 2000 despite difficult market
conditions for automation products in North America. Shipments outside of North
America, before the effect of currency rate fluctuations, were higher and
included increases of 12 percent in Europe, 16 percent in Asia Pacific and 18
percent in Latin America. These improvements, combined with higher LogixTM
product sales, more than offset the effects of continued softness in North
American markets. Sales in the first six months of 2001 were reduced by about
$55 million resulting from a stronger dollar in 2001, particularly against the
euro, relative to the same period a year ago.
Segment operating earnings of $286 million were $38 million lower than in the
first six months of 2000 due to lower North American volume, costs resulting
from planned lower capacity utilization and about $10 million resulting from
currency exchange rate fluctuations. Control Systems' return on sales for the
first six months of 2001 was 16.0 percent compared to 18.2 percent in the first
six months of 2000.
POWER SYSTEMS
Power Systems' sales in the first six months of 2001 of $371 million were about
the same as the first six months of 2000, with a seven percent increase at the
motors business offsetting lower volume in mechanical products. Segment
operating earnings in the first six months of 2001 of $28 million were down from
$40 million in the same period a year ago primarily due to product mix. Power
Systems' return on sales was 7.5 percent in the first six months of 2001
compared to 10.8 percent in the first six months of 2000.
OTHER BUSINESSES
Sales at Rockwell Electronic Commerce and Rockwell Science Center of $112
million in the first six months of 2001 were about the same as the first six
months of 2000, with increasing business activity at Rockwell Science Center
offsetting lower sales volume at Rockwell Electronic Commerce. Segment operating
earnings declined $4 million in the first six months of 2001 compared to the
first six months of 2000 due to lower sales volume at Rockwell Electronic
Commerce.
General corporate-net in the first six months of 2000 included a $32 million
gain on the sale of real estate.
DISCONTINUED OPERATIONS
Rockwell Collins' sales in the first six months of 2001 of $1,277 million were
up $101 million from the first six months of 2000. The Kaiser Aerospace and
Electronics and Sony Trans Com acquisitions contributed $142 million of sales in
the first six months of 2001. Excluding acquisitions, sales in the first six
months of 2001 decreased $41 million, with a 10 percent increase in sales of
commercial avionics products offset by lower sales of wide-body in-flight
entertainment products and lower sales at the government systems business.
Segment operating earnings in the first six months of 2001 include a $24 million
non-recurring charge for the write-off of In-Flight Network inventory. Excluding
this charge, segment operating earnings were up eight percent to $223 million
due to earnings generated by Kaiser Aerospace and Electronics and Sony Trans
Com. Rockwell Collins' return on sales was 17.5 percent in the first six months
of 2001, excluding the charge related to In-Flight Network, compared to 17.6
percent in the first six months of 2000.
Income from discontinued operations, net of tax in the first six months of 2001
was $119 million, or 64 cents per diluted share, compared to $132 million, or 69
cents per diluted share, for the first six months of 2000. Excluding the charge
related to In-Flight Network, income from discontinued operations, net of tax,
was $135 million, or 73 cents per share. The increase in earnings per diluted
share is primarily the result of lower shares outstanding.
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ROCKWELL INTERNATIONAL CORPORATION
INCOME TAXES
The second quarter 2001 effective income tax rate for continuing operations of
30.4 percent was lower than the 2000 second quarter rate of 32.5 percent. The
effective income tax rate for continuing operations for the first six months of
2001 of 31.4 percent was lower than the 32.3 percent for the same period in
2000. Management expects the effective income tax rate for continuing operations
for the full year 2001 to be approximately 31.4 percent. The lower tax rate in
2001 reflects the continuing benefits of our ongoing tax planning initiatives.
OUTLOOK FOR COMBINED BUSINESSES
Assuming general industrial business conditions remain unchanged in the third
quarter and improve in the fourth quarter, management would expect full year
earnings for the combined Rockwell businesses to be near the high end of
analysts' estimates, excluding costs and expenses associated with the Rockwell
Collins spin-off. However, if business conditions do not improve, full year
earnings for the combined businesses could be near the low end of analysts'
estimates. The range of analysts' full year estimates of earnings for the
combined Rockwell businesses as published by First Call/Thomson Financial is
$3.03 per diluted share to $3.25 per diluted share as of May 9, 2001.
FINANCIAL CONDITION
CONTINUING OPERATIONS
The major uses of cash for the first six months of 2001 were for cash dividends
paid to shareowners of $93 million, property additions of $68 million and
repurchases of common stock. The Company spent $63 million in the first six
months of 2001 in connection with its stock repurchase program. At March 31,
2001, the Company had approximately $104 million remaining on its current $250
million stock repurchase program.
During the first six months of 2001, commercial paper borrowings outstanding
increased $400 million. The majority of the proceeds were used to fund the
acquisition of the Kaiser Aerospace and Electronics business with the balance
used for general corporate purposes.
Future significant uses of cash, which are expected to be funded by cash
generated by operating activities and commercial paper borrowings, are expected
to include property additions and dividends to shareowners and may include
acquisitions.
DISCONTINUED OPERATIONS
Cash used for discontinued operations in the first six months of 2001 was $345
million, including $292 million for the acquisition of the Kaiser Aerospace and
Electronics business and $50 million for property additions.
ENVIRONMENTAL
Information with respect to the effect on the Company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained on pages 37 and 38 in Note 16 of
the Notes to Consolidated Financial Statements in Item 8, Consolidated Financial
Statements and Supplementary Data, of the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2000. Management believes that at March
31, 2001, there has been no material change to this information.
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ROCKWELL INTERNATIONAL CORPORATION
CAUTIONARY STATEMENT
This Quarterly Report contains statements (including certain projections and
business trends) accompanied by such phrases as "believes", "expect",
"anticipate", and other similar expressions, that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties, including but not limited to economic and political
changes in international markets where the Company competes, such as currency
exchange rates, inflation rates, recession, foreign ownership restrictions and
other external factors over which the Company has no control; domestic and
foreign government spending, budgetary and trade policies; demand for and market
acceptance of new and existing products; successful development of advanced
technologies; competitive product and pricing pressures; and the uncertainties
of litigation, as well as other risks and uncertainties, including but not
limited to those detailed from time to time in the Company's Securities and
Exchange Commission filings. These forward-looking statements are made only as
of the date hereof, and the Company undertakes no obligation to update or revise
the forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Information with respect to the Company's exposure to interest rate risk
and foreign currency risk is contained on pages 16 and 17 in Item 7,
Management's Discussion and Analysis of Financial Condition and Results
of Operations, of the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2000. Management believes that at March
31, 2001, there has been no material change to this information.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 27, 1995, one shareowner, purporting to act derivatively on behalf
of the Company, commenced an action in the Superior Court of the State of
California for the County of Orange against 13 of the Company's directors, and
the Company as a nominal defendant, alleging principally breaches of fiduciary
duties in failing properly to manage the business of the Company in a manner to
prevent certain violations of applicable federal and state laws, including
environmental laws, by certain named and unnamed employees or agents of the
Company. The action seeks declaratory judgment, damages suffered by the Company
as a result of the alleged conduct, plaintiffs' costs and expenses and other
proper relief. On February 27, 1996, a similar suit, making similar allegations
and seeking similar relief, was filed against the Company and the same
directors, plus Don H. Davis, Jr., by two other shareowners in the Superior
Court of the State of California for the County of Los Angeles. In August 1996,
the Los Angeles County action was dismissed voluntarily by the plaintiffs, and a
First Amended Consolidated Complaint was filed in the Orange County action,
adding the plaintiffs from the dismissed Los Angeles County suit as party
plaintiffs to the Orange County Suit. On February 4, 1997, plaintiffs
voluntarily dismissed the action with respect to two of the director-defendants,
Judith L. Estrin and William H. Gray, III. Trial for the consolidated action was
held in Orange County in November and December 2000. On January 18, 2001 the
court issued a Minute Order finding that the director-defendants did not breach
their duties to the Company's shareowners and on March 2, 2001 the court entered
judgment in favor of the director-defendants. Plaintiffs have filed a notice of
appeal.
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ROCKWELL INTERNATIONAL CORPORATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareowners of the Company was held on
February 7, 2001.
(b) At the annual meeting, the shareowners:
(i) voted to elect four directors of the Company. Each nominee
for director was elected to a term expiring in 2004 by a
vote of the shareowners as follows:
Affirmative Votes
Votes Withheld
----------- -----------
George L. Argyros 161,344,956 2,328,156
Don H. Davis, Jr. 161,334,232 2,338,880
William H. Gray, III 161,262,215 2,410,897
William T. McCormick, Jr. 161,375,514 2,297,598
(ii) voted on a proposal to approve the selection by the Board
of Directors of the firm of Deloitte & Touche LLP as
auditors of the Company. The proposal was approved by a
vote of the shareowners as follows:
Affirmative votes 162,052,981
Negative votes 677,281
Abstentions 942,850
Item 5. Other Information
Government Contracts
For information on the Company's United States government
contracting business, certain risks of that business and claims
related thereto, see the information set forth under the caption
Government Contracts in Item 1, Business, on page 2 of the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges for the Six Months Ended March
31, 2001
(b) Reports on Form 8-K during the quarter ended March 31,
2001:
None
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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: May 9, 2001 By W. E. Sanders
--------------------------- --------------------------------
W. E. Sanders
Vice President & Controller
(Principal Accounting Officer)
Date: May 9, 2001 By W. J. Calise, Jr.
--------------------------- --------------------------------
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
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