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 June 30, 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
--- ---
183,581,465 shares of registrant's Common Stock, $1.00 par value, were
outstanding on July 31, 2001.
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ROCKWELL INTERNATIONAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet--
June 30, 2001 and September 30, 2000....................................2
Condensed Consolidated Statement of Operations--
Three and Nine Months Ended June 30, 2001 and 2000......................3
Condensed Consolidated Statement of Cash Flows--
Nine Months Ended June 30, 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..........................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............14
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................14
Item 5. Other Information......................................................15
Item 6. Exhibits and Reports on Form 8-K.......................................15
Signatures..............................................................................16
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)
June 30, September 30,
2001 2000
-------- ----------
ASSETS
------
Current assets:
Cash............................................................... $ 259 $ 170
Receivables........................................................ 656 737
Inventories........................................................ 609 610
Deferred income taxes.............................................. 130 143
Other current assets............................................... 105 201
Net current assets of Rockwell Collins............................. - 551
-------- -------
Total current assets......................................... 1,759 2,412
Property (net of accumulated depreciation:
June 30, 2001, $1,162; September 30, 2000, $1,060)................. 1,088 1,194
Intangible assets (net of accumulated amortization:
June 30, 2001, $576; September 30, 2000, $539)..................... 1,210 1,255
Other assets......................................................... 117 77
Net long-term assets of Rockwell Collins............................. - 341
-------- -------
TOTAL................................................. $ 4,174 $ 5,279
======== =======
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Short-term debt.................................................... $ 71 $ 16
Accounts payable................................................... 353 480
Compensation and benefits.......................................... 202 195
Income taxes payable............................................... 88 119
Other current liabilities.......................................... 255 216
-------- -------
Total current liabilities.................................... 969 1,026
Long-term debt....................................................... 924 924
Retirement benefits.................................................. 328 270
Other liabilities.................................................... 347 390
Shareowners' equity:
Common stock (shares issued: 216.4)................................ 216 216
Additional paid-in capital......................................... 980 967
Retained earnings.................................................. 2,247 3,363
Accumulated other comprehensive loss............................... (154) (166)
Restricted stock compensation...................................... (1) (2)
Common stock in treasury, at cost (shares held:
June 30, 2001, 32.8, September 30, 2000, 32.9)................... (1,682) (1,709)
-------- -------
Total shareowners' equity.................................... 1,606 2,669
-------- -------
TOTAL................................................. $ 4,174 $ 5,279
======== =======
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 Nine Months Ended
June 30, June 30,
----------------------- ---------------------
2001 2000 2001 2000
------- ------- ------- -------
Revenues:
Sales ....................................... $ 1,021 $ 1,189 $ 3,291 $ 3,457
Other income, net ........................... 6 37 27 72
------- ------- ------- -------
Total revenues ............................ 1,027 1,226 3,318 3,529
------- ------- ------- -------
Costs and expenses:
Cost of sales (Note 6) ...................... 791 807 2,313 2,291
Selling, general, and administrative (Note 6) 272 265 791 767
Interest .................................... 20 18 66 56
------- ------- ------- -------
Total costs and expenses .................. 1,083 1,090 3,170 3,114
------- ------- ------- -------
(Loss) income from continuing operations before
income taxes ................................ (56) 136 148 415
Income tax (benefit) provision ................ (29) 44 35 134
------- ------- ------- -------
(Loss) income from continuing operations ...... (27) 92 113 281
Income from discontinued operations ........... 61 78 180 210
------- ------- ------- -------
Net income .................................... $ 34 $ 170 $ 293 $ 491
======= ======= ======= =======
Basic (loss) earnings per share:
Continuing operations ....................... $ (0.15) $ 0.49 $ 0.62 $ 1.49
Discontinued operations ..................... 0.33 0.42 0.98 1.11
------- ------- ------- -------
Net income .................................. $ 0.18 $ 0.91 $ 1.60 $ 2.60
======= ======= ======= =======
Diluted (loss) earnings per share:
Continuing operations ....................... $ (0.15) $ 0.49 $ 0.61 $ 1.46
Discontinued operations ..................... 0.33 0.41 0.97 1.10
------- ------- ------- -------
Net income .................................. $ 0.18 $ 0.90 $ 1.58 $ 2.56
======= ======= ======= =======
Cash dividends per share (Note 1) ............. $ 0.42 $ 0.51 $ 0.93 $ 1.02
======= ======= ======= =======
Weighted average outstanding shares:
Basic ....................................... 183.1 187.2 182.6 188.9
======= ======= ======= =======
Diluted (Note 1) ............................ 183.1 189.0 185.1 191.3
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
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ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
Nine Months Ended
June 30,
----------------
2001 2000
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations......................................... $ 113 $ 281
Adjustments to arrive at cash provided by operating activities:
Depreciation............................................................ 149 144
Amortization of intangible assets....................................... 58 56
Special charges (Note 6)................................................ 69 -
Net gain on dispositions of property and businesses..................... (8) (18)
Changes in assets and liabilities, excluding effects of acquisitions and
divestitures and foreign currency adjustments:
Receivables......................................................... 48 30
Inventories......................................................... (15) (36)
Accounts payable.................................................... (119) (23)
Income taxes payable................................................ 31 185
Compensation and benefits........................................... (11) (51)
Other assets and liabilities........................................ 28 (110)
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES............................. 343 458
------ ------
INVESTING ACTIVITIES:
Property additions........................................................ (118) (148)
Acquisitions of businesses, net of cash acquired.......................... (6) (70)
Special payment from Rockwell Collins (Note 1)............................ 300 -
Proceeds from the dispositions of property and businesses................. 14 57
------ ------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES.................. 190 (161)
------ ------
FINANCING ACTIVITIES:
Increase (decrease) in debt............................................... 55 (167)
Purchases of treasury stock............................................... (63) (218)
Cash dividends............................................................ (140) (145)
Proceeds from the exercise of stock options............................... 42 15
------ ------
CASH USED FOR FINANCING ACTIVITIES................................ (106) (515)
------ ------
Effect of exchange rate changes on cash................................... 11 26
------ ------
CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS......................... 438 (192)
------ ------
Cash (Used for) Provided by Discontinued Operations....................... (349) 60
------ ------
INCREASE (DECREASE) IN CASH.............................................. 89 (132)
CASH AT BEGINNING OF PERIOD............................................... 170 336
------ ------
CASH AT END OF PERIOD..................................................... $ 259 $ 204
====== ======
See Notes to Condensed Consolidated Financial Statements.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
On June 29, 2001, Rockwell International Corporation, now doing business
under the name Rockwell Automation (the Company or Rockwell), completed
the spinoff of its Rockwell Collins avionics and communications business
into an independent, separately traded, publicly held company (the
Spinoff). In connection with the Spinoff, all outstanding shares of
Rockwell Collins, Inc. (Rockwell Collins) were distributed to Rockwell
shareowners on the basis of one Rockwell Collins share for each
outstanding Rockwell share and Rockwell Collins made a special payment to
the Company of $300 million. The net assets of Rockwell Collins as of June
29, 2001 of approximately $1.2 billion (including $300 million of debt
incurred to make the special payment to the Company) were recorded as a
decrease to shareowners' equity. Following the Spinoff, Rockwell Collins
and the Company each owns a 50% equity interest in Rockwell Scientific
Company LLC (formerly known as Rockwell Science Center). Effective June
29, 2001, the Company accounted for its interest in Rockwell Scientific
Company under the equity method.
In the opinion of management of 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
nine-month periods ended June 30, 2001 are not necessarily indicative of
the results for the full year.
At the end of each interim reporting period, the Company estimates 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.
The computation of weighted average diluted shares includes the effect of
stock options. In computing earnings per share amounts for the 2001 third
quarter, dilutive and basic per share amounts are identical, as the loss
from continuing operations resulted in stock options being antidilutive.
The total number of common shares that would have been used in the
Company's computation of diluted earnings per share for the 2001 third
quarter was 185.4 million.
During the 2001 third quarter, the Company declared a dividend of $0.255
per share payable June 4, 2001 to shareowners of record on May 14, 2001
and also declared a fourth quarter 2001 dividend of $0.165 per share
payable September 4, 2001 to shareowners of record on August 13, 2001.
During the 2000 third quarter, the Company declared a dividend of $0.255
per share payable June 5, 2000 and also declared a fourth quarter 2000
dividend of $0.255 per share payable September 5, 2000. With the
completion of the Spinoff, the Company anticipates that it will pay
quarterly cash dividends, which, on an annual basis, will equal $0.66 per
share and Rockwell Collins will pay quarterly dividends, which, on an
annual basis, will equal $0.36 per share. However, the declaration and
payment of dividends by the Company and Rockwell Collins will be at the
sole discretion of their respective boards of directors.
In July 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 00-10, Accounting for Shipping and Handling
Fees and Costs (EITF 00-10). EITF 00-10 requires companies to classify
shipping and handling amounts billed to customers as revenue. The Company
has historically classified shipping and handling amounts billed to
customers as a reduction to cost of sales. The Company will adopt EITF
00-10 effective July 1, 2001 and the effect of adoption will be an
increase of equal amounts to reported sales and cost of sales in future
periods. The Company does not consider the effect of adoption to be
material.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141)
and Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 addresses financial
accounting and reporting for business combinations and requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Under SFAS 142, goodwill and certain other
intangible assets will no longer be systematically amortized but instead
will be reviewed for impairment and written down and charged to results of
operations when their recorded value exceeds their estimated fair value.
SFAS 142 is effective for fiscal years beginning after December 15, 2001,
with early adoption permitted for entities with fiscal years beginning
after March 15, 2001. The Company expects to adopt SFAS 142 effective
October 1, 2001. Management expects that the effect of ceasing
amortization of goodwill will increase net income by approximately
$41 million after tax, or 22 cents per diluted share in fiscal 2002. The
Company is currently assessing any additional effects of adopting SFAS
142.
2. DISCONTINUED OPERATIONS
At September 30, 2000, the net assets of Rockwell Collins consisted of the
following (in millions):
Cash....................................................................... $ 20
Receivables................................................................ 513
Inventories................................................................ 656
Other current assets....................................................... 156
-------
Total current assets.................................................... 1,345
Accounts payable........................................................... 220
Other current liabilities.................................................. 574
-------
Total current liabilities............................................... 794
-------
Net current assets of Rockwell Collins..................................... $ 551
=======
Property................................................................... $ 422
Other assets............................................................... 318
-------
Total long-term assets.................................................. 740
Long-term liabilities...................................................... 399
-------
Net long-term assets of Rockwell Collins................................... $ 341
=======
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table summarizes the results of Rockwell Collins (in
millions):
Three Months Ended Nine Months Ended
June 30, June 30,
---------------- -----------------
2001 2000 2001 2000
------- ------- ------- -------
Sales............................................. $ 725 $ 631 $ 2,002 $ 1,807
Income before income taxes........................ 90 116 268 313
Net income........................................ 61 78 180 210
3. INVENTORIES
Inventories are summarized as follows (in millions):
June 30, September 30,
2001 2000
------- -----------
Finished goods............................................... $ 223 $ 220
Work in process.............................................. 157 167
Raw materials, parts, and supplies........................... 229 223
------- -------
Inventories.................................................. $ 609 $ 610
======= =======
4. SHORT-TERM DEBT
Short-term debt consisted of the following (in millions):
June 30, September 30,
2001 2000
------- -----------
Commercial paper............................................. $ 60 $ -
Short-term bank borrowings................................... 10 15
Current portion of long-term debt............................ 1 1
------- -------
Short-term debt.............................................. $ 71 $ 16
======= =======
The weighted average interest rate of the commercial paper outstanding at
June 30, 2001 was 4.25 percent.
5. COMPREHENSIVE INCOME
Comprehensive income for the three months ended June 30, 2001 was $27
million compared to $171 million for the three months ended June 30, 2000.
Comprehensive income for the nine months ended June 30, 2001 was $275
million compared to $480 million for the nine months ended June 30, 2000.
6. SPECIAL CHARGES
In the third quarter of 2001, the Company recorded special charges of $69
million ($45 million after tax, or 25 cents per share) for costs
associated with the consolidation and closing of facilities, the
realignment of various administrative functions, the reduction of
workforce, primarily in North America, by approximately 1,200 employees
and asset impairments. Special charges include $40 million in cost of
sales and $29 million in selling, general and administrative expenses in
the condensed consolidated statement of operations for the three- and
nine-month periods ended June 30, 2001. The Company expects to be
substantially complete with the realignment actions in the first quarter
of 2002.
Total cash expenditures in connection with these actions are expected to
approximate $32 million. In connection with the Spinoff, Rockwell Collins
assumed a liability for employee severance and separation costs resulting
from these actions of approximately $7 million. The Company spent
approximately $5 million through June 30, 2001 for employee severance and
separation costs. As a result of actions taken through June 30, 2001, the
workforce has been reduced by approximately 540 employees.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The special charges included write-downs to the carrying amount of
goodwill, certain facilities and machinery and equipment totaling
approximately $24 million resulting from the decision to shut down certain
facilities and exit non-strategic operations. The charges represented the
difference between the fair values of the assets and their carrying
values. Fair value was determined by management on the basis of discounted
estimated future cash flows and other valuation techniques.
Revenue and results of operations of businesses and product lines which
are being exited are not material.
The charges and their utilization for the three months ended June 30, 2001
are summarized as follows:
Amounts Balance
Charges Utilized June 30, 2001
---------- ---------- -------------
Employee severance and separation costs............. $ 34 $ 12 $ 22
Impairment of property and intangible assets........ 24 24 -
Lease termination costs............................. 5 - 5
Other asset write-offs.............................. 6 6 -
------ ------ ------
Total............................................ $ 69 $ 42 $ 27
====== ====== ======
7. CONTINGENT LIABILITIES
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 business or financial condition.
In connection with the Spinoff, Rockwell Collins assumed all contingent
liabilities related to its business, including environmental and
intellectual property matters.
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. SEGMENT INFORMATION
The sales and results of operations of the Company's segments are
summarized as follows (in millions):
Three Months Ended Nine Months Ended
------------------ ------------------
June 30, June 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- ------- -------
Sales
Control Systems.............................. $ 789 $ 948 $ 2,576 $2,731
Power Systems................................ 176 194 547 566
Electronic Commerce.......................... 34 35 108 128
Science Center............................... 22 12 60 32
-------- -------- ------- ------
Total..................................... $ 1,021 $ 1,189 $ 3,291 $3,457
======== ======== ======= ======
Segment Operating Earnings
Control Systems.............................. $ 67 $ 157 $ 353 $ 481
Power Systems................................ 11 13 39 53
Electronic Commerce.......................... (1) (5) 2 -
Science Center............................... (1) 4 3 10
--------- -------- ------- ------
Total..................................... 76 169 397 544
Goodwill & Purchase Accounting Items............ (21) (21) (61) (61)
Loss on Disposition of a Business............... - - - (14)
General Corporate - Net......................... (22) 6 (53) 2
Special Charges................................. (69) - (69) -
Interest Expense................................ (20) (18) (66) (56)
Income Tax Benefit (Provision).................. 29 (44) (35) (134)
-------- -------- ------- ------
(Loss) Income from Continuing Operations........ (27) 92 113 281
Income from Discontinued Rockwell Collins....... 61 78 180 210
-------- -------- ------- ------
Net Income...................................... $ 34 $ 170 $ 293 $ 491
======== ======== ======= ======
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ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
2001 THIRD QUARTER COMPARED TO 2000 THIRD QUARTER
Sales were $1,021 million in the third quarter of 2001 compared to $1,189
million in the third quarter of 2000. The 2001 third quarter loss from
continuing operations was $27 million, or 15 cents per diluted share, compared
to income from continuing operations of $92 million, or 49 cents per diluted
share, for the third quarter of 2000. The third quarter 2001 results from
continuing operations included special charges of $69 million ($45 million after
tax, or 25 cents per share).
CONTROL SYSTEMS
Control Systems' sales in the 2001 third quarter decreased to $789 million
compared to $948 million in the 2000 third quarter as a result of deterioration
in business conditions principally in industrial markets in the United States.
Sales in the United States declined 23 percent, while European shipments were
about the same as last year. Third quarter sales were also reduced by about $23
million due to a stronger dollar in 2001, particularly against the euro,
relative to the foreign currency exchange rates for the same period a year ago.
Despite a significant decline in United States volume during the quarter,
Control Systems continued to experience higher Logix(TM) integrated architecture
product sales, relative strength in its Global Manufacturing Solutions business
and increased shipments in Asia Pacific and Latin America.
Segment operating earnings of $67 million in the 2001 third quarter were $90
million lower than in the 2000 third quarter due to lower volume, especially in
higher margin component and platform products, and costs resulting from planned
lower capacity utilization. Control Systems' return on sales in the 2001 third
quarter was 8.5 percent compared to 16.6 percent in the 2000 third quarter.
POWER SYSTEMS
Power Systems' sales in the 2001 third quarter were $176 million compared to
$194 million in the 2000 third quarter. Sales of the motors business were up
slightly from the prior year third quarter, while mechanical product sales
declined. Segment operating earnings in the 2001 third quarter of $11 million
were down from $13 million in the same period a year ago primarily due to lower
volume. Power Systems' return on sales was 6.3 percent in the 2001 third quarter
compared to 6.7 percent in the 2000 third quarter.
ELECTRONIC COMMERCE
Sales at Electronic Commerce were $34 million in the 2001 third quarter compared
to $35 million in the 2000 third quarter. Segment operating losses of $1 million
in the 2001 third quarter improved $4 million from the 2000 third quarter due to
the successful implementation of cost saving initiatives.
SCIENCE CENTER
Effective June 29, 2001, the Company and Rockwell Collins each owns 50 percent
of Rockwell Scientific Company LLC (formerly known as Rockwell Science Center).
Results of Rockwell Science Center, which are included in continuing operations
through the 2001 third quarter, are down due to lower royalty income. Effective
June 29, 2001, the Company accounted for its interest in Rockwell Scientific
Company as an equity investment.
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ROCKWELL INTERNATIONAL CORPORATION
GENERAL CORPORATE-NET
General corporate expenses were $22 million in the third quarter of 2001
compared to income of $6 million in the third quarter of 2000. Last year's third
quarter included a $28 million gain resulting from the Metropolitan Life
Insurance Company demutualization.
SPECIAL CHARGES
In the third quarter of 2001, the Company recorded special charges of $69
million ($45 million after tax, or 25 cents per share) for costs associated with
a realignment of its business operations to reduce costs and improve operating
efficiency. Total cash expenditures are expected to approximate $32 million with
substantially all of the spending to be completed by the end of the first
quarter of fiscal 2002. Management expects that the annual pre-tax savings
beginning in fiscal 2002 resulting from these actions will approximate $100
million. See Note 6, Special Charges, in the Notes to Condensed Consolidated
Financial Statements.
NINE MONTHS ENDED JUNE 30, 2001 COMPARED TO NINE MONTHS ENDED JUNE 30, 2000
Sales were $3,291 million in the first nine months of 2001 compared to $3,457
million in the first nine months of 2000. Income from continuing operations in
the first nine months of 2001 was $113 million, or 61 cents per diluted share,
compared to $281 million, or $1.46 per diluted share, for the first nine months
of 2000. The nine month 2001 results from continuing operations include special
charges of $69 million ($45 million after tax, or 25 cents per share).
CONTROL SYSTEMS
Control Systems' sales in the first nine months of 2001 were $2,576 million
compared to $2,731 million for the first nine months of 2000, reflecting
principally difficult market conditions for automation products in the United
States during 2001. Shipments outside of the United States, before the effect of
currency rate fluctuations, were higher and included increases of 8 percent in
Europe, 16 percent in Asia Pacific and 12 percent in Latin America. Sales in the
first nine months of 2001 were reduced by about $76 million due to a stronger
dollar in 2001, particularly against the euro, relative to the foreign currency
exchange rates for the same period a year ago.
Segment operating earnings of $353 million were $128 million lower than in the
first nine months of 2000 due to lower volume and costs resulting from planned
lower capacity utilization. Control Systems' return on sales in the first nine
months of 2001 was 13.7 percent compared to 17.6 percent in the first nine
months of 2000.
POWER SYSTEMS
Power Systems' sales in the first nine months of 2001 of $547 million were $19
million lower than in the first nine months of 2000, with an increase at the
motors business more than offset by lower volume in mechanical products. Segment
operating earnings in the first nine months of 2001 of $39 million were down
from $53 million in the same period a year ago primarily due to lower volume and
product mix. Power Systems' return on sales was 7.1 percent in the first nine
months of 2001 compared to 9.4 percent in the first nine months of 2000.
ELECTRONIC COMMERCE
Sales at Electronic Commerce of $108 million in the first nine months of 2001
were down from $128 million in the first nine months of 2000 due to market
conditions. Segment operating earnings improved $2 million in the first nine
months of 2001 compared to the first nine months of 2000 due to cost saving
initiatives.
SCIENCE CENTER
Sales at the Science Center increased to $60 million in the first nine months of
2001 compared to $32 million in the first nine months of 2000 primarily due to
higher sales to the United States government. Segment operating earnings
decreased to $3 million in the first nine months of 2001 compared to $10 million
in the first nine months of 2000 due to lower royalty income.
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ROCKWELL INTERNATIONAL CORPORATION
GENERAL CORPORATE-NET
General corporate-net in the first nine months of 2000 included a $32 million
gain on the sale of real estate and a $28 million gain resulting from the
Metropolitan Life Insurance Company demutualization.
DISCONTINUED OPERATIONS
On June 29, 2001, the Company completed the spinoff of its Rockwell Collins
avionics and communications business into an independent, separately traded,
publicly held company (the Spinoff). In connection with the Spinoff, all
outstanding shares of Rockwell Collins, Inc. were distributed to Rockwell
shareowners on the basis of one Rockwell Collins share for each outstanding
Rockwell share and Rockwell Collins made a special payment to the Company of
$300 million. The net assets of Rockwell Collins as of June 29, 2001 of
approximately $1.2 billion (including $300 million of debt incurred to make the
special payment to the Company) were recorded as a decrease to shareowners'
equity.
Income from discontinued operations was $61 million for the 2001 third quarter
compared to $78 million for the 2000 third quarter, a decrease of $17 million.
Income from discontinued operations for the nine months ended June 30, 2001 was
$180 million, a decrease of $30 million from the $210 million reported for the
nine months ended June 30, 2000. Included in the three- and nine-month periods
ended June 30, 2001 were $21 million of costs related to the Spinoff. In the
second quarter of 2001, Rockwell Collins recorded a pre-tax charge of $24
million for the write-off of inventory related to its In-Flight Network joint
venture.
INCOME TAXES
The Company recorded an income tax benefit of $29 million for the third quarter
2001. The benefit is the result of the loss from continuing operations and a
reduction in the effective tax rate. The effective income tax rate for
continuing operations for the first nine months of 2001 of 23.6 percent was
lower than the 32.3 percent for the same period in 2000. The reduction in the
effective tax rate is due primarily to the effect of the favorable resolution of
certain tax matters. Management expects the effective income tax rate for
continuing operations for the full year 2001 to be approximately 24 percent (27
percent excluding special charges) and the full year effective rate for fiscal
year 2002 to be approximately 30 percent. The anticipated tax rates in 2001 and
2002 reflect the continuing benefits of ongoing tax planning initiatives.
OUTLOOK FOR BUSINESSES
Assuming no further weakening in market conditions, management expects full year
earnings per share from continuing operations before special charges to be
approximately 95 cents. For fiscal year 2002, management expects earnings per
share improvement of 15 percent to 25 percent assuming that sales do not improve
beyond the current level through the first half with a modest increase in volume
in the second half of fiscal 2002.
FINANCIAL CONDITION
Cash generated by operations was $343 million for the nine months ended June 30,
2001 compared to $458 million in the same period in 2000. Free cash flow was
$225 million for the nine months ended June 30, 2001, a decrease of $85 million
from the same period in 2000. The decrease in cash generation in 2001 was driven
primarily by lower earnings. The Company defines free cash flow, which it uses
as an internal performance measurement, as cash provided by operating activities
reduced by capital expenditures. The Company's definition of free cash flow may
be different from definitions used by other companies.
Cash provided by investing activities was $190 million in the nine months ended
June 30, 2001 compared to cash used for investing activities of $161 million in
the nine months ended June 30, 2000. Property additions were $118 million in the
nine months ended June 30, 2001 compared to $148 million in the same period in
2000. Management expects property additions for the full year 2001 to be
approximately $160 million. In connection with the Spinoff, the Company received
a special payment from Rockwell Collins of $300 million which was used to repay
commercial paper borrowings.
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ROCKWELL INTERNATIONAL CORPORATION
Cash used for financing activities was $106 million in the nine months ended
June 30, 2001, a decrease of $409 million from the same period in 2000. Short
term debt increased $55 million in the nine months ended June 30, 2001. These
borrowings were used to fund general corporate expenditures. The Company spent
$63 million in the first nine months of 2001 in connection with its stock
repurchase program, a decrease of $155 million from the same period in the prior
year. The Company did not repurchase any shares in the second or third quarter
of 2001. At June 30, 2001, the Company had approximately $104 million remaining
on its current $250 million stock repurchase program.
Cash used for discontinued operations in the first nine months of 2001 was $349
million, including $292 million for the acquisition of the Kaiser Aerospace and
Electronics business and $85 million for property additions.
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.
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 June
30, 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", "expects",
"anticipates", 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; demand for and
market acceptance of new and existing products, including levels of capital
spending in industrial markets; 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 June
30, 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 sought
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. On July
3, 2001, plaintiffs voluntarily dismissed their appeal of the judgment
and the matter is now closed.
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ROCKWELL INTERNATIONAL CORPORATION
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
on page 2 in Item 1, Business, 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 10.1 - Distribution Agreement dated as of June 29,
2001 by and among Rockwell International
Corporation, Rockwell Collins, Inc. and
Rockwell Scientific Company LLC, filed as
Exhibit 2.1 to the Company's current report
on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
Exhibit 10.2 - Employee Matters Agreement dated as of June
29, 2001 by and among Rockwell International
Corporation, Rockwell Collins, Inc. and
Rockwell Scientific Company LLC, filed as
Exhibit 2.2 to the Company's current report
on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
Exhibit 10.3 - Tax Allocation Agreement dated as of June 29,
2001 by and between Rockwell International
Corporation and Rockwell Collins, Inc., filed
as Exhibit 2.3 to the Company's current
report on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
Exhibit 10.4 - Form of Change of Control Agreement between
the Company and each of D. H. Davis, Jr., M.
A. Bless, W. J. Calise, Jr., J. D. Cohn, K.
D. Nosbusch and J. D. Swann.
Exhibit 10.5 - Form of Change of Control Agreement between
the Company and certain other officers.
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges for the Nine Months Ended June 30,
2001.
(b) Reports on Form 8-K during the quarter ended June 30, 2001:
The Company filed a current report on Form 8-K dated July 11,
2001 in respect of the completion on June 29, 2001 of the
spinoff of its avionics and communications business to holders
of shares of common stock, par value $1 per share, of the
Company by means of the pro rata distribution to such holders
of all of the outstanding shares of common stock, par value
$0.01 per share, of Rockwell Collins, Inc., then a
wholly-owned subsidiary of the Company, including the
associated preferred share purchase rights. Rockwell Collins
began operations as an independent, separately traded,
publicly held company on June 30, 2001.
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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: August 9, 2001 By D. M. Dorgan
-------------- --------------------------------
D. M. Dorgan
Vice President & Controller
(Principal Accounting Officer)
Date: August 9, 2001 By W. J. Calise, Jr.
-------------- --------------------------------
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Distribution Agreement dated as of June 29, 2001 by and
among Rockwell International Corporation, Rockwell Collins,
Inc. and Rockwell Scientific Company LLC, filed as Exhibit
2.1 to the Company's current report on Form 8-K dated July
11, 2001, is incorporated herein by reference.
10.2 Employee Matters Agreement dated as of June 29, 2001 by and
among Rockwell International Corporation, Rockwell Collins,
Inc. and Rockwell Scientific Company LLC, filed as Exhibit
2.2 to the Company's current report on Form 8-K dated July
11, 2001, is incorporated herein by reference.
10.3 Tax Allocation Agreement dated as of June 29, 2001 by and between
Rockwell International Corporation and Rockwell Collins, Inc.,
filed as Exhibit 2.3 to the Company's current report on Form 8-K
dated July 11, 2001, is incorporated herein by reference.
10.4 Form of Change of Control Agreement between the Company and each
of D. H. Davis, Jr., M. A. Bless, W. J. Calise, Jr., J. D. Cohn,
K. D. Nosbusch and J. D. Swann.
10.5 Form of Change of Control Agreement between the Company and
certain other officers.
12 Computation of Ratio of Earnings to Fixed Charges for the Nine
Months Ended June 30, 2001.