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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996. COMMISSION FILE NUMBER 1-12383
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ROCKWELL INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 25-1797617
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2201 SEAL BEACH BOULEVARD,
SEAL BEACH, CALIFORNIA 90740-8250
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(412) 565-4090 (OFFICE OF THE SECRETARY)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $1 Par Value New York and Pacific Stock Exchanges
(including the associated
Preferred Share Purchase
Rights)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(G) OF THE ACT:
Class A Common Stock, $1 Par Value
(including the associated Preferred Share Purchase Rights)
(TITLE OF CLASS)
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 No X*
--- ---
* On December 6, 1996, registrant succeeded for financial reporting
purposes to the former Rockwell International Corporation, which had been
subject to such filing requirements for more than 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of registrant's voting stock held by
non-affiliates of registrant on December 9, 1996 was approximately $13.2
billion.
191,597,110 shares of registrant's Common Stock, par value $1 per share,
and 27,370,844 shares of registrant's Class A Common Stock, par value $1 per
share, were outstanding on December 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting
of Shareowners of registrant to be held on February 5, 1997 is incorporated by
reference into Part III hereof.
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PART I
ITEM 1. BUSINESS.
Rockwell International Corporation (the Company or Rockwell), a Delaware
corporation, is engaged in research, development and manufacture of many
diversified products. The Company was incorporated in 1996 and is the successor
to the former Rockwell International Corporation as the result of a tax-free
reorganization completed on December 6, 1996 (the Reorganization). The
predecessor corporation was incorporated in 1928. Pursuant to the
Reorganization, the Company divested its former Aerospace and Defense businesses
(the A&D Business) to The Boeing Company (Boeing) for approximately $3.2 billion
by means of a merger in which the Company's predecessor corporation became a
wholly-owned subsidiary of Boeing. Immediately prior to the merger,
substantially all of the Company's businesses and assets (other than the A&D
Business) were contributed to the Company, or to one or more wholly-owned
operating subsidiaries of the Company, and all outstanding shares of the Company
were distributed to shareowners of the predecessor corporation on a one-for-one
share basis. As used herein, the terms the "Company" or "Rockwell" include
subsidiaries and predecessors unless the context indicates otherwise.
For purposes hereof, whenever reference is made in any Item of this Annual
Report on Form 10-K to information under specific captions in Item 7,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (the MD&A), or in Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(the Financial Statements), or to information in the Proxy Statement for the
Annual Meeting of Shareowners of the Company to be held on February 5, 1997 (the
1997 Proxy Statement), such information shall be deemed to be incorporated
therein by such reference.
BUSINESS SEGMENTS
The Company's business segments are engaged in research, development, and
manufacture of diversified products as follows:
Electronics:
Automation--industrial automation equipment and systems, including
control logic, sensors, human-machine interface devices, motors, power
and mechanical devices, and software products.
Avionics & Communications--avionics products and systems and related
communications technologies primarily used in commercial and military
aircraft and defense electronic systems for command, control,
communications, and intelligence.
Semiconductor Systems--system-level semiconductor chipset solutions for
personal communication electronics markets, including chipsets for
facsimile and personal computer data modems, wireless communications
products such as global positioning systems ("GPS"), packet data,
cordless and cellular chipsets, and automated call distribution
equipment.
Automotive--components and systems for heavy- and medium-duty trucks,
buses, trailers and heavy-duty off-highway vehicles (Heavy Vehicle
Systems); and components and systems for light trucks and passenger cars
(Light Vehicle Systems).
Financial information with respect to the Company's business segments,
including their contributions to sales and operating earnings and their
identifiable assets for the three years ended September 30, 1996, is contained
under the caption RESULTS OF OPERATIONS in the MD&A on pages 12-14 hereof, and
in Note 19 of the NOTES TO FINANCIAL STATEMENTS in the Financial Statements on
pages 33-36 hereof.
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Electronics
The sales and operating earnings of the businesses that comprise the
Company's Electronics business segment for the three fiscal years ended
September 30, 1996 were as follows:
1996 1995 1994
------- ------- -------
(IN MILLIONS)
Sales:
Automation....................................... $4,165 $3,590 $2,085
Avionics & Communications........................ 1,475 1,468 1,419
Semiconductor Systems............................ 1,593 875 691
------ ------ ------
Total Electronics................................ $7,233 $5,933 $4,195
====== ====== ======
Operating Earnings:
Automation....................................... $ 537 $ 481 $ 265
Avionics & Communications........................ 163 178 182
Semiconductor Systems............................ 330 113 98
------ ------ ------
Total Electronics................................ $1,030 $ 772 $ 545
====== ====== ======
Automation. The acquisition of Reliance Electric Company (Reliance) in the
second quarter of fiscal 1995 made Automation the Company's largest business.
The Company's automation products include programmable controllers,
human-machine interface devices, communications networks, programming and
application software, AC/DC drives and drive systems, sensing and motion control
devices, machine vision, computer numeric control systems, and data acquisition
products and global support services. The Reliance acquisition added standard
and engineered motors and mechanical power transmission equipment. The Company
is a leader in plant floor automation, focusing on helping customers control
processes and become more competitive through increased flexibility, improved
productivity and information flow.
Avionics & Communications. Rockwell's Avionics & Communications businesses
provide electronic equipment for flight control, cockpit display, navigation,
voice and data communication, cockpit management, radar, global positioning and
other systems for airlines, corporate aircraft, general aviation, government and
military applications, command, control and communications devices and systems
and products and systems for the land transportation market (including
electronic brake systems and integrated cab electronics).
Semiconductor Systems. The Company's Semiconductor Systems business
provides semiconductor solutions for fax, voice and data modems for facsimile
machines and personal computers. This business is making significant investments
in mixed-signal computing semiconductor process, device design and
communications algorithm core technologies. Applying these core technologies,
this business is expanding into related personal communications electronics
markets, such as entering the market for wireless communications, by supplying
chipsets for cellular and cordless phones, wireless modem communications devices
for laptop computers and modules for GPS receivers. In September 1996, the
Company acquired for $278 million Brooktree Corporation (Brooktree), a designer
and manufacturer of digital and mixed-signal integrated circuits for computer
graphics, multimedia, imaging, and communications applications. The Company took
a one-time special charge of $121 million in the fourth quarter of fiscal 1996
for purchased in-process research and development in connection with this
acquisition.
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Automotive
The sales and operating earnings of the businesses that comprise the
Company's Automotive business segment for the three fiscal years ended September
30, 1996 were as follows:
1996 1995 1994
------- ------- -------
(IN MILLIONS)
Sales:
Heavy Vehicle Systems............................ $1,822 $1,929 $1,744
Light Vehicle Systems............................ 1,318 1,192 900
------ ------ ------
Total Automotive................................. $3,140 $3,121 $2,644
====== ====== ======
Operating Earnings............................... $ 218 $ 212 $ 114
====== ====== ======
Heavy Vehicle Systems. Automotive's Heavy Vehicle Systems business is a
major global supplier of drivetrain components and systems for heavy- and
medium-duty commercial trucks, buses, trailers and off-highway vehicles, and
government heavy-duty wheeled vehicles. Major components include front steer
axles, single and tandem rear drive axles, trailer axles, clutches,
transmissions, drivelines, brakes, automatic slack adjusters and anti-lock
braking systems. North American factory sales of heavy-duty trucks totaled
205,000 units in fiscal 1996, compared with 244,000 the prior year. Sales of
medium-duty trucks, used primarily for short hauls and local delivery, were
126,000 units in fiscal 1996, compared with 150,000 in fiscal 1995. Trailer
sales were 266,000 units, compared with 321,000 in the previous year.
Light Vehicle Systems. The Company's Light Vehicle Systems business is a
leading supplier of roof, door, access control, seat adjusting and suspension
systems and wheels for the world's passenger car and light truck industries. The
Company is emphasizing products that provide added value to its customers by
concentrating its resources on the systems and electronics product lines. For
example, Rockwell is moving from providing just individual components toward
more comprehensive systems with various power and electronic options.
COMPETITIVE POSTURE
The Company competes with many manufacturers which, depending on the
product involved, range from large diversified enterprises comparable in scope
and resources to the Company to smaller companies specializing in particular
products. Factors which affect the Company's competitive posture are its
research and development efforts, the quality of its products and services and
its marketing and pricing strategies.
The products of the Company's Electronics business segment are sold by its
own sales force and through distributors and agents. The Company's automotive
components primarily are sold directly to original equipment manufacturers, some
of which also are competitors in that they produce for their own use many of the
products manufactured by the Company. Management believes that the Company is
one of the largest independent manufacturers of automotive components and parts
in North America.
GOVERNMENT CONTRACTS
The Avionics & Communications business supplies certain military equipment
to the United States government. In addition to normal business risks, companies
engaged in supplying military equipment to the United States government are
subject to unusual risks, including dependence on Congressional appropriations
and administrative allotment of funds, changes in governmental procurement
legislation and regulations and other policies which may reflect military and
political developments, significant changes in contract scheduling, complexity
of designs and the rapidity with which they become obsolete, constant necessity
for design improvements, intense competition for available United States
government business necessitating increases in time and investment for design
and development, difficulty of forecasting costs and schedules when bidding on
developmental and highly sophisticated technical work and other factors
characteristic of the industry. Changes are customary over the life of United
States government contracts, particularly development contracts, and generally
result in adjustments of contract prices.
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Moreover, various claims (whether based on United States government or
Company audits and investigations or otherwise) have been or may be instituted
or asserted against the Company related to its United States government contract
work, including claims based on business practices and cost classifications.
Although such claims are usually resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, the cancellation of or
suspension of payments under one or more United States government contracts,
suspension or debarment proceedings affecting potential further business with
the United States government, or alteration of the Company's procedures relating
to the performance or obtaining of United States government contracts.
Management of the Company believes there are no claims, audits or investigations
currently pending which will have a material adverse effect on either the
Company's business or its financial condition.
ACQUISITIONS AND DISPOSITIONS
The Company regularly considers the acquisition or development of new
businesses and reviews the prospects of its existing businesses to determine
whether any of them should be modified, sold or otherwise discontinued. As a
result of the Reorganization, the Company has an extremely low debt to total
capital ratio, which enhances its ability, among other things, to make
acquisitions.
In September 1996, the Company acquired Brooktree for $278 million. The
Company also acquired several other businesses in fiscal 1996, at a net cost of
$68 million. In January 1995, the Company completed its acquisition of Reliance,
a major manufacturer of industrial products and telecommunications equipment,
for $1,066 million, net of proceeds from the sale of Reliance's
telecommunications business.
In October 1996, the Company sold its Graphic Systems business to an
affiliate of Stonington Partners, Inc. for approximately $600 million. On
December 6, 1996, the Company completed the divestiture of the A&D Business to
Boeing. The assets and liabilities of the Graphic Systems business and the A&D
Business have been classified on the Company's balance sheet as net assets
(liabilities) of discontinued operations and the net income (loss) from
operations of the Graphic Systems business and the A&D Business has been
reflected on the Company's statement of consolidated income as income from
discontinued operations.
GEOGRAPHIC INFORMATION
The Company conducts operations in the United States and in 37 foreign
countries. Selected financial information by major geographic area for the three
years ended September 30, 1996 is contained in Note 19 of the NOTES TO FINANCIAL
STATEMENTS in the Financial Statements.
The Company's principal markets outside the United States are in Australia,
Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, the
Netherlands, Southeast Asia, Spain and the United Kingdom. In addition to normal
business risks, operations outside the United States are subject to other risks
including, among other factors, the political, economic and social environments,
governmental laws and regulations, and currency revaluations and fluctuations.
RESEARCH AND DEVELOPMENT
The Company's Science Center conducts a basic research program to support
the strategies of the operating businesses and continues to provide research
services to the A&D Business at agreed rates. At September 30, 1996, the Company
employed approximately 7,052 professional engineers and scientists and 3,068
supporting technical personnel (excluding employees of the Graphic Systems
business and the A&D Business).
EMPLOYEES
At October 31, 1996, the Company had 58,639 employees (excluding employees
of the Graphic Systems business and the A&D Business), of whom 18,011 were
employed outside the United States.
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RAW MATERIALS AND SUPPLIES
Raw materials essential to the conduct of all the Company's business
segments generally are available at competitive prices. Many items of equipment
and components used in the production of the Company's products in all the
Company's business segments are purchased from others. In addition, the Avionics
& Communications business in the Electronics business segment generally
subcontracts major portions of systems. Although the Company has a broad base of
suppliers and subcontractors, it is dependent upon the ability of its suppliers
and subcontractors to meet performance and quality specifications and delivery
schedules.
ENVIRONMENTAL PROTECTION REQUIREMENTS
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 the MD&A on pages 15-16 hereof. See also Item 3, LEGAL PROCEEDINGS, on
pages 7-9 hereof.
PATENTS, LICENSES AND TRADEMARKS
Numerous patents and patent applications are owned or licensed by the
Company and utilized in its activities and manufacturing operations. Various
claims of patent infringement have been made against the Company. Management
believes that none of these claims will have a material adverse effect on the
consolidated financial statements of the Company. While in the aggregate the
Company's patents and licenses are considered important in the operation of its
business, management does not consider them of such importance that loss or
termination of any one of them would materially affect the Company's business.
The Company's name, its registered trademarks "Rockwell" and "Rockwell
International" and its symbol are important to all of its business segments. In
addition, the Company owns a large number of other important trademarks
applicable to only certain of its products, such as "Collins" for navigation and
communication equipment, "Allen-Bradley" and "A-B" for electronic controls and
systems for industrial automation and "Reliance" for electric motors and
mechanical power transmission products.
SEASONALITY
None of the Company's business segments is seasonal.
ITEM 2. PROPERTIES.
At September 30, 1996, and excluding facilities of the Graphic Systems
business and the A&D Business, the Company operated 162 plants and research and
development facilities throughout the United States and in Europe, Brazil,
Canada, India, Mexico, Australia and the Far East. It also had approximately 400
sales offices, warehouses and service centers. These facilities had an aggregate
floor space of approximately 32.2 million square feet. Of this floor space,
approximately 76.7% was owned by the Company and approximately 23.3% was leased.
At September 30, 1996, and excluding facilities of the Graphic Systems business
and the A&D Business, the Company had 400,000 square feet of floor space that
were not in use, all of which was in owned facilities. There are no major
encumbrances (other than financing arrangements which in the aggregate are not
material) on any of the Company's plants or equipment. In the opinion of
management, the Company's properties have been well maintained, are in sound
operating condition and contain all equipment and facilities
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necessary to operate at present levels. A summary of floor space of these
facilities at September 30, 1996 is as follows:
OWNED LEASED
LOCATION AND SEGMENTS FACILITIES FACILITIES TOTAL
--------------------- ---------- ---------- -----
(IN MILLIONS OF SQUARE FEET)
United States:
Automation............................................. 9.7 3.0 12.7
Avionics & Communications.............................. 3.6 0.7 4.3
Semiconductor Systems.................................. 0.5 0.3 0.8
Automotive............................................. 4.4 0.2 4.6
Europe:
Automation............................................. 0.3 1.4 1.7
Avionics & Communications.............................. -- 0.1 0.1
Semiconductor Systems.................................. -- -- --
Automotive............................................. 3.2 0.3 3.5
South America:
Automation............................................. -- 0.2 0.2
Avionics & Communications.............................. -- -- --
Semiconductor Systems.................................. -- -- --
Automotive............................................. 0.9 -- 0.9
Canada and other areas:
Automation............................................. 0.3 0.7 1.0
Avionics & Communications.............................. -- -- --
Semiconductor Systems.................................. 0.1 0.1 0.2
Automotive............................................. 1.5 0.1 1.6
Corporate Offices (including certain research and
development facilities)................................ 0.2 0.4 0.6
----- --- ----
Total.......................................... 24.7 7.5 32.2
===== === ====
ITEM 3. LEGAL PROCEEDINGS.
Rocky Flats Plant. On January 30, 1990, a civil action was brought in the
United States District Court for the District of Colorado against the Company
and another former operator of the Rocky Flats Plant (the Plant), Golden,
Colorado, operated from 1975 through December 31, 1989 by the Company for the
Department of Energy (DOE). The action alleges the improper production, handling
and disposal of radioactive and other hazardous substances, constituting, among
other things, violations of various environmental, health and safety laws and
regulations, and misrepresentation and concealment of the facts relating
thereto. The plaintiffs, who purportedly represent two classes, sought
compensatory damages of $250 million for diminution in value of real estate and
other economic loss; the creation of a fund of $150 million to finance medical
monitoring and surveillance services; exemplary damages of $300 million; CERCLA
response costs in an undetermined amount; attorneys' fees; an injunction; and
other proper relief. On February 13, 1991, the court granted certain of the
motions of the defendants to dismiss the case. The plaintiffs subsequently filed
a new complaint, and on November 26, 1991, the court granted in part a renewed
motion to dismiss. The remaining portion of the case is pending before the
court. On October 8, 1993, the court certified separate medical monitoring and
property value classes. Effective August 1, 1996, the DOE assumed control of the
defense of the contractor defendants, including the Company, in the action.
Beginning on that date, the costs of the Company's defense, which had previously
been reimbursed to the Company by the DOE, have been and are being paid directly
by the DOE. The Company believes that it is entitled under applicable law and
its contract with the DOE to be indemnified for all costs and any liability
associated with this action.
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On November 13, 1990, the Company was served with a summons and complaint
in another civil action, which the Company believes is totally without merit,
brought against the Company in the same court by James Stone, claiming to act in
the name of the United States, alleging violations of the U.S. False Claims Act
in connection with the Company's operation of the Plant (and seeking treble
damages and forfeitures) as well as a personal cause of action for alleged
wrongful termination of employment, seeking reinstatement with back pay and
other unspecified damages. On August 8, 1991, the court dismissed the personal
cause of action. On February 2, 1994, the court denied Rockwell's motion to
dismiss the complaint for lack of subject matter jurisdiction, and discovery is
proceeding. On December 6, 1995, the DOE notified the Company that it would no
longer reimburse costs incurred by the Company in defense of the action. On
November 19, 1996, the court granted the Department of Justice leave to
intervene in the case on the government's behalf. The Company believes it is
entitled under applicable law and its contract with the DOE to be indemnified
for all costs and any liability associated with this action.
On January 8, 1991, the Company filed suit in the United States Claims
Court against the DOE, seeking recovery of $6.5 million of award fees to which
the Company alleges it is entitled under the terms of its contract with the DOE
for management and operation of the Plant during the period October 1, 1988
through September 30, 1989. On July 17, 1996, the government filed an amended
answer and counterclaim against the Company alleging violations of the U.S.
False Claims Act previously asserted in the civil action described in the
preceding paragraph. The Company believes the government's counterclaim is
without merit.
Hanford Nuclear Reservation. On August 6, 1990 and August 9, 1990, civil
actions were filed in the United States District Court for the Eastern District
of Washington against the Company and the present and other former operators of
the DOE's Hanford Nuclear Reservation (Hanford), Hanford, Washington. The
Company operated part of Hanford for the DOE from 1977 through June 1987. Both
actions purport to be brought on behalf of various classes of persons and
numerous individual plaintiffs who resided, worked, owned or leased real
property, or operated businesses, at or near Hanford or downwind or downriver
from Hanford, at any time since 1944. The actions allege the improper handling
and disposal of radioactive and other hazardous substances and assert various
statutory and common law claims. The relief sought includes unspecified
compensatory and punitive damages for personal injuries and for economic losses,
and various injunctive and other equitable relief.
Other cases asserting similar claims (the follow-on claims) on behalf of
the same and similarly situated individuals and groups have been filed from time
to time since August 1990, and may continue to be filed from time to time in the
future. These actions and the follow-on claims have been (and any additional
follow-on claims that may be filed are expected to be) consolidated in the
United States District Court for the Eastern District of Washington under the
name In re Hanford Nuclear Reservation Litigation. Because the claims and
classes of claimants included in the actions described in the preceding
paragraph are so broadly defined, the follow-on claims filed as of December 19,
1996 have not altered, and possible future follow-on claims are not expected to
alter, in any material respect the scope of the litigation.
Effective October 1, 1994, the DOE assumed control of the defense of
certain of the contractor defendants (including the Company) in the In re
Hanford Nuclear Reservation Litigation. Beginning on that date, the costs of the
Company's defense, which had previously been reimbursed to the Company by the
DOE, have been and are being paid directly by the DOE. The Company believes it
is entitled under applicable law and its contracts with the DOE to be
indemnified for all costs and any liability associated with these actions.
Other. On June 24, 1996, judgment was entered against the Company in a
civil action in the Circuit Court of Logan County, Kentucky on a jury verdict
awarding $8 million in compensatory and $210 million in punitive damages for
property damage. The action had been brought August 12, 1993 by owners of flood
plain real property near Russellville, Kentucky allegedly damaged by PCBs
discharged from a plant owned and operated by the Company's Measurement & Flow
Control Division prior to its divestiture in March 1989. The Company believes
that the verdict is unsupported by the evidence and, on July 3, 1996, moved for
judgment in its favor notwithstanding the verdict, or in the alternative, for a
new trial.
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, environmental,
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safety and health, intellectual property, employment, and government contract
matters. Although the outcome of litigation cannot be predicted with certainty
and some lawsuits, claims or proceedings may be disposed of unfavorably to the
Company, management believes the disposition of matters which are pending or
asserted will not have a material adverse effect on the Company's financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the 1996 fiscal year.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, positions and offices held with the Company and principal
occupations and employment during the past five years of each of the executive
officers of the Company as of December 19, 1996 are as follows:
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
DONALD R. BEALL--Chairman of the Board and Chief Executive Officer of
Rockwell................................................................... 58
DON H. DAVIS, JR.--President and Chief Operating Officer of Rockwell since
July 1995; Executive Vice President and Chief Operating Officer of Rockwell
from January 1994 to July 1995; Senior Vice President and President,
Automation of Rockwell from June 1993 to January 1994; President of
Allen-Bradley prior thereto................................................ 57
W. MICHAEL BARNES--Senior Vice President, Finance & Planning and Chief
Financial Officer of Rockwell.............................................. 54
WILLIAM J. CALISE, JR.--Senior Vice President, General Counsel and Secretary
of Rockwell since November 1994; senior partner of Chadbourne & Parke
(law firm) prior thereto .................................................. 58
LEE H. CRAMER--Vice President and Treasurer of Rockwell...................... 51
WILLIAM D. FLETCHER--Senior Vice President, Technology & Business Development
of Rockwell since June 1996; Senior Vice President, International of
Rockwell from October 1995 to June 1996; President, Asia-Pacific Sales
Region of Allen-Bradley from March 1995 to October 1995; President of the
Asia-Pacific Region of Allen-Bradley from June 1993 to March 1995; Senior
Vice President, International Group and Motion Control Division of
Allen-Bradley from January 1992 to June 1993; Senior Vice President,
International Group of Allen-Bradley prior thereto......................... 57
JODIE K. GLORE--Senior Vice President of Rockwell and President & Chief
Operating Officer-Rockwell Automation since October 1995; President of
Allen-Bradley from January 1994 to October 1995; Senior Vice President,
Automation Group (formerly Industrial Computer and Communication Group) of
Allen-Bradley from January 1992 to January 1994; Vice President, Sales and
Marketing of Square D Company (electrical distribution and industrial
control products) prior thereto............................................ 49
LAWRENCE J. KOMATZ--Vice President and Controller of Rockwell................ 54
THOMAS A. MADDEN--Vice President, Corporate Development of Rockwell since
September 1996; Vice President--Finance & Administration, Light Vehicle
Systems of Rockwell from May 1996 to September 1996; Vice
President--Finance & Administration, Automotive Business of Rockwell from
October 1994 to May 1996; Assistant Controller of Rockwell prior thereto... 43
ROBERT H. MURPHY--Senior Vice President since December 1996; Senior Vice
President, Organization and Human Resources of Rockwell prior thereto...... 58
WILLIAM A. SANTE, II--General Auditor of Rockwell............................ 53
JOHN R. STOCKER--Vice President, Law of Rockwell since November 1994; Vice
President and Associate General Counsel of Rockwell prior thereto.......... 55
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NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
JOEL R. STONE--Senior Vice President, Organization and Human Resources of
Rockwell since December 1996; Vice President of Compensation & Benefits
of Rockwell prior thereto.................................................. 52
CHARLES C. STOOPS, JR.--General Tax Counsel of Rockwell...................... 63
EARL S. WASHINGTON--Senior Vice President, Communications of Rockwell since
September 1995; Vice President, Advertising and Public Relations of
Rockwell from March 1994 to September 1995; Vice President, Business
Development of Rockwell from June 1993 to March 1994; Vice President of
Strategic Management for Rockwell's Defense Electronics businesses from
June 1990 to June 1993 and Vice President of Transportation Systems of
Rockwell's Defense Electronics businesses from June 1992 to June 1993...... 51
There are no family relationships, as defined, between any of the above
executive officers. No officer of the Company was selected pursuant to any
arrangement or understanding between him and any person other than the Company.
All executive officers are elected annually.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market on which the Company's Common Stock, par value $1 per
share, is traded is the New York Stock Exchange. The Company's Common Stock, par
value $1 per share, is also traded on the Pacific Stock Exchange. There is no
trading market for the Company's Class A Common Stock, par value $1 per share,
but a sale may be effected by selling the Common Stock into which Class A Common
Stock is convertible. On December 9, 1996, there were 61,184 shareowners of
record of the Company's Common Stock and 44,685 shareowners of record of the
Company's Class A Common Stock.
The following table sets forth the high and low trading price of the
Company's Common Stock on the New York Stock Exchange--Composite Transactions
during each quarter of the Company's fiscal years ended September 30, 1996 and
1995:
1996 1995
------------ ------------
FISCAL QUARTERS HIGH LOW HIGH LOW
--------------- ---- --- ---- ---
First..................................... 53 44 36 7/8 33 5/8
Second.................................... 63 1/4 51 1/2 39 7/8 35
Third..................................... 60 1/4 55 47 1/8 38 3/4
Fourth.................................... 57 47 1/2 48 43
During fiscal year 1996 the Company repurchased, through daily open-market
purchases, 0.9 million shares of Common Stock. Shares repurchased under the
Company's stock repurchase program are to be used for employee stock option and
other benefit and compensation plans, conversion of the Company's convertible
securities and other corporate purposes.
The following table sets forth the aggregate quarterly dividends per common
share (comprised of the Common Stock and Class A Common Stock) during each of
the Company's five fiscal years ended September 30, 1996:
DIVIDENDS PER
FISCAL YEAR COMMON SHARE
----------- -------------
1996.......................................................... $1.16
1995.......................................................... 1.08
1994.......................................................... 1.02
1993.......................................................... 0.96
1992.......................................................... 0.92
10
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ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth selected consolidated financial data of the
Company's businesses, excluding financial data pertaining to the A&D Business
and the Graphic Systems business and to certain indebtedness of the Company
retained by the A&D Business. The selected consolidated financial data have been
derived from the consolidated financial statements of the Company. The data
should be read in conjunction with the MD&A and the Financial Statements. The
income statement data for the five years ended September 30, 1996 and the
balance sheet data as of the same dates have been derived from the audited
consolidated financial statements of the Company.
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Sales from continuing operations............... $10,373 $9,065 $7,029 $6,204 $5,856
Operating earnings............................. 1,248 953 667 593 479
Interest expense............................... 32 25 17 18 35
Income from continuing operations.............. 555 493 351 302 243
Earnings per share from continuing
operations................................... 2.55(1) 2.27 1.59 1.37 1.09
Cash dividends per share....................... 1.16 1.08 1.02 0.96 0.92
BALANCE SHEET DATA: (at end of period)
Total assets................................. $10,065 $9,229 $6,593 $6,298 $6,090
Long-term debt............................... 161 178 30 20 23
Shareowners' equity.......................... 4,256 3,782 3,356 2,956 2,778
- ---------
(1) Includes 56 cents per share special charge for the write-off of purchased
research and development in connection with the acquisition of Brooktree.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The sale of the A&D Business marks an important further step in the
transformation of Rockwell. The Company has shifted its strategic focus from
aerospace and defense to higher growth U.S. commercial and international
markets. Rockwell is now predominantly an electronics company, with 70 percent
of 1996 sales coming from its electronics businesses compared to 1984 when 63
percent of Rockwell's sales were aerospace and defense. Sales outside the United
States have grown to 43 percent of total sales in 1996 compared to 13 percent in
1984.
Over the past five years, the financial performance of Rockwell's
continuing businesses has been outstanding. Sales have grown at a 15 percent
average annual rate and operating earnings increased at a 27 percent average
annual rate. Earnings per share from continuing operations, excluding a one-time
acquisition-related charge in 1996 of 56 cents per share, have increased from
$1.09 per share in 1992 to $3.11 per share in 1996, an average annual increase
of 30 percent. Cash flow from these continuing businesses has been equally
impressive, with cash provided by operating activities increasing from $200
million in 1992 to $1.2 billion in 1996.
Rockwell's financial condition continues to be a strength that provides
substantial flexibility for its businesses to grow through internal investments
and acquisitions. The Company's debt to total capital ratio was a low 11 percent
at September 30, 1996, excluding the $2.165 billion of Rockwell debt assumed by
Boeing in its acquisition of the A&D Business. Year-end cash balances totaled
$700 million and further increased with the $600 million sale of the Graphic
Systems business in October, 1996.
Looking ahead, management has established long-term financial goals for
average annual sales growth of 8 percent and average annual earnings per share
growth of 15 percent. In addition, the Company was recapitalized in the
Reorganization, resulting in very low debt leverage, a major increase in
Rockwell's equity
11
12
and a return on equity in the 14 percent range. The Company's plan is to
increase return on equity to 20 percent over the next three years.
RESULTS OF OPERATIONS
1996 Compared to 1995
Sales from Rockwell's continuing businesses in 1996 were up 14 percent to
$10.4 billion from $9.1 billion in 1995 led by significant increases in the
Automation, Semiconductor Systems and Automotive's Light Vehicle Systems
businesses. The composition of sales was as follows (in billions):
1996 1995
----- ----
U.S. Commercial....................................................... $ 5.3 $4.5
International......................................................... 4.5 3.9
U.S. Government....................................................... .6 .7
----- ----
Total............................................................ $10.4 $9.1
===== ====
Income from continuing operations in 1996, before a $121 million, or 56
cents per share, special charge, was $676 million, or $3.11 per share, a 37
percent increase over 1995's comparable income of $493 million, or $2.27 per
share. Including this charge, income from continuing operations in 1996 was $555
million, or $2.55 per share, an increase of 12 percent over 1995.
The 1996 one-time special charge was for the write-off of purchased
research and development in connection with the Company's acquisition of
Brooktree. In 1996 the Company also recorded a $77 million after-tax
restructuring charge related to a decision to exit several non-strategic product
lines and the costs associated with staff reductions in several businesses. This
charge was offset by favorable settlements of prior years' income tax and
insurance claims of $76 million after tax.
Continuing Operations
Sales and Earnings by Business Segment
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN MILLIONS)
SALES
Electronics
Automation............................. $ 4,165 $ 3,590 $ 2,085 $ 1,716 $ 1,471
Avionics & Communications.............. 1,475 1,468 1,419 1,407 1,503
Semiconductor Systems.................. 1,593 875 691 530 431
------- ------- ------- ------- -------
Total Electronics.................... 7,233 5,933 4,195 3,653 3,405
------- ------- ------- ------- -------
Automotive
Heavy Vehicle Systems.................. 1,822 1,929 1,744 1,455 1,373
Light Vehicle Systems.................. 1,318 1,192 900 893 896
------- ------- ------- ------- -------
Total Automotive..................... 3,140 3,121 2,644 2,348 2,269
------- ------- ------- ------- -------
Divested businesses....................... -- 11 190 203 182
------- ------- ------- ------- -------
Total sales.......................... $10,373 $ 9,065 $ 7,029 $ 6,204 $ 5,856
======= ======= ======= ======= =======
12
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YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN MILLIONS)
OPERATING EARNINGS
Electronics
Automation............................. $ 537 $ 481 $ 265 $ 193 $ 102
Avionics & Communications.............. 163 178 182 221 228
Semiconductor Systems.................. 330 113 98 57 26
------- ------- ------- ------- -------
Total Electronics.................... 1,030 772 545 471 356
Automotive................................ 218 212 114 135 107
Divested businesses....................... -- (31) 8 (13) 16
------- ------- ------- ------- -------
Operating earnings.......................... 1,248 953 667 593 479
Restructuring charge........................ (122) -- -- -- --
Purchased research and development.......... (121) -- -- -- --
General corporate--net...................... (77) (117) (82) (83) (54)
Interest expense............................ (32) (25) (17) (18) (35)
Provision for income taxes.................. (341) (318) (217) (190) (147)
------- ------- ------- ------- -------
Income from continuing operations...... $ 555 $ 493 $ 351 $ 302 $ 243
======= ======= ======= ======= =======
The Company's Electronics businesses accounted for 70 percent of total 1996
sales and 83 percent of total operating earnings. Following is a discussion of
sales and earnings of Rockwell's continuing businesses.
Automation, Rockwell's largest business with 40 percent of total sales,
reported a 16 percent sales increase over 1995 with 7 percent due to stronger
worldwide markets and 9 percent due to the inclusion of Reliance sales for the
full year compared to nine months in 1995. Although growth in Automation's
served markets continued in 1996, the rate of growth in this industry slowed
from 1995's record levels. Automation's 1996 earnings increased 12 percent over
1995 due to higher sales and improved profit margins. Automation's earnings as a
percentage of sales increased each quarter during 1996, from 11.3 percent in the
first quarter to 14.3 percent in the fourth quarter.
Semiconductor Systems, Rockwell's fastest growing business, achieved an 82
percent increase in 1996 sales while earnings were triple 1995 earnings due to
strong customer demand for its very high speed personal computer modem chipsets.
For the year, Semiconductor Systems achieved an excellent 21 percent return on
sales compared to 13 percent in 1995. Semiconductor Systems operates in a
volatile industry, characterized by rapid technological advances and constantly
changing customer demand patterns. Participation in this industry requires
significant investments in research and development, frequent new product
introductions or enhancements, and aggressive pricing practices. Future sales
and earnings of this business are dependent on the continued successful
development of advanced technologies and timely introduction of new products.
While management does not see the Semiconductor Systems business sustaining the
dramatic sales and earnings growth rates achieved in 1996, it does expect
continued growth in 1997.
Avionics & Communications 1996 sales were up slightly from 1995 while
earnings were down 8 percent. Record sales and earnings by the business' General
Aviation division were more than offset by a charge resulting from the
bankruptcy of Fokker N.V. and higher commercial air transport research and
development expenditures. Strengthening in the commercial air transport market
during the second half of the fiscal year positions Avionics & Communications to
achieve strong sales and earnings improvements in 1997.
Automotive represents 30 percent of the Company's total sales. In 1996
Automotive's sales and earnings were slightly ahead of 1995 with a return on
sales of 7 percent compared to 6.8 percent in 1995. Within Automotive, earnings
of the Heavy Vehicle Systems business were up 7 percent with improved cost
performance in North America and gains on property sales more than offsetting a
significant sales and earnings decline in the Brazilian operations due to
depressed economic conditions. In the Light Vehicle Systems business, higher
volume related earnings were offset by new product launch costs in the roof and
seat systems operations. Sales for this business increased 11 percent in 1996.
13
14
1995 Compared to 1994
Sales for 1995 increased $2 billion, or 29 percent, from 1994 sales. The
acquisition of Reliance in January 1995 contributed $1 billion to this sales
increase, while strong markets, new product introductions and increased market
share led to substantial sales increases by the Semiconductor Systems,
Automation, and Light and Heavy Vehicle Systems businesses. Avionics &
Communications 1995 sales were also up from 1994. International sales increased
29 percent over 1994.
Income from continuing operations for 1995 increased 40 percent over 1994.
Automation's 1995 earnings were up 82 percent over 1994, 45 percent due to
strong worldwide markets for Allen-Bradley products and 37 percent to the
inclusion of Reliance in 1995's results. Excluding Reliance, Automation posted
1995 sales increases of 19 percent in the United States, 36 percent in Canada,
38 percent in Asia-Pacific, 28 percent in Europe, and 26 percent in Latin
America.
Semiconductor Systems' earnings were 15 percent higher than 1994 due to
strong customer demand for its new high speed data modem chipsets which reached
full production during 1995's third quarter. In the fourth quarter,
Semiconductor Systems' earnings were more than three times higher than 1994's
fourth quarter earnings.
Avionics & Communications' 1995 earnings were approximately the same as
1994 as a result of significant investments in products to address the land
transportation electronics market being offset by strengthening commercial
avionics markets in the second half of 1995 and substantial completion of
development work on the Boeing 777 program.
Automotive's 1995 earnings were up 86 percent over 1994 due to sales
increases and improved operating performance in both its Heavy and Light Vehicle
Systems businesses, and lower Heavy Vehicle Systems product warranty costs.
Earnings of Heavy Vehicle Systems in 1995 more than doubled 1994's results,
while earnings of Light Vehicle Systems were up 32 percent over 1994.
Automotive's return on sales increased to 6.8 percent in 1995 compared to 4.3
percent in 1994.
INCOME TAXES
The Company's effective income tax rate from continuing operations in 1996
was 38 percent compared to 39.2 percent in 1995. A favorable $65 million
settlement of prior years' research and experimentation tax credit refund claim
reduced the current year's effective income tax rate by 7.2 percent. This
reduction was partially offset by a 4.7 percent increase in the effective income
tax rate due to the one-time write-off of purchased research and development,
which is not deductible for tax purposes.
At September 30, 1996, the Company had unrecognized tax benefits from
foreign net operating loss carryforwards of approximately $37 million. The
Company also had foreign tax credit carryforwards of approximately $52 million
and an unrecognized tax benefit from a capital loss carryforward of $45 million,
resulting from the sale of Reliance's telecommunications business. These tax
benefits generally expire between 1997 and 2001 and are available to reduce
future income taxes of the Company.
DISCONTINUED OPERATIONS
Discontinued operations consist of the A&D Business sold to Boeing and the
Graphic Systems business sold to an affiliate of Stonington Partners, Inc., as
well as the interest expense associated with the debt assumed by Boeing and
corporate expenses related to these businesses. The decrease in 1996 earnings
from discontinued operations primarily reflects a significant adverse contract
adjustment in the defense electronics business and losses in the commercial
printing press business.
FINANCIAL CONDITION
Bolstered by the excellent 1996 earnings performance of continuing
businesses, cash provided by operating activities rose to $1.2 billion compared
to $700 million in 1995. This is after funding the working
14
15
capital needs of the businesses as well as record research and new product
development expenditures of $691 million.
The major use of cash in 1996 was $866 million for capital expenditures to
fund the growth of the Company's businesses. Substantially all the capital
expenditures were for facilities and equipment to support growth initiatives as
well as cost reduction and quality improvement programs. Nearly half of these
capital expenditures were spent by the Semiconductor Systems business. In July
1996, the Semiconductor Systems business announced that, due to current and
forecasted favorable pricing in the worldwide semiconductor silicon wafer
fabrication market, it delayed production start-up of a new facility currently
under construction in Colorado Springs, Colorado. The facility is now planned to
start production in 1998. For 1997 the Company's capital expenditures are
planned to be about $900 million with two-thirds being spent by the
Semiconductor Systems and Automation businesses.
The major use of cash in 1995 was the acquisition of Reliance for $1.1
billion (net of $475 million proceeds from the sale of its telecommunications
business). The largest acquisition in 1996 was Brooktree for $278 million.
Another use of the Company's cash is payment of dividends. In 1996 dividend
payments totaled a record $253 million, or 35 percent of net income.
RETIREMENT BENEFITS
The Company's retirement benefit payments over the next several years will
be significantly lower as a result of the sale of the A&D Business. Medical
payments for Rockwell retirees totaled $206 million in 1996, including $122
million for retirees of the A&D Business, for whom payment will in the future be
the responsibility of Boeing.
Rockwell's pension payments to retirees will be very low in 1997 since
Boeing has assumed the pension liabilities for substantially all of Rockwell's
U.S. employees who retired prior to January 1, 1996, as well as future pension
liabilities for the active employees of the A&D Business. Pension plan assets
substantially in excess of assumed pension liabilities were transferred to
Boeing. Rockwell's continuing pension plans remain overfunded and even though
current benefit payments are projected to be insignificant in the near future,
the Company intends to fund the plans on a regular basis.
ENVIRONMENTAL ISSUES
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Company. Thus far, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Company's liquidity and capital
resources, competitive position, or financial statements.
The Company has been designated as a potentially responsible party at 31
Superfund sites, excluding sites as to which the Company's records disclose no
involvement or as to which the Company's potential liability has been finally
determined. Management estimates the total reasonably possible costs the Company
could incur for the remediation of Superfund sites at September 30, 1996 to be
about $52 million, of which $35 million has been accrued.
Various other lawsuits, claims, and proceedings have been asserted against
the Company alleging violations of federal, state and local environmental
protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously disposed of properties. For these
matters, management has estimated the total reasonably possible costs the
Company could incur at September 30, 1996 to be about $140 million. The Company
has recorded environmental accruals for these matters of $112 million, of which
$50 million relate to Reliance.
A major portion of the $50 million accrual for Reliance's environmental
obligations is recoverable from Exxon Corporation, based on an agreement between
Exxon and Reliance whereby Exxon agreed to pay
15
16
substantially all costs related to certain environmental matters. An offsetting
$19 million receivable from Exxon has been recorded at September 30, 1996. The
Company believes Reliance is entitled to indemnification from Exxon for an
additional $21 million of costs, but no receivable has been recorded since Exxon
is disputing its indemnification obligation.
Based on its assessment, management believes that the Company's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the Company's liquidity and capital resources, competitive
position, or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K 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, 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 described above in the
discussion of the Semiconductor Systems business under Results of Operations,
1996 Compared to 1995, on page 13 hereof and those detailed from time to time in
the filings of the Company with the Securities and Exchange Commission.
16
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
SEPTEMBER 30,
------------------
ASSETS 1996 1995
------- ------
CURRENT ASSETS
Cash (includes time deposits and certificates of deposit:
1996, $432; 1995, $447)................................................. $ 715 $ 686
Receivables (less allowance for doubtful accounts:
1996, $98; 1995, $54)................................................... 1,661 1,547
Inventories............................................................... 1,780 1,596
Deferred income taxes..................................................... 306 222
Other current assets...................................................... 336 225
Net assets of Graphic Systems............................................. 560 569
------- ------
Total current assets............................................... 5,358 4,845
------- ------
PROPERTY
Land...................................................................... 101 87
Land and leasehold improvements........................................... 83 84
Buildings................................................................. 1,042 950
Machinery and equipment................................................... 2,881 2,586
Office and data processing equipment...................................... 663 592
Construction in progress.................................................. 486 274
------- ------
Total.............................................................. 5,256 4,573
Less accumulated depreciation............................................. 2,594 2,308
------- ------
Net property.............................................................. 2,662 2,265
------- ------
INTANGIBLE ASSETS......................................................... 1,809 1,861
------- ------
OTHER ASSETS.............................................................. 236 258
------- ------
TOTAL.............................................................. $10,065 $9,229
======= ======
See notes to financial statements.
17
18
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
SEPTEMBER 30,
------------------
LIABILITIES AND SHAREOWNERS' EQUITY 1996 1995
------- ------
CURRENT LIABILITIES
Short-term debt........................................................... $ 350 $ 115
Accounts payable.......................................................... 1,220 1,081
Accrued compensation and benefits......................................... 508 454
Accrued income taxes...................................................... 154 113
Other current liabilities................................................. 740 565
Net liabilities of A&D Business........................................... 1,309 1,457
------- ------
Total current liabilities.......................................... 4,281 3,785
------- ------
LONG-TERM DEBT............................................................ 161 178
------- ------
ACCRUED RETIREMENT BENEFITS............................................... 1,096 1,129
------- ------
OTHER LIABILITIES......................................................... 271 355
------- ------
SHAREOWNERS' EQUITY
Common Stock (shares issued--209.5)....................................... 210 210
Class A Common Stock (shares issued: 1996, 27.9; 1995, 32.9).............. 28 33
Additional paid-in capital................................................ 199 187
Retained earnings......................................................... 4,466 4,158
Currency translation and pension adjustments.............................. (103) (99)
Common Stock in treasury, at cost (shares held:
1996, 18.9; 1995, 25.4)................................................. (544) (707)
------- ------
Total shareowners' equity................................................. 4,256 3,782
------- ------
TOTAL.............................................................. $10,065 $9,229
======= ======
See notes to financial statements.
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STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
------- ------ ------
REVENUES
Sales............................................................ $10,373 $9,065 $7,029
Other income..................................................... 169 73 44
------- ------ ------
Total revenues................................................... 10,542 9,138 7,073
------- ------ ------
COSTS AND EXPENSES
Cost of sales.................................................... 7,877 6,991 5,455
Selling, general, and administrative............................. 1,494 1,311 1,033
Restructuring.................................................... 122 -- --
Purchased research and development............................... 121 -- --
Interest......................................................... 32 25 17
------- ------ ------
Total costs and expenses......................................... 9,646 8,327 6,505
------- ------ ------
Income from continuing operations before income taxes............ 896 811 568
Provision for income taxes....................................... 341 318 217
------- ------ ------
INCOME FROM CONTINUING OPERATIONS................................ 555 493 351
Income from discontinued operations.............................. 171 249 283
------- ------ ------
NET INCOME....................................................... $ 726 $ 742 $ 634
======= ====== ======
EARNINGS PER SHARE:
Continuing operations.......................................... $ 2.55 $ 2.27 $ 1.59
Discontinued operations........................................ .79 1.15 1.28
------- ------ ------
Net income..................................................... $ 3.34 $ 3.42 $ 2.87
======= ====== ======
AVERAGE SHARES OUTSTANDING....................................... 217.6 217.2 220.5
======= ====== ======
See notes to financial statements.
19
20
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)
YEAR ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
CONTINUING OPERATIONS:
OPERATING ACTIVITIES
Income from continuing operations.............................. $ 555 $ 493 $ 351
Adjustments to income from continuing operations to arrive at
cash provided by operating activities:
Depreciation................................................. 421 333 289
Amortization of intangible assets............................ 121 95 53
Deferred income taxes........................................ (124) (7) (27)
Pension expense, net of contributions........................ 98 68 53
Restructuring, net of expenditures........................... 111 -- --
Purchased research and development........................... 121 -- --
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency
adjustments:
Receivables............................................... (105) (162) (127)
Inventories............................................... (201) (141) (68)
Accounts payable.......................................... 114 154 146
Accrued income taxes...................................... 41 (96) 66
Other assets and liabilities.............................. 12 (27) 4
------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES..................... 1,164 710 740
------- ------- -------
INVESTING ACTIVITIES
Property additions............................................. (866) (590) (470)
Acquisitions of businesses (net of cash acquired).............. (322) (1,158) (18)
Proceeds from the disposition of property and businesses....... 79 18 93
------- ------- -------
CASH USED FOR INVESTING ACTIVITIES........................ (1,109) (1,730) (395)
------- ------- -------
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings................... 232 (208) (68)
Payments of long-term debt..................................... (31) (44) (25)
Long-term borrowings........................................... -- 29 22
------- ------- -------
Net increase (decrease) in debt.............................. 201 (223) (71)
Purchase of treasury stock..................................... (48) (137) (155)
Dividends...................................................... (253) (235) (225)
Reissuance of common stock..................................... 42 50 38
------- ------- -------
CASH USED FOR FINANCING ACTIVITIES........................ (58) (545) (413)
------- ------- -------
CASH USED FOR CONTINUING OPERATIONS............................ (3) (1,565) (68)
------- ------- -------
DISCONTINUED OPERATIONS:
Operating activities......................................... 90 439 246
Investing activities......................................... (84) (104) (89)
Financing activities......................................... 26 1,295 (168)
------- ------- -------
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS............ 32 1,630 (11)
------- ------- -------
INCREASE (DECREASE) IN CASH.................................... 29 65 (79)
------- ------- -------
CASH AT BEGINNING OF YEAR...................................... 686 621 700
------- ------- -------
CASH AT END OF YEAR............................................ $ 715 $ 686 $ 621
======= ======= =======
See notes to financial statements.
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21
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
------ ------ ------
COMMON STOCK (no shares issued during years)...................... $ 210 $ 210 $ 210
------ ------ ------
CLASS A COMMON STOCK
Beginning balance................................................. 33 37 42
Conversions into Common Stock..................................... (5) (4) (5)
------ ------ ------
Ending balance.................................................... 28 33 37
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Beginning balance................................................. 187 175 165
Exercise of stock options......................................... 12 12 10
------ ------ ------
Ending balance.................................................... 199 187 175
------ ------ ------
RETAINED EARNINGS
Beginning balance................................................. 4,158 3,762 3,472
Net income........................................................ 726 742 634
Dividends per common share (1996, $1.16; 1995, $1.08; 1994,
$1.02).......................................................... (253) (235) (225)
Treasury stock reissuances........................................ (165) (111) (119)
------ ------ ------
Ending balance.................................................... 4,466 4,158 3,762
------ ------ ------
CURRENCY TRANSLATION AND PENSION ADJUSTMENTS
Beginning balance................................................. (99) (97) (197)
Currency translation.............................................. (4) (2) 20
Pension adjustment................................................ -- -- 80
------ ------ ------
Ending balance.................................................... (103) (99) (97)
------ ------ ------
TREASURY STOCK
Beginning balance................................................. (707) (731) (736)
Purchases......................................................... (48) (137) (155)
Reissuances, principally Class A Common Stock conversions......... 211 161 160
------ ------ ------
Ending balance.................................................... (544) (707) (731)
------ ------ ------
TOTAL SHAREOWNERS' EQUITY......................................... $4,256 $3,782 $3,356
====== ====== ======
See notes to financial statements.
21
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NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
During fiscal 1996, the Company entered into definitive agreements to sell
its Graphic Systems business to an affiliate of Stonington Partners, Inc. and to
merge the A&D Business with a subsidiary of Boeing. The Graphic Systems business
was sold in October 1996 for approximately $600 million. The merger of the
Company's A&D Business with Boeing was completed in December 1996. The Graphic
Systems business and the A&D Business are reflected in the financial statements
as discontinued operations for all periods presented (see Note 3).
The A&D Business was merged with a subsidiary of 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. Shares of New Rockwell were distributed to the
Company's shareowners on the effective date of the transaction on a one-for-one
share basis.
The financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates. All significant intercompany accounts
and transactions have been eliminated. Certain prior year amounts have been
reclassified to conform with the current presentation.
Except as indicated, amounts reflected in the financial statements or
disclosed in the notes to financial statements relate to the Company's
continuing operations.
2. ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (using LIFO, FIFO, or average
methods) or market (determined on the basis of estimated realizable values).
Property
Property is stated at cost. Depreciation of property is provided based on
estimated useful lives generally using accelerated and straight-line methods.
Significant renewals and betterments are capitalized and replaced units are
written off. Maintenance and repairs, as well as renewals of minor amount, are
charged to expense.
Intangible Assets
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at the date of acquisition and is amortized by
the straight-line method over periods ranging from 10 to 40 years. Trademarks,
patents, product technology, and other intangibles are amortized on a
straight-line basis over their estimated useful lives, ranging from 5 to 40
years.
Management reviews periodically the realizability of goodwill and other
intangible assets based on an evaluation of remaining useful lives, cash flows,
and profitability projections and has determined that there is no impairment at
September 30, 1996.
22
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Environmental Matters
The Company records accruals for environmental issues in the accounting
period in which its responsibility is established and the cost can be reasonably
estimated. At environmental sites in which more than one potentially responsible
party has been identified, the Company records a liability for its allocable
share of costs related to its involvement with the site as well as an allocable
share of costs related to insolvent parties or unidentified shares. At
environmental sites in which the Company is the only responsible party, the
Company records a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties. If recovery from
a third party is determined to be probable, the Company records a receivable for
the estimated recovery.
Earnings Per Share
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. The computation does not include a
negligible dilutive effect of stock options.
New Accounting Standards
The company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived
Assets to Be Disposed Of." The adoption of this standard did not have a material
effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which is effective for fiscal
year 1997. Under SFAS No. 123, companies can elect, but are not required, to
recognize compensation expense for all stock-based awards, using a fair value
methodology. The Company expects to implement in fiscal year 1997 the disclosure
only provisions, as permitted by SFAS No. 123.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
which is effective for fiscal year 1998. The Company does not expect adoption of
this statement to have a material effect on the financial statements.
3. DISCONTINUED OPERATIONS
Discontinued operations includes the Graphic Systems business and the A&D
Business (see Note 1). The assets and liabilities of the A&D Business have been
classified on the balance sheet as net liabilities of the A&D Business and
consist of the following (in millions):
SEPTEMBER 30,
-----------------
1996 1995
------ ------
Receivables................................................................ $ 738 $ 799
Inventories................................................................ 327 251
Net property............................................................... 540 583
Prepaid pension costs...................................................... 1,261 1,158
Other assets............................................................... 238 253
------ ------
Total assets of A&D Business.......................................... 3,104 3,044
------ ------
Short-term debt............................................................ 565 539
Accounts payable and accrued liabilities................................... 782 833
Long-term debt............................................................. 1,597 1,597
Accrued retirement benefits................................................ 1,469 1,532
------ ------
Total liabilities of A&D Business..................................... 4,413 4,501
------ ------
Net liabilities of A&D Business....................................... $1,309 $1,457
====== ======
Pursuant to the merger agreement, in addition to the A&D Business, Boeing
acquired certain Rockwell corporate property and United States pension plan
assets and assumed pension obligations related to certain
23
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former employees of the continuing businesses (see Note 15). Boeing also assumed
$2,165 million of the short- and long-term domestic borrowings of the Company
(see Notes 8 and 10). Accordingly, these amounts have been presented on the
balance sheet as net liabilities of the A&D Business. The net liabilities of the
A&D Business at the date of this transaction have been recorded as an increase
to additional paid-in capital in fiscal year 1997.
The assets and liabilities of the Graphic Systems business have been
classified on the balance sheet as net assets of Graphic Systems and consist of
the following (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
Receivables............................................................... $ 169 $ 142
Inventories............................................................... 157 224
Other current assets...................................................... 50 44
Net property.............................................................. 140 178
Customer finance receivables.............................................. 174 203
Other assets.............................................................. 164 180
------- ------
Total assets of Graphic Systems......................................... 854 971
Accounts payable and accrued liabilities.................................. 294 402
------- ------
Net assets of Graphic Systems........................................... $ 560 $ 569
======= ======
The net income (loss) from operations of the A&D Business and the Graphic
Systems business has been reflected on the statement of income as income from
discontinued operations. Summarized results of discontinued operations are as
follows (in millions):
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
GRAPHIC GRAPHIC GRAPHIC
A&D SYSTEMS A&D SYSTEMS A&D SYSTEMS
------ ------- ------ ------- ------ -------
Revenues................................. $3,089 $ 712 $3,244 $ 717 $3,458 $ 674
Income before income taxes............... 311 8 353 62 425 28
Income taxes............................. 133 15 141 25 159 11
Net income (loss)........................ 178 (7) 212 37 266 17
The net loss for Graphic Systems for the year ended September 30, 1996
includes net income from operations of $3 million offset by a provision for loss
on the sale of $10 million.
The Graphic Systems business and the A&D Business utilized certain services
which are provided for all of the Company's businesses on a centralized basis,
including payroll administration, data processing, and telecommunications
services. These businesses were also allocated costs of centrally administered
programs, including employee medical claims and property and casualty insurance.
These costs were charged to businesses based on actual usage of these services
and programs and were $107 million, $150 million, and $180 million in 1996,
1995, and 1994, respectively.
These businesses also received other services provided by the Company,
including financial, legal, tax, corporate communications, and human resources.
The costs of these services are allowable overhead costs on government contracts
and, accordingly, have been included in the results of operations of the A&D
Business. These costs have been allocated to the A&D Business using a variety of
factors, including sales, assets, inventory, and payroll and were $35 million,
$32 million, and $40 million in 1996, 1995, and 1994, respectively. Management
believes that the methods of allocating costs to these businesses are
reasonable.
Interest expense of $159 million, $142 million, and $75 million in 1996,
1995, and 1994, respectively, has been allocated to the A&D Business based on
the actual interest expense associated with the borrowings assumed by Boeing.
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4. RESTRUCTURING
During 1996, the Company recorded restructuring charges of $122 million
before tax ($77 million after tax, or 35 cents per share). The restructuring
charges relate to a decision to exit non-strategic product lines involving
certain truck communications and intelligent transportation products, as well as
the costs associated with staff reductions in several businesses.
The provision includes asset impairments of $71 million, severance and
other employee costs of $35 million, and contractual commitments and other costs
of $16 million. As of September 30, 1996, the Company had expended $11 million
related to these actions, which are expected to be completed by the end of 1997.
5. ACQUISITION OF BUSINESSES
In September 1996, the Company acquired Brooktree, a designer and
manufacturer of digital and mixed-signal integrated circuits for computer
graphics, multimedia, imaging, and communications applications, for $278
million. The acquisition was accounted for as a purchase as of September 30,
1996 and the price allocation included a write-off of $121 million for purchased
research and development. The Company also acquired several other businesses in
1996 at a net cost of $68 million. Pro forma information is not presented as the
results of operations of Brooktree and the other acquisitions are not material
in relation to the Company's income from continuing operations.
In January 1995, the Company completed its acquisition of Reliance, a major
manufacturer of industrial products and telecommunications equipment, for $1,066
million, net of proceeds from the sale of Reliance's telecommunications
business. The acquisition of Reliance was accounted for as a purchase as of
December 31, 1994 and the results of operations, exclusive of the divested
telecommunications business, have been included in the statement of income since
that date.
The following unaudited pro forma information has been prepared assuming
Reliance had been acquired as of the beginning of the years presented. The pro
forma information is presented for informational purposes and is not necessarily
indicative of what would have occurred if the acquisition had been made as of
those dates. The pro forma information is not intended to be a projection of
future results.
YEAR ENDED
SEPTEMBER 30,
------------------
PRO FORMA INFORMATION (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE) 1995 1994
------- ------
Revenues.................................................................. $ 9,467 $8,311
Net income................................................................ 742 600
Earnings per share........................................................ 3.42 2.72
6. INVENTORIES
Inventories are summarized as follows (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
Finished goods............................................................ $ 491 $ 456
Work in process........................................................... 880 749
Raw materials, parts, and supplies........................................ 466 445
------- ------
Total..................................................................... 1,837 1,650
Less allowance to adjust the carrying value of certain inventories (1996,
$737; 1995, $801) to a LIFO basis....................................... 57 54
------- ------
Inventories............................................................... $ 1,780 $1,596
======= ======
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7. INTANGIBLE ASSETS
Intangible assets are summarized as follows (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
Goodwill, less accumulated amortization (1996, $238; 1995, $200).......... $ 1,289 $1,328
Trademarks, patents, product technology, and other intangibles, less
accumulated amortization (1996, $371; 1995, $350)....................... 520 533
------- ------
Intangible assets......................................................... $ 1,809 $1,861
======= ======
8. SHORT-TERM DEBT
Short-term debt consisted of the following (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
Commercial paper.......................................................... $ 210 $ --
Short-term foreign bank borrowings........................................ 123 97
Current portion of long-term debt......................................... 17 18
------- ------
Short-term debt........................................................... $ 350 $ 115
======= ======
Short-term debt of $565 million and $539 million at September 30, 1996 and
1995, respectively, has been included in net liabilities of the A&D Business as
Boeing assumed $565 million of short-term borrowings in connection with the
Reorganization (see Note 1).
Weighted average interest rates on the remaining short-term borrowings:
SEPTEMBER 30,
------------------
1996 1995
------- ------
Commercial paper.......................................................... 5.4% --
Short-term foreign bank borrowings........................................ 4.1% 4.6%
At September 30, 1996, the Company had $1.5 billion of unsecured credit
facilities with various banks to support commercial paper borrowings. There were
no significant commitment fees or compensating balance requirements under these
facilities. Short-term credit facilities available to foreign subsidiaries
amounted to $505 million at September 30, 1996 and consisted of arrangements for
which there are no significant commitment fees.
9. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
Accrued product warranties................................................ $ 215 $ 184
Contract reserves and advance payments.................................... 131 117
Accrued taxes other than income taxes..................................... 73 67
Other..................................................................... 321 197
------- ------
Other current liabilities................................................. $ 740 $ 565
======= ======
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10. LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
SEPTEMBER 30,
------------------
1996 1995
------- ------
6.8% notes, payable in 2003............................................... $ 139 $ 138
Other obligations, principally foreign.................................... 39 58
------- ------
Total..................................................................... 178 196
Less current portion...................................................... 17 18
------- ------
Long-term debt............................................................ $ 161 $ 178
======= ======
Long-term debt obligations of $1,597 million at September 30, 1996 and 1995
are included in net liabilities of the A&D Business as Boeing assumed
responsibility for these obligations in connection with the Reorganization (see
Note 1).
At September 30, 1996, aggregate maturities of long-term debt during the
five years ending September 30, 2001 were as follows (in millions): 1997, $17;
1998, $4; 1999, $3; 2000, $3; and 2001, $1.
11. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, short- and long-term
debt, and foreign currency forward exchange contracts. At September 30, 1996,
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 all of the Company's outstanding foreign currency forward
exchange contracts aggregated $919 million and $681 million at September 30,
1996 and 1995, respectively. 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.
12. CAPITAL STOCK
At September 30, 1996, the authorized stock of the Company consisted of 600
million shares of Common Stock and 200 million shares of Class A Common Stock,
each with a $1 par value, and 12 million shares of preferred stock without par
value. The Class A Common Stock was substantially identical to the Common Stock
except that each share of Class A Common Stock entitled the holder to ten votes
on all matters on which holders of Common Stock were entitled to vote, was not
transferable except in certain limited circumstances, and was convertible at any
time into Common Stock on a share-for-share basis. At September 30, 1996, 26
million shares of common stock were reserved for various employee incentive
plans.
In 1996, 117,821 shares of Series A and Series B preferred stock were
converted into common stock. The remaining 9,892 shares were redeemed by the
Company at prices of $100.00 per share for the Series A stock and $36.00 per
share for the Series B stock.
Changes in outstanding common shares are summarized as follows (in
millions):
1996 1995 1994
----- ----- -----
Beginning balance...................................................... 217.0 218.6 221.0
Treasury stock purchases............................................... (.9) (3.5) (4.1)
Other, principally stock option exercises.............................. 2.4 1.9 1.7
----- ----- -----
Ending balance......................................................... 218.5 217.0 218.6
===== ===== =====
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Outstanding common stock at September 30, 1996 consisted of 190.6 million
shares of Common Stock and 27.9 million shares of Class A Common Stock.
As a result of the Reorganization, the Company is authorized to issue
1,000,000,000 shares of Common Stock and 100,000,000 shares of Class A Common
Stock, each with a $1 par value, and 25,000,000 shares of Preferred Stock
without par value. Shareowners of the Company received one share of New Rockwell
Common Stock and Class A Common Stock for each share held of Rockwell Common
Stock and Class A Common Stock, respectively, in connection with the
Reorganization. The terms of the New Rockwell Common Stock and Class A Common
Stock are substantially the same as those of the Rockwell Common Stock and Class
A Common Stock. Associated with each share of New Rockwell Common Stock and
Class A Common Stock is a Preferred Share Purchase Right (Right) pursuant to
which the holder of each such share of Common Stock and Class A Common Stock
may, in certain takeover-related circumstances, become entitled to purchase from
the Company 1/100 of a share of Series A Junior Participating Preferred Stock at
a price of $250. The terms and conditions of the Rights are set forth in a
Rights Agreement dated as of November 30, 1996 between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent. The New Rockwell
Class A Common Stock will be automatically converted into New Rockwell Common
Stock on February 23, 1997.
13. EMPLOYEE STOCK OPTIONS
Options to purchase common stock of the Company have been granted under
various incentive plans to directors, officers and other key employees at
prices equal to or above the fair market value of such stock on the dates the
options were granted. The plans provide that the option price for certain
options granted under the plans may be paid in cash, the Company's common
stock, or a combination thereof. The options have vesting periods which range
from 1 to 3 years.
Information relative to employee stock options is as follows (shares in
thousands):
1996 1995 1994
------- ------- -------
Number of shares under option:
Outstanding at beginning of year................................ 10,363 10,336 9,676
Granted......................................................... 1,840 1,776 2,157
Exercised....................................................... (1,295) (1,713) (1,401)
Expired......................................................... (37) (36) (96)
------- ------- -------
Outstanding at end of year...................................... 10,871 10,363 10,336
======= ======= =======
Exercisable at end of year...................................... 8,594 8,601 8,222
======= ======= =======
The ranges of exercise prices per share for options outstanding at
September 30:
High.......................................................... $ 60.88 $ 46.75 $ 41.88
Low.......................................................... $ 16.75 $ 16.75 $ 16.75
Options outstanding and exercisable at September 30, 1996 included 175,890
related to Class A Common Stock. Shares available for future grant or payment
under various incentive plans were 14.7 million at September 30, 1996.
Outstanding options expire at various dates from December 2, 1997 to July 10,
2006. None of the incentive plans presently permits options to be granted after
July 10, 2006.
In connection with the Reorganization, stock options of Rockwell were
converted into stock options of New Rockwell. The number of options and exercise
price of each option were adjusted to preserve the aggregate intrinsic value of
the options.
14. RETIREMENT MEDICAL PLANS
The Company has retirement medical plans which cover most of its United
States employees and provide for the payment of medical costs of eligible
employees and dependents upon retirement.
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Retirement medical expense for continuing operations consisted of the
following (in millions):
1996 1995 1994
---- ---- ----
Service cost--benefits attributed to service during the year.......... $ 10 $ 9 $ 9
Interest accrued on accumulated retirement medical obligation......... 75 72 64
Amortization of plan amendments and net actuarial gains............... (18) (22) (21)
---- ---- ----
Retirement medical expense............................................ $ 67 $ 59 $ 52
==== ==== ====
The Company's retirement medical obligation at September 30, 1996 and 1995
consisted of the following (in millions):
1996 1995
------ ------
Accumulated retirement medical obligation:
Retirees............................................................... $ 796 $ 753
Employees eligible to retire........................................... 88 99
Employees not eligible to retire....................................... 150 179
------ ------
Total............................................................... 1,034 1,031
Unamortized amounts:
Plan amendments........................................................ 83 98
Net actuarial losses................................................... (109) (106)
------ ------
Recorded liability....................................................... $1,008 $1,023
====== ======
Assumptions used (June 30 measurement date):
Discount rate.......................................................... 7.75% 7.5%
Health care cost trend rates........................................... 8.0%* 8.5%*
* Decreasing to 5.5% after 2015
Retirement medical liabilities related to current and former employees of
the A&D Business of $1,453 million and $1,516 million are included in net
liabilities of the A&D Business at September 30, 1996 and 1995, respectively, as
Boeing assumed such liabilities in connection with the Reorganization.
Changing the health care cost trend rates by one percentage point would
change the accumulated retirement medical obligation at September 30, 1996 by
approximately $79 million and would change retirement medical expense by
approximately $8 million.
15. RETIREMENT PENSION PLANS
The Company has pension plans which cover most of its employees and provide
for monthly pension payments to eligible employees upon retirement. Pension
benefits for salaried employees generally are based on years of credited service
and average earnings. Pension benefits for hourly employees generally are based
on specified benefit amounts and years of service.
Net pension expense for continuing operations consisted of the following
(in millions):
1996 1995 1994
----- ----- -----
Service cost--benefits earned during the year...................... $ 80 $ 65 $ 60
Interest accrued on projected benefit obligation................... 284 269 238
Assumed return on plan assets...................................... (278) (261) (240)
Initial net asset amortization..................................... (23) (23) (23)
Prior service cost amortization.................................... 15 20 12
Net actuarial loss amortization.................................... 35 16 36
----- ----- -----
Net pension expense................................................ $ 113 $ 86 $ 83
===== ===== =====
Pension plan assets are primarily equity securities, United States
Government obligations, and fixed income investments whose values are subject to
fluctuations of the securities market. The actual return on
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plan assets allocated to continuing operations was $627 million, $511 million,
and $52 million in 1996, 1995, and 1994, respectively. Differences between these
actual returns and the related assumed returns on plan assets are deferred and
considered in the determination of net pension income or expense in future
periods.
Pension plan obligations attributable to United States active employees of
continuing businesses as of January 1, 1996 and a proportionate share of pension
plan assets were transferred prior to the Reorganization from the Company's
United States pension plan to a newly-established New Rockwell pension plan.
Pension plan assets and obligations related to employees of the A&D Business and
all retirees of the Company's United States pension plan prior to January 1,
1996 have been classified as net liabilities of the A&D Business as the
remainder of the Company's United States pension plan was retained by the A&D
Business pursuant to the merger agreement with Boeing.
The following table reconciles the funded status of the assets and
liabilities attributable to the New Rockwell pension plan and the Company's
other overfunded pension plans to amounts recorded in the balance sheet (in
millions):
1996 1995
------ ------
Accumulated benefit obligation, principally vested......................... $1,516 $1,304
Effects of projected compensation increases................................ 282 271
------ ------
Projected benefit obligation............................................... 1,798 1,575
Fair value of plan assets.................................................. 1,869 1,522
------ ------
Plan assets in excess of (less than) projected benefit obligation.......... 71 (53)
Items not yet recognized in the balance sheet:
Net actuarial losses..................................................... 33 245
Prior service cost....................................................... 50 51
Remaining initial net asset.............................................. (68) (80)
------ ------
Prepaid pension costs at September 30...................................... $ 86 $ 163
====== ======
1996 1995
---- ----
Assumptions used (June 30 measurement date):
Discount rate........................................................... 7.75% 7.5 %
Compensation increase rate.............................................. 4.5 % 4.5 %
Long-term rate of return on plan assets................................. 9.0 % 9.0 %
The Company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $44 million, $35 million,
and $34 million for 1996, 1995, and 1994, respectively.
30
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16. INCOME TAXES
The components of the provision for income taxes are as follows (in
millions):
1996 1995 1994
----- ---- ----
Current:
United States...................................................... $ 364 $202 $138
Research and experimentation credit................................ (65) -- --
Foreign............................................................ 102 81 77
State and local.................................................... 64 42 29
----- ---- ----
Total current........................................................ 465 325 244
----- ---- ----
Deferred:
United States...................................................... (96) (15) (13)
Foreign............................................................ (13) 14 (4)
State and local.................................................... (15) (6) (10)
----- ---- ----
Total deferred....................................................... (124) (7) (27)
----- ---- ----
Provision for income taxes........................................... $ 341 $318 $217
===== ==== ====
In July 1996, the Company reached an agreement with the Internal Revenue
Service concerning its research and experimentation tax credit refund claim for
the years 1981 though 1991. The settlement, pursuant to which the Company will
receive approximately $65 million, is subject to the approval of the Joint
Congressional Committee on Taxation.
Net deferred income tax benefits included in the balance sheet at September
30, 1996 and 1995 consist of the tax effects of temporary differences related to
the following (in millions):
1996 1995
---- ----
Accrued compensation and benefits............................................. $105 $ 80
Accrued product warranties.................................................... 83 79
Inventory..................................................................... 38 (1)
Other--net.................................................................... 80 64
---- ----
Current deferred income taxes................................................. $306 $222
==== ====
Net deferred income taxes included in Other Liabilities in the balance
sheet at September 30, 1996 and 1995 consist of the tax effects of temporary
differences related to the following (in millions):
1996 1995
----- -----
Retirement benefits......................................................... $(315) $(340)
Property.................................................................... 201 221
Intangible assets........................................................... 126 116
Loss carryforwards.......................................................... (101) (46)
Foreign tax credit carryforwards............................................ (52) (57)
Other--net.................................................................. 9 121
----- -----
Subtotal.................................................................... (132) 15
Valuation allowance......................................................... 134 96
----- -----
Long-term deferred income taxes............................................. $ 2 $ 111
===== =====
Management believes it is more likely than not that current and long-term
tax assets will be realized through the reduction of future taxable income.
Significant factors considered by management in its determination of the
probability of the realization of the deferred tax assets included: (a) the
historical operating results of the Company ($1.5 billion of United States
income from continuing operations before income taxes over the past three
years), (b) expectations of future earnings, and (c) the extended period of time
over which the retirement medical liability will be paid. The valuation
allowance represents the amount
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of tax benefits related to net operating loss, capital loss and foreign tax
credit carryforwards that have not yet been recognized. The carryforward period
for net operating losses expires between 1997 and 2004. The carryforward period
for foreign tax credits expires between 1997 and 2001. The tax benefit of a
capital loss carryforward resulting from the sale of Reliance's
telecommunications business was recorded during 1996 and is substantially offset
by a valuation allowance.
The consolidated effective tax rate was different from the United States
statutory rate for the reasons set forth below:
1996 1995 1994
---- ---- ----
Statutory tax rate.................................................... 35.0% 35.0% 35.0%
State and local income taxes.......................................... 3.6 3.1 2.7
Foreign income taxes.................................................. 1.2 2.8 3.7
Non-deductible goodwill............................................... 1.4 2.1 .9
Utilization of foreign loss carryforwards............................. (.9 ) (2.0) (1.9)
Purchased research and development.................................... 4.7 -- --
Research and experimentation settlement............................... (7.2) -- --
Other................................................................. .2 (1.8) (2.2)
---- ---- ----
Effective tax rate.................................................... 38.0% 39.2% 38.2%
==== ==== ====
The income tax provisions were calculated based upon the following
components of income from continuing operations before income taxes (in
millions):
1996 1995 1994
---- ---- ----
United States income.................................................. $545 $545 $374
Foreign income........................................................ 351 266 194
---- ---- ----
Total................................................................. $896 $811 $568
==== ==== ====
No provision has been made for United States, state, or additional foreign
income taxes related to approximately $532 million of undistributed earnings of
foreign subsidiaries which have been or are intended to be permanently
reinvested.
The Company's United States income tax returns for the years 1989 through
1991 are currently under examination. Pursuant to the merger agreement with
Boeing, the Company has retained all tax liabilities and the right to all tax
refunds related to operations of the A&D Business for periods prior to the
merger. Management believes that adequate provision for income taxes has been
made for all years through 1996.
17. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
1996 1995 1994
---- ---- ----
STATEMENT OF CASH FLOWS INFORMATION (IN MILLIONS):
Interest payments on all borrowings................................. $198 $154 $ 98
Income taxes paid................................................... 604 448 299
STATEMENT OF INCOME INFORMATION (IN MILLIONS):
Maintenance and repairs............................................. $243 $182 $165
Research and development............................................ 691 608 571
Rental expense...................................................... 129 112 92
Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated $235 million as of
September 30, 1996 and are payable as follows (in millions): 1997, $65; 1998
$51; 1999, $38; 2000, $23; 2001, $15; and after 2001, $43.
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18. CONTINGENT LIABILITIES
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, and employment 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.
19. BUSINESS SEGMENT INFORMATION
The Company's business segments are engaged in research, development, and
manufacture of diversified products as follows:
ELECTRONICS:
Automation--industrial automation equipment and systems, including
control logic, sensors, human-machine interface devices, motors, power
and mechanical devices, and software products.
Avionics & Communications--avionics products and systems and related
communications technologies primarily used in commercial and military
aircraft and defense electronic systems for command, control,
communications, and intelligence.
Semiconductor Systems--system-level semiconductor chipset solutions for
personal communication electronics markets, including chipsets for
facsimile and personal computer data modems, wireless communications
products such as global positioning systems, packet data, cordless and
cellular chipsets, and automated call distribution equipment.
AUTOMOTIVE--components and systems for heavy- and medium-duty trucks,
buses, trailers and heavy-duty off-highway vehicles (Heavy Vehicle Systems); and
components and systems for light trucks and passenger cars (Light Vehicle
Systems).
Divested businesses include the sales, operating results, and gains or
losses on the disposition of significant businesses and product lines. Divested
businesses include the Semiconductor Systems Local Area Networking product line
in 1995 and the Automotive Plastics business in 1994.
33
34
The following tables summarize segment information (in millions):
SALES AND EARNINGS BY BUSINESS SEGMENT
SALES
-----------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------
BUSINESS SEGMENT 1996 1995 1994
- ---------------- ------ ------ ------
Electronics:
Automation.................................................... $ 4,165 $3,590 $2,085
Avionics & Communications..................................... 1,475 1,468 1,419
Semiconductor Systems......................................... 1,593 875 691
------- ------ ------
Total Electronics.......................................... 7,233 5,933 4,195
------- ------ ------
Automotive:
Heavy Vehicle Systems......................................... 1,822 1,929 1,744
Light Vehicle Systems......................................... 1,318 1,192 900
------- ------ ------
Total Automotive........................................... 3,140 3,121 2,644
------- ------ ------
Divested businesses............................................. -- 11 190
------- ------ ------
Total sales..................................................... $10,373 $9,065 $7,029
======= ====== ======
EARNINGS
--------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------
BUSINESS SEGMENT 1996 1995 1994
- ---------------- ------ ----- -----
Electronics:
Automation...................................................... $ 537 $ 481 $ 265
Avionics & Communications....................................... 163 178 182
Semiconductor Systems........................................... 330 113 98
------ ----- -----
Total Electronics............................................ 1,030 772 545
Automotive........................................................ 218 212 114
Divested businesses............................................... -- (31) 8
------ ----- -----
Operating earnings................................................ 1,248 953 667
Restructuring charge.............................................. (122) -- --
Purchased research and development................................ (121) -- --
General corporate-net............................................. (77) (117) (82)
Interest expense.................................................. (32) (25) (17)
Provision for income taxes........................................ (341) (318) (217)
------ ----- -----
Income from continuing operations................................. $ 555 $ 493 $ 351
====== ===== =====
Restructuring charge relates to the business segments as follows (in
millions): Automation, $11; Avionics & Communications, $60; Automotive, $36; and
General corporate-net, $15. Purchased research and development relates to the
acquisition of Brooktree, a Semiconductor Systems business.
34
35
ASSET INFORMATION BY BUSINESS SEGMENT
PROVISION FOR
DEPRECIATION AND
IDENTIFIABLE ASSETS AMORTIZATION
----------------------------- ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------- ------------------------
BUSINESS SEGMENT 1996 1995 1994 1996 1995 1994
- ---------------- ------- ------ ------ ---- ---- ----
Electronics:
Automation.......................... $ 4,237 $4,254 $1,799 $234 $192 $121
Avionics & Communications........... 965 918 827 52 48 50
Semiconductor Systems............... 1,411 730 586 144 72 53
------- ------ ------ ---- ---- ----
Total Electronics................... 6,613 5,902 3,212 430 312 224
Automotive............................ 1,604 1,595 1,473 102 97 93
------- ------ ------ ---- ---- ----
Business segment totals............... 8,217 7,497 4,685 532 409 317
Corporate............................. 1,288 1,156 1,224 10 14 16
Divested businesses................... -- 7 30 -- 5 9
Net assets of Graphic Systems......... 560 569 654 -- -- --
------- ------ ------ ---- ---- ----
Total................................. $10,065 $9,229 $6,593 $542 $428 $342
======= ====== ====== ==== ==== ====
Automation's assets include $1,184 million and $1,234 million of intangible
assets and goodwill related to the acquisition of Reliance at September 30, 1996
and 1995, respectively. Automation's provision for depreciation and amortization
includes $36 million and $27 million for the years ended September 30, 1996 and
1995, respectively, related to the amortization of Reliance intangible assets
and goodwill.
Corporate identifiable assets include cash and net deferred income tax
assets.
CAPITAL EXPENDITURES
-------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------
BUSINESS SEGMENT 1996 1995 1994
- ---------------- ---- ---- ----
Electronics:
Automation.......................................................... $229 $237 $120
Avionics & Communications........................................... 60 49 51
Semiconductor Systems............................................... 414 175 151
---- ---- ----
Total Electronics................................................... 703 461 322
Automotive............................................................ 152 119 102
---- ---- ----
Business segment totals............................................... 855 580 424
Corporate............................................................. 11 9 36
Divested businesses................................................... -- 1 10
---- ---- ----
Total................................................................. $866 $590 $470
==== ==== ====
35
36
SALES, EARNINGS AND ASSETS BY GEOGRAPHIC AREA
SALES EARNINGS
----------------------------- --------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------- --------------------------
1996 1995 1994 1996 1995 1994
------- ------ ------ ------ ----- -----
United States...................... $ 7,841 $6,645 $4,977 $ 941 $ 726 $ 466
Canada............................. 628 592 454 75 70 85
Europe............................. 2,050 1,863 1,473 164 141 80
Asia-Pacific....................... 509 396 286 20 19 3
Latin America...................... 421 428 352 48 28 25
Divested businesses................ -- 11 190 -- (31) 8
Eliminations....................... (1,076) (870) (703) -- -- --
------- ------ ------ ------ ----- -----
Total.............................. $10,373 $9,065 $7,029 1,248 953 667
======= ====== ======
Restructuring charge............... (122) -- --
Purchased research and
development...................... (121) -- --
General corporate--net............. (77) (117) (82)
Interest expense................... (32) (25) (17)
Provision for income taxes......... (341) (318) (217)
------ ----- -----
Income from continuing
operations....................... $ 555 $ 493 $ 351
====== ===== =====
United States sales include export sales to customers and international
subsidiaries of $1,947 million in 1996, $1,513 million in 1995, and $1,152
million in 1994. The 1996 export sales were to the following geographic areas:
Canada, $426 million; Europe, $557 million; Asia-Pacific, $870 million; and
Latin America, $94 million.
IDENTIFIABLE ASSETS
---------------------------------------------------------------
SEGMENTS CORPORATE
---------------------------- ----------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------- ----------------------------
GEOGRAPHIC AREA 1996 1995 1994 1996 1995 1994
- --------------- ------ ------ ------ ------ ------ ------
United States...................... $6,204 $5,641 $3,177 $ 651 $ 513 $ 641
Canada............................. 260 227 190 349 429 399
Europe............................. 1,143 1,103 921 147 141 151
Asia-Pacific....................... 314 267 185 60 62 32
Latin America...................... 296 259 212 81 11 1
Divested businesses................ -- 7 30 -- -- --
Net assets of Graphic Systems...... 560 569 654 -- -- --
------ ------ ------ ------ ------ ------
Total.............................. $8,777 $8,073 $5,369 $1,288 $1,156 $1,224
====== ====== ====== ====== ====== ======
36
37
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1996 FISCAL QUARTERS
---------------------------------------
FIRST SECOND THIRD FOURTH 1996
------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Sales........................................ $2,385 $2,631 $2,696 $2,661 $10,373
Cost of sales................................ 1,810 2,009 2,047 2,011 7,877
Income from continuing operations before
special charge............................. 152 160 172 192 676
Income from continuing operations............ 152 160 172 71 555
Net income................................... 192 214 223 97 726
Earnings per share:
Continuing operations before special
charge.................................. $ .70 $ .74 $ .79 $ .88 $ 3.11
------ ------ ------ ------ -------
Continuing operations...................... $ .70 $ .74 $ .79 $ .32 $ 2.55
Discontinued operations.................... .19 .24 .23 .13 .79
------ ------ ------ ------ -------
Net income.............................. $ .89 $ .98 $ 1.02 $ .45 $ 3.34
====== ====== ====== ====== =======
The fourth quarter and full year income from continuing operations includes
a $121 million, or 56 cents per share, write-off of purchased research and
development in connection with the acquisition of Brooktree.
1995 FISCAL QUARTERS
---------------------------------------
FIRST SECOND THIRD FOURTH 1995
------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Sales........................................ $1,747 $2,348 $2,476 $2,494 $ 9,065
Cost of sales................................ 1,366 1,793 1,897 1,935 6,991
Income from continuing operations............ 93 133 152 115 493
Net income................................... 165 191 197 189 742
Earnings per share:
Continuing operations...................... $ .43 $ .61 $ .70 $ .53 $ 2.27
Discontinued operations.................... .33 .27 .20 .35 1.15
------ ------ ------ ------ -------
Net income.............................. $ .76 $ .88 $ .90 $ .88 $ 3.42
====== ====== ====== ====== =======
37
38
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS AND SHAREOWNERS OF
ROCKWELL INTERNATIONAL CORPORATION:
We have audited the accompanying consolidated balance sheet of Rockwell
International Corporation and subsidiaries as of September 30, 1996 and 1995,
and the related consolidated statements of income, shareowners' equity, and cash
flows for each of the three years in the period ended September 30, 1996. Our
audit also included the financial statement schedule listed at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rockwell International
Corporation and subsidiaries at September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
November 6, 1996 (December 6, 1996 as to the sale of the Aerospace and Defense
business to The Boeing Company described in Note 1)
38
39
See also the table under the caption Continuing Operations, Sales and
Earnings by Business Segment in the MD&A on pages 12-13 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
See the information under the captions ELECTION OF DIRECTORS and
INFORMATION AS TO NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS on pages 3-7
of the 1997 Proxy Statement. No nominee for director was selected pursuant to
any arrangement or understanding between the nominee and any person other than
the Company pursuant to which such person is or was to be selected as a director
or nominee. See also the information with respect to executive officers of the
Company under Item 4a of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the information under the captions EXECUTIVE COMPENSATION, OPTION
GRANTS, AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES on pages 11-13
and RETIREMENT PLANS on pages 19-20 of the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information under the captions VOTING SECURITIES and OWNERSHIP BY
MANAGEMENT OF EQUITY SECURITIES on pages 3 and 10, respectively, of the 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information under the caption CERTAIN TRANSACTIONS AND OTHER
RELATIONSHIPS on page 9 of the 1997 Proxy Statement.
39
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are
those of the Company and its consolidated subsidiaries).
Consolidated Balance Sheet, September 30, 1996 and 1995.
Statement of Consolidated Income, years ended September 30, 1996,
1995 and 1994.
Statement of Consolidated Cash Flows, years ended September 30,
1996, 1995 and 1994.
Statement of Consolidated Shareowners' Equity, years ended September
30, 1996, 1995 and 1994.
Notes to Financial Statements.
Independent Auditors' Report.
Sales and Earnings by Business Segment, years ended September 30,
1992 through 1996.
(2) Financial Statement Schedule for the years ended September 30, 1996,
1995 and 1994.
PAGE
----
Schedule II--Valuation and Qualifying Accounts...................... S-1
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information
called for is shown in the financial statements or notes thereto.
(3) Exhibits.
3-a-1 Restated Certificate of Incorporation of the Company, as amended.
3-b-1 By-Laws of the Company.
4-a-1 Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated as of November 30, 1996,
filed as Exhibit 4-c to Registration Statement No. 333-17031, is
hereby incorporated by reference.
4-b-1 Indenture dated as of April 1, 1993 between Reliance and Bankers Trust
Company, as Trustee, pursuant to which the 6.8% Notes of Reliance due
April 15, 2003 have been issued, filed as Exhibit 4.7 to Registration
Statement No. 33-60066, is hereby incorporated by reference.
4-b-2 First Supplemental Indenture dated April 14, 1993 to the Indenture
listed as Exhibit 4-b-1 above, filed as Exhibit 4.1 to Current Report
on Form 8-K of Reliance dated April 19, 1993, is hereby incorporated
by reference.
4-b-3 Form of the 6.8% Notes of Reliance due April 15, 2003, filed as
Exhibit 4-8 to Registration Statement No. 33-60066, is hereby
incorporated by reference.
*10-a-1 Copy of the Company's 1979 Stock Plan for Key Employees, as amended,
filed as Exhibit 4-d-1 to Registration Statement No. 33-11946, is
hereby incorporated by reference.
- ---------
* Management contract or compensatory plan or arrangement.
40
41
*10-a-2 Forms of Stock Option and Stock Appreciation Rights Agreements under
the Company's 1979 Stock Plan for Key Employees, as amended, for
options and stock appreciation rights granted after December 1, 1987,
filed as Exhibit 10-b-7 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1987, are hereby incorporated by
reference.
*10-a-3 Copy of resolution of the Board of Directors of the Company, adopted
May 7, 1980, adjusting the number of shares subject to outstanding
options and stock appreciation rights under the Company's 1979 Stock
Option Plan for Key Employees (now the 1979 Stock Plan for Key
Employees, as amended) and the number of shares transferable under the
Company's Incentive Compensation Plan, filed as Exhibit 10-d-2 to the
Company's Annual Report on Form 10-K for the year ended September 30,
1987, is hereby incorporated by reference.
*10-a-4 Copy of resolution of the Board of Directors of the Company, adopted
May 4, 1983, adjusting the number of shares subject to outstanding
options and stock appreciation rights under the Company's 1979 Stock
Plan for Key Employees, as amended, filed as Exhibit 4-e-5 to
Registration Statement No. 33-11946, is hereby incorporated by
reference.
*10-a-5 Copy of resolution of the Board of Directors of the Company, adopted
February 11, 1987, adjusting the number of shares subject to
outstanding options and stock appreciation rights under the Company's
1979 Stock Plan for Key Employees, as amended, filed as Exhibit 4-e-6
to Registration Statement No. 33-11946, is hereby incorporated by
reference.
*10-b-1 Copy of the Company's 1988 Long-Term Incentives Plan, as amended
through November 30, 1994, filed as Exhibit 10-d-1 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1994, is
hereby incorporated by reference.
*10-b-2 Forms of Stock Option Agreements under the Company's 1988 Long-Term
Incentives Plan for options granted prior to May 1, 1992, filed as
Exhibit 10-d-2 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1988, are hereby incorporated by reference.
*10-b-3 Forms of Stock Option and Stock Appreciation Rights Agreements under
the Company's 1988 Long-Term Incentives Plan for options and stock
appreciation rights granted prior to May 1, 1992, filed as Exhibit
10-d-3 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1988, are hereby incorporated by reference.
*10-b-4 Form of Stock Option Agreement under the Company's 1988 Long-Term
Incentives Plan for options granted after May 1, 1992 and prior to
March 1, 1993, filed as Exhibit 28-a-1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992, is hereby
incorporated by reference.
*10-b-5 Forms of Stock Option Agreement under the Company's 1988 Long-Term
Incentives Plan for options granted after March 1, 1993 and prior to
November 1, 1993, filed as Exhibit 28-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, are hereby
incorporated by reference.
*10-b-6 Forms of Stock Option Agreement under the Company's 1988 Long-Term
Incentives Plan for options granted after November 1, 1993 and prior
to December 1, 1994, filed as Exhibit 10-d-6 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1993, are hereby
incorporated by reference.
- ---------
* Management contract or compensatory plan or arrangement.
41
42
*10-b-7 Forms of Stock Option Agreement under the Company's 1988 Long-Term
Incentives Plan for options granted after December 1, 1994, filed as
Exhibit 10-d-7 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994, are hereby incorporated by reference.
*10-c-1 Copy of the Company's 1995 Long-Term Incentives Plan, filed as Exhibit
10-e-1 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994, is hereby incorporated by reference.
*10-c-2 Forms of Stock Option Agreement under the Company's 1995 Long-Term
Incentives Plan, filed as Exhibit 10-e-2 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994, are hereby
incorporated by reference.
*10-c-3 Copy of resolution of the Board of Directors of the Company, adopted
September 11, 1996, amending the Company's 1995 Long-Term Incentives
Plan, filed as Exhibit 10-c-2 to Registration Statement No. 333-14969,
is hereby incorporated by reference.
*10-d-1 Copy of the Company's Directors Stock Plan, as amended, filed as
Exhibit B to the Company's Proxy Statement for its 1996 Annual Meeting
of Shareowners, is hereby incorporated by reference.
*10-d-2 Form of Stock Option Agreement under the Company's Directors Stock
Plan, filed as Exhibit 10-d to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, is hereby incorporated by
reference.
*10-d-3 Copy of Restricted Stock Agreement dated February 7, 1996 between the
Company and William H. Gray, III, filed as Exhibit 10-a to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, is hereby incorporated by reference.
*10-d-4 Copy of Restricted Stock Agreement dated February 7, 1996 between the
Company and J. Clayburn La Force, Jr., filed as Exhibit 10-b to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, is hereby incorporated by reference.
*10-d-5 Copy of Restricted Stock Agreement dated February 7, 1996 between the
Company and William T. McCormick, Jr., filed as Exhibit 10-c to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, is hereby incorporated by reference.
*10-e-1 Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, amending the Company's 1988 Long-Term Incentives
Plan and 1995 Long-Term Incentives Plan, filed as Exhibit 4-g-1 to
Registration Statement No. 333-17055, is hereby incorporated by
reference.
*10-e-2 Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, adjusting outstanding awards under the Company's (i)
1979 Stock Plan for Key Employees, (ii) 1988 Long-Term Incentives
Plan, (iii) 1995 Long-Term Incentives Plan and (iv) Directors Stock
Plan, filed as Exhibit 4-g-2 to Registration Statement No. 333-17055,
is hereby incorporated by reference.
*10-f-1 Copy of the Company's Incentive Compensation Plan, as amended through
December 6, 1995, filed as Exhibit 10-f-1 to Registration Statement
No. 333-14969, is hereby incorporated by reference.
*10-g-1 Copy of the Company's Deferred Compensation Plan, as amended effective
as of October 1, 1992, filed as Exhibit 10-g-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1993, is hereby
incorporated by reference.
- ---------
* Management contract or compensatory plan or arrangement.
42
43
*10-h-1 Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, authorizing the assignment of certain compensation
and employee benefit plans to New Rockwell International Corporation,
including the Company's (i) 1979 Stock Plan for Key Employees, (ii)
1988 Long-Term Incentives Plan, (iii) 1995 Long-Term Incentives Plan,
(iv) Directors Stock Plan, (v) Incentive Compensation Plan, (vi)
Deferred Compensation Plan and (vii) Annual Incentive Compensation
Plan for Senior Executive Officers, filed as Exhibit 4-g-3 to
Registration Statement No. 333-17055, is hereby incorporated by
reference.
*10-h-2 Copy of resolution of the Board of Directors of New Rockwell
International Corporation, adopted December 4, 1996, assuming and
adopting the Company's (i) 1979 Stock Plan for Key Employees, (ii)
1988 Long-Term Incentives Plan, (iii) 1995 Long-Term Incentives Plan,
(iv) Directors Stock Plan, (v) Incentive Compensation Plan, (vi)
Deferred Compensation Plan and (vii) Annual Incentive Compensation
Plan for Senior Executive Officers.
*10-i-1 Copy of resolutions of the Board of Directors of the Company, adopted
November 3, 1993, providing for the Company's Deferred Compensation
Policy for Non-Employee Directors, filed as Exhibit 10-h-1 to the
Company's Annual Report on Form 10-K for the year ended September 30,
1994, is hereby incorporated by reference.
*10-i-2 Copy of resolutions of the Compensation Committee of the Board of
Directors of the Company, adopted July 6, 1994, modifying the
Company's Deferred Compensation Policy for Non-Employee Directors,
filed as Exhibit 10-h-2 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1994, is hereby incorporated by
reference.
*10-i-3 Copy of resolutions of the Board of Directors of New Rockwell
International Corporation, adopted December 4, 1996, providing for its
Deferred Compensation Policy for Non-Employee Directors.
*10-j-1 Copy of resolutions of the Board of Directors of the Company, adopted
November 2, 1994, providing for the Company's Retirement Policy for
Non-Employee Directors, filed as Exhibit 10-j-1 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1994, is
hereby incorporated by reference.
*10-j-2 Copy of resolutions of the Board of Directors of the Company, adopted
December 6, 1995, rescinding the Company's Retirement Policy for
Non-Employee Directors (except to the extent applicable to Directors
then age 67 or older and former Directors then retired), filed as
Exhibit 10-j-2 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995, is hereby incorporated by reference.
*10-j-3 Copy of resolution of the Board of Directors of New Rockwell
International Corporation, adopted December 4, 1996, assuming and
adopting the Company's Retirement Policy for Non-Employee Directors
(applicable to Directors of the Company who were age 67 or older on
December 6, 1995 and former Directors then retired).
*10-k-1 Copy of the Company's Annual Incentive Compensation Plan for Senior
Executive Officers, filed as Exhibit A to the Company's Proxy
Statement for its 1996 Annual Meeting of Shareowners, is hereby
incorporated by reference.
- ---------
* Management contract or compensatory plan or arrangement.
43
44
*10-l-1 Restricted Stock Agreement dated December 6, 1995 between the Company
and Don H. Davis, Jr., filed as Exhibit 10-l-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995, is hereby
incorporated by reference.
*10-m-1 Copy of letter dated February 1, 1995 from the Company to Judith L.
Estrin, filed as Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, is hereby incorporated by
reference.
11 Computation of Earnings Per Share for the Five Years Ended September
30, 1996.
21 List of Subsidiaries of the Company.
23 Independent Auditors' Consent.
24 Powers of Attorney authorizing certain persons to sign this Annual
Report on Form 10-K on behalf of certain directors and officers of the
Company.
27 Financial Data Schedule for this Annual Report on Form 10-K.
- ---------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
44
45
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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
By /s/ WILLIAM J. CALISE, JR.
-------------------------------
WILLIAM J. CALISE, JR.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Dated: December 19, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON THE 19TH DAY OF DECEMBER 1996 BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
DONALD R. BEALL*
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER) AND DIRECTOR
DON H. DAVIS, JR.*
DIRECTOR
LEW ALLEN, JR.*
DIRECTOR
RICHARD M. BRESSLER*
DIRECTOR
JOHN J. CREEDON*
DIRECTOR
JUDITH L. ESTRIN*
DIRECTOR
WILLIAM H. GRAY, III*
DIRECTOR
JAMES CLAYBURN LA FORCE, JR.*
DIRECTOR
WILLIAM T. MCCORMICK, JR.*
DIRECTOR
JOHN D. NICHOLS*
DIRECTOR
BRUCE M. ROCKWELL*
DIRECTOR
WILLIAM S. SNEATH*
DIRECTOR
JOSEPH F. TOOT, JR.*
DIRECTOR
W. MICHAEL BARNES*
SENIOR VICE PRESIDENT, FINANCE & PLANNING AND
CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL
OFFICER)
LAWRENCE J. KOMATZ*
VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING
OFFICER)
*By /s/ WILLIAM J. CALISE, JR.,
----------------------------------------------
WILLIAM J. CALISE, JR., ATTORNEY-IN-FACT**
** BY AUTHORITY OF POWERS OF ATTORNEY FILED HEREWITH.
45
46
SCHEDULE II
ROCKWELL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF YEAR(A) EXPENSES ACCOUNTS(B) DEDUCTIONS YEAR(A)
- ----------- ---------- ---------- ----------- ---------- ----------
(IN MILLIONS)
Year ended September 30, 1996:
Allowance for doubtful accounts.... $ 78.3 $ 55.9 $ 0.1 $ 13.2(c) $125.1
(4.0)(d)
Year ended September 30, 1995:
Allowance for doubtful accounts.... $ 46.2 $ 15.5 $ 0.1 $ 5.3(c) $ 78.3
(21.8)(d)
Year ended September 30, 1994:
Allowance for doubtful accounts.... $ 35.3 $ 13.6 $ 1.1 $ 7.0(c) $ 46.2
(3.2)(d)
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(a) Includes allowances for commercial and other long-term receivables.
(b) Collection of accounts previously written off.
(c) Uncollectible accounts written off.
(d) Consists principally of amounts relating to businesses acquired, businesses
sold and foreign currency translation adjustments.
S-1