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[CONFORMED COPY]
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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, 1998. COMMISSION FILE NUMBER 1-12383
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ROCKWELL INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1797617
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 ANTON BOULEVARD, SUITE 700 92626-7147
COSTA MESA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 424-4565 (OFFICE OF
THE SECRETARY)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $1 Par Value New York, Pacific and London Stock Exchanges
(including the associated
Preferred Share Purchase
Rights)
</TABLE>
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
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. [ X ]
The aggregate market value of registrant's voting stock held by
non-affiliates of registrant on November 30, 1998 was approximately $9.3
billion.
189,674,156 shares of registrant's Common Stock, par value $1 per share,
were outstanding on November 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting
of Shareowners of registrant to be held on February 3, 1999 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 a global electronic controls and communications company with
leadership positions in industrial automation, avionics and communications and
electronic commerce. The Company was incorporated in 1996 and is the successor
to the former Rockwell International Corporation as a result of a tax-free
reorganization completed on December 6, 1996 (the Reorganization), pursuant to
which the Company divested its former Aerospace and Defense businesses (the A&D
Business) to The Boeing Company (Boeing). The predecessor corporation was
incorporated in 1928. On September 30, 1997, the Company completed the spin-off
of its automotive component systems business (the Automotive Business) into an
independent, separately traded, publicly held company named Meritor Automotive,
Inc. (Meritor). On November 4, 1998, the Board of Directors of the Company
approved the spin-off of Conexant Systems, Inc. (Conexant), which after the
spin-off will be a separately traded public company owning and operating
Rockwell's semiconductor systems business (Semiconductor Systems). The spin-off,
which is expected to occur on December 31, 1998, will be at the rate of one
share of Conexant common stock for every two shares of the Company's common
stock, par value $1 per share (Common Stock), held as of the close of business
on December 11, 1998. The Company has received a favorable ruling from the
Internal Revenue Service as to the tax-free status of the spin-off. As used
herein, the terms the "Company" or "Rockwell" include subsidiaries and
predecessors unless the context indicates otherwise. Information included in
this Annual Report on Form 10-K refers to the Company's continuing businesses
unless otherwise indicated.
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, CONSOLIDATED 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 3, 1999 (the 1999 Proxy Statement), such information shall be deemed to
be incorporated therein by such reference.
The Company's continuing business segments are engaged in research,
development, manufacture and service of electronic controls and communications
products as follows:
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; in-flight entertainment systems for
commercial aircraft; and electronic commerce products for call center
systems and personalized electronic commerce applications.
Financial information with respect to the Company's business segments,
including their contributions to sales and operating earnings for the three
years ended September 30, 1998, is contained under the caption RESULTS OF
OPERATIONS in the MD&A on pages 12-14 hereof, and in Note 18 of the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements on pages 38-40
hereof.
PRODUCTS
Automation. The Company's automation products include programmable logic
controllers, human-machine interface devices, communications networks, AC/DC
drives and drive systems, sensing and motion control devices, computer numeric
control systems, data acquisition products, standard and engineered motors,
mechanical power transmission equipment, global support services and software
products, which include programming, human-machine interface, process monitoring
and control, communications and Internet technologies. 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, in-flight cabin management,
communications and passenger entertainment, radar, global positioning and other
command, control and communications devices and systems for airlines, corporate
aircraft, general aviation,
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government and military applications; and transaction call processing systems
for customers requiring electronic commerce applications.
COMPETITIVE POSTURE
The Company competes with many manufacturers which, depending on the
product involved, range from large diversified enterprises, comparable to or
greater than the Company in scope and resources, 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 Company's products are sold by its own sales force and through
distributors and agents.
GOVERNMENT CONTRACTS
Approximately nine percent of the Company's sales is derived from United
States government contracts, almost entirely from its Avionics & Communications
business. 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.
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 statements.
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 should be modified, sold or otherwise discontinued.
In the first quarter of 1998, the Company acquired the in-flight
entertainment business of Hughes-Avicom International, Inc. for $157 million. In
connection with the acquisition, the Company recorded a charge of $103 million
($63 million after tax) for purchased research and development and recorded $70
million for other intangible assets, including developed technology, patents,
assembled workforce and goodwill, which are being amortized on a straight-line
basis over 10 years.
In October 1996, the Company sold its Graphic Systems business for
approximately $600 million. On December 6, 1996, the Company completed the
divestiture of the A&D Business to Boeing. On September 30, 1997, the Company
completed the spin-off of Meritor. The Company expects to complete the spin-off
of
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Conexant on December 31, 1998. The net (loss) income from operations of the
Graphic Systems business, the A&D Business, the Automotive Business and
Semiconductor Systems have been presented on the Company's consolidated
statement of operations included in the Financial Statements as (loss) income
from discontinued operations for all periods. The assets and liabilities of
Semiconductor Systems as of September 30, 1998 and 1997 have been classified on
the Company's consolidated balance sheet included in the Financial Statements as
net assets of Semiconductor Systems.
GEOGRAPHIC INFORMATION
The Company's principal markets outside the United States are in Australia,
Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, South
Korea, Southeast Asia, Spain, Switzerland, The Netherlands 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.
Selected financial information by major geographic area for the three years
ended September 30, 1998 is contained in Note 18 of the NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS in the Financial Statements.
RESEARCH AND DEVELOPMENT
In addition to research and development activities conducted by each of the
Company's businesses, 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 Boeing and Meritor at agreed rates. At September
30, 1998, the Company employed approximately 5,200 professional engineers and
scientists and 2,600 supporting technical personnel.
EMPLOYEES
At September 30, 1998, the Company had approximately 41,000 employees, of
whom approximately 7,400 were employed outside the United States.
In June 1998, in connection with its plan to restructure its continuing
businesses, the Company announced a worldwide workforce reduction of
approximately 3,000 employees. This workforce reduction is expected to be
substantially completed by the end of 1999.
RAW MATERIALS AND SUPPLIES
Raw materials essential to the conduct of each of 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 are purchased
from others. In addition, the Avionics & Communications business 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 in Note 17 of the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Financial Statements. See also Item 3,
LEGAL PROCEEDINGS, on pages 6-8 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. See Item 3, LEGAL PROCEEDINGS,
on pages 6-8 hereof. While
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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 and its registered trademarks "Rockwell" and "Rockwell
International" are important to each 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, "Reliance Electric" for electric motors and "Dodge" for
mechanical power transmission products.
SEASONALITY
None of the Company's business segments is seasonal.
ITEM 2. PROPERTIES.
At September 30, 1998, the Company's continuing businesses operated 88
plants and research and development facilities throughout the United States and
in Europe, Brazil, Canada, India, Mexico, Australia and the Far East. These
businesses also had approximately 367 sales offices, warehouses and service
centers. These facilities had an aggregate floor space of approximately 21.1
million square feet. Of this floor space, approximately 63 percent was owned by
the Company and approximately 37 percent was leased. At September 30, 1998,
approximately 680,000 square feet of floor space was not in use, most of which
was in owned facilities. A summary of floor space of these facilities at
September 30, 1998 is as follows:
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OWNED LEASED
LOCATION AND SEGMENTS FACILITIES FACILITIES TOTAL
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(IN MILLIONS OF SQUARE FEET)
<S> <C> <C> <C>
United States:
Automation............................................. 8.9 3.7 12.6
Avionics & Communications.............................. 3.2 1.5 4.7
Europe:
Automation............................................. 0.4 1.0 1.4
Avionics & Communications.............................. 0.1 -- 0.1
South America:
Automation............................................. 0.1 0.4 0.5
Avionics & Communications.............................. -- 0.1 0.1
Canada and other areas:
Automation............................................. 0.4 0.9 1.3
Corporate Offices (including certain research and
development facilities)................................ 0.2 0.2 0.4
---- --- ----
Total.......................................... 13.3 7.8 21.1
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At September 30, 1998, Semiconductor Systems operated four manufacturing
facilities in the United States and one facility in Mexico. It also had 13
design centers and 23 sales offices. These facilities had an aggregate floor
space of approximately 3.0 million square feet, approximately 70 percent of
which was owned and approximately 30 percent of which was leased. Approximately
676,000 square feet of owned facilities was unused space at its wafer
fabrication facilities in Colorado Springs, Colorado. Another 72,000 square feet
of leased office space in San Diego, California was unoccupied and 19,200 square
feet of leased warehouse space in El Paso, Texas was vacant. Prior to its
spin-off from the Company, Conexant will distribute its wafer fabrication
facilities in Colorado Springs, Colorado to the Company. At September 30, 1998,
these facilities were included in net assets of Semiconductor Systems on the
Company's consolidated balance sheet included in the Financial Statements.
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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
necessary to operate at present levels.
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.
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 and has set a February 1999
trial date. The Company is defending the action and 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. On March 20, 1997, the court stayed the case pending
disposition of the civil action described in the preceding paragraph. The
Company believes the government's counterclaim is without merit, and believes it
is entitled under applicable law and its contract with the DOE to be indemnified
for all costs and any liability associated with the counterclaim.
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
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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 3,
1998 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.
Celeritas. On September 27, 1995, Celeritas Technologies, Ltd. filed a
suit against the Company in the U.S. District Court for the Central District of
California, for patent infringement, misappropriation of trade secrets and
breach of contract relating to cellular telephone data transmission technology
utilized in certain modem products produced by Semiconductor Systems in 1995 and
1996. The court entered judgment against the Company in January 1997 and, in
ruling on post-trial motions in July 1997, entered a revised judgment awarding
damages of $57 million, plus interest. On July 20, 1998, the U.S. Court of
Appeals for the Federal Circuit reversed the holding of the trial court based on
patent infringement and found Celeritas's patent invalid but affirmed the trial
court holding based on breach of contract. The Company's petition for a
rehearing (and rehearing en banc) and a motion to certify the contract issue to
the California Supreme Court were denied in September 1998. The Company
continues to believe that the judgment is in error and on November 23, 1998
filed a petition for certiorari with the United States Supreme Court. At
September 30, 1998, $65 million had been accrued for the ultimate resolution of
this matter. Prior to the spin-off of Conexant, the Company will contribute $65
million in cash to Conexant, which will be placed in an escrow account to be
used to satisfy Conexant's obligation with respect to the Celeritas matter.
Russellville. 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
polychlorinated biphenyls (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 January 22, 1997, filed a notice of appeal. Since the Company believes
it is not reasonably possible that the punitive damages will be sustained on
appeal, the Company has not accrued any reserve for those damages.
On March 24, 1997, the Circuit Court of Franklin County, Kentucky in
Commonwealth of Kentucky, Natural Resources and Environmental Protection Cabinet
vs. Rockwell, an action filed in 1986 seeking remediation of PCB contamination
resulting from unpermitted discharges of PCBs from the Company's former
Russellville, Kentucky plant, entered judgment establishing PCB cleanup levels
for the former plant site and certain offsite property and ordering additional
characterization of possible contamination in the Mud River and its floodplain.
On June 30, 1997, the Company filed a notice of appeal, but is nevertheless
proceeding with remediation and characterization efforts consistent with the
Court's ruling while simultaneously appealing that ruling. The Court deferred
any decision on the imposition of fines or penalties pending implementation of
an appropriate remediation program.
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Other. In July 1995, a federal grand jury impaneled by the United States
District Court for the Central District of California began an investigation
into a July 1994 explosion at the Santa Susana Field Laboratory operated by the
Company's former Rocketdyne Division in which two scientists were killed and a
technician was injured. On April 11, 1996, pursuant to an agreement between the
Company and the United States Attorney for the Central District of California,
the Company entered a plea of guilty to two counts of unpermitted disposal of
hazardous waste and one count of unpermitted storage of hazardous waste, all of
which are felony violations of the Resource Conservation and Recovery Act, and
paid a fine of $6.5 million to settle potential federal criminal claims arising
out of the federal government's investigation. Investigation under other U.S.
and California laws continues. While the Company has no information on the
status of these investigations, further civil sanctions could be imposed on the
current owner of the facility, Boeing North American, Inc. (BNA), for which the
Company would be required to indemnify BNA.
On December 27, 1995, one shareowner, purporting to act derivatively on
behalf of the Company, commenced an action in the Superior Court of the State of
California for the County of Orange against 13 of the Company's directors, and
the Company as a nominal defendant, alleging principally breaches of fiduciary
duties in failing properly to manage the business of the Company in a manner to
prevent certain violations of applicable federal and state laws, including
environmental laws, by certain named and unnamed employees or agents of the
Company. The action seeks declaratory judgment, damages suffered by the Company
as a result of the alleged conduct, plaintiffs' costs and expenses and other
proper relief.
On February 27, 1996, a similar suit, making similar allegations and
seeking similar relief, was filed against the Company and the same directors,
plus Don H. Davis, Jr., by two other shareowners in the Superior Court of the
State of California for the County of Los Angeles. On August 7, 1996, the Los
Angeles County action was dismissed voluntarily by the plaintiffs. On August 22,
1996, a First Amended Consolidated Complaint was filed in the Orange County
action, adding the plaintiffs from the dismissed Los Angeles County suit as
party plaintiffs to the Orange County suit. A Second Amended Consolidated
Complaint was filed in the Orange County action on November 27, 1996.
Subsequently, on February 4, 1997, plaintiffs voluntarily dismissed the action
with respect to two of the director-defendants, Judith L. Estrin and William H.
Gray, III. The Company and the director-defendants are defending the
consolidated action, and the parties are proceeding with discovery.
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, 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 1998.
ITEM 4a. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, office and position 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 3, 1998 are as follows:
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
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<S> <C>
DON H. DAVIS, JR.--Chairman of the Board of Rockwell since February
1998 and Chief Executive Officer of Rockwell since October 1997;
President and Chief Operating Officer of Rockwell from July 1995
to October 1997; Executive Vice President and Chief Operating
Officer of Rockwell from January 1994 to July 1995; Senior Vice
President and President, Automation of Rockwell prior thereto... 58
W. MICHAEL BARNES--Senior Vice President, Finance & Planning and
Chief Financial Officer of Rockwell........................... 56
</TABLE>
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<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
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<S> <C>
MICHAEL A. BLESS--Vice President, Corporate Development and
Planning of Rockwell since August 1997; Director, Investment
Banking of Merrill Lynch & Co., Inc. from April 1997 to August
1997; Senior Vice President of Dillon, Read & Co. (investment
banking) prior thereto........................................ 33
WILLIAM J. CALISE, JR.--Senior Vice President, General Counsel and
Secretary of Rockwell since November 1994; senior partner of
Chadbourne & Parke LLP (law firm) prior thereto............... 60
JOHN D. COSGROVE--Senior Vice President of Rockwell since March
1997; President, Rockwell Collins, Inc. since October 1996;
President, Collins Avionics & Communications Division of Rockwell
prior thereto................................................. 63
DWIGHT W. DECKER--Senior Vice President of Rockwell since March
1997; President, Rockwell Semiconductor Systems since June 1998
and from October 1995 to March 1997; President, Rockwell
Semiconductor Systems and Electronic Commerce from March 1997 to
June 1998; President, Telecommunications of Rockwell from June
1995 to October 1995; Vice President/General Manager, Digital
Communications Division of Rockwell's Telecommunications Division
prior thereto................................................. 48
STEVEN S. GARDNER--Vice President and General Tax Counsel of
Rockwell since March 1998; Associate General Tax Counsel of
Rockwell from October 1997 to March 1998; European Tax Counsel of
Rockwell from January 1996 to October 1997; European Area Tax
Counsel of Dow Corning (silicone products) prior thereto...... 43
KEITH D. NOSBUSCH--Senior Vice President of Rockwell and
President-Rockwell Automation Control Systems since November
1998; Senior Vice President-Automation Control and Information
Group of Rockwell Automation from February 1996 to November 1998;
Vice President-Presence Sensing Products of Rockwell Automation
prior thereto................................................. 47
JAMES P. O'SHAUGHNESSY--Vice President and Chief Intellectual
Property Counsel of Rockwell since May 1996; partner of Foley &
Lardner (law firm) prior thereto.............................. 51
DENNIS J. POPOVEC--Vice President and Treasurer of Rockwell since
March 1997; Assistant Treasurer of Rockwell prior thereto..... 43
WOLFGANG RICHTER--Vice President and Chief Information Officer of
Rockwell since November 1997; Vice President and Chief
Information Officer of Whirlpool Corporation (household
appliances) from June 1995 to November 1997; Vice
President--Information Systems, Whirlpool North American
Appliance Group from January 1995 to May 1997; Director of
Computer Operations for Whirlpool Europe in Milan, Italy prior
thereto....................................................... 44
WILLIAM E. SANDERS--Vice President and Controller of Rockwell since
August 1997; Assistant Controller of Rockwell from October 1996
to August 1997; Accounting Executive, Financial Reports of
Rockwell prior thereto........................................ 46
WILLIAM A. SANTE, II--General Auditor of Rockwell............... 55
JOHN R. STOCKER--Vice President, Law of Rockwell since November
1994; Vice President and Associate General Counsel of Rockwell
prior thereto................................................. 57
JOEL R. STONE--Senior Vice President, Human Resources of Rockwell
since December 1996; Vice President of Compensation & Benefits of
Rockwell prior thereto........................................ 54
CHARLES C. STOOPS, JR.--Special Tax Counsel to the Senior Vice
President and General Counsel of Rockwell since March 1998;
General Tax Counsel of Rockwell prior
thereto....................................................... 65
JOSEPH D. SWANN--Vice President of Rockwell and President-Rockwell
Automation Power Systems since June 1998; Senior Vice President
and General Manager-Dodge Mechanical Group, Rockwell Automation
from December 1994 to June 1998; Vice President and General
Manager-Mechanical Group, Reliance Electric Company prior
thereto....................................................... 57
EARL S. WASHINGTON--Senior Vice President, Corporate Marketing and
Communications since February 1998; Senior Vice President,
Communications of Rockwell from September 1995 to February 1998;
Vice President, Advertising and Public Relations of Rockwell from
March 1994 to September 1995; Vice President, Business
Development of Rockwell prior thereto......................... 53
</TABLE>
9
<PAGE> 10
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 is traded is the
New York Stock Exchange. The Company's Common Stock is also traded on the
Pacific and London Stock Exchanges. On November 30, 1998, there were 58,262
shareowners of record of the Company's 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
reporting system during each quarter of the Company's fiscal years ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First..................................... 58 5/8 44 5/16 64 5/8 54 1/8
Second.................................... 61 5/8 48 3/8 70 5/8 58 7/8
Third..................................... 59 1/16 46 9/16 68 3/4 58 1/4
Fourth.................................... 48 1/4 33 3/4 66 3/8 57 9/16
</TABLE>
On December 6, 1996, each Rockwell shareowner received .042 share
(presently .084 share) of Boeing common stock for each share of Rockwell Common
Stock or Class A Common Stock owned. On September 30, 1997, each Rockwell
shareowner received one-third of a share of Meritor common stock for each share
of Rockwell Common Stock owned. At September 30, 1998, such fractional shares of
Boeing and Meritor common stock per Rockwell share had values of $2.88 and
$5.02, respectively. Rockwell's current stock price does not reflect the value
of the Boeing and Meritor fractional shares.
During the year ended September 30, 1998, the Company repurchased, through
open-market purchases, 18.5 million shares of Common Stock.
The following table sets forth the aggregate quarterly cash dividends per
common share (comprised of the Common Stock and, until February 23, 1997, the
date of its automatic conversion to Common Stock, Class A Common Stock) during
each of the Company's five fiscal years ended September 30, 1998:
<TABLE>
<CAPTION>
CASH DIVIDENDS PER
COMMON SHARE(1)
----------------
<S> <C>
1998........................................................ $1.02
1997........................................................ 1.16
1996........................................................ 1.16
1995........................................................ 1.08
1994........................................................ 1.02
</TABLE>
- ---------------
(1) Upon the spin-off of Meritor on September 30, 1997, the Company's annual
$1.16 per share dividend was set at $1.02 for Rockwell and 14 cents for
Meritor. Per share dividend amounts indicated do not include dividends paid
on the fractional shares of Boeing and Meritor received on December 6, 1996
and September 30, 1997, respectively, by Rockwell shareowners.
On July 1, 1998, the Company issued 193, 240, 39 and 230 shares of
restricted stock, respectively, to the following directors of the Company:
George L. Argyros, Richard M. Bressler, William H. Gray, III and John D.
Nichols. These shares were issued pursuant to deferral elections made in
accordance with the Directors Stock Plan in partial or full payment for retainer
fees otherwise payable in cash. The issuance of all such shares was exempt from
the registration requirements of the Securities Act of 1933 pursuant to Section
4(2) thereof.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth selected consolidated financial data in respect of
the Company's continuing operations. 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 statement of operations data for the five years ended September 30, 1998 and
the related balance sheet data have been derived from the audited consolidated
financial statements of the Company.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................... $6,752 $6,370 $5,784 $5,169 $3,606
Operating earnings(1)........................... 179 841 638 660 445
Interest expense................................ 58 27 22 14 5
(Loss) income from continuing operations before
accounting change(1).......................... (109) 437 364 308 225
(Loss) earnings per share from continuing
operations before accounting change:(1)
Basic......................................... (0.55) 2.04 1.67 1.42 1.02
Diluted....................................... (0.55) 2.01 1.65 1.39 1.00
Cash dividends per share(2)..................... 1.02 1.16 1.16 1.08 1.02
BALANCE SHEET DATA: (at end of period)
Total assets.................................... $7,170 $7,642 $8,564 $7,977 $5,395
Long-term debt.................................. 908 156 156 167 11
Shareowners' equity............................. 3,245 4,811 4,256 3,782 3,356
</TABLE>
- ---------------
(1) Includes the impact of the following special items: pre-tax charges of $597
million, or $2.57 per share, for costs associated with the comprehensive
restructuring program announced in June 1998 and $103 million, or 31 cents
per share, relating to the write-off of purchased research and development
in connection with an acquisition in 1998; a charge of $23 million (before
and after tax), or 11 cents per share, relating to the write-off of
purchased research and development in connection with an acquisition in
1997; and a pre-tax charge of $76 million, or 22 cents per share, relating
to restructuring actions in 1996. Income from continuing operations and
related per share amounts for 1996 also include a tax credit of $65 million,
or 29 cents per share, related to the settlement of research and
experimentation tax credit refund claims for years prior to 1996.
(2) Upon the spin-off of Meritor on September 30, 1997, the Company's annual
$1.16 per share dividend was set at $1.02 for Rockwell and 14 cents for
Meritor. Per share dividend amounts indicated do not include dividends paid
on the fractional shares of Boeing and Meritor received on December 6, 1996
and September 30, 1997, respectively, by Rockwell shareowners.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
During 1998 the Company announced several strategic actions intended to
complete Rockwell's transformation to a highly focused electronic controls and
communications company. These actions included the spin-off of the Company's
Semiconductor Systems business, which the Company's management expects to
complete on December 31, 1998, and implementation of a comprehensive
restructuring program and other cost-reduction initiatives across all of the
Company's continuing businesses. The Company's management is confident that the
Company's market leadership, coupled with global growth opportunities and
successful completion of these strategic actions, will enable the Company to
deliver increasing value for the Company's shareowners in 1999 and beyond.
11
<PAGE> 12
Rockwell Automation, the Company's largest business which comprised
two-thirds of the Company's total sales in 1998, maintained its position as the
leading supplier of industrial automation equipment, systems and services in
North America. In addition, during 1998 Rockwell Automation registered global
market share gains in several of its business segments. Rockwell Automation
posted 1998 operating earnings (before special charges) of $594 million, about
the same as last year. This was achieved despite softening demand in North
America, lower sales in Asia-Pacific and performance problems at the industrial
motors business. In November 1998, the Company completed the acquisition of
Anorad Corporation, the world leader in linear motor-based precision positioning
equipment. The Anorad acquisition immediately positions Rockwell Automation as
the global market share leader in linear motor technology.
The Company's Avionics & Communications segment, which includes the
Rockwell Collins and Electronic Commerce businesses, had an excellent year in
1998. Rockwell Collins achieved an 18 percent increase in sales as both the
commercial air transport and business and regional aircraft systems businesses
capitalized on strong markets. In addition, the Company's government systems
business captured $1 billion in new orders in 1998. The Company's passenger
systems in-flight entertainment business won new orders totaling $460 million
during the nine months since the Company's acquisition of the business in
December 1997. Rockwell Electronic Commerce posted a 13 percent increase in
sales due to increased demand for its new Spectrum(TM) automatic call
distribution systems.
Looking forward to 1999, the Company expects earnings per share from
continuing operations in the $2.90 to $3.00 range driven by profitable growth in
the Rockwell Collins government and passenger systems businesses, and by
delivering on the Company's commitment of $100 million in pre-tax savings from
its restructuring program and cost-reduction initiatives. The Company also
expects Rockwell Automation to offset the effects of soft global markets with
growth generated by such products as software, motion control, systems
activities, new value-added services and product offerings and a return to
profitability in its industrial motors business.
RESULTS OF OPERATIONS
Summary of Results of Operations
Continuing Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES:
Automation........................................ $4,546 $4,494 $4,165 $3,590 $2,085
Avionics & Communications......................... 2,206 1,876 1,619 1,579 1,521
------ ------ ------ ------ ------
Total sales....................................... $6,752 $6,370 $5,784 $5,169 $3,606
====== ====== ====== ====== ======
OPERATING EARNINGS:
Automation........................................ $ 594 $ 598 $ 537 $ 481 $ 265
Avionics & Communications......................... 285 266 177 179 180
Special charges................................... (597) -- (76) -- --
Purchased research and development................ (103) (23) -- -- --
------ ------ ------ ------ ------
Operating earnings................................ 179 841 638 660 445
General corporate--net.............................. (96) (79) (84) (108) (75)
Interest expense.................................... (58) (27) (22) (14) (5)
Provision for income taxes.......................... (134) (298) (168) (230) (140)
------ ------ ------ ------ ------
(Loss) income from continuing operations before
accounting change................................. $ (109) $ 437 $ 364 $ 308 $ 225
====== ====== ====== ====== ======
</TABLE>
The special charges relate to the business segments as follows (in millions):
Automation, $488; Avionics & Communications, $99; and Corporate, $10 in 1998 and
Automation, $11; Avionics & Communications, $50;
12
<PAGE> 13
and Corporate, $15 in 1996. Purchased research and development relates to the
acquisitions of an Avionics & Communications business in 1998 and an Automation
business in 1997. The 1996 provision for income taxes includes a $65 million
credit related to the settlement of research and experimentation tax credit
refund claims related to years prior to 1996.
1998 Compared to 1997
Sales increased six percent in 1998 to $6.8 billion from $6.4 billion in
1997 due primarily to strong markets for Rockwell Collins products. The
composition of sales was as follows (in billions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
U.S. Commercial............................................. $4.1 $3.8
International............................................... 2.1 2.0
U.S. Government............................................. 0.6 0.6
---- ----
Total.................................................. $6.8 $6.4
==== ====
</TABLE>
Earnings per share from continuing operations (before special items)
increased 10 percent in 1998 to $2.33 per share from comparable 1997 earnings
per share of $2.12. The related income from continuing operations for 1998
totaled $462 million, slightly higher than 1997's comparable income of $460
million.
Special items in 1998 included a first quarter pre-tax charge of $103
million, or 31 cents per share, for purchased research and development in
connection with the acquisition of the passenger systems business and third
quarter pre-tax charges of $597 million, or $2.57 per share, for costs
associated with a comprehensive restructuring program, including a worldwide
workforce reduction, facility closings and consolidations, exiting non-strategic
businesses and write-offs of goodwill and other assets. In 1997, the special
item was a fourth quarter pre-tax charge of $23 million, or 11 cents per share,
for purchased research and development related to the acquisition of a Rockwell
Automation software business. Including special items, the 1998 loss from
continuing operations, before an accounting change, was $109 million, or 55
cents per share, compared to 1997 income from continuing operations of $437
million, or $2.01 per share.
A significant component of the third quarter charges was the writedown of
long-lived assets (primarily goodwill) associated with Rockwell Automation's
industrial motors business. Since the Company's acquisition of Reliance Electric
Company in January 1995, the industrial motors business has performed below
expectations and was only marginally profitable through fiscal 1996. Operating
performance at industrial motors deteriorated further and, in the second half of
fiscal 1997 and the first nine months of fiscal 1998, operating losses were
incurred. As a result of these continuing operating losses, which included costs
associated with facility reorganization and consolidation activities, losses on
long-term customer commitments, and manufacturing and product quality issues,
and forecasts of future operating losses, management concluded that the
long-lived assets of the industrial motors business were impaired. As a result,
a charge was recorded to write down the carrying value of these assets to their
estimated fair value by approximately $266 million, or $1.32 per share. In
connection with the comprehensive restructuring program, the industrial motors
management team was reorganized. In addition, actions have been taken to improve
product quality and delivery, lower manufacturing costs and ensure new customer
orders are priced appropriately.
Rockwell Automation demonstrated its ability in 1998 to perform in weak
global markets by offsetting flat sales in the United States and lower sales in
the Asia-Pacific region and Canada, with meaningful gains in Europe and Latin
America. Sales in 1998 of $4.5 billion were about the same as 1997. Automation
is the Company's only continuing business with significant foreign currency
exposures. Automation's sales in 1998 were adversely affected by approximately
$80 million due to currency rate fluctuations, primarily in the Asia-Pacific
region and Canada. The earnings impact of foreign currency fluctuations was
mitigated in 1998 through the use of forward contracts to hedge foreign currency
commitments. Excluding special items, operating earnings for 1998 were $594
million compared to $598 million in 1997. These earnings as a percent of sales
were 13.1 percent in 1998 compared to 13.3 percent in 1997 as operating
efficiencies from the cost-reduction actions begun in June 1998 substantially
offset the impacts of the performance issues at the industrial motors business
and sluggish North American markets. Operating results for 1998 included a
13
<PAGE> 14
$16 million gain related to favorable resolution of certain environmental
matters with Exxon Corporation. Including special items, Rockwell Automation's
operating earnings totaled $106 million in 1998 compared to $575 million in
1997.
Avionics & Communications achieved an 18 percent increase in sales during
1998 to $2.2 billion from $1.9 billion in 1997. Significant sales increases
occurred at the Company's commercial air transport and business and regional
aircraft systems businesses in 1998. Approximately one-third of the sales
increase in 1998 was due to inclusion of the passenger systems business, which
was acquired in December 1997. Avionics & Communications' operating earnings for
1998, before special items and a third quarter charge of $35 million for
estimated losses to be incurred on a government systems contract, were up 20
percent to $320 million in 1998 from $266 million in 1997. Operating earnings as
a percent of sales in 1998, before special items and the contract reserve, were
14.5 percent compared to 14.2 percent in 1997. Including the charge for
purchased research and development of $103 million, special charges of $99
million and the $35 million government contract reserve, Avionics &
Communications' operating earnings were $83 million in 1998 compared to $266
million in 1997.
Effective October 1, 1997, the Company changed its method of accounting for
certain general and administrative costs related to government contracts of the
Rockwell Collins business to expense these costs as incurred. The Company
previously included these costs in inventory. The cumulative effect of this
accounting change was to increase 1998's net loss by $17 million, or nine cents
per share. Including the 1998 accounting change and the results of discontinued
operations, the net loss for 1998 was $427 million, or $2.16 per share, compared
to 1997 net income of $644 million, or $2.97 per share.
1997 Compared to 1996
Sales for continuing operations in 1997 increased nearly $600 million to
$6.4 billion from $5.8 billion in 1996 due to strong global demand and increased
market share at both Automation and Avionics & Communications. Income from
continuing operations in 1997, before an acquisition-related charge, was $460
million, or $2.12 per share, compared to $364 million, or $1.65 per share in
1996. Including the acquisition-related charge, income from continuing
operations for 1997 was $437 million, or $2.01 per share.
Rockwell Automation achieved an 11 percent increase in operating earnings
in 1997, capitalizing on strong worldwide markets and continuing
cost-containment initiatives. Operating earnings, before an acquisition-related
special charge in 1997 and a restructuring charge in 1996, were $598 million in
1997 compared to $537 million in 1996. Including these charges, Rockwell
Automation earnings totaled $575 million in 1997 compared to 1996 earnings of
$526 million.
Avionics & Communications increased sales in 1997 by 16 percent to $1.9
billion from $1.6 billion in 1996 primarily due to improved commercial air
transport markets. Operating earnings for 1997 were a record $266 million, up 50
percent from comparable 1996 operating earnings (before a restructuring charge)
of $177 million, due to the higher sales volume and the benefits from the 1996
restructuring actions. Avionics & Communications' 1996 earnings totaled $127
million, including the restructuring charge.
INCOME TAXES
The Company's effective income tax rate, excluding the tax effects of
special items, declined to 36.3 percent in 1998 from 39.3 percent in 1997. The
lower tax rate in 1998 is attributable to a $16 million tax benefit associated
with the Company's donation in September 1998 of a trisonic wind tunnel to a
public university. Management believes the effective income tax rate will
continue to benefit in 1999 and beyond from ongoing tax planning initiatives.
MEDICAL PLAN CHANGES
In 1998, the Company announced, as part of its cost-reduction initiatives,
that it will consolidate various employee and retiree medical plans into a
single, high-quality but more cost-effective program. The Company
14
<PAGE> 15
expects these plan design changes to reduce the Company's medical costs for
active employees and retirees by about $35 million in 1999 and by approximately
$50 million annually thereafter.
DISCONTINUED OPERATIONS
On November 4, 1998, the Board of Directors of the Company approved the
spin-off of Semiconductor Systems into an independent, separately traded public
company, which will be named Conexant Systems, Inc. The spin-off, which is
expected to occur on December 31, 1998, will be at the rate of one share of
Conexant common stock for every two shares of Company common stock held as of
the close of business on December 11, 1998. The Company has received a favorable
ruling from the Internal Revenue Service as to the tax-free status of the
spin-off. Semiconductor Systems has been reported as a discontinued operation
for all periods presented.
The loss from discontinued operations in 1998 of $301 million includes
after-tax charges of $90 million, principally related to the closure and
writedown of wafer fabrication facilities in Colorado Springs, Colorado, and for
costs associated with a 10 percent workforce reduction. The Semiconductor
Systems loss for 1998 also includes after-tax charges of $40 million for modem
inventory write-offs, $26 million for intellectual property matters and $35
million for estimated operating losses expected to be incurred by Semiconductor
Systems between October 1, 1998, and December 31, 1998, the expected spin-off
date. The net loss also includes operating losses related to the significant
decline in modem prices, coupled with the Company's commitment to fund research
and development for new products.
Discontinued operations for periods prior to 1998 include the Semiconductor
Systems, Automotive, Aerospace & Defense, and Graphic Systems businesses.
ACQUISITION OF PASSENGER SYSTEMS
In December 1997, the Company acquired the in-flight entertainment (IFE)
business of Hughes-Avicom International, Inc., now called Rockwell Collins
Passenger Systems, for $157 million in cash. The excess of the purchase price
over the fair value of tangible net assets of $133 million was allocated to
intangible assets, including $103 million ($63 million after tax) for purchased
research and development, $23 million for developed technology, $5 million for
patents, $5 million for assembled workforce and $37 million for goodwill. The
intangible assets other than purchased research and development are being
amortized on a straight-line basis over 10 years.
Purchased research and development represents the value assigned to
projects in process at the date of acquisition at passenger systems which had
not yet reached technological feasibility and had no alternative future use, and
was charged immediately to expense. The research and development projects are
principally related to two products: Total Entertainment System(TM) (TES), a
personal in-seat entertainment system incorporating video-on-demand, and an IFE
system that includes direct broadcast satellite (DBS) capability. At the date of
acquisition, the expected effort to complete the TES and DBS projects over the
next three years included software and hardware design and systems testing
efforts.
FINANCIAL CONDITION
Rockwell's financial condition was strengthened during 1998 by the
implementation of working capital management initiatives at all of the
businesses. These initiatives reduced working capital levels and generated
approximately $450 million of operating cash flow in the last six months of
1998. For the full 1998 year, cash provided by operating activities totaled $723
million, an increase of 78 percent over 1997's cash from operations of $407
million.
During 1998, investment by the continuing businesses in research and new
product development totaled $402 million, up seven percent from $377 million in
1997. New product investments at Rockwell Collins were up 12 percent in 1998 and
represented nearly half of the Company's total research and development
investment. This increase was primarily due to accelerated product development
at the Company's passenger
15
<PAGE> 16
systems business. New product development investments were also higher in 1998
at both Automation and Electronic Commerce. The Company expects this level of
new product development to continue in 1999.
The Company also invested $408 million in capital expenditures, an increase
of $72 million, or 21 percent from 1997. The higher investments in 1998 were
primarily due to the design and installation of integrated, enterprise-wide
information systems at each of the Company's businesses. The 1999 capital
spending plan is $400 million.
The Company also spent approximately $980 million during 1998 in connection
with its stock repurchase program. At September 30, 1998, the Company had 190.6
million shares outstanding compared to 206.8 million at September 30, 1997. At
September 30, 1998, the Company had approximately $165 million remaining on its
current $500 million stock repurchase program. The Company expects to complete
this program in 1999, and no decision has been made regarding the continuation
of stock repurchases beyond this program.
In January 1998, the Company issued $800 million aggregate principal amount
of long-term notes and debentures in a public offering. The proceeds of this
debt offering of approximately $750 million were used to repay $380 million of
outstanding short-term commercial paper borrowings, with the balance used for
general corporate purposes, including the Company's ongoing common stock
repurchase program. At September 30, 1998, the Company's debt to total capital
ratio was 25 percent. Assuming the spin-off of Conexant had occurred on
September 30, 1998, the Company's debt to total capital ratio would have been
approximately 32 percent.
Another use of the Company's cash was the payment of dividends to
shareowners. Rockwell's dividends totaled $202 million, or $1.02 per share in
1998, compared to $248 million, or $1.16 per share in 1997. Upon the spin-off of
Meritor on September 30, 1997, the Company's annual $1.16 per share dividend was
set at $1.02 for Rockwell and $0.14 for Meritor. The Rockwell Board of Directors
declared a regular $0.255 per share quarterly dividend payable in December 1998.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
equipment, software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to manufacture products, acquire or ship inventory, process transactions, send
invoices, or engage in other normal business activities. The inability of
business processes to function correctly in 2000 could have serious adverse
effects on companies and entities throughout the world.
The Company has developed plans to address issues related to the impact of
the Year 2000 in five major areas: products, business systems (computer systems
that handle business processes), infrastructure (servers, desktop computers,
networks, telecommunication systems and software), manufacturing systems
(computer systems used in the manufacturing process) and suppliers. Each of the
five areas are undergoing the following process to ensure readiness for the Year
2000. First, in the inventory phase, all resources are inventoried to identify
those that have any type of software or hardware Year 2000 issues. Second, in
the assessment phase, all inventoried items are assessed to confirm that a Year
2000-related issue is present and the extent of remediation required. Third, in
the strategy phase, a remediation strategy is created to ensure substantial
completion of upgrades for critical systems by the middle of calendar 1999.
Fourth, in the conversion/upgrade phase, upgrades are performed on all items
identified in the inventory and assessment phases. Finally, in the testing
phase, all upgraded items are tested to verify Year 2000 readiness. The Company
has completed the inventory phase for all five areas and has substantially
completed the assessment and strategy phases for all five areas. At September
30, 1998, the Company was approximately 60 percent complete in the
conversion/upgrade phase for each of the five areas and is substantially
complete with the final testing for situations where the Company has completed
the conversion/upgrade phase.
16
<PAGE> 17
The Company, utilizing both internal and external resources to address the
Year 2000 issue, expects to be substantially complete with this project by the
middle of calendar 1999. The current estimate of total project costs is
approximately $48 million, which includes the cost of purchasing certain
hardware and software. Purchased hardware and software will be capitalized in
accordance with normal policy. Approximately two-thirds of the total cost
relates to the use of internal resources (primarily salary costs), and about 50
percent of the total project cost had been spent through September 30, 1998,
with substantially all of the remainder to be spent during 1999.
The Company has enlisted the services of industry consultants and outside
contractors to assist with its Year 2000 identification, assessment, remediation
and testing efforts. The costs of the Company's Year 2000 identification,
assessment, remediation and testing efforts and the dates on which the Company
believes it will complete such efforts are based upon management's estimates,
which were derived using numerous assumptions regarding future events, including
the continued availability of certain resources, third-party remediation plans,
and other factors. Notwithstanding this comprehensive program to make a smooth
transition, there can be no assurance that these estimates will prove to be
accurate and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology. Moreover, the Company could be
adversely impacted by the Year 2000 issues faced by major distributors,
customers, vendors, governments and financial service organizations with which
the Company interacts.
The Company believes its greatest uncertainties are in the manufacturing
and supplier areas, due to the number of equipment and materials suppliers
involved and their various stages of readiness for Year 2000. In particular, the
Company is dependent on equipment manufacturers to supply the upgrades required
to remediate Year 2000 issues in the manufacturing systems area and suppliers to
upgrade their systems to ensure an uninterrupted supply of materials. A Year
2000 failure by a significant equipment or materials supplier could result in
the temporary slowdown of production by the Company, the duration of which the
Company cannot reasonably estimate. As a result, the Company's contingency
planning centers heavily on the supplier and manufacturing systems areas. For
the top five to 10 percent of its critical materials and manufacturing
suppliers, the Company will conduct on-site reviews and intends to monitor
specific Year 2000 milestones to ensure compliance. The Company is in the
process of identifying specific Year 2000 compliance target dates for all
critical materials suppliers. In the event a supplier does not meet established
compliance milestones, which begin as early as April 1999, the Company will
implement contingency plans that include alternate sourcing and stockpiling of
materials.
Part of the Company's initial assessment phase included a detailed Year
2000 questionnaire sent to all critical materials and manufacturing suppliers.
This questionnaire included questions on products, services, internal operating
systems and the supplier's own supply chain. As of September 30, 1998, the
Company has received responses from approximately 50 percent of those
questioned. The Company is following up the questionnaires, where necessary, to
ensure Year 2000 compliance.
The varying definitions of "compliance with Year 2000" and the array of
products and services sold by the Company, both today and in the past, may lead
to claims whose impact on the Company is not currently estimable. The Company
has product and general liability insurance policies which provide coverage in
the event of certain product failures. The Company has not, however, purchased
Year 2000 specific insurance because, in management's view, the cost is
prohibitive and likely of little value. Of course, in many cases, the Company
contractually limits or disclaims consequential damages in the Company's sales
contracts. No assurance can be given that the aggregate cost of defending and
resolving such claims will not materially adversely affect the Company's results
of operations. Although some of the Company's agreements with manufacturers and
others from whom it purchases products contain provisions requiring such parties
to indemnify the Company under certain circumstances, there can be no assurance
that such indemnification arrangements will cover all of the Company's
liabilities and costs related to claims by third parties related to the Year
2000 issue.
17
<PAGE> 18
Business operations are also dependent on the Year 2000 readiness of
infrastructure suppliers in areas such as utilities, communications,
transportation and other services. In this environment, there will likely be
instances of failure that could cause disruptions in business processes. The
likelihood and effects of failures in infrastructure systems and in the supply
chain cannot be estimated. However, with respect to operations under its direct
control, management does not expect, in view of its Year 2000 readiness efforts
and the diversity of its suppliers and customers, that occurrences of Year 2000
failures will have a material adverse effect on the financial position or
results of operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 in the ordinary course of business to
protect itself from adverse currency rate fluctuations on both firm and
anticipated foreign currency transactions. These contracts are generally for
terms of less than one year. Gains or losses relating to hedging firm
commitments are deferred and included in the measurement of the foreign currency
transaction subject to the hedge and gains or losses relating to anticipated
transactions are recognized currently.
The Company's 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 by country, including contracts relating to
discontinued operations, is as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1998 1997
---- ----
<S> <C> <C>
United Kingdom (Pound Sterling)............................. $151 $ 47
Canada (Dollar)............................................. 110 42
Germany (Deutsche Mark)..................................... 80 18
Switzerland (Franc)......................................... 78 69
Japan (Yen)................................................. 42 32
Australia (Dollar).......................................... 39 2
Italy (Lira)................................................ 32 5
France (Franc).............................................. 13 4
Other countries............................................. 33 20
---- ----
$578 $239
==== ====
</TABLE>
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.
Based on the Company's overall currency rate exposure at September 30,
1998, a 10 percent change in currency rates would not have had a material effect
on the financial position, results of operations or cash flows of the Company.
See Note 10 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the
Financial Statements on pages 30-31 hereof.
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 timely
completion of the Semiconductor Systems spin-off; the ultimate resolution of
lawsuits, claims and proceedings that have been or may be asserted against the
Company; the implementation of restructuring actions in accordance with
management's plans; economic and political changes in international markets
where the Company competes such as currency exchange rates, inflation rates,
recession, foreign ownership restrictions and other external factors over which
the Company has no control; domestic and foreign government spending, budgetary
and trade policies;
18
<PAGE> 19
demand for and market acceptance of new and existing products; successful
development of advanced technologies; timely completion of Year 2000
modifications by the Company, governments and the Company's key suppliers and
customers; and competitive product and pricing pressures; as well as other risks
and uncertainties, including but not limited to those detailed from time to time
in the Company's Securities and Exchange Commission filings.
19
<PAGE> 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (includes time deposits and certificates of deposit:
1998, $61; 1997, $185).................................... $ 103 $ 269
Receivables (less allowance for doubtful accounts: 1998,
$51; 1997, $52)........................................... 1,223 1,096
Inventories, net............................................ 1,313 1,303
Deferred income taxes....................................... 258 220
Other current assets........................................ 213 291
Net assets of Semiconductor Systems......................... 986 1,115
------ ------
Total current assets................................. 4,096 4,294
------ ------
PROPERTY
Land........................................................ 65 72
Land and leasehold improvements............................. 76 60
Buildings................................................... 558 505
Machinery and equipment..................................... 1,450 1,384
Office and data processing equipment........................ 594 553
Construction in progress.................................... 213 192
------ ------
Total................................................ 2,956 2,766
Less accumulated depreciation............................... 1,421 1,336
------ ------
Property, net............................................... 1,535 1,430
------ ------
INTANGIBLE ASSETS, NET...................................... 1,330 1,698
------ ------
OTHER ASSETS................................................ 209 220
------ ------
TOTAL................................................ $7,170 $7,642
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Short-term debt............................................. $ 156 $ 52
Accounts payable............................................ 733 651
Compensation and benefits................................... 547 417
Income taxes payable........................................ 19 97
Other current liabilities................................... 528 437
------ ------
Total current liabilities............................ 1,983 1,654
------ ------
LONG-TERM DEBT.............................................. 908 156
------ ------
RETIREMENT BENEFITS......................................... 718 715
------ ------
OTHER LIABILITIES........................................... 316 306
------ ------
SHAREOWNERS' EQUITY
Common Stock (shares issued: 216.4)......................... 216 216
Additional paid-in capital.................................. 923 901
Retained earnings........................................... 3,697 4,409
Currency translation and pension adjustments................ (135) (103)
Common Stock in treasury, at cost (shares held: 1998, 25.8;
1997, 9.6)................................................ (1,456) (612)
------ ------
Total shareowners' equity............................ 3,245 4,811
------ ------
TOTAL................................................ $7,170 $7,642
====== ======
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Sales....................................................... $6,752 $6,370 $5,784
Other income, net........................................... 88 106 90
------ ------ ------
Total revenues.............................................. 6,840 6,476 5,874
------ ------ ------
COSTS AND EXPENSES:
Cost of sales (see Note 3).................................. 5,206 4,456 4,158
Selling, general, and administrative (see Note 3)........... 1,448 1,235 1,162
Purchased research and development (see Note 4)............. 103 23 --
Interest.................................................... 58 27 22
------ ------ ------
Total costs and expenses.................................... 6,815 5,741 5,342
------ ------ ------
Income from continuing operations before income taxes....... 25 735 532
Income tax provision........................................ 134 298 168
------ ------ ------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE ACCOUNTING
CHANGE.................................................... (109) 437 364
(Loss) income from discontinued operations.................. (301) 207 362
Cumulative effect of accounting change...................... (17) -- --
------ ------ ------
NET (LOSS) INCOME........................................... $ (427) $ 644 $ 726
====== ====== ======
BASIC (LOSS) EARNINGS PER SHARE:
Continuing operations before accounting change............ $(0.55) $ 2.04 $ 1.67
Discontinued operations................................... (1.52) 0.97 1.67
Cumulative effect of accounting change.................... (0.09) -- --
------ ------ ------
Net (loss) income......................................... $(2.16) $ 3.01 $ 3.34
====== ====== ======
DILUTED (LOSS) EARNINGS PER SHARE:
Continuing operations before accounting change............ $(0.55) $ 2.01 $ 1.65
Discontinued operations................................... (1.52) 0.96 1.63
Cumulative effect of accounting change.................... (0.09) -- --
------ ------ ------
Net (loss) income......................................... $(2.16) $ 2.97 $ 3.28
====== ====== ======
AVERAGE OUTSTANDING SHARES:
Basic..................................................... 197.9 213.8 217.6
====== ====== ======
Diluted................................................... 197.9 217.1 221.1
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING ACTIVITIES
(Loss) income from continuing operations before accounting
change.................................................... $(109) $ 437 $ 364
Adjustments to (loss) income from continuing operations to
arrive at cash provided by operating activities:
Depreciation.............................................. 227 210 194
Amortization of intangible assets......................... 79 83 107
Deferred income taxes..................................... (44) (38) (5)
Pension expense, net of contributions..................... 33 (47) 45
Special charges (see Note 3).............................. 597 -- 76
Purchased research and development (see Note 4)........... 103 23 --
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency
adjustments:
Receivables............................................ (126) (125) (45)
Inventories............................................ (40) (120) (68)
Accounts payable....................................... 79 41 --
Income taxes payable................................... (76) (77) 11
Other assets and liabilities........................... -- 20 (40)
----- ------- -----
CASH PROVIDED BY OPERATING ACTIVITIES.................. 723 407 639
----- ------- -----
INVESTING ACTIVITIES
Property additions.......................................... (408) (336) (313)
Acquisitions of businesses, net of cash acquired............ (158) (50) (53)
Special payment from Meritor (see Note 2)................... -- 445 --
Proceeds from the dispositions of property and businesses... 101 607 20
----- ------- -----
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES....... (465) 666 (346)
----- ------- -----
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings................ 107 (241) 243
Payments of long-term debt.................................. (3) (15) (14)
Long-term borrowings........................................ 751 2 --
----- ------- -----
Net increase (decrease) in debt........................... 855 (254) 229
Purchases of treasury stock................................. (980) (856) (48)
Cash dividends.............................................. (202) (248) (253)
Reissuances of common stock................................. 75 56 42
----- ------- -----
CASH USED FOR FINANCING ACTIVITIES..................... (252) (1,302) (30)
----- ------- -----
CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS........... 6 (229) 263
Cash Used for Discontinued Operations....................... (172) (141) (243)
----- ------- -----
(DECREASE) INCREASE IN CASH................................. (166) (370) 20
CASH AT BEGINNING OF YEAR................................... 269 639 619
----- ------- -----
CASH AT END OF YEAR......................................... $ 103 $ 269 $ 639
===== ======= =====
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK
Beginning balance........................................... $ 216 $ 210 $ 210
Conversion of Class A Common Stock.......................... -- 25 --
Cancellation of treasury stock (see Note 2)................. -- (19) --
------- ------ ------
Ending balance.............................................. 216 216 210
------- ------ ------
CLASS A COMMON STOCK
Beginning balance........................................... -- 28 33
Conversion into Common Stock................................ -- (28) (5)
------- ------ ------
Ending balance.............................................. -- -- 28
------- ------ ------
ADDITIONAL PAID-IN CAPITAL
Beginning balance........................................... 901 199 187
Exercise of stock options................................... 22 26 12
Divestiture of A&D Business (see Note 2).................... -- 1,175 --
Cancellation of treasury stock (see Note 2)................. -- (499) --
------- ------ ------
Ending balance.............................................. 923 901 199
------- ------ ------
RETAINED EARNINGS
Beginning balance........................................... 4,409 4,466 4,158
Net (loss) income........................................... (427) 644 726
Cash dividends (per share: 1998, $1.02; 1997, $1.16; 1996,
$1.16).................................................... (202) (248) (253)
Treasury stock reissuances.................................. (83) (230) (165)
Spin-off of Meritor (see Note 2)............................ -- (223) --
------- ------ ------
Ending balance.............................................. 3,697 4,409 4,466
------- ------ ------
CURRENCY TRANSLATION AND PENSION ADJUSTMENTS
Beginning balance........................................... (103) (103) (99)
Net currency translation adjustments........................ (25) (72) (4)
Pension adjustments......................................... (7) -- --
Adjustment for Meritor spin-off (see Note 2)................ -- 72 --
------- ------ ------
Ending balance.............................................. (135) (103) (103)
------- ------ ------
TREASURY STOCK
Beginning balance........................................... (612) (544) (707)
Purchases................................................... (980) (856) (48)
Reissuances................................................. 136 270 211
Cancellation of treasury stock (see Note 2)................. -- 518 --
------- ------ ------
Ending balance.............................................. (1,456) (612) (544)
------- ------ ------
TOTAL SHAREOWNERS' EQUITY................................... $ 3,245 $4,811 $4,256
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
Except as indicated, amounts reflected in the consolidated financial
statements or the notes thereto relate to the continuing operations of Rockwell
International Corporation (Rockwell or the Company) and have been restated to
present its semiconductor systems business (Semiconductor Systems) as a
discontinued operation (see Note 2). Prior year amounts have been reclassified
to conform with the current presentation.
Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and all majority-owned subsidiaries in which the Company has
control. All significant intercompany accounts and transactions are eliminated
in consolidation.
Use of Estimates
The consolidated 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 consolidated
financial statements. Actual results could differ from those estimates.
Revenue Recognition
Sales are generally recorded as products are shipped or services are
rendered, except sales under certain contracts requiring performance over
several periods, which are accounted for under the percentage-of-completion
method of accounting.
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.
Purchased Intangibles
Goodwill and other intangible assets generally result from business
acquisitions. The Company accounts for business acquisitions, under the purchase
method, by assigning the purchase price to tangible and intangible assets and
liabilities, including research and development projects which have not yet
reached technological feasibility and have no alternative future use (purchased
research and development). Assets acquired and liabilities assumed are recorded
at their fair values; the appraised value of purchased research and development
is immediately charged to expense, and the excess of the purchase price over the
amounts assigned is recorded as goodwill.
Goodwill is amortized using the straight-line method over periods generally
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.
24
<PAGE> 25
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or circumstances
indicate that the carrying amount of a long-lived asset may not be recoverable,
and for all assets to be disposed of. Long-lived assets held for use are
reviewed for impairment by assessing their net realizable values based on
estimated undiscounted cash flows over their remaining useful lives. If
impairment is indicated, the carrying amount of the asset is reduced to its fair
value.
Environmental Matters
The Company records accruals for environmental matters in the accounting
period in which its responsibility is established and the cost can be reasonably
estimated. Revisions to the accruals are made in the periods in which the
estimated costs of remediation change. At environmental sites in which more than
one potentially responsible party has been identified, the Company records a
liability for its estimated allocable share of costs related to its involvement
with the site as well as an estimated allocable share of costs related to the
involvement of insolvent or unidentified parties. At environmental sites in
which the Company is the only responsible party, the Company records a liability
for the total estimated costs of remediation. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
If recovery from insurers or other third parties is determined to be probable,
the Company records a receivable for the estimated recovery.
In 1998, the Company adopted the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) No. 96-1, Environmental
Remediation Liabilities. Adoption of this standard did not have a material
effect on the financial statements.
New Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. For 1998, the results of the Company's
continuing operations were a loss, making its stock options antidilutive.
Therefore, 1998 diluted per share amounts exclude 2.9 million shares of
potentially dilutive stock options and equal basic per share amounts. For 1997
and 1996, dilutive stock options resulted in an increase in outstanding shares
of 3.3 million and 3.5 million, respectively.
In 1998, the Company adopted AICPA SOP No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1
requires the cost of purchased software and certain costs incurred in developing
computer software for internal use to be capitalized and amortized over future
periods. During the year ended September 30, 1998, the Company's continuing
businesses capitalized $46 million of such costs that would have been charged to
expense under its previous accounting policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which
is effective for 2000. SFAS 133 will require the Company to record all
derivatives on the balance sheet at fair value. For derivatives that are hedges,
changes in the fair value of derivatives will be offset by the changes in the
fair value of the hedged assets, liabilities or firm commitments. The Company
believes the impact of adopting this standard will not be material to results of
operations or equity.
Accounting Change
Effective October 1, 1997, Rockwell changed its method of accounting for
certain general and administrative costs related to government contracts to
expense these costs as incurred. Under the previous accounting method, these
costs were included in inventory. The amount of general and administrative costs
included in inventory as of October 1, 1997, was $27 million ($17 million after
tax, or nine cents per share) and is presented as the cumulative effect of an
accounting change in the consolidated statement of operations for the year ended
September 30, 1998. The effect of the accounting change on income from
continuing operations in 1997 would not have been material.
25
<PAGE> 26
2. DISCONTINUED OPERATIONS
On November 4, 1998, the Board of Directors of the Company approved the
spin-off of Semiconductor Systems into an independent, separately traded public
company, which is named Conexant Systems, Inc. (Conexant). The spin-off, which
is expected to occur on December 31, 1998, will be at the rate of one share of
Conexant common stock for every two shares of Company Common Stock owned as of
the close of business on December 11, 1998. The Company has received a ruling
from the Internal Revenue Service that the spin-off will be tax-free to Company
shareowners.
On September 30, 1997, the Company completed the spin-off of its automotive
component systems businesses (Automotive) into an independent company by
distributing all of the issued and outstanding shares of Meritor Automotive,
Inc. (Meritor) to the Company's shareowners on a pro-rata basis. In connection
with the transaction, Meritor made a special payment of $445 million to the
Company and the net assets of Meritor as of September 30, 1997 of $151 million
were recorded as a decrease to equity.
In December 1996, the Company divested its former Aerospace and Defense
businesses (the A&D Business) by merging it with a subsidiary of The Boeing
Company (Boeing) in a tax-free reorganization (the Reorganization). In
connection with the Reorganization, all shares of Common Stock held in treasury
were canceled and the net liabilities of the A&D Business at the date of the
Reorganization of approximately $1.2 billion were recorded as an increase to
additional paid-in capital.
In October 1996, the Company's Graphic Systems business (Graphic Systems)
was sold for approximately $600 million.
The net assets of Semiconductor Systems consisted of the following (in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
---- ----
<S> <C> <C>
Cash........................................................ $ 14 $ 14
Receivables................................................. 150 223
Inventories................................................. 201 223
Other current assets........................................ 157 45
Net property................................................ 780 815
Intangible assets........................................... 53 94
Other assets................................................ 82 70
------ ------
Total assets......................................... 1,437 1,484
------ ------
Short-term debt............................................. 14 14
Accounts payable............................................ 151 196
Other liabilities........................................... 246 127
Retirement benefits......................................... 40 32
------ ------
Total liabilities.................................... 451 369
------ ------
Net assets of Semiconductor Systems......................... $ 986 $1,115
====== ======
</TABLE>
Prior to the spin-off, Semiconductor Systems will distribute its wafer
fabrication facilities in Colorado Springs, Colorado (and the related tax
benefit) to the Company. At September 30, 1998, these facilities had a net book
value of $42 million and a related deferred tax benefit of $36 million. These
facilities will be classified by the Company as assets held for disposal upon
distribution.
26
<PAGE> 27
Summarized results of discontinued operations are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Semiconductor Systems..................................... $1,185 $1,392 $1,444
Automotive................................................ -- 3,342 3,221
A&D Business.............................................. -- 535 3,089
Graphic Systems........................................... -- -- 712
------ ------ ------
Total................................................ $1,185 $5,269 $8,466
====== ====== ======
(Loss) income before income taxes:
Semiconductor Systems..................................... $ (496) $ 188 $ 199
Automotive................................................ -- 121 166
A&D Business.............................................. -- -- 311
Graphic Systems........................................... -- -- 8
------ ------ ------
Total................................................ $ (496) $ 309 $ 684
====== ====== ======
Net (loss) income:
Semiconductor Systems..................................... $ (301) $ 149 $ 87
Automotive................................................ -- 58 104
A&D Business.............................................. -- -- 178
Graphic Systems........................................... -- -- (7)
------ ------ ------
Total................................................ $ (301) $ 207 $ 362
====== ====== ======
</TABLE>
The 1998 net loss of Semiconductor Systems includes a $66 million charge
($40 million after tax) for inventory write-offs, a $43 million charge ($26
million after tax) for intellectual property matters and special charges of $147
million ($90 million after tax), all recorded in the fourth quarter. The special
charges include an asset impairment of $103 million related to the closure and
planned disposal of wafer fabrication facilities in Colorado Springs, Colorado,
$15 million for employee severance and voluntary early retirement program costs
associated with an approximate 10 percent worldwide workforce reduction, $11
million related to intangible asset write-offs and $18 million for other actions
including lease termination costs, contractual liabilities and other asset
write-offs. These actions are expected to be substantially completed by the end
of fiscal 1999. The 1998 net loss and net assets of Semiconductor Systems also
include accruals of $57 million ($35 million after tax) for an estimate of
Semiconductor Systems operating losses expected to be incurred from October 1,
1998 to December 31, 1998, the expected date of the spin-off, and $18 million
($16 million after tax) for related transaction costs.
Semiconductor Systems' net income for 1997 includes a third quarter $30
million charge ($19 million after tax) for the write-off of purchased research
and development in connection with the acquisition of the Hi-Media broadband
communication chipset business of ComStream Corporation. Semiconductor Systems'
1996 net income includes a charge of $121 million (before and after tax) for the
write-off of purchased research and development in connection with the
acquisition of Brooktree Corporation.
The 1997 and 1996 income of Automotive includes fourth quarter
restructuring charges of $21 million ($15 million after tax) and $46 million
($30 million after tax), respectively. The net income of Automotive for fiscal
1997 also includes a fourth quarter charge of $57 million ($48 million after
tax) for transaction and separation-related costs incurred in connection with
the spin-off of Meritor.
The earnings of the A&D Business for the first two months of 1997 were
entirely offset by expenses related to the Reorganization.
The discontinued businesses utilized certain management services provided
by the Company, including financial, legal, tax, corporate communications and
human resources. For the A&D Business, the costs of these services are allowable
overhead costs on government contracts and, accordingly, have been included in
27
<PAGE> 28
the results of operations of this business. These costs have been allocated to
the A&D Business using a variety of factors, including sales, assets, inventory
and payroll and were $3 million and $35 million in 1997 and 1996, respectively.
Management believes that the method of allocating these costs to the A&D
Business is reasonable.
Interest expense of $40 million and $169 million in 1997 and 1996,
respectively, has been allocated to the Automotive and A&D businesses based on
the actual interest expense associated with the borrowings assumed by Meritor
and Boeing.
3. SPECIAL CHARGES
In the third quarter of 1998, the Company recorded special charges of $597
million ($508 million after tax, or $2.57 per share). These charges, including
the effects of fourth quarter adjustments, were as follows: goodwill and other
asset impairments, $415 million; severance and other employee separation costs
associated with a worldwide workforce reduction of approximately 3,000
employees, $110 million; and costs related to facility closures and
consolidations and exiting non-strategic businesses and product lines, $72
million. These actions are expected to be substantially completed by the end of
1999.
Total cash expenditures are expected to approximate $176 million. The
Company spent approximately $20 million through September 30, 1998, of which $16
million related to severance and other employee separation costs, and expects to
spend approximately $92 million in 1999 related to these actions. As a result of
actions taken during the fourth quarter, the workforce was reduced by
approximately 800 employees.
As of September 30, 1998, approximately $156 million is included in the
consolidated balance sheet for remaining activities associated with the third
quarter special charges. Of this amount, approximately $83 million and $11
million are included in compensation and benefits and in other liabilities,
respectively, for severance and other employee separation costs; and
approximately $28 million, $8 million, and $26 million are included in accounts
payable, other current liabilities, and other liabilities, respectively, for
costs of facility closures and consolidations and exiting non-strategic
businesses and product lines.
The special charges also include an impairment of the long-lived assets of
Automation's industrial motors business (Motors). The impairment charge of $266
million resulted from the significant long-term decline in operating performance
and represents the excess of the carrying value of the long-lived assets
(including goodwill) of Motors over their estimated fair value as determined by
management, with the assistance of outside experts, utilizing accepted valuation
techniques. The Company also recorded impairment charges of $53 million related
to the long-lived assets of businesses which were sold during 1998 or are held
for disposition.
During 1996, the Company recorded special charges of $76 million ($47
million after tax, or 22 cents per share). The special charges related to a
decision to discontinue or dispose of certain product lines of continuing
operations, as well as the costs associated with staff reductions in the
Automation and Avionics & Communications businesses. The provision included
asset impairments of $51 million, severance and other employee separation costs
of $9 million, and contractual commitments and other costs of $16 million. These
actions were substantially completed by the end of 1997.
The special charges are reflected in the consolidated statement of
operations as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cost of sales............................................... $455 $-- $59
Selling, general, and administrative........................ 142 -- 17
---- --- ---
Total.................................................. $597 $-- $76
==== === ===
</TABLE>
Revenues of businesses and product lines which are being exited were $197
million, $211 million and $199 million for 1998, 1997 and 1996, respectively.
The net operating loss related to these businesses and product lines is not
material.
28
<PAGE> 29
4. ACQUISITIONS OF BUSINESSES
In the first quarter of 1998, the Company acquired the in-flight
entertainment business of Hughes-Avicom International, Inc. (Passenger Systems).
In connection with the acquisition, the Company recorded a charge of $103
million ($63 million after tax) for purchased research and development and
recorded $70 million for other intangible assets, including developed
technology, patents, assembled workforce and goodwill, which are being amortized
on a straight-line basis over 10 years. The remaining assets acquired and
liabilities assumed have been recorded at estimated fair values determined by
the Company's management based on information currently available. The Company
acquired several businesses in fiscal 1997 at a net cost of $51 million.
These acquisitions were accounted for as purchases and, accordingly, the
results of operations of these businesses have been included in the consolidated
statement of operations since their dates of acquisition.
5. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
---- ----
<S> <C> <C>
Finished goods.............................................. $ 385 $ 363
Work in process............................................. 459 550
Raw materials, parts, and supplies.......................... 456 384
------ ------
Total.................................................. 1,300 1,297
Adjustment to the carrying value of certain inventories
(1998, $551; 1997, $661) to a LIFO basis.................. 13 6
------ ------
Inventories, net............................................ $1,313 $1,303
====== ======
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
---- ----
<S> <C> <C>
Goodwill, less accumulated amortization (1998, $227; 1997,
$260)..................................................... $ 846 $1,215
Trademarks, patents, product technology, and other
intangibles, less accumulated amortization (1998, $219;
1997, $200)............................................... 484 483
------ ------
Intangible assets, net...................................... $1,330 $1,698
====== ======
</TABLE>
The reduction in goodwill from 1997 to 1998 results principally from the
impairment charge related to Motors (see Note 3).
7. SHORT-TERM DEBT
Short-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998 1997
---- ----
<S> <C> <C>
Commercial paper............................................ $ 90 $--
Short-term foreign bank borrowings.......................... 64 50
Current portion of long-term debt........................... 2 2
---- ---
Short-term debt............................................. $156 $52
==== ===
</TABLE>
29
<PAGE> 30
Weighted average interest rates on short-term borrowings:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998 1997
---- ----
<S> <C> <C>
Commercial paper............................................ 5.6% --
Short-term foreign bank borrowings.......................... 5.1% 5.8%
</TABLE>
At September 30, 1998, 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 $285 million at September 30, 1998 and consisted of arrangements for
which there are no significant commitment fees.
8. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998 1997
---- ----
<S> <C> <C>
Contract reserves and advance payments...................... $207 $145
Product warranty costs...................................... 117 112
Taxes other than income taxes............................... 44 36
Other....................................................... 160 144
---- ----
Other current liabilities................................... $528 $437
==== ====
</TABLE>
9. LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998 1997
---- ----
<S> <C> <C>
6.8% notes, payable in 2003................................. $150 $150
6.15% notes, payable in 2008................................ 350 --
6.70% debentures, payable in 2028........................... 250 --
5.20% debentures, payable in 2098........................... 200 --
Other obligations........................................... 18 20
Less unamortized discount................................... (58) (12)
---- ----
Total....................................................... 910 158
Less current portion........................................ 2 2
---- ----
Long-term debt.............................................. $908 $156
==== ====
</TABLE>
In January 1998, the Company issued $800 million aggregate principal amount
of long-term notes and debentures in a public offering consisting of the 6.15%
10-year notes issued at par, the 6.70% 30-year debentures issued at par, and the
5.20% 100-year debentures issued at a discount. The debt offering yielded
approximately $750 million of proceeds.
10. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, equity securities, short-
and long-term debt and foreign currency forward exchange contracts. At September
30, 1998, 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 in the ordinary course of business to
protect itself from adverse currency rate fluctuations on both firm and
anticipated foreign currency
30
<PAGE> 31
transactions. These contracts are generally for terms of less than one year.
Gains or losses relating to hedging firm commitments are deferred and included
in the measurement of the foreign currency transaction subject to the hedge and
gains or losses relating to anticipated transactions are recognized currently.
The Company's 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 $578 million and $239 million at
September 30, 1998 and 1997, respectively, including contracts relating to
discontinued operations. The Company does not anticipate any material adverse
effect on its results of operations or financial position relating to these
foreign currency forward exchange contracts.
11. CAPITAL STOCK
At September 30, 1998, the authorized stock of the Company consisted of one
billion shares of Common Stock, with a $1 par value, and 25 million shares of
preferred stock, without par value. At September 30, 1998, 22 million shares of
Common Stock were reserved for various employee incentive plans. In fiscal 1997,
all outstanding shares of Class A Common Stock were converted into Common Stock.
Changes in outstanding common shares are summarized as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Beginning balance........................................... 206.8 218.5 217.0
Treasury stock purchases.................................... (18.5) (13.4) (0.9)
Other, principally stock option exercises................... 2.3 1.7 2.4
----- ----- -----
Ending balance.............................................. 190.6 206.8 218.5
===== ===== =====
</TABLE>
Preferred Share Purchase Rights
Each outstanding share of Common Stock provides the holder with one
Preferred Share Purchase Right (Right). The Rights will become exercisable only
if a person or group acquires, or offers to acquire, 20% or more of the Common
Stock, although the Company is authorized to reduce the 20% threshold for
triggering the Rights to not less than 10%. Upon exercise, each Right entitles
the holder to 1/100th of a share of Series A Junior Participating Preferred
Stock of the Company (Junior Preferred Stock) at a price of $250, subject to
adjustment.
Upon an acquisition of the Company, each Right (other than Rights held by
the acquiror) will generally be exercisable for $500 worth of Common Stock or
common stock of the acquiror for $250. In certain circumstances, each Right may
be exchanged by the Company for one share of Common Stock or 1/100th of a share
of Junior Preferred Stock. The Rights will expire on December 6, 2006, unless
earlier exchanged or redeemed at $0.01 per Right.
12. 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.
Under the 1995 Long-Term Incentives Plan, the Company may grant up to 16
million shares of Company Common Stock as non-qualified options, incentive stock
options, stock appreciation rights and restricted stock. Shares available for
future grant or payment under various incentive plans were 9 million at
September 30, 1998. Stock options generally expire ten years from the date they
are granted and vest over three years. None of the incentive plans presently
permits options to be granted after September 30, 2005.
31
<PAGE> 32
Information relative to stock options is as follows (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WTD. AVG. WTD. AVG. WTD. AVG.
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Number of shares under option:
Outstanding at beginning of year.... 12,837 $31.67 10,871 $33.95 10,363 $29.71
Granted............................. 3,031 47.93 1,592 61.28 1,840 52.89
Adjustments:
A&D and Meritor adjustments...... -- -- 2,260 -- -- --
Conversion to Meritor options.... -- -- (141) 61.84 -- --
Exercised........................... (2,238) 24.59 (1,585) 27.40 (1,295) 26.68
Canceled or expired................. (211) 47.08 (160) 49.29 (37) 42.17
------ ------ ------
Outstanding at end of year.......... 13,419 36.27 12,837 31.67 10,871 33.95
====== ====== ======
Exercisable at end of year.......... 8,809 29.80 9,607 26.32 8,594 29.84
====== ====== ======
</TABLE>
In connection with the divestiture of the A&D Business and the spin-off of
Automotive, the number of options outstanding and the exercise prices of such
options were adjusted in order to preserve the value of the options that were
outstanding as of the date of each divestiture. Additionally, in connection with
the Automotive spin-off, Rockwell options granted to Automotive employees during
1997 were converted into Meritor options. In connection with the Semiconductor
Systems spin-off, outstanding Rockwell options will be adjusted to preserve the
value of such options on the date of the spin-off, including the conversion of
certain options to options for shares of Conexant.
The following table summarizes information about stock options outstanding
at September 30, 1998 (shares in thousands; remaining life in years):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- --------------------
WEIGHTED AVERAGE
-------------------- WTD. AVG.
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
------------------------ ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
$17.39 to $18.41.............................. 502 1.1 $18.37 502 $18.37
$20.16 to $25.92.............................. 3,317 3.8 23.35 3,317 23.35
$27.98 to $40.69.............................. 3,634 6.3 30.08 3,160 28.78
$42.69 to $51.06.............................. 4,365 8.3 46.61 1,360 43.70
$53.90 to $60.50.............................. 1,601 8.4 54.52 470 54.10
------ -----
13,419 8,809
====== =====
</TABLE>
In 1997, the Company adopted the disclosure-only provisions of SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, no
compensation expense has been recorded relative to the Company's stock-based
compensation plans. If the Company accounted for its stock-based plans using the
fair value method provided by SFAS 123, the Company's net income and earnings
per share would have been reduced, and net loss and loss per share increased, to
the following pro forma amounts (in millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- ----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net (loss) income......................... $ (427) $ (444) $ 644 $ 626 $ 726 $ 722
Basic (loss) earnings per share........... $(2.16) $(2.25) $3.01 $2.93 $3.34 $3.32
Diluted (loss) earnings per share......... $(2.16) $(2.25) $2.97 $2.89 $3.28 $3.26
</TABLE>
The pro forma effect on net loss for 1998 may not be indicative of the pro
forma effect on net income of future years.
32
<PAGE> 33
The weighted average fair value of options granted was $13.68, $15.38 and
$12.83 per share in 1998, 1997 and 1996, respectively. The fair value of each
option was estimated on the date of grant or subsequent date of option
adjustment using the Black-Scholes pricing model and the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------ ---------------------------------- ------
MERITOR A&D BUSINESS
SPIN-OFF DIVESTITURE
GRANTS ADJUSTMENT GRANTS ADJUSTMENT GRANTS
------ ---------- ------ ------------ ------
<S> <C> <C> <C> <C> <C>
Average risk-free interest rate............... 5.68% 5.88% 5.98% 5.74% 5.57%
Expected dividend yield....................... 2.23% 1.87% 2.56% 2.59% 2.91%
Expected volatility........................... 0.29 0.27 0.25 0.25 0.18
Expected life (years)......................... 5 5 5 5 5
</TABLE>
13. 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.
Retirement medical expense for continuing operations consisted of the
following (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits attributed to service during the
year...................................................... $ 9 $ 8 $ 8
Interest on accumulated retirement medical obligation....... 49 48 46
Amortization of plan amendments and net actuarial gains and
losses.................................................... (6) (8) (12)
--- --- ----
Retirement medical expense.................................. $52 $48 $ 42
=== === ====
</TABLE>
The Company's retirement medical obligation at September 30, 1998 and 1997
consisted of the following (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accumulated retirement medical obligation:
Retirees.................................................. $292 $482
Employees eligible to retire.............................. 50 58
Employees not eligible to retire.......................... 136 123
---- ----
Total.................................................. 478 663
Unamortized amounts:
Plan amendments........................................... 248 51
Net actuarial losses...................................... (87) (60)
---- ----
Recorded liability.......................................... $639 $654
==== ====
Assumptions used (June 30 measurement date):
Discount rate............................................. 6.75% 7.5%
Health care cost trend rates.............................. 7.0%* 8.0%*
</TABLE>
- ---------------
* Decreasing to 5.5% after 2015.
In 1998, the Company announced to its current and former United States
employees that it will be consolidating its employee and retiree medical plans
into one comprehensive medical benefits program. The changes announced include
offering one common plan design to all Rockwell active employees and retirees,
consolidating the number of medical benefit providers utilized by the Company
and increasing the amount of employee and retiree cost sharing. Unamortized
amounts related to this and other plan amendments at September 30, 1998 reflect
the accumulated cost reduction on the retirement benefit obligation and will
reduce future retirement medical expense.
33
<PAGE> 34
Increasing the health care cost trend rates by one percentage point would
increase the accumulated retirement medical obligation at September 30, 1998 by
approximately $35 million and would have increased 1998 retirement medical
expense by approximately $6 million.
14. 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. The Company's policy is to
fund its pension obligations in conformity with the funding requirements of
applicable laws and governmental regulations.
Net pension expense for continuing operations consisted of the following
(in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the year............... $ 65 $ 61 $ 60
Interest on projected benefit obligation.................... 145 136 208
Assumed return on plan assets............................... (172) (155) (223)
Initial net asset amortization.............................. (10) (11) (21)
Prior service cost amortization............................. 10 9 8
Net actuarial loss amortization............................. 2 5 24
----- ----- -----
Net pension expense......................................... $ 40 $ 45 $ 56
===== ===== =====
</TABLE>
Pension plan assets are primarily equity securities, United States
Government obligations, and other fixed income investments whose values are
subject to fluctuations of the securities market. The actual return on plan
assets allocated to continuing operations was $398 million, $368 million, and
$503 million in 1998, 1997, and 1996, respectively. Differences between these
actual returns and the related assumed returns on plan assets are deferred and
considered in the determination of net pension expense in future periods.
The reduction in the amount of interest on the projected benefit obligation
and the return on plan assets from 1996 to 1997 is a result of the assumption by
Boeing of the pension plan assets and liabilities relating to substantially all
of the former United States employees of Rockwell's continuing businesses as of
December 31, 1995 in connection with the Reorganization.
34
<PAGE> 35
The following table reconciles the funded status of the Company's pension
plans to amounts included in the balance sheet (in millions):
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEEDING BENEFITS EXCEEDING BENEFITS
ACCUMULATED EXCEEDING ACCUMULATED EXCEEDING
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation, principally
vested.................................... $2,256 $ 122 $1,590 $111
Effects of projected compensation
increases................................. 309 29 272 29
------ ----- ------ ----
Projected benefit obligation................ 2,565 151 1,862 140
Fair value of plan assets................... 2,804 7 2,219 16
------ ----- ------ ----
Plan assets in excess of (less than)
projected benefit obligation.............. 239 (144) 357 (124)
Items not yet recognized in balance sheet:
Net actuarial (gains) losses.............. (135) 39 (209) 22
Prior service cost........................ 24 19 25 24
Remaining initial net asset............... (29) -- (40) --
Unfunded pension adjustment................. -- (29) -- (17)
------ ----- ------ ----
Prepaid (accrued) pension cost at September
30........................................ $ 99 $(115) $ 133 $(95)
====== ===== ====== ====
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assumptions used (June 30 measurement date):
Discount rate............................................. 6.75% 7.75%
Compensation increase rate................................ 4.5% 4.5%
Long-term rate of return on plan assets................... 9.5% 9.5%
</TABLE>
The Company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $42 million, $46 million,
and $43 million for 1998, 1997, and 1996, respectively.
15. INCOME TAXES
The components of the income tax provision are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
United States............................................. $140 $243 $158
Research and experimentation credit....................... -- -- (65)
Foreign................................................... 20 44 53
State and local........................................... 21 44 24
---- ---- ----
Total current............................................... 181 331 170
---- ---- ----
Deferred:
United States............................................. (41) (7) 7
Foreign................................................... (3) (21) (11)
State and local........................................... (3) (5) 2
---- ---- ----
Total deferred.............................................. (47) (33) (2)
---- ---- ----
Income tax provision........................................ $134 $298 $168
==== ==== ====
</TABLE>
During 1996 the Company reached an agreement with the Internal Revenue
Service on its research and experimentation tax credit refund claim related to
certain prior years and recorded $65 million as a reduction of its provision for
income taxes.
35
<PAGE> 36
Net current deferred income tax benefits at September 30, 1998 and 1997
consist of the tax effects of temporary differences related to the following (in
millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Compensation and benefits................................... $ 98 $ 91
Product warranty costs...................................... 42 43
Inventory................................................... 9 (1)
Allowance for doubtful accounts............................. 19 19
Contract loss reserves...................................... 31 12
Other-net................................................... 59 56
---- ----
Current deferred income taxes............................... $258 $220
==== ====
</TABLE>
Net long-term deferred income taxes included in Other Liabilities in the
balance sheet at September 30, 1998 and 1997 consist of the tax effects of
temporary differences related to the following (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retirement benefits......................................... $(247) $(227)
Property.................................................... 162 174
Intangible assets........................................... 109 91
Loss carryforwards.......................................... (37) (55)
Foreign tax credit carryforwards............................ (113) (132)
Other--net.................................................. 78 34
----- -----
Subtotal.................................................... (48) (115)
Valuation allowance......................................... 150 187
----- -----
Long-term deferred income taxes............................. $ 102 $ 72
===== =====
</TABLE>
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 include: (a) the
historical operating results of the Company ($2.9 billion of United States
taxable income 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 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 and
capital losses expires between 1999 and 2006. The carryforward period for
foreign tax credits expires between 1999 and 2002.
The consolidated income tax provision differed from income tax at the
United States statutory tax rate for the reasons set forth below (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax expense at thirty-five percent................... $ 9 $257 $186
State and local income taxes................................ 1 26 17
Foreign income taxes........................................ 3 10 12
Non-deductible goodwill write-off........................... 136 -- --
Non-deductible goodwill amortization........................ 11 12 12
Property donation........................................... (16) -- --
Foreign sales corporation benefit........................... (6) (9) (7)
Utilization of foreign loss carryforwards................... (3) (6) (7)
Research & experimentation tax credits...................... -- -- (65)
Other....................................................... (1) 8 20
---- ---- ----
Income tax provision........................................ $134 $298 $168
==== ==== ====
</TABLE>
In September 1998, the Company donated a trisonic wind tunnel, valued at
$49 million, to a university.
36
<PAGE> 37
The income tax provisions were calculated based upon the following
components of (loss) income from continuing operations before income taxes (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States (loss) income................................. $(27) $669 $430
Foreign income.............................................. 52 66 102
---- ---- ----
Total....................................................... $ 25 $735 $532
==== ==== ====
</TABLE>
No provision has been made for United States, state, or additional foreign
income taxes related to approximately $161 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
1994 are currently under examination. In connection with the divestiture of the
A&D Business, the Automotive spin-off and the expected Semiconductor Systems
spin-off, the Company has retained, and expects to retain, all tax liabilities
and the right to all tax refunds related to United States and certain non-U.S.
operations of the A&D Business, Automotive and Semiconductor Systems for periods
prior to the respective divestiture dates. Management believes that adequate
provision for income taxes has been made for all years through 1998.
16. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS INFORMATION (IN MILLIONS):
Income taxes paid........................................... $ 59 $449 $591
Interest payments........................................... 55 27 23
STATEMENT OF OPERATIONS INFORMATION (IN MILLIONS):
Research and development:
Company-initiated......................................... 402 377 352
Customer-funded........................................... 165 152 128
Maintenance and repairs..................................... 124 107 115
Rental expense.............................................. 104 98 106
</TABLE>
Income taxes paid and interest payments related to discontinued operations
were (in millions) $3 and $1 in 1998, $25 and $56 in 1997, and $13 and $175 in
1996, respectively, and are included in the determination of the cash flows of
discontinued operations.
Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated $232 million as of
September 30, 1998 and are payable as follows (in millions): 1999, $51; 2000,
$43; 2001, $33; 2002, $25; 2003, $19; and after 2003, $61.
17. CONTINGENT LIABILITIES
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 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 23
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, 1998 to be
about $16 million, substantially all of which 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
37
<PAGE> 38
environmental impairments, principally at previously owned properties. As of
September 30, 1998, management has estimated the total reasonably possible costs
the Company could incur for these matters to be about $132 million. The Company
has recorded environmental accruals for these matters of $97 million.
Of the $97 million accrual for environmental matters, $35 million relates
to liabilities assumed in connection with the fiscal 1995 acquisition of
Reliance Electric Company. In 1998, the Company reached an agreement with Exxon
Corporation (Exxon) whereby Exxon will continue to indemnify the Company for
substantially all costs related to certain environmental matters, and also
reimburse the Company for substantially all costs related to an environmental
matter for which Exxon had previously disputed its obligation. Accordingly, in
1998, the Company recorded a $16 million receivable from Exxon related to the
previously disputed matter and has total receivables from Exxon related to these
matters of $32 million at September 30, 1998.
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.
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, intellectual property, safety and health
and employment matters. Pursuant to the Reorganization, Rockwell has agreed to
indemnify Boeing for certain government contract and environmental matters
related to operations of the A&D Business for periods prior to the
Reorganization. In connection with the Automotive spin-off, Meritor has agreed
to indemnify the Company for substantially all contingent liabilities related to
Automotive. 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.
In connection with the Semiconductor Systems spin-off, Conexant will assume
all contingent liabilities related to its business, including environmental and
intellectual property matters. In September 1995, Celeritas Technologies, Ltd.
filed suit against the Company for patent infringement, misappropriation of
trade secrets and breach of contract relating to cellular telephone data
transmission technology utilized in certain modem products produced by
Semiconductor Systems. In July 1997, the court entered a judgment awarding
damages of $57 million, plus interest. On July 20, 1998, the U.S. Court of
Appeals for the Federal Circuit affirmed the trial court's judgment based on
breach of contract. The Company continues to believe the judgment is in error
and has filed a petition for certiorari with the United States Supreme Court. At
September 30, 1998, the Company had accrued a liability of approximately $65
million, which is included in net assets of Semiconductor Systems, for the
ultimate resolution of this matter. Prior to the date of the spin-off, the
Company will transfer $65 million in cash to Semiconductor Systems, which will
be placed in an escrow account to be used to satisfy Semiconductor Systems'
obligation with respect to the Celeritas matter.
18. BUSINESS SEGMENT INFORMATION
The Company's business segments are engaged in research, development, and
manufacture and service of electronic controls and communications products as
follows:
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; in-flight entertainment systems for
commercial aircraft; and electronic commerce products for call center
systems and personalized electronic commerce applications.
38
<PAGE> 39
The following tables summarize segment information for continuing
operations (in millions):
SALES AND RESULTS OF OPERATIONS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
SALES
--------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automation.................................................. $4,546 $4,494 $4,165
Avionics & Communications................................... 2,206 1,876 1,619
------ ------ ------
Total....................................................... $6,752 $6,370 $5,784
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
--------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automation.................................................. $ 594 $ 598 $ 537
Avionics & Communications................................... 285 266 177
Special charges............................................. (597) -- (76)
Purchased research and development.......................... (103) (23) --
------ ------ ------
Operating earnings.......................................... 179 841 638
General corporate-net....................................... (96) (79) (84)
Interest expense............................................ (58) (27) (22)
Provision for income taxes.................................. (134) (298) (168)
------ ------ ------
(Loss) income from continuing operations before accounting
change.................................................... $ (109) $ 437 $ 364
====== ====== ======
</TABLE>
In 1998, the special charges relate to the business segments as follows (in
millions): Automation, $488; Avionics & Communications, $99; and Corporate, $10.
In addition, 1998 purchased research and development of $103 million relates to
the acquisition of Passenger Systems, an Avionics & Communications business. In
1997, purchased research and development of $23 million relates to the
acquisition of the remaining interest in an Automation software business. In
1996, the special charges relate to the business segments as follows (in
millions): Automation, $11; Avionics & Communications, $50; and Corporate, $15.
ASSET INFORMATION BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
PROVISION FOR DEPRECIATION
IDENTIFIABLE ASSETS AND AMORTIZATION
-------------------------- --------------------------
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Automation............................... $3,852 $4,435 $4,254 $220 $219 $234
Avionics & Communications................ 1,597 1,200 1,081 75 63 57
Corporate................................ 735 892 1,154 11 11 10
Net assets of discontinued operations.... 986 1,115 2,075 -- -- --
------ ------ ------ ---- ---- ----
Total.................................... $7,170 $7,642 $8,564 $306 $293 $301
====== ====== ====== ==== ==== ====
</TABLE>
Corporate identifiable assets include cash and net deferred income tax
assets.
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
--------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automation.................................................. $223 $221 $229
Avionics & Communications................................... 152 83 73
Corporate................................................... 33 32 11
---- ---- ----
Total....................................................... $408 $336 $313
==== ==== ====
</TABLE>
39
<PAGE> 40
SALES, RESULTS OF OPERATIONS AND ASSETS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
SALES RESULTS OF OPERATIONS
-------------------------- --------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States....................... $5,897 $5,512 $4,937 $ 791 $ 777 $ 615
Europe.............................. 786 745 734 64 39 39
Asia-Pacific........................ 245 271 255 -- 2 2
Canada.............................. 315 328 279 30 41 35
Latin America....................... 192 151 142 (6) 5 23
Eliminations........................ (683) (637) (563) -- -- --
Special charges..................... -- -- -- (597) -- (76)
Purchased research and
development....................... -- -- -- (103) (23) --
------ ------ ------ ----- ----- -----
Total............................... $6,752 $6,370 $5,784 179 841 638
====== ====== ======
General corporate-net............... (96) (79) (84)
Interest expense.................... (58) (27) (22)
Income tax provision................ (134) (298) (168)
----- ----- -----
(Loss) income from continuing
operations before accounting
change............................ $(109) $ 437 $ 364
===== ===== =====
</TABLE>
In 1998, the special charges relate to the geographic areas as follows (in
millions): United States, $538; Europe, $44; Asia-Pacific, $12; Canada, $2; and
Latin America, $1. The 1998 and 1997 purchased research and development charges
of $103 million and $23 million, respectively, relate to the United States.
United States sales include export sales to unaffiliated customers of $660
million in 1998, $581 million in 1997, and $591 million in 1996. The 1998 export
sales were to the following geographic areas: Canada, $128 million; Europe, $293
million; Asia-Pacific, $182 million; and Latin America, $57 million.
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
------------------------------------------------------
SEGMENTS CORPORATE
-------------------------- ----------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ----------------------
GEOGRAPHIC AREA 1998 1997 1996 1998 1997 1996
--------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States......................... $4,563 $4,741 $4,441 $626 $723 $ 598
Europe................................ 545 490 512 15 56 129
Asia-Pacific.......................... 128 192 181 35 35 28
Canada................................ 125 136 135 46 76 332
Latin America......................... 88 76 66 13 2 67
Net assets of discontinued
operations.......................... 986 1,115 2,075 -- -- --
------ ------ ------ ---- ---- ------
Total................................. $6,435 $6,750 $7,410 $735 $892 $1,154
====== ====== ====== ==== ==== ======
</TABLE>
40
<PAGE> 41
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH 1998
----- ------ ----- ------ ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales......................................... $1,602 $1,674 $1,664 $1,812 $6,752
Cost of sales................................. 1,116 1,170 1,657 1,263 5,206
Income (loss) from continuing operations
before accounting change.................... 60 122 (420) 129 (109)
Net income (loss)............................. 72 109 (482) (126) (427)
Basic earnings (loss) per share:
Continuing operations before accounting
change................................... 0.29 0.61 (2.15) 0.67 (0.55)
Net income (loss)........................... 0.35 0.54 (2.47) (0.66) (2.16)
Diluted earnings (loss) per share:
Continuing operations before accounting
change................................... 0.29 0.60 (2.15) 0.67 (0.55)
Net income (loss)........................... 0.35 0.54 (2.47) (0.65) (2.16)
</TABLE>
Per share information is calculated for each quarterly and annual period
using average outstanding shares for that period. Therefore, the sum of the
quarterly per share amounts will not necessarily equal the annual per share
amounts presented.
First quarter and full year net income (loss) includes a $27 million charge
($17 million after tax, or nine cents per share) related to the cumulative
effect of a change in accounting principle.
Income (loss) from continuing operations before accounting change includes:
(a) the write-off of purchased research and development of $63 million after
tax, or 31 cents per share, related to the acquisition of the Passenger Systems
business in the first quarter, and (b) the effects of special charges recorded
in the third quarter of $508 million after tax, or $2.57 per share, related to
asset impairments, work force reductions, facility closures and consolidations
and exiting non-strategic businesses and product lines.
<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH 1997
----- ------ ----- ------ ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales......................................... $1,471 $1,568 $1,613 $1,718 $6,370
Cost of sales................................. 1,024 1,088 1,124 1,220 4,456
Income from continuing operations............. 96 104 120 117 437
Net income.................................... 179 189 167 109 644
Basic earnings per share:
Continuing operations....................... 0.44 0.48 0.56 0.56 2.04
Net income.................................. 0.82 0.87 0.79 0.53 3.01
Diluted earnings per share:
Continuing operations....................... 0.43 0.47 0.56 0.55 2.01
Net income.................................. 0.81 0.85 0.78 0.53 2.97
</TABLE>
The fourth quarter and full year income from continuing operations includes
the write-off of purchased research and development of $23 million (before and
after tax), or 11 cents per share, related to the acquisition of the remaining
interest in an Automation software business.
41
<PAGE> 42
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, 1998 and 1997,
and the related consolidated statements of operations, shareowners' equity, and
cash flows of each of the three years in the period ended September 30, 1998.
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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, 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.
As discussed in Note 1 to the consolidated financial statements, in 1998
the Company changed its method of accounting for certain inventoriable general
and administrative costs related to government contracts.
DELOITTE & TOUCHE LLP
Costa Mesa, California
November 4, 1998
42
<PAGE> 43
See also the table under the caption Summary of Results of Operations,
Continuing Operations, in the MD&A on page 12 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 1999 Proxy Statement. In addition, Richard M. Bressler, age 68, who has
been a director of the Company since 1986, has resigned effective December 30,
1998. He is Chairman of the Board Composition Committee and a member of the
Audit and Compensation and Management Development Committees of the Company's
Board of Directors. Mr. Bressler is the retired Chairman of the Board, El Paso
Natural Gas Company (Natural Gas Operations). He served as Chief Executive
Officer of Burlington Northern Inc. (rail transportation) from 1980 through
1988. Mr. Bressler retired in October 1990 as Chairman of both Burlington
Northern Inc. and Burlington Resources Inc. (natural resources operations),
positions he had held since 1982 and 1989, respectively. He served as Chairman
of the Plum Creek Management Company (timber operations) from April 1989 to
January 1993. He was Chairman of the El Paso Natural Gas Company from October
1990 through December 1993. Mr. Bressler is a director of Conexant and General
Mills, Inc. and is active in a number of business and civic organizations.
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 and LONG-TERM
INCENTIVES PLAN on pages 10-12 and RETIREMENT PLANS on page 17 of the 1999 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 9-10, respectively, of the 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company during 1998 had purchases of approximately $18.7 million in the
normal course of business from The Timken Company, of which Joseph F. Toot, Jr.,
a director of the Company, was President and Chief Executive Officer through
December 1997. Based on the Company's knowledge of prevailing market conditions
and prices for the goods and services involved, the Company believes that such
transactions were on terms as favorable to the Company as those which might have
been obtained from entities with which directors of the Company were not
associated.
The Company has entered into an agreement with Donald R. Beall, its retired
Chairman of the Board and a director, providing for his continued availability
as an advisor to the Company's management following his retirement through
September 30, 1999 (subject to extension) with compensation at an annual rate of
$600,000. In addition, Mr. Beall will continue to be covered under certain
medical benefit plans, to have the use of an automobile and, subject to
availability, the use of the Company's aircraft for business travel. He also
will be reimbursed for memberships in certain clubs and will have the use of
office facilities and secretarial assistance.
43
<PAGE> 44
The Company has entered into an agreement with Jodie K. Glore, its former
Senior Vice President and President & Chief Operating Officer--Rockwell
Automation, providing for his salary continuation through October 31, 1999. In
addition, Mr. Glore will be eligible to receive compensation under the Company's
Incentive Compensation Plan in respect of fiscal year 1998 and certain amounts
in respect of outstanding awards under the Company's 1995 Long-Term Incentives
Plan. Through October 31, 1999, Mr. Glore will continue to be covered under
certain medical benefit plans, to have use of an automobile and to be reimbursed
for membership in certain clubs.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedule and Exhibits.
(1) Financial Statements (all financial statements listed below are
those of the Company and its consolidated subsidiaries).
Consolidated Balance Sheet, September 30, 1998 and 1997.
Consolidated Statement of Operations, years ended September 30, 1998,
1997 and 1996.
Consolidated Statement of Cash Flows, years ended September 30, 1998,
1997 and 1996.
Consolidated Statement of Shareowners' Equity, years ended September
30, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 1998,
1997 and 1996.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II--Valuation and Qualifying Accounts.............. S-1
</TABLE>
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 consolidated financial statements or notes
thereto.
(3) Exhibits.
<TABLE>
<S> <C>
3-a-1 Restated Certificate of Incorporation of the Company, as
amended, filed as Exhibit 3-a-1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1996,
is hereby incorporated by reference.
3-b-1 Amendments, adopted November 4, 1998, to the By-Laws of the
Company.
3-b-2 By-Laws of the Company.
4-a-1 Rights Agreement, dated as of November 30, 1996, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, 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
Electric Company and Bankers Trust Company, as Trustee,
pursuant to which the 6.8% Notes of Reliance Electric
Company 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 Electric
Company dated April 19, 1993, is hereby incorporated by
reference.
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
4-b-3 Form of the 6.8% Notes of Reliance Electric Company due
April 15, 2003, filed as Exhibit 4-8 to Registration
Statement No. 33-60066, is hereby incorporated by reference.
4-c-1 Indenture dated as of December 1, 1996 between the Company
and The Chase Manhattan Bank (successor to Mellon Bank,
N.A.), as Trustee, filed as Exhibit 4-a to Registration
Statement No. 333-43071, is hereby incorporated by
reference.
4-c-2 Form of certificate for the Company's 6.15% Notes due
January 15, 2008, filed as Exhibit 4-a to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
4-c-3 Form of certificate for the Company's 6.70% Debentures due
January 15, 2028, filed as Exhibit 4-b to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
4-c-4 Form of certificate for the Company's 5.20% Debentures due
January 15, 2098, filed as Exhibit 4-c to the Company's
Current Report on Form 8-K dated January 26, 1998, is hereby
incorporated by reference.
*10-a-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 (File No. 1-1035), is hereby
incorporated by reference.
*10-a-2 Copy of resolution of the Board of Directors of the Company,
adopted November 6, 1996, amending the Company's 1988
Long-Term Incentives Plan, filed as Exhibit 4-g-1 to
Registration Statement No. 333-17055, is hereby incorporated
by reference.
*10-a-3 Copy of resolution of the Board of Directors of the Company,
adopted November 5, 1997, increasing the number of shares
authorized for issuance under the Company's 1988 Long-Term
Incentives Plan, filed as Exhibit 10-b-2 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1997, is hereby incorporated by reference.
*10-a-4 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
(File No. 1-1035), are hereby incorporated by reference.
*10-a-5 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 (File
No. 1-1035), are hereby incorporated by reference.
*10-a-6 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 (File No. 1-1035), is hereby
incorporated by reference.
*10-a-7 Forms of Stock Option Agreements 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 (File No. 1-1035), are hereby
incorporated by reference.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
45
<PAGE> 46
<TABLE>
<S> <C>
*10-a-8 Forms of Stock Option Agreements 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 (File No. 1-1035), are hereby
incorporated by reference.
*10-a-9 Forms of Stock Option Agreements 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
(File No. 1-1035), are hereby incorporated by reference.
*10-b-1 Copy of the Company's 1995 Long-Term Incentives Plan, as
amended.
*10-b-2 Forms of Stock Option Agreements under the Company's 1995
Long-Term Incentives Plan for options granted prior to
December 3, 1997, filed as Exhibit 10-e-2 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1994 (File No. 1-1035), are hereby incorporated by
reference.
*10-b-3 Forms of Stock Option Agreements under the Company's 1995
Long-Term Incentives Plan for options granted between
December 3, 1997 and August 31, 1998.
*10-b-4 Form of Stock Option Agreement under the Company's 1995
Long-Term Incentives Plan for options granted on April 23,
1998.
*10-b-5 Form of Stock Option Agreement under the Company's 1995
Long-Term Incentives Plan for options granted after August
31, 1998.
*10-b-6 Form of Restricted Stock Agreement under the Company's 1995
Long-Term Incentives Plan, filed as Exhibit 10-e to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by
reference.
*10-b-7 Copy of Restricted Stock Agreement dated December 3, 1997
between the Company and Don H. Davis, Jr., filed as Exhibit
10-c-5 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1997, is hereby incorporated by
reference.
*10-b-8 Copy of Restricted Stock Agreement dated December 6, 1996
between the Company and W.M. Barnes, filed as Exhibit 10-c-6
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1997, is hereby incorporated by
reference.
*10-b-9 Copy of Restricted Stock Agreement dated December 6, 1996
between the Company and W.J. Calise, Jr., filed as Exhibit
10-c-7 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1997, is hereby incorporated by
reference.
*10-b-10 Copy of Restricted Stock Agreement dated December 3, 1997
between the Company and D.W. Decker, filed as Exhibit 10-c-8
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1997, is hereby incorporated by
reference.
*10-b-11 Copy of Amendment to Restricted Stock Agreement dated
November 30, 1998 between the Company and D.W. Decker.
*10-b-12 Copy of Restricted Stock Agreement dated December 3, 1997
between the Company and Jodie K. Glore, filed as Exhibit
10-c-9 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1997, is hereby incorporated by
reference.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
46
<PAGE> 47
<TABLE>
<S> <C>
*10-c-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 (File No. 1-1035), is
hereby incorporated by reference.
*10-c-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
(File No. 1-1035), is hereby incorporated by reference.
*10-c-3 Forms of Restricted Stock Agreements under the Company's
Directors Stock Plan between the Company and each of George
L. Argyros, Richard M. Bressler, William H. Gray, III, James
Clayburn La Force, Jr., William T. McCormick, Jr., John D.
Nichols and Joseph F. Toot, Jr., filed as Exhibit 10-f to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, are hereby incorporated by
reference.
*10-c-4 Copy of Amendment to Restricted Stock Agreements dated
November 30, 1998, between the Company and Richard M.
Bressler.
*10-c-5 Copy of resolution of the Board of Directors of the Company,
adopted February 5, 1997, amending the Company's Directors
Stock Plan, filed as Exhibit 10-d-10 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997,
is hereby incorporated by reference.
*10-d-1 Copy of resolution of the Board of Directors of the Company,
adopted November 6, 1996, adjusting outstanding awards under
the Company's (i) 1988 Long-Term Incentives Plan, (ii) 1995
Long-Term Incentives Plan and (iii) Directors Stock Plan,
filed as Exhibit 4-g-2 to Registration Statement No.
333-17055, is hereby incorporated by reference.
*10-d-2 Copy of resolution of the Board of Directors of the Company,
adopted September 3, 1997, adjusting outstanding awards
under the Company's (i) 1988 Long-Term Incentives Plan, (ii)
1995 Long-Term Incentives Plan and (iii) Directors Stock
Plan, filed as Exhibit 10-e-3 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1997, is
hereby incorporated by reference.
*10-e-1 Copy of the Company's Incentive Compensation Plan, amended
and restated as of July 1, 1997, filed as Exhibit 10-f-1 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1997, is hereby incorporated by reference.
*10-f-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 (File No. 1-1035), is hereby incorporated
by reference.
*10-g-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) 1988 Long-Term Incentives Plan, (ii) 1995 Long-Term
Incentives Plan, (iii) Directors Stock Plan, (iv) Incentive
Compensation Plan, (v) Deferred Compensation Plan and (vi)
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.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
47
<PAGE> 48
<TABLE>
<S> <C>
*10-g-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) 1988 Long-Term
Incentives Plan, (ii) 1995 Long-Term Incentives Plan, (iii)
Directors Stock Plan, (iv) Incentive Compensation Plan, (v)
Deferred Compensation Plan and (vi) Annual Incentive
Compensation Plan for Senior Executive Officers, filed as
Exhibit 10-h-2 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1996, is hereby
incorporated by reference.
*10-h-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
(File No. 1-1035), is hereby incorporated by reference.
*10-h-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 (File No. 1-1035), is hereby incorporated
by reference.
*10-h-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, filed as Exhibit 10-i-3 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is hereby incorporated by reference.
*10-i-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 (File No.
1-1035), is hereby incorporated by reference.
*10-i-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 (File No. 1-1035), is hereby incorporated
by reference.
*10-i-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), filed as Exhibit 10-j-3 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is hereby incorporated by reference.
*10-j-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 (File No. 1-1035), is hereby incorporated by
reference.
*10-k-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 (File No. 1-1035), is hereby
incorporated by reference.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
48
<PAGE> 49
<TABLE>
<S> <C>
*10-l-1 Consulting Agreement dated as of November 25, 1997 between
the Company and Donald R. Beall, filed as Exhibit 10-n-1 to
the Company's Annual Report on Form 10-K for year ended
September 30, 1997, is hereby incorporated by reference.
*10-m-1 Agreement and General Release dated October 22, 1998 between
the Company and Jodie K. Glore.
10-n-1 Agreement and Plan of Distribution dated as of December 6,
1996, among Rockwell International Corporation (now named
Boeing North American, Inc.), the Company (formerly named
New Rockwell International Corporation), Allen-Bradley
Company, Inc., Rockwell Collins, Inc., Rockwell
Semiconductor Systems, Inc., Rockwell Light Vehicle Systems,
Inc. and Rockwell Heavy Vehicle Systems, Inc., filed as
Exhibit 10-b to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, is hereby
incorporated by reference.
10-n-2 Post-Closing Covenants Agreement dated as of December 6,
1996, among Rockwell International Corporation (now named
Boeing North American, Inc.), The Boeing Company, Boeing NA,
Inc. and the Company (formerly named New Rockwell
International Corporation), filed as Exhibit 10-c to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by
reference.
10-n-3 Tax Allocation Agreement dated as of December 6, 1996, among
Rockwell International Corporation (now named Boeing North
American, Inc.), the Company (formerly named New Rockwell
International Corporation) and The Boeing Company, filed as
Exhibit 10-d to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, is hereby
incorporated by reference.
10-o-1 Distribution Agreement dated as of September 30, 1997 by and
between the Company and Meritor Automotive, Inc., filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
10-o-2 Employee Matters Agreement dated as of September 30, 1997 by
and between the Company and Meritor Automotive, Inc., filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
10-o-3 Tax Allocation Agreement dated as of September 30, 1997 by
and between the Company and Meritor Automotive, Inc., filed
as Exhibit 2.3 to the Company's Current Report on Form 8-K
dated October 10, 1997, is hereby incorporated by reference.
12 Computation of Ratio of Earnings to Fixed Charges for the
Five Years Ended September 30, 1998.
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.
</TABLE>
(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.
- ---------------
* Management contract or compensatory plan or arrangement.
49
<PAGE> 50
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 3, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON THE 3RD DAY OF DECEMBER 1998 BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
DON H. DAVIS, JR.*
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
GEORGE L. ARGYROS*
DIRECTOR
DONALD R. BEALL*
DIRECTOR
RICHARD M. BRESSLER*
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)
WILLIAM E. SANDERS*
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.
50
<PAGE> 51
SCHEDULE II
ROCKWELL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING NET CHARGE TO BALANCE AT
OF COSTS AND END OF
DESCRIPTION YEAR(A) EXPENSES DEDUCTIONS YEAR(A)
----------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended September 30, 1998:
Allowance for doubtful accounts.............. $56 $ 7 $ 8(b) $55
Year ended September 30, 1997:
Allowance for doubtful accounts.............. 62 3 6(b) 56
3(c)
Year ended September 30, 1996:
Allowance for doubtful accounts.............. 38 30 7(b) 62
(1)(c)
</TABLE>
- ---------------
(a) Includes allowances for commercial and other long-term receivables.
(b) Uncollectible accounts written off.
(c) Consists principally of amounts relating to businesses acquired, businesses
sold and foreign currency translation adjustments.
S-1
<PAGE> 1
Exhibit 3-b-1
AMENDMENTS TO THE BY-LAWS
OF ROCKWELL INTERNATIONAL CORPORATION
1. Amend subsections 8(A) and 8(B) of Article I to read in their entirety as
follows:
(A) Annual Meetings of Shareowners. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the shareowners may be made at
an annual meeting of shareowners (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the Board of Directors
or (c) by any shareowner of the Corporation who was a shareowner of
record at the time of giving of notice provided for in this by-law, who
is entitled to vote at the meeting and who complies with the notice
procedures set forth in this by-law.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareowner pursuant to clause (c) of
paragraph (A)(1) of this by-law, the shareowner must have given timely
notice thereof in writing to the Secretary of the Corporation and such
other business must be a proper matter for shareowner action. To be
timely, a shareowner's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the
close of business on the 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the shareowner to
be timely must be so delivered not earlier than the close of business
on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual
meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a shareowner's
notice as described above. Such shareowner's notice shall set forth (a)
as to each person whom the shareowner proposes to nominate for election
or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as
<PAGE> 2
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other
business that the shareowner proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareowner and the
beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the shareowner giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made (i) the name
and address of such shareowner, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of
shares of the Corporation which are owned beneficially and of record by
such shareowner and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this by-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 100 days prior to the
first anniversary of the preceding year's annual meeting, a
shareowner's notice required by this by-law shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Shareowners. Only such business shall
be conducted at a special meeting of shareowners as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of shareowners at which directors are
to be elected pursuant to the Corporation's notice of meeting (a) by or
at the direction of the Board of Directors or (b) by any shareowner of
the Corporation who is a shareowner of record at the time of giving of
notice provided for in this by-law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in
this by-law. In the event the Corporation calls a special meeting of
shareowners for the purpose of electing one or more directors to the
Board of Directors, any such shareowner may nominate a person or
persons (as the case may be), for election to such
2
<PAGE> 3
position(s) as specified in the Corporation's notice of meeting, if the
shareowner's notice required by paragraph (A)(2) of this by-law shall
be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 120th day
prior to such special meeting and not later than the close of business
on the later of the 90th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a
new time period for the giving of a shareowner's notice as described
above.
2. Amend subsection 13(I)(1) of Article III to read in its entirety as follows:
(1)"Change of Control" means any of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that
for purposes of this subparagraph (a), the following acquisitions shall
not constitute a Change of Control: (w) any acquisition directly from
the Corporation, (x) any acquisition by the Corporation, (y) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or any corporation controlled by the
Corporation or (z) any acquisition pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Paragraph 13(I)(1); or
(b) Individuals who, as of November 4,1998, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to that
date whose election, or nomination for election by the Corporation's
shareowners, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
3
<PAGE> 4
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board of Directors; or
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Corporation or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Corporation
or all or substantially all of the Corporation's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Corporate
Transaction) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Corporate Transaction and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board of Directors, providing for such Corporate Transaction; or
(d) Approval by the Corporation's shareowners of a complete
liquidation or dissolution of the Corporation.
4
<PAGE> 1
Exhibit 3-b-2
BY-LAWS
OF ROCKWELL INTERNATIONAL CORPORATION
(AS AMENDED EFFECTIVE NOVEMBER 4, 1998)
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE in Delaware; Resident Agent. The address
of the Corporation's registered office in the State of Delaware and the name and
address of its resident agent in charge thereof are as filed with the Secretary
of State of the State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places either within or without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation requires.
ARTICLE II.
MEETINGS OF SHAREOWNERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareowners of the
Corporation shall be held at such place, within or without the State of
Delaware, as may from time to time be designated by resolution passed by the
Board of Directors.
SECTION 2. ANNUAL MEETING. An annual meeting of the shareowners for the
election of directors and for the transaction of such other proper business,
notice of which was given in the notice of meeting, shall be held on a date and
at a time as may from time to time be designated by resolution passed by the
Board of Directors.
SECTION 3. Special Meetings. A special meeting of the shareowners for
any purpose or purposes shall be called only by the Board of Directors pursuant
to a resolution adopted by a majority of the whole Board.
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the shareowners, whether annual or special,
shall be mailed, postage prepaid, not less than ten nor more than sixty days
before the date of the meeting, to each shareowner entitled to vote at such
meeting, at the shareowner's address as it appears on the records of the
Corporation. Every such notice shall state the place, date and hour of the
meeting and, in the case of a special
<PAGE> 2
meeting, the purpose or purposes for which the meeting is called. Notice of any
adjourned meeting of the shareowners shall not be required to be given, except
when expressly required by law.
SECTION 5. List of Shareowners. The Secretary shall, from information
obtained from the transfer agent, prepare and make, at least ten days before
every meeting of shareowners, a complete list of the shareowners entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each shareowner and the number of shares registered in the name of each
shareowner. Such list shall be open to the examination of any shareowner, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any shareowner
who is present. The stock ledger shall be the only evidence as to who are the
shareowners entitled to examine the stock ledger, the list referred to in this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of shareowners.
SECTION 6. Quorum. At each meeting of the shareowners, the holders of a
majority of the issued and outstanding stock of the Corporation present either
in person or by proxy shall constitute a quorum for the transaction of business
except where otherwise provided by law or by the Certificate of Incorporation or
by these by-laws for a specified action. Except as otherwise provided by law, in
the absence of a quorum, a majority in interest of the shareowners of the
Corporation present in person or by proxy and entitled to vote shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until shareowners holding the requisite amount of
stock shall be present or represented. At any such adjourned meeting at which a
quorum may be present, any business may be transacted which might have been
transacted at a meeting as originally called, and only those shareowners
entitled to vote at the meeting as originally called shall be entitled to vote
at any adjournment or adjournments thereof. The absence from any meeting of the
number of shareowners required by law or by the Certificate of Incorporation or
by these by-laws for action upon any given matter shall not prevent action at
such meeting upon any other matter or matters which may properly come before the
meeting, if the number of shareowners required in respect of such other matter
or matters shall be present.
SECTION 7. Organization. At every meeting of the shareowners the
Chairman of the Board, or, in his absence, a director or an officer of the
Corporation designated by the Board, shall act as Chairman. The Secretary, or,
in his absence, an Assistant Secretary, shall act as Secretary at all meetings
of the shareowners. In the absence from any such meeting of the Secretary and
the Assistant Secretaries, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 8. Notice of Shareowner Business and Nominations.
(A) Annual Meetings of Shareowners. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareowners may be made at an annual meeting of
shareowners (a) pursuant to the Corporation's notice of meeting, (b) by or at
the direction of the Board of Directors or (c) by any shareowner of
2 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 3
the Corporation who was a shareowner of record at the time of giving of notice
provided for in this by-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this by-law.
(2) For nominations or other business to be properly brought before
an annual meeting by a shareowner pursuant to clause (c) of paragraph (A)(1) of
this by-law, the shareowner must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must be a proper matter
for shareowner action. To be timely, a shareowner's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the shareowner to be timely must be so delivered not earlier
than the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareowner's notice as described above. Such
shareowner's notice shall set forth (a) as to each person whom the shareowner
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareowner proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareowner and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareowner giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareowner, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such shareowner
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this by-law to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
100 days prior to the first anniversary of the preceding year's annual meeting,
a shareowner's notice required by this by-law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meetings of Shareowners. Only such business shall be
conducted at a special meeting of shareowners as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may
3 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 4
be made at a special meeting of shareowners at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) by any shareowner of the Corporation who is a
shareowner of record at the time of giving of notice provided for in this
by-law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this by-law. In the event the Corporation calls a
special meeting of shareowners for the purpose of electing one or more directors
to the Board of Directors, any such shareowner may nominate a person or persons
(as the case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the shareowner's notice required by
paragraph (A)(2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such special meeting and not later than the
close of business on the later of the 90th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareowner's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this by-law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of shareowners as shall
have been brought before the meeting in accordance with the procedures set forth
in this by-law. Except as otherwise provided by law, the Certificate of
Incorporation or these by-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
shareowner shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this by-law shall be deemed to affect any
rights (i) of shareowners to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the
holders of any series of Preferred Stock to elect directors under specified
circumstances.
SECTION 9. Business and Order of Business. At each meeting of the
shareowners such business may be transacted as may properly be brought before
such meeting, except as otherwise provided by law or in these by-laws. The order
of business at all meetings of the shareowners shall be as determined by the
Chairman, unless otherwise determined by a majority in interest of the
shareowners present in person or by proxy at such meeting and entitled to vote
thereat.
SECTION 10. Voting. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, each shareowner shall at every
meeting of the shareowners be entitled to one vote
4 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 5
for each share of stock held by such shareowner. Any vote on stock may be given
by the shareowner entitled thereto in person or by proxy appointed by an
instrument in writing, subscribed (or transmitted by electronic means and
authenticated as provided by law) by such shareowner or by the shareowner's
attorney thereunto authorized, and delivered to the Secretary; provided,
however, that no proxy shall be voted after three years from its date unless the
proxy provides for a longer period. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, at all meetings of the
shareowners, all matters shall be decided by the vote (which need not be by
ballot) of a majority in interest of the shareowners present in person or by
proxy and entitled to vote thereat, a quorum being present.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, affairs and business of the
Corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2. Number, Qualifications, and Term of Office. Subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the whole Board. A
director need not be a shareowner.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, as provided
herein or in any Preferred Stock Designation, shall be divided into three
classes, as nearly equal in number as possible. One class of directors shall be
initially elected for a term expiring at the annual meeting of shareowners to be
held in 1997, another class shall be initially elected for a term expiring at
the annual meeting of shareowners to be held in 1998, and another class shall be
initially elected for a term expiring at the annual meeting of shareowners to be
held in 1999. Members of each class shall hold office until their successors are
elected and shall have qualified. At each annual meeting of the shareowners of
the Corporation, commencing with the 1997 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of shareowners held in the third year following
the year of their election.
SECTION 3. Election of Directors. At each meeting of the shareowners
for the election of directors, at which a quorum is present, the directors shall
be the persons receiving the greatest number of votes cast by the holders of
stock entitled to vote for such directors.
SECTION 4. Quorum and Manner of Acting. A majority of the members of
the Board of Directors shall constitute a quorum for the transaction of business
at any meeting, and the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors
unless otherwise provided by law, the Certificate of Incorporation or these
by-laws. In the absence of a quorum, a majority of the directors present may
adjourn any meeting from
5 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 6
time to time until a quorum shall be obtained. Notice of any adjourned meeting
need not be given. The directors shall act only as a board and the individual
directors shall have no power as such.
SECTION 5. Place of Meetings. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 6. First Meeting. Promptly after each annual election of
directors, the Board of Directors shall meet for the purpose of organization,
the election of officers and the transaction of other business, at the same
place as that at which the annual meeting of shareowners was held or as
otherwise determined by the Board. Notice of such meeting need not be given.
Such meeting may be held at any other time or place which shall be specified in
a notice given as hereinafter provided for special meetings of the Board of
Directors.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such places and at such times as the Board shall from time to
time determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day not a legal holiday. Notice of regular meetings need not
be given.
SECTION 8. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board and shall
be called by the Chairman of the Board or the Secretary at the written request
of three directors. Notice of each such meeting stating the time and place of
the meeting shall be given to each director by mail, telephone, other electronic
transmission or personally. If by mail, such notice shall be given not less than
five days before the meeting; and if by telephone, other electronic transmission
or personally, not less than two days before the meeting. A notice mailed at
least two weeks before the meeting need not state the purpose thereof except as
otherwise provided in these by-laws. In all other cases the notice shall state
the principal purpose or purposes of the meeting. Notice of any meeting of the
Board need not be given to a director, however, if waived by the director in
writing before or after such meeting or if the director shall be present at the
meeting.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, or, in his absence, a director or an officer of the
Corporation designated by the Board, shall act as Chairman. The Secretary, or,
in the Secretary's absence, any person appointed by the Chairman, shall act as
Secretary of the meeting.
SECTION 10. Order of Business. At all meetings of the Board of
Directors, business shall be transacted in the order determined by the Board.
SECTION 11. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Chairman of the Board or the Secretary
of the Corporation. The resignation of any director shall take effect at the
time specified therein, and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
6 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 7
SECTION 12. Compensation. Each director shall be paid such
compensation, if any, as shall be fixed by the Board of Directors.
SECTION 13. Indemnification.
(A) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries, or is or was serving at
the request of the Corporation as a director, officer, employee or agent (except
in each of the foregoing situations to the extent any agreement, arrangement or
understanding of agency contains provisions that supersede or abrogate
indemnification under this section) of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
(B) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee
or agent of the Corporation or any of its majority-owned subsidiaries, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent (except in each of the foregoing situations to the extent any
agreement, arrangement or understanding of agency contains provisions that
supersede or abrogate indemnification under this section) of another corporation
or of any partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of Delaware
or such other court shall deem proper.
(C) To the extent that a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries has been successful on the
merits or otherwise in defense of any
7 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 8
action, suit or proceeding referred to in subsections (A) and (B), or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by or on
behalf of such person in connection therewith. If any such person is not wholly
successful in any such action, suit or proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters therein, the Corporation shall indemnify such person against all
expenses (including attorneys' fees) actually and reasonably incurred by or on
behalf of such person in connection with each claim, issue or matter that is
successfully resolved. For purposes of this subsection and without limitation,
the termination of any claim, issue or matter by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
(D) Notwithstanding any other provision of this section, to the extent
any person is a witness in, but not a party to, any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries, or is or was serving at
the request of the Corporation as a director, officer, employee or agent (except
in each of the foregoing situations to the extent any agreement, arrangement or
understanding of agency contains provisions that supersede or abrogate
indemnification under this section) of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
such person shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by or on behalf of such person in
connection therewith.
(E) Indemnification under subsections (A) and (B) (unless ordered by a
court) shall be made only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in subsections (A) and (B). Such determination
shall be made (1) if a Change of Control (as hereinafter defined) shall not have
occurred, (a) with respect to a person who is a present or former director or
officer of the Corporation, (i) by the Board of Directors by a majority vote of
the Disinterested Directors (as hereinafter defined), even though less than a
quorum or (ii) if there are no Disinterested Directors or, even if there are
Disinterested Directors, a majority of such Disinterested Directors so directs,
by (x) Independent Counsel (as hereinafter defined) in a written opinion to the
Board of Directors, a copy of which shall be delivered to the claimant, or (y)
the shareowners of the Corporation; or (b) with respect to a person who is not a
present or former director or officer of the Corporation, by the chief executive
officer of the Corporation or by such other officer of the Corporation as shall
be designated from time to time by the Board of Directors; or (2) if a Change of
Control shall have occurred, by Independent Counsel selected by the claimant in
a written opinion to the Board of Directors, a copy of which shall be delivered
to the claimant, unless the claimant shall request that such determination be
made by or at the direction of the Board of Directors (in the case of a claimant
who is a present or former director or officer of the Corporation) or by an
officer of the Corporation authorized to make such determination (in the case of
a claimant who is not a present or former director or officer of the
Corporation), in which case it shall be made in accordance with clause (1) of
this sentence. Any claimant shall be entitled to be indemnified against the
expenses (including attorneys' fees) actually and reasonably incurred by such
claimant in cooperating with the person or entity making the determination of
entitlement to indemnification (irrespective of the determination as to the
8 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 9
claimant's entitlement to indemnification) and, to the extent successful, in
connection with any litigation or arbitration with respect to such claim or the
enforcement thereof.
(F) If a Change of Control shall not have occurred, or if a Change of
Control shall have occurred and a director, officer, employee or agent requests
pursuant to clause (2) of the second sentence in subsection (E) that the
determination whether the claimant is entitled to indemnification be made by or
at the direction of the Board of Directors (in the case of a claimant who is a
present or former director or officer of the Corporation) or by an officer of
the Corporation authorized to make such determination (in the case of a claimant
who is not a present or former director or officer of the Corporation), the
claimant shall be conclusively presumed to have been determined pursuant to
subsection (E) to be entitled to indemnification if (1)in the case of a claimant
who is a present or former director or officer of the Corporation, (a)(i) within
fifteen days after the next regularly scheduled meeting of the Board of
Directors following receipt by the Corporation of the request therefor, the
Board of Directors shall not have resolved by majority vote of the Disinterested
Directors to submit such determination to (x) Independent Counsel for its
determination or (y) the shareowners for their determination at the next annual
meeting, or any special meeting that may be held earlier, after such receipt,
and (ii) within sixty days after receipt by the Corporation of the request
therefor (or within ninety days after such receipt if the Board of Directors in
good faith determines that additional time is required by it for the
determination and, prior to expiration of such sixty-day period, notifies the
claimant thereof), the Board of Directors shall not have made the determination
by a majority vote of the Disinterested Directors, or (b) after a resolution of
the Board of Directors, timely made pursuant to clause (a)(i)(y) above, to
submit the determination to the shareowners, the shareowners meeting at which
the determination is to be made shall not have been held on or before the date
prescribed (or on or before a later date, not to exceed sixty days beyond the
original date, to which such meeting may have been postponed or adjourned on
good cause by the Board of Directors acting in good faith), or (2) in the case
of a claimant who is not a present or former director or officer of the
Corporation, within sixty days after receipt by the Corporation of the request
therefor (or within ninety days after such receipt if an officer of the
Corporation authorized to make such determination in good faith determines that
additional time is required for the determination and, prior to expiration of
such sixty-day period, notifies the claimant thereof), an officer of the
Corporation authorized to make such determination shall not have made the
determination; provided, however, that this sentence shall not apply if the
claimant has misstated or failed to state a material fact in connection with his
or her request for indemnification. Such presumed determination that a claimant
is entitled to indemnification shall be deemed to have been made (I) at the end
of the sixty-day or ninety-day period (as the case may be) referred to in clause
(1)(a)(ii) or (2) of the immediately preceding sentence or (II) if the Board of
Directors has resolved on a timely basis to submit the determination to the
shareowners, on the last date within the period prescribed by law for holding
such shareowners meeting (or a postponement or adjournment thereof as permitted
above).
(G) Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding to a present or former director or officer of the Corporation,
promptly after receipt of a request therefor stating in reasonable detail the
expenses incurred, and to a person who is not a present or former director or
officer of the Corporation as authorized by the chief executive officer of the
Corporation or such other officer of the Corporation
9 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 10
as shall be designated from time to time by the Board of Directors; provided
that in each case the Corporation shall have received an undertaking by or on
behalf of the present or former director, officer, employee or agent to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this section.
(H) The Board of Directors shall establish reasonable procedures for
the submission of claims for indemnification pursuant to this section,
determination of the entitlement of any person thereto and review of any such
determination. Such procedures shall be set forth in an appendix to these
by-laws and shall be deemed for all purposes to be a part hereof.
(I) For purposes of this section,
(1)"Change of Control" means any of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however,
that for purposes of this subparagraph (a), the following
acquisitions shall not constitute a Change of Control: (w) any
acquisition directly from the Corporation, (x) any acquisition by
the Corporation, (y) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or (z) any acquisition
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Paragraph 13(I)(1); or
(b) Individuals who, as of November 4,1998, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to that
date whose election, or nomination for election by the Corporation's
shareowners, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets
of the Corporation or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the
10 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 11
Outstanding Corporation Common Stock and Outstanding Corporation
Voting Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of
such transaction owns the Corporation or all or substantially all of
the Corporation's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Corporation Common Stock and Outstanding Corporation
Voting Securities, as the case may be, (ii) no Person (excluding any
employee benefit plan (or related trust) of the Corporation or such
corporation resulting from such Corporate Transaction) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Corporate
Transaction and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Corporate Transaction; or
(d) Approval by the Corporation's shareowners of a complete
liquidation or dissolution of the Corporation.
(2) "Disinterested Director" means a director of the Corporation who
is not and was not a party to an action, suit or proceeding in respect of which
indemnification is sought by a director, officer, employee or agent.
(3) "Independent Counsel" means a law firm, or a member of a law
firm, that (i) is experienced in matters of corporation law; (ii) neither
presently is, nor in the past five years has been, retained to represent the
Corporation, the director, officer, employee or agent claiming indemnification
or any other party to the action, suit, or proceeding giving rise to a claim for
indemnification under this section, in any matter material to the Corporation,
the claimant or any such other party; and (iii) would not, under applicable
standards of professional conduct then prevailing, have a conflict of interest
in representing either the Corporation or such director, officer, employee or
agent in an action to determine the Corporation's or such person's rights under
this section.
(J) The Indemnification and advancement of expenses herein provided, or
granted pursuant hereto, shall not be deemed exclusive of any other rights to
which any of those indemnified or eligible for advancement of expenses may be
entitled under any agreement, vote of shareowners or Disinterested Directors or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs,
11 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 12
executors and administrators of such person. Notwithstanding any amendment,
alteration or repeal of this section or any of its provisions, or of any of the
procedures established by the Board of Directors pursuant to subsection (H)
hereof, any person who is or was a director, officer, employee or agent of the
Corporation or any of its majority-owned subsidiaries, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of any partnership, joint venture, employee benefit plan
or other enterprise, shall be entitled to indemnification in accordance with the
provisions hereof and thereof with respect to any action taken or omitted prior
to such amendment, alteration or repeal except to the extent otherwise required
by law.
(K) No indemnification shall be payable pursuant to this section with
respect to any action against the Corporation commenced by an officer, director,
employee or agent unless the Board of Directors shall have authorized the
commencement thereof or unless and to the extent that this section or the
procedures established pursuant to subsection (H) shall specifically provide for
indemnification of expenses relating to the enforcement of rights under this
section and such procedures.
ARTICLE IV.
COMMITTEES
SECTION 1. Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation, which, to the extent provided in said resolution or in these
by-laws and not inconsistent with Section 141 of the Delaware General
Corporation Law, as amended, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
SECTION 2. Term of Office and Vacancies. Each member of a committee
shall continue in office until a director to succeed him or her shall have been
elected and shall have qualified, or until he or she ceases to be a director or
until he or she shall have resigned or shall have been removed in the manner
hereinafter provided. Any vacancy in a committee shall be filled by the vote of
a majority of the whole Board of Directors at any regular or special meeting
thereof.
SECTION 3. Alternates. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
SECTION 4. Organization. Unless otherwise provided by the Board of
Directors, each committee shall appoint a chairman. Each committee shall keep a
record of its acts and proceedings and report the same from time to time to the
Board of Directors.
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<PAGE> 13
SECTION 5. Resignations. Any regular or alternate member of a committee
may resign at any time by giving written notice to the Chairman of the Board or
the Secretary of the Corporation. Such resignation shall take effect at the time
of the receipt of such notice or at any later time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6. Removal. Any regular or alternate member of a committee may
be removed with or without cause at any time by resolution passed by a majority
of the whole Board of Directors at any regular or special meeting.
SECTION 7. Meetings. Regular meetings of each committee, of which no
notice shall be necessary, shall be held on such days and at such places as the
chairman of the committee shall determine or as shall be fixed by a resolution
passed by a majority of all the members of such committee. Special meetings of
each committee will be called by the Secretary at the request of any two members
of such committee, or in such other manner as may be determined by the
committee. Notice of each special meeting of a committee shall be mailed to each
member thereof at least two days before the meeting or shall be given personally
or by telephone or other electronic transmission at least one day before the
meeting. Every such notice shall state the time and place, but need not state
the purposes of the meeting. No notice of any meeting of a committee shall be
required to be given to any alternate.
SECTION 8. Quorum and Manner of Acting. Unless otherwise provided by
resolution of the Board of Directors, a majority of a committee (including
alternates when acting in lieu of regular members of such committee) shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of such
committee. The members of each committee shall act only as a committee and the
individual members shall have no power as such.
SECTION 9. Compensation. Each regular or alternate member of a
committee shall be paid such compensation, if any, as shall be fixed by the
Board of Directors.
ARTICLE V.
OFFICERS
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board of Directors, who shall be chosen from the members of the
Board of Directors, one or more Vice Presidents (one or more of whom may be
Executive Vice Presidents, Senior Vice Presidents or otherwise as may be
designated by the Board), a Secretary and a Treasurer, all of whom shall be
elected by the Board of Directors. Any two or more offices may be held by the
same person. The Board of Directors may also from time to time elect such other
officers as it deems necessary.
SECTION 2. Term of Office. Each officer shall hold office until his or
her successor shall have been duly elected and qualified in his or her stead, or
until his or her death or until he or she shall have resigned or shall have been
removed in the manner hereinafter provided.
13 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 14
SECTION 3. Additional Officers; Agents. The Chairman of the Board may
from time to time appoint and remove such additional officers and agents as may
be deemed necessary. Such persons shall hold office for such period, have such
authority, and perform such duties as in these by-laws provided or as the
Chairman of the Board may from time to time prescribe. The Board of Directors or
the Chairman of the Board may from time to time authorize any officer to appoint
and remove agents and employees and to prescribe their powers and duties.
SECTION 4. Salaries. Unless otherwise provided by resolution passed by
a majority of the whole Board, the salaries of all officers elected by the Board
of Directors shall be fixed by the Board of Directors.
SECTION 5. Removal. Except where otherwise expressly provided in a
contract authorized by the Board of Directors, any officer may be removed,
either with or without cause, by the vote of a majority of the Board at any
regular or special meeting or, except in the case of an officer elected by the
Board, by any superior officer upon whom the power of removal may be conferred
by the Board or by these by-laws.
SECTION 6. Resignations. Any officer elected by the Board of Directors
may resign at any time by giving written notice to the Chairman of the Board or
the Secretary. Any other officer may resign at any time by giving written notice
to the Chairman of the Board. Any such resignation shall take effect at the date
of receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 7. Vacancies. A vacancy in any office because of death,
resignation, removal, or otherwise, shall be filled for the unexpired portion of
the term in the manner provided in these by-laws for regular election or
appointment to such office.
SECTION 8. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall be the chief executive officer of the Corporation and,
subject to the control of the Board of Directors, shall have general and overall
charge of the business and affairs of the Corporation and of its officers. He
shall preside at all meetings of the shareowners and of the Board of Directors
and shall enforce the observance of the rules of order for the meetings of the
shareowners and the Board and of the by-laws of the Corporation. He shall keep
the Board of Directors appropriately informed on the business and affairs of the
Corporation.
SECTION 9. Executive Vice Presidents. One or more Executive Vice
Presidents shall, subject to the control of the Chairman of the Board, have lead
accountability for components or functions of the Corporation as and to the
extent designated by the Chairman of the Board. Each Executive Vice President
shall keep the Chairman of the Board appropriately informed on the business and
affairs of the designated components or functions of the Corporation.
SECTION 10. Vice Presidents. The Vice Presidents shall perform such
duties as may from time to time be assigned to them or any of them by the
Chairman of the Board.
14 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 15
SECTION 11. Secretary. The Secretary shall keep or cause to be kept in
books provided for the purpose the minutes of the meetings of the shareowners,
of the Board of Directors and of any committee constituted pursuant to Article
IV of these by-laws. The Secretary shall be custodian of the corporate seal and
see that it is affixed to all documents as required and attest the same. The
Secretary shall perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her.
SECTION 12. Assistant Secretaries. At the request of the Secretary, or
in his or her absence or disability, the Assistant Secretary designated by him
or her shall perform all the duties of the Secretary and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them.
SECTION 13. Treasurer. The Treasurer shall have charge of and be
responsible for the receipt, disbursement and safekeeping of all funds and
securities of the Corporation. The Treasurer shall deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of these by-laws. From time
to time and whenever requested to do so, the Treasurer shall render statements
of the condition of the finances of the Corporation to the Board of Directors.
The Treasurer shall perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him or her.
SECTION 14. Assistant Treasurers. At the request of the Treasurer, or
in his or her absence or disability, the Assistant Treasurer designated by him
or her shall perform all the duties of the Treasurer and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. The Assistant Treasurers shall perform such other duties as from time
to time may be assigned to them.
SECTION 15. Certain Agreements. The Board of Directors shall have power
to authorize or direct the proper officers of the Corporation, on behalf of the
Corporation, to enter into valid and binding agreements in respect of
employment, incentive or deferred compensation, stock options, and similar or
related matters, notwithstanding the fact that a person with whom the
Corporation so contracts may be a member of its Board of Directors. Any such
agreement may validly and lawfully bind the Corporation for a term of more than
one year, in accordance with its terms, notwithstanding the fact that one of the
elements of any such agreement may involve the employment by the Corporation of
an officer, as such, for such term.
ARTICLE VI.
AUTHORIZATIONS
SECTION 1. Contracts. The Board of Directors, except as in these
by-laws otherwise provided, may authorize any officer, employee or agent of the
Corporation to enter into any
15 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 16
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loan shall be contracted on behalf of the
Corporation and no negotiable paper shall be issued in its name, unless
authorized by the Board of Directors.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, employee or
employees, of the Corporation as shall from time to time be determined in
accordance with authorization of the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may from time to time
designate, or as may be designated by any officer or officers of the Corporation
to whom such power may be delegated by the Board, and for the purpose of such
deposit the officers and employees who have been authorized to do so in
accordance with the determinations of the Board may endorse, assign and deliver
checks, drafts, and other orders for the payment of money which are payable to
the order of the Corporation.
SECTION 5. Proxies. Except as otherwise provided in these by-laws or in
the Certificate of Incorporation, and unless otherwise provided by resolution of
the Board of Directors, the Chairman of the Board or any other officer may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation to cast the votes
which the Corporation may be entitled to cast as a shareowner or otherwise in
any other corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporations, or to consent in writing to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such vote or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE VII. SHARES AND THEIR TRANSFER
SECTION 1. Certificates of Stock. Certificates for shares of the stock
of the Corporation shall be in such form as shall be approved by the Board of
Directors. They shall be numbered in the order of their issue, by class and
series, and shall be signed by the Chairman of the Board or a Vice President,
and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation. If such certificate is countersigned (1) by a
transfer agent other than the Corporation or its employee, or (2) by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent, or registrar at
the date of issue.
16 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 17
SECTION 2. Record Ownership. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and the
date of issuance thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as required by law.
SECTION 3. Transfer of Stock. Shares of stock shall be transferable on
the books of the Corporation by the person named in the certificate for such
stock in person or by such person's attorney or other duly constituted
representative upon surrender of such certificate with an assignment endorsed
thereon or attached thereto duly executed and with such guarantee of signature
as the Corporation may reasonably require.
SECTION 4. Lost, Destroyed and Mutilated Certificates. The Corporation
may issue a new certificate of stock in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate,
or such person's legal representative, to give the Corporation a bond sufficient
to indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 5. Transfer Agent and Registrar; Regulations. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors, where the shares of the stock of the
Corporation shall be directly transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares of
the stock of the Corporation, in respect of which a registrar and transfer agent
shall have been designated, shall be valid unless countersigned by such transfer
agent and registered by such registrar. The Board of Directors may also make
such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 6. Fixing Record Date. For the purpose of determining the
shareowners entitled to notice of or to vote at any meeting of shareowners or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no record
date is fixed (1) the record date for determining shareowners entitled to notice
of or to vote at a meeting of shareowners shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held and (2) the record date for determining shareowners for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of shareowners
of record entitled to notice of or to vote at a meeting of shareowners shall
apply to any adjournment
17 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 18
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 7. Examination of Books by Shareowners. The Board of Directors
shall, subject to the laws of the State of Delaware, have power to determine
from time to time, whether and to what extent and under what conditions and
regulations the accounts and books of the Corporation, or any of them, shall be
open to the inspection of the shareowners; and no shareowner shall have any
right to inspect any book or document of the Corporation, except as conferred by
the laws of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the shareowners of the Corporation.
ARTICLE VIII.
NOTICE
SECTION 1. Manner of Giving Written Notice. Any notice in writing
required by law or by these by-laws to be given to any person may be delivered
personally, may be transmitted by electronic means or may be given by depositing
the same in the post office or letter box in a postpaid envelope addressed to
such person at such address as appears on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed,
and notice by other means shall be deemed given when actually delivered (and in
the case of notice transmitted by electronic means, when authenticated if and as
required by law).
SECTION 2. Waiver of Notice. Whenever any notice is required to be
given to any person, a waiver thereof by such person in writing or transmitted
by electronic means (and authenticated if and as required by law), whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE IX.
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal" and
"Delaware".
ARTICLE X.
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
October in each year.
18 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 19
APPENDIX
PROCEDURES FOR SUBMISSION AND DETERMINATION OF CLAIMS FOR INDEMNIFICATION
PURSUANT TO ARTICLE III, SECTION 13 OF THE BY-LAWS.
SECTION 1. Purpose. The Procedures for Submission and Determination of
Claims for Indemnification Pursuant to Article III, Section 13 of the by-laws
(the "Procedures") are to implement the provisions of Article III, Section 13 of
the by-laws of the Corporation (the "by-laws") in compliance with the
requirement of subsection (H) thereof.
SECTION 2. Definitions. For purposes of these Procedures:
(A) All terms that are defined in Article III, Section 13 of the
by-laws shall have the meanings ascribed to them therein when used in these
Procedures unless otherwise defined herein.
(B) "Expenses" include all reasonable attorneys' fees, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees, and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in, a Proceeding; and shall
also include such retainers as counsel may reasonably require in advance of
undertaking the representation of an indemnitee in a Proceeding.
(C) "Indemnitee" includes any person who was or is, or is threatened to
be made, a witness in or a party to any Proceeding by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation
or any of its majority-owned subsidiaries, or is or was serving at the request
of the Corporation as a director, officer, employee or agent (except in each of
the foregoing situations to the extent any agreement, arrangement or
understanding of agency contains provisions that supersede or abrogate
indemnification under Article III, Section 13 of the by-laws) of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise.
(D) "Proceeding" includes any action, suit, arbitration, alternative
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee unless the Board of Directors shall have authorized
the commencement thereof.
SECTION 3. Submission and Determination of Claims.
(A) To obtain indemnification or advancement of Expenses under Article
III, Section 13 of the by-laws, an Indemnitee shall submit to the Secretary of
the Corporation a written request therefor, including therein or therewith such
documentation and information as is reasonably available to the Indemnitee and
is reasonably necessary to permit a determination as to whether and what extent
the Indemnitee is entitled to indemnification or advancement of Expenses, as the
case
19 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 20
may be. The Secretary shall, promptly upon receipt of a request for
indemnification, advise the Board of Directors (if the Indemnitee is a present
or former director or officer of the Corporation) or the officer of the
Corporation authorized to make the determination as to whether an Indemnitee is
entitled to indemnification (if the Indemnitee is not a present or former
director or officer of the Corporation) thereof in writing if a determination in
accordance with Article III, Section 13(E) of the by-laws is required.
(B) Upon written request by an Indemnitee for indemnification pursuant
to Section 3(A) hereof a determination with respect to the Indemnitee's
entitlement thereto in the specific case, if required by the by-laws, shall be
made in accordance with Article III, Section 13(E) of the by-laws, and, if it is
so determined that the Indemnitee is entitled to indemnification, payment to the
Indemnitee shall be made within ten days after such determination. The
Indemnitee shall cooperate with the person, persons or entity making such
determination, with respect to the Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to the Indemnitee
and reasonably necessary to such determination.
(C) If entitlement to indemnification is to be made by Independent
Counsel pursuant to Article III, Section 13(E) of the by-laws, the Independent
Counsel shall be selected as provided in this Section 3(C). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Corporation shall give written notice to the
Indemnitee advising the Indemnitee of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by the Indemnitee (unless the Indemnitee shall request that
such selection be made by the Board of Directors, in which event the immediately
preceding sentence shall apply), and the Indemnitee shall give written notice to
the Corporation advising it of the identity of the Independent Counsel so
selected. In either event, the Indemnitee or the Corporation, as the case may
be, may, within seven days after such written notice of selection shall have
been given, deliver to the Corporation or to the Indemnitee, as the case may be,
a written objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Article III, Section 13 of
the by-laws, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within twenty
days after the next regularly scheduled Board of Directors meeting following
submission by the Indemnitee of a written request for indemnification pursuant
to Section 3(A) hereof, no Independent Counsel shall have been selected and not
objected to, either the Corporation or the Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Corporation or the
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Article III, Section 13(E) of the by-laws. The
Corporation shall pay any and all reasonable fees and expenses (including
without limitation any advance retainers reasonably required by counsel) of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to Article III, Section 13(E) of the by-laws, and the
Corporation shall pay all reasonable fees and expenses (including without
limitation any advance retainers reasonably required by counsel) incident to the
procedures of Article III,
20 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 21
Section 13(E) of the by-laws and this Section 3(C), regardless of the manner in
which Independent Counsel was selected or appointed. Upon the delivery of its
opinion pursuant to Article III, Section 13 of the by-laws or, if earlier, the
due commencement of any judicial proceeding or arbitration pursuant to Section
4(A)(3) of these Procedures, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(D) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification under the by-laws,
the person, persons or entity making such determination shall presume that an
Indemnitee is entitled to indemnification under the by-laws if the Indemnitee
has submitted a request for indemnification in accordance with Section 3(A)
hereof, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
SECTION 4. Review and Enforcement of Determination.
(A) In the event that (1) advancement of Expenses is not timely made
pursuant to Article III, Section 13(G) of the by-laws, (2) payment of
indemnification is not made pursuant to Article III, Section 13(C) or (D) of the
by-laws within ten days after receipt by the Corporation of written request
therefor, (3) a determination is made pursuant to Article III, Section 13(E) of
the by-laws that an Indemnitee is not entitled to indemnification under the
by-laws, (4) the determination of entitlement to indemnification is to be made
by Independent Counsel pursuant to Article III, Section 13(E) of the by-laws and
such determination shall not have been made and delivered in a written opinion
within ninety days after receipt by the Corporation of the written request for
indemnification, or (5) payment of indemnification is not made within ten days
after a determination has been made pursuant to Article III, Section 13(E) of
the by-laws that an Indemnitee is entitled to indemnification or within ten days
after such determination is deemed to have been made pursuant to Article III,
Section 13(F) of the by-laws, the Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of the Indemnitee's entitlement to such
indemnification or advancement of Expenses. Alternatively, the Indemnitee, at
his or her option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association. The
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within one year following the date on which the Indemnitee first has
the right to commence such proceeding pursuant to this Section 4(A). The
Corporation shall not oppose the Indemnitee's right to seek any such
adjudication or award in arbitration.
(B) In the event that a determination shall have been made pursuant to
Article III, Section 13(E) of the by-laws that an Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 4 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and the Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred, the
Corporation shall have the burden of proving in any judicial proceeding or
arbitration commenced pursuant to this Section 4
21 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 22
that the Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(C) If a determination shall have been made or deemed to have been made
pursuant to Article III, Section 13(E) or (F) of the by-laws that an Indemnitee
is entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 4, absent (1) a misstatement or omission of a material fact in
connection with the Indemnitee's request for indemnification, or (2) a
prohibition of such indemnification under applicable law.
(D) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 4 that the
procedures and presumptions of these Procedures are not valid, binding and
enforceable, and shall stipulate in any such judicial proceeding or arbitration
that the Corporation is bound by all the provisions of these Procedures.
(E) In the event that an Indemnitee, pursuant to this Section 4, seeks
to enforce the Indemnitee's rights under, or to recover damages for breach of,
Article III, Section 13 of the by-laws or these Procedures in a judicial
proceeding or arbitration, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Section 2 of
these Procedures) actually and reasonably incurred in such judicial proceeding
or arbitration, but only if the Indemnitee prevails therein. If it shall be
determined in such judicial proceeding or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
Expenses sought, the expenses incurred by the Indemnitee in connection with such
judicial proceeding or arbitration shall be appropriately prorated.
SECTION 5. Amendments. These Procedures may be amended at any time and
from time to time in the same manner as any by-law of the Corporation in
accordance with the Certificate of Incorporation; provided, however, that
notwithstanding any amendment, alteration or repeal of these Procedures or any
provision hereof, any Indemnitee shall be entitled to utilize these Procedures
with respect to any claim for indemnification arising out of any action taken or
omitted prior to such amendment, alteration or repeal except to the extent
otherwise required by law.
22 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION
<PAGE> 1
Exhibit 10-b-1
ROCKWELL INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVES PLAN
(As Amended Effective December 2, 1998)
1. PURPOSE
The purpose of the 1995 Long-Term Incentives Plan is to foster creation
of and enhance Rockwell shareowner value by linking the compensation of officers
and other key employees of the Corporation to increases in the price of Rockwell
stock or by offering the incentives of long-term monetary rewards to key
employees of Rockwell or its business units directly linked to their
contribution to the creation of Rockwell shareowner value, thus providing means
by which persons of outstanding abilities can be attracted, motivated and
retained.
2. DEFINITIONS
For the purpose of the Plan, the following terms shall have the
meanings set forth below:
(a) Boeing. The Boeing Company, a Delaware corporation.
(b) Boeing North American. Boeing North American, Inc. (formerly
Rockwell International Corporation), a Delaware corporation incorporated in 1928
that is the surviving corporation in a merger with Boeing NA, Inc., a
wholly-owned subsidiary of Boeing.
(c) Board of Directors. The Board of Directors of Rockwell.
(d) Change of Control: Any of the following:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of Rockwell (the "Outstanding
Rockwell Common Stock") or (B) the combined voting power of the then
outstanding voting securities of Rockwell entitled to vote generally in
the election of directors (the "Outstanding Rockwell Voting
Securities"); provided, however, that for purposes of this subparagraph
(i), the following acquisitions shall not constitute a Change of
Control: (w) any acquisition directly from Rockwell, (x) any
acquisition by Rockwell, (y) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by Rockwell or any
corporation controlled by Rockwell or (z) any
<PAGE> 2
acquisition pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this Section 2(d); or
(ii) Individuals who, as of September 2,1998, constitute the
Board of Directors the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to that date whose
election, or nomination for election by Rockwell's shareowners, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors; or
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of Rockwell or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Rockwell Common Stock and Outstanding Rockwell Voting
Securities immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns Rockwell or all
or substantially all of Rockwell's assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction of the
Outstanding Rockwell Common Stock and Outstanding Rockwell Voting
Securities, as the case may be, (B) no Person (excluding any employee
benefit plan (or related trust) of Rockwell or such corporation
resulting from such Corporate Transaction) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a majority
of the members of the board of directors of the corporation resulting
from such Corporate Transaction were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board of Directors, providing for such Corporate Transaction; or
(iv) Approval by Rockwell's shareowners of a complete liquidation
or dissolution of Rockwell.
-2-
<PAGE> 3
(e) Committee. The Compensation and Management Development Committee
designated by the Board of Directors from among its members who are not eligible
to receive a Grant under the Plan.
(f) Corporation. Rockwell and those of its subsidiary corporations or
affiliates designated by the Committee to participate in the Plan.
(g) Distribution Date. The Distribution Date as defined in the
Distribution Agreement between Rockwell and Meritor relating, among other
things, to the distribution of shares of Meritor Common Stock to Rockwell's
shareowners.
(h) Employees. Officers and other key employees of the Corporation, but
not directors who are not also employees of the Corporation.
(i) Executive Officer. An Employee who is an executive officer of
Rockwell as defined in Rule 3b-7 under the Securities Exchange Act of 1934, as
amended, or any successor provision.
(j) Fair Market Value. The closing price of the Common Stock of
Rockwell as reported in the New York Stock Exchange--Composite Transactions on
the date of a determination (or on the next preceding day such stock was traded
if it was not traded on the date of a determination).
(k) Grant. A grant made pursuant to the Plan by the Grant Committee to
an Employee in the form of Options, Stock Appreciation Rights or Restricted
Stock.
(l) Grant Committee. The Committee excluding those members of the
Committee who are not at the time any Grant is made both "outside directors" as
defined for purposes of Section 162(m) and the regulations thereunder and
"Non-Employee Directors" as defined in rule 16b-3(b)(3)(i) under the Securities
Exchange Act of 1934, as amended, for purposes of Section 16 of that Act and the
rules thereunder.
(m) Merger Closing Date. The Closing Date as defined in the Agreement
and Plan of Merger dated as of July 31, 1996 among Rockwell International
Corporation, a Delaware corporation incorporated in 1928, Boeing and Boeing NA,
Inc.
(n) Meritor. Meritor Automotive, Inc., a Delaware corporation.
(o) Option. An option to purchase Shares granted to an Employee by the
Grant Committee pursuant to Section 5 or 8 of the Plan.
(p) Participant. (i) Any Employee to whom a Grant is made; (ii) any
Employee (a Continuing USA Participant) as of the close of business on May 31,
1996 who then held one or more outstanding Options or Stock Appreciation Rights
and who on or before the close of business on the Merger Closing Date became an
employee of United Space Alliance, LLC
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(USA) immediately upon termination of employment (by retirement or otherwise) by
Rockwell or a subsidiary corporation of Rockwell, but only for purposes of
determining such an Employee's rights with respect to his or her outstanding
Options or Stock Appreciation Rights and only so long as such Employee shall
remain an employee of USA and the Corporation, Boeing North American, Boeing or
any of their respective subsidiaries shall continue to own at least 50% of the
total ownership interests in USA; and (iii) any Employee (a Continuing Boeing
Participant) as of the opening of business on the Merger Closing Date who then
held one or more outstanding Options or Stock Appreciation Rights and who as of
the close of business on that date remains or becomes an employee of Boeing
North American, Boeing or any of their respective subsidiaries, but only for
purposes of determining such an Employee's rights with respect to his or her
outstanding Options or Stock Appreciation Rights and only so long as such
Employee shall remain an employee of Boeing North American, Boeing or any of
their respective subsidiaries; and (iv) any Employee (a Continuing Meritor
Participant) as of the opening of business on the Distribution Date who then
held one or more outstanding Options or Stock Appreciation Rights and who as of
the close of business on that date remains or becomes an employee of Meritor or
any of its subsidiaries, but only for purposes of determining such an Employee's
rights with respect to his or her outstanding Options or Stock Appreciation
Rights and only so long as such an Employee shall remain an employee of Meritor
or any of its subsidiaries.
(q) Performance Cycle. Any period of three or more consecutive fiscal
years of Rockwell established for Rockwell or a designated business component
under a Performance Plan.
(r) Performance Measure. Criteria established to serve as a measure of
performance of Rockwell or a designated business component during a Performance
Cycle under a Performance Plan.
(s) Performance Objectives. Levels of achievement, related to the
Performance Measure, established as goals for a Performance Cycle to be used in
determining whether and to what extent grants under a Performance Plan shall be
deemed to be earned.
(t) Performance Plan. A performance plan applicable to Rockwell or one
or more business components of the Corporation authorized pursuant to Section 4
of the Plan.
(u) Plan. This 1995 Long-Term Incentives Plan.
(v) Restricted Period. The period (i) not less than three years or (ii)
until achievement of performance goals specified at the time of Grant by the
Grant Committee with respect to a Grant of Restricted Stock during which the
Shares are subject to forfeiture if the grantee does not continue as an
Employee.
(w) Restricted Stock. Shares subject to conditions prescribed by the
Committee under Section 7 of the Plan.
(x) Rockwell. Rockwell International Corporation.
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(y) Section 162(m). Section 162(m) of the Internal Revenue Code, as
amended, or any successor provision.
(z) Shares. Shares of Common Stock of Rockwell.
(aa) Stock Appreciation Right. A Right granted to an Employee by the
Grant Committee pursuant to Section 6 or 8 of the Plan (i) in conjunction with
all or any part of any Option, which entitles the Employee, upon exercise of
such Right, to surrender such Option, or any part thereof, and to receive a
payment equal to the excess of the Fair Market Value, on the date of such
exercise, of the Shares covered by such Option, or part thereof, over the
purchase price of such Shares pursuant to the Option (a Tandem Stock
Appreciation Right) or (ii) separate and apart from any Option, which entitles
the Employee, upon exercise of such Right, to receive a payment measured by the
increase in the Fair Market Value of a number of Shares designated by such Right
from the date of grant of such Right to the date on which the Employee exercises
such Right (a Freestanding Stock Appreciation Right).
(bb) Supplementary Stock Plan. A supplementary stock plan applicable to
Employees subject to the tax laws of one or more countries other than the United
States authorized pursuant to Section 8 of the Plan.
3. PLAN ADMINISTRATION
(a) The Grant Committee shall determine the Employees to whom Grants
are made, the number of Shares or Stock Appreciation Rights to be subject to
each Grant and the Restricted Period for any Grant of Restricted Stock. The
Grant Committee may delegate to Rockwell's Chief Executive Officer the authority
to determine the Employees to whom Grants of Options are made and the number of
Shares subject to each Grant made pursuant to such delegated authority.
(b) The Committee shall exercise all other responsibilities, powers and
authority relating to the administration of the Plan not reserved to the Board
of Directors.
(c) The Board of Directors reserves the right, in its sole discretion,
to exercise or authorize another committee or person to exercise some of or all
the responsibilities, powers and authority vested in the Committee and the Grant
Committee under the Plan.
(d) In making their determinations with respect to Grants under the
Plan or grants under any Performance Plan, the Grant Committee and the Committee
may consider recommendations of the Chief Executive Officer of Rockwell and
shall take into account such factors as the Employee's level of responsibility,
performance, performance potential, level and type of compensation and potential
value of Grants.
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4. PERFORMANCE PLANS
(a) The Committee may authorize Performance Plans applicable to
Rockwell or one or more business components of the Corporation on such terms and
conditions, not inconsistent with the Plan, and applicable to such Employees or
categories of Employees as the Committee shall determine. In connection with its
authorization of any Performance Plan, the Committee may authorize Rockwell's
Chief Executive Officer to approve the definitive terms and conditions of that
Performance Plan, including but not limited to the Employees or categories of
Employees to which that Performance Plan shall apply and the committee or person
who shall be delegated authority to administer that Performance Plan, except
that authorization by the Committee shall be required for participation by any
Executive Officer in any Performance Plan. Each Performance Plan shall include
provision for: (i) establishment of Performance Cycles of not less than three
consecutive fiscal years for each designated business component (and Rockwell if
a Performance Plan applicable to it should be authorized), provided that no
Performance Cycle shall begin later than September 30, 2005 and only one
Performance Cycle for Rockwell or any designated business component shall begin
with any one fiscal year; (ii) establishment of a Performance Measure and
Performance Objectives for each Performance Cycle established for Rockwell and
each designated business component; and (iii) approval by the Committee of any
grants thereunder to any Executive Officer. In addition, a Performance Plan may
but need not provide for (x) grants under such Performance Plan with respect to
a Performance Cycle to be made at any time during the Performance Cycle,
provided that any grant made after the first fiscal year of the Performance
Cycle shall provide for a pro-rated award; (y) adjustment (up or down) of the
Performance Objectives or modification of the Performance Measure (or both) for
any designated business component for a Performance Cycle if the Committee (or
with the Committee's approval, the committee or person delegated to administer
the Performance Plan except insofar as it relates to any Executive Officer)
determines that conditions, including but not limited to changes in the economy,
changes in laws or government regulations, changes in generally accepted
accounting principles, or acquisitions or dispositions determined by the
Committee to be material, so warrant; and (z) a Change-of-Control contingency
similar to Section 13(f) of the Plan.
(b) Potential awards granted to participating Employees under
Performance Plans shall be expressed as cash amounts (whether in currency or in
units having a currency equivalent) and shall be paid in accordance with
determinations of the Committee. Payments shall be in cash unless the Committee
determines to make payment to one or more named participating Employees in
Shares or a combination of cash and Shares. Any payment which is made in cash
may be made in a lump sum, in installments or on a deferred basis. Any payment
which is made in Shares shall be valued at the Fair Market Value on such date as
the Committee shall determine but not earlier than the last trading day of the
week preceding the day of issuance or transfer of the Shares. No grant under a
Performance Plan shall bear interest except as may be determined by the
Committee in respect of payments made in installments or on a deferred basis.
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5. OPTIONS
The Grant Committee and Rockwell's Chief Executive Officer, if and to
the extent the Grant Committee shall have delegated authority to such Chief
Executive Officer, may grant from time to time to Employees, Options which may
be incentive stock options (as defined in Section 422 of the Internal Revenue
Code), nonqualified stock options, or both, to purchase Shares on terms and
conditions determined by the Grant Committee or Rockwell's Chief Executive
Officer, if and to the extent the Grant Committee shall have delegated authority
to such Chief Executive Officer, consistent with the provisions of the Plan,
including the following:
(a) The purchase price of the Shares subject to any Option shall not be
less than the Fair Market Value on the date the Option is granted.
(b) Each Option may be exercised in whole or in part from time to time
during such period as the Option shall specify; provided, however, that if the
Committee does not establish a different exercise schedule at or before the date
of grant of an Option, the Option shall become exercisable in three
approximately equal installments on each of the first, second and third
anniversaries of the date the Option is granted; and provided, further, that no
Option shall be exercisable prior to one year (except as provided in Section
9(c) or 13(f)) nor after ten years from the date of the grant thereof.
(c) Each Option may provide for related Stock Appreciation Rights.
(d) The aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares for which any Employee may be granted incentive
stock options which are exercisable for the first time in any calendar year
under all plans of the Corporation and any parent or subsidiary of the
Corporation shall not exceed $100,000 (or such other amount as may be fixed as
the maximum amount permitted by Section 422(d) of the Internal Revenue Code, as
amended, or any successor provision). The Grant Committee shall grant incentive
stock options only to employees of Rockwell or a corporation which is a
subsidiary of Rockwell within the meaning of Section 425(f) of the Internal
Revenue Code.
(e) The purchase price of the Shares with respect to which an Option or
portion thereof is exercised shall be payable in full in cash or in Shares or in
a combination of cash and Shares. The value of any Share delivered in payment of
the purchase price shall be its Fair Market Value on the date the Option is
exercised.
6. STOCK APPRECIATION RIGHTS
(a) The Grant Committee may grant Tandem Stock Appreciation Rights to
an Employee either at the time of grant of an Option or at any time thereafter
during the term of an Option. A Tandem Stock Appreciation Right shall be
exercisable only when and to the extent that the related Option is exercisable.
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(b) The Grant Committee may grant from time to time to Employees,
Freestanding Stock Appreciation Rights on terms and conditions determined by the
Committee, consistent with the provisions of the Plan.
(c) The payment to which the grantee of a Stock Appreciation Right is
entitled upon exercise thereof may be made in Shares valued at Fair Market Value
on the date of exercise, or in cash or partly in cash and partly in Shares, as
the Committee may determine.
(d) Upon exercise of a Tandem Stock Appreciation Right and surrender of
the related Option or part thereof, such Option, to the extent surrendered,
shall not thereafter be exercisable, and the Shares covered by the surrendered
Option shall not again be available for Grants pursuant to the Plan, or awards
under a Performance Plan.
(e) Upon exercise of a Freestanding Stock Appreciation Right, any
Shares delivered in payment thereof shall not again be available for Grants
pursuant to the Plan, or awards under a Performance Plan.
7. RESTRICTED STOCK
The Grant Committee may grant from time to time to Employees, Shares of
Restricted Stock on terms determined by the Committee, consistent with the
provisions of the Plan, including the following:
(a) The Grant Committee shall specify a Restricted Period and may
specify performance or other criteria for each Grant of Restricted Stock, and
the Shares of Restricted Stock granted shall be forfeited if the grantee does
not continue as an Employee throughout the Restricted Period, or if and to the
extent the specified performance or other criteria are not met during the
Restricted Period, except as otherwise provided in Section 9(a), 9(b) or 13(f).
(b) Shares of Restricted Stock granted to an Employee shall have all
the attributes of outstanding Shares, except that certificates for such Shares
and any dividends that may be paid in cash or otherwise thereon shall be
delivered to and held by Rockwell. As and to the extent that Shares of
Restricted Stock are no longer subject to forfeiture, certificates therefor and
any dividends related thereto held by Rockwell shall be delivered to the
Employee. There shall also be paid to the Employee at such time interest on the
amount of cash dividends so delivered computed at the same rate and in the same
manner as interest credited from time to time under Rockwell's Deferred
Compensation Plan.
8. SUPPLEMENTARY STOCK PLANS
(a) The Committee may authorize Supplementary Stock Plans applicable to
Employees subject to the tax laws of one or more countries other than the United
States and providing for the
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<PAGE> 9
grant of Options, Stock Appreciation Rights, Restricted Stock or any combination
thereof to such Employees on terms and conditions, consistent with the Plan,
determined by the Committee which may differ from the terms and conditions of
Grants pursuant to Sections 5, 6 and 7 of the Plan for the purpose of complying
with the conditions for qualification of Options, Stock Appreciation Rights or
Restricted Stock for favorable treatment under foreign tax laws.
(b) Notwithstanding any other provision hereof, Options granted under
any Supplementary Stock Plan shall include provisions that conform with Sections
5(a), (b), (c) and (e) and 6(d); Restricted Stock granted under any
Supplementary Stock Plan shall include provisions that conform with Sections
7(a) and (b); and subject to Section 3(b), only the Grant Committee shall have
authority to grant Options, Stock Appreciation Rights or Restricted Stock under
any Supplementary Stock Plan.
9. EFFECT OF DEATH OR TERMINATION OF EMPLOYMENT
(a) If a participating Employee's employment by the Corporation
terminates prior to the end of a Performance Cycle under a Performance Plan
because of the Employee's (i) death or (ii) retirement not less than one year
after the beginning of that Performance Cycle under a retirement plan of the
Corporation, the amount of the award under the Performance Plan such Employee
shall be deemed to have earned shall be the amount or number thereof determined
as though such Employee's employment had not terminated prior to the end of the
Performance Cycle, multiplied by a fraction, the numerator of which is the
number of months such Employee was employed by the Corporation during the
Performance Cycle (including the month during which employment terminated) and
the denominator of which is the total number of months in the Performance Cycle.
(b) If a participating Employee's employment by the Corporation
terminates prior to the end of a Performance Cycle under a Performance Plan for
any reason other than death or retirement not less than one year after the
beginning of that Performance Cycle under a retirement plan of the Corporation,
such Employee shall be deemed not to have earned any award under the Performance
Plan except as and to the extent the Committee (or with the Committee's
approval, the committee or person delegated to administer a Performance Plan
except insofar as it relates to any Executive Officer), taking into account the
purpose of the Plan and such other factors as in its sole discretion it deems
appropriate, may determine, provided that the amount of the award which may be
so determined by the Committee to have been earned shall not exceed the amount
which would have been earned had the provisions of paragraph (a) above been
applicable.
(c) If a participating Employee's employment by the Corporation
terminates prior to the end of the Restricted Period applicable to any Grant of
Restricted Stock for any reason, such Employee shall be deemed not to have
earned any Shares of Restricted Stock except as and to the extent (i) the terms
of the Grant shall have specified that such Employee is entitled in the
circumstances to retain all or some portion of the Shares of Restricted Stock
covered by the Grant or (ii) the Committee, taking into account the purpose of
the Plan and such other factors as
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<PAGE> 10
in its sole discretion it deems appropriate, may determine that such Employee
shall have earned all or some portion of those Shares of Restricted Stock.
(d) If the employment by the Corporation of a Participant, the
employment by USA of a Continuing USA Participant, the employment by Boeing
North American, Boeing or any of their respective subsidiaries of a Continuing
Boeing Participant or the employment by Meritor or any of it subsidiaries of a
Continuing Meritor Participant who (or whose permitted transferee) holds an
outstanding Grant of Options or Stock Appreciation Rights terminates by reason
of the death of the Participant, the Continuing USA Participant, the Continuing
Boeing Participant or the Continuing Meritor Participant, the Options or Stock
Appreciation Rights subject to that Grant and not theretofore exercised may be
exercised from and after the date of the death of the Participant, the
Continuing USA Participant, the Continuing Boeing Participant or the Continuing
Meritor Participant for a period of three years (or until the expiration date
specified in the Grant if earlier) even if any of them was not exercisable at
the date of death.
(e) If a Participant, a Continuing USA Participant, a Continuing Boeing
Participant or a Continuing Meritor Participant who (or whose permitted
transferee) holds outstanding Options or Stock Appreciation Rights retires under
a retirement plan of the Corporation, USA, Boeing North American, Boeing,
Meritor or any of their respective subsidiaries, at any time after a portion
thereof has become exercisable, the Options or Stock Appreciation Rights subject
to that Grant and not theretofore exercised may be exercised from and after the
date upon which they are first exercisable under that Grant for a period of five
years from the date of retirement (or until the expiration date specified in the
Grant if earlier) even if any of them was not exercisable at the date of
retirement, except that the Committee may determine within 60 days before or
after the retirement date of any such grantee who retires before attaining age
62 that such grantee (or a permitted transferee thereof) may exercise the
grantee's outstanding Option or Stock Appreciation Rights solely for such
shorter period as the Committee deems appropriate.
(f) If the employment by the Corporation of a Participant, the
employment by USA of a Continuing USA Participant, the employment by Boeing
North American, Boeing or any of their respective subsidiaries of a Continuing
Boeing Participant or the employment by Meritor or its subsidiaries of a
Continuing Meritor Participant who (or whose permitted transferee) holds an
outstanding Grant of Options or Stock Appreciation Rights is terminated for any
reason other than death or retirement under a retirement plan of the
Corporation, USA, Boeing North American, Boeing, Meritor or any of their
respective subsidiaries, the Options or Stock Appreciation Rights subject to
that Grant and not theretofore exercised may be exercised only within three
months after the termination of such employment (or until the expiration date
specified in the Grant if earlier) and only to the extent the grantee thereof
(or a permitted transferee) was entitled to exercise the Options or Stock
Appreciation Rights at the time of termination of such employment, unless and
except to the extent the Committee may otherwise determine; provided, however,
that the Committee shall not in any event permit a longer period of exercise
than would have been applicable had the provisions of paragraph (d) above been
applicable.
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10. SHARES AVAILABLE
(a) The total number of Shares which may be delivered in payment and
upon exercise of Grants and in payments of awards under Performance Plans shall
not exceed 16 million, as adjusted from time to time as herein provided, and the
total number of Shares as to which Grants may be made in any one fiscal year of
the Corporation shall not exceed 1-1/2% of the total number of Shares
outstanding and held in Treasury as of the date of determination. Shares which
may be delivered in payment or upon exercise of Grants or in payments of awards
under Performance Plans may consist in whole or in part of unissued or
reacquired Shares; provided, however, that unless otherwise determined by the
Committee, Shares which may be granted as Restricted Stock shall consist only of
reacquired shares. Subject to Sections 6(d) and (e), if for any reason Shares as
to which an Option has been granted cease to be subject to purchase thereunder
or Shares granted as Restricted Stock are forfeited to the Corporation, then
such Shares shall again be available under the Plan.
(b) The total number of Shares subject to Options and Stock
Appreciation Rights granted to any one Employee in any one fiscal year of
Rockwell under all plans of Rockwell and any parent or subsidiary of Rockwell
shall in no event exceed 350,000, as adjusted from time to time as herein
provided.
(c) No Option, Freestanding Stock Appreciation Right or Restricted
Stock shall be granted under the Plan or any Supplementary Stock Plan after
September 30, 2005, but Options or Stock Appreciation Rights and Restricted
Stock granted theretofore may extend beyond that date, and Tandem Stock
Appreciation Rights may be granted after that date with respect to Options
outstanding on that date.
11. ADJUSTMENTS
(a) If there shall be any change in or affecting Shares on account of
any merger, consolidation, reorganization, recapitalization, reclassification,
stock dividend, stock split or combination, or other distribution to holders of
Shares (other than a cash dividend), there shall be made or taken such
amendments to the Plan and such adjustments and actions thereunder as the Board
of Directors may deem appropriate under the circumstances. Such amendments,
adjustments and actions may include, without limitation, changes in the number
of Shares which may be issued or transferred, in the aggregate or to any one
Employee, pursuant to the Plan, the number of Shares subject to outstanding
Options and Stock Appreciation Rights and the related price per share; provided,
however, that no such amendment, adjustment or action may change the limitation
prescribed by Section 10(b) to a number of Shares that is a greater proportion
of the total number of Shares outstanding and held in Treasury as of the
effective date of that amendment, adjustment or action than the proportion of
the number of Shares prescribed by Section 10(b) to the total number of Shares
outstanding and held in Treasury immediately prior thereto.
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12. AMENDMENT AND TERMINATION
(a) The Committee shall have the power in its discretion to amend,
suspend or terminate the Plan or Grants thereunder at any time except that,
subject to the provisions of Section 11, (a) without the consent of the person
affected, no such action shall cancel or reduce a Grant theretofore made other
than as provided for or contemplated in the agreement evidencing the Grant and
(b) without the approval of the shareowners of Rockwell, the Committee may not
(i) change the class of persons eligible to receive incentive stock options,
(ii) increase the number of Shares provided in Section 10(a) or 10(b), (iii)
reduce the Option exercise price of any Option below the Fair Market Value on
the date such Option was granted or decrease the forfeiture period for any Grant
below that permitted under the Plan.
13. MISCELLANEOUS
(a) Except as determined by the Committee, no person shall have any
claim to receive a Grant or any payment under a Performance Plan to receive
payment in respect of a Grant or under a Performance Plan in any form other than
the Committee shall approve or, in circumstances where Section 9 is applicable,
to be deemed to have earned any award under a Performance Plan or Shares of
Restricted Stock or to be entitled to exercise Options or Stock Appreciation
Rights for any particular period after termination of employment. There is no
obligation for uniformity of treatment of Employees under the Plan or any
Performance Plan. No Employee shall have any right as a Participant or a
participant under any Performance Plan to continue in the employ of the
Corporation for any period of time or to a continuation of any particular rate
of compensation, and the Corporation expressly reserves the right to discharge
or change the assignment of any Employee at any time.
(b) No Option, Stock Appreciation Right or right related to Restricted
Stock granted pursuant to the Plan or right to payment of an award under any
Performance Plan may be assigned, pledged or transferred except (i) by will or
by the laws of descent and distribution; or (ii) in the case of any Grant (other
than an Option granted as an incentive stock option) or any right to payment of
an award under a Performance Plan, by gift to any member of the Employee's
immediate family or to a trust for the benefit of one or more members of the
Employee's immediate family, if permitted in the applicable agreement governing
that Grant or right to payment; or (iii) as otherwise determined by the
Committee. Each Option, Stock Appreciation Right or right related to Restricted
Stock shall be exercisable, and each payment of an award under a Performance
Plan shall be payable, during the lifetime of the Employee to whom granted or
awarded only by or to such Employee, and any payment of an award under a
Performance Plan made after the death of a participating Employee entitled
thereto shall be paid to the legal representative of the estate or to the
designated beneficiary of such Employee, unless in any such case, the Grant or
right to payment has been transferred in accordance with the provisions of the
applicable agreement governing that Grant or right to payment, to a member of
the Employee's immediate family or a trust for the benefit of one or more
members of the Employee's immediate family, in which case it shall be
exercisable or payable only by or to such transferee (or to the legal
representative of the estate or to the heirs or legatees of such transferee).
For purposes of this provision, an Employee's "immediate family" shall mean the
Employee's spouse and natural, adopted or step-children and grandchildren.
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(c) No person shall have the rights or privileges of a shareowner with
respect to Shares subject to an Option, deliverable as a payment, upon exercise
of a Stock Appreciation Right or under a Performance Plan until exercise of such
Option or Stock Appreciation Right, or delivery as a payment under the
Performance Plan.
(d) No fractional Shares shall be issued or transferred pursuant to the
Plan. If the portion of any payment pursuant to the Plan or a Performance Plan,
to be made in Shares is not equal to the value of a whole number of Shares, the
person entitled thereto shall be paid an amount equal to the Fair Market Value
as of the date of exercise of any fractional Share deliverable in respect of
exercise of a Stock Appreciation Right and the Fair Market Value as of the date
of payment of any fractional Share deliverable in respect of any payment under a
Performance Plan.
(e) The Corporation, the Board of Directors, the Committee, the Grant
Committee and the officers of Rockwell shall be fully protected in relying in
good faith on the computations and reports made pursuant to or in connection
with the Plan by the independent certified public accountants who audit the
Corporation's accounts or others (who may include Employees) whose services are
used by the Board of Directors, Committee or Grant Committee in its
administration of the Plan.
(f) Notwithstanding any other provision of the Plan, if a Change of
Control shall occur, then (i) all Performance Cycles (except those under
Performance Plans that do not provide for a Change-of-Control contingency) not
then complete shall be deemed completed forthwith, the Performance Objectives
therefor shall be deemed to have been attained, and each participating Employee
shall be deemed to have earned the maximum amount that could have been earned
thereunder; (ii) all Options and any Stock Appreciation Rights then outstanding
pursuant to the Plan shall forthwith become fully exercisable whether or not
otherwise then exercisable; and (iii) the restrictions on all Shares granted as
Restricted Stock under the Plan shall forthwith lapse.
(g) The Corporation shall have the right in connection with the
delivery of any Shares in payment of a Grant or a payment under a Performance
Plan or upon exercise of an Option to require as a condition of such delivery
that the recipient represent that such Shares are being acquired for investment
and not with a view to the distribution thereof.
(h) The Corporation shall have the right in connection with any payment
under a Performance Plan, exercise of any Option or Stock Appreciation Right or
termination of the Restricted Period for any Restricted Stock, to deduct from
any such payment or any other payment by the Corporation, an amount equal to any
taxes required by law to be withheld with respect thereto or to require the
Employee or other person receiving such payment, effecting such exercise or
entitled to Shares and related payments on termination of such Restricted
Period, as a condition of and prior to such payment or exercise or delivery of
Shares on such termination, to pay to the Corporation an amount sufficient to
provide for any such taxes so required to be withheld.
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(i) Unless otherwise determined by the Committee or provided in an
agreement between any Employee and the Corporation, for purposes of the Plan an
Employee on authorized leave of absence will be considered as being in the
employ of the Corporation.
(j) The Corporation shall bear all expenses and costs in connection
with the operation of the Plan, including costs related to the purchase, issue
or transfer of Shares, but excluding taxes imposed on any person receiving a
payment or delivery of Shares under the Plan or a Performance Plan.
14. INTERPRETATIONS AND DETERMINATIONS
(a) The Committee shall have the power from time to time to interpret
the Plan, to adopt, amend and rescind rules, regulations and procedures relating
to the Plan, to make, amend and rescind determinations under the Plan and to
take all other actions that the Committee shall deem necessary or appropriate
for the implementation and administration of the Plan. All interpretations,
determinations and other actions by the Committee not revoked or modified by the
Board of Directors shall be final, conclusive and binding upon all parties.
15. EFFECTIVE DATE
(a) Upon approval by the shareowners of Rockwell, the Plan shall become
effective as of October 1, 1994.
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Exhibit 10-b-3
[Date]
[NAME]
[ADDRESS]
[ADDRESS]
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that the Compensation and Management Development
Committee has granted to you today the following stock option(s) under the 1995
Long-Term Incentives Plan (the Plan):
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Option Price
------------- ------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
This stock option grant is also subject to the condition that you sign and
return one copy of the Mutual Agreement to Arbitrate Claims to:
Rockwell International Corporation
Office of the Secretary (CM72)
600 Anton Boulevard, Suite 700
P.O. Box 5090
Costa Mesa, CA 92628-5090
These stock option(s) will be of no effect if the copy of the Mutual Agreement
to Arbitrate Claims properly signed by you, is not received by the Secretary of
Rockwell on or before [DATE], unless Rockwell (in its sole discretion) elects in
writing to extend that date.
A Stock Option Participant Booklet, including copies of the Plan and the
Prospectus are enclosed. Please carefully read the enclosed documents and retain
them for future reference.
ROCKWELL INTERNATIONAL CORPORATION
By:
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
<PAGE> 2
[Date]
[NAME]
[ADDRESS]
[ADDRESS]
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that the Compensation and Management Development
Committee has granted to you today the following stock option(s) under the 1995
Long-Term Incentives Plan (the Plan):
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Option Price
------------- ------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
A Stock Option Participant Booklet, including copies of the Plan and the
Prospectus are enclosed. Please carefully read the enclosed documents and retain
them for future reference.
ROCKWELL INTERNATIONAL CORPORATION
By:
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
<PAGE> 3
ROCKWELL INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below
unless the context in which any of them is used clearly indicates a
contrary meaning:
(a) CHASEMELLON: ChaseMellon Shareholder Services, the Stock Option
Administrator whom Rockwell has engaged to administer and process
all Stock Option exercises.
(b) IVR: Integrated Voice Response system that is used to facilitate
all Stock Option transactions.
(c) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated [DATE] to which these Stock Option
Terms and Conditions are attached and which together with these
Stock Option Terms and Conditions constitutes the Stock Option
Agreement.
(d) OPTION SHARES: The shares of Rockwell Common Stock issuable or
transferable on exercise of the Options.
(e) PLAN: Rockwell's 1995 Long-Term Incentives Plan, as such Plan may
be amended and in effect at the relevant time.
(f) ROCKWELL: Rockwell International Corporation, a Delaware
corporation.
(g) SHARES: Shares of Rockwell Common Stock.
(h) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated [DATE] to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third
(rounded to the nearest whole number) of the Option Shares during the
period beginning on [DATE] and ending on [DATE], as to an additional
one-third (rounded to the nearest whole number) of the Option Shares
during the period beginning on [DATE] and ending on [DATE] and as to
the balance of the Option Shares during the period beginning on [DATE]
and ending on [DATE], and only during those periods, provided that:
(a) if you die while an employee of the Corporation (as defined in the
Plan), your estate, or any person who acquires the Options by
bequest or inheritance, may exercise all the Options not
theretofore exercised within (and only within) the period
beginning
<PAGE> 4
on your date of death (even if you die before you have become
entitled to exercise all or any part of the Options) and ending
three years thereafter; and
(b) if your employment by the Corporation terminates other than by
death, then:
(i) if your retirement or other termination date is before
[DATE], the Options shall lapse on your retirement or other
termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for
cause, the Options shall expire forthwith upon your
termination and may not be exercised thereafter;
(iii) if your employment by the Corporation terminates after
[DATE] by reason of your retirement under a retirement plan
of Rockwell, or a subsidiary or affiliate of Rockwell, at
or after the earlier of age 62 or the date you have
fulfilled such other criteria as may be required for an
unreduced early retirement benefit for purposes of the
applicable retirement plan, you (or if you die after your
retirement date, your estate or any person who acquires the
Options by bequest or inheritance) may thereafter exercise
the Options within (and only within) the period starting on
the date you would otherwise have become entitled to
exercise the part of the Options so exercised and ending
five years after your retirement date;
(iv) if your employment by the Corporation terminates after
[DATE] by reason of your retirement under a retirement plan
of Rockwell, or a subsidiary or affiliate of Rockwell,
before the earlier of age 62 or the date you have fulfilled
such other criteria as may be required for an unreduced
early retirement benefit for purposes of the applicable
retirement plan, you (or if you die after your retirement
date, your estate or any person who acquires the Options by
bequest or inheritance) may thereafter exercise the Options
within (and only within) the period starting on the date
you would otherwise have become entitled to exercise the
part of the Options so exercised and ending on the earlier
of (x) the third anniversary of your retirement date or (y)
such earlier date as the Compensation and Management
Development Committee shall determine by action taken not
later than 60 days after your retirement date;
(v) if your employment by the Corporation terminates on or
after [DATE] but on or before [DATE] by reason of your
retirement under a retirement plan of Rockwell, or a
subsidiary or affiliate of Rockwell, you (or if you die
after your retirement date, your estate or any person who
acquires the Options by bequest or inheritance) may
thereafter exercise the Options within (and only within)
the period starting on the date you would otherwise have
become entitled to exercise the part of the Options so
exercised and ending on the earlier of (x) the third
anniversary of your retirement date or (y) such earlier
date as the Compensation and Management Development
Committee shall determine by action taken not later than 60
days after your retirement date; and
<PAGE> 5
(vi) if your employment by the Corporation terminates on or
after [DATE] for any reason not specified in subparagraph
(a) or in clauses (ii), (iii), (iv) or (v) of this
subparagraph (b), you (or if you die after your termination
date, your estate or any person who acquires the Options by
bequest or inheritance) may thereafter exercise the Options
within (and only within) the period ending three months
after your termination date but only to the extent they
were exercisable on your termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and
(b) extend to a date after [DATE] the period during which the Options
may be exercised.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or after your
death, your estate or any person who has acquired the Options by
bequest or inheritance) must contact the administrator,
ChaseMellon Shareholder Services, by using the IVR system as
follows:
(i) contact ChaseMellon using a touch-tone phone and follow the
instructions provided (or contact ChaseMellon using a
rotary phone and speak to a Customer Service
Representative);
(ii) confirm the Option transaction through the IVR system by
receiving a confirmation number;
(iii) at any time you may speak to a Customer Service
Representative for assistance;
(iv) full payment of the exercise price for the Option Shares to
be purchased on exercise of the Options may be made by:
o check; or
o in Shares; or
o in a combination of check and Shares; and
<PAGE> 6
(v) in the case of an exercise of the Options by any person
other than you seeking to exercise the Options, such
documents as ChaseMellon or the Secretary of Rockwell shall
require to establish to their satisfaction that the person
seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be
effective:
(i) if you elect (or after your death, the person entitled to
exercise the Options elects) to pay the exercise price for
the Option Shares entirely by check, (I) upon confirmation
of your transaction by using the IVR system and full
payment of the exercise price and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (II) receipt
of any documents required pursuant to Section 3(a)(v); and
(ii) if you elect (or after your death, the person entitled to
exercise the Option elects) to pay the exercise price of
the Option Shares in Shares or in a combination of Shares
and check, (I) upon confirmation of your transaction by
using the IVR system and full payment of the exercise price
(as defined in Section 3(d)(i)) and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (II) receipt
of any documents required pursuant to Section 3(a)(v).
(c) If you choose (or after your death, the person entitled to
exercise the Options chooses) to pay the exercise price for the
Option Shares to be purchased on exercise of any of the Options
entirely by check, payment must be made by:
o delivering to ChaseMellon a check in the full amount of
the exercise price for those Option Shares; or
o arranging with a stockbroker, bank or other financial
institution to deliver to ChaseMellon full payment, by
check or (if prior arrangements are made with
ChaseMellon) by wire transfer, of the exercise price of
those Option Shares.
In either event, in accordance with Section 3(e), full payment of
the exercise price for the Option Shares purchased must be made
within five business days after the exercise has been conducted
and confirmed through the IVR system.
(d) (i) If you choose (or after your death, the person entitled to
exercise the Options chooses) to use already-owned Shares
to pay all or part of the exercise price for the Option
Shares to be purchased on exercise of any of the Options,
you (or after your death, the person entitled to exercise
the Options) must deliver to ChaseMellon one or more
certificates (and executed stock powers) representing:
o at least the number of Shares whose value, based on the
closing price of Common Stock of Rockwell on the New
York Stock Exchange -- Composite Transactions on the
day you have exercised your Options through the IVR
system; or
<PAGE> 7
o any lesser number of Shares you desire (or after your
death, the person entitled to exercise the Options
desires) to use to pay the exercise price for those
Option Shares and a check in the amount of such
exercise price less the value of the Shares delivered,
based on the closing price of Common Stock of Rockwell
on the New York Stock Exchange -- Composite
Transactions on the day you have exercised your Options
through the IVR system.
(ii) ChaseMellon will advise you (or any other person who, being
entitled to do so, exercises the Options) of the exact
number of Shares, valued in accordance with Section 6(e) of
the Plan at the closing price on the New York Stock
Exchange -- Composite Transactions on the effective date of
exercise under Section 3(b)(ii), and any funds required to
pay in full the exercise price for the Option Shares
purchased. In accordance with Section 3(e), you (or such
other person) must pay, by check, in Shares or in a
combination of check and Shares, any balance required to
pay in full the exercise price of the Option Shares
purchased within five business days following the effective
date of such exercise of the Options under Section
3(b)(ii).
(iii) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Rockwell may limit the number,
frequency or volume of successive exercises of any of the
Options in which payment is made, in whole or in part, by
delivery of Shares pursuant to this subparagraph (d) to
prevent unreasonable pyramiding of such exercises.
(e) An exercise conducted and confirmed through the IVR system,
whether or not full payment of the exercise price for the Option
Shares is received by ChaseMellon, shall constitute a binding
contractual obligation by you (or the other person entitled to
exercise the Options) to proceed with and complete that exercise
of the Options (but only so long as you continue, or the other
person entitled to exercise the Options continues, to be entitled
to exercise the Options on that date). By your acceptance of this
Stock Option Agreement, you agree (for yourself and on behalf of
any other person who becomes entitled to exercise the Options) to
deliver or cause to be delivered to ChaseMellon any balance of the
exercise price for the Option Shares to be purchased upon the
exercise pursuant to the transaction conducted through the IVR
system required to pay in full the exercise price for those Option
Shares, that payment being by check, wire transfer, in Shares or
in a combination of check and Shares, on or before the later of
the fifth business day after the date on which you confirm the
transaction through the IVR system. If such payment is not made,
you (for yourself and on behalf of any other person who becomes
entitled to exercise the Options) authorize the Corporation, in
its discretion, to set off against salary payments or other
amounts due or which may become due you (or the other person
entitled to exercise the Options) any balance of the exercise
price for those Option Shares remaining unpaid thereafter.
(f) A book-entry statement representing the number of Option Shares
purchased will be issued as soon as practicable (i) after
ChaseMellon has received full payment
<PAGE> 8
therefor or (ii) at Rockwell's or ChaseMellon's election in their
sole discretion, after Rockwell or ChaseMellon has received (x)
full payment of the exercise price of those Option Shares and (y)
any reimbursement in respect of withholding taxes due pursuant to
Section 5.
4. Transferability
You are not entitled to transfer the Options except (i) by will or by
the laws of descent and distribution; or (ii) in the case of Options
not granted as incentive stock options covering not more than 30,000
Option Shares, by gift to any member of your immediate family or to a
trust for the benefit of one or more members of your immediate family;
provided, however, that no transfer pursuant to this clause (iii) shall
be effective unless you have notified the Corporation's Office of the
Secretary (Attention: Stock Option Administration) in writing
specifying the Option or Options transferred, the date of the gift and
the name, address and Social Security or other Taxpayer Identification
Number of the transferee. During your lifetime, only you are entitled
to exercise the Options unless you have transferred any Option in
accordance with this paragraph to a member of your immediate family or
a trust for the benefit of one or more members of your immediate
family, in which case only that transferee (or the legal representative
of the estate or the heirs or legatees of that transferee) shall be
entitled to exercise that Option. For purposes of this paragraph, your
"immediate family" shall mean your spouse and natural, adopted or
step-children and grandchildren.
5. Withholding
Rockwell or ChaseMellon shall have the right, in connection with the
exercise of the Options in whole or in part, to deduct from any payment
to be made by Rockwell or ChaseMellon under the Plan an amount equal to
the taxes required to be withheld by law with respect to such exercise
or to require you (or any other person entitled to exercise the
Options) to pay to it an amount sufficient to provide for any such
taxes so required to be withheld. By your acceptance of this Stock
Option Agreement, you agree (for yourself and on behalf of any other
person who becomes entitled to exercise the Options) that if Rockwell
or ChaseMellon elects to require you (or such other person) to remit an
amount sufficient to pay such withholding taxes, you (or such other
person) must remit that amount within five business days after the
confirmation of the Option exercise (Section 3(a)(ii)). If such payment
is not made, Rockwell, in its discretion, shall have the same right of
set-off as provided under Section 3(e) with respect to payment of the
withholding taxes in connection with the exercise of the Option.
6. Headings
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections,
paragraphs, subparagraphs or clauses shall be deemed to be references
to Sections, paragraphs,
<PAGE> 9
subparagraphs and clauses of these Stock Option Terms and Conditions
unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the Plan embody the entire agreement
and understanding between Rockwell and you with respect to the Options,
and there are no representations, promises, covenants, agreements or
understandings with respect to the Options other than those expressly
set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell's obligation to issue Option
Shares hereunder are subject to applicable laws and regulations.
<PAGE> 10
ROCKWELL INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below
unless the context in which any of them is used clearly indicates a
contrary meaning:
(a) CHASEMELLON: ChaseMellon Shareholder Services, the Stock Option
Administrator whom Rockwell has engaged to administer and process
all Stock Option exercises.
(b) IVR: Integrated Voice Response system that is used to facilitate
all Stock Option transactions.
(c) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated [DATE] to which these Stock Option
Terms and Conditions are attached and which together with these
Stock Option Terms and Conditions constitutes the Stock Option
Agreement.
(d) OPTION SHARES: The shares of Rockwell Common Stock issuable or
transferable on exercise of the Options.
(e) PLAN: Rockwell's 1995 Long-Term Incentives Plan, as such Plan may
be amended and in effect at the relevant time.
(f) ROCKWELL: Rockwell International Corporation, a Delaware
corporation.
(g) SHARES: Shares of Rockwell Common Stock.
(h) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated [DATE] to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third
(rounded to the nearest whole number) of the Option Shares during the
period beginning on [DATE] and ending on [DATE], as to an additional
one-third (rounded to the nearest whole number) of the Option Shares
during the period beginning on [DATE] and ending on [DATE] and as to
the balance of the Option Shares during the period beginning on [DATE]
and ending on [DATE], and only during those periods, provided that:
(a) if you die while an employee of the Corporation (as defined in the
Plan), your estate, or any person who acquires the Options by
bequest or inheritance, may exercise all the Options not
theretofore exercised within (and only within) the period
beginning
<PAGE> 11
on your date of death (even if you die before you have become
entitled to exercise all or any part of the Options) and ending
three years thereafter; and
(b) if your employment by the Corporation terminates other than by
death, then:
(i) if your retirement or other termination date is before
[DATE], the Options shall lapse on your retirement or other
termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for
cause, the Options shall expire forthwith upon your
termination and may not be exercised thereafter;
(iii) if your employment by the Corporation terminates after
[DATE] by reason of your retirement under a retirement plan
of Rockwell, or a subsidiary or affiliate of Rockwell, at
or after the earlier of age 62 or the date you have
fulfilled such other criteria as may be required for an
unreduced early retirement benefit for purposes of the
applicable retirement plan, you (or if you die after your
retirement date, your estate or any person who acquires the
Options by bequest or inheritance) may thereafter exercise
the Options within (and only within) the period starting on
the date you would otherwise have become entitled to
exercise the part of the Options so exercised and ending
five years after your retirement date;
(iv) if your employment by the Corporation terminates after
[DATE] by reason of your retirement under a retirement plan
of Rockwell, or a subsidiary or affiliate of Rockwell,
before the earlier of age 62 or the date you have fulfilled
such other criteria as may be required for an unreduced
early retirement benefit for purposes of the applicable
retirement plan, you (or if you die after your retirement
date, your estate or any person who acquires the Options by
bequest or inheritance) may thereafter exercise the Options
within (and only within) the period starting on the date
you would otherwise have become entitled to exercise the
part of the Options so exercised and ending on the earlier
of (x) the third anniversary of your retirement date or (y)
such earlier date as the Compensation and Management
Development Committee shall determine by action taken not
later than 60 days after your retirement date;
(v) if your employment by the Corporation terminates on or
after [DATE] but on or before [DATE] by reason of your
retirement under a retirement plan of Rockwell, or a
subsidiary or affiliate of Rockwell, you (or if you die
after your retirement date, your estate or any person who
acquires the Options by bequest or inheritance) may
thereafter exercise the Options within (and only within)
the period starting on the date you would otherwise have
become entitled to exercise the part of the Options so
exercised and ending on the earlier of (x) the third
anniversary of your retirement date or (y) such earlier
date as the Compensation and Management Development
Committee shall determine by action taken not later than 60
days after your retirement date; and
<PAGE> 12
(vi) if your employment by the Corporation terminates on or
after [DATE] for any reason not specified in subparagraph
(a) or in clauses (ii), (iii), (iv) or (v) of this
subparagraph (b), you (or if you die after your termination
date, your estate or any person who acquires the Options by
bequest or inheritance) may thereafter exercise the Options
within (and only within) the period ending three months
after your termination date but only to the extent they
were exercisable on your termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and
(b) extend to a date after [DATE] the period during which the Options
may be exercised.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or after your
death, your estate or any person who has acquired the Options by
bequest or inheritance) must contact the administrator,
ChaseMellon Shareholder Services, by using the IVR system as
follows:
(i) contact ChaseMellon using a touch-tone phone and follow the
instructions provided (or contact ChaseMellon using a
rotary phone and speak to a Customer Service
Representative);
(ii) confirm the Option transaction through the IVR system by
receiving a confirmation number;
(iii) at any time you may speak to a Customer Service
Representative for assistance;
(iv) full payment of the exercise price for the Option Shares to
be purchased on exercise of the Options may be made by:
o check; or
o in Shares; or
o in a combination of check and Shares; and
<PAGE> 13
(v) in the case of an exercise of the Options by any person
other than you seeking to exercise the Options, such
documents as ChaseMellon or the Secretary of Rockwell shall
require to establish to their satisfaction that the person
seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be
effective:
(i) if you elect (or after your death, the person entitled to
exercise the Options elects) to pay the exercise price for
the Option Shares entirely by check, (I) upon confirmation
of your transaction by using the IVR system and full
payment of the exercise price and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (II) receipt
of any documents required pursuant to Section 3(a)(v); and
(ii) if you elect (or after your death, the person entitled to
exercise the Option elects) to pay the exercise price of
the Option Shares in Shares or in a combination of Shares
and check, (I) upon confirmation of your transaction by
using the IVR system and full payment of the exercise price
(as defined in Section 3(d)(i)) and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (II) receipt
of any documents required pursuant to Section 3(a)(v).
(c) If you choose (or after your death, the person entitled to
exercise the Options chooses) to pay the exercise price for the
Option Shares to be purchased on exercise of any of the Options
entirely by check, payment must be made by:
o delivering to ChaseMellon a check in the full amount of
the exercise price for those Option Shares; or
o arranging with a stockbroker, bank or other financial
institution to deliver to ChaseMellon full payment, by
check or (if prior arrangements are made with
ChaseMellon) by wire transfer, of the exercise price of
those Option Shares.
In either event, in accordance with Section 3(e), full payment of
the exercise price for the Option Shares purchased must be made
within five business days after the exercise has been conducted
and confirmed through the IVR system.
(d) (i) If you choose (or after your death, the person entitled to
exercise the Options chooses) to use already-owned Shares
to pay all or part of the exercise price for the Option
Shares to be purchased on exercise of any of the Options,
you (or after your death, the person entitled to exercise
the Options) must deliver to ChaseMellon one or more
certificates (and executed stock powers) representing:
o at least the number of Shares whose value, based on the
closing price of Common Stock of Rockwell on the New
York Stock Exchange -- Composite Transactions on the
day you have exercised your Options through the IVR
system; or
<PAGE> 14
o any lesser number of Shares you desire (or after your
death, the person entitled to exercise the Options
desires) to use to pay the exercise price for those
Option Shares and a check in the amount of such
exercise price less the value of the Shares delivered,
based on the closing price of Common Stock of Rockwell
on the New York Stock Exchange -- Composite
Transactions on the day you have exercised your Options
through the IVR system.
(ii) ChaseMellon will advise you (or any other person who, being
entitled to do so, exercises the Options) of the exact
number of Shares, valued in accordance with Section 6(e) of
the Plan at the closing price on the New York Stock
Exchange -- Composite Transactions on the effective date of
exercise under Section 3(b)(ii), and any funds required to
pay in full the exercise price for the Option Shares
purchased. In accordance with Section 3(e), you (or such
other person) must pay, by check, in Shares or in a
combination of check and Shares, any balance required to
pay in full the exercise price of the Option Shares
purchased within five business days following the effective
date of such exercise of the Options under Section
3(b)(ii).
(iii) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Rockwell may limit the number,
frequency or volume of successive exercises of any of the
Options in which payment is made, in whole or in part, by
delivery of Shares pursuant to this subparagraph (d) to
prevent unreasonable pyramiding of such exercises.
(e) An exercise conducted and confirmed through the IVR system,
whether or not full payment of the exercise price for the Option
Shares is received by ChaseMellon, shall constitute a binding
contractual obligation by you (or the other person entitled to
exercise the Options) to proceed with and complete that exercise
of the Options (but only so long as you continue, or the other
person entitled to exercise the Options continues, to be entitled
to exercise the Options on that date). By your acceptance of this
Stock Option Agreement, you agree (for yourself and on behalf of
any other person who becomes entitled to exercise the Options) to
deliver or cause to be delivered to ChaseMellon any balance of the
exercise price for the Option Shares to be purchased upon the
exercise pursuant to the transaction conducted through the IVR
system required to pay in full the exercise price for those Option
Shares, that payment being by check, wire transfer, in Shares or
in a combination of check and Shares, on or before the later of
the fifth business day after the date on which you confirm the
transaction through the IVR system. If such payment is not made,
you (for yourself and on behalf of any other person who becomes
entitled to exercise the Options) authorize the Corporation, in
its discretion, to set off against salary payments or other
amounts due or which may become due you (or the other person
entitled to exercise the Options) any balance of the exercise
price for those Option Shares remaining unpaid thereafter.
(f) A book-entry statement representing the number of Option Shares
purchased will be issued as soon as practicable (i) after
ChaseMellon has received full payment
<PAGE> 15
therefor or (ii) at Rockwell's or ChaseMellon's election in their
sole discretion, after Rockwell or ChaseMellon has received (x)
full payment of the exercise price of those Option Shares and (y)
any reimbursement in respect of withholding taxes due pursuant to
Section 5.
4. Transferability
The Options are not transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, only you
are entitled to exercise the Options.
5. Withholding
Rockwell or ChaseMellon shall have the right, in connection with the
exercise of the Options in whole or in part, to deduct from any payment
to be made by Rockwell or ChaseMellon under the Plan an amount equal to
the taxes required to be withheld by law with respect to such exercise
or to require you (or any other person entitled to exercise the
Options) to pay to it an amount sufficient to provide for any such
taxes so required to be withheld. By your acceptance of this Stock
Option Agreement, you agree (for yourself and on behalf of any other
person who becomes entitled to exercise the Options) that if Rockwell
or ChaseMellon elects to require you (or such other person) to remit an
amount sufficient to pay such withholding taxes, you (or such other
person) must remit that amount within five business days after the
confirmation of the Option exercise (Section 3(a)(ii)). If such payment
is not made, Rockwell, in its discretion, shall have the same right of
set-off as provided under Section 3(e) with respect to payment of the
withholding taxes in connection with the exercise of the Option.
6. Headings
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
<PAGE> 16
7. References
All references in these Stock Option Terms and Conditions to Sections,
paragraphs, subparagraphs or clauses shall be deemed to be references
to Sections, paragraphs, subparagraphs and clauses of these Stock
Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the Plan embody the entire agreement
and understanding between Rockwell and you with respect to the Options,
and there are no representations, promises, covenants, agreements or
understandings with respect to the Options other than those expressly
set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell's obligation to issue Option
Shares hereunder are subject to applicable laws and regulations.
<PAGE> 1
Exhibit 10-b-4
[Date]
[NAME]
[ADDRESS]
[ADDRESS]
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that the Compensation and Management Development
Committee has granted to you today the following stock option(s) under the 1995
Long-Term Incentives Plan (the Plan):
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Option Price
------------- ------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
A Stock Option Participant Booklet, including copies of the Plan and the
Prospectus are enclosed. Please carefully read the enclosed documents and retain
them for future reference.
ROCKWELL INTERNATIONAL CORPORATION
By:
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
<PAGE> 2
ROCKWELL INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below
unless the context in which any of them is used clearly indicates a
contrary meaning:
(a) CHASEMELLON: ChaseMellon Shareholder Services, the Stock Option
Administrator whom Rockwell has engaged to administer and process
all Stock Option exercises.
(b) IVR: Integrated Voice Response system that is used to facilitate
all Stock Option transactions.
(c) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated April 23, 1998 to which these Stock
Option Terms and Conditions are attached and which together with
these Stock Option Terms and Conditions constitutes the Stock
Option Agreement.
(d) OPTION SHARES: The shares of Rockwell Common Stock issuable or
transferable on exercise of the Options.
(e) PLAN: Rockwell's 1995 Long-Term Incentives Plan, as such Plan may
be amended and in effect at the relevant time.
(f) ROCKWELL: Rockwell International Corporation, a Delaware
corporation.
(g) SHARES: Shares of Rockwell Common Stock.
(h) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated April 23, 1998 to which they are
attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, during the
period beginning on April 23, 2001 and ending on April 23, 2008, and
only during that period, provided that:
(a) if you die while an employee of the Corporation (as defined in the
Plan), your estate, or any person who acquires the Options by
bequest or inheritance, may exercise all the Options not
theretofore exercised within (and only within) the period
beginning
-2-
<PAGE> 3
on your date of death (even if you die before you have become
entitled to exercise all or any part of the Options) and ending
three years thereafter; and
(b) if your employment by the Corporation terminates by reason of your
retirement or resignation, then:
(i) if your employment by the Corporation terminates on or
after April 23, 2001 by reason of your retirement under a
retirement plan of Rockwell, or a subsidiary or affiliate
of Rockwell, at or after the earlier of age 62 or the date
you have fulfilled such other criteria as may be required
for an unreduced early retirement benefit for purposes of
the applicable retirement plan, you (or if you die after
your retirement date, your estate or any person who
acquires the Options by bequest or inheritance) may
thereafter exercise the Options within (and only within)
the period starting on April 23, 2001 and ending five years
after your retirement date;
(ii) if your employment by the Corporation terminates on or
after April 23, 2001 by reason of your retirement under a
retirement plan of Rockwell, or a subsidiary or affiliate
of Rockwell, before the earlier of age 62 or the date you
have fulfilled such other criteria as may be required for
an unreduced early retirement benefit for purposes of the
applicable retirement plan, you (or if you die after your
retirement date, your estate or any person who acquires the
Options by bequest or inheritance) may thereafter exercise
the Options within (and only within) the period starting on
April 23, 2001 and ending on the earlier of (x) the third
anniversary of your retirement date or (y) such earlier
date as the Compensation and Management Development
Committee shall determine by action taken not later than 60
days after your retirement date;
(iii) if your employment by the Corporation terminates on or
after April 23, 2001 by reason of your retirement (other
than under a retirement plan of Rockwell, or a subsidiary
or affiliate of Rockwell) or by reason of your resignation,
you (or if you die after your termination date, your estate
or any person who acquires the Options by bequest or
inheritance) may thereafter exercise the Options within
(and only within) the period ending three months after your
termination date; and
(c) if your employment by the Corporation is terminated by the
Corporation, then:
(i) if your employment by the Corporation is terminated for
cause, the Options shall expire forthwith upon your
termination and may not be exercised thereafter;
(ii) if your employment by the Corporation is terminated, other
than for cause, you (or if you die after your termination
date, your estate or any person who acquires the Options by
bequest or inheritance) may exercise the Options as
-3-
<PAGE> 4
to one-third of the Option Shares for each full year (but
not more than three) that has elapsed between April 23,
1998 and the date you shall have received written notice of
termination, within (and only within) the period starting
on the date of that written notice and ending three months
after your termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and
(b) extend to a date after April 23, 2008 the period during which the
Options may be exercised.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or after your
death, your estate or any person who has acquired the Options by
bequest or inheritance) must contact the administrator,
ChaseMellon Shareholder Services, by using the IVR system as
follows:
(i) contact ChaseMellon using a touch-tone phone and follow the
instructions provided (or contact ChaseMellon using a
rotary phone and speak to a Customer Service
Representative);
(ii) confirm the Option transaction through the IVR system by
receiving a confirmation number;
(iii) at any time you may speak to a Customer Service
Representative for assistance;
(iv) full payment of the exercise price for the Option Shares to
be purchased on exercise of the Options may be made by:
o check; or
o in Shares; or
o in a combination of check and Shares; and
(v) in the case of an exercise of the Options by any person
other than you seeking to exercise the Options, such
documents as ChaseMellon or the Secretary of Rockwell shall
require to establish to their satisfaction that the person
seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be
effective:
(i) if you elect (or after your death, the person entitled to
exercise the Options elects) to pay the exercise price for
the Option Shares entirely by check, (I) upon confirmation
of your transaction by using the IVR system and full
payment of the exercise price and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the
-4-
<PAGE> 5
confirmation; and (II) receipt of any documents required
pursuant to Section 3(a)(v); and
(ii) if you elect (or after your death, the person entitled to
exercise the Option elects) to pay the exercise price of
the Option Shares in Shares or in a combination of Shares
and check, (I) upon confirmation of your transaction by
using the IVR system and full payment of the exercise price
(as defined in Section 3(d)(i)) and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (II) receipt
of any documents required pursuant to Section 3(a)(v).
(c) If you choose (or after your death, the person entitled to
exercise the Options chooses) to pay the exercise price for the
Option Shares to be purchased on exercise of any of the Options
entirely by check, payment must be made by:
o delivering to ChaseMellon a check in the full amount of
the exercise price for those Option Shares; or
o arranging with a stockbroker, bank or other financial
institution to deliver to ChaseMellon full payment, by
check or (if prior arrangements are made with
ChaseMellon) by wire transfer, of the exercise price of
those Option Shares.
In either event, in accordance with Section 3(e), full payment of
the exercise price for the Option Shares purchased must be made
within five business days after the exercise has been conducted
and confirmed through the IVR system.
(d) (i) If you choose (or after your death, the person entitled to
exercise the Options chooses) to use already-owned Shares
to pay all or part of the exercise price for the Option
Shares to be purchased on exercise of any of the Options,
you (or after your death, the person entitled to exercise
the Options) must deliver to ChaseMellon one or more
certificates (and executed stock powers) representing:
o at least the number of Shares whose value, based on the
closing price of Common Stock of Rockwell on the New
York Stock Exchange -- Composite Transactions on the
day you have exercised your Options through the IVR
system; or
o any lesser number of Shares you desire (or after your
death, the person entitled to exercise the Options
desires) to use to pay the exercise price for those
Option Shares and a check in the amount of such
exercise price less the value of the Shares delivered,
based on the closing price of Common Stock of Rockwell
on the New York
-5-
<PAGE> 6
Stock Exchange -- Composite Transactions on the day you
have exercised your Options through the IVR system.
(ii) ChaseMellon will advise you (or any other person who, being
entitled to do so, exercises the Options) of the exact
number of Shares, valued in accordance with Section 6(e) of
the Plan at the closing price on the New York Stock
Exchange -- Composite Transactions on the effective date of
exercise under Section 3(b)(ii), and any funds required to
pay in full the exercise price for the Option Shares
purchased. In accordance with Section 3(e), you (or such
other person) must pay, by check, in Shares or in a
combination of check and Shares, any balance required to
pay in full the exercise price of the Option Shares
purchased within five business days following the effective
date of such exercise of the Options under Section
3(b)(ii).
(iii) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Rockwell may limit the number,
frequency or volume of successive exercises of any of the
Options in which payment is made, in whole or in part, by
delivery of Shares pursuant to this subparagraph (d) to
prevent unreasonable pyramiding of such exercises.
(e) An exercise conducted and confirmed through the IVR system,
whether or not full payment of the exercise price for the Option
Shares is received by ChaseMellon, shall constitute a binding
contractual obligation by you (or the other person entitled to
exercise the Options) to proceed with and complete that exercise
of the Options (but only so long as you continue, or the other
person entitled to exercise the Options continues, to be entitled
to exercise the Options on that date). By your acceptance of this
Stock Option Agreement, you agree (for yourself and on behalf of
any other person who becomes entitled to exercise the Options) to
deliver or cause to be delivered to ChaseMellon any balance of the
exercise price for the Option Shares to be purchased upon the
exercise pursuant to the transaction conducted through the IVR
system required to pay in full the exercise price for those Option
Shares, that payment being by check, wire transfer, in Shares or
in a combination of check and Shares, on or before the later of
the fifth business day after the date on which you confirm the
transaction through the IVR system. If such payment is not made,
you (for yourself and on behalf of any other person who becomes
entitled to exercise the Options) authorize the Corporation, in
its discretion, to set off against salary payments or other
amounts due or which may become due you (or the other person
entitled to exercise the Options) any balance of the exercise
price for those Option Shares remaining unpaid thereafter.
(f) A book-entry statement representing the number of Option Shares
purchased will be issued as soon as practicable (i) after
ChaseMellon has received full payment therefor or (ii) at
Rockwell's or ChaseMellon's election in their sole discretion,
after Rockwell or ChaseMellon has received (x) full payment of the
exercise price of
-6-
<PAGE> 7
those Option Shares and (y) any reimbursement in respect of
withholding taxes due pursuant to Section 5.
4. Transferability
The Options are not transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, only you
are entitled to exercise the Options.
5. Withholding
Rockwell or ChaseMellon shall have the right, in connection with the
exercise of the Options in whole or in part, to deduct from any payment
to be made by Rockwell or ChaseMellon under the Plan an amount equal to
the taxes required to be withheld by law with respect to such exercise
or to require you (or any other person entitled to exercise the
Options) to pay to it an amount sufficient to provide for any such
taxes so required to be withheld. By your acceptance of this Stock
Option Agreement, you agree (for yourself and on behalf of any other
person who becomes entitled to exercise the Options) that if Rockwell
or ChaseMellon elects to require you (or such other person) to remit an
amount sufficient to pay such withholding taxes, you (or such other
person) must remit that amount within five business days after the
confirmation of the Option exercise (Section 3(a)(ii)). If such payment
is not made, Rockwell, in its discretion, shall have the same right of
set-off with respect to payment of the withholding taxes in connection
with the exercise of the Option as provided under Section 3(e) with
respect to payment of the exercise price.
6. Headings
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections,
paragraphs, subparagraphs or clauses shall be deemed to be references
to Sections, paragraphs, subparagraphs and clauses of these Stock
Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the Plan embody the entire agreement
and understanding between Rockwell and you with respect to the Options,
and there are no representations, promises, covenants, agreements or
understandings with respect to the Options other than those expressly
set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
-7-
<PAGE> 8
This Stock Option Agreement and Rockwell's obligation to issue Option
Shares hereunder are subject to applicable laws and regulations.
-8-
<PAGE> 1
Exhibit 10-b-5
[Date]
[NAME]
[ADDRESS]
[ADDRESS]
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that the Compensation and Management Development
Committee has granted to you today the following stock option(s) under the 1995
Long-Term Incentives Plan (the Plan):
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Option Price
------------- ------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
This stock option grant is also subject to the condition that you sign and
return one copy of the Mutual Agreement to Arbitrate Claims to:
Rockwell International Corporation
Office of the Secretary (CM72)
600 Anton Boulevard, Suite 700
P.O. Box 5090
Costa Mesa, CA 92628-5090
These stock option(s) will be of no effect if the copy of the Mutual Agreement
to Arbitrate Claims properly signed by you, is not received by the Secretary of
Rockwell on or before [DATE], unless Rockwell (in its sole discretion) elects in
writing to extend that date.
A Stock Option Participant Booklet, including copies of the Plan and the
Prospectus are enclosed. Please carefully read the enclosed documents and retain
them for future reference.
ROCKWELL INTERNATIONAL CORPORATION
By:
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
<PAGE> 2
[Date]
[NAME]
[ADDRESS]
[ADDRESS]
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that the Compensation and Management Development
Committee has granted to you today the following stock option(s) under the 1995
Long-Term Incentives Plan (the Plan):
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Option Price
------------- ------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
A Stock Option Participant Booklet, including copies of the Plan and the
Prospectus are enclosed. Please carefully read the enclosed documents and retain
them for future reference.
ROCKWELL INTERNATIONAL CORPORATION
By:
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
-2-
<PAGE> 3
ROCKWELL INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below
unless the context in which any of them is used clearly indicates a
contrary meaning:
(a) CHASEMELLON: ChaseMellon Shareholder Services, the Stock Option
Administrator whom Rockwell has engaged to administer and process
all Stock Option exercises.
(b) IVR: Integrated Voice Response system that is used to facilitate
all Stock Option transactions.
(c) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated [DATE] to which these Stock Option
Terms and Conditions are attached and which together with these
Stock Option Terms and Conditions constitutes the Stock Option
Agreement.
(d) OPTION SHARES: The shares of Rockwell Common Stock issuable or
transferable on exercise of the Options.
(e) PLAN: Rockwell's 1995 Long-Term Incentives Plan, as such Plan may
be amended and in effect at the relevant time.
(f) ROCKWELL: Rockwell International Corporation, a Delaware
corporation.
(g) SHARES: Shares of Rockwell Common Stock.
(h) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated [DATE] to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third
(rounded to the nearest whole number) of the Option Shares during the
period beginning on [DATE] and ending on [DATE], as to an additional
one-third (rounded to the nearest whole number) of the Option Shares
during the period beginning on [DATE] and ending on [DATE] and as to
the balance of the Option Shares during the period beginning on [DATE]
and ending on [DATE], and only during those periods, provided that:
-3-
<PAGE> 4
(a) if you die while an employee of the Corporation (as defined in the
Plan), your estate, or any person who acquires the Options by
bequest or inheritance, may exercise all the Options not
theretofore exercised within (and only within) the period
beginning on your date of death (even if you die before you have
become entitled to exercise all or any part of the Options) and
ending three years thereafter; and
(b) if your employment by the Corporation terminates other than by
death, then:
(i) if your retirement or other termination date is before
[DATE], the Options shall lapse on your retirement or other
termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for
cause, the Options shall expire forthwith upon your
termination and may not be exercised thereafter;
(iii) if your employment by the Corporation terminates after
[DATE] by reason of your retirement under a retirement plan
of Rockwell, or a subsidiary or affiliate of Rockwell, you
(or if you die after your retirement date, your estate or
any person who acquires the Options by bequest or
inheritance) may thereafter exercise the Options within
(and only within) the period starting on the date you would
otherwise have become entitled to exercise the part of the
Options so exercised and ending on the fifth anniversary of
your retirement date; or if you retire prior to age 62, the
earlier of (x) the fifth anniversary of your retirement
date or (y) such earlier date as the Compensation and
Management Development Committee shall determine by action
taken not later than 60 days after your retirement date;
(iv) if your employment by the Corporation terminates on or
after [DATE] for any reason not specified in subparagraph
(a) or in clauses (ii) or (iii) of this subparagraph (b),
you (or if you die after your termination date, your estate
or any person who acquires the Options by bequest or
inheritance) may thereafter exercise the Options within
(and only within) the period ending three months after your
termination date but only to the extent they were
exercisable on your termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and
(b) extend to a date after [DATE] the period during which the Options
may be exercised.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or after your
death, your estate or any person who has acquired the Options by
bequest or inheritance) must contact
-4-
<PAGE> 5
the administrator, ChaseMellon Shareholder Services, by using the
IVR system as follows:
(i) contact ChaseMellon using a touch-tone phone and follow the
instructions provided (or contact ChaseMellon using a
rotary phone and speak to a Customer Service
Representative);
(ii) confirm the Option transaction through the IVR system by
receiving a confirmation number;
(iii) at any time you may speak to a Customer Service
Representative for assistance;
(iv) full payment of the exercise price for the Option Shares to
be purchased on exercise of the Options may be made by:
o check; or
o in Shares; or
o in a combination of check and Shares; and
(v) in the case of an exercise of the Options by any person
other than you seeking to exercise the Options, such
documents as ChaseMellon or the Secretary of Rockwell shall
require to establish to their satisfaction that the person
seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be
effective:
(i) if you elect (or after your death, the person entitled to
exercise the Options elects) to pay the exercise price for
the Option Shares entirely by check, (i) upon confirmation
of your transaction by using the IVR system and full
payment of the exercise price and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (ii) receipt
of any documents required pursuant to Section 3(a)(v); and
(ii) if you elect (or after your death, the person entitled to
exercise the Options elects) to pay the exercise price of
the Option Shares in Shares or in a combination of Shares
and check, (i) upon confirmation of your transaction by
using the IVR system and full payment of the exercise price
(as defined in Section 3(d)(i)) and withholding taxes (if
applicable) are received by ChaseMellon within five
business days following the confirmation; and (ii) receipt
of any documents required pursuant to Section 3(a)(v).
-5-
<PAGE> 6
(c) If you choose (or after your death, the person entitled to
exercise the Options chooses) to pay the exercise price for the
Option Shares to be purchased on exercise of any of the Options
entirely by check, payment must be made by:
o delivering to ChaseMellon a check in the full amount of
the exercise price for those Option Shares; or
o arranging with a stockbroker, bank or other financial
institution to deliver to ChaseMellon full payment, by
check or (if prior arrangements are made with
ChaseMellon) by wire transfer, of the exercise price of
those Option Shares.
In either event, in accordance with Section 3(e), full payment of
the exercise price for the Option Shares purchased must be made
within five business days after the exercise has been conducted
and confirmed through the IVR system.
(d) (i) If you choose (or after your death, the person entitled to
exercise the Options chooses) to use already-owned Shares
to pay all or part of the exercise price for the Option
Shares to be purchased on exercise of any of the Options,
you (or after your death, the person entitled to exercise
the Options) must deliver to ChaseMellon one or more
certificates (and executed stock powers) representing:
o at least the number of Shares whose value, based on the
closing price of Common Stock of Rockwell on the New
York Stock Exchange -- Composite Transactions on the
day you have exercised your Options through the IVR
system; or
o any lesser number of Shares you desire (or after your
death, the person entitled to exercise the Options
desires) to use to pay the exercise price for those
Option Shares and a check in the amount of such
exercise price less the value of the Shares delivered,
based on the closing price of Common Stock of Rockwell
on the New York Stock Exchange -- Composite
Transactions on the day you have exercised your Options
through the IVR system.
(ii) ChaseMellon will advise you (or any other person who, being
entitled to do so, exercises the Options) of the exact
number of Shares, valued in accordance with Section 6(e) of
the Plan at the closing price on the New York Stock
Exchange -- Composite Transactions on the effective date of
exercise under Section 3(b)(ii), and any funds required to
pay in full the exercise price for the Option Shares
purchased. In accordance with Section 3(e), you (or such
other person) must pay, by check, in Shares or in a
combination of check and Shares, any balance required to
pay in full the exercise price of the Option Shares
purchased within five business days
-6-
<PAGE> 7
following the effective date of such exercise of the
Options under Section 3(b)(ii).
(iii) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Rockwell may limit the number,
frequency or volume of successive exercises of any of the
Options in which payment is made, in whole or in part, by
delivery of Shares pursuant to this subparagraph (d) to
prevent unreasonable pyramiding of such exercises.
(e) An exercise conducted and confirmed through the IVR system,
whether or not full payment of the exercise price for the Option
Shares is received by ChaseMellon, shall constitute a binding
contractual obligation by you (or the other person entitled to
exercise the Options) to proceed with and complete that exercise
of the Options (but only so long as you continue, or the other
person entitled to exercise the Options continues, to be entitled
to exercise the Options on that date). By your acceptance of this
Stock Option Agreement, you agree (for yourself and on behalf of
any other person who becomes entitled to exercise the Options) to
deliver or cause to be delivered to ChaseMellon any balance of the
exercise price for the Option Shares to be purchased upon the
exercise pursuant to the transaction conducted through the IVR
system required to pay in full the exercise price for those Option
Shares, that payment being by check, wire transfer, in Shares or
in a combination of check and Shares, on or before the later of
the fifth business day after the date on which you confirm the
transaction through the IVR system. If such payment is not made,
you (for yourself and on behalf of any other person who becomes
entitled to exercise the Options) authorize the Corporation, in
its discretion, to set off against salary payments or other
amounts due or which may become due you (or the other person
entitled to exercise the Options) any balance of the exercise
price for those Option Shares remaining unpaid thereafter.
(f) A book-entry statement representing the number of Option Shares
purchased will be issued as soon as practicable (i) after
ChaseMellon has received full payment therefor or (ii) at
Rockwell's or ChaseMellon's election in their sole discretion,
after Rockwell or ChaseMellon has received (x) full payment of the
exercise price of those Option Shares and (y) any reimbursement in
respect of withholding taxes due pursuant to Section 5.
4. Transferability
The Options are not transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, only you
are entitled to exercise the Options.
5. Withholding
Rockwell or ChaseMellon shall have the right, in connection with the
exercise of the Options in whole or in part, to deduct from any payment
to be made by Rockwell or
-7-
<PAGE> 8
ChaseMellon under the Plan an amount equal to the taxes required to be
withheld by law with respect to such exercise or to require you (or any
other person entitled to exercise the Options) to pay to it an amount
sufficient to provide for any such taxes so required to be withheld. By
your acceptance of this Stock Option Agreement, you agree (for yourself
and on behalf of any other person who becomes entitled to exercise the
Options) that if Rockwell or ChaseMellon elects to require you (or such
other person) to remit an amount sufficient to pay such withholding
taxes, you (or such other person) must remit that amount within five
business days after the confirmation of the Option exercise (Section
3(a)(ii)). If such payment is not made, Rockwell, in its discretion,
shall have the same right of set-off with respect to payment of the
withholding taxes in connection with the exercise of the Option as
provided under Section 3(e) with respect to payment of the exercise
price.
6. Headings
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections,
paragraphs, subparagraphs or clauses shall be deemed to be references
to Sections, paragraphs, subparagraphs and clauses of these Stock
Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the Plan embody the entire agreement
and understanding between Rockwell and you with respect to the Options,
and there are no representations, promises, covenants, agreements or
understandings with respect to the Options other than those expressly
set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell's obligation to issue Option
Shares hereunder are subject to applicable laws and regulations.
-8-
<PAGE> 1
Exhibit 10-b-11
AMENDMENT TO RESTRICTED STOCK AGREEMENT
===================
To: D. W. Decker
Pursuant to a resolution adopted November 4, 1998 by the Board of
Directors of Rockwell International Corporation, a Delaware corporation (the
Corporation), the Restricted Stock Agreement made as of December 3, 1997 (the
Restricted Stock Agreement) between the Corporation and you with respect to
8,205 shares of the Corporation's Common Stock granted to you as restricted
stock (the Restricted Shares) and any Stock Dividends (as defined in the
Restricted Stock Agreements) on the Restricted Shares, are hereby amended,
subject to your acceptance of this Amendment, as follows:
1. Effective upon and subject to completion of the distribution pro
rata to the Corporation's shareowners of all the outstanding stock of the
corporation's wholly-owned subsidiary, Conexant Systems, Inc., a Delaware
Corporation, paragraph 1 of the Restricted Stock Agreement is amended to read in
its entirety as follows:
1. Earning of Restricted Shares
(a) If (i) you shall continue as an employee of the
Corporation until completion of the distribution (the Distribution) pro
rata to the Corporation's shareowners of all the outstanding stock of
the Corporation's wholly-owned subsidiary, Conexant Systems, Inc., a
Delaware corporation (Conexant), and thereafter as an employee of
Conexant until the January 1 immediately following your attainment of
age 62 or such later age (not more than age 67) to which Conexant's
Board of Directors or its Compensation Committee shall from time to
time have requested, prior to your attainment of age 62 (or such later
age as to which either such Board or Committee shall have previously
requested), that you remain in service as an employee of Conexant; or
(ii) you shall die or suffer a disability that shall continue for a
continuous period of at least six months prior to your attainment of
age 62 (or the later age prescribed pursuant to the preceding clause
(a)(i)); or (iii) a "change of control" (as defined for purposes of
Conexant's By-Laws as in effect on the effective date of the
Distribution)
<PAGE> 2
shall occur; then you shall be deemed to have fully earned all the
Restricted Shares subject to this agreement.
(b) If your employment by the Corporation terminates prior to
completion of the Distribution or if your employment by Conexant
terminates prior to the January 1 immediately following your attainment
of age 62 (or the later age prescribed pursuant to clause (a)(i) of
this paragraph), you shall be deemed not to have earned any of the
Restricted Shares and shall have no further rights with respect thereto
unless Conexant's Board of Directors or its Compensation Committee
shall determine, in its sole discretion, that your earlier retirement
from service with Conexant is not adverse to the best interests of
Conexant.
2. In all other respects the Restricted Stock Agreement shall remain in
full force and effect.
ROCKWELL INTERNATIONAL CORPORATION
BY /s/ WILLIAM J. CALISE, JR.
--------------------------
Senior Vice President
Dated: November 30, 1998
Accepted and Agreed to
as of November 30, 1998
/s/ DWIGHT W. DECKER
- --------------------
D. W. Decker
Address: 18 Rustling Wind
Irvine, CA 92715
Social Security No.:
<PAGE> 1
Exhibit 10-c-4
AMENDMENT TO RESTRICTED STOCK AGREEMENTS
===================
To: Richard M. Bressler
Pursuant to a resolution adopted November 4, 1998 by the Board of
Directors of Rockwell International Corporation, a Delaware corporation (the
Corporation), the Restricted Stock Agreements made as of February 5, 1997 (the
1997 Restricted Stock Agreement) and January 2, 1998 (together with the 1997
Restricted Stock Agreement, the Restricted Stock Agreements) between the
Corporation and you with respect to an aggregate of 1,784 shares of the
Corporation's Common Stock granted to you as restricted stock (the Restricted
Shares) and 133.333 shares of Common Stock of Meritor Automotive, Inc.
constituting Stock Dividends (as defined in the Restricted Stock Agreements) on
the 400 Restricted Shares covered by the 1997 Restricted Stock Agreement and any
future Stock Dividends on the Restricted Shares, are hereby amended, subject to
your acceptance of this Amendment, as follows:
1. Effective upon and subject to completion of the distribution pro
rata to the Corporation's shareowners of all the outstanding stock of the
Corporation's wholly-owned subsidiary, Conexant Systems, Inc., a Delaware
corporation, paragraph 1 of each of the Restricted Stock Agreements is amended
to read in its entirety as follows:
1. Earning of Restricted Shares
(a) If (i) you shall continue as a director of the Corporation
until December 31, 1998 and of Conexant Systems, Inc., a Delaware
corporation (Conexant), from the date of your election until you retire
from the Board of Directors of Conexant (Conexant's Board) under the
retirement policy of Conexant's Board; or (ii) you shall resign from
Conexant's Board or cease to be a director of Conexant by reason of the
antitrust laws, compliance with Conexant's conflict of interest
policies, death or disability; or (iii) a "change of control" (as
defined for purposes of Conexant's By-Laws on the effective date of the
distribution pro rata to the corporation's shareowners of all the
outstanding stock of Conexant); then you shall be deemed to have fully
earned all
<PAGE> 2
the Restricted Shares subject to this Restricted Stock Agreement.
(b) If you resign from Conexant's Board or cease to be a
director of Conexant for any other reason, you shall be deemed not to
have earned any of the Restricted Shares and shall have no further
rights with respect thereto unless Conexant's Board of Directors shall
determine, in its sole discretion, that you have resigned from
Conexant's Board or ceased to be a director of Conexant by reason of
circumstances that the Conexant's Board determines not to be adverse to
the best interests of Conexant.
2. In all other respects the Restricted Stock Agreements shall remain
in full force and effect.
ROCKWELL INTERNATIONAL CORPORATION
BY /s/ WILLIAM J. CALISE, JR.
--------------------------
Senior Vice President
Dated: November 30, 1998
Accepted and Agreed to
as of November 30, 1998
/s/ RICHARD M. BRESSLER
- -----------------------
Richard M. Bressler
Address: 999 Third Avenue - Suite 2300
Seattle, WA 98104
Social Security No.:
<PAGE> 1
EXHIBIT 10-m-1
-- AGREEMENT AND GENERAL RELEASE --
JODIE K. GLORE and ROCKWELL INTERNATIONAL CORPORATION have reached the
following Agreement. In this Agreement, "EMPLOYEE" refers to Jodie K. Glore, and
"COMPANY" refers to Rockwell International Corporation and its subsidiaries,
including but not limited to Rockwell Automation, L.L.C.
FIRST: BENEFITS.
EMPLOYEE and COMPANY agree that EMPLOYEE will cease actively working for
COMPANY as of the close of business on October 31, 1998. Beginning November 1,
1998, EMPLOYEE will be placed on "salary continuation," that is, EMPLOYEE will
be transferred to COMPANY'S Corporate Offices payroll and will remain on
COMPANY'S active Corporate Offices payroll for one year (from November 1, 1998,
through the close of business on October 31, 1999, at which time EMPLOYEE will
be placed on layoff if he has obtained non-COMPANY employment by that time. If
EMPLOYEE has not obtained such employment, EMPLOYEE will remain on "salary
continuation" until the close of business on October 31, 2000 or until the date
he begins non-COMPANY employment, whichever comes first, at which time EMPLOYEE
will be placed on layoff. EMPLOYEE will receive no additional pay or notice at
the time of his layoff. EMPLOYEE agrees to notify COMPANY immediately upon
accepting non-COMPANY employment while on "salary continuation." EMPLOYEE will
not be expected to perform any work for COMPANY while on "salary continuation"
and will not accrue vacation or receive Long Term Disability coverage. While on
"salary continuation," EMPLOYEE will be paid at his current base salary rate
and, except as otherwise provided herein, will be eligible for all relevant
Corporate Office benefits (including COMPANY Savings Plan matching
contributions) as if he were actively performing work for COMPANY, as well as
continuation of his current officer dental and vision plans.
COMPANY and EMPLOYEE further agree that EMPLOYEE will receive Incentive
Compensation ("ICP") for Fiscal Year 1998 in accordance with Rockwell
Automation's ICP matrix, but EMPLOYEE will not receive any Fiscal Year 1999 or
2000 ICP, and will receive no more stock option grants. However, COMPANY agrees
that its Compensation Committee will lift the restrictions on EMPLOYEE'S
restricted stock at an appropriate time in 1999, such time to be determined
solely by COMPANY. Further, EMPLOYEE will participate fully in COMPANY'S Fiscal
Year 1996-1998 Long Term Incentive Program ("LTIP"); will have a pro-rata 25/36
months' participation in Fiscal Year 1997-1999 LTIP, based on actual results;
and will have a pro-rata 13/36 months' participation in Fiscal Year 1998-2000
LTIP, again based on actual results.
COMPANY further agrees to continue reimbursing EMPLOYEE for his Milwaukee
Country Club fees until his layoff, at which time COMPANY will transfer to
EMPLOYEE its ownership in the Milwaukee Country Club membership, which it
purchased for the use of EMPLOYEE, at no cost to EMPLOYEE; EMPLOYEE recognizes
that such transfer may result in imputed income, and that EMPLOYEE is
responsible for paying his individual taxes (there will be no COMPANY "gross
up"). EMPLOYEE understands and agrees that he will take all necessary steps to
transfer his current membership at the Laurel Valley Country Club immediately
either to COMPANY or to another COMPANY executive to be designated by COMPANY.
Further, until his layoff, EMPLOYEE may continue to use the
COMPANY-provided automobile currently in his possession, and COMPANY will pay
the lease costs, insurance premiums and license associated with that vehicle,
but not the gas, maintenance, and other operating expenses associated with it.
At the time of EMPLOYEE'S layoff, EMPLOYEE may choose either to purchase the
automobile from COMPANY in accordance with Rockwell Automation's automobile
policy, or return it to COMPANY. COMPANY also agrees to reimburse EMPLOYEE for
up to Ten Thousand Dollars ($10,000) in expenses for Calendar Year 1999
financial planning, according to applicable COMPANY policies.
-1-
<PAGE> 2
COMPANY and EMPLOYEE specifically acknowledge and agree that any
entitlement by EMPLOYEE to benefits provided by this Paragraph First is subject
to forfeiture pursuant to Paragraph Ninth of this Agreement.
SECOND: NO OBLIGATION TO PROVIDE THESE BENEFITS UNDER NORMAL POLICIES.
EMPLOYEE acknowledges that, under COMPANY'S normal policies and procedures
and absent this Agreement, he would not be entitled to a "layoff"; he would not
be entitled to be transferred to the Corporate Offices payroll; he would not be
eligible to receive up to 24 months of salary continuation between the date he
stops performing work for the COMPANY and the date of his layoff; he would not
be eligible to receive pro-rata Fiscal Year 1997-1999 and 1998-2000 LTIP
payments; he would not be eligible to receive ownership of a membership in the
Milwaukee Country Club; he would not be eligible to have use of a COMPANY car
for up to 24 months; and he would not be eligible to receive up to $10,000 in
financial planning benefits, which benefits are set forth in Paragraph First.
THIRD: COMPLETE RELEASE
EMPLOYEE agrees to release COMPANY and each of its predecessors, successors
and assigns, any subsidiaries, any related companies, and the employees,
directors, officials, agents, officers, representatives and attorneys of any of
them, from all claims or demands EMPLOYEE may have based on EMPLOYEE'S
employment with COMPANY or the termination of that employment. This includes,
but is not limited to, a release of any rights or claims EMPLOYEE may have under
the Age Discrimination in Employment Act, which prohibits age discrimination in
employment; under Title VII of the Civil Rights Act of 1964; or under any other
federal, state or local laws or regulations prohibiting employment
discrimination. This also includes, but is not limited to, a release by EMPLOYEE
of any claims for breach of contract or wrongful discharge. Furthermore, this
includes a release by EMPLOYEE of any claims under any and all state workers
compensation statutes. This release covers both claims that EMPLOYEE knows about
and those he may not know about. To the extent California law may apply to this
Agreement, EMPLOYEE waives and relinquishes all rights and benefits provided by
Section 1542 of the Civil Code of the State of California, and does so
understanding and acknowledging the significance of this specific waiver of
Section 1542. Section 1542 of the Civil Code of the State of California states
as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Notwithstanding the provisions of Section 1542 or any similar provision in the
law of any other state, and for the purpose of implementing a full and complete
release, EMPLOYEE expressly acknowledges that this Agreement is intended to
include all claims which EMPLOYEE does not know or suspect to exist in
EMPLOYEE'S favor at the time of his signature on the Agreement, and that this
Agreement will extinguish any such claims.
This release does not extend to your rights under this Agreement or any
COMPANY options, benefits or retirement plan or to any claims arising after you
sign this Agreement.
FOURTH: NO FUTURE LAWSUITS.
EMPLOYEE promises never to file a lawsuit or request arbitration asserting
any claims that are released in the Third Paragraph.
FIFTH: NON-RELEASE OF FUTURE CLAIMS.
This Agreement does not waive or release any rights or claims that EMPLOYEE
may have under the Age Discrimination in Employment Act which arise after the
date the EMPLOYEE signs this Agreement.
-2-
<PAGE> 3
SIXTH: CONSEQUENCES OF EMPLOYEE'S VIOLATION OF PROMISES.
If EMPLOYEE breaks EMPLOYEE'S promise in the Fourth Paragraph of this
Agreement and files a lawsuit, request for arbitration or other claim or action
based on legal claims that EMPLOYEE has released, EMPLOYEE will pay for all
costs incurred by COMPANY, any related companies or the directors or employees
of any of them, including reasonable attorneys' fees, in defending against the
EMPLOYEE'S claim.
SEVENTH: COOPERATION.
EMPLOYEE agrees to reasonable cooperation with COMPANY in the defense or
prosecution of any litigation, arbitration, or claim against or by any person or
party. COMPANY agrees to pay EMPLOYEE'S reasonable, documented, out-of-pocket
expenses in providing any such cooperation pursuant to the terms of this
Paragraph. EMPLOYEE shall not, however, be paid for his time or inconvenience in
providing cooperation pursuant to the terms of this Paragraph.
EIGHTH: NON-COMPETITION
EMPLOYEE and COMPANY agree that, should EMPLOYEE begin employment with a
competitor of Rockwell Automation, L.L.C., while on "salary continuation," such
"salary continuation" shall cease and EMPLOYEE shall be laid off immediately.
Additionally, EMPLOYEE will not receive any unpaid LTIP payments, will not have
ownership of the Milwaukee Country Club membership transferred to him, and will
not be reimbursed for any outstanding financial planning expenses. In order to
prevent any misunderstandings and in an attempt to avoid disputes over
entitlement to any benefits, EMPLOYEE agrees to notify COMPANY'S Senior Vice
President -- Human Resources prior to accepting any non-COMPANY employment while
on "salary continuation."
NINTH: PERIOD FOR REVIEW AND CONSIDERATION OF AGREEMENT.
EMPLOYEE understands that EMPLOYEE has been given a period of 21 days to
review and consider this Agreement before signing it. EMPLOYEE further
understands that EMPLOYEE may use as much of this 21-day period as EMPLOYEE
wishes prior to signing.
TENTH: NON-ADMISSION OF LIABILITY.
By making this Agreement, the COMPANY does not admit that it has done
anything wrong.
ELEVENTH: REPRESENTATION BY COUNSEL.
EMPLOYEE was encouraged by COMPANY to consult with an attorney before
signing this Agreement.
TWELFTH: EMPLOYEE'S RIGHT TO REVOKE AGREEMENT.
EMPLOYEE may revoke this Agreement within seven (7) days of EMPLOYEE'S
signing it. Revocation can be made by delivering a written notice of revocation
to:
Marc G. Kartman, Assistant General Counsel
600 Anton Boulevard, Suite 700
P.O. Box 5090
Costa Mesa, CA 92628-5090.
For this revocation to be effective, written notice must be received by Mr.
Kartman no later than the close of business on the seventh day after EMPLOYEE
signs this Agreement. If EMPLOYEE revokes this Agreement, it shall not be
effective or enforceable and EMPLOYEE will not receive the benefits described in
the First Paragraph.
-3-
<PAGE> 4
THIRTEENTH: ARBITRATION.
Any and all disputes regarding this Agreement will be resolved by binding
Arbitration pursuant to the "Mutual Agreement to Arbitrate Claims" between
EMPLOYEE and COMPANY, such arbitration to take place at the American Arbitration
Association's offices nearest to COMPANY'S World Headquarters.
FOURTEENTH: ENTIRE AGREEMENT.
This is the entire Agreement between EMPLOYEE and COMPANY. COMPANY has made
no promises to EMPLOYEE other than those in this Agreement.
EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS IT
AND IS VOLUNTARILY ENTERING INTO IT.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
THIS AGREEMENT WILL NOT TAKE EFFECT FOR SEVEN (7) DAYS AFTER EMPLOYEE
SIGNS IT.
<TABLE>
<S> <C>
ROCKWELL INTERNATIONAL CORPORATION EMPLOYEE
BY: /s/ J.R. STONE /s/ JODIE K. GLORE
---------------------------------------- --------------------------------------------
JOEL R. STONE JODIE K. GLORE
DATE: 10/14, 1998 DATE: 10/22, 1998
------- -------
</TABLE>
-4-
<PAGE> 1
EXHIBIT 12
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Income from continuing operations before income
taxes............................................. $ 25 $ 735 $ 532 $ 538 $ 365
Adjustments:
Undistributed income of affiliates................... (8) (9) (3) -- (3)
Minority interest in loss of subsidiaries............ -- 2 -- 3 --
----- ----- ----- ----- -----
17 728 529 541 362
----- ----- ----- ----- -----
Add fixed charges included in earnings:
Interest expense..................................... 58 27 22 14 5
Interest element of rentals.......................... 50 47 49 41 34
----- ----- ----- ----- -----
Total........................................... 108 74 71 55 39
----- ----- ----- ----- -----
Total earnings available for fixed charges........... $ 125 $ 802 $ 600 $ 596 $ 401
===== ===== ===== ===== =====
Fixed charges:
Fixed charges included in earnings................... $ 108 $ 74 $ 71 $ 55 $ 39
Capitalized interest................................. 10 9 2 1 --
----- ----- ----- ----- -----
Total fixed charges.................................. $ 118 $ 83 $ 73 $ 56 $ 39
===== ===== ===== ===== =====
Ratio of Earnings to Fixed Charges(1).................. 1.1 9.7 8.2 10.6 10.3
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) In computing the ratio of earnings to fixed charges, earnings are defined as
income from continuing operations before income taxes, adjusted for minority
interest in income or loss of subsidiaries, undistributed earnings of
affiliates, and fixed charges exclusive of capitalized interest. Fixed
charges consist of interest on borrowings and that portion of rentals deemed
representative of the interest factor.
<PAGE> 1
EXHIBIT 21
ROCKWELL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY
------------------------
NAME AND JURISDICTION REGISTRANT SUBSIDIARY
- --------------------- ---------- ----------
<S> <C> <C>
Allen-Bradley Company, LLC (Delaware)....................... 100%
Reliance Electric Industrial Company (Delaware)........... 100%
Rockwell Collins, Inc. (Delaware)........................... 100%
Conexant Systems, Inc. (Delaware)........................... 100%
</TABLE>
Listed above are certain consolidated subsidiaries included in the consolidated
financial statements of the Company. Unlisted subsidiaries, considered in the
aggregate, do not constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-17031, 333-17055, and 333-17405 on Form S-8 and Nos. 333-24685 and 333-43071
on Form S-3 of Rockwell International Corporation of our report dated November
4, 1998, appearing in the Annual Report on Form 10-K of Rockwell International
Corporation for the year ended September 30, 1998.
DELOITTE & TOUCHE LLP
Costa Mesa, California
December 3, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
I, the undersigned Director and/or Officer of Rockwell International
Corporation, a Delaware corporation (the Company), hereby constitute WILLIAM J.
CALISE, JR., EDWARD T. MOEN, II and PETER R. KOLYER, and each of them singly, my
true and lawful attorneys with full power to them and each of them to sign for
me, and in my name and in the capacity or capacities indicated below, (1) the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998 and any amendments thereto; (2) any and all amendments (including
supplements and post-effective amendments) to the Registration Statement on Form
S-3 (Registration No. 333-43071) registering debt securities of the Company in
an aggregate principal amount of up to $1,000,000,000 and any shares of Common
Stock, par value $1 per share, of the Company (including the associated
Preferred Share Purchase Rights) (collectively, the Common Stock) issuable or
deliverable upon conversion or exchange of any such debt securities that are
convertible into or exchangeable for Common Stock; (3) any and all amendments
(including supplements and post-effective amendments) to (a) the Registration
Statement on Form S-8 registering securities to be sold under the Company's 1995
Long-Term Incentives Plan and 1988 Long-Term Incentives Plan (Registration No.
333-17055); (b) the Registration Statement on Form S-8 registering securities to
be sold pursuant to the Company's Savings Plan, as amended, the Company's
Retirement Savings Plan for Certain Employees, as amended, the Reliance Electric
Company Savings and Investment Plan, as amended, the Allen-Bradley Company
Savings and Investment Plan for Salaried Employees, as amended, and the
Allen-Bradley Company Savings and Investment Plan for Hourly Employees, as
amended (Registration No. 333-17031); and (c) the Registration Statement on Form
S-8 registering securities to be sold pursuant to the Allen-Bradley Company
Savings and Investment Plan for Represented Hourly Employees (Registration No.
333-17405); and (4) any and all amendments (including supplements and
post-effective amendments) to the Registration Statement on Form S-3
(Registration No. 333-24685) registering (a) certain shares of Common Stock, par
value $1 per share (the Securities), of the Company acquired or which may be
acquired by permitted transferees upon the exercise of transferable options
assigned or to be assigned to them by certain participants in the Company's 1988
Long-Term Incentives Plan in accordance with that Plan and (b) the offer and
resale by any such permitted transferee who may be deemed to be an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act of 1933,
as amended (an Affiliate Selling Shareowner), of Securities so acquired or which
may be acquired by such Affiliate Selling Shareowner upon exercise of any such
transferable option.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ Don H. Davis, Jr. Chairman of the Board December 2, 1998
- --------------------- and Chief Executive
(Don H. Davis, Jr.) Officer (principal
executive officer)
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
/s/ George L. Argyros Director December 2, 1998
- -----------------------------
(George L. Argyros)
/s/ Donald R. Beall Director December 2, 1998
- -----------------------------
(Donald R. Beall)
/s/ Richard M. Bressler Director December 2, 1998
- -----------------------------
(Richard M. Bressler)
/s/ William H. Gray, III Director December 2, 1998
- -----------------------------
(William H. Gray, III)
/s/ J. Clayburn La Force, Jr. Director December 2, 1998
- -----------------------------
(J. Clayburn La Force, Jr.)
/s/ William T. McCormick, Jr. Director December 2, 1998
- -----------------------------
(William T. McCormick, Jr.)
/s/ John D. Nichols Director December 2, 1998
- -----------------------------
(John D. Nichols)
/s/ Bruce M. Rockwell Director December 2, 1998
- -----------------------------
(Bruce M. Rockwell)
/s/ William S. Sneath Director December 2, 1998
- -----------------------------
(William S. Sneath)
/s/ Joseph F. Toot, Jr. Director December 2, 1998
- -----------------------------
(Joseph F. Toot, Jr.)
/s/ W. Michael Barnes Senior Vice President, December 2, 1998
- ----------------------------- Finance & Planning and
(W. Michael Barnes) Chief Financial Officer
(principal financial officer)
/s/ William E. Sanders Vice President and December 2, 1998
- ----------------------------- Controller (principal
(William E. Sanders) accounting officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 CONSOLIDATED BALANCE SHEET, CONSOLIDATED INCOME STATEMENT FOR
THE YEAR ENDED SEPTEMBER 30, 1998 AND NOTES TO THE FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 1,223
<ALLOWANCES> 51
<INVENTORY> 1,313
<CURRENT-ASSETS> 4,096
<PP&E> 1,535
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,170
<CURRENT-LIABILITIES> 1,983
<BONDS> 908
0
0
<COMMON> 216
<OTHER-SE> 3,029
<TOTAL-LIABILITY-AND-EQUITY> 7,170
<SALES> 6,752
<TOTAL-REVENUES> 6,840
<CGS> 5,206
<TOTAL-COSTS> 6,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 25
<INCOME-TAX> (134)
<INCOME-CONTINUING> (109)
<DISCONTINUED> (301)
<EXTRAORDINARY> 0
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</TABLE>
