SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
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Commission file number 1-12383
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Rockwell International Corporation
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(Exact name of registrant as specified in its charter)
Delaware 25-1797617
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
600 Anton Boulevard, Suite 700, P.O. Box 5090, Costa Mesa, CA 92628-5090
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (714) 424-4565
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(Office of the Corporate Secretary)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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190,397,774 shares of registrant's Common Stock, $1.00 par value, were
outstanding on April 30, 1999.
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ROCKWELL INTERNATIONAL CORPORATION
INDEX
Page
No.
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PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheet--
March 31, 1999 and September 30, 1998.......... 2
Consolidated Statement of Operations--
Three Months and Six Months Ended
March 31, 1999 and 1998........................ 3
Consolidated Statement of Cash Flows--
Six Months Ended March 31, 1999 and 1998....... 4
Notes to Consolidated Financial Statements..... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.............................. 15
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.............................. 16
Item 2. Changes in Securities and Use of Proceeds...... 16
Item 4. Submission of Matters to a Vote of Security
Holders........................................ 16
Item 5. Other Information.............................. 17
Item 6. Exhibits and Report on Form 8-K................ 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ROCKWELL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(Unaudited)
March 31 September 30
1999 1998
-------- ------------
ASSETS
------
Current assets:
Cash........................................... $ 104 $ 103
Receivables (less allowance for doubtful
accounts: March 31, 1999, $52;
September 30, 1998, $51)..................... 1,153 1,223
Inventories, net............................... 1,406 1,313
Deferred income taxes.......................... 314 258
Other current assets........................... 211 213
Net assets of Semiconductor Systems...... - 986
------- -------
Total current assets................... 3,188 4,096
Property, net..................................... 1,563 1,535
Intangible assets, net............................ 1,418 1,330
Other assets...................................... 208 209
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TOTAL.................... $ 6,377 $ 7,170
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Short-term debt................................ $ 192 $ 156
Accounts payable............................... 741 733
Compensation and benefits...................... 440 547
Income taxes payable........................... 108 19
Other current liabilities...................... 551 528
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Total current liabilities.............. 2,032 1,983
Long-term debt.................................... 911 908
Retirement benefits............................... 676 691
Other liabilities................................. 345 343
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Total liabilities............. 3,964 3,925
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Shareowners' equity:
Common Stock (shares issued: 216.4)............ 216 216
Additional paid-in capital..................... 932 923
Retained earnings.............................. 2,866 3,697
Accumulated other comprehensive loss........... (151) (135)
Common Stock in treasury, at cost (shares held:
March 31, 1999, 26.1;
September 30, 1998, 25.8).................... (1,450) (1,456)
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Total shareowners' equity..... 2,413 3,245
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TOTAL.................... $ 6,377 $ 7,170
======= =======
See Notes to Consolidated Financial Statements.
2
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ROCKWELL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Sales................................... $ 1,701 $ 1,674 $ 3,309 $ 3,276
Other income, net....................... 25 20 71 40
------- ------- ------- -------
Total revenues........................ 1,726 1,694 3,380 3,316
------- ------- ------- -------
Costs and expenses:
Cost of sales........................... 1,183 1,170 2,318 2,286
Selling, general, and administrative.... 298 320 589 622
Purchased research and development...... - - - 103
Interest................................ 24 13 43 17
------- ------- ------- -------
Total costs and expenses.............. 1,505 1,503 2,950 3,028
------- ------- ------- -------
Income from continuing
operations before income taxes.......... 221 191 430 288
Income tax provision...................... (78) (69) (153) (106)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGE................ 143 122 277 182
(Loss) income from discontinued operations - (13) (20) 16
Cumulative effect of accounting change.... - - - (17)
------- ------- ------- -------
NET INCOME................................ $ 143 $ 109 $ 257 $ 181
======= ======= ======= =======
Basic earnings per share:
Continuing operations before
accounting change..................... $ 0.75 $ 0.61 $ 1.46 $ 0.90
Discontinued operations................. - (0.07) (0.11) 0.08
Cumulative effect of accounting change.. - - - (0.09)
------- ------- ------- -------
Net income.............................. $ 0.75 $ 0.54 $ 1.35 $ 0.89
======= ======= ======= =======
Diluted earnings per share:
Continuing operations before
accounting change..................... $ 0.74 $ 0.60 $ 1.44 $ 0.89
Discontinued operations................. - (0.06) (0.11) 0.08
Cumulative effect of accounting change.. - - - (0.09)
Net income.............................. $ 0.74 $ 0.54 $ 1.33 $ 0.88
======= ======= ======= =======
Cash dividends per share (see note 1)..... $ 0.51 $ 0.255 $ 0.765 $ 0.51
======= ======= ======= =======
Weighted average outstanding shares:
Basic.................................. 190.0 200.2 189.9 202.6
======= ======= ======= =======
Diluted (includes effect of stock
options)............................. 193.2 203.6 192.8 205.9
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
3
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ROCKWELL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
March 31
--------------------
1999 1998
-------- --------
CONTINUING OPERATIONS:
Operating Activities:
Income from continuing operations before accounting
change............................................. $ 277 $ 182
Adjustments to income from continuing
operations before accounting change to arrive at
cash provided by operating activities:
Depreciation...................................... 119 107
Amortization of intangible assets................. 32 46
Deferred income taxes............................. (39) (40)
Gain on sales of businesses, net.................. (29) (8)
Pension expense, net of contributions............. 12 15
Purchased research and development................ - 103
Changes in assets and liabilities, excluding
effects of acquisitions, divestitures, and
foreign currency adjustments:
Receivables................................... 78 (22)
Inventories................................... (86) (73)
Accounts payable.............................. (4) (18)
Income taxes payable.......................... 116 (46)
Compensation and benefits..................... (110) (39)
Other assets and liabilities.................. (32) 42
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Cash Provided by Operating Activities...... 334 249
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Investing Activities:
Property additions.................................... (144) (127)
Acquisitions of businesses, net of cash acquired...... (156) (158)
Proceeds from disposition of property and businesses.. 98 16
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Cash Used for Investing Activities......... (202) (269)
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Financing Activities:
Net increase in debt.................................. 35 773
Purchases of treasury stock........................... (58) (595)
Cash dividends........................................ (97) (103)
Reissuances of common stock........................... 36 58
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Cash (Used for) Provided by Financing
Activities.............................. (84) 133
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CASH PROVIDED BY CONTINUING OPERATIONS................ 48 113
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Cash Used for Discontinued Operations................. (47) (124)
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INCREASE (DECREASE) IN CASH........................... 1 (11)
CASH AT BEGINNING OF PERIOD........................... 103 269
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CASH AT END OF PERIOD................................. $ 104 $ 258
======= =======
See Notes to Consolidated Financial Statements.
4
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management of Rockwell International Corporation (the
Company or Rockwell), the unaudited consolidated financial statements
contain all adjustments, consisting solely of adjustments of a normal
recurring nature, necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented. These
statements should be read in conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998. The results of
operations for the three- and six-month periods ended March 31, 1999 are
not necessarily indicative of the results for the full year. Certain prior
year amounts have been reclassified to conform with the current
presentation.
It is the Company's practice at the end of each interim reporting period to
make an estimate of the effective tax rate expected to be applicable for
the full fiscal year. The rate so determined is used in providing for
income taxes on a year-to-date basis.
Effective October 1, 1998, Rockwell adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"(SFAS 130).
SFAS 130 establishes standards for the reporting and presentation of
comprehensive income (loss) and its components in financial statements. The
adoption of this statement had no impact on the Company's net income or
shareowners' equity. SFAS 130 requires certain equity adjustments to be
reported as components of comprehensive income. Amounts set forth as
accumulated other comprehensive loss in the accompanying balance sheet are
primarily comprised of deferred foreign currency translation adjustments.
Prior year financial statements have been reclassified to conform with the
requirements of SFAS 130. The reconciliation of net income to comprehensive
income is as follows (in millions):
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1999 1998 1999 1998
------ ------ ------ ------
Net income........................... $ 143 $ 109 $ 257 $ 181
Other comprehensive (loss) income:
Net foreign currency translation
adjustment....................... (17) 9 (16) (15)
------ ------ ------ ------
Comprehensive income................. $ 126 $ 118 $ 241 $ 166
====== ====== ====== ======
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which is effective for
fiscal year 2000, but earlier adoption is permitted. 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 its results of operations or
equity.
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 $0.09 per share) and is presented as the
cumulative effect of an accounting change.
5
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the 1999 second quarter, the Company declared a dividend of $0.255
per share payable March 8, 1999 to shareowners of record on February 16,
1999 and also declared its third quarter dividend of $0.255 per share
payable June 7, 1999 to shareowners of record on May 17, 1999.
2. Discontinued operations relate to the Company's former Semiconductor
Systems business (Semiconductor Systems).
On December 31, 1998, the Company completed the spin-off of Semiconductor
Systems into an independent, separately traded, publicly-held company by
distributing all of the outstanding shares of Conexant Systems, Inc.
(Conexant) to the Company's shareowners on the basis of one share of
Conexant Common Stock for every two shares of Company Common Stock owned.
The net assets of Conexant as of December 31, 1998 of approximately $910
million were recorded as a decrease to shareowners' equity. Prior to the
spin-off, Conexant distributed to Rockwell its wafer fabrication facilities
in Colorado Springs, Colorado with a net book value of $21 million and a
related deferred tax asset of $48 million. Also, prior to the spin-off,
Rockwell paid $64 million into an escrow account to be used to satisfy
Conexant's obligation with respect to a litigation matter (see Note 11).
The following table summarizes the results of Semiconductor Systems (in
millions):
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1999 1998 1999 1998
------ ------ ------ ------
Revenues............................ $ - $ 267 $ 289 $ 644
(Loss) income before income taxes... - (28) (29) 13
Net (loss) income................... - (13) (20) 16
Rockwell accrued for Conexant's estimated first quarter 1999 operating loss
and costs related to the spin-off in 1998. The additional loss, which was
recorded in the first quarter of 1999, relates principally to Rockwell's
decision to record a further writedown of the wafer fabrication facilities
in Colorado Springs and for related costs of disposal.
3. In the third quarter of 1998, the Company recorded special charges of
$597 million ($508 million after tax, or $2.57 per share) in connection
with asset impairments and the implementation of a comprehensive
restructuring program. These charges, including the effects of adjustments
through March 31, 1999, included $106 million for severance and other
employee separation costs associated with a worldwide workforce reduction
of approximately 3,100 employees and $87 million related to facility
closures and consolidations and exiting non-strategic businesses and
product lines. These actions are expected to be substantially complete by
the end of 1999.
Total cash expenditures in connection with these actions are expected to
approximate $185 million. The Company spent approximately $59 million
through March 31, 1999, of which $38 million related to severance and other
employee separation costs, and expects to spend an additional $84 million
through the end of March 2000. As a result of actions taken through March
31, 1999, the workforce was reduced by approximately 1,775 employees.
Revenues of businesses and product lines which are being exited were $22
million and $57 million for the quarters ended March 31, 1999 and 1998,
respectively, and $39 million and $116 million for the six months ended
March 31, 1999 and 1998, respectively. The net operating loss related to
these businesses and product lines is not material.
6
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. In March 1999, the Company acquired the remaining 50 percent interest in
Flight Dynamics, the market leader in Head-Up Guidance Systems for aircraft
operations, for $35 million. In January 1999, the Company acquired EJA
Engineering Ltd., a market-leading manufacturer of safety products, for $76
million. In November 1998, the Company acquired Anorad Corporation, a
manufacturer of linear motor equipment, for $45 million. These acquisitions
were accounted for as purchases. Assets acquired and liabilities assumed
have been recorded at estimated fair values determined by the Company's
management based on information currently available.
In December 1997, the Company acquired the in-flight entertainment business
of Hughes-Avicom International, Inc. (Passenger Systems). The acquisition
has been accounted for as a purchase as of December 31, 1997, and the
Company has recorded a charge of $103 million ($63 million after-tax) for
purchased research and development. The remaining assets acquired and
liabilities assumed have been recorded at estimated fair values determined
by the Company's management.
The results of purchased businesses have been included in the consolidated
statement of operations since their respective dates of acquisition.
5. Inventories, net of reserves, are summarized as follows (in millions):
March 31 September 30
1999 1998
-------- --------
Finished goods................................ $ 411 $ 385
Work in process............................... 483 459
Raw materials, parts, and supplies............ 502 456
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Total....................................... 1,396 1,300
Adjustment to the carrying value of
certain inventories to a LIFO basis......... 10 13
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Inventories................................. $ 1,406 $ 1,313
======= =======
6. Intangible assets, net of accumulated amortization, are summarized as
follows (in millions):
March 31 September 30
1999 1998
-------- --------
Goodwill...................................... $ 939 $ 846
Trademarks, patents, product technology,
and other intangibles....................... 479 484
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Intangible assets........................... $ 1,418 $ 1,330
======= =======
7
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Short-term debt consisted of the following (in millions):
March 31 September 30
1999 1998
-------- --------
Commercial paper.............................. $ 150 $ 90
Short-term foreign bank borrowings............ 39 64
Current portion of long-term debt............. 3 2
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Short-term debt............................. $ 192 $ 156
======= =======
At March 31, 1999, the Company had $1.0 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 both March 31, 1999 and September
30, 1998 and consist of arrangements for which there were no significant
commitment fees.
8. Other current liabilities are summarized as follows (in millions):
March 31 September 30
1999 1998
------- -------
Contract reserves and advance payments........ $ 196 $ 207
Product warranty costs........................ 128 117
Taxes other than income taxes................. 59 44
Dividend payable.............................. 49 -
Interest...................................... 16 16
Other......................................... 103 144
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Other current liabilities................... $ 551 $ 528
======= =======
9. Long-term debt consisted of the following (in millions):
March 31 September 30
1999 1998
-------- --------
6.8% notes, payable in 2003................... $ 150 $ 150
6.15% notes, payable in 2008.................. 350 350
6.70% debentures, payable in 2028............. 250 250
5.20% debentures, payable in 2098............. 200 200
Other obligations............................. 21 18
Less unamortized discount..................... (57) (58)
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Total....................................... 914 910
Less current portion.......................... (3) (2)
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Long-term debt.............................. $ 911 $ 908
======= =======
10. Retirement benefit liabilities consisted of the following (in millions):
March 31 September 30
1999 1998
-------- --------
Retirement medical costs................... $ 617 $ 639
Pension costs.............................. 123 116
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Total.................................... 740 755
Amount classified as current liability..... (64) (64)
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Retirement benefits...................... $ 676 $ 691
======= =======
8
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ROCKWELL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Various lawsuits, claims and proceedings have been or may be instituted
or asserted against the Company relating to the conduct of its business,
including those pertaining to product liability, intellectual property,
safety and health, environmental and employment matters. Rockwell has
indemnified The Boeing Company for certain government contract and
environmental matters related to operations of its former aerospace and
defense business for periods prior to its divestiture. Although the outcome
of litigation cannot be predicted with certainty and some lawsuits, claims,
or proceedings may be disposed of unfavorably to the Company, management
believes the disposition of matters which are pending or asserted will not
have a material adverse effect on the Company's consolidated financial
statements.
In connection with the Semiconductor Systems spin-off, Conexant assumed 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 judgment has been
satisfied through $64 million paid into escrow prior to the spin-off.
9
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ROCKWELL INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- - - - - - - - - - - - - ---------------------
Sales and results of operations of the Company's continuing operations by
business segment for the second quarter and first six months of 1999 and 1998
are presented below (in millions).
Three Months Ended Six Months Ended
March 31 March 31
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
Sales
Automation........................... $ 1,079 $ 1,130 $ 2,124 $ 2,269
Avionics & Communications............ 622 544 1,185 1,007
------- ------- ------- -------
Total sales............................ $ 1,701 $ 1,674 3,309 $ 3,276
======= ======= ======= =======
Operating earnings
Automation........................... $ 163 $ 147 $ 306 $ 291
Avionics & Communications............ 123 78 246 153
Purchased research and development... - - - (103)
------- ------- ------- -------
Operating earnings................... 286 225 552 341
General corporate - net................ (41) (21) (79) (36)
Interest expense....................... (24) (13) (43) (17)
Provision for income taxes............. (78) (69) (153) (106)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGE............. 143 122 277 182
(Loss) income from discontinued
operations........................... - (13) (20) 16
Cumulative effect of accounting change. - - - (17)
------- ------- ------- -------
NET INCOME............................. $ 143 $ 109 257 181
======= ======= ======= =======
Purchased research and development relates to the acquisition of an Avionics &
Communications business in 1998.
Effective October 1, 1997, Rockwell changed its method of accounting for certain
general and administrative costs included in inventory related to government
contracts. This change relates to the Avionics & Communications business
segment.
1999 Second Quarter Compared to 1998 Second Quarter
- - - - - - - - - - - - - ---------------------------------------------------
Sales in the 1999 second quarter of $1.7 billion were slightly higher than the
same period a year ago. Automation's sales were down $51 million primarily due
to flat North American market activity in most industry sectors, particularly
forest products, metals and oil and gas; the elimination of sales of Kato
Engineering, which was sold in the third quarter of 1998; lower sales in the
motors business; and weak business conditions in Brazil. Higher Avionics &
Communications' sales in 1999 were driven by strong increases posted at the
passenger systems, air transport and business and regional systems businesses.
Also contributing to the improvement was strong sales growth at our Electronic
Commerce business, driven by increased demand for Spectrum( automatic call
distribution systems.
Income from continuing operations for the 1999 second quarter was $143 million,
or 74 cents per share, compared to income from continuing operations of $122
million, or 60 cents per share, for the second quarter of 1998. The 17 percent
increase was achieved due to Automation more than offsetting lower sales with
improved operating margins and strong performance at Avionics & Communications.
10
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ROCKWELL INTERNATIONAL CORPORATION
Automation's earnings of $163 million were 11 percent higher than last year.
Ongoing performance improvements, cost reduction initiatives and profitably
priced customer orders at the Company's motors business contributed to the
higher operating earnings. Automation's return on sales increased to 15.1
percent from 13.0 percent a year ago.
Avionics & Communications' operating earnings were $123 million, a 58 percent
increase over last year's second quarter. In addition to increased earnings
resulting from higher sales, 1999 operating earnings also include a $16 million
gain resulting from the favorable resolution of an intellectual property matter.
Excluding this gain, Avionics & Communications' return on sales increased to
17.2 percent from 14.3 percent a year ago.
Corporate expenses of $41 million were higher than the second quarter a year ago
principally due to $22 million of pre-tax charges for costs incurred in
connection with the relocation of the Company's corporate office. Additional
costs are expected to be incurred later in fiscal 1999 as the corporate
functions relocate.
Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998
- - - - - - - - - - - - - ---------------------------------------------------------------------------
Overall, sales were slightly higher than in the same period a year ago.
Automation's sales were down $145 million primarily due to flat North American
market activity in most industry sectors, particularly forest products,
metals and oil and gas; the elimination of sales of Kato Engineering; lower
sales in the motors business; and weak business conditions in Brazil. Avionics &
Communications' sales increased $178 million primarily due to the inclusion of
passenger systems sales for six months in 1999 (acquired in December 1997) and
strong increases posted by the passenger systems, air transport and business and
regional systems businesses as a result of winning new contracts, higher
customer service revenue and increased production of business and regional
aircraft. Also contributing to the improvement was strong sales growth at our
Electronic Commerce business driven by increased demand for Spectrum( automatic
call distribution systems.
Income from continuing operations was up 13 percent to $277 million, or $1.44
per share, from 1998 income from continuing operations of $245 million, or $1.19
per share (before an acquisition-related charge). The increase was due to
Automation's ability to offset the impact of lower sales with improved operating
efficiencies and continued strong performance at Avionics & Communications.
Automation's operating earnings increased five percent over the same period a
year ago principally due to lower operating costs resulting from the
restructuring program announced in June 1998, other cost reduction initiatives,
profitably priced customer orders and improved operating performance at the
motors business.
Avionics & Communications' operating earnings increased 61 percent over the same
period a year ago (excluding an acquisition-related charge) primarily due to
increased sales for both Rockwell Collins and Electronic Commerce, the $32
million gain from the sale of the railroad electronics business and the $16
million gain resulting from the favorable resolution of an intellectual property
matter.
Corporate expenses of $79 million were higher than 1998's $36 million
principally due to costs related to the relocation of the corporate office.
Based on the Company's strong second quarter performance, management has high
confidence that the Company will achieve its $2.90 to $3.00 earnings per share
goal in 1999 and, in fact, now expects to be near the high end of that range.
Rockwell expects to achieve this level of performance with continued strong
growth at Rockwell Collins, cost reduction initiatives and improved operating
efficiencies at our automation business.
11
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ROCKWELL INTERNATIONAL CORPORATION
Discontinued Operations:
The spin-off of the Company's former Semiconductor Systems business, Conexant
Systems, Inc., was completed on December 31, 1998. The 1999 loss from
discontinued operations includes a $20 million pre-tax charge due to Rockwell's
decision to record a further writedown of Conexant's former wafer fabrication
facilities in Colorado Springs, Colorado. Rockwell retained these facilities as
part of the spin-off. The 1999 net loss also includes a charge for costs related
to the planned disposal of these facilities.
FINANCIAL CONDITION
- - - - - - - - - - - - - -------------------
The major uses of cash for the first six months of 1999 were for acquisitions of
businesses of $156 million, property additions of $144 million, cash dividends
paid to shareowners of $97 million, the $64 million payment in connection with
an intellectual property litigation matter and the common stock repurchase
program.
The Company spent approximately $58 million in the first six months of 1999 in
connection with its stock repurchase program. At March 31, 1999, the Company had
approximately $106 million remaining on its current $500 million stock
repurchase program. The Company has made the decision to resume stock
repurchases, although at a lesser rate than in fiscal 1998.
A major source of cash for the first six months of 1999 was from the sale of the
Company's railroad electronics business to Westinghouse Air Brake Company for
approximately $80 million in cash.
Future significant uses of cash, which are expected to be funded by cash
generated by operating activities and commercial paper borrowings, are expected
to include property additions, cash payments made in connection with the
Company's restructuring program, dividends to shareowners and acquisitions.
The dividend to be paid to shareowners in the third quarter of 1999 was declared
by the Company's Board of Directors on March 26, 1999 and accordingly, the
dividend declared per share for the quarter and six months includes the third
quarter dividend.
Information with respect to the effect on the Company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained on pages 37 and 38 in Note 17 of
the Notes to Consolidated Financial Statements in Item 8, Consolidated Financial
Statements and Supplementary Data of the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998. Management believes that at March
31, 1999, there has been no material change to this information.
12
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ROCKWELL INTERNATIONAL CORPORATION
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 is 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 assessment and strategy phases for all five areas.
At March 31, 1999, the Company was approximately 85 percent complete in the
conversion/upgrade phase for each of the five areas and was substantially
complete with the final testing for situations where the Company has completed
the conversion/upgrade phase.
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
$42 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 90 percent of the total
project cost had been spent through March 31, 1999, 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 and 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.
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ROCKWELL INTERNATIONAL CORPORATION
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 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 March 31, 1999, the Company
has received responses from approximately 80 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. 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.
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.
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ROCKWELL INTERNATIONAL CORPORATION
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company's financial instruments include cash, equity securities, short- and
long-term debt, and foreign currency forward exchange contracts. At March 31,
1999, 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 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 the Company's outstanding foreign currency
forward exchange contracts by country is as follows (in millions):
March 31 September 30
1999 1998
-------- --------
United Kingdom (Pound Sterling)................... $ 222 $ 151
Canada (Dollar)................................... 81 110
Switzerland (Franc)............................... 86 78
Germany (Deutsche Mark)........................... 63 80
Australia (Dollar)................................ 50 39
Italy (Lira)...................................... 24 32
Japan (Yen)....................................... 21 42
France (Franc).................................... 8 13
Other countries................................... 24 33
----- -----
$ 579 $ 578
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 exchange rate exposure at March 31, 1999
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.
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ROCKWELL INTERNATIONAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 13, 1990, the Company was served with a summons and
complaint in a civil action brought against the Company in the United
States District Court for the District of Colorado 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 Department of Energy's Rocky Flats Plant, Golden, Colorado (and
seeking treble damages and forfeitures) as well as a personal cause of
action for alleged wrongful termination of employement. On August 8,
1991, the court dismissed the personal cause of action. 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. On April 1, 1999 a jury awarded
the plaintiffs approximately $1.4 million in damages which, if the
award is upheld by the court, will be trebled and may serve as a basis
for up to $30,000 in forfeitures and entitle Mr. Stone to an award of
attorney's fees. Judgment has not yet been entered on the jury's award
but in no event will an outcome adverse to the Company have a material
effect on the Company's financial statements.
Item 2. Changes in Securities and Use of Proceeds
(c) On January 4, 1999, the Company issued 225, 244 and 268 shares of
restricted stock, respectively, to the following directors of the
Company: George L. Argyros, Donald R. Beall 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. On February
3, 1999 the Company issued 400 shares pursuant to the Directors
Stock Plan to each of the non-employee directors of the Company
whose term continued after the annual meeting of shareowners held
on that date (George L. Argyos, Donald R. Beall, William H. Gray,
III, J. Clayburn LaForce, Jr., William T. McCormick, Jr., John D.
Nichols, Bruce M. Rockwell, Robert B. Shapiro, William S. Sneath
and Joseph F. Toot, Jr.) The issuance of all such shares was
exempt from the registration requirements of the Securities Act
of 1933 pursuant to Section 4(2) thereof.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The regular annual meeting of shareowners of the company was held
on February 3, 1999.
(c) At the annual meeting, the shareowners:
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ROCKWELL INTERNATIONAL CORPORATION
PART II. OTHER INFORMATION (Continued)
(i) voted to elect five directors of the company. Each nominee
for director was elected by a vote of the shareowners as
follows:
Affirmative Votes Term
Votes Withheld Expiration
----------- ---------- ----------
Donald R. Beall 161,385,731 2,042,535 2002
Bruce M. Rockwell 161,629,977 1,798,289 2002
Robert B. Shapiro 160,750,250 2,678,016 2002
Joseph F. Toot, Jr. 161,631,395 1,796,871 2002
William S. Sneath 161,307,138 2,121,128 2000
(ii) voted upon a proposal to approve the selection by the Board
of Directors of the firm of Deloitte & Touche LLP as
auditors of the company. The proposal was approved by a vote
of the shareowners as follows:
Affirmative votes 162,203,142
Negative votes 364,519
Abstentions 860,605
Item 5. Other Information
Government Contracts
--------------------
For information on the Company's United States government contracting
business, certain risks of that business and claims related thereto,
see the information set forth under the caption Government Contracts in
Item 1, Business, on page 3 of the Company's Annual Report on Form 10-K
for the year ended September 30, 1998.
Cautionary Statement
--------------------
This Quarterly Report contains statements (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
economic and political changes in international markets where the
Company competes, such as currency exchange rates, inflation rates,
recession, foreign ownership restrictions and other external factors
over which the Company has no control; domestic and foreign government
spending, budgetary and trade policies; demand for and market
acceptance of new and existing products; successful development of
advanced technologies; competitive product and pricing pressures;
timely completion of Year 2000 software modifications by the Company,
its key suppliers and customers, and governments; implementation of
restructuring actions in accordance with management's plans; and the
uncertainties of litigation, as well as other risks and uncertainties,
including but not limited to those detailed from time to time in the
Company's Securities and Exchange Commission filings. These
forward-looking statements are made only as of the date hereof, and the
Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information,
future events or otherwise.
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ROCKWELL INTERNATIONAL CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits:
Exhibit 10.1 - Form of Change of Control Agreements
dated as of January 15, 1999 between the
Company and each of D. H. Davis, Jr., W. M.
Barnes, W. J. Calise, Jr., C. M. Jones, K. D.
Nosbusch, J. R. Stone, J. D. Swann and E. S.
Washington.
Exhibit 10.2 - Form of Change of Control Agreements
dated as of January 15, 1999 between the
Company and certain other officers of the
Company.
Exhibit 10.3 - Agreement and General Release dated as
of March 2, 1999, with E. S. Washington.
Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges for the Six Months Ended March
31, 1999
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K:
The Company filed a current report on Form
8-K dated January 12, 1999 in respect of the
completion on December 31, 1998 of the
spin-off of its Semiconductor Systems
business to holders of shares of Common
Stock, par value $1 per share, of the Company
by means of distribution to such holders of
all outstanding shares of Common Stock, par
value $1 per share (including the preferred
share purchase rights associated with such
Common Stock) of Conexant (Items 2 and 7(c)).
Conexant began operations as an independent,
separately traded, publicly-held company on
January 1, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKWELL INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
Date: May 13, 1999 By W. E. Sanders
-------------------- -----------------------------
W. E. Sanders
Vice President and Controller
(Principal Accounting Officer)
Date: May 13, 1999 By W. J. Calise, Jr.
-------------------- -----------------------------
W. J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
19
Exhibit 10.1
CHANGE OF CONTROL AGREEMENT
AGREEMENT by and between Rockwell International Corporation, a Delaware
corporation (the "Company") and ______________ (the "Executive"), dated as of
the 15th day of January, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the fourth anniversary of the date hereof.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (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 Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of
<PAGE>
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (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
the date hereof whose election, or nomination for election by the Company's
shareholders, 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; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% 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 Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination 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 Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
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3. Protected Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Protected Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Protected Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Protected Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Protected Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Protected Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Protected Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Protected Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual
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incentive plans, or any comparable bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company for
the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Protected
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Protected Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Protected Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Protected Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period
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immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Protected Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Protected Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Protected Period. If the Company determines in good faith that the Disability of
the Executive has occurred during the Protected Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Protected Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
5
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(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof (provided, that
the relocation of the Executive to the Company's headquarters in a mid-west
location specified to the Executive by the Company prior to the Effective Date
shall not be Good Reason under this Agreement) or the Company's requiring the
Executive to travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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<PAGE>
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Protected Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
which has been
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<PAGE>
earned but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was employed
for less than twelve full months), for the most recently completed
fiscal year during the Protected Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y) a fraction,
the numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to the Executive than those in effect
under the Company's Retirement Plan immediately prior to the Effective
Date), and any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the Executive would
receive if the Executive's employment continued for three years after
the Date of Termination assuming for this purpose that all accrued
benefits are fully vested, and, assuming that the Executive's
compensation in each of the three years is that required by Section
4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained
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employed until three years after the Date of Termination and to have retired on
the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Protected Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Protected Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
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<PAGE>
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Protected Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Protected
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are
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incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the
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date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the
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requirements of Section 9(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
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(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Rockwell International Corporation
600 Anton Boulevard, Suite 700
Costa Mesa, CA 92628
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment may be terminated by either the Executive or the Company
at any time prior to the Effective Date, in which case the Executive shall have
no further rights under this Agreement. From and after the Effective Date this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
----------------------------------
ROCKWELL INTERNATIONAL CORPORATION
By
--------------------------------
Senior Vice President
15
Exhibit 10.2
CHANGE OF CONTROL AGREEMENT
AGREEMENT by and between Rockwell International Corporation, a Delaware
corporation (the "Company") and ______________ (the "Executive"), dated as of
the 15th day of January, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the fourth anniversary of the date hereof.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (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
<PAGE>
the Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (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
the date hereof whose election, or nomination for election by the Company's
shareholders, 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; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination 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 Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination 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 Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
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3. Protected Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Protected Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Protected Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Protected Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Protected Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Protected Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Protected Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Protected Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual
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incentive plans, or any comparable bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company for
the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Protected
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Protected Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Protected Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Protected Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period
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immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Protected Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Protected Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Protected Period. If the Company determines in good faith that the Disability of
the Executive has occurred during the Protected Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Protected Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
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(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof (provided, that
the relocation of the Executive to the Company's headquarters in a mid-west
location specified to the Executive by the Company prior to the Effective Date
shall not be Good Reason under this Agreement) or the Company's requiring the
Executive to travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Protected Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
which has been
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earned but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was employed
for less than twelve full months), for the most recently completed
fiscal year during the Protected Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y) a fraction,
the numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to the Executive than those in effect
under the Company's Retirement Plan immediately prior to the Effective
Date), and any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the Executive would
receive if the Executive's employment continued for two years after the
Date of Termination assuming for this purpose that all accrued benefits
are fully vested, and, assuming that the Executive's compensation in
each of the two years is that required by Section 4(b)(i) and Section
4(b)(ii), over (b) the actuarial equivalent of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the
SERP as of the Date of Termination;
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained
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employed until two years after the Date of Termination and to have retired on
the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Protected Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Protected Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
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(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Protected Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Protected
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are
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incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the
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date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the
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requirements of Section 9(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
13
<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Rockwell International Corporation
600 Anton Boulevard, Suite 700
Costa Mesa, CA 92628
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment may be terminated by either the Executive or the Company
at any time prior to the Effective Date, in which case the Executive shall have
no further rights under this Agreement. From and after the Effective Date this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof.
14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
----------------------------------
ROCKWELL INTERNATIONAL CORPORATION
By
--------------------------------
Senior Vice President
15
Exhibit 10.3
~ ~ ~ EARL S. WASHINGTON ~ ~ ~
-- AGREEMENT AND GENERAL RELEASE --
EARL S. WASHINGTON and ROCKWELL INTERNATIONAL CORPORATION have reached
the following Agreement. In this Agreement, "EMPLOYEE" refers to EARL S.
WASHINGTON, and "COMPANY" refers to Rockwell International Corporation.
FIRST: Benefits.
EMPLOYEE and COMPANY agree that EMPLOYEE will cease actively working
for COMPANY as of the close of business on December 31, 1999. EMPLOYEE and
COMPANY agree that EMPLOYEE will remain on COMPANY's active payroll for 24
months from January 1, 2000 through the close of business on December 31, 2001
(hereinafter referred to as his "salary continuation period"), at which time he
will be placed on layoff; and he will receive no other pay or notice at the time
of his layoff. During the period January 1, 2000 through the close of business
on December 31, 2001, EMPLOYEE will be paid at his current monthly base salary
rate as of December 31, 1999. EMPLOYEE will not be expected to perform any work
for COMPANY during his salary continuation period and will not accrue vacation.
EMPLOYEE will be eligible for full participation in the FY 1999 Corporate
Incentive Compensation Program and FY 1999 Stock Option Program. In December
2000, EMPLOYEE will receive a pro-rata Fiscal Year 2000 Incentive Compensation
("ICP"), less all applicable federal, state and local taxes and other applicable
deductions. EMPLOYEE further understands and acknowledges that he will not
receive any fiscal year 2001 ICP, and that he will receive no more stock option
grants after December 31, 1999. (Options become exercisable per the plan
description.)
1
<PAGE>
Further, EMPLOYEE will also be provided the following:
- A car allowance in the amount of $1,700 per month for the period
January 1, 2000 through December 31, 2001.
- Outplacement services or career transition counseling.
- Eligibility to participate in the company savings plan through
December 31, 2001.
- Income tax preparation/estate planning benefit in an amount not to
exceed $7,500 for CY 2000 and 2001.
- Company paid executive physical in CY 2000 and 2001.
- Continuing use of the company provided PC, printer and facsimile
machine (in home), car phone and Pathmaster through December 31,
2001.
- Medical benefits coverage and officer dental and vision benefits.
- Company paid membership dues in the South Hills Country Club through
December 31, 2001. Further, the COMPANY will transfer its ownership
in the South Hills Country Club to EMPLOYEE at no cost to EMPLOYEE.
- Payment of all unused vacation accrued during employee's employment
with the Company through December 31, 1999.
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 receive only 6 months rather than
24 months of salary continuation between the date he stops performing work for
the COMPANY and the date of his layoff, he would not receive a pro-rata FY 2000
ICP, he would not have the use of a company paid country club membership, he
would not have a car allowance for approximately 24 months, he would not have
the use of a PC and a facsimile machine, and would not be eligible for two
executive physicals, two years of financial planning assistance, and would not
be eligible to participate in the company's savings plan for two years, which
benefits are set forth in Paragraph First.
2
<PAGE>
THIRD: Complete Mutual Release
EMPLOYEE and COMPANY agree to release each other and each of their
predecessors, successors and assigns, any related companies, and the employees,
directors, officials, agents, officers, representatives and attorneys of any of
them, from all claims or demands EMPLOYEE or COMPANY may have based on
EMPLOYEE'S employment with COMPANY or the termination of that employment. This
includes a release of any rights or claims EMPLOYEE may have under the Age
Discrimination in Employment Act, which prohibits age discrimination in
employment; or any other federal, state or local laws or regulations prohibiting
employment discrimination. This also includes a release by EMPLOYEE of any
claims for wrongful discharge. Furthermore, this includes a release by EMPLOYEE
of any claims under the California Workers' Compensation Act only as to
injuries, if any, incurred prior to the date of the Agreement. This release
covers both claims that EMPLOYEE and COMPANY know about and those they may not
know about. To the extent California law may apply to this Agreement, EMPLOYEE
and COMPANY waive and relinquish all rights and benefits provided by Section
1542 of the Civil Code of the State of California, and do 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 and
3
<PAGE>
COMPANY expressly acknowledge that this Agreement is intended to include all
claims which they do not know or suspect to exist in their favor at the time of
their signatures on the Agreement, and that this Agreement will extinguish any
such claims
This release does not include, however, a release of EMPLOYEE'S right,
if any, to pension, retiree, health or similar benefits under the COMPANY'S
standard retirement program, and Employee's rights under the Company's stock
options plans.
FOURTH: Confidentiality.
EMPLOYEE and COMPANY agree not to make the existence or terms of this
Settlement Agreement and General Release public except as may be necessary to
protect the rights contained herein.
FIFTH: No Future Lawsuits.
EMPLOYEE and COMPANY promise never to file a lawsuit asserting any
claims that are released in the Third Paragraph.
SIXTH: 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
SEVENTH: Consequences of Party's Violation of Promises.
4
<PAGE>
If a party breaks its or his promise in the Fifth Paragraph of this
Agreement and files a lawsuit or other claim or action based9 on legal claims
that the party has released, that party will pay for all costs incurred by the
other party, any related companies or the directors or employees of any of them,
including reasonable attorneys' fees, in defending against the claim.
EIGHTH: 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. EMPLOYEE shall be
entitled to indemnification by COMPANY for any activities for which
indemnification is required under California Labor Code Section 2802 or
otherwise.
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.
5
<PAGE>
By making this Agreement, neither EMPLOYEE nor the COMPANY admits that
he or 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 Blvd, Suite 700
P.O. Box 5090
Costa Mesa, CA 92628
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.
6
<PAGE>
THIRTEENTH: In Event of a Change of Control
EMPLOYEE agrees and understands that upon the effectiveness of this
agreement, the Change of Control Agreement between EMPLOYEE and COMPANY dated
January 15, 1999 becomes null and void and EMPLOYEE will not be entitled to any
benefits so described in the Change of Control Agreement.
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.
ROCKWELL INTERNATIONAL CORPORATION EMPLOYEE
By: /s/ Thomas D. Sumrall By: /s/ Earl S. Washington
----------------------- ------------------------
THOMAS D. SUMRALL EARL S. WASHINGTON
Date: January 22, 1999 Date: March 2, 1999
7
Exhibit 12
ROCKWELL INTERNATIONAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED MARCH 31, 1999
(In millions, except ratio)
EARNINGS AVAILABLE FOR FIXED CHARGES:
Income from continuing operations before income taxes............. $ 430
Less undistributed income of affiliates........................... (3)
------
427
Add fixed charges included in earnings:
Interest expense............................................... 43
Interest element of rentals.................................... 25
------
68
------
Total earnings available for fixed charges........................ $ 495
======
FIXED CHARGES:
Fixed charges included in earnings................................ $ 68
Capitalized interest.............................................. 2
------
Total fixed charges............................................ $ 70
======
RATIO OF EARNINGS TO FIXED CHARGES (1)............................... 7.07
======
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 CONDENSED CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND NOTES TO FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 104
<SECURITIES> 0
<RECEIVABLES> 1153
<ALLOWANCES> 52
<INVENTORY> 1406
<CURRENT-ASSETS> 3188
<PP&E> 1563
<DEPRECIATION> 0
<TOTAL-ASSETS> 6377
<CURRENT-LIABILITIES> 2032
<BONDS> 911
0
0
<COMMON> 216
<OTHER-SE> 2197
<TOTAL-LIABILITY-AND-EQUITY> 6377
<SALES> 3309
<TOTAL-REVENUES> 3380
<CGS> 2318
<TOTAL-COSTS> 2950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 430
<INCOME-TAX> (153)
<INCOME-CONTINUING> 277
<DISCONTINUED> (20)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.33
</TABLE>
