<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
(AMENDMENT NO. 1)
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
GRUMMAN CORPORATION
(NAME OF SUBJECT COMPANY)
GRUMMAN CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $1 PAR VALUE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHT)
(TITLE OF CLASS OF SECURITIES)
40018110
(CUSIP NUMBER OF CLASS OF SECURITIES)
THOMAS L. GENOVESE
VICE PRESIDENT AND GENERAL COUNSEL
GRUMMAN CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714-3580
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSONS(S) FILING STATEMENT)
- --------------------------------------------------------------------------------
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<PAGE> 2
This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated March 8, 1994 (the "Schedule 14D-9"), of
Grumman Corporation, a New York corporation (the "Company"), filed in connection
with the Offer as set forth in the Schedule 14D-9. Attached hereto as Exhibit
(a)(11) is the information distributed to shareholders of the Company.
Capitalized terms used herein shall have the definitions set forth in the
Schedule 14D-9 unless otherwise provided herein.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(11)
(a) Letter to the Company's Shareholders, dated March 8, 1994
(b) Schedule 14D-9, dated, March 8, 1994
(c) Opinion of Goldman, Sachs & Co., dated March 8, 1994
(d) Audited Financial Statements of the Company for the Fiscal Year Ended
December 31, 1993
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
GRUMMAN CORPORATION
By: /s/ RENSO L. CAPORALI
Chairman of the Board and
Chief Executive Officer
Date: March 9, 1994
2
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
---------
<S> <C>
(a) (11)
(a) -- Letter to the Company's Shareholders, dated March 8, 1994
(b) -- Schedule 14D-9, dated March 8, 1994
(c) -- Opinion of Goldman, Sachs & Co., March 8, 1994
(d) -- Audited Financial Statements of the Company for the Fiscal
year Ended December 31, 1993
</TABLE>
3
<PAGE> 1
Exhibit (a)(11)(a)
[LETTERHEAD]
Dear Shareholder:
I am pleased to inform you that on March 6, 1994, Grumman Corporation,
Martin Marietta Corporation and a wholly-owned subsidiary of Martin Marietta
entered into an agreement and plan of merger (the "Merger Agreement") providing
for the acquisition of all of the issued and outstanding shares of Grumman
common stock (the "Shares") at a net price of $55.00 per share.
Pursuant to the Merger Agreement, the Martin Marietta subsidiary has
commenced a cash tender offer (the "Tender Offer") for all outstanding Shares at
$55.00 per share. The Tender Offer is conditioned upon, among other things, a
minimum of two-thirds of the total number of Shares outstanding on a fully
diluted basis being validly tendered and not withdrawn. The Merger Agreement
provides that, promptly following the Tender Offer, all Shares which are not
tendered through the Tender Offer will be acquired through the Merger at a price
of $55.00 per share.
Your Board of Directors has unanimously approved the Tender Offer and the
Merger and recommends that shareholders accept the Tender Offer. Enclosed for
your consideration are copies of the Tender Offer materials and the Company's
Schedule 14D-9, which are being filed today with the Securities and Exchange
Commission. These documents should be read carefully. In particular, I call your
attention to Item 4 of the Schedule 14D-9, which describes both the reasons for
the Board of Director's unanimous recommendation and certain additional factors
that shareholders may wish to consider.
Grumman's Board of Directors has, in light of and subject to the terms and
conditions set forth in the Merger Agreement, determined that the Tender Offer
and the Merger are fair to, and in the best interests of, the shareholders of
Grumman. All directors intend to tender the Shares they presently own.
Sincerely,
[Sig]
Renso L. Caporali
Chairman of the Board and
and Chief Executive Officer
March 8, 1994
<PAGE> 1
Exhibit (a)(11)(b)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
GRUMMAN CORPORATION
(NAME OF SUBJECT COMPANY)
GRUMMAN CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $1 PAR VALUE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHT)
(TITLE OF CLASS OF SECURITIES)
40018110
(CUSIP NUMBER OF CLASS OF SECURITIES)
THOMAS L. GENOVESE
VICE PRESIDENT AND GENERAL COUNSEL
GRUMMAN CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714-3580
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSONS(S) FILING STATEMENT)
- --------------------------------------------------------------------------------
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<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Grumman Corporation, a New York
corporation (the "Company"), and the address of its principal executive offices
is 1111 Stewart Avenue, Bethpage, New York 11714-3580. The title of the class of
equity securities to which this statement relates is the Common Stock, par value
$1 per share (the "Common Stock"), of the Company, including the associated
rights to purchase Series A Junior Participating Preferred Stock of the Company
(the "Rights") issued pursuant to the Rights Agreement dated as of February 18,
1988 (the "Rights Agreement") between the Company and The Bank of New York, as
Rights Agent (such Common Stock and the Rights being collectively referred to
herein as the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") by MMC Acquisition
Corp., a New York corporation ("Acquisition"), which is a newly formed, wholly
owned subsidiary of Martin Marietta Corporation, a Maryland corporation
("Parent"), to purchase all outstanding Shares at a price of $55.00 per Share
net to the seller in cash, as disclosed in the Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") dated March 8, 1994 filed by Acquisition
and Parent with the Securities and Exchange Commission (the "Commission"), upon
the terms and subject to the conditions set forth in the Offer to Purchase dated
March 8, 1994 (the "Offer to Purchase") and the related Letter of Transmittal
(which together constitute the "Offer" and are referred to collectively herein
as the "Offer Documents"). A copy of the Offer to Purchase and the Letter of
Transmittal are attached hereto as Exhibit (a)(1) and Exhibit (a)(2),
respectively.
The Schedule 14D-1 states that the principal executive offices of
Acquisition and Parent are located at 6801 Rockledge Drive, Bethesda, Maryland
20817.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) The Offer is being made pursuant to an Agreement and Plan of Merger
dated as of March 6, 1994 (the "Merger Agreement") among Acquisition, Parent and
the Company. After the completion of the Offer, and upon the terms and subject
to the conditions of the Merger Agreement, Acquisition will be merged with and
into the Company (the "Merger"). Following the Merger, the Company will be the
surviving corporation ("Surviving Corporation"). The Company will thereby become
a wholly owned subsidiary of Parent and each Share outstanding immediately prior
to the Effective Time (other than Shares (i) held in the Company's treasury or
by any of the Company's subsidiaries, (ii) held by Acquisition, Parent or any
other subsidiary of Parent or (iii) held by any stockholder who has not voted in
favor of the Merger or consented thereto in writing and who has demanded
appraisal for such shares in accordance with Section 623 of the New York
Business Corporation Law (the "NYBCL"), unless such holder fails to perfect or
withdraws or otherwise loses his right to appraisal, in which case such Shares
will be treated as converted) will be converted at the effective time of the
Merger (the "Effective Time") into the right to receive the higher of (i) $55.00
in cash or (ii) any higher price paid pursuant to the Offer (the "Merger
Consideration"). The purpose of the Offer, the Merger Agreement and the Merger
is for Acquisition and Parent to acquire control of, and the entire equity
interest in, the Company. The Offer is intended to increase the likelihood that
the Merger will be effected. The Merger Agreement is filed as Exhibit (c)(1)
hereto and is hereby incorporated herein by reference in its entirety.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED, AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER,
SHARES REPRESENTING NOT LESS THAN TWO-THIRDS OF THE THEN OUTSTANDING SHARES
DETERMINED ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION").
THE MERGER AGREEMENT.
The Merger Agreement provides that Acquisition will commence the Offer and
accept for payment, purchase and pay for Shares tendered pursuant to the Offer,
subject to the terms and conditions set forth in the Offer to Purchase. The
Merger Agreement further provides that Acquisition, upon purchase of Shares
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<PAGE> 3
pursuant to the Offer, shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company (the "Board") as will give Acquisition representation on the Board equal
to the product of the number of directors on the Board (giving effect to any
increase in the number of directors pursuant to the Merger Agreement as set
forth below) and the percentage that the number of Shares purchased by
Acquisition bears to the total number of outstanding shares of Common Stock of
the Company on a fully-diluted basis, and that the Company will use its best
efforts, upon request by Acquisition, promptly, at the Company's election either
to increase the size of the Board (subject to the provisions of Article EIGHTH
of Company's certificate of incorporation) or secure the resignation of such
number of directors as is necessary to enable Acquisition's designees to be
elected to the Board. The Merger Agreement further provides that, at such times,
and subject to the agreement set forth in the next sentence, the Company will
use its best efforts to cause persons designated by Acquisition to constitute
the same percentage as is on the Board of (i) each committee of the Board (other
than any committee of the Board established to take action under the Merger
Agreement), (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board. The Merger Agreement further provides
that, notwithstanding the foregoing, the Company shall use its best efforts to
insure that three members of the Board as of the date of the Merger Agreement
shall remain members of the Board until the Effective Time. The Merger Agreement
further provides that the Merger shall occur as soon as practicable after May
18, 1994 (provided that Acquisition shall have purchased Shares pursuant to the
Offer) the satisfaction or waiver of the conditions in the Merger Agreement and
that, upon such Merger, the directors of Acquisition shall become the directors
of Surviving Corporation and that the officers of the Company shall become the
officers of Surviving Corporation.
With respect to outstanding stock options pursuant to the Company's 1981
Stock Option Plan, 1990 Stock Option Plan and 1992 Long-Term Incentive Plan
(collectively, the "Stock Plans"), the Merger Agreement provides that the
Company shall use all reasonable efforts to cause all holders of the options
("Options") granted under the Stock Plans which are outstanding immediately
prior to the Effective Time to exercise such Options prior to the Effective
Time. In addition, the Company has agreed in the Merger Agreement to take such
action as is necessary under the Stock Plans to cause any Options that remain
outstanding after the Merger to thereafter be exercisable for a short-term debt
instrument of Surviving Corporation in a face amount (and with an interest rate
and other terms designed to provide a fair value) equal to the amount determined
by multiplying the Merger Consideration by the number of Shares for which such
Option was theretofore exercisable. The Merger Agreement further provides that,
prior to the Effective Time, the Company shall use all reasonable efforts to (i)
obtain any consents from individuals who are entitled to awards under the
Company's Management Incentive Plan ("MIP") and (ii) make any amendments to the
terms of such Plan that are necessary to provide for future distributions
thereunder to be paid in the form of cash (and not in the form of shares of
Common Stock).
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by the Company concerning: the organization and
qualification of the Company and its subsidiaries; the capitalization of the
Company and its subsidiaries; the Company's authority relative to the execution
and delivery of, and performance of its obligations under, the Merger Agreement,
and Board approval of the Merger Agreement and certain related transactions; the
accuracy of forms, reports and documents filed by the Company with the
Securities and Exchange Commission since January 1, 1990 and certain financial
statements of the Company; the accuracy of information supplied by the Company
for inclusion in the Offer Documents and the proxy statement relating to the
Merger; the absence of undisclosed liabilities or changes; obtaining necessary
approvals to consummate the transactions contemplated by the Merger Agreement
and the absence of any conflict with, or violations of, the corporate documents
and binding instruments of the Company or of its subsidiaries or with or of any
law, rule or regulation of the consummation of the transactions contemplated by
the Merger Agreement; there not being any current defaults under the corporate
documents and binding instruments of the Company and of its subsidiaries or
under any law, rule or regulation; the absence of material litigation involving
the Company or any of its subsidiaries; the Company and its subsidiaries having
necessary permits and licenses and the compliance therewith, and compliance with
all applicable laws; the legal compliance of employee benefit plans of the
Company and its subsidiaries; the Company and its subsidiaries complying with
environmental laws and regulations; and the amendment of the
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<PAGE> 4
Rights Agreement. The Merger Agreement also contains customary representations
and warranties of Acquisition and Parent.
Covenants. The Merger Agreement obligates the Company until the designees
of Acquisition constitute a majority of the Board, to conduct its business in
the ordinary course consistent with past practice including specific covenants
as to permissible activities. Parent has agreed to guarantee the performance by
Acquisition of its obligations under the Merger Agreement.
Other Potential Bidders. The Merger Agreement provides that the Company,
its affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted prior to the Merger Agreement
with respect to any acquisition of all or any material portion of the assets of,
or any equity interest in, the Company or any of the Company's subsidiaries or
any business combination with the Company or any of its subsidiaries, other than
as described in the letter (the "Letter") from the Company to Parent dated the
date of the Merger Agreement. The Merger Agreement permits the Company to,
directly or indirectly, furnish information and access, in each case only in
response to unsolicited requests therefor, to another person pursuant to
confidentiality agreements and to participate in discussions and negotiations
with such person with respect to any merger, sale of assets, sale of shares of
capital stock or similar transaction involving the Company or any subsidiary or
division of the Company if such person has submitted a written proposal to the
Board relating to any such transaction and the Board by a majority vote
determines in its good faith judgment, based as to legal matters on the written
opinion of legal counsel, that failing to take such action would constitute a
breach of the Board's fiduciary duty. The Merger Agreement provides that the
Board shall provide a copy of any such written proposal to Parent or Acquisition
immediately after receipt thereof and thereafter keep Parent and Acquisition
promptly advised of any development with respect thereto. Otherwise, the Merger
Agreement prohibits the Company from directly or indirectly encouraging,
soliciting, participating in or initiating negotiations or discussions with, or
providing any information to, any person concerning any merger, sale of assets,
sale of shares of capital stock or similar transactions involving the Company or
any subsidiary or any division of the Company; provided, however, that nothing
in the Merger Agreement shall prevent the Board from taking, and disclosing to
the Company's shareholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with regard to any tender offer; provided, further, that the Board shall
not recommend that the shareholders of the Company tender their shares in
connection with any such tender offer unless the Board by majority vote
determines in its good faith judgment, based as to legal matters on the written
opinion of legal counsel, that failing to take such action would constitute a
breach of the Board's fiduciary duty.
Conditions. Each party's obligations to effect the Merger are subject to:
the requisite approval of shareholders of the Company; there being no statute,
rule, regulation, executive order, decree, ruling or injunction prohibiting,
restraining, enjoining or restricting the consummation of the Merger; the
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act; and the purchase of Shares pursuant to the Offer.
Termination. The Merger Agreement provides that it may be terminated and
the Offer and the Merger may be abandoned at any time, but prior to the
Effective Time in the following circumstances: (i) by the mutual written consent
of Parent, Acquisition and the Company; (ii) by Parent and Acquisition or the
Company if any court of competent jurisdiction in the United States or other
United States governmental body shall have issued a final order, decree or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action is or
shall have become non-appealable; (iii) by Parent and Acquisition if, due to an
occurrence or circumstance which would result in a failure to satisfy any of the
conditions set forth in the Offer, Acquisition shall have (A) failed to commence
the Offer within five days following the date of the initial public announcement
of the Offer, (B) terminated the Offer or (C) failed to pay for Shares pursuant
to the Offer within 75 days following commencement of the Offer; (iv) by the
Company if (1) there shall not have been a material breach of any
representation, warranty or covenant or agreement on the part of the Company and
Acquisition shall have (A) failed to commence the Offer within five days
following the date of the initial public announcement of the Offer, (B)
terminated the Offer or (C) failed to pay for Shares pursuant to the Offer
within 75 days following the commencement of the
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<PAGE> 5
Offer or (2) prior to the purchase of Shares pursuant to the Offer, a person
shall have made a bona fide offer that the Board by a majority vote determines
in its good faith judgment and in the exercise of its fiduciary duties, based as
to legal matters on the written opinion of legal counsel, is more favorable to
the Company's shareholders than the Offer and the Merger (any such termination
effected pursuant to clause (iv)(2) being referred to as an "Other Offer
Event"), provided that in the case of this clause (2) the Company shall have
paid the Termination Fee (as defined below); (v) by Parent and Acquisition prior
to the purchase of Shares pursuant to the Offer, if (1) there shall have been a
breach of any representation or warranty on the part of the Company having a
Material Adverse Effect on the Company (as defined below) or materially
adversely affecting (or materially delaying) the consummation of the Offer, (2)
there shall have been a breach of any covenant or agreement on the part of the
Company resulting in a Material Adverse Effect on the Company or materially
adversely affecting (or materially delaying) the consummation of the Offer,
which shall not have been cured prior to the earlier of (A) ten days following
notice of such breach and (B) two business days prior to the date on which the
Offer expires (any such termination effected pursuant to clause (v)(1) or (v)(2)
being referred to as a "Company Breach Event"), (3) the Company shall engage in
negotiations with any entity or group (other than Parent or Acquisition) that
has proposed a Third Party Acquisition (as defined below), (4) the Board shall
have withdrawn or modified (including by amendment to this Schedule 14D-9) in a
manner adverse to Acquisition its approval or recommendation of the Offer, the
Merger Agreement or the Merger or shall have recommended another offer or shall
have adopted any resolution to effect any of the foregoing, or (5) the Minimum
Condition shall not have been satisfied by the expiration date of the Offer and
on or prior to such date an entity or group (other than Parent or Acquisition)
shall have made and not withdrawn a proposal with respect to a Third Party
Acquisition; or (vi) by the Company if (1) there shall have been a material
breach of any representation or warranty on the part of Parent or Acquisition
which materially adversely affects (or materially delays) the consummation of
the Offer or (2) there shall have been a material breach of any covenant or
agreement or the part of Parent or Acquisition and which materially adversely
affects (or materially delays) the consummation of the Offer which shall not
have been cured prior to the earliest of (A) ten days following notice of such
breach and (B) two business days prior to the date on which the Offer expires.
"Material Adverse Effect," when used in connection with the Company or any
of its subsidiaries is defined in the Merger Agreement as any change or effect
(other than changes or effects disclosed in the Letter) that is or is reasonable
likely to be materially adverse to the business, results of operations or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which the Company is engaged.
Fees and Expenses. The Merger Agreement provides that in the event Parent
and Acquisition terminate the Merger Agreement pursuant to a Company Covenant
Breach, Parent and Acquisition would suffer direct and substantial damages,
which damages cannot be determined with reasonable certainty. To compensate
Parent and Acquisition for such damages, the Company has agreed under the Merger
Agreement to pay to Parent the amount of $20 million as liquidated damages
immediately upon such a termination.
The Merger Agreement also provides that if (i) Parent and Acquisition
terminate the Merger Agreement pursuant to clause (v)(2), (3), (4) or (5) of the
first paragraph under Termination above and, within 12 months thereafter, the
Company enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs involving any party (or any affiliate thereof)
(x) with whom the Company (or its agents) had negotiations with a view to a
Third Party Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had submitted a
proposal or expressed an interest in a Third Party Acquisition, in the case of
each of clauses (x), (y) and (z) after the date hereof and prior to such
termination, (ii) Parent and Acquisition terminate the Merger Agreement pursuant
to clause (v)(3), (4) or (5) of the first paragraph of Termination above, and
within 12 months thereafter a Third Party Acquisition shall occur involving a
consideration for Shares (including the value of any stub equity) in excess of
the amount per Share paid pursuant to the Offer, or (iii) the Company terminates
the Merger Agreement pursuant to an Other Offer Event, the Company shall pay to
Parent and Acquisition, within one business day following the execution and
delivery of such agreement or such occurrence, as the case may be, or
simultaneously with such termination by the Company, a fee, in cash, of
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<PAGE> 6
$50,000,000 (the "Termination Fee"), provided, however, that the Company in no
event shall be obligated to pay more than one such $50,000,000 fee with respect
to all such agreements and occurrences and such termination. In case liquidated
damages shall have been paid pursuant to the first paragraph of this section, in
connection with such a termination, the amount so paid, minus an amount equal to
the fees and expenses that would have been collectible by Parent and Acquisition
pursuant to the second next succeeding paragraph but for the operation of clause
(ii) of the parenthetical of the first sentence thereof, shall be credited
against the amount pursuant to this paragraph.
"Third Party Acquisition" is defined in the Merger Agreement as the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which in includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) or entity other than Parent,
Acquisition or any affiliate thereof (a "Third Party"); (ii) the acquisition by
a Third Party of more than 30% of the total assets of the Company and its
subsidiaries, taken as a whole; (iii) the acquisition by a Third Party of 30% or
more of the outstanding shares of Common Stock; (iv) the adoption by the Company
of a plan of liquidation or the declaration or payment of an extraordinary
dividend; or (v) the repurchase by the Company or any of its subsidiaries of
more than 20% of the outstanding shares of Common Stock, other than a repurchase
which was not approved by the Company or publicly announced prior to the
termination of the Merger Agreement and which is not part of a series of
transactions resulting in a change of control.
The Merger Agreement provides that upon the termination of the Merger
Agreement for any reason prior to the purchase of Shares by Acquisition pursuant
to the Offer (other than (i) termination by the Company due to a breach of a
representation, warranty, covenant or agreement on the part of Parent or
Acquisition and (ii) termination in circumstances requiring the Company to pay
liqudated damages pursuant to a Company Breach Event), the Company shall
reimburse Parent, Acquisition and their affiliates (not later than one business
day after submission of statements therefor) for all actual documented
out-of-pocket fees and expenses, not to exceed $8,800,000, actually and
reasonably incurred by any of them or on their behalf in connection with the
Offer and the Merger and the consummation of all transactions contemplated by
the Merger Agreement (including, without limitation, fees payable to financing
sources, investment bankers, counsel to any of the foregoing, and accountants).
Parent and Acquisition have provided the Company with an estimate of the amount
of such fees and expenses and, if Parent or Acquisition shall have submitted a
request for reimbursement hereunder, will provide the Company in due course with
invoices or other reasonable evidence of such expenses upon request. The Company
shall in any event pay the amount requested (not to exceed $8,800,000) within
one business day of such request, subject to the Company's right to demand a
return of any portion as to which invoices are not received in due course.
Indemnification; Insurance. Under the Merger Agreement, Parent and
Acquisition have agreed that all rights to indemnification or exculpation
existing in favor of the directors, officers, employees and agents of the
Company and its subsidiaries as provided in their respective charters or by-laws
or otherwise in effect as of the date of the Merger Agreement with respect to
matters occurring prior the Effective Time shall survive the Merger and continue
in full force and effect. The Merger Agreement also provides that to the maximum
extent permitted by the NYBCL such indemnification shall be mandatory rather
than permissive and Surviving Corporation shall advance expenses in connection
with such indemnification. The Merger Agreement further provides that Parent
guarantees the indemnification obligations of Surviving Corporation.
Under the Merger Agreement, Parent has agreed to cause Surviving
Corporation to maintain in effect for not less than three years from the
Effective Time the policies of the directors' and officers' liability and
fiduciary insurance most recently maintained by the Company (provided that
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are not less advantageous to the
beneficiaries thereof so long as such substitution does not result in gaps or
lapses in coverage) with respect to matters occurring prior to the Effective
Time to the extent available, provided, that in no event shall Surviving
Corporation be required to expend more than an amount per year equal to 200% of
the current annual premiums paid by the Company (the "Premium Amount") to
maintain or procure insurance coverage pursuant hereto and, further provided,
that if Surviving Corporation is unable to obtain the insurance called for by
this provision, Surviving Corporation will obtain as much comparable insurance
as is available for the Premium Amount per year.
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Redemption of Rights. The Merger Agreement provides that, at Parent's
request, the Company will take such action as Parent may request to effectuate
the redemption, at any time after the purchase of Shares pursuant to the Offer
of at least a majority of the outstanding Shares, of the Rights.
Amendment. The Merger Agreement provides that subject to the next
paragraph, the Merger Agreement may be amended by action taken by the Company,
Parent and Acquisition at any time before or after approval of the Merger by the
shareholders of the Company (if required by applicable law) but, after any such
approval, no amendment shall be made which requires the approval of such
shareholders under applicable law without such approval. The Merger Agreement
further provides that the Merger Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
The Merger Agreement further provides that, following the election or
appointment of Acquisition's designees to the Company's Board of Directors
pursuant to the Merger Agreement and prior to the Effective Time, if there shall
be any directors of the Company who were directors as of the date hereof, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Acquisition or Parent or waiver of any of
the Company's rights under the Merger Agreement, will require the concurrence of
a majority of such directors.
Extension; Waiver. The Merger Agreement provides that subject to the
second paragraph under "Amendment" above, at any time prior to the Effective
Time, each party to the Merger Agreement may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained in the Merger Agreement or in any document, certificate or writing
delivered pursuant to the Merger Agreement or (iii) waive compliance by the
other party with any of the agreements or conditions contained in the Merger
Agreement. Any agreement on the part of either party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of either party hereto to assert any
of its rights thereunder shall not constitute a waiver of such rights.
OTHER CONTRACTS, AGREEMENTS, ARRANGEMENTS OR UNDERSTANDINGS
Parent has indicated its desire to have Dr. Renso L. Caporali, Chairman of
the Board and Chief Executive Officer of the Company, serve on its Board of
Directors and the possibility of Parent considering one or two other
non-management directors of the Company for membership on the Parent Board of
Directors.
Parent has advised the Company that subsequent to the Merger it is its
present intention to review the implementation of agreements with those
executives of the Company who will continue to be employed in order to develop
arrangements which would be mutually satisfactory, including continuity of
management.
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described under the heading "Executive Compensation"
at pages 9 through 17 of the Company's Notice of Annual Meeting of Shareholders
and Proxy Statement dated March 4, 1993 for its 1993 Annual Meeting of
Shareholders (the "1993 Proxy Statement"). Copies of such pages of the 1993
Proxy Statement are filed as Exhibit (c)(2) hereto and incorporated herein by
reference in its entirety.
At a meeting of the Board of Directors of the Company held on July 15,
1993, the Board, in connection with certain existing employee benefit plans and
arrangements of the Company, approved and adopted amendments, substantially in
the form of Exhibit (c)(3) hereto, which are incorporated herein by reference,
to the Company's 1981 and 1990 Stock Option Plans and its Long-Term Incentive
Plan, allowing a participant under any of such Plans to designate a beneficiary
or beneficiaries who would be entitled to exercise or surrender stock options
granted to the participant in the event of the participant's death.
At a meeting of the Board of Directors of the Company held on August 19,
1993, the Board, in connection with certain existing employee benefit plans and
arrangements of the Company, approved and adopted amendments, substantially in
the form of Exhibit (c)(4) hereto, which are incorporated herein by
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reference, to the Company's 1981 and 1990 Stock Option Plans, Long-Term
Incentive Plan, and Restricted Stock Award Plan as follows:
(i) providing for mandatory stock withholding in order to satisfy tax
withholding requirements under each of such plans; and
(ii) with respect to the 1981 and 1990 Stock Option Plans, providing
that the Compensation Committee of the Board may authorize the surrender of
Options granted under either of such Plans, for Shares with a fair market
value consideration equal to the difference between the exercise price of
the Options being surrendered and the fair market value of Shares subject
to the Options on the date of surrender.
At a meeting of the Board of Directors of the Company held on February 17,
1994, the Board, in connection with certain existing employee benefit plans and
arrangements of the Company:
(i) approved and adopted amendments, substantially in the forms of
Exhibit (c)(5) and Exhibit (c)(6) hereto which are incorporated herein by
reference, to the Company's Restricted Stock Award Plan and the Company's
Special Severance Pay Plan to conform the definition of "Change in Control"
in those plans to the definition of "Change in Control" in the Company's
Long-Term Incentive Plan (the transaction described herein would constitute
a "Change in Control" under either definition);
(ii) approved and adopted amendments to, and restated, the Company's
Excess Benefit Plan described in the 1993 Proxy Statement substantially in
the form of Exhibit (c)(7) hereto which are incorporated herein by
reference; the amendment, (a) extend it to provide benefits to participants
in the Company's Pension Plan whose benefits thereunder are limited by the
statutory ceilings on the amount of compensation which may be utilized for
purposes of computing benefits payable under the Pension Plan, as imposed
pursuant to Section 401(a)(17) of the Internal Revenue Code and (b) provide
for establishment of a trust to assist the Company in meeting its
obligations under the plan;
(iii) approved and adopted amendments to, and restated, the Company's
Supplemental Retirement Plan described in the 1993 Proxy Statement
substantially in the form of Exhibit (c)(8) hereto which are incorporated
herein by reference; the amendments, (a) provide that following a Change in
Control (as defined therein) a participant will be entitled to benefits
under the plan upon termination of employment on or after the participant's
50th birthday and completion of 20 years of continuous service, without the
necessity of Compensation Committee approval; (b) provide that a
participant may, with the consent of the Compensation Committee, defer
receipt of benefits payable under the plan; (c) delete the provisions of
the plan which provide that if the Company elects to purchase life
insurance contracts to provide for its obligations under the plan, a
participant will not be entitled to receive benefits under the plan if the
participant dies as a result of suicide within the 2-year period commencing
on the date a life insurance policy is issued on his or her life, or if the
insurance company declines to issue insurance on his or her life; (d)
clarify that benefits payable under the Supplemental Retirement Plan are
not offset by benefits under the Company's Employee Incentive Plan and
Management Incentive Plan; (e) provide that no benefits shall be payable to
a participant who is convicted of a felony involving theft, fraud,
embezzlement or other similar unlawful acts committed against the Company
or its interests; and (f) provide for establishment of a trust to assist
the Company in meeting its obligations under the plan;
(iv) approved and adopted amendments, substantially in the form of
Exhibit (c)(9) and Exhibit (c)(10) hereto which are incorporated herein by
reference, to the Company's Non-Employee Director Pension Plan and the
Company's Management Incentive Plan described in the 1993 Proxy Statement
to provide for establishment of a trust to assist the Company in meeting
its obligations under the plans; and
(v) authorized the Company to enter into (and fund on a current basis)
trust agreements, the assets of which will be subject to the claims of
creditors in the event of Insolvency (as defined therein) of the Company,
to assist the Company in meeting its obligations under the Company's Excess
Benefit Plan, Supplemental Retirement Plan, Non-Employee Director Pension
Plan and Management Incentive Plan. At the present time, the Company has
not entered into or funded such trust agreements.
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<PAGE> 9
At a meeting of the Board of Directors of the Company held on March 6,
1994, the Board approved and adopted an amendment, substantially in the form of
Exhibit (c)(11) hereto which is incorporated herein by reference, to the
Company's Management Incentive Plan to clarify that in the event the Company is
consolidated with or merged into another corporation, amounts credited into the
Company stock account in respect of amounts deferred under the plan will,
following the merger or consolidation, instead be credited in the form of the
stock, securities or other consideration given in exchange for an equivalent
number of shares of Company stock in the merger or consolidation.
The Company has entered into indemnity agreements with its directors,
certain officers and certain employees who held fiduciary positions in respect
of employee benefit plans or who serve as directors of other entities at the
Company's request. The agreements provide for mandatory indemnification and
mandatory advancement of expenses to the fullest extent authorized or permitted
by the New York Business Corporation Law or any other applicable law. The
agreements provide that, in certain circumstances, an indemnitee must meet
specified standards of conduct in order to be entitled to indemnification. A
copy of the form of indemnity agreement is filed as Exhibit (c)(12) hereto and
is incorporated herein by reference.
Therefore, such directors and officers may be deemed to have a financial
interest in the Offer and Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. At a meeting of the Board held on March 6, 1994, the
Board unanimously adopted resolutions that the Board had, in light of and
subject to the terms and conditions set forth in the Merger Agreement,
determined that the Offer and the Merger are fair to, and in the best interests
of, the shareholders of the Company; authorizing the execution and delivery of
the Merger Agreement substantially in the form presented to it; and recommending
that the shareholders of the Company accept the Offer and tender their shares to
Acquisition and approve and adopt the Merger Agreement.
The letter to shareholders of the Company, dated March 8, 1994, from Dr.
Renso L. Caporali, Chairman of the Board and Chief Executive Officer of the
Company, containing the recommendation of the Board is filed as Exhibit (a)(9)
hereto and is incorporated herein by reference in its entirety. A copy of the
text of the press release issued jointly by Parent and the Company announcing
the Merger Agreement, the Merger and the Offer is filed as Exhibit (a)(7) hereto
and is incorporated herein by reference in its entirety.
(b) Background and Reasons for the Recommendation. The following includes
disclosure regarding discussions and other arrangements between the Company and
each of Northrop Corporation ("Northrop") and Parent. The disclosure set forth
below is provided to satisfy legal requirements applicable to the Company.
In light of past and anticipated decreases in military spending and
consolidations in the defense/aerospace industries over the last several years
and other market factors, the Board has from time to time reviewed the Company's
strategic planning, including the possibility of making acquisitions or entering
into a business combination with a company engaged in similar or related
businesses. In late 1992, members of management of the Company had conversations
with members of management of Northrop and others regarding the possibility of
engaging in discussions related to a possible business combination, which
discussions were brought to the attention of members of the Board. These
conversations did not result in further discussions at that time. In early 1993,
members of management of the Company and Northrop discussed again the
possibility of a business combination between the companies. On January 21,
1993, the companies entered into a confidentiality agreement, misdated January
21, 1992, a copy of which, as subsequently amended, is attached hereto as
Exhibit (c)(13) and incorporated by reference herein in its entirety, pursuant
to which, among other things, each agreed that if either party received
confidential non-public information concerning the other party, the party
receiving such information would keep such information confidential and not use
such information other than in connection with negotiated transactions between
the parties. In addition, pursuant to such confidentiality agreement, each
company agreed that, unless specifically invited by the other party, they would
not acquire any securities of the other party or seek to effectuate
extraordinary transactions involving the other party for a period of three years
from the date of such confidentiality agreement. Pursuant to the confidentiality
agreement, the companies exchanged certain confidential non-financial
information, but did not engage in extensive discussions.
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<PAGE> 10
In the fall of 1993, management of Northrop indicated to the Company a
renewed interest in discussing a possible business combination, resulting in
discussions between members of the companies' managements, which discussions
were brought to the Board's attention.
In late December 1993, the Company retained Goldman, Sachs & Co.
("Goldman") as its financial advisor in connection with the Company's review of
its strategic and financial alternatives. The Company also retained Cahill
Gordon & Reindel as its legal advisor in connection with such review.
On January 5, 1994, a special meeting of the Board was held to discuss,
among other things, the Company's strategic planning as well as the recent
communications between representatives of the Company and representatives of
Northrop. At the meeting, management reviewed communications with Northrop, the
respective technological abilities of Northrop and the Company as well as the
potential synergies of a combination of the Company with Northrop and other
matters related thereto. Representatives of Goldman then reviewed the
environment faced by aerospace and defense industry contractors and the
consolidation pressures facing industry participants, the strategies undertaken
by other industry participants, the reaction of the stock market to major
industry consolidation transactions, public market trading values of industry
members, private market valuations, a summary of certain strategic alternatives
available to the Company, the process which Goldman would follow in developing
its advice to the Board and Goldman's understanding of the Company's strategic
objectives. The Company's stated strategic objectives as concurred with by the
Board at the meeting were as follows: maximize long-term shareholder value as a
continuing entity; address declining revenue base; bolster competition in core
businesses; leverage core competencies; understand available options; and move
deliberately.
On January 19, 1994, Northrop forwarded to the Company a proposed document
that would afford Northrop a 30-day exclusive period to engage in discussions
with the Company regarding a possible business combination and a typed version
of proposed "understandings" that might apply in connection with a possible
business combination of the companies which had been previously delivered in
handwritten form. Northrop also indicated that it would not exchange any
confidential financial information with the Company unless the Company agreed to
such an exclusivity arrangement. The Company declined the opportunity to enter
into the exclusivity agreement and did not sign any agreement with Northrop,
other than the confidentiality agreement (Exhibit (c)(13)), but discussions
continued between the two companies.
On January 20, 1994, a regular meeting of the Board was held to discuss
further, among other things, the Company's strategic objectives. At the meeting,
representatives of Goldman discussed with the Board various stated strategic
alternatives, including growth of the Company through acquisitions as well as
potential business combinations. Members of management discussed the status of
contacts between the Company and Northrop. Representatives of Goldman then
discussed with the Board potential acquisitions, noting that it might be
difficult for the Company to execute an acquisition strategy to achieve the
critical mass necessary to compete effectively in its businesses while still
achieving its financial objectives, and also analyzed and discussed a number of
potential merger candidates. Representatives of Goldman also presented a review
of a possible business combination between the Company and Northrop, including
summary business and financial information and historical stock trading
information about Northrop and an analysis of the relative contribution of each
company based on sales, operating profit and free cash flow. At the conclusion
of such meeting, the Board determined that it would be consistent with the
Company's stated strategic objectives and the interests of the shareholders of
the Company to continue to investigate possible acquisition opportunities as
well as discuss other possible strategic alternatives for the Company.
On January 28, at the request of the Board, representatives of Goldman met
with representatives of the financial advisor of Northrop and stated that any
business combination between the companies should involve a premium for the
shareholders of the Company and that cash should constitute a significant
portion of the consideration. In response, the representatives of Goldman were
advised that Northrop had no interest in a transaction that would result in the
payment of a disproportionate premium to the shareholders of the Company as
compared to the shareholders of Northrop, and that Northrop preferred
transaction structures that minimized the amount of cash consideration.
In late January 1994, at the request of the Board, representatives of
Goldman initiated contact with Parent to determine if Parent had any interest in
exploring a possible business combination with the Company.
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Senior executives of Parent and the Company and a representative of Goldman met
on February 3, 1994 and agreed to have their respective representatives explore
a possible business combination. On February 7, 1994, Parent and the Company
executed a confidentiality agreement, similar in form to the confidentiality
agreement entered into between the Company and Northrop, a copy of which is
attached hereto as Exhibit (c)(14) and incorporated herein by reference in its
entirety, pursuant to which, among other things, the Company and Parent agreed
that if either party received confidential, non-public information concerning
the other party, the party receiving such information would keep such
information confidential and not use such information other than in connection
with negotiated transactions between the parties. In addition, each of Parent
and the Company agreed that, unless specifically invited by the other party,
they would not acquire any securities of the other party or seek to effectuate
extraordinary transactions involving the other party for a period of three
years.
Between February 8 and February 15, representatives of the Company and
representatives of Parent met and held discussions in connection with Parent's
due diligence investigation of the Company. In the course of such investigation,
the Company provided Parent with certain non-public information regarding the
Company pursuant to the confidentiality agreement. During this period, Parent
informed the Company that if there were to be a business combination between the
companies, Parent would be able to provide maximum value to the shareholders of
the Company in a cash transaction.
On February 10, 1994, Northrop's financial advisors presented
representatives of Goldman with the outline of a possible stock-for-stock
transaction which involved a cash election merger in which shareholders of each
of the Company and Northrop would have the option to convert up to 34% of the
shares of each company at an approximately 20% premium to market trading value
and to exchange the remaining shares for shares of a new holding company on the
basis of current market trading values.
On February 16, 1994, Parent and the Company and their financial advisors
met to discuss structuring alternatives, including whether a transaction would
involve stock or cash, and to review financial and valuation issues. Goldman
told Parent that the Board would consider at a meeting the next day whether the
Company should consider a combination with Parent. Goldman reiterated the
Board's position that the Company was not for sale but encouraged Parent to
consider an offer with respect to a strategic combination. Parent expressed its
view that an auction process was not in the best interests of the Company or its
employees and that Parent did not want to participate in such a process due to
the damage Parent felt it would cause to the Company. Parent then reiterated its
view that it would only proceed on an exclusive basis. At the close of the
meeting, Goldman asked Parent to make its highest offer.
On February 17, 1994, the Board held its regular meeting, at which
management reviewed discussions with Parent and Northrop. Representatives of
management discussed with the Board the respective capabilities of Parent and
the Company as well as the potential benefits of a combination of the Company
with Parent, the effects thereof on the constituencies of the Company and other
matters related thereto. Representatives of Goldman then presented to and
discussed with the Board the latest proposal communicated by representatives of
Northrop. Representatives of Goldman also discussed with the Board certain
summary business and financial information and historical stock trading
information about Parent and an analysis of the fit between the businesses of
Parent and the Company, comparison of the Company with other publicly-traded
aerospace/defense companies, a review of analysts' estimates and an analysis of
a share repurchase program by the Company. Based upon, among other things, the
presentations of representatives of management and Goldman, the Board then
determined that it was not interested in pursuing a transaction with Northrop
under the terms outlined in its proposal, and representatives of Goldman were
asked to communicate that determination to Northrop.
Following the Board meeting, discussions continued between representatives
of the Company and representatives of Parent at which Parent indicated a serious
interest in pursuing a business combination with the Company and also repeated
that a higher value would be paid in a transaction in which only cash
consideration would be paid to the shareholders of the Company. During the
course of these meetings, the participants also discussed a wide range of issues
relating to, among other things, the structure, timing and contractual terms and
conditions that could be involved in formulating a process that could result in
a business
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combination between the companies. In order to induce Parent to make the highest
offer possible, representatives of Goldman, among other things, stated that the
Company could effect a share repurchase program that, with certain improvements
in operations, could result in twelve to eighteen months in a trading value in
excess of the mid-$50s per share for shares of its common stock that would
remain outstanding after the share repurchase and that a transaction financed
entirely with debt at even higher prices per share would not necessarily be
dilutive to the earnings of Parent. Representatives of the Company indicated to
Parent that Parent, based on all relevant factors, should consider submitting
its highest offer to the Company.
On February 21, 1994, Parent sent the Company a letter, a copy of which is
attached hereto as Exhibit (c)(16) and incorporated in its entirety herein by
reference, stating that on the basis of the information provided to date, a
projection of potential synergies and subject to the conditions outlined
therein, Parent would be prepared to place a cash value on shares of the Company
of $55.00 each. The letter emphasized that any discussions between the Company
and Parent should proceed quickly and on an exclusive and orderly basis.
Specifically, the letter stated that while Parent was interested in pursuing the
possibilities of a business combination, Parent was prepared to do so only with
the proviso that until the Company told Parent that the Company no longer wished
to continue discussions, neither the Company nor any of its representatives
could engage in discussions with another party regarding a business transaction
with the Company or in any way invite or solicit such a transaction, nor
disclose any information concerning Parent's discussions with the Company. The
letter further emphasized that should any of the foregoing circumstances occur
before the Company and Parent signed a definitive business agreement, any
then-pending indication of interest or proposal from Parent would be withdrawn
and discussions between Parent and the Company would be ended. The letter
further emphasized that the letter contained Parent's best proposal and if
Parent did not receive a positive response prior to Parent's Board meeting on
the morning of February 24, 1994, the offer would permanently expire with no
possibility of renewal.
In addition to the foregoing, the letter stated that although Parent's
valuation of the Company and use of cash as consideration was aimed at ensuring
closure of a business combination, Parent recognized that, assuming Parent and
Company agreed upon and announced a business combination, competition from
others would be at least possible and would not be precluded. The letter stated
that, in light of this consideration, Parent would only be prepared to proceed
with discussions based on an understanding that any definitive agreement between
Parent and the Company would embody the provisions in Appendix I to the letter.
Appendix I set forth certain terms to be included in a proposed definitive
agreement, including provisions to the effect that (i) the Company and its
representatives (a) must cease existing discussions and (b) may not thereafter
solicit offers relating to a competing transaction or participate in discussions
or negotiations or furnish information in connection with any third party
interest expressed regarding such a transaction, except that the Company and its
representatives could (x) engage in negotiations with and provide information to
a third party who submitted a written proposal relating to a competing
transaction to the extent required for the Board to meet its fiduciary duty,
based on a determination by the Board after receiving the written opinion of
outside counsel to such effect that failing to take such action would constitute
a breach of fiduciary duty by the Board and (y) recommend to its shareholders a
competing acquisition transaction, or withdraw or modify its recommendation of
Parent's transaction, if the Board determines, with the written concurrence of
outside counsel, that failing to do so would constitute a breach of fiduciary
duty by the Board; (ii) Parent would receive copies of any proposals relating to
competing transactions and would be kept apprised promptly of developments; and
(iii) if the Company engaged in negotiations or furnished information to a third
party or withdrew or modified its recommendation or made another one, pursuant
to subclause (i) above, then Parent would have the right to terminate the Merger
Agreement and collect its break-up fee and expenses described in the next
sentence. Appendix I further provided that (i) the break-up fee would consist of
a reasonable percentage of the per-share merger consideration; (ii) the break-up
fee would be payable by the Company to Parent if (a) Parent exercised its right
to terminate the agreement due to the entering into of discussions with or the
provision of information by the Company to a third party consistent with the
terms of the provisions described in the preceding sentence; (b) the Company
breached the Merger Agreement and Parent exercised its right to terminate; (c)
the Company modified or withdrew its recommendation concerning Parent's tender
offer or the Merger Agreement or recommended a competing transaction; (d) a
third party acquired a significant percentage of the Company's stock or assets;
(e) the minimum condition of Parent's tender offer
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2/3 of the Company's outstanding shares tendered and not withdrawn) was not
satisfied at the offer's expiration date and, at that time, a third party had
expressed and not withdrawn interest in making a competing acquisition
transaction; and (f) the Company entered into an agreement relating to a
competing transaction or a competing acquisition transaction was consummated
within twelve months of the termination of the Merger Agreement (unless the fee
had been previously paid); and (iii) Parent's expenses would be reimbursed in
full by the Company if the Merger Agreement was terminated for any reason.
At a meeting of the Board convened on February 23, 1994, to discuss, among
other things, the letter from Parent, representatives of Goldman discussed with
the Board matters related to Parent's proposal, including historical and
projected Department of Defense budget authority trends, a summary of the
Company's historical and projected financial performance, the Company's recent
stock market performance, a review of selected comparable publicly-traded
companies, a comparison of recent transactions in the aerospace/defense
industry, a discounted cash-flow analysis of the Company, an analysis of a
Company share repurchase program, an analysis of pro forma financial information
giving effect to the proposed merger, a review of possible strategic purchasers
and merger partners, an analysis of transaction multiples based on Parent's
proposal, and an estimated time line for consummation of Parent's tender offer.
At that time, representatives of Goldman informed the Board that the $55.00
price per share was at the high end of the various valuation ranges used in
their analyses and that, based upon the analyses described below and noting that
no assurances could be given, it was Goldman's view that accepting the $55.00
price per share, assuming that the terms of the transaction were otherwise
acceptable, was likely to produce a higher value for the shareholders of the
Company under current market conditions than what the Company could achieve if
it were not to accept Parent's offer. Representatives of Goldman told the Board
that representatives of Parent were insistent that, if an attempt was made to
negotiate a higher price from Parent, Parent would withdraw the offer.
Representatives of Goldman also advised the Board that representatives of Parent
and its financial advisor had informed them that it was their view that the
offer was Parent's best offer. As to Northrop, representatives of management and
Goldman stated that Northrop's representatives had indicated that Northrop was
not prepared in any transaction to pay a premium to the shareholders of the
Company that was disproportionate to the premium, if any, that would be received
by Northrop's shareholders and that Northrop preferred transaction structures
that minimized the amount of cash consideration. At the conclusion of the
meeting, the Board authorized management to call Parent and inform Parent that
the Company was authorized to proceed with discussions with Parent on the basis
of Parent's letter for the negotiation of an agreement as follows: (i) a price
of $55.00 per share in cash as set forth in the letter; (ii) until the Company
tells Parent that the Company no longer wishes to continue discussions, the
Company does not intend to engage in discussions with another party regarding a
business combination or invite or solicit such a transaction or disclose
information as to the Company's discussions with Parent; and (iii) with respect
to Appendix I to the letter, the Board was prepared to do what was reasonable
and consistent with the Board's fiduciary obligations, but there were issues
raised by the provisions of Appendix I which would require discussion and
negotiation between the parties' legal counsel so that the Board could be
satisfied that it was acting in a manner consistent with its fiduciary
obligations.
Following the meeting of the Board, counsel for the Company and counsel for
the Parent met to begin to negotiate the terms of the Merger Agreement. Such
negotiations continued through March 6, 1994, at the same time that
representatives of the Parent continued to meet and hold discussions with
representatives of the Company in connection with Parent's on-going due
diligence investigation of the Company.
On February 24, 1994, representatives of Northrop's financial advisor
telephoned representatives of Goldman. Representatives of Goldman told the
representatives of Northrop that the Board had instructed the representatives of
Goldman to state that the Board had no interest in pursuing discussions with
Northrop at that time. Later in the day, representatives of Northrop's financial
advisor again telephoned representatives of Goldman and stated that they
believed Northrop would now be prepared to submit an offer at a price per share
of not less than $50.00. Representatives of Goldman communicated this statement
to management of the Company.
On February 25, 1994, the Company received a letter from Northrop, a copy
of which is attached hereto as Exhibit (c)(16) and incorporated in its entirety
herein by reference. The letter stated that, based upon the facts known to
Northrop, Northrop would be prepared to submit an offer at a price per share of
not less than
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$50.00, a premium in excess of 35% over the trading level of the Company's stock
as of the close on February 24, 1994. The letter stated that Northrop would also
be prepared to consider an offer at a higher level, if warranted, based upon any
additional information or analysis the Company might wish to provide Northrop.
The letter also stated that Northrop was willing to proceed expeditiously to the
completion of a definitive acquisition agreement, and that there was no reason,
from Northrop's point of view, that such an agreement could not be signed within
21 days or sooner.
On February 28, 1994, the Board held a telephonic meeting. At this meeting,
management of the Company reported to the Board on the contacts since the last
meeting of the Board with Northrop (particularly the letter dated February 25,
1994 from Northrop) and with Parent. The Board, with representatives of
management and Goldman, discussed the letter from Northrop and the
considerations relevant to the letter, including the possible effect that
pursuing discussions with Northrop could have on Parent's offer. In responding
to a question, a representative of Goldman confirmed the view stated at the
February 23, 1994 Board meeting that accepting the $55.00 price per share,
assuming that the terms of the transaction were otherwise acceptable, was likely
to produce a higher value for the shareholders of the Company under current
market conditions than what the Company could achieve if it were not to accept
Parent's offer. Following discussion, the Board unanimously determined that
representatives of Goldman should telephone the financial advisor to Northrop
and advise it that the Company was not prepared at that time to pursue the
Northrop letter. On March 1, representatives of Goldman telephoned the financial
advisor of Northrop as directed by the Board.
On March 6, 1994, a special meeting of the Board was held. At such meeting,
the Board reviewed with its senior management, legal counsel and financial
advisors the discussions and negotiations between the Company and Parent.
Following such discussion, the Board heard presentations by its legal counsel on
the terms and conditions contained in the proposed Merger Agreement and by
Goldman on its analysis of the proposed transaction. The termination provisions,
as modified through negotiations, were described to the Board and matters
related to the effects of the termination provisions were discussed with the
Board. Representatives of Goldman discussed with the Board matters related to
the proposed transaction with Parent, including historical and projected
Department of Defense budget authority trends, a summary of the Company's
historical and projected financial performance, the Company's recent stock
market performance, a review of selected comparable publicly-traded companies, a
comparison of recent transactions in the aerospace/defense industry, a
discounted cash-flow analysis of the Company, an analysis of a Company share
repurchase program, an analysis of pro forma financial information giving effect
to the proposed transaction, a review of possible strategic purchasers and
merger partners and an analysis of transaction multiples based on the proposed
transaction. Representatives of Goldman said that representatives of Parent and
its financial advisor had informed them that the proposed transaction was
Parent's best offer. Representatives of Goldman also said that the $55.00 price
per share offered by Parent was at the high end of the various valuation ranges
used in their analyses and that, based upon the analyses described below and
noting that no assurances could be given, it was Goldman's view that the $55.00
price per share offered by Parent under the terms of the Merger Agreement was
likely to produce a higher value for the shareholders of the Company under
current market conditions than what the Company could achieve if the Board did
not approve the Merger Agreement. At the conclusion of their presentation,
Goldman delivered its oral opinion to the Board (subsequently confirmed by a
written opinion) that, as of such date, the $55.00 in cash to be received by the
holders of Shares in the Offer and the Merger is fair to such holders. Following
further discussion, the Board unanimously adopted resolutions that the Board
has, in light of and subject to the terms and conditions set forth in the Merger
Agreement, determined that the Offer and the Merger are fair to, and in the best
interests of, the shareholders of the Company; authorizing the execution and
delivery of the Merger Agreement substantially in the form presented to it; and
recommending that the shareholders of the Company accept the Offer and tender
their Shares to Acquisition and approve and adopt the Merger Agreement.
In determining to approve the Merger Agreement and to recommend acceptance
of the Offer, the Board considered a number of factors, including, without
limitation, the following:
(i) The Board's understanding of the strategic options available to
the Company in light of past and anticipated decreases in military spending
and consolidations in the defense/aerospace industries;
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(ii) The Board's conclusion, based on presentations from
representatives of Goldman and other considerations, that it might be
difficult for the Company to execute an acquisition strategy to achieve the
critical mass necessary to compete effectively in its businesses while
still achieving its financial objectives;
(iii) The Board's review of presentations from, and discussion of the
terms and conditions of the Offer and the Merger with, senior executive
officers of the Company, representatives of its legal counsel and
representatives of Goldman;
(iv) The Board's consideration of, among other things, information
with respect to the financial condition, results of operations and business
of the Company, on both an historical and a prospective basis, and current
industry, economic and market conditions, as well as other constituencies
of the Company;
(v) The Board's review of the historical market prices of the Shares
compared to the price of $55.00 per Share (including such price being a
premium of approximately 37.9% to the March 4, 1994 closing price and
approximately a 28.9% premium to the all time high price for the Shares);
(vi) The Board's consideration of alternatives to a sale of the
Company at the present time, including the advisability of continuing to
operate as an independent entity and its previous consideration of the
analysis by the Company's management, with the assistance and advice of the
Company's advisors, including Goldman, of a possible share repurchase
designed to optimize shareholder values and consideration of possible
candidates to effect a business combination with the Company;
(vii) The Board's consideration of the advice of Goldman that the
$55.00 price was at the high end of the various valuation ranges used in
its analyses and that, based upon the analyses described below and noting
that no assurances could be given, it was Goldman's view that the $55.00
price per share offered by Parent under the terms of the Merger Agreement
was likely to produce a higher value for the shareholders of the Company
under current market conditions than what the Company could achieve if the
Board did not approve the Merger Agreement; and
(viii) The Board's receipt of a presentation by representatives of
Goldman, which included, among other things, a review with the Board of the
analyses described below and the oral opinion of Goldman (subsequently
confirmed by a written opinion) that, as of March 6, 1994, the $55.00 per
Share in cash to be received by the holders of Shares in the Offer and the
Merger is fair to such holders.
The Board did not assign relative weights to the factors discussed above.
In rendering its opinion and making its presentation to the Board on March
6, 1994, Goldman discussed the strategic rationale for a combination with Parent
and presented financial, operating and stock market information regarding the
Company, Parent and certain other companies. Goldman also discussed with the
Board the effect that historical declines from 1988-1993 and widely assumed
projected declines from 1994-1998 in the United States Department of Defense
budget for research and development and for procurement has had and will likely
continue to have on companies in the aerospace and defense industry, including
the Company.
Goldman also performed a variety of financial and comparative analyses for
the purposes of its opinion, including (i) analyses of selected comparable
publicly-traded companies, (ii) comparable transaction analyses, (iii)
discounted cash flow analyses and (iv) share repurchase analyses. The basic
analyses used by Goldman and the primary factors discussed during its
presentations to the Board are summarized in greater detail below. This summary,
however, does not purport to be a complete description of Goldman's written
analyses or its presentations to the Board.
Valuation Summary of Selected Publicly-Traded Companies. Goldman reviewed
certain financial, operating and stock market information of the Company and
selected publicly-traded companies engaged in the aerospace and defense industry
and of the S&P 400 Industrials Index. Although such other companies were
comparable to the Company based on certain characteristics of their businesses,
none of these companies possessed characteristics identical to those of the
Company.
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<PAGE> 16
Goldman examined and compared various valuation methods and calculated
various financial multiples and ratios based on certain publicly available
information. The multiples for the Company were calculated using a price of
$39.875 per share, which was the closing price on the New York Stock Exchange on
March 4, 1994, the last trading day before the Board meeting on March 6, 1994.
The multiples and ratios for the latest 12 months ("LTM") for the Company and
Parent were based on information provided by them and the multiples for each of
the other companies were based on publicly available information as of September
30, 1993. The multiples were as follows: (i) 1994 estimates for the price to
earnings ratio (which ratio was based on analysts' estimates) -- 10.9x for the
Company, which compared to a high of 22.2x (which ratio representatives of
Goldman explained to the Board was not meaningful because it was based on the
applicable company's cyclically depressed earnings) and a low of 9.1x for the
other companies; (ii) LTM sales -- .38x for the Company, which compared to a
high of 1.12x and a low of .43x for the other companies; and (iii) stated book
value -- 1.6x for the Company, which compared to a high of 2.5x and a low of
1.3x for the other companies. The ratios were: (i) LTM earnings before interest
and taxes ("EBIT") margin -- 5.9% for the Company, which compared to a high of
14.0% and a low of 6.0% for the other companies; and (ii) LTM return on
equity -- 14.4% for the Company, which compared to a high of 17.6% and a low of
4.0% for the other companies. Goldman also presented a comparison of ratios of
total indebtedness less cash and marketable securities ("net debt") to capital
for the Company, Parent and other selected publicly traded companies engaged in
the aerospace and defense industry based on information provided by the Company
and Parent, as to themselves, and based on publicly available information for
the other companies as of September 30, 1993, as adjusted for one company to
reflect the pro forma effect of the financing of an announced major acquisition.
The net debt to capital percentage for the Company was -15.9%, which compared to
a high of 58.1% and a low of -6.9% for the other companies.
Comparable Transaction Analyses. Goldman reviewed and compared the prices
paid in selected merger and acquisition transactions in the aerospace and
defense industries and the price proposed to be paid by Parent in the Offer and
the Merger. Goldman calculated the aggregate consideration and various financial
multiples from available actual and estimated information for each transaction.
The aggregate consideration for the selected transactions ranged from $3,050
million to $450 million. The financial multiples, in each case (other than the
book value multiple) based on the sum of the consideration paid for the equity
of the acquired company plus the amount of net debt assumed in the transaction,
were as follows, assuming for these purposes that the Offer and Merger had been
announced in 1993: (i) sales for the calendar year the transaction was
announced -- .56x for the Company, which compared to a high of .69x to a low of
.26x for the acquired companies in the other transactions; (ii) EBIT for the
calendar year the transaction was announced -- 9.6x for the Company, which
compared to a high of 9.5x to a low of 2.9x for the acquired companies in the
other transactions; (iii) sales for the calendar year after the transaction was
announced -- .58x for the Company, which compared to a high of .69x to a low of
.26x for the acquired companies in the other transactions; (iv) EBIT for the
calendar year after the transaction was announced -- 8.7x for the Company, which
compared to a high of 8.5x to a low of 4.0x for the acquired companies in the
other transactions; and (v) book value at the time the transaction was
announced -- 2.2x for the Company, which compared to a high of 3.0x to a low of
0.8x for the acquired companies in the other transactions.
Discounted Cash Flow Analysis. Goldman performed a discounted cash flow
analysis using the Company's management projections. Using a discounted cash
flow analysis, Goldman estimated the present value of the future cash flows set
forth in the Company's management projections.
Goldman calculated a net present value of free cash flows for the years
1994 through 1998 using discount rates ranging from 9% to 12%. Goldman
calculated the Company's terminal values in the year 1998 based on multiples
ranging from 5x operating income to 7x operating income and also based on
capitalizing the Company's projected 1988 cash flow (consisting of earnings
before interest, taxes, depreciation and amortization, less taxes (assuming the
Company had no interest income or expense), capital expenditures and changes in
working capital) at the rates then used to discount such terminal values to
present value. These terminal values were then discounted to present value using
discount rates ranging from 9% to 12%. Various ranges of discount rates and
terminal value multiples were chosen to reflect theoretical analyses of costs of
15
<PAGE> 17
capital. The Company's net debt and the costs of exercise of all outstanding
stock options were also factored into implied per share values.
Using the discounted cash flow methodology described above and management's
projections of future cash flows, the implied per share values ranged from
$43.86 to $57.81.
Share Repurchase Analyses. Goldman presented an analysis of the financial
impact of three hypothetical share repurchase programs by the Company, which
differed solely in the total amount of consideration paid by the Company for the
shares. The analysis was based on certain assumptions, including (i) a 4%
opportunity cost of cash and an interest rate on borrowings of 7.5% per annum,
(ii) the Company's stock trading at the same price to earnings ratio before and
after the repurchase and (iii) a purchase price of $47.85 per share,
representing a 20% repurchase premium above $39.875, the closing price per share
on the New York Stock Exchange on March 4, 1994. For each share repurchase,
Goldman assumed that all shareholders participated in the repurchase and
presented the estimated per share value to shareholders as a combination of cash
consideration from the repurchase and continuing stock ownership in the Company,
in each case as though the repurchase had been effected on March 4, 1994.
Goldman also presented the post-repurchase net debt to capitalization ratio of
the Company, assuming that the pre-repurchase net debt to capitalization ratio
of the Company was -15.9%. The analysis indicated that at a repurchase amount of
$364 million, 22.2% of the Company's outstanding stock would have been
repurchased, and the total per share value to shareholders would have been
$47.54 and the resulting net debt to capitalization ratio would have been 34.6%.
At a repurchase amount of $535 million, 32.7% of the Company's outstanding stock
would have been repurchased, and the total per share value to shareholders would
have been $49.92 and the resulting net debt to capitalization ratio would have
been 58.3%. At a repurchase amount of $750 million, 45.8% of the Company's
outstanding stock would have been repurchased, and the total per share value to
shareholders would have been $52.90 and the resulting net debt to capitalization
ratio would have been 88.1%.
Pro Forma Financial Impact of Acquisition. Goldman also prepared a pro
forma analysis of the financial impact of the acquisition of the Company by
Parent at the purchase price of $55.00 per share in cash, assuming financing
either (i) entirely by debt to be incurred by Parent in a principal amount equal
to the total cash consideration to be paid by Parent net of cash and marketable
securities reflected on the respective balance sheets of Parent and Company at
December 31, 1993, and bearing interest at 7.0% per annum, or (ii) partially by
common stock issued by Parent at $44.75 per share (the closing price per share
of Parent's common stock on the New York Stock Exchange on March 4, 1994) in an
amount equal to 25% of the total cash consideration to be paid by Parent, and
partially by debt to be incurred by Parent in a principal amount equal to the
balance of the total cash consideration to be paid by Parent, net of such cash
and marketable securities, and bearing interest at 7.0% per annum. The analysis
used Parent's and management's financial projections for 1994 and 1995 and
calculated earnings per share ("EPS"), the net debt to capital ratio and the net
interest coverage of Parent, assuming for this purpose that stock of Parent had
a value of $44.75 per share. The analysis indicated potential accretion to
Parent's 1994 EPS of 3.8% for a debt only financed transaction and a dilution to
Parent's 1994 EPS of 0.4% for a combined debt and equity financed transaction
and a potential accretion to Parent's 1995 EPS of 5.5% and 1.1%, respectively,
for the two different financing structures. Goldman also reviewed the net debt
to capital ratios of Parent, based on Parent's estimates or projections, as the
case may be, for December 31, 1993, 1994, 1995 and 1996, after giving effect to
the debt only financed transaction and the combined debt and equity financed
transaction. Goldman also reviewed the EBIT to net interest coverage ratios of
Parent, based on Parent's projections, for 1994, 1995 and 1996, after giving
effect to each such financing structure.
Review of Strategic Purchasers and Merger Partners. Goldman reviewed the
fit between the businesses of the Company and the businesses of certain other
strategic purchasers and merger partners. Goldman reviewed the relative
contribution of the Company and each of the other companies based on LTM sales,
LTM operating profit, 1993 estimated net income and 1994 projected net income
(based on projections by Goldman's equity research analyst for the aerospace and
defense industry). Goldman also prepared pro forma analyses of acquisitions of
the Company by certain of these companies, in each case assuming that the
purchase price per share was $55.00 in cash, that the acquisition would be
financed by debt only or by a combination of debt and equity, in the manner
described above with respect to the acquisition of the Company
16
<PAGE> 18
by Parent, and that the stock of the acquiring company had the value of its
closing price per share on the New York Stock Exchange on March 4, 1994. The
analyses made substantially similar assumptions and presented the same ratios as
set out above in the comparable analysis of the debt only financed transaction
and the combined debt and equity financed transactions analyzed with respect to
the acquisition of the Company by Parent.
Analysis at Transaction Price. Goldman prepared a financial analysis of the
proposed acquisition of the Company by Parent and calculated the aggregate
consideration and various financial multiples based upon the cash consideration
of $55.00 per share, or approximately $1,940 million in the aggregate. The
multiples for 1993 and 1994, respectively, were based on information provided by
the Company. The multiples were as follows, in each case for 1993 and 1994,
respectively: (i) sales -- .56x and .58x; (ii) earnings before interest, taxes
and depreciation -- 6.9x and 6.4x; (iii) EBIT -- 9.6x and 8.7x; and (iv)
EPS -- 15.7x and 15.2x. In addition, the $55.00 per share price represented a
37.9% premium to the Company's $39.875 per share closing price on March 4, 1994,
a 28.9% premium to the Company's all time high closing price per share on
January 18, 1994 and a 76.7% premium to the Company's preceding 52 week low
closing price per share on March 4, 1993. The $55.00 per share purchase price
was 2.2x the Company's tangible book value per share at December 31, 1993.
At the March 6, 1994 meeting, Goldman rendered its oral opinion (confirmed
by its written opinion dated March 8, 1994) to the Board that, as of such date,
the price of $55.00 in cash per Share to be received by the holders of the
Shares in the Offer and the Merger is fair to such holders.
In arriving at its opinion, Goldman reviewed, among other things: the
Merger Agreement; the Tender Offer Statement on Schedule 14D-1, dated March 8,
1994, of Purchaser, including the Offer to Purchase; the
Solicitation/Recommendation Statement on Schedule 14D-9 dated March 8, 1994 of
the Company; Annual Reports to Shareholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1992; a draft of the Annual
Report to Shareholders of the Company for the year ended December 31, 1993;
certain interim reports to Shareholders and Quarterly Reports on Form 10-Q;
certain other communications from the Company to its Shareholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. Goldman also held discussions with members of the senior management
of the Company regarding the Company's past and current business operations,
financial condition and future prospects. In addition, Goldman reviewed the
reported price and trading activity for the stock, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the aerospace and
defense industry specifically and in other industries generally and performed
such other studies and analyses as Goldman considered appropriate.
In arriving at its opinion, Goldman relied upon and assumed the accuracy
and completeness of the financial and other information reviewed by it and did
not independently verify such information. In addition, Goldman did not perform
an independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and was not furnished with any such
evaluation or appraisal.
In connection with its opinion, Goldman performed a variety of financial
analyses. The preparation of fairness opinions is a complex process and is not
susceptible to partial analysis or summary description. Any estimates contained
in its analyses are not necessarily indicative of actual past or future results
or values, which may be significantly more or less favorable than such
estimates.
Goldman is an internationally recognized investment banking firm engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated primary and secondary underwritings, private placements
and valuations for corporate and other purposes. The Company selected Goldman as
its financial advisor based upon Goldman's familiarity with the Company and the
industry in which the Company operates and its experience, ability and
reputation with respect to mergers and acquisitions.
A copy of the written opinion of Goldman dated March 8, 1994, confirming
its oral opinion as of March 6, 1994 and describing the assumptions made,
matters considered and the scope of the review
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<PAGE> 19
undertaken and procedures followed by Goldman, is filed as Exhibit (a)(10)
hereto and is incorporated herein by reference. SHAREHOLDERS ARE ENCOURAGED TO
READ SUCH OPINION IN ITS ENTIRETY.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Goldman is acting as the Company's financial advisor in connection with the
Offer and the Merger. Pursuant to an engagement letter dated December 23, 1993,
the Company retained Goldman for a twelve month period to assist the Company in
its review of strategic and financial alternatives and paid Goldman a fee of
$250,000. On February 17, 1994, the Company entered into a second engagement
letter to retain Goldman to provide financial advice in connection with a
possible strategic combination, including assisting in negotiating the financial
aspects of such transaction. Under the terms of such engagement letter, the
Company has agreed to pay Goldman a transaction fee (against which the prior
$250,000 payment would be credited) in an amount equal to 0.50% of the aggregate
consideration, payable only upon the acquisition of 50% or more of the Company's
outstanding common stock by any entity other than the Company. The Company also
agreed to reimburse Goldman for its reasonable out-of-pocket expenses, including
the fees and disbursements of its counsel, plus any sales, use or similar taxes
arising in connection with its engagement, and to indemnify Goldman against
certain liabilities relating to or arising out of its engagement, including
liability under the federal securities laws.
Goldman has advised the Company's Board that in 1993 and 1994 and at other
times it rendered financial advisory and investment banking services to Parent
and its subsidiaries. Goldman has also advised the Company's Board that it may
provide such services to Parent and its subsidiaries in the future.
Neither the Company nor any person acting on its behalf intends to employ,
retain or compensate any other person to make solicitations or recommendations
to the Company's Stockholders in connection with the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best knowledge of the Company, no transactions in the Shares
have been effected within the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company, except for the
following: on January 28, 1994, Edward Balinsky, Vice President -- Mergers and
Acquisitions, sold 272 Shares on the open market for $41.125 per Share; on
January 28, 1994, Michael Solomita, Vice President -- Controller of the
Aerospace and Electronics Group, sold 506 Shares on the open market for $41.50
per Share; on January 31, 1994, Robert Simon, Vice President -- Corporate
Procurement, sold 1,149 Shares on the open market for $41.00 per Share; and on
February 17, 1994, J.R. Anderson, Vice Chairman and Chief Financial Officer,
acquired 5,751 Share equivalents as a deferred stock award under the Management
Incentive Plan, such Share equivalents having a fair market value on such date
of $39.125 each.
(b) To the best knowledge of the Company, all of the Company's executive
officers, directors and affiliates presently intend to tender to Acquisition or
present to the Exchange Agent after the Merger all Shares which are currently
held of record or beneficially owned by such persons, subject to applicable tax
and securities laws and personal considerations.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described under Item 3(b), the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
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<PAGE> 20
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described under Item 4, there are no transactions, Board
resolutions, agreements in principle, or signed contracts in response to the
Offer, other than those described under Item 3(b), which relate to or would
result in one or more of the matters referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The audited financial statements of the Company for the fiscal year ended
December 31, 1993 are filed as Exhibit (c)(18) hereto and are incorporated
herein by reference in their entirety.
The information statement attached hereto as Annex I is being furnished in
connection with the possible designation by Acquisition, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) -- Offer to Purchase dated March 8, 1994*
(a)(2) -- Letter of Transmittal*
(a)(3) -- Notice of Guaranteed Delivery*
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees*
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees*
(a)(6) -- IRS Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9*
(a)(7) -- Press release issued by the Company and Martin Marietta
Corporation on March 7, 1994.
(a)(8) -- Summary Advertisement dated March 8, 1994*
(a)(9) -- Letter to the Company's Shareholders, dated March 8, 1994.
(a)(10) -- Opinion of Goldman, Sachs & Co., dated March 8, 1994.
(b) -- None.
(c)(1) -- Agreement and Plan of Merger between Acquisition, the Parent and
the Company dated March 6, 1994*
(c)(2) -- Proxy Statement, dated March 4, 1993, of the Company*
(c)(3) -- Amendments to 1981 Stock Option Plan, 1990 Stock Option Plan and
Long-Term Incentive Plan*
(c)(4) -- Amendments to 1981 Stock Option Plan, 1990 Stock Option Plan,
Long-Term Incentive Plan and Restricted Stock Award Plan*
(c)(5) -- Amendment to Restricted Stock Award Plan*
(c)(6) -- Amendment to Special Severance Pay Plan*
(c)(7) -- Amended and Restated to Excess Benefit Plan*
(c)(8) -- Amended and Restated Supplemental Retirement Plan*
(c)(9) -- Amendment to Non-Employee Director Pension Plan*
(c)(10) -- Amendment to Management Incentive Plan*
(c)(11) -- Amendment to Management Incentive Plan*
(c)(12) -- Form of Indemnity Agreement*
(c)(13)
(a) -- Confidentiality Agreement between the Company and Northrop
Corporation*
(b) -- Amendment to Confidentiality Agreement between the Company and
Northrop Corporation*
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<PAGE> 21
(c)(14) -- Confidentiality Agreement between the Company and Martin
Marietta Corporation*
(c)(15) -- Letter dated February 21, 1994 from Martin Marietta Corporation
to the Company*
(c)(16) -- Letter dated February 25, 1994 from Northrop Corporation to the
Company*
(c)(17) -- Audited Financial Statements of the Company for the Fiscal Year
Ended December 31, 1993
- ---------------
* Not included in copies mailed to stockholders.
20
<PAGE> 22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
GRUMMAN CORPORATION
By: /s/ RENSO L. CAPORALI
Chairman of the Board and
Chief Executive Officer
Date: March 8, 1994
21
<PAGE> 23
ANNEX I
GRUMMAN CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714-3580
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
_________________________
This Information Statement is being mailed on or about March
8, 1994, as part of the Grumman Corporation's (the "Company")
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
to the holders of record of the Company's Common Stock, $1 par value.
Capitalized terms used and not otherwise defined herein shall have the meaning
set forth in the Schedule 14D-9. You are receiving this Information Statement
in connection with the possible election of persons designated by Acquisition
to a majority of the seats on the Board. The Merger Agreement provides that
Acquisition, upon purchase of Shares pursuant to the Offer, shall be entitled
to designate up to such number of directors, rounded up to the next whole
number, on the Board as well as give Acquisition representation on the Board
equal to the product of the number of directors on the Board (giving effect to
any increase in the number of directors pursuant to the Merger Agreement as set
forth below) and the percentage that the number of shares of Common Stock
purchased by Acquisition bears to the total number of outstanding shares of
Common stock of the Company on a fully-diluted basis, and that the Company will
use its best efforts, upon request by Acquisition, promptly at the Company's
election either to increase the size of the Board (subject to the Company's
certificate of incorporation) or secure the resignation of such number of
directors as is necessary to enable Acquisition's designees to be elected to
the Board. The Merger Agreement further provides that, at such times and
subject to the agreement set forth in the next sentence, the Company will use
its best efforts to cause persons designated by Acquisition to constitute the
same percentage as is on the Board of (i) each committee of the Board (other
than any committee of the Board established to take action under the Merger
Agreement, (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board. The Merger Agreement further provides
that, notwithstanding the foregoing, the Company shall use its best efforts to
ensure that three members of the Board as of the date of the Merger Agreement
shall remain members of the Board until the Effective Time. This Information
Statement is required by Section 14(f) of the Securities Exchange Act of 1934,
as amended, and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully.
You are not, however, required to take any action.
<PAGE> 24
-2-
Pursuant to the Merger Agreement, on March 8, 1994,
Acquisition commenced the Offer. The Offer is scheduled to expire at 12:00
midnight, New York City time, on April 4, 1994, at which time, if all
conditions to the Offer have been satisfied or waived, Acquisition has informed
the Company that it intends to purchase all of the Shares validly tendered
pursuant to the Offer and not withdrawn.
The information contained in this Information Statement
concerning Acquisition and Parent has been furnished to the Company by Parent,
and the Company assumes no responsibility for the accuracy, completeness or
fairness of any such information.
Acquisition has informed the Company that it will choose the
designees (the "Acquisition Designees") it has the right to designate to the
Board pursuant to the Merger Agreement from the directors and officers listed
in Schedule I of the Offer to Purchase, a copy of which is being mailed to
shareholders together with the Schedule 14D-9. The information on such
Schedule I is hereby incorporated herein by reference in its entirety.
It is expected that the Acquisition Designees may assume
office at any time following the purchase by Acquisition of a specified minimum
number of Shares pursuant to the Offer, which purchase cannot be earlier than
April 4, 1994, and that, upon assuming office, the Acquisition Designees will
thereafter constitute at least a majority of the Board. This step will be
accomplished at a meeting or by written consent of the Board providing that the
size of the Board will be increased and/or sufficient numbers of current
directors will resign such that, immediately following such action, the number
of vacancies to be filled by the Acquisition Designees will constitute at least
a majority of the available positions on the Board. It is currently not known
which, if any, of the current directors of the Company will resign.
Acquisition has informed the Company that each of the directors and officers
listed in Schedule I of the Offer to Purchase has consented to act as a
director, if so designated.
None of the executive officers and directors of Parent or
Acquisition currently is a director of, or holds any position with, the
Company. The Company has been advised that, to the best knowledge of Parent
and Acquisition, none of Parent's or Acquisition's directors, executive
officers, affiliates or associates beneficially owns any equity securities, or
rights to acquire any equity securities, of the Company and none has been
involved in any transactions with the Company or any of its directors,
executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC").
<PAGE> 25
-3-
INFORMATION WITH RESPECT TO THE COMPANY
As of February 28, 1994, there were issued and outstanding
33,935,448 shares of Common Stock, each of which entitles the holder to one
vote.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Bylaws of the Company provide that the Board of Directors
of the Company shall consist of nine to fifteen members, with the exact number
of directors within such minimum and maximum to be determined by the Board of
Directors. The Board of Directors currently consists of 11 members.
ACQUISITION DESIGNEES
It is expected that the Acquisition Designees may assume
office at any time following the purchase by Acquisition of a specified minimum
number of shares pursuant to the Offer and that, upon assuming office, the
Acquisition Designees will thereafter constitute at least a majority of the
Board.
CURRENT DIRECTORS
The persons named below are the current members of the Board.
The following sets forth as to each director, his or her age and principal
occupation and business experience, and the period during which each has served
as a director of the Company.
VICTOR HAO LI. Age: 52 years; Co-Chairman, Asia-Pacific
Consulting Group. Director since 1984, and a nominee, whose term will expire
in 1997. Mr. Li graduated from Columbia University in 1961 with a B.A. degree
in mathematics. He received his J.D. degree from Columbia Law School in 1964.
In 1965 he received an L.L.M. degree from Harvard Law School and an S.J.D.
degree in 1971. Mr. Li taught law at Columbia Law School and the University of
Michigan and in 1972 joined the faculty of Stanford Law School where he was
Shelton Professor of International Legal Studies until 1981 and also director
for the Center of East Asian Studies from 1974 through 1976. He continues to
teach there as Acting Professor of Law. From 1981 until 1990 he was President
of the East-West Center, a public, nonprofit corporation established in 1960 by
the U.S. Congress as an educational institution. Internationally Mr. Li is
known for his research and writing on China's legal system and has been a
consultant to the U.S. Senate Foreign Relations Committee. He is a member of
the Board of Hawaiian Electric Industries, Inc. and the Hawaiian Electric
Industries Charitable Foundation, Applied Energy Systems China Generating Co.
Ltd., the Advisory Board of the Freedom Forum
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First Amendment Center and the Advisory Council of the Asia Foundations Center
for Asia Pacific Affairs. Other activities include service as a Board Member
of Mid-Pacific Institute, The Queen's International Corporation, the Immigrant
Center, and the Japan America Society of Honolulu. He also is a member of the
United States Trade and Development Program Advisory Committee, and senior
advisor to Friends of the Future. He is a member of the American Academy of
Foreign Law, the Council on Foreign Relations of New York, the National
Committee on U.S.-China Relations, the U.S. National Committee for Pacific
Economic Cooperation, the American Society of International Law, and the
Association for Asian Studies.
ROBERT J. MYERS. Age: 59 years; President and Chief
Operating Officer, Grumman Corporation. Director since 1991, and a nominee,
whose term will expire in 1997. Mr. Myers received his Bachelor of Civil
Engineering from N.Y. University's College of Engineering in 1955. After
serving in the U.S. Army Corps of Engineers from 1955 to 1957, Mr. Myers joined
the Grumman Aircraft Engineering Corporation as an engineering administrator.
He left Grumman in 1961 to become division controller/administrator for
Giannini Controls Corporation. In 1964, he returned to Grumman as program
control manager for the Apollo Lunar Module Program. From 1968 to 1969, Mr.
Myers was corporate planning, control and budgets manager, and was named
program control manager for the F-14 Program in 1969. In 1972, after
completing a management program at the Harvard Business School, he became
deputy director of planning, control and budgets, and then served in various
positions of increasing responsibility until 1980, when he was elected vice
president, business and resource management, Grumman Aerospace Corporation. In
1983, he was elected Senior Vice President-Resources. In February 1985, Mr.
Myers was elected a corporate senior vice president with responsibility for the
Services Division, and in May 1986, was elected president of Grumman's Data
Systems Division. He was elected President and Chief Operating Officer of
Grumman Corporation in January 1991. He is currently a director of the
American Defense Preparedness Association and a Trustee of Polytechnic
University and of Huntington Hospital.
JAMES F. ORR III. Age: 51 years; Chairman and Chief
Executive Officer, UNUM Corporation; Director since 1991, and a nominee whose
term will expire in 1997. Mr. Orr received his bachelor's degree from
Villanova University in 1965 and an M.B.A. from Boston University in 1970.
Mr. Orr has over 25 years of experience in the financial services industry. He
began his career with a major Boston bank and spent several years in the
securities industry in New York and Boston. Mr. Orr was a principal in a
Boston-based, privately-held investment firm from 1969 to 1974. Prior to
joining UNUM, he spent over 10 years with Connecticut Bank & Trust, most
recently as Executive Vice President and Treasurer. Mr. Orr joined UNUM
Corporation in 1986 as President and Chief Operating Officer and was named
President and Chief Executive Officer in September 1987. He was appointed
Chairman in January 1988. He became a member of the Grumman Corporation Board
of Directors in July 1991. Currently, Mr. Orr is chairman of the American
Council of Life Insurance and past chairman of the Maine Coalition
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for Excellence in Education where he now serves as a director. He is a trustee
of Bates College, Maine Medical Center, New England Colleges Fund, the
Committee for Economic Development, and is a member of the Business Roundtable.
Mr. Orr is a director of the Nashua Corporation, the National Alliance of
Business, the S.S. Heubner Foundation for Insurance Education, and the Council
for Aid to Education.
EDDIE N. WILLIAMS. Age: 61 years; President, Joint Center
for Political and Economic Studies; Director since 1993, and a nominee whose
term will expire in 1997. Mr. Williams received his B.S. in Journalism from
the University of Illinois in 1954 and took graduate courses at Atlanta
University in 1958 and Howard University in 1960. He received an honorary DHL
from Bowie State University in 1980 and an honorary LL.D. from the University
of the District of Columbia in 1986. He was selected as a Congressional Fellow
by the American Political Science Association where, in 1958, he worked for
then Senator Hubert H. Humphrey. In 1959, he was Staff Assistant for the
Senate Committee on Foreign Relations' Subcommittee on Disarmament. Mr.
Williams then served as foreign service reserve officer with the U.S.
Department of State from 1961 to 1968. During the Johnson Administration, he
directed the Office of Equal Employment Opportunity and served as special
assistant to the Deputy Undersecretary of State for Administration. In 1969,
he became Vice President for Public Affairs at the University of Chicago, where
he directed the university's Center for Policy Studies. Also during that time,
he was a columnist for the Chicago Sun Times. In 1972, Mr. Williams joined the
Joint Center for Political Studies. Mr. Williams is a member of the Advisory
Committee, Centers for Disease Control; The Pew Partnerships for Civic Change;
National Commission on State and Local Public Service; Black Leadership Forum;
Council on Foreign Relations; and the Overseas Development Council. Currently,
Mr. Williams serves on the Board of Directors of the National Coalition on
Black Voter Participation; The Institute for Educational Leadership; National
Endowment for Democracy; Washington Educational Television Association-TV
Channel 26; Independent Sector; National Opinion Research Center; Riggs
National Bank of Washington, D.C.; Japan America Society of Washington, D.C.;
and the Promus Companies, Inc. He became a member of the Grumman Corporation
Board of Directors in March 1993.
LUCY WILSON BENSON. Age: 66 years; Consultant to Business and
Government; Director since 1980, whose term will expire in 1995. Mrs. Benson,
President of Benson and Associates, has been an active leader in civil,
academic, corporate, and governmental circles, both in the United States and
abroad. A graduate of Smith College, she received her A.B. (1949) and an M.A.
in History (1955). For six years, Mrs. Benson was national President of the
League of Women Voters and Chairman of its Education Fund. She has served the
government in a number of capacities, including Undersecretary of State for
Security Assistance, Science and Technology during the Carter Administration,
Secretary of Human Services for the Commonwealth of Massachusetts, and as a
public member, appointed by the Speaker of the House, of the Select Committee
on the Administration of the Congress. Presently, Mrs. Benson is a Trustee
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of the Alfred P. Sloan Foundation and Vice Chairman, Board of Trustees of
Lafayette College, and a member of the Council on Foreign Relations, the
International Institute of Strategic Studies and the National Committee on
U.S.-China Relations. She is Vice Chairman of the Citizens Network for Foreign
Affairs and a member of the Board of Directors of Communications Satellite
Corporation, Logistics Management Institute, International Executive Service
Corps, and of several funds of the Dreyfus Corporation, including the Dreyfus
Fund, Inc., Dreyfus Liquid Assets, Inc., and the Dreyfus Third Century Fund,
Inc.
J. ROBERT ANDERSON. Age: 57 years; Vice Chairman and Chief
Financial Officer, Grumman Corporation; Director since 1991, whose term will
expire in 1995. Mr. Anderson received his B.A. degree from the University of
South Carolina in 1958, his M.B.A. from Stanford University in 1963, and in the
intervening years, served as a line officer in the U.S. Navy, from 1958 to
1961. After graduate school, Mr. Anderson joined the Ford Motor Company and in
1972 became Assistant Controller. He became Assistant Treasurer in 1974, and
in 1977 joined the Office of the President as Finance Operations Planning
Director. In 1978, he was named President of the Ford Motor Land Development
Corporation. In 1983, Mr. Anderson joined the Firestone Tire & Rubber Company
as Senior Vice President, Chief Financial Officer and Director, and became Vice
Chairman, Chief Financial Officer, Chief Administrative Officer and a Director
of the newly formed Bridgestone/Firestone, Inc. in 1989. Mr. Anderson joined
Grumman Corporation in July 1991 as Vice Chairman, Chief Financial Officer, and
a Director. Presently, Mr. Anderson is a director of Telxon Corporation and is
a Vice Chair and Trustee of the National Planning Association and is a member
of the Association's Committee on Changing International Realities.
RICHARD DULUDE. Age: 60 years; Retired Vice Chairman, Corning
Incorporated; Director since 1991, whose term will expire in 1995. Mr. Dulude
received his B.M.E. from Syracuse University in 1954, and did postgraduate work
at M.I.T. in 1969. From 1957 to his retirement in 1993, he was with Corning
Incorporated, where he served in a number of sales, marketing, engineering and
general management positions. He was elected a Vice President in 1971,
President of Corning Europe in 1978, Senior Vice President in 1980, Group
President responsible for the Telecommunications Products Sector in 1983, and
became Vice Chairman in 1990. Mr. Dulude joined the Grumman Corporation Board
of Directors in September 1991. In addition, Mr. Dulude currently serves on
the Board of Directors of Raychem Corporation and AMBAC Inc. He is also a
Trustee of Syracuse University. Mr. Dulude is on the Board of Directors,
Council of Governing Boards of the Independent Universities of New York State
and is a member of the British-North American Committee of the National
Planning Association.
KENNETH S. AXELSON. Age: 71 years; Director of various
corporations; Director since 1974, whose term will expire in 1996. Mr. Axelson
graduated from the University of Chicago in 1944 with an A.B. degree. He
served in the U.S. Army as a Warrant Officer from
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1943 to 1946. Before joining J.C. Penney Company, Inc. in 1963, he served as a
Partner with Peat, Marwick & Co., C.P.A.'s, New York City, from 1952 to 1963.
Previously, he was a management consultant with McKinsey & Company in Chicago
from 1950 to 1952, Controller of Columbia Lumber Company of Alaska from 1948 to
1950, and staff accountant with Arthur Andersen & Co. in Seattle from 1946 to
1948. Mr. Axelson retired from Penney in 1982 as Executive Vice President and
a director of the company. He is a director or trustee of The Chicago Dock and
Canal Trust, UNUM Corporation, Zurn Industries, Inc., Protection Mutual
Insurance Company and several Merrill Lynch funds. From 1975 to 1976, he
served as Deputy Mayor for Finance of New York City and subsequently served as
a member of the Emergency Financial Control Board, New York City.
RENSO L. CAPORALI. Age: 60 years; Chairman and CEO, Grumman
Corporation; Director since 1986, whose term will expire in 1996. Dr. Caporali
received his Bachelor of Civil Engineering degree and his Master of Mechanical
Engineering degree from Clarkson College of Technology. He earned three
additional degrees from Princeton University; Master of Aeronautical
Engineering, Master of Arts in Aeronautical Engineering, and Doctor of
Philosophy in Aeronautical Engineering. Dr. Caporali served as a naval aviator
from 1954 to 1958 and after leaving active service remaining in the reserve
until 1973. Dr. Caporali began his career at Grumman as a Structural Flight
Test Engineer in 1959. In 1963, he became Assistant to the Director of Flight
Test for Advanced Development and in 1966 he became Assistant to the Vice
President of Engineering. From 1968 through 1973, Dr. Caporali held various
positions on the F-14 program including project engineer responsible for
configuration design and deputy engineering manager responsible for vehicle
flight test development. Subsequently, he advanced to Director of Design
Engineering, Director of Advanced USAF Tactical Aircraft and Director of
Advanced Systems Technology. In 1980 he was elected Vice President-Development
and in 1983 was elected Senior Vice President-Technical Operations of Grumman
Aerospace Corporation. In 1985, Dr. Caporali was appointed President of
Aircraft Systems, an Operating Division of Grumman Corporation and in July
1988, he was elected Vice Chairman-Corporate Technology of Grumman Corporation.
In July 190 he was elected Chairman and Chief Executive Officer of Grumman
Corporation. Dr. Caporali was awarded an ALAA Flight Test Fellowship, he is a
Trustee of Clarkson University, a licensed professional engineer in New York
State, a Fellow of the American Institute of Aeronautics and Astronautics, and
was elected into the National Academy of Engineering in February 1993. He is a
director of the Long Island Lighting Company.
CHARLES MARSHALL. Age: 64 years; Former Vice Chairman of the
Board, AT& T; Director since 1989, whose term will expire in 1996. Mr.
Marshall graduated from the University of Illinois. He joined Illinois Bell
Telephone Company in 1953 as a service engineer. During his early career with
the Bell System, he held numerous positions in Illinois Bell and with American
Telephone and Telegraph Company in New York. In 1976, he became Vice President
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and Treasurer of AT&T in New York and in 1977 was named President and CEO of
Illinois Bell. He returned to AT&T in 1981 as President and in 1983 became
Chairman and CEO of AT&T Information Systems. Mr. Marshall was named Vice
Chairman of the Board of AT&T in 1985, a position he held until he retired in
1989. Mr. Marshall is a director of Ceridian Corporation, GATX Corporation,
HARTMARX, Sonat, Inc. Sunstrand, Inc., Zenith Electronics, and the University
of Illinois Foundation. He also serves as a Trustee of the Newberry Library,
University of Chicago.
JOHN T. SARGENT. Age: 69 years; Mr. Sargent joined Doubleday
& Company in 1945. In 1961, he was elected President of Doubleday & Company,
Inc. In 1978 he became Chairman of the Board and in 1985 Chairman of Executive
Committee. He retired from Doubleday in 1987. He is a director of River Bank
America, the Centennial Insurance Company and the Alger Fund, as well as a
Trustee of the Atlantic Mutual Insurance Company.
BOARD MEETINGS AND COMMITTEE
The Board of Directors of Grumman Corporation held 12 meetings
in 1993 and presently consists of 11 members, three of whom are officers of the
Corporation.
In 1993, the Board of Directors had six standing committees
that dealt with special responsibilities. Other than James F. Orr III, no
director attended less than 75 percent of both Board and Committee meetings
held during 1993. Following are brief descriptions of each Committee, the
frequency of its meetings and its composition in 1993.
The Audit Committee, composed entirely of non-employee
directors, meets periodically with representatives of management, the
independent public accountants, and the Corporation's internal auditors to
review matters relating to financial reporting, internal accounting controls
and auditing. It also has a responsibility for the oversight of ethical
business conduct. Both internal auditors and independent public accountants
have unrestricted access to the Audit Committee to discuss the results of their
examinations. The Committee also recommends to the Board, for approval by the
shareholders, the engagement of the independent public accountants. The
Committee met seven times in 1993, and its members were Lucy Wilson Benson,
Chairman; Kenneth S. Axelson, Richard Dulude, Charles Marshall and John T.
Sargent. Ellis L. Phillips, Jr. was a member of this Committee through and
including his retirement, effective February 28, 1993.
The Compensation Committee, composed entirely of non-employee
directors, establishes policies for, and reviews, executive compensation plans
and benefit programs, establishes salary review policies for officers of the
Corporation, its operating Groups and its operating subsidiary corporations,
and determines compensation for selected senior officers. The
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Committee held five meetings in 1993, and its members were Charles Marshall,
Chairman; Richard Dulude and James F. Orr III.
The Corporate Governance Committee, currently composed
entirely of non-employee directors, establishes criteria for the selection of
directors, seeks out and interviews director-candidates, including those
submitted by shareholders, employees, or others, and recommends to the Board
those director candidates who shall stand for election at the Annual Meeting of
Shareholders and those who shall fill interim vacancies. The Committee also
recommends to the Board at the annual organization meeting the selection of
officers of the Corporation. It ensures annual reviews of: the Corporation's
management succession plan; the performance of top management by all outside
directors; and director performance and, when appropriate, recommends
corrective action. The Committee periodically reviews overall Board committee
responsibilities and assignments and makes recommendations to the Board of
Directors for approval. Shareholders may submit recommendations for
director-candidates to the Corporate Governance Committee in care of the
Corporation's Secretary, 1111 Stewart Avenue, Bethpage, New York 11714-3580.
The Committee met two times in 1993, and its members were John T. Sargent,
Chairman; Kenneth S. Axelson, Victor Hao Li and Lucy Wilson Benson. Ellis L.
Phillips, Jr. served as a member of this Committee through and including
February 28, 1993. Renso L. Caporali served as a member of this Committee
through and including April 15, 1993.
The Corporate Responsibility Committee, composed of both
employee and non-employee directors, inquires into corporate activities that
relate to employee relations and public policy and recommends goals and
objectives to assure that corporate actions are consistent with the
responsibilities of a good citizen. The Committee held two meetings in 1993,
and its members were Victor Hao Li, Chairman; Robert J. Myers, John T. Sargent,
and Eddie N. Williams, who became a member of the Committee effective March 1,
1993. Ellis L. Phillips, Jr. served as Chairman of this Committee through and
including February 28, 1993.
The Executive Committee is composed of employee directors and
non-employee directors. During the intervals when the Board is not in session,
it exercises all the powers and duties of the Board in the management of the
business and affairs of the Corporation with respect to matters or transactions
within the ordinary course of business or in furtherance of transactions of the
Corporation previously authorized and approved by the Board, except those
matters limited by Board resolution or by the New York Business Corporation Law
to action by the full Board. The Committee did not meet in 1993. It members
were Renso L. Caporali, Chairman; Kenneth S. Axelson; Victor Hao Li and John T.
Sargent. Ellis L. Phillips, Jr. served as a member of this Committee through
and including February 28, 1993.
The Investment Review and Finance Committee, which includes
employee and non-employee directors, reviews with senior corporate management
current and proposed significant
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investments of corporate resources for any product development, acquisitions,
dispositions, mergers, and for corporate expansion, long-term business and
financial plans, and proposed financing strategies and arrangements. This
Committee also reviews, at least annually, the management of the funds of the
Corporation's pension and employee investment plans. The Committee held four
meetings in 1993, and its members were Kenneth S. Axelson, Chairman; J. Robert
Anderson, Lucy Wilson Benson, Victor Hao Li, James F. Orr III and John T.
Sargent.
DIRECTOR COMPENSATION
Directors who are not employees receive an annual retainer of
$20,000 and fees of $800 for each Board and Committee meeting attended;
however, Committee Chairmen receive $1,500 for each meeting over which they
preside. Directors may elect to defer all or a portion of the annual retainer
and meeting fees otherwise payable in the year(s) following such election.
Deferred amounts are credited to a cash account which is paid after the
individual ceases to be a director. No amounts were credited under this plan
during the past year. Those directors who are also employees receive no
remuneration for serving as directors.
Non-employee directors who provide consulting services to the
Corporation or any of its subsidiaries or affiliates are entitled to receive
$1,000 per day (or any part thereof) when such services are in addition to
services performed as a member of the Board of Directors or a committee
thereof. No director received or earned such compensation in 1993.
Non-employee directors are granted options to purchase shares
of the Corporation's Common Stock in accordance with the terms of the
Corporation's 1990 Stock Option Plan, which provides automatic grants of 2,000
shares when the individual is first elected a director, and 600 shares per year
each year thereafter. Grants to each such non-employee director are limited to
no more than 10,000 shares.
Non-employee directors who have served on the Board of
Directors at least three years and have attained at least age sixty-five are
eligible to participate in the non-employee director pension plan adopted by
the Board of Directors on August 21, 1986, as amended from time to time, and
administered by the Compensation Committee of the Board of Directors. An
eligible director shall receive annually for life, a sum equal to the product
of (i) 10% of his or her final annual retainer fee plus the sum of board and
committee meeting fees paid during the 12-month period immediately preceding
his or her retirement as a director and (ii) the number of full years he or she
served on the board, provided that the maximum annual benefit shall be 100% of
his or her final annual retainer fee plus the sum of board and committee
meeting fees paid during the 12-month period immediately preceding retirement.
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The Corporation is authorized to enter into a trust agreement
(the assets of which would be subject to the claims of the Corporation's
creditors in the event of insolvency of the Corporation) to assist it in
meeting its obligations under the non- employee director pension plan. At the
present time, the Corporation has not entered into or funded such a trust
agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee's report on executive compensation
is set forth below. No member of the Compensation Committee is a former or
current officer or employee of the Corporation or any of its subsidiaries, nor
does any Executive Officer of the Corporation sit on a committee which
determines the salary of any member of the Compensation Committee.
The Committee sets the guidelines for all Executive Officer
compensation and determines the salaries of the Chairman and Chief Executive
Officer, President and Chief Operating Officer, Vice Chairman and Chief
Financial Officer, Executive Vice Presidents, Senior Vice Presidents, and
Presidents, Executive Vice Presidents and Vice Presidents, of the Corporation's
operating groups. Currently there are ten individuals whose salaries are
determined by the Committee. As to all other Executive Officers, salaries are
determined by the Chairman of the Board based upon recommendations he receives
from the individual's supervisors, in accordance with policies and guidelines
established by the Committee. The Compensation Committee of the Board of
Directors (the "Committee") as stated above, is composed entirely of
non-employee directors. The Committee has responsibility for the
administration of the Corporation's Management Incentive Plan, as adopted by
the Board of Directors on January 20, 1972, and as subsequently amended from
time to time, and the Long-Term Incentive Plan, as approved by shareholders on
April 16, 1992.
The Committee believes that competitive base salary levels
provide an essential foundation for an effective and motivational Executive
Officer compensation program when coupled with both annual and longer-term
incentives. The Committee has structured the total compensation program for
the Executive Officers so that a substantial component of each of their total
compensation is dependent upon, and directly related to, the Corporation's
annual and longer-term earnings, return on equity, return on capital, and total
returns realized by the Corporation's shareholders.
The Committee seeks to ensure that the total compensation of
Executive Officers is competitive with the compensation programs of incumbents
of comparable positions in selected U.S. corporations of comparable revenue
size, as well as selected U.S. aerospace and defense contractors, including
those which comprise the aerospace peer group shown on the stock performance
graph herein. Grumman Corporation, as well as those corporations which the
Committee uses to benchmark Executive Officer compensation, participates in
several nationally
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recognized compensation surveys. These surveys, conducted by independent
professionals, provide the basis for establishing, monitoring and
administering the competitiveness of the Corporation's total Executive Officer
compensation program.
In 1993, as done previously from time to time, the Committee
retained a compensation expert to determine whether the Corporation's Executive
Officer compensation program adheres to the Committee's Executive Officer
compensation philosophy, to evaluate the competitiveness of the level and mix
of Executive Officer base salary, annual bonuses and long-term incentives, and
to assist the Committee in benchmarking the competitiveness of the Executive
Officers' total compensation program. The Committee has restructured certain
of its Executive Officer compensation practices to conform with improvements
recommended by the consultant.
BASE SALARY
Executive Officer salaries are based on the incumbent's
position responsibilities, experience and performance and are administered
within the competitive ranges to which they have been assigned. The midpoints
of the salary ranges approximate the 50th percentile of practice for the
comparator corporations after taking into account position responsibility
factors and annual revenue size in relation to the Corporation's. Dr.
Caporali's base salary was last adjusted by the Committee on April 1, 1993 to
88 percent of his midpoint. In reaching its determination, the Committee
considered his then current position in his salary range, his performance and
his continuing successful efforts in substantially improving the financial
condition of the Corporation.
ANNUAL INCENTIVE
The Management Incentive Plan ("MIP") is an annual incentive
bonus designed and administered to ensure that a significant portion of each
Executive Officer's annual cash compensation is based upon the Corporation's
annual performance. The maximum award pool that may be used for payment of
bonuses earned in 1993 under this Plan, including those paid to Executive
Officers, is seven percent of the Corporation's after-tax net income, before
unusual and non-recurring items. The Plan further provides that awards may not
be paid unless Common Stock dividend payments for the year total at least $1.00
per share.
The MIP target bonus for 1993 was calculated as a percentage
of the participant's base salary based upon the responsibility level of the
participant's position. The actual MIP bonus which can be earned ranges from
zero to two times the target bonus, with 50% of the award calculated on
individual and/or organizational performance ("Individual Factors") and the
other 50% calculated on corporate performance relative to the Corporation's
Focus Factors.
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Ratings for Individual Factors varied in 1993 by participant but on average
approximated target bonus levels, while organizational ratings for 1993
averaged slightly better than target bonus levels. Ratings related to the 1993
Focus Factors, namely profit margins and return on capital, exceeded
substantially the target bonus levels. The Chairman reviews all proposed
awards, except his own, and adjusts awards as appropriate to ensure fairness
and equity across all operating units. Those proposed awards are then
submitted to the Committee for approval.
The Committee has the responsibility to determine Dr.
Caporali's award and in 1993 used as its criteria the performance of the
Corporation with respect to the Focus Factors and their discretionary
assessment of the Corporation's performance. Dr. Caporali's target MIP award
for 1993 was 50% of his 1993 base compensation and his 1993 MIP award paid in
1994 was $375,000. The Committee believes this award is consistent with the
methodology described above and reflects his continued outstanding efforts in
substantially improving the financial condition of the Corporation in 1993.
Under the MIP, award recipients may, subject to certain conditions,
elect to defer their awards over a period of years, or until after retirement.
The Corporation is authorized to enter into a trust agreement (the assets of
which would be subject to the claims of the Corporation's creditors in the
event of insolvency of the Corporation) to assist it in meeting its obligations
under the MIP. At the present time, the Corporation has not entered into or
funded such a trust agreement.
LONG-TERM INCENTIVES
The Committee believes also that a significant portion of Executive
Officer total compensation should be related to the Corporation's longer-term
earnings per share growth and return on equity--both of which directly
influence the total returns realized by the Corporation's shareholders. The
Long-Term Incentive Plan ("LTIP"), which the shareholders approved at the April
16, 1992 Annual Meeting, is designed to achieve this goal. Pursuant to this
plan, in 1993, the Committee granted performance shares and issued stock option
awards.
Participants, including Executive Officers, can earn from zero to
twice the number of performance shares granted based upon (1) a comparison of
the Corporation's three-year average earnings per share growth (25% of award)
and return on equity (25% of award) with standards established by the Committee
during the first year of the measurement period covered by the award; and (2) a
comparison of such three-year average earnings per share growth (25% of the
award) and return on equity (25% of award) with those of the six aerospace
industry peer corporations identified on the performance graph on herein.
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The performance share grants have been structured so the number of
performance shares earned for each three-year measurement period is directly
related to the Corporation's earnings per share growth and return on equity
performance during the measurement period, while the value to the participant
of the performance shares that have been earned is directly related to the
price of the Corporation's Common Stock at the end of the performance
measurement period when the shares are distributed. Dividend equivalents are
credited during the performance period, on a share reinvestment basis, and are
distributed at the end of the performance measurement period consistent with
the number of performance shares actually earned.
The Committee approved the grant of performance shares under LTIP in
November 1993 covering the measurement period January 1, 1994 through December
31, 1996. The 1993 performance share grants, and an equivalent number of stock
option grants, were made following the target guidelines calibrated to the 50th
percentile of comparator company practice. The comparator group included those
companies used in evaluating the competitiveness of Executive Officer salary
range midpoints for which long-term compensation survey data was available.
The number of performance shares granted to Dr. Caporali for this measurement
period was based on the application of these guidelines. The named Executive
Officers' November 1993 performance share and associated stock option grants
were substantially larger than the grants they received in November 1992.
These adjustments were made based on the findings of the Committee's 1993
evaluation of the competitiveness of the Corporation's Executive Officer total
compensation program and are fully consistent with its compensation philosophy
of relating a significant component of Executive Officer total compensation to
the total returns realized by the Corporation's shareholders.
The Committee has also granted stock options under the LTIP. The
options were granted in November 1993, at the same time as the performance
share awards for the 1994-1996 performance period, and were equal in size to
the target number of performance shares awarded. Options were granted with an
exercise price equal to the fair market value of Grumman Corporation Common
Stock on the date of grant and have a ten-year exercise term. To further
reinforce the linkage between long-term incentive compensation and increases in
shareholder value, stock option grants cannot be exercised until after the
third anniversary of the date of grant. Thereafter, the options can be
exercised partially, or in their entirety, at any time during the remaining
seven year term. The 1993 stock option grants to Dr. Caporali were, as
discussed above, equal in amount to the target number of performance shares
granted in November 1993 and were made following the target guidelines
calibrated to the 50th percentile of comparator company practice.
* * * * *
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The 1993 Omnibus Budget Reduction Act (OBRA) imposed a $1
million limitation on the tax deductibility of compensation paid to an
Executive Officer in any year, starting in 1994, unless such compensation meets
specific criteria qualifying such payments for continued tax deductibility.
Since clarifying regulations were only released in the fourth quarter of 1993,
and more are expected, the Committee will monitor developments in this area
before adopting a policy position.
COMPENSATION COMMITTEE
Charles Marshall, Chairman
Richard Dulude
James F. Orr III
<PAGE> 38
-16-
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows all shares of the Corporation's
Common Stock held beneficially, directly or indirectly, by each director or
nominee, the named executive officers, and by all directors and executive
officers as a group. For purposes of this chart, beneficial ownership includes
those shares owned on January 31, 1994 and those shares which could have been
acquired by the exercise of options within sixty days of January 31, 1994.
<TABLE>
<CAPTION>
Common Stock owned as
of January 31, 1994
------------------------------------------------
Percent of
Name Number of Shares(1) class(2)
---- ------------------- ----------
<S> <C> <C>
J. Robert Anderson 55,215
Kenneth S. Axelson 4,305
Lucy Wilson Benson 5,423
Renso L. Caporali 120,793
Richard Dulude 3,200
Victor Hao Li 1,800
Charles Marshall 5,400
Robert J. Myers 57,387
James F. Orr III 4,200
Ellis L. Philips Jr.(3) 10,391
Gerald H. Sandler 22,856
John T. Sargent 4,999
Albert Verderosa 42,034
Eddie N. Williams 2,600
All 37 directors and executive
officers as a group (4)(5) 722,547 2.13%
</TABLE>
(1) Includes shares which may be purchased through the exercise of
stock options held on January 31, 1994 by the following
persons: Mr. Anderson, 21,000 shares; Mr. Axelson, 2,400
shares; Mrs. Benson, 3,600 shares; Dr. Caporali, 54,062
shares; Mr. Dulude, 3,200 shares; Mr. Li, 600 shares; Mr.
Marshall, 1,200 shares; Mr. Myers 18,060 shares; Mr. Orr,
3,200 shares; Mr. Sandler, 4,000 shares; Mr. Sargent, 3,000
shares; Mr. Verderosa, 16,050 shares; Mr. Williams, 2,600
shares; all directors and executive officers as a group,
217,272 shares.
<PAGE> 39
-17-
In addition to the shares of Common Stock beneficially owned
by the directors, the wife of a director owns 7,866 shares of
Common Stock. Beneficial ownership of such shares has been
disclaimed by this director.
(2) No director or named executive officer owned more than 1%.
(3) Mr. Phillips retired from the Board effective February 28,
1993. Mr. Phillips' membership on the Audit, Corporate
Governance, Corporate Responsibility and Executive Committees
terminated simultaneously with his retirement from the Board
of Directors.
(4) These 37 directors and executive officers include: 2
executive officers who retired in 1993, and the director
identified in footnote (3).
(5) Due to administrative errors, Mr. Fred L. Thompson, Vice
President - Quality, did not timely file his initial Form 3
report required by the Securities Exchange Act of 1934, and
Mr. Richard G. Anderson, Vice President - Corporate
Technology, did not disclose on Form 5 filings due February
1992 and February 1993, Common Stock equivalents and dividend
equivalents attributable thereto credited to a deferred award
account under the Management Incentive Plan. Mr. Thompson's
Form 3 report and Mr. Anderson's Common Stock equivalents and
dividend equivalents have since been duly filed and reported,
respectively.
<PAGE> 40
-18-
SECURITY OWNERSHIP OF RECORD OWNERS
As of January 31, 1994, the following shareholder was the
record owner of five percent or more of the outstanding shares of the
Corporation's Common Stock.
<TABLE>
<CAPTION>
Amount of Percent Title
Name and Address ownership of class of class
--------- -------- --------
<S> <C> <C> <C>
Employee Investment Plan
of Grumman Corporation(1) 11,229,061 33.09% Common
c/o Grumman Corporation Stock
1111 Stewart Avenue
Bethpage, N.Y. 11714-3580
</TABLE>
(1) Each Employee Investment Plan participant instructs the Trustees of
the Plan how to vote his or her shares. As to shares with respect to which the
Trustees receive no voting instructions, the Trustees, pursuant to the Plan,
vote these shares in the same proportion as they vote all of the shares with
respect to which they have received voting instructions. All Common Stock held
by the Plan is fully vested in the participants. Each participant instructs
the Trustees whether none or some of such participant's contributions to the
Plan are to be invested in Common Stock. The Plan requires that all employer
contributions to the Plan be invested in Common Stock during the period of each
respective employee's service with the Corporation; an employee may under
certain circumstances elect to transfer, in installments, a percentage of the
employer contribution in that employee's account to another fund within the
Plan.
<PAGE> 41
-19-
STOCK PERFORMANCE GRAPH
The following performance graph compares the five-year
cumulative total shareholder returns (assuming reinvestment of dividends)
realized by Grumman Corporation's Common Stock shareholders with the S&P 500
index and an aerospace company peer group comprised of the following six
companies: General Dynamics, Lockheed, Martin Marietta, McDonnell Douglas,
Northrop and Rockwell International. This peer group's performance enters into
the computation of the actual number of performance shares to be distributed to
participants under the Long-Term Incentive Plan following the three-year
measurement period, in that 50% of the ultimate distribution is based on a
comparison of the Corporation's three-year average earnings per share growth
and return on equity with those averages of the six peer companies. The
performance graph assumes $100 is invested in Grumman Corporation Common Stock,
the S&P 500 index, and a composite index for the peer companies on December 31,
1988, and that dividends paid during the December 31, 1988 through December 31,
1993 period were reinvested to purchase additional shares during this
performance period.
Comparison Of 5-Year Cumulative Total Return1
Among Grumman Corporation, S&P 500 and
Aerospace/Defense Peer Group
300
250
200 BNY TO DO
150
100
50
12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
12/31/93
Grumman S & P 500 Aerospace Peer Group
____________________
1 Companies in peer groups weighted by market
capitalization, indexed to 100 at 12/31/88. Dividends
reinvested over period.
<PAGE> 42
-20-
The table below sets forth all compensation paid by the
Corporation and its subsidiaries for services in all capacities in the past
three fiscal years to each of the five most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
Name and Principal Position Year Salary($) Bonus($)(1)
- --------------------------- ---- --------- -----------
<S> <C> <C> <C>
Renso L. Caporali 1993 525,000 375,000
Chairman of the Board and 1992 450,000 310,000
Chief Executive Officer 1991 375,000 220,000
Robert J. Myers 1993 381,250 275,000
President and Chief 1992 325,000 215,000
Operating Officer 1991 257,000 150,000
J. Robert Anderson(5) 1993 337,500 225,000
Vice Chairman and 1992 300,000 190,000
Chief Financial Officer 1991 150,000 90,000
Albert Verderosa 1993 251,250 145,000
President 1992 190,000 100,000
Grumman Aerospace 1991 185,833 80,000
Corporation
Gerald H. Sandler 1993 208,750 100,000
President 1992 187,508 80,000
Grumman Data Systems 1991 155,500 60,000
Corporation
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards
----------------------------------------------------
Securities
Other Annual Restricted Underlying All Other
Compensation Stock Award Options/SARs Compensation
Name and Principal Position ($)(2) ($)(3) (#) ($)(2)(4)
- --------------------------- ------ ------ --- ---------
<S> <C> <C> <C> <C>
Renso L. Caporali -0- 16,700 4,540
Chairman of the Board and -0- 6,800 5,135
Chief Executive Officer 79,875 9,000
Robert J. Myers -0- 8,800 4,860
President and Chief -0- 5,000 5,168
Operating Officer 56,800 6,400
J. Robert Anderson(5) -0- 6,000 4,960
Vice Chairman and -0- 4,600 5,193
Chief Financial Officer 232,000 21,000
Albert Verderosa -0- 5,200 5,140
President 53,677(6) -0- 3,000 4,370
Grumman Aerospace 31,950 3,600
Corporation
Gerald H. Sandler -0- 4,000 4,580
President -0- 2,400 4,500
Grumman Data Systems 28,400 3,200
Corporation
</TABLE>
<PAGE> 43
-21-
(1) Reflects Management Incentive Plan awards earned in specified calendar
year, but paid in either the following February or March. For
example, Dr. Caporali's award of $375,000 for 1993 performance was
paid in February 1994. Officers and key employees of the Corporation
and of most of its subsidiaries are eligible to participate in the
Management Incentive Plan adopted by the Board of Directors. The
maximum amounts available for total awards under the Plan are equal to
7% of the after tax net income before adjustments for unusual and
non-recurring items, provided dividend payments for the year in
question on Grumman Corporation Common Stock total at least $1.00 per
share. The Corporation is authorized to enter into a trust agreement
(the assets of which would be subject to the claims of the
Corporation's creditors in the event of insolvency of the Corporation)
to assist it in meeting its obligations under the Management Incentive
Plan. At the present time, the Corporation has not entered into or
funded such a trust agreement.
(2) While each of the five named individuals received perquisites or other
personal benefits in 1993 and in 1992, in accordance with SEC
regulations, the value of these benefits is not indicated for anyone
other than Mr. Verderosa, since the benefits did not exceed in the
aggregate the lesser of $50,000 or 10% of the individual's salary and
bonus in either 1993 or 1992. In accordance with the transitional
provisions applicable to the revised rules on executive officer and
director compensation disclosure adopted by the Securities and
Exchange Commission, as informally interpreted by the Commission's
Staff, amounts of Other Annual Compensation and All Other Compensation
are excluded for the Corporation's 1991 fiscal year.
(3) Amounts represent the aggregate fair market value of Restricted Stock
on November 20, 1991, the date of grant. Additionally, the aggregate
number and fair market value of all Restricted Stock held by the named
individuals on December 31, 1993 are as follows: R. Caporali, 15,000
shares, $599,062; R. Myers, 9,980 shares, $398,576; J.R. Anderson,
13,000 shares, $519,187; A. Verderosa, 6,688 shares, $266,782; and G.
Sandler, 6,649 shares, $265,185. Dividend equivalents are paid on
Restricted Stock. Restrictions automatically lapse in the event of a
"change in control" of the Corporation. For this purpose a "change in
control" is defined in the Change in Control Arrangements Section.
(4) This column includes the Corporation's contribution to the Grumman
Corporation Employee Investment Plan. All employees of the
Corporation and of most of its subsidiaries become eligible to
participate in the Employee Investment Plan after three months of
employment. Employer contributions, which can match up to 4% of the
employee's annual basic compensation rate, are invested in a
Corporation Stock Fund for the employee's benefit.
(5) Mr. Anderson joined the Corporation on July 1, 1991.
(6) Of this sum, $52,088 represents Mr. Verderosa's housing and meal
allowance while serving at the Corporation's request at a location
away from his normal residence.
<PAGE> 44
-22-
The Corporation has in effect plans pursuant to which options
to purchase Common Stock of the Corporation are granted to officers and other
selected employees as determined by the Compensation Committee. The tables
below identify the option grants awarded in the last fiscal year to the
individuals identified on the Summary Compensation Table and the aggregate
option values on December 31, 1993.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Individual Grants Potential Realized Value of
- ----------------------------------------------------------------------- Assumed Annual Rates of
Number of % of Total Stock Price Appreciation Over
Securities Options/SARs 10 Year Option Term(2)
Underlying Granted to Exercise or --------------------------------
Options/SARs Employees Base Price Expiration
Name Granted(#) in Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
- ---- ---------- -------------- ----------- ----------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Renso L. Caporali . . . 16,700 6.58% $39.125 Nov. 17, 2003 $0 $411,634 $1,038,886
Robert J. Myers . . . . 8,800 3.47% $39.125 Nov. 17, 2003 $0 $216,909 $ 547,437
J. Robert Anderson . . 6,000 2.36% $39.125 Nov. 17, 2003 $0 $147,892 $ 373,252
Albert Verderosa . . . 5,200 2.05% $39.125 Nov. 17, 2003 $0 $128,173 $ 323,485
Gerald H. Sandler . . . 4,000 1.56% $39.125 Nov. 17, 2003 $0 $ 98,595 $ 248,835
</TABLE>
(1) All options were granted on November 17, 1993 under the 1992 Long-Term
Incentive Plan. Options must be held three years after the grant date
before they can be exercised. In the event of a change in control,
all restrictions lapse. For this purpose, a "change in control" is as
defined in the Change in Control Arrangements Section.
(2) The dollar amounts under these columns are the result of calculations
at 0% and the 5% and 10% rates set by the Commission and therefore are
not intended to forecast possible future appreciation, if any, of
Grumman Corporation's Common Stock price.
<PAGE> 45
-23-
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired $ Value Options/SARs in In-the-Money Options/SARs at
on Exercise Realized December 31, 1993 December 31, 1993(1)
----------- -------- ----------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Renso L. Caporali 15,429(2) $288,448 54,062 23,500 $1,061,049 $141,918
Robert J. Myers 8,331(2) $159,173 18,060 13,800 $ 357,032 $101,525
J. Robert Anderson -0- -0- 21,000 10,600 $ 464,062 $ 91,700
Albert Verderosa 4,000 $ 25,375 16,050 8,200 $ 308,812 $ 60,850
Gerald H. Sandler 4,591(3) $122,717 4,000 6,400 $ 48,000 $ 48,550
</TABLE>
(1) Based on the fair market value on the New York Stock Exchange -
Composite Transactions of the Corporation's Common Stock on that date
($39.9375).
(2) 1,041 of such shares were acquired upon the exercise of the surrender
(SAR) feature of options on 6,000 shares at $28.7188 on April 23,
1993.
(3) 1,106 of such shares were acquired upon the exercise of the surrender
(SAR) feature of options on 3,200 shares at $17.75 on January 28,
1993, 296 shares acquired on surrender of option for 1,600 shares at
$28.7188 on April 26, 1993 and 1,089 shares acquired on surrender of
option for 3,000 shares at $25.5625 on July 26, 1993.
<PAGE> 46
-24-
The following table shows performance share awards made to the
individuals identified on the Summary Compensation table. The performance
share awards were in lieu of the traditional awards of Restricted Stock to
certain key employees. Payout of awards is tied to the Corporations achieving
certain pre-set performance targets. The measures chosen to establish those
targets are earnings per share growth and return on equity of the Corporation
standing alone and as compared to its selected peer group. The actual
distributions may be adjusted as described in footnote (3) below. In the event
of a change in control, all performance share awards will be fully vested,
deemed earned in full at the maximum performance level (which results in awards
equal to twice the number of target shares) and promptly paid entirely in cash.
For this purpose, a "change in control" is as defined in the Change in Control
Arrangements Section.
LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payments
Number of Performance or Under Non-Stock
Shares, Other Period Price-Based Plans (3)
Units or until --------------------------------------------
Other Maturation or Threshold Target Maximum
Name Year(1) Rights(#) Payout(2) (#) (#) (#)
- ---- ------- --------- --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
R.L. Caporali . . . . . . . Nov-93 16,700 Mar-97 0 16,700 33,400
R. Myers . . . . . . . . . Nov-93 8,800 Mar-97 0 8,800 17,600
J.R. Anderson . . . . . . . Nov-93 6,000 Mar-97 0 6,000 12,000
A. Verderosa . . . . . . . Nov-93 5,200 Mar-97 0 5,200 10,400
G.H. Sandler . . . . . . . Nov-93 4,000 Mar-97 0 4,000 8,000
</TABLE>
(1) Awards issued in November 1993 are subject to a measurement period of
January 1, 1994-December 31, 1996.
(2) Date shown reflects anticipated date of distribution.
(3) For performance which falls below or above the pre-set target, awards
will be prorated between those shown under Threshold and Target or
Target and Maximum, respectively. Dividend equivalents in the form of
additional shares are credited during the performance period, and will
be distributed at the end of the period with respect to all
performance shares that have been earned.
<PAGE> 47
-25-
PENSION PLANS
All employees of the Corporation and of most of its
subsidiaries are admitted to membership in its noncontributory employee pension
plan after one year's service and attainment of age 21. The plan provides for
benefits upon retirement which are based upon a percentage of earnings per year
of membership service. Retirement is mandatory at age 65 for corporate
officers. Early retirement is allowed any time after a member reaches age 60
with at least one year of service or age 50 with at least 20 years of service.
The plan is a career average plan and provides an annual sum on account of
membership service. The calculation of the benefit is based upon a formula
level which varies by calendar year. For example, from January 1, 1989 to
date, the benefit is calculated based upon the following formula: for each
full or partial calendar year, 2.60% of the base compensation per year up to
the formula level plus 2.85% of any base compensation in excess of the formula
level for those participants with 35 years or less of membership service. For
each year of membership service in excess of 35 years, the benefit accrues at
2.60% of base compensation. The formula level is the social security wage base
used to calculate the maximum social security tax minus $16,700. Base
compensation is salary excluding bonus, special pay or pay for overtime. The
projected annual pension benefit for each of the individuals identified in the
Summary Compensation Table, assuming he retires at age 65, his current earnings
remain constant over this period and he elects a pension benefit for his life
only is: R.L. Caporali, $101,651; R.J. Myers, $92,814; J.R. Anderson, $43,407;
A. Verderosa, $86,571 and G.H. Sandler, $77,272.
Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the amount of compensation that may be used to
calculate pension benefits under a tax qualified plan. Section 415 of the Code
limits the annual benefits which may be paid under such a plan. The
Corporation has a nonqualified unfunded excess benefit plan which provides for
the payment out of its general funds of any benefits calculated under the
provisions of the qualified noncontributory career average plan (discussed in
the paragraph above) that are above the limits allowed under Sections
401(a)(17) and 415. Benefits payable under this excess benefit plan are in
addition to those described above. The projected annual benefit payable under
this excess benefit plan for each of the individuals identified in the Summary
Compensation Table, assuming he retires at age 65, his current earnings will
remain constant over this period and he elects a benefit payable for his life
only is: R.L. Caporali, $66,753; R.J. Myers, $48,728; J.R. Anderson, $43,509;
A. Verderosa, $10,450; and G.H. Sandler, $9,538.
Further, the Corporation has a supplemental plan which
provides to certain officers of the Corporation, its subsidiaries and divisions
and key employees designated by the Compensation Committee of the Board of
Directors a supplemental pension up to 30% of final base compensation upon
retirement at age 60 with at least 10 years of service, which is payable in
monthly installments for a period certain of 180 months. The maximum 30%
supplemental payment is reduced for service of less than 25 years and/or
retirement before age 60 (entitlement is subject to approval of the
Compensation Committee of the Board of
<PAGE> 48
-26-
Directors if retirement is prior to age 60 but after age 50 with 20 years of
continuous service; approval is automatically deemed given if such retirement
occurs after a "change in control" (see the Change in Control Arrangements
Section below)) and may be further reduced or eliminated to make certain that
the sum of the annual pension calculated under the provisions of the above
described career average plan, excess benefit plan, when applicable, and annual
social security benefits, plus the supplemental benefit, do not exceed 60% of
final total compensation (base compensation at retirement or age 65 and the
average of the three highest bonuses before then). The plan also provides an
annual pre-retirement death benefit equal to 25% of the final base compensation
payable monthly for a period certain of 108 months in lieu of any supplemental
retirement benefits being payable. Pursuant to this plan, the projected annual
benefits payable for 15 years commencing at age 65 are: R.L. Caporali,
$165,000; R.J. Myers, $120,000; J.R. Anderson, $52,500; A. Verderosa, $78,000
and G.H. Sandler, $64,500.
The Corporation is authorized to enter into trust agreements
(the assets of which would be subject to the claims of the Corporation's
creditors in the event of insolvency of the Corporation) to assist it in
meeting its obligations under the Excess Benefit and Supplemental Retirement
Plans described above. At the present time, the Corporation has not entered
into or funded such trust agreements.
The Corporation has committed to provide Mr. Anderson with a
special retirement bonus, to be paid in the form of an annuity, the cost of
which will be the total of 20% of each of his management incentive plan
bonuses, and the payment terms of which will be consistent with Mr. Anderson's
pension election under the Grumman Corporation Pension Plan. The Corporation
also committed to provide him with a supplemental retirement pension
equivalent in lieu of the supplemental retirement benefit described above in
the event Mr. Anderson does not complete ten full years of service with the
Corporation.
CHANGE IN CONTROL ARRANGEMENTS
The Corporation in January 1990 adopted a plan which permits
it to enter into special severance agreements ("Agreements") with key
employees, such employees being designated from time to time by the
Compensation Committee of the Board of Directors. Currently, there are 31
designated key employees including Dr. Caporali and Messrs. Anderson, Myers,
Venderosa and Sandler. The purpose of the Agreements is to encourage the key
employees to continue to carry out their duties in the event of the possibility
of a change in control of the Corporation. Payments under the Agreements would
be made only if there is (i) a Change in Control of the Corporation, (ii) the
key employee is then in the employ of the Corporation, and (iii) the key
employee's employment is terminated other than for narrowly defined causes. A
"Change in Control" shall be deemed to have occurred upon the happening of any
of the following events: (i) the acquisition, other than from the Corporation,
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 (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the
Exchange Act) of 30% or more of either
<PAGE> 49
-27-
the then outstanding voting shares of Common Stock of the Corporation or the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors, but
excluding, for this purpose, any such acquisition by the Corporation or any of
its subsidiaries, or any employee benefit plan (or related trust) of the
Corporation or its subsidiaries; (ii) individuals who, as of February 17, 1994,
constitute the Board of Directors of the Corporation (as of such date, the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board, provided that any individual becoming a director subsequent to such
date whose election, or nomination for election by the Corporation'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 is in
connection with an actual or threatened election contest relating to the
election of directors of the Corporation (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or (iii) approval by
the stockholders of the Corporation of a reorganization, merger or
consolidation of the Corporation, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Common Stock and voting securities of the Corporation,
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, 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 reorganization, merger
or consolidation, or a complete liquidation or dissolution of the Corporation
or the sale or other disposition of all or substantially all of the assets of
the Corporation.
Should an Agreement become operative, the key employee shall
receive his full base salary through the Date of Termination (as defined in the
Agreement); and after the Date of Termination, severance pay in a lump sum
equal to 2.99 times the key employee's base amount (as defined in Section 280G
of the Code). This severance pay shall be reduced by any severance pay
received pursuant to the Corporation's Termination Review policy (Personnel
Policy A 641) in effect at the date of Notice of Termination (as defined in the
Agreement). In addition, the Corporation would continue to provide certain
fringe benefits (i.e., medical, dental) and other employee benefits (as defined
in the Agreement) for up to 36 months.
In no event may the amount of any benefits payable under an
Agreement, when added together with any other benefits the key employee is
entitled to receive from the Corporation, exceed the total amount of payments
or benefits which could be received by the key employee without any portion
thereof constituting a non-deductible "excess parachute payment" within the
meaning of Section 280G of the Code, or being subject to the excise tax imposed
by Section 4999 of the Code. The payments or benefits payable to the key
employee shall be reduced to the extent necessary to comply with the
limitations. Such
<PAGE> 50
-28-
reduction shall be made in the order and manner determined by the key employee
as soon as administratively practicable following the Change in Control.
In January 1990, the Board of Directors authorized the
Corporation to provide that in the event of a "Change in Control," any employee
whose employment is involuntarily terminated within 30 months following such
"Change in Control" shall be entitled to receive the Corporation's severance
pay benefits in effect immediately prior to the "Change in Control." For
purposes of this policy, the definition of "Change in Control" is substantially
the same as that for the Agreements described above.
Grumman Corporation
March 8, 1994
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
--------- -------------
<S> <C> <C>
(a) (1) -- Offer to Purchase dated March 8, 1994...........................
(a) (2) -- Letter of Transmittal...........................................
(a) (3) -- Notice of Guaranteed Delivery...................................
(a) (4) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.................................................
(a) (5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.................................
(a) (6) -- IRS Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9......................................
(a) (7) -- Press release issued by the Company and Martin Marietta
Corporation on March 7, 1994.......................................
(a) (8) -- Summary Advertisement dated March 8, 1994.......................
(a) (9) -- Letter to the Company's Shareholders, dated March 8, 1994.......
(a) (10) -- Opinion of Goldman, Sachs & Co., dated March 8, 1994............
(b) -- None............................................................
(c) (1) -- Agreement and Plan of Merger between Acquisition, the Parent and
the Company dated March 1, 1994....................................
(c) (2) -- Proxy Statement, dated March 4, 1993, of the Company............
(c) (3) -- Amendments to 1981 Stock Option Plan, 1990 Stock Option Plan and
Long-Term Incentive Plan........................................
(c) (4) -- Amendments to 1981 Stock Option Plan, 1990 Stock Option Plan,
Long-Term Incentive Plan and Restricted Stock Award Plan...........
(c) (5) -- Amendment to Restricted Stock Award Plan........................
(c) (6) -- Amendment to Special Severance Pay Plan.........................
(c) (7) -- Amended and Restated Excess Benefit Plan........................
(c) (8) -- Amended and Restated Supplemental Retirement Plan...............
(c) (9) -- Amendment to Non-Employee Director Pension Plan.................
(c) (10) -- Amendment to Management Incentive Plan..........................
(c) (11) -- Amendment to Management Incentive Plan..........................
(c) (12) -- Form of Indemnity Agreement.....................................
(c) (13)
(a) -- Confidentiality Agreement between the Company and Northrop
Corporation.....................................................
(b) -- Amendment to Confidentiality Agreement between the Company and
Northrop Corporation............................................
(c) (14) -- Confidentiality Agreement between the Company and Martin
Marietta Corporation...............................................
(c) (15) -- Letter dated February 21, 1994 from Martin Marietta Corporation
to the Company.....................................................
(c) (16) -- Letter dated February 25, 1994 from Northrop Corporation to the
Company.........................................................
(c) (17) -- Audited Financial Statements of the Company for the Fiscal Year
Ended December 31, 1993............................................
</TABLE>
<PAGE> 1
Exhibit (a)(11)(c)
March 8, 1994
Board of Directors
Grumman Corporation
1111 Stewart Avenue
Bethpage, NY 11714
Gentlemen and Madame:
You have requested that we confirm our oral opinion as to the fairness to the
holders of the outstanding shares of Common Stock, par value $1.00 per share
(the "Shares"), of Grumman Corporation (the "Company") of the $55.00 per Share
in cash to be received by such holders in the Offer and the Merger (each as
defined below) pursuant to the Agreement and Plan of Merger dated as of March 8,
1994 among Martin Marietta Corporation ("Martin Marietta"), MMC Acquisition
Corp. ("Purchaser") a wholly owned subsidiary of Martin Marietta, and the
Company (the "Merger Agreement").
The Merger Agreement provides for a tender offer for all of the Shares (the
"Offer") pursuant to which Purchaser will pay $55.00 per Share in cash for each
Share accepted. The Merger Agreement further provides that following completion
of the Offer, the Purchaser will be merged with and into the Company (the
"Merger") and each outstanding Share (other than Shares already owned by Martin
Marietta or Purchaser) will be converted into the right to receive $55.00 in
cash.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Merger Agreement. We
also have provided a wide range of investment banking and financial advisory
services to Martin Marietta from time to time, including acting as financial
advisor to Martin Marietta in connection with its combination with the aerospace
and certain other businesses of General Electric Company in April 1993, as
managing underwriter of three public debt offerings of Martin Marietta in April
1993 and as co-managing underwriter to Martin Marietta of an initial public
offering of equity securities of Martin Marietta Materials, Inc., a subsidiary
of Martin Marietta, in February 1994. We may provide investment banking services
to Martin Marietta and its subsidiaries in the future.
In connection with this opinion, we have reviewed, among other things, the
Merger Agreement; the Tender Offer Statement on Schedule 14D-1, dated March 8,
1994, of Purchaser, including the Offer to Purchase; the
Solicitation/Recommendation Statement on Schedule 14D-9 dated March 8, 1994 of
the Company; Annual Reports to Shareholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1992; a draft of the Annual
Report to Shareholders of the Company for the year ended December 31, 1993;
certain interim reports to Shareholders and Quarterly Reports on Form 10-Q;
certain other communications from the Company to its Shareholders and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior management
of the Company regarding its past and current business operations, financial
condition and
<PAGE> 2
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial and stock market information
for the Company with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the aerospace and defense industries
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal.
Based upon and subject to the foregoing and based upon such other matters as we
considered relevant, we confirm our oral opinion that, as of March 8, 1994, the
$55.00 per Share in cash to be received by the holders of Shares in the Offer
and the Merger is fair to such holders.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE> 1
Exhibit (a)(11)(d)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
ARTHUR ANDERSEN & CO.
NEW YORK, N.Y.
To the Shareholders and Board of Directors of Grumman Corporation:
We have audited the accompanying consolidated balance sheet of Grumman
Corporation (a New York corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grumman Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 11 to the consolidated financial statements,
effective January 1, 1992, the company changed its method of accounting for
income taxes and for postretirement benefits other than pensions.
/S/ ARTHUR ANDERSEN & CO.
January 20 , 1994
<PAGE> 2
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME Grumman Corporation and Subsidiaries
- -------------------------------------------------------------------------------
($ in thousands except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,224,535 $3,492,075 $3,963,492
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,589 11,875 10,359
--------- --------- ---------
Total sales and other income . . . . . . . . . . . . . . . . . . . . . 3,249,124 3,503,950 3,973,851
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,929,987 3,189,035 3,620,895
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 - -
Loss on Tracor Aviation Inc. settlement . . . . . . . . . . . . . . . . - - 46,500
Selling, administrative and other . . . . . . . . . . . . . . . . . . . 115,928 113,289 124,049
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,702 55,065 85,236
--------- --------- ---------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . 3,162,617 3,357,389 3,876,680
--------- --------- ---------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 86,507 146,561 97,171
Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . 21,000 26,700 2,000
--------- --------- ---------
Income from continuing operations . . . . . . . . . . . . . . . . . . . 65,507 119,861 95,171
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . (6,700) (45,035) 4,166
Cumulative effect of change to accrual method of accounting
for postretirement benefits . . . . . . . . . . . . . . . . . . . . . - (198,000) -
--------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,807 $ (123,174) $ 99,337
========= ========= =========
PRIMARY EARNINGS PER COMMON SHARE:
Income from continuing operations. . . . . . . . . . . . . . . . . . . . $ 1.90 $ 3.49 $ 2.75
Income (loss) from discontinued operations . . . . . . . . . . . . . . . (.19) (1.34) .13
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . - (5.88) -
--------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.71 $ (3.73) $ 2.88
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 3
CONSOLIDATED BALANCE SHEET Grumman Corporation and Subsidiaries
- -------------------------------------------------------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------
ASSETS 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 346,090 $ 299,077
Marketable securities (at cost, approximating market) . . . . . . . . . 18,034 -
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 518,731 534,260
Inventories, less progress payments . . . . . . . . . . . . . . . . . . 499,436 612,424
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,992 41,280
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,423,283 1,487,041
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation . . . . . . . 372,723 399,421
------------ ------------
NON-CURRENT ASSETS
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 120,028 94,856
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . 6,009 9,079
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,505 28,678
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,901 69,941
------------ ------------
228,443 202,554
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,024,449 $2,089,016
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,571 $ 83,399
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,576 128,610
Wages and benefits payable . . . . . . . . . . . . . . . . . . . . . . . 90,229 95,519
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,932 145,353
Advances and deposits . . . . . . . . . . . . . . . . . . . . . . . . . 95,340 30,251
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 89,699 127,902
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 518,347 611,034
------------ ------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,106 355,244
------------ ------------
ACCRUED RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 304,752 306,500
------------ ------------
RESTRUCTURING RESERVE . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 -
------------ ------------
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,191 23,348
------------ ------------
COMMON STOCK--$1.00 par value, authorized 80,000 shares;
outstanding 34,049 and 33,519 shares (net of treasury stock) . . . . . . 344,589 321,038
RETAINED EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491,464 471,852
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,024,449 $2,089,016
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY Grumman Corporation and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------
(amounts in thousands)
YEAR 1993 YEAR 1992 YEAR 1991
------------------ ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
COMMON STOCK
<S> <C> <C> <C> <C> <C> <C>
Balance beginning of year . . . . . . . . . . 33,790 $337,896 33,512 $337,737 33,019 $313,916
Conversion of convertible subordinated
debentures . . . . . . . . . . . . . . . . 1,392 48,352 - - - -
Conversion of preferred stock . . . . . . . . - - 6 36 1 6
Exercise of stock options and awards -
net of (forfeitures) . . . . . . . . . . . 605 22,935 272 4,014 492 7,149
Majority interest in capital contributed to
joint venture . . . . . . . . . . . . . . - - - (3,891) - 16,666
------- ------- ------- ------- ------- -------
Balance end of year . . . . . . . . . . . . . . . 35,787 409,183 33,790 337,896 33,512 337,737
------- ------- ------- ------- ------- -------
Less:
TREASURY STOCK
Balance beginning of year . . . . . . . . . . 271 4,415 247 3,998 221 3,529
Common stock repurchase program . . . . . . . 1,361 49,931 - - - -
Reinstated (issued) under various plans--net . 106 2,848 24 417 26 469
------- ------- ------- ------- ------- -------
Balance end of year . . . . . . . . . . . . . 1,738 57,194 271 4,415 247 3,998
------- ------- ------- ------- ------- -------
RESTRICTED STOCK
Balance beginning of year . . . . . . . . . . 1,613 12,443 1,651 15,025 1,360 13,377
Awards (forfeitures)--net . . . . . . . . . . (85) (566) 131 1,490 444 6,462
Amortization and vesting . . . . . . . . . . . (234) (4,477) (169) (4,072) (153) (4,814)
------- ------- ------- ------- ------- -------
Balance end of year . . . . . . . . . . . . . 1,294* 7,400 1,613* 12,443 1,651* 15,025
------- ------- ------- ------- ------- -------
Common stock outstanding . . . . . . . . . . 34,049 $344,589 33,519 $321,038 33,265 $318,714
======= ======= ======= ======= ======= =======
RETAINED EARNINGS
Balance beginning of year . . . . . . . . . . $471,852 $632,998 $570,504
Net income (loss) . . . . . . . . . . . . . . 58,807 (123,174) 99,337
Cash dividends:
Common (per share: 1993, $1.15; 1992
and 1991, $1.00) . . . . . . . . . . . . . (38,690) (33,496) (33,220)
Preferred . . . . . . . . . . . . . . . . - (2,515) (3,623)
Redemption costs . . . . . . . . . . . . . (505) (1,961) -
-------- -------- --------
Balance end of year . . . . . . . . . . . . . $491,464 $471,852 $632,998
======== ======== ========
</TABLE>
* Shares are shown for information only and are included in common stock.
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS Grumman Corporation and Subsidiaries
- -------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,807 $(123,174) $ 99,337
Items affecting cash from operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 73,835 82,127 94,274
Cumulative effect of change in accounting for postretirement benefits . - 198,000 -
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 - -
Loss on Tracor Aviation Inc. settlement . . . . . . . . . . . . . . . . - - 46,500
Release of tax reserves . . . . . . . . . . . . . . . . . . . . . . . . - (23,500) (30,700)
Changes in assets and liabilities:
Decrease/(increase) in:
Accounts receivable and marketable securities . . . . . . . . . . (2,505) 79,391 13,126
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,988 147,817 142,811
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 288 38,660 (9,930)
Increase/(decrease) in:
Accounts payable, wages and benefits . . . . . . . . . . . . . . . 13,676 (68,585) (52,399)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . (49,231) 65,947 (11,409)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (32,362) (6,351) (4,500)
Other current liabilities . . . . . . . . . . . . . . . . . . . . 26,886 56,155 (10,902)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,869 68,317 4,126
------- ------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . 322,251 514,804 280,334
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (44,585) (39,054) (54,847)
Proceeds from sale of capital assets . . . . . . . . . . . . . . . . . . 3,882 2,361 6,385
Decrease (increase) in investments . . . . . . . . . . . . . . . . . . . (25,562) 4,237 (1,486)
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (66,265) (32,456) (49,948)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term debt . . . . . . . . . . . . . . . . . . . . . . - - (17,000)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . - - 75,000
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . (141,119) (283,372) (118,023)
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . - (34,321) (5)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,690) (36,011) (36,843)
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . (49,931) - -
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . 20,767 (1,591) (3,015)
Capital received on formation of joint venture . . . . . . . . . . . . . - - 20,000
------- ------- ------
Net cash required by financing activities . . . . . . . . . . . . . . . (208,973) (355,295) (79,886)
------- ------- ------
Net increase in cash and cash equivalents for the period . . . . . . . . . 47,013 127,053 150,500
Cash and cash equivalents--January 1, . . . . . . . . . . . . . . . . . . . 299,077 172,024 21,524
------- ------- -------
Cash and cash equivalents--December 31, . . . . . . . . . . . . . . . . . . $346,090 $299,077 $172,024
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands in tabular presentations except per share data)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
all subsidiaries. All intercompany balances and transactions have been
eliminated.
INVENTORIES
Inventoried costs relating to both long-term government and commercial
contracts and programs are stated at the actual production cost. General and
administrative expenses allocable to aerospace fixed-price type contracts are
included in inventory, whereas such expenses for non-aerospace activities are
expensed as incurred. The costs attributed to units delivered under both
long-term government and commercial contracts and programs are based on the
estimated average costs of all units expected to be produced in a lot or
contract. In accordance with industry practice, inventories include amounts
relating to contracts and programs having long production cycles, portions of
which are not expected to be realized within one year.
Inventories of raw materials, purchased parts and supplies are carried at
the lower of cost or realizable values. Inventories are based on average cost
and/or first-in, first-out methods.
REVENUE RECOGNITION
Sales under fixed-price production contracts are recorded at the time of
delivery. Sales, including fees earned, under cost-reimbursement and research,
development, test and evaluation contracts are recorded as costs are incurred.
Certain contracts contain cost and/or performance incentives. Such
incentives are included in sales at the time actual performance can be related
to the target and the earned amount can be reasonably determined. Accordingly,
earnings recorded in one period may include adjustments related to sales
recorded in a prior period. Losses on contracts are recorded when they become
known.
DEPRECIATION AND AMORTIZATION
The company uses a declining-balance method of depreciation for
substantially all of its plant and equipment. Leasehold improvements are
amortized over the terms of the leases or their estimated useful lives,
whichever is shorter.
Upon sale or retirement of plant and equipment, the related cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
reflected currently. Maintenance and repair costs are expensed as incurred.
INTANGIBLES
The excess of cost over the net assets of acquired companies at December
31, 1993 and 1992, was $3.6 and $3.7 million, respectively. These amounts are
included in Non-Current Assets--Other, and are being amortized over 40 years.
CASH EQUIVALENTS
It is the company's policy to treat securities which are readily
convertible to known amounts of cash with original maturities of three months
or less as cash equivalents. The carrying value of such items, which is at
cost, approximates fair value because of the short maturity of those
instruments.
CASH FLOW SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Cash paid during the year for: 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . . $39,058 $57,543 $87,884
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,800 37,000 40,000
</TABLE>
FINANCIAL INSTRUMENTS
During 1993, the company initiated a Common Stock Repurchase Program to
purchase up to $100 million of the company's outstanding common stock. As a
hedge of the company's cost, the company entered into a series of equity put
warrants whereby the company may be obligated to
<PAGE> 7
repurchase 750,000 shares, if put to the company, at expiration date. These
equity put warrants will expire during the period August through October 1994.
Also during 1993, the company invested approximately $25 million in a
limited partnership which invests in repurchase and reverse repurchase
agreements backed by highly rated securities. At December 31, 1993, the value
of the partnership's underlying net assets approximated the company's
investment which is being accounted for using the equity method.
RESEARCH AND DEVELOPMENT
Research and development costs associated with government programs up to a
negotiated ceiling are charged to inventory and are recorded in cost of sales
when products are delivered or services performed. Costs in excess of ceiling
and expenditures for commercial projects are charged against income in the year
incurred. Total expenditures for research and development, bid and proposal
efforts were, in millions, $122.5 in 1993, $132.8 in 1992 and $127.5 in 1991.
EARNINGS PER COMMON SHARE
Primary earnings per share are determined after deducting preferred stock
dividends and are based on the weighted average number of outstanding common
shares and common stock equivalents.
RECLASSIFICATION
Certain prior-year amounts have been reclassified to conform to 1993
classifications.
NOTE 2--RESTRUCTURING AND DISCONTINUED OPERATIONS
- -------------------------------------------------------------------------------
In order to become more competitive in the changing defense market, the company
recorded in the fourth quarter of 1993 an $85 million restructuring provision.
In connection with the consolidation of its facilities, the company anticipates
reducing its total floor space approximately 30 percent by 1997. The
restructuring charge provides for equipment and inventory write-offs of
approximately $60 million and plant closing costs of approximately $25 million.
During 1993, the company settled a lawsuit relating to its previously
discontinued solar panel business and recorded a loss of $9.9 million before an
income tax benefit of $3.2 million.
Operating results for Paumanock Insurance Company Ltd. for the years ended
December 31, 1992 and 1991, were reported in the income statement under the
caption "Income (loss) from discontinued operations" and are summarized as
follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,944 $64,055
Income (loss) before income taxes . . . . . . . . . . . . . . . . (54,035) 6,266
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (9,000) 2,100
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (45,035) 4,166
</TABLE>
At December 31, 1992, the net book value of the insurance company's assets
and liabilities was $11.1 million and is included in other non-current assets.
This business was sold in the first quarter of 1993 at an amount that
approximated the company's carrying value.
<PAGE> 8
NOTE 3--ACCOUNTS RECEIVABLE
- -------------------------------------------------------------------------------
Receivables at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Billed:
U.S. government . . . . . . . . . . . . . . . . . . . . . . $121,394 $110,873
Commercial . . . . . . . . . . . . . . . . . . . . . . . . 59,027 46,017
-------- --------
180,421 156,890
-------- --------
Unbilled costs and accrued profits:
U.S. government . . . . . . . . . . . . . . . . . . . . . . 320,370 337,306
Commercial . . . . . . . . . . . . . . . . . . . . . . . . 17,940 40,064
-------- --------
338,310 377,370
-------- --------
$518,731 $534,260
======== ========
</TABLE>
Unbilled costs and accrued profits represent revenue earned but not billed
to the customer at year-end. At December 31, 1993, approximately $166.7 million
of claims and accruals, a portion of which is subject to negotiation, is not
expected to be realized before December 31, 1994.
In June of 1991, the company submitted a request to the U.S. Air Force
for an equitable adjustment of the price of a contract involving the F-111A/E &
EF-111A Avionics Modernization Program, based on late and inadequate
government-furnished software and other property and other failures to comply
with contract requirements by the government. The request, as amended in May of
1993, was in the amount of $62.5 million. On August 26, 1993, the Contracting
Officer issued what purports to be a decision under the Contract Disputes Act
denying the preponderance of the price increase requested and concluding that
the Air Force is entitled to recover a net amount of $5.5 million on the basis
of alleged company failures to comply with the terms of the contract. The
company believes there is little or no support for the Contracting Officer's
decision and that the amounts of revenue recognized pursuant to this contract
are appropriate as of December 31, 1993.
NOTE 4--INVENTORIES
- -------------------------------------------------------------------------------
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Work in process--long-term contracts:
Production costs . . . . . . . . . . . . . . . . . . . . . $ 951,837 $1,140,212
General and administrative expenses . . . . . . . . . . . . 120,491 110,316
Work in process--other . . . . . . . . . . . . . . . . . . . . . 9,595 13,664
Raw materials, purchased parts and supplies . . . . . . . . . . . 82,158 134,261
---------- -----------
1,164,081 1,398,453
Less related progress payments . . . . . . . . . . . . . . . . . 664,645 786,029
---------- -----------
$ 499,436 $ 612,424
========== ===========
</TABLE>
Under the contractual arrangements by which progress payments are
received, the government has a security interest in the inventories identified
with related contracts.
The aggregate amounts of selling, general and administrative expenses
incurred during 1993, 1992 and 1991 were, in millions, $375.0, $350.1 and
$349.3 respectively.
<PAGE> 9
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------------------------------------------------
Property, plant and equipment at December 31 (at cost) consist of:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,954 $ 11,474
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,029 310,747
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . 967,773 963,395
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 51,437 51,829
Construction in progress . . . . . . . . . . . . . . . . . . . . 12,897 8,782
----------- -----------
1,360,090 1,346,227
Less accumulated depreciation and amortization . . . . . . . . . 987,367 946,806
----------- -----------
$ 372,723 $ 399,421
=========== ===========
</TABLE>
For the years 1993, 1992 and 1991, interest costs of $.9, $.5 and $1.8
million were capitalized, respectively, relating to construction in progress.
NOTE 6--INCOME TAXES
- -------------------------------------------------------------------------------
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . $101,400 $ 27,600 $ 8,600
Deferred . . . . . . . . . . . . . . . . . . . . (83,900) (9,900) (4,500)
-------- --------- --------
$ 17,500 $ 17,700* $ 4,100
======== ========= ========
</TABLE>
*Excludes a tax benefit of $102 million relating to the cumulative effect of
the change to the accrual method of accounting for postretirement health
benefits.
A reconciliation between the provision for federal income taxes
(substantially all domestic) and the amount computed at the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Provision computed at the statutory
rate of (1993 - 35%; 1992 and 1991 - 34%) . . . $ 26,710 $ 31,459 $ 35,169
Research and other tax credits realized . . . . - (23,500) (30,799)
Valuation allowance . . . . . . . . . . . . . . (9,372) 9,372 -
FAS 109 adjustment and other . . . . . . . . . . 162 369 (270)
-------- --------- --------
$ 17,500 $ 17,700 $ 4,100
======== ========= ========
</TABLE>
The provision for deferred federal income taxes consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Contract tax accounting methods . . . . . . . . . $(40,013) $ 16,208 $ (4,692)
Accelerated depreciation . . . . . . . . . . . . (294) (1,716) (3,502)
Capitalized costs . . . . . . . . . . . . . . . . (2,463) (669) (6,285)
Gain from investment. . . . . . . . . . . . . . . (17,150) - -
Restructuring charge . . . . . . . . . . . . . . (30,000) - -
Employee benefits and all other--net . . . . . . (2,980) (14,723) 9,979
Discontinued operations . . . . . . . . . . . . . 9,000 (9,000) -
-------- --------- --------
$(83,900) $ (9,900) $ (4,500)
======== ========= ========
</TABLE>
<PAGE> 10
The current liability for income taxes shown in the accompanying financial
statements includes current deferred income taxes of $42.7 and $62.4 million as
of December 31, 1993 and 1992, respectively.
Deferred tax liabilities (assets) consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
---- ----
<S> <C> <C>
Contract tax accounting . . . . . . . . . . . . $ 86,910 $ 96,159
Excess tax over book depreciation . . . . . . . 30,337 31,856
--------- ---------
Gross deferred tax liabilities . . . . . . 117,247 128,015
--------- ---------
Restructuring charge . . . . . . . . . . . . . . (30,000) -
Retiree benefit plans . . . . . . . . . . . . . (106,673) (104,203)
Capitalized costs . . . . . . . . . . . . . . . (17,307) (14,886)
Employee benefits and other . . . . . . . . . . (23,411) (32,398)
Gain from investment . . . . . . . . . . . . . . (17,150) -
Discontinued operations . . . . . . . . . . . . - (18,372)
--------- ---------
Gross deferred tax assets . . . . . . . . (194,541) (169,859)
--------- ---------
Valuation allowance . . . . . . . . . . . . . . . - 9,372
--------- ---------
Net deferred tax asset . . . . . . . . . . $ (77,294) $ (32,472)
========= =========
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decrease of $9.4 million as a result of the utilization of the loss incurred on
the sale of the reinsurance business.
Effective January 1, 1992, the company began using the liability method as
prescribed in Financial Accounting Standard No. 109 which was issued in
February 1992. Under FAS 109, deferred tax assets and liabilities are measured
at the tax rate that, under existing law, will be in effect when temporary
differences between financial and tax reporting turn around.
State taxes on income are included in general and administrative expenses,
and amounted to, in millions, $29.6 in 1993, $16.7 in 1992 and $11.3 in 1991.
NOTE 7--STOCK OPTIONS AND INCENTIVE PLANS
- -------------------------------------------------------------------------------
The 1981 Stock Option Plan provided for the granting, at any time before April
30, 1991, of options to purchase not more than 2,500,000 shares of the
company's stock. The 1990 Stock Option Plan provides for the granting, at any
time before April 30, 2000, of options to purchase not more than 1,500,000
shares of the company's stock. The 1992 Long Term Incentive Plan provides for
grants of awards not to exceed 1,750,000 shares. The stock option purchase
prices in these three plans are not less than the fair market value at dates of
grant.
The plans include an option surrender provision which allows the holders
to surrender some or all of their options and receive the value of the
appreciation of the shares in common stock.
<PAGE> 11
Options
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Available for
Outstanding future grant
December 31 Granted Exercised Surrendered Forfeited December 31
----------- ------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Number
of shares
- ---------
1993 1,584,667 547,700 137,758 1,618,641 54,609 1,374,784
1992 2,847,975 535,000 11,150 493,200 131,200 1,457,472
Option price
per share
- ------------
1993 $14.19--39.13 $29.19--39.13 $14.94--32.13
1992 $14.19--32.13 $18.69--21.06 $14.25--21.56
</TABLE>
In exchange for the options surrendered in 1993 and 1992, 514,358 and 103,040
shares were issued, having an aggregate market value of $17.6 and $2.3 million,
respectively.
Restricted Stock Award Plans provide for granting to employees,
at any time before January 1, 1998, not more than 3,750,000 shares of common
stock. At December 31, 1993, 1,063,130 shares were still available for future
awards. The cost of shares awarded under these plans is being amortized over 10
years for awards made prior to April 1989 and seven years thereafter, the
periods after which all restrictions will have lapsed. In 1993, 1992 and 1991,
$3.2, $4.1 and $4.8 million, respectively, have been charged against income for
these awards.
The 1992 Long Term Incentive Plan provides for granting up to
1,750,000 shares in the form of stock options, performance shares and
restricted stock. To date three awards have been made totalling 428,650
performance shares, which are earned over a three-year period; and, $4.4
million and $1.4 million of compensation expense has been recorded for 1993 and
1992, respectively. Options for 495,500 shares have been granted under this
plan. Both the performance shares and the options granted under this plan are
included in the above table.
In addition, officers and key employees of the company and its
subsidiaries have received awards under a Management Incentive Plan totalling,
in millions, $7.0 in 1993, $6.8 in 1992 and $5.8 in 1991.
NOTE 8--LONG-TERM DEBT
- -------------------------------------------------------------------------------
Long-term debt, net of current maturities, at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Notes due 1999, 10 3/8% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 $200,000
Convertible subordinated debentures due 2009, 9 1/4% . . . . . . . . . . . . . . - 50,000
Sinking fund debentures due 2011, 10 1/2% . . . . . . . . . . . . . . . . . . . . - 55,605
Notes and mortgages at rates from 5 3/4% to 12 7/8% with maturities
through 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,106 49,639
-------- --------
$243,106 $355,244
======== ========
</TABLE>
The fair value of the company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the corporation for debt of the same remaining maturities. Long-term debt at
December 31, 1993, in the opinion of management has a fair value of $262.3
million.
<PAGE> 12
Long-term debt maturing in each of the next five years is as
follows, in millions: 1994, $6.6; 1995, $7.3; 1996, $8.1; 1997, $8.3; 1998,
$9.5.
The company is party to a Restated Credit Agreement with various
banks under which it may borrow up to $200 million. Additionally, the banks
have provided a short-term credit facility which provides an additional $100
million through March 31, 1994. On February 25, 1996, the Restated Credit
Agreement will terminate and any outstanding advances must be repaid to the
banks. Any outstanding advances under the short-term credit facility must be
repaid at termination. Interest on borrowings under this agreement will be
based on a three level scale related to the company's current credit rating
ranging from either Citibank's Base Rate up to .25 percent over that rate or
.50 to 1.25 percent over the applicable Eurodollar Rate. There is a commitment
fee associated with both agreements that is also based on the company's credit
rating ranging from .25 to .50 percent on the Restated Credit Agreement and
from .20 to .50 percent on the short term agreement.
Repayment of borrowings under all of the loan agreements is
guaranteed by the company's major subsidiaries. The agreements contain, among
other things, provisions regarding maintenance of working capital, net worth
and the payment of cash dividends on common stock. The company's working
capital and net worth are substantially in excess of the minimum requirements,
and the amount available for the payment of cash dividends at December 31,
1993, was $36 million.
The $75 million 9.50 percent notes which were due February 15,
1996, were included in short-term debt at December 31, 1992, and were redeemed
on February 17, 1993, at 100 percent of face value, together with accrued
interest.
The 9.25 percent convertible subordinated debentures due
August 15, 2009, were convertible at any time prior to maturity into common
stock at $34.75 per share. This issue of debentures was called by the company
July 7, 1993, at a price of 101.85 percent of face value plus accrued
interest. The 10.50 percent sinking fund debentures due February 15, 2011,
were called by the company on April 20, 1993, at a price of 107 percent of
face value plus accrued interest.
The 10.375 percent notes due January 1, 1999, will be
redeemable at any time on or after January 1, 1996, after written notice, as a
whole or in part at 100 percent of principal amount thereof, together with
accrued interest. Upon the occurrence of a designated event (primarily a change
in equity ownership, a merger with another company or a two-thirds turnover of
the board of directors), the holders of the notes may require the company to
repurchase their notes at 100 percent of the principal amount.
NOTE 9--PREFERRED STOCK
- -------------------------------------------------------------------------------
The company is authorized to issue 10 million shares of $1.00 par value
preferred stock, none of which is issued and outstanding at December 31, 1993.
In July 1992, the remaining outstanding 1,192,249 shares of $2.80 cumulative
preferred stock were redeemed at $25.867 per share.
Each share of the $.80 convertible preferred stock was
convertible into 2.2 shares of the company's common stock. In November 1992 the
company exercised its right to call this issue of stock. Those holders who did
not convert their holdings to common stock by November 25, 1992, received a
cash payment of $14.43 per share plus accrued dividends to that date. Preferred
stock converted into common stock during 1992 and 1991 were 2,888 shares and
454 shares, respectively.
NOTE 10--RETIREMENT PLANS
- -------------------------------------------------------------------------------
Grumman has noncontributory defined benefit plans covering approximately 85
percent of its employees and some defined contribution plans covering others.
Benefits under the defined benefit plans are based on employees' years of
service and career average compensation.
Statement of Financial Accounting Standard (FAS) No. 87,
Employers' Accounting for Pensions, effective for fiscal years beginning after
December 15, 1986, established a methodology for calculating periodic pension
costs for defined benefit pension plans based on the projected unit credit
actuarial method.
<PAGE> 13
The following tables set forth the status of the company's
pension plans:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
-----------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,619,958 $2,140,407
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,482 199,334
----------- ------------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . 2,853,440 2,339,741
Effect of projected future salary increases . . . . . . . . . . . . 138,778 156,833
----------- ------------
Projected benefit obligation for services rendered to date . . . . 2,992,218 2,496,574
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,871,620 2,771,642
----------- ----------
Projected benefit obligations (in excess of)/less than plan assets . . . . . . . (120,598) 275,068
Items not yet recognized in earnings:
Unamortized net (asset) . . . . . . . . . . . . . . . . . . . . . . (187,182) (207,112)
Deferred net loss/(gain) . . . . . . . . . . . . . . . . . . . . . 326,734 (93,339)
----------- ------------
Accrued pension (liability)/prepaid expense . . . . . . . . . . . . . . . . . . . $ 18,954 $ (25,383)
=========== =============
Periodic pension cost for 1993, 1992 and 1991 is as follows:
1993 1992 1991
---- ---- ----
Defined benefit plans:
Service cost-benefits earned during period. . . . . . . . . . . . . $ 54,993 $ 61,918 $ 61,135
Interest cost on projected benefit obligation . . . . . . . . . . . 209,062 198,841 186,767
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . (186,573) (149,733) (486,778)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . (49,992) (67,693) 284,757
--------- ----------- ----------
27,490 43,333 45,881
Defined contribution plans, etc. . . . . . . . . . . . . . . . . . . . . . . . 11,737 10,740 9,260
--------- ----------- ------------
Total pension expense* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,227 $ 54,073 $ 55,141
========= =========== ============
Contributions to pension plans . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,892 $ 92,227 $ 88,507
========== ============ =============
</TABLE>
*Since government procurement regulations permit the recovery of pension
expense only to the extent contributions are made to the pension plans and the
company's business is predominantly with the government, the difference between
plan contributions and the calculated amount per FAS No. 87 is recorded in a
deferred asset account, as this difference will be expensed in the future as
costs are funded. The company's consolidated statement of income therefore
includes the total FAS No. 87 pension cost and a comparable amount of revenue.
Costs and liabilities associated with the pension enhancement program where
1,900 employees accepted enhanced pensions as an incentive to retire during the
period April 2 through October 31, 1990, are included above and are being
funded over a ten-year period which began in 1991.
<PAGE> 14
Assumptions used in determining the actuarial present value of benefit
obligations as of December 31 were:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate . . . . . . . . . . . . . . . . . . 7.50% 8.50%
Rate of increase in compensation levels . . . . . 3.50% 5.00%
Expected long-term rate of return on assets . . . 8.50% 8.75%
</TABLE>
The discount rate was reduced from 8.50 percent to 7.50 percent
and the expected rate of return from 8.75 percent to 8.50 percent in
recognition of declining interest rates. These are the primary reasons that
plan assets shifted from being greater than the projected benefit obligations
at December 31, 1992 to being $120.6 million less than the projected benefit
obligation at December 31, 1993.
For the years 1992 and 1991, the assumptions used in determining
the net periodic pension expense and the actuarial present value of benefit
obligations were a discount rate of 8.75 percent, a compensation increase rate
of 6.00 percent, and an expected long-term rate of return on assets of 8.75
percent.
Approximately 37 percent of the retirement plans' assets are
invested in diversified corporate stock, 32 percent in U.S. government
securities, 10 percent in corporate fixed income securities, 4 percent in real
estate investments and 17 percent in short-term investments. In the event the
company terminates its major plan, the U.S. government may claim a share of the
remaining excess assets after the accumulated benefits have been satisfied. The
company's objectives are to make contributions to the plan that satisfy the
ERISA funding requirements and to utilize realistic actuarial assumptions based
on long-term trends.
NOTE 11--POSTRETIREMENT HEALTH AND POSTEMPLOYMENT BENEFITS
- -------------------------------------------------------------------------------
Approximately 75 percent of the company's employees employed at year-end may
become eligible for certain retiree health care benefits. The length of time
the benefit is available is directly related to years of service. Retiree
contributions depend on length of service and Medicare status.
Financial Accounting Standard (FAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," requires accrual
accounting for retiree medical benefits. The company adopted FAS No. 106
effective January 1, 1992, and elected to immediately expense the $300 million
transition obligation upon adoption. To date the company has not prefunded this
liability but has taken steps to establish an acceptable funding vehicle with
funding to commence in 1994.
The 1993 and 1992 net periodic postretirement benefit cost by component is
as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service cost . . . . . . . . . $ 2,591 $ 3,350
Interest cost . . . . . . . . 20,310 25,150
Amortization of net gain . . . (1,904) --
------- -------
$ 20,997 $ 28,500
======== ========
</TABLE>
<PAGE> 15
The funded status and breakdown of the postretirement benefits are as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1993 1992
---- ----
<S> <C> <C>
Accumulated benefit obligation
Active employees . . . . . . . . . . . . . . . . . . . . . . . . $ 96,681 $136,700
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,325 169,800
--------- --------
Accumulated benefit obligation . . . . . . . . . . . . . . . 252,006 306,500
Unrecognized gain . . . . . . . . . . . . . . . . . . . . . . . . 52,746 -
-------- --------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . $304,752 $306,500
======== ========
</TABLE>
The health care trend rates used by the company as of December
31, 1993, were: 1993, 14 percent; 1994 and 1995, 12.50 percent; 1996-1998,
inclusive, 9.50 percent; as of December 31, 1992, they were: 1992, 12 percent;
1993-1995, inclusive, 14 percent; 1996-1998, inclusive, 12 percent. The trend
thereafter is zero due to the company's announcement that these costs will be
capped at 1998 levels and all increases thereafter will be borne by the
retirees.
The combination of fewer employees, lower health care claim cost
experience, and changes in actuarial assumptions has had the effect of reducing
the accumulated benefit obligation by approximately $54.7 million.
The 1993 valuation used a 7.50 percent discount rate. The effect
of a one percentage point increase in the assumed health care cost trend rates
on the accumulated benefit obligation would be an increase of $6.7 million at
December 31, 1993. The net periodic postretirement cost for 1993 would increase
by $1.3 million.
Prior to adoption of this standard, postretirement medical
benefits were accounted for on a pay-as-you-go basis. The cost of providing
these benefits net of retiree contributions amounted to $21.3 million in 1991.
In 1994, FAS No. 112, "Employers' Accounting for Postemployment
Benefits," becomes mandatory. It requires postemployment benefits to be
accounted for on an accrual basis. The company's present accounting policies
provide for the accrual of the major components of these costs and adoption of
this standard will not have a material impact on the company's financial
statements.
NOTE 12--COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
Rental expense for all operating leases amounted to, in millions, $67.1, $72.8
and $75.8 for 1993, 1992 and 1991, respectively. Minimum rental commitments
under long-term noncancellable operating leases total $234.2 million which is
payable as follows: 1994, $39.9; 1995, $34.6; 1996, $28.6; 1997, $23.8; 1998,
$21.4; and $85.9 million in later years.
On January 28, 1993, a jury sitting in the United States District
Court for the District of Massachusetts returned a verdict against Grumman
Systems Support Corporation (GSSC), a subsidiary of Grumman Data Systems
Corporation (GDSC), which in turn is a wholly-owned subsidiary of the company,
in an action brought against GSSC by Data General Corporation (DG) for copyright
infringement and misappropriation of trade secrets. Judgment against GSSC was
entered in the United States District Court for the District of Massachusetts
in the amount of $52.4 million. Immediately after the entry of judgment
DG brought a post-trial motion seeking to join GDSC as a party defendant on a
theory of vicarious liability. The motion was denied and DG then commenced a
separate action in the Federal District Court for the District of
Massachusetts, Wooster Div. to enforce the judgment obtained against GDSC,
which action is still pending. GSSC has filed an appeal with the Federal Court
of Appeals for the First Circuit which was heard on December 8, 1993. While
GSSC's ultimate liability in the disposition of this matter continues to be
difficult to estimate, it is management's belief that the outcome is not likely
to have a material adverse effect on the company's financial position.
<PAGE> 16
Three shareholder derivative actions, which are described as
brought on behalf of the company, have been filed in the New York State Supreme
Court for New York County. The actions name certain of the company's current
and former directors as defendants, and name the company as "nominal
defendant." The actions ask that damages and other unspecified relief be
awarded to the company for the individual defendants' alleged breach of their
fiduciary obligations primarily in relation to the subject matter of a
long-running federal investigation known as "Operation Upwind." The matters
referred to in these actions have been and continue to be acted upon by the
company's Board as part of its own ongoing investigation. Motions for summary
judgment which seek to dismiss the complaints have been filed on behalf of the
defendant directors and the company in two of the three actions. No response to
the complaint in the third action has been filed.
Currently, there are five waste disposal sites where the company
has been named either as a potentially responsible party or an owner/operator
of the site by a cognizant governmental agency for the cleanup of hazardous
materials previously placed there either directly or through an agent and where
the cost of remediation or settlement could reasonably exceed $100 thousand in
amount. It is unknown at this time what the company's share of these
remediation efforts may be but it is not expected to have a material adverse
effect on the company's financial position.
Other pending litigation relating to matters that are in the
ordinary course of the company's business activities, including environmental
matters, is not expected to have a material adverse effect on the company's
financial position.
NOTE 13--SEGMENT INFORMATION
- -------------------------------------------------------------------------------
The company's operations are classified into four business segments as follows:
"Aerospace"--Includes the design and production of military
aircraft, space systems and commercial aircraft components and subassemblies,
as well as the modernization or conversion of previously completed aircraft.
"Electronics systems"--Includes the design, manufacture and
integration of sophisticated electronics for aircraft, computerized test
equipment and other defense related products, such as airborne surveillance
systems.
"Information and other services"--Includes electronic data
processing services for affiliates and other customers as well as real estate
and leasing services. It also includes technical services that help ready the
space shuttle for flight, provide space station program support, service and
maintain flight simulators and trainers and support Grumman aircraft.
"Special purpose vehicles"--Includes fabrication of long life
vehicles for the U.S. Postal Service, and aluminum truck bodies.
Sales to the U.S. government and its agencies (including sales to
foreign governments through foreign military sales contracts with U.S.
government agencies) for the years 1993, 1992, and 1991 amounted to $2.8, $3.2
and $3.6 billion, respectively.
A summary of export sales by geographic areas follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Far East . . . . . . . . . . . $205,843 $141,782 $240,106
Middle East . . . . . . . . . 87,899 21,248 23,130
Europe . . . . . . . . . . . . 74,990 70,806 60,862
Western Hemisphere . . . . . . 5,720 4,478 9,949
-------- -------- --------
$374,452 $238,314 $334,047
======== ======== ========
</TABLE>
<PAGE> 17
Information about the company's operations in its different industry segments
for the past three years is as follows:
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING IDENTIFIABLE AND CAPITAL
SALES INCOME (LOSS) ASSETS AMORTIZATION EXPENDITURES
----- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
- ----
Aerospace . . . . . . . . . . . . . . . . . $1,965,066 $ 55,533* $1,150,003 $48,881 $29,337
Electronics systems . . . . . . . . . . . . 635,684 2,659* 298,680 10,309 8,768
Information and other services . . . . . . 657,396 28,070* 294,224 9,391 4,850
Special purpose vehicles . . . . . . . . . 367,405 26,367 93,121 3,870 1,386
Corporate items and eliminations . . . . . (376,427) 5,580 188,421 1,384 244
---------- -------- ---------- ------- -------
Consolidated . . . . . . . . . . . . . . . $3,249,124 118,209* $2,024,449 $73,835 $44,585
========== ========== ======= =======
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 31,702
--------
Income from continuing operations
before federal income taxes . . . . . . . . . . . . . . . . . $ 86,507
========
</TABLE>
*Includes an $85 million restructuring charge as follows, in millions:
Aerospace, $73;Electronics systems, $9 and Information and other services, $3.
<TABLE>
<S> <C> <C> <C> <C> <C>
1992
- ----
Aerospace . . . . . . . . . . . . . . . . . $2,339,799 $134,476 $1,151,506 $54,855 $22,819
Electronics systems . . . . . . . . . . . . 610,850 13,715 317,111 11,245 9,705
Information and other services . . . . . . 593,152 28,189 290,826 10,236 5,058
Special purpose vehicles . . . . . . . . . 343,350 27,646 74,334 4,026 1,251
Corporate items and eliminations . . . . . (383,201) (2,400) 255,239 1,765 221
---------- -------- ---------- ------- -------
Consolidated . . . . . . . . . . . . . . . $3,503,950 201,626 $2,089,016 $82,127 $39,054
========== ========== ======= =======
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 55,065
--------
Income from continuing operations
before federal income taxes . . . . . . . . . . . . . . . . . $146,561
========
1991
- ----
Aerospace . . . . . . . . . . . . . . . . . $2,895,794 $119,753** $1,323,650 $64,308 $30,932
Electronics systems . . . . . . . . . . . . 505,395 13,855 325,546 11,121 12,705
Information and other services . . . . . . 622,314 31,555 352,001 13,022 8,544
Special purpose vehicles . . . . . . . . . 366,072 21,165 99,053 4,185 2,396
Corporate items and eliminations . . . . . (415,724) (3,921) 142,166 1,638 270
---------- --------- ---------- ------- -------
Consolidated . . . . . . . . . . . . . . . $3,973,851 182,407 $2,242,416 $94,274 $54,847
========== ========== ======= =======
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 85,236
---------
Income from continuing operations
before federal income taxes . . . . . . . . . . . . . . . . . $ 97,171
=========
</TABLE>
**Includes a $46.5 million charge arising from the settlement of claims against
Tracor Aviation Inc.
