SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-4235
AMP Incorporated
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(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-0332575
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
PO Box 3608
Harrisburg, Pennsylvania 17105-3608
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (717) 564-0100
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock (without Par Value) New York
(Outstanding at 3/3/98 - 219,559,875 shares)
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] . No [ ] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1998: $9,451,952,342 (216,663,664 shares at $43.625
per share). For purposes of the foregoing calculation, all directors and
executive officers have been deemed to be affiliates, but such assumption should
not be construed as a determination by the registrant that all such individuals
are in fact affiliates of the registrant.
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Documents Incorporated by Reference:
1. Cited portions of the Annual Report to shareholders for fiscal year
ended December 31, 1997 (Parts I, II, IV)
2. Cited portions of the Proxy Statement for the AMP Incorporated 1998
Annual Shareholders' Meeting, specifically excluding the Performance
Graph and the Compensation and Management Development Committee Report
on Executive Compensation (Part III)
10-K REPORT FOR YEAR ENDED DECEMBER 31, 1997
PART I.
ITEM 1. BUSINESS
AMP Incorporated designs, manufactures and markets a broad range of
electronic, electrical and electro-optic connection devices and an expanding
number of interconnection systems and connector-intensive assemblies. The
Company's products have potential uses wherever an electronic, electrical,
computer or telecommunications system is involved, and are becoming increasingly
critical to the performance of these systems as voice, data and video
communications converge. The Company's customers are as diverse as the products
themselves, and include such differing types of accounts as original equipment
manufacturers (OEMs) and their subcontractors, utilities, government agencies,
distributors, value-added resellers, and customers who install, maintain and
repair equipment. The industries covered by these accounts include Automotive,
Power Technology, Personal Computer, Communications, and Consumer/Industrial.
The Company markets its products worldwide primarily through its own direct
sales force, but also through distributors and value-added resellers to respond
to customer buying preferences. In 1997, 84% of product was sold through direct
channels to market and 16% through distribution. The Company has established
more than 330 facilities located in 53 countries to serve customers in the
current and emerging markets throughout the world. The Company is positioning
itself to be a market-driven, "GLOBE-ABLE" organization.
The Company was incorporated in 1941 as a New Jersey corporation under the
name Aircraft-Marine Products, Inc. At that time the focus of the Company's
operations was the terminal business. In 1952 the Company established its first
international operations, located in Canada and France. In 1956 the Company
changed its name to AMP Incorporated and became publicly owned. During the 1960s
and 1970s the Company expanded its focus to varying types of connectors,
including those required in the computer industry. The Company reincorporated in
Pennsylvania in 1989. The world leader in electronic/electrical connection
devices and associated application tools and machines, over the past 5 years the
Company has been diversifying into total interconnection systems, related
components, and connector-intensive assemblies. At the end of 1997 the Company
employed approximately 46,500 people worldwide, up 1,500 from year-end 1996.
Markets
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The Company serves over 90,000 customers located in over 145 countries,
covering many diverse markets. Key financial measures charting the development
of the Company's business during the past seven years are set forth in the
"Historical Data" table of the Company's 1997 Annual Report to Shareholders, and
certain of these measures for the last seven years are also shown in Item 6,
entitled "Selected Financial Data," of this Report. Sales to trade customers by
each of the Company's geographic segments and sales or transfers between the
Company's various geographic segments during 1995-1997, together with pre-tax
income and identifiable assets attributable to each geographic segment for those
years, are shown in Footnote No. 17 to the Consolidated Financial Statements,
found on page 49 of the Company's 1997 Annual Report to Shareholders and
incorporated by reference. The Company's diversification of worldwide sales is
evidenced by the following table:
GEOGRAPHIC SEGMENTS 1997 1996 1995
(percent)
Americas 50 49 47
Europe/Middle East/Africa 30 32 33
Asia/Pacific 20 19 20
For 1997, the Company's sales were distributed across general markets as
follows:
MARKETS
(percent)
Consumer and Industrial 28
Communications 25
Automotive 24
Personal Computer 20
Power Technology 3
The business in which the Company is engaged is highly competitive. The
number of competitors is estimated at over 1,600 worldwide, and in all products
the Company is subject to aggressive direct and indirect competition. The
markets served by the Company have generally been growing as a whole in spite of
increasing price erosion. Most of the Company's products involve technical
competence in their development and manufacture. Generally speaking, the Company
competes primarily through offering high-quality, technical products and
associated application tooling, with an emphasis on product performance, timely
delivery and service. Price pressures are being experienced in the Company's
markets, particularly in the personal computer and cellular/mobile phone
markets. The Company's broad range of products, worldwide sales and marketing
presence, and service innovations serve to differentiate the Company from its
competitors and positions the Company to become a supplier of choice to many
customers as they reduce their supplier lists and seek global sourcing
contracts. The service innovations offered by the Company include the
computer-equipped product information and order handling departments, the
automated fax service, the use of computer disks to communicate engineering and
drawing data, an Internet product catalog, the expedited sample request delivery
system, global account management, and the EDI order system.
The Company has realigned its organizational structure to free marketing
and sales people from operational ties and permit them to focus on customers and
markets. This will make it easier for sales people to choose the right products
for their customers from anywhere in the world, and will encourage
industry-driven product solutions and shared responsibility for innovation
across organizational boundaries, without jeopardizing the established customer
interface.
In addition, the Company has distinguished itself by its development of new
and improved products and technologies. In 1997 the Company received 218 U.S.
patents. The Company has over 15,000 patents or utility models issued or pending
throughout the world. AMP ranks 20th among U.S. corporations and 45th among all
patentees for U.S. patents granted during 1997. The Company aggressively
enforces its patents to preserve its proprietary technological advantages.
The Company's backlog of unfilled orders decreased in 1997 to $944 million
at year-end compared to $970 million at year-end 1996. A majority of these
orders were for delivery within the next 90 days, and all were scheduled for
delivery within 12 months.
The primary seasonal effect generally experienced by the Company is in the
3rd quarter when there usually is a temporary leveling off or modest drop in the
rate of new orders and shipments. This seasonal decline in new orders and
shipments is caused by the softening of customer demand in certain markets such
as appliances, automotive and home entertainment goods arising from model year
changeovers, plant vacations and closedowns, and other traditional seasonal
practices. This effect is usually most evident in the Company's Europe/Middle
East/Africa and Asia/Pacific regions, compared against sales results of the 2nd
quarter.
The Company's normal terms of sale are net 30 days, and the average days
outstanding for accounts receivable averages 45 days in the U.S. and 65 days on
a global basis. The Company warrants most of its products against defects in
materials and workmanship under normal use for periods of up to 1 year. In
markets for complete systems, such as the networking/premise wiring markets, the
Company provides an extended warranty when exclusively AMP products, tools and
training are used in an installation. The Company's warranty experience is
generally favorable, with a low rate of product return. An extensive distributor
network, together with the Company's own highly automated regional distribution
center system, is utilized to provide timely delivery of products to the
customers.
Products
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The Company manufactures and sells more than 800,000 parts in over 450
global product lines, including terminals; fiber-optic, printed circuit board
and cable connectors and assemblies; connectorized printed circuit boards; cable
and cabling systems; sensors; and related application tools and machines. Nearly
77% of the Company's business is in the terminals and connectors competency that
encompasses electronic/electrical connection, switching and programming devices
and associated application tools and machines. Included within this competency
is a great variety of types and sizes. These product families generally involve
the same or very similar basic technology, materials, production processes and
marketing approaches. The common manufacturing capabilities, which have become
core competencies of the Company, include connectivity technology, high speed
precision metal stamping, precision metal plating, plastic molding, and
automated assembly of small metal and plastic parts. The Company sells some of
its products in strip form or on reels which are applied by customers with
special application machines and special tools. The balance of products and
competencies include the Company's value-added and wireless businesses and
pre-assembled devices and other products that do not require application tools
or machines, and in 1997 represented 23% of total Company sales. Over 89% of
sales are of products in just three Standard Industrial Classification (SIC)
4-digit codes: Electronic Connectors; Electronic Components - NEC; and Current
Carrying Wiring Devices.
Application tooling has been and remains an integral part of the Company's
sales strategy and growth for many of the Company's products. The Company has
provided thousands of application machines to customers on either a lease or
purchase basis, and millions of manual and power tools have been sold to
customers, to apply the Company's products to wires, cables, printed circuit
boards, and flexible circuitry. In the past decade the Company has introduced
more than 160 new types of machines and tools, ranging from hand tools for
maintenance and repair to computer-controlled machines that make thousands of
connections per hour and continuously monitor the quality of the connections as
they are being made. The Company has always marketed products on the basis of
total installed cost -- not product price alone -- and the Company's
concentration on providing fast and reliable application methods should give the
Company an advantage as concerns for productivity, quality and system
performance continue to rise. Hundreds of field service engineers throughout the
world install this applicating equipment, train customer personnel to operate,
maintain and service it, and provide emergency service.
In addition to the total installed cost approach to marketing product, a
fundamental concept of AMP marketing is to seek early involvement in customer
design activities. The Company's capabilities in this approach have been
enhanced in recent years by a unique consulting service through which the
Company can computer simulate interconnection systems, thus reducing the time
and costs associated with the design phase.
While the Company is seeking to widen its leadership in the terminal and
connector product area, it is also steadily diversifying into total
interconnection systems and higher value assemblies. This is increasing the
potential markets being addressed by the Company from approximately $28 billion
to around $78 billion. Part of this new breadth of potential business will come
from cables, fiber-optic and signal conditioning products, electro-optical
networking, and flexible circuitry based connectors and sensors that expand the
Company's connector and interconnection technology. Another source for expansion
is interconnection solutions, such as cable, board and panel assemblies, that
are logically related to those connector and interconnection competencies. The
final thrust toward new opportunities for growth addresses needs for home
automation, microwave technologies, wireless communication, and
networking/premise wiring hardware and related services.
The Company is accomplishing this growth by new product development as well
as by numerous small, strategic acquisitions, minority interest investments,
joint ventures and other strategic alliances. Acquisitions provide technologies
that are key to entering or enhancing the Company's participation in the
respective markets and will form a cornerstone for the Company's expansion of
its potential business. New products (representing products and product
extensions introduced during the last 5 years) now comprise over 25% of current
sales. In 1997 the Company added over 94,000 new part numbers, representing both
new product part numbers and part numbers for extensions of existing products.
Much of this growth, whether by new product development or acquisitions and
alliances, focuses on the fastest growing sectors and major trends in the
electronic and electrical markets -- such as miniaturization, high speed
circuitry, networking, wireless transmission, electro-optics, conversion to
digital, software integration with hardware, and the convergence of computer and
communications technologies.
Operations
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While the Company's principal offices are located in Harrisburg,
Pennsylvania, the Company is realigning its operations into a seamless global
organization that will better utilize resources and serve customers more
efficiently. The global organization lends regional governance and support to
horizontally interdependent businesses that act locally but think globally. The
Company has four market-oriented global business units focused on the following
markets: personal computers; automotive; communications; and consumer/
industrial/power technology. Accompanying the market-oriented global business
units are the Company's product-oriented global competencies: terminals and
connectors; and value-added and wireless, and the Company's traditional
geographic organizations: the Americas; Asia/Pacific; and Europe/Middle
East/Africa (EMEA).
The Company's efforts to integrate both regionally and globally should
allow it to more profitably serve its customers, especially those customers
which are also global. Regional strategies within each business have been
developed to gain market share and improve profitability, involving a decoupling
of sales and marketing into a market-driven function that profitably satisfies
customers and anticipates their needs, and a comprehensive integration of all
aspects of operations and business administration to better support sales and
marketing. In 1997 the Company created global competency functions charged with
directing the method, quality and cost effectiveness of manufacturing and
developing products. The new functions and the organizational realignment should
enable the Company to quickly and effectively assimilate its geographic
expansion into newly emerging markets. The Company has been aggressively
locating manufacturing and sales operations where customers' operations and
local market opportunities coincide to make it a positive investment climate.
Since 1990 the Company has either finalized plans for or actually started sales
or manufacturing operations in India, Chile, China, Columbia, Greece, Hungary,
the Philippines, Thailand, The Czech Republic, Poland, Turkey, Ireland, Israel,
Russia, South Africa and Slovenia, and marketing activities have been extended
into Indonesia, Vietnam, Pakistan, Croatia, Eastern Europe, Egypt, and the
Middle East.
In response to the decline in earnings experienced in 1996, the Company
implemented a number of corrective actions intended to result in annual savings
of approximately $50 million pretax when fully implemented while allowing
continued investment in activities to support better sales growth in our core
connector business. In December 1996, the Company took $195 million pretax ($70
million cash and $125 million non-cash) in restructuring and other one-time
charges to eliminate underperforming assets. Throughout 1997, the Company
executed the restructuring plan by closing the selected facilities, reducing the
related headcount, liquidating inventory and equipment, transferring continued
production to other facilities, preparing facilities for divestiture,
investigating environmental matters and negotiating the termination of customer
and supplier commitments. In the fourth quarter, the Company assessed the status
of the restructuring plan and estimated the cost of the remaining activities.
Consequently, based on the remaining reserve balance and the progress to date,
an adjustment to reduce the restructuring reserve by $25.9 million pretax was
recorded as a reduction to cost of sales of $4.5 million and a credit of $21.4
million to restructuring and one-time (credits)/charges. The Company acheived
the favorable adjustment through greater liquidation of product through
distributors, receipt of additional cash from the sale of various assets and
resolution of certain environmental issues with government and regulatory
authorities at less cost than originally anticipated.
Acquisitions are an integral component of the Company's growth and
diversification strategy. Through acquisitions, the Company is able to enhance
existing capabilities or add to our rapidly expanding range of products. During
1997 the Company acquired El-Con, a connector manufacturing facility, and
El-Form, a tool-and-die shop, both located in Bydgoszcz, Poland. In 1997 Company
also announced plans to form a joint venture with C-MAC, a Canadian manufacturer
of systems and subsystems; the joint venture was created in February 1998. The
joint venture alliance is expected to accelerate demand for the Company's
printed circuit board products.
In 1997 the Company's Journey to Excellence program was reinforced by
creating and applying an improved model denominated the "AMP Business Excellence
Process." This process emphasizes Customers, Leadership, People, Processes and
Results, and is the Company's universal basis for analyzing and running every
aspect of its business.
Extensive efforts are also being undertaken to maximize the utilization of
the Company's human resources. Training, development, education, empowerment
through the delegation of more authority and responsibility, employee teams,
performance-linked pay, centralized recruiting, and programs to encourage
recognition of outstanding achievements are being promoted to increase the
involvement and effectiveness of employees. A broad-based program for improving
leadership quality and diversity includes succession planning and expatriate,
executive and organizational development programs. The employees also are being
provided with the computers, communication systems, business machines and
scientific/engineering equipment necessary for them to realize their full
potential. The Company is implementing a global wide area network, expanding
electronic mail and video conferencing capabilities worldwide, and instituting a
business enterprise information system to support global decision making.
Additional regional training centers are in the process of being established to
facilitate the distribution of these learning and awareness methods throughout
the world. For better leveraging of the Company's basic manufacturing
capabilities into all areas of production, certain business units and
subsidiaries have also been designated as "Regional Centers of Competency" in
specific product/market categories.
Worldwide, the quality management systems of 113 business units and their
associated facilities, representing virtually all of the Company's manufacturing
operations, have either received or have been recommended for certification to
the appropriate ISO 9000 standard. Qualification to this common standard should
help ensure that the Company's products and services will be of uniformly high
quality wherever they are manufactured, sold or provided throughout the world.
Additionally, the Company continues to implement the rigorous Manufacturing
Requirements Planning (MRP) II, Class A standards for manufacturing requirements
planning systems. Manufacturing employment increased by over 1600 in 1997 to
more than 29,500 people.
Product standards continue to play an increasingly important role in the
development and marketing of new products and the shaping of new markets. The
Company takes an active role in the development of industry standards that
affect its products and development activities. A capable corporate group of
standards professionals and a global network of Company employees, through their
participation in over 800 industry associations, working groups, and
standards-setting bodies, are involved in laying the groundwork for the
acceptance of the Company's products under applicable standards. In 1997 over 50
standards were published that involved AMP products, processes and technology.
The Company has a corporate-wide program for managing current and emerging
environmental issues on a global basis. Sound environmental practices are
promoted worldwide by adoption and implementation of strict internal standards
that meet or exceed known and anticipated regulatory, industry and
customer-driven environmental requirements. These practices include compliance
audits and environmental assessments conducted for new and existing properties,
engineering support provided to operations staff to minimize wastes and other
regulatory impacts, training programs, recycling programs, maintenance of a
computer data base, and resources to provide support to operations staff in
achieving environmental compliance generally. This global program is directed by
a corporate group known as Global Environmental Services, with staff in
Harrisburg, London and Singapore. Additionally, product design incorporates
environmental considerations to meet customers' needs and environmental
concerns. Global Environmental Services coordinates global environmental
programs and works closely with other units of the Company to further compliance
with the Company's environmental policies. In 1997, the Company received several
awards for pollution prevention and energy and material savings.
The Company is not aware of any material claims against its assets relating
to environmental matters, based on current information. The costs to the Company
of compliance with known and anticipated legal, regulatory, industry and
corporate environmental requirements are not expected to have a material effect
on the Company's financial position, results of operations, liquidity and
capital resources, or the Company's competitive position. However, the Company
faces certain liabilities for investigative and remedial costs as a result of
past operations. The Company has been identified as a Potentially Responsible
Party at eight National Priorities List ("NPL") sites in the U.S. owned by third
parties, pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), and three "State Superfund" sites. Total costs for
these sites are not expected to exceed $5 million.
The Company also is investigating potential liability at 28 of its current
or former facilities. Investigations or remediations are ongoing at these
properties as required by government regulations or as part of the Company's
property management policy. Based upon current information, expenses for these
sites are not expected to exceed $34 million in the aggregate over the next 5
years.
The Company carefully manages its involvement with these sites to ensure
compliance, minimize costs and liabilities, and ensure protection of the
environment and the public. Legal action has been commenced by the Company
against historical liability insurers to recover for certain past and
anticipated future costs in connection with some of these sites.
The Company believes it has adequate sources of supply and does not expect
the cost or availability of raw materials to have a significant overall effect
on its total current operations.
Availability of remittances to the parent Company by its subsidiaries is
subject to exchange controls and other restrictions of the various countries in
which the subsidiaries are located. Presently, there are no foreign exchange or
currency restrictions in the various countries that would significantly affect
the remittance of funds to the Company. In view of the significant portion of
the Company's customer sales that originate outside of the U.S. (approximately
55%), fluctuations in the exchange value of the U.S. dollar have an impact on
sales and earnings.
Product Development
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The Company is committed to an ongoing program of new product development
and a continual expansion of its technical capabilities. This broadening of
products and capabilities is made possible through both internal development
efforts and external strategic relationships such as acquisitions, minority
equity investment positions, joint ventures, alliances, research contracts,
teaming arrangements, licensing and the like with dozens of customers,
suppliers, consortiums, universities and research institutes. In recent years
advanced development centers have been established in Europe and Japan in
addition to those already existing in the U.S. In 1997 the Company created a new
global technology office and appointed a new Chief Technology Officer. The
global technology office works closely with the global business units and
competencies and unifies the Company's technology resources, including over
6,000 engineers, scientists and technicians and support personnel.
Research and development expenditures for the creation and application of
new and improved products and processes were $320 million in 1997, $315 million
in 1996 and $309 million in 1995. Total spending on research, development and
engineering (RD&E) was $579 million, $579 million and $568 million in 1997, 1996
and 1995 respectively, representing 10.1%, 10.6% and 10.9% respectively, of
consolidated net sales. This strong financial commitment to reinvestment into
technology has resulted in a steady stream of new products, patents and new
product sales.
Cautionary Statements for Purposes of the "Safe Harbor"
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Statements made by AMP Incorporated in written or oral form to various
persons, including statements made in filings with the SEC, that are not
strictly historical facts are "forward-looking" statements that are based on
current expectations about the markets in which the Company does business and
assumptions made by management. Such statements should be considered as subject
to risks and uncertainties that exist in the Company's operations and business
environment and could render actual outcomes and results materially different
than predicted. The following includes some, but not all, of the factors or
uncertainties that could cause AMP to miss its projections:
* The effects of extreme changes in monetary and fiscal policies, in the U.S.
and abroad. This would include extreme currency fluctuations in the
Japanese Yen and German Mark, continued strengthening of the U.S. dollar,
and unforeseen inflationary pressure.
* The threat of a global economic slowdown in any one, or all, of our market
segments.
* Drastic and unforeseen price pressure throughout the business. Currently
the most noticeable pressure is in the personal computer industry where
OEMs are passing the price pressure through to their suppliers. Similar
price pressure can also be seen in the cellular/mobile phone industry.
* Increased difficulties in obtaining a consistent supply of basic materials
like copper, gold, or plastic resins at stable pricing levels.
* Unpredictable difficulties or delays in the development of key new product
programs, particularly in some of the Company's non-traditional businesses.
* Unforeseen interruptions to AMP markets due to strikes that have regional
or multi-industry impacts, such as recent situations in Korea, France and
Spain.
* Rapid escalation of the cost of regulatory compliance and litigation.
* Unpredictable governmental policies and actions including, but not limited
to, protectionism, sourcing requirements, confiscation of assets, and
reductions in public spending.
* Unforeseen intergovernmental conflicts or actions, including but not
limited to, armed conflict and trade wars. For example, the possibility of
armed conflict with Iraq, and the conflict between North Korea and South
Korea or China and Taiwan could escalate and have a substantial impact on
our business in Asia/Pacific.
* During an unforeseen business downturn or a period of less than anticipated
growth, underutilization of AMP's factories and plants could have a
negative impact on our business.
* Greater than anticipated startup expenses and delays related to bringing
new plants on-line could impact our projections.
* Greater than anticipated difficulties and delays in assimilating
newly-acquired businesses into our business portfolio resulting in
unanticipated expenses and unrealized savings.
* Any difficulties in obtaining the human resource competencies that AMP
needs to achieve its business objectives; includes skilled-labor shortages
in the U.S. and abroad. This also assumes that we will be able to retain
key talent, both managerial and technical.
* Risks associated with any disruptive changes in our customer, supplier, and
competitor relations as a consequence of AMP's and others' movement along
the vertical product chain.
* The risks associated with any technological shifts away from AMP
technologies or core competencies.
* Unforeseen Year 2000 compliance issues, both within AMP and among our
customers and suppliers and in general among the business and governmental
communities, could negatively impact our business results.
* The risk of not recovering research and development expenses relating to a
limited ability to enforce patents and copyright laws in certain parts of
the world.
* While AMP has traditionally been a leader in environmental compliance,
unforeseen and drastic changes to governmental environmental policies and
related government action could impact our projections.
* Standardization, while often viewed as a positive for AMP, could have a
substantial impact on our business.
* Risks associated with market acceptance of our customers' end-products such
as technology winners in the converging computer, consumer electronics and
communications industries.
* Unforeseen interruptions to AMP business with our largest customers,
resulting from, but not limited to, strikes, cash flow, or inventory
problems at the account.
ITEM 2. PROPERTIES
The Company has approximately 17.1 million sq. ft. of floor space in 330
facilities located in the United States and 52 other countries. Facilities were
enlarged or added in 22 countries in 1997, representing an increase of
approximately 1.0 million sq. ft. International construction projects included
new production facilities or expansion of existing production facilities in
Qingdao, Shanghai and Shunde, China; Esztergom, Hungary; Bangalore, India; and
Barcelona and Berga, Spain. In the United States, facilities are being added in
South Carolina for greater production capacity in cable and cable assemblies,
and operations in Tower City and Williamstown, Pennsylvania will be consolidated
in a large manufacturing plant constructed northeast of Harrisburg,
Pennsylvania, expected to commence operations in 1998. Also planned for 1998 are
continued construction efforts on manufacturing facilities in Qingdao and
Shunde, China and expansion of warehousing facilities in Woert, Germany.
Floor space has increased to 14.6 million sq. ft. in 1995, 16.1 million sq.
ft. in 1996 and 17.1 million sq. ft. in 1997. These increases are the result of
increased production to support higher sales, efforts to insource work from
outside vendors in order to lower cost and improve delivery, and acquisitions.
Increases in floor space have been moderated, however, by efforts to consolidate
into more efficient integrated production operations, a movement toward a
maximization of multi-shift operations where required and feasible and, more
recently, a closer regional management of the deployment of manufacturing
resources.
Worldwide, approximately 11.4 million sq. ft. of floor space in 130 plants
located in 27 countries is devoted to production operations, and approximately
an additional 5.0 million sq. ft. in 102 facilities located in 25 countries is
utilized for engineers, scientists, technicians, researchers, office support
personnel and warehousing. Major U.S. manufacturing, warehousing and
administrative facilities (5,000 sq. ft. or larger) are located in Pennsylvania
(57), North Carolina (24), California (10), Massachusetts (10), Texas (5),
Oregon (3), Maryland (2), New Jersey (2), South Carolina (2), Arizona (1),
Colorado (1), Delaware (1), Florida (1), Illinois (1), Kentucky (1), Puerto Rico
(1) and Virginia (1). Nearly half of these facilities are manufacturing plants.
The Company's operations in the 52 countries other than the U.S. involve 108
major facilities (5,000 sq. ft. or larger) located throughout the world, 59 of
which perform manufacturing functions and 34 of which have office/marketing/
engineering/ research functions, and 15 of which perform warehousing functions.
The Company's facilities are generally modern, well maintained and
diversified geographically within regions, with the typical size of major
facilities in the 70,000 to 100,000 sq. ft. range. No single facility is
material to the Company's business. The Company owns over 85% of its floor
space, free of encumbrances except as hereinafter described, and leases the
balance. The Company owns most of its major facilities. Most of the leases on
the other major manufacturing and administrative facilities provide the right to
renew or purchase.
Capital expenditures were $481 million in 1997, down from $592 million in
1996 and $713 million in 1995. Capital expenditures for 1998 are expected to be
approximately $600 million. Approximately three quarters of the 1997 capital
expenditures were for buildings, machinery and equipment, molds and dies for
production of new products, productivity improvements or capacity in new or
lower cost markets.
Typically, the Company does not measure its composite manufacturing
capacity utilization because various factors make determining a composite
capacity utilization figure unreliable. These factors include the numerous
processes employed by the Company to manufacture its products and the nature of
the Company's assembly equipment. Much of the assembly equipment is unique to
specialized product; accordingly, the utilization of this equipment is lower
than the more common processes used by the Company. With increased reliance on
seven day, three shift work weeks and as a result of the capital expenditures
described above, the Company believes it has adequate capacity to accommodate
continued sales growth in existing products and continued development of new
products. Individual capacity utilization rates significantly increased in 1997
as compared to the prior year as a result of improving business conditions, the
execution of the Company's 1996 Restructuring Plan and the Company's efforts to
insource work previously obtained from third party vendors. Higher business
volumes, continued insourcing of work and the prioritization of purchases of new
equipment should result in further improvement in capacity utilization rates in
1998.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management of the Company, there are no material legal
proceedings pending other than ordinary routine litigation incident to the kind
of business conducted by the Company, and no such proceedings are known to be
contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of the Company and their
respective ages as of March 15, 1998 and positions held with the Company. With
the exception of Mr. Clark who is appointed by the Chief Executive Officer and
President, all executive officers are elected to serve in their current office
for one year or until their successors have been duly elected and qualified. All
such officers with the exception of Messrs. Lang, Lemaitre, Ripp and Urkiel have
been employed by the Company for more than 10 years. Messrs. Marley, Hudson,
Goonrey, Gurski and Hassan have been executive officers for more than the past 8
years.
Name Age Office
---- --- ------
James E. Marley *.......... 62 Chairman since 1993.
Mr. Marley was a divisional Vice President and
group director from 1970 to 1979, divisional
Vice President, Manufacturing Resource Planning
from 1979 to 1980, divisional Vice President,
Manufacturing from 1980 to 1981, Vice President,
Manufacturing from 1981 to 1983, Vice President,
Operations from 1983 to 1986, President from
1986 to 1990, and President and Chief Operating
Officer from 1990 to 1993.
William J. Hudson, Jr. *... 63 Chief Executive Officer and President since
1993, and a Director.
Mr. Hudson was divisional Vice President,
Connector and Electronic Products in 1982,
divisional Vice President, Far East Operations
from 1983 to 1989, Vice President, Far East
Operations in 1989, Vice President, Asia/Pacific
Operations from 1990 to 1991, and Executive Vice
President, International from 1991 to 1993.
Robert Ripp .............. 56 Executive Vice President, Global Businesses
since 1998.
Mr. Ripp joined the Company in 1994 in the
position of Vice President, Finance. He was Vice
President and Chief Financial Officer from 1994
to 1998. In 1997 Mr. Ripp also was President,
Global Consumer & Industrial Division.
William S. Urkiel......... 52 Vice President and Chief Financial Officer
since 1998.
Mr. Urkiel joined the Company in 1995 and was
Controller from 1995 to 1997, and corporate Vice
President, Finance from 1997 to 1998.
Richard P. Clark........... 50 Divisional Vice President, Global Wireless
Products Group since 1995.
Mr. Clark was Associate Director, Corporate
Development from 1989 to 1995, and President
and Chief Executive Officer, M/A-COM
Incorporated from 1995 to 1997.
Herbert M. Cole............ 61 Vice President and President, Global Terminal
and Connector Operations and President, The
Americas Region (acting) since 1998.
Mr. Cole was divisional Vice President,
Communications and Assemblies Group from 1984 to
1987, divisional Vice President, Operations,
Automotive/Consumer Business Group from 1987 to
1988, divisional Vice President, Group Director,
Integrated Circuit Connector Group from 1988 to
1991, divisional Vice President, Capital Goods
Business Group from 1991 to 1994, Vice
President, Business Planning, Asia/Pacific from
1994 to 1995, Vice President Asia/Pacific in
1995, and President, Asia Pacific and Vice
President from 1995 to 1998.
Thomas J. DiClemente....... 45 President, EMEA (Europe, Middle East, Africa)
and Vice President since 1997.
Mr. DiClemente was divisional Business Manager
from 1986 to 1992, Director, Business &
Operations Planning International in 1992,
General Manager, AMP Italia from 1992 to 1995,
Area Director, EMEA from 1995 to 1996,
divisional Vice President, Southern EMEA from
1996 to 1997 and divisional Vice President, EMEA
in 1997.
Rudolf Gassner............ 62 President, Global Personal Computer Division
and Vice President since 1997.
Mr. Gassner was divisional Vice President,
Informations Systems Division from 1987 to 1991,
divisional Vice President, Sales - Capital Goods
Business Systems in 1991, divisional Vice
President, Capital Goods Business Unit from 1991
to 1996, divisional Vice President and Global
Business Executive from 1996 to 1997, and
divisional Vice President and President, Global
Personal Computer Division in 1997.
Charles W. Goonrey........ 61 Vice President and General Legal Counsel since
1992.
Mr. Goonrey was Assistant Secretary from 1983 to
1986, Assistant Secretary and General Legal
Counsel from 1986 to 1989, and divisional Vice
President and General Legal Counsel from 1989 to
1992.
Juergen W. Gromer......... 53 President, Global Automotive Division and Vice
President since 1997.
Mr. Gromer was divisional Vice President,
Central Europe and General Manager AMP Germany
from 1990 to 1994, divisional Vice President,
Central and Eastern Europe and General Manager,
AMP Germany from 1994 to 1996, divisional Vice
President, Central and Eastern Europe and
divisional Vice President Automotive Division
Europe, Middle East, Africa (EMEA) from 1996 to
1997 and divisional Vice President and
President, Global Automotive Division in 1997.
John E. Gurski............ 57 President, Global Operations and Vice President
since 1996 and President, Global Value-Added
Operations since 1998.
Mr. Gurski was divisional Vice President,
Connector & Electronics Products Group from 1985
to 1987, divisional Vice President,
Interconnection and Component Products Group in
1987, divisional Vice President, Operations from
1987 to 1989, Vice President, Operations in
1989, Vice President, Capital Goods Sector from
1989 to 1992, and Vice President, Business and
Operations Planning, International from 1992 to
1993, Vice President, Europe from 1993-1995, and
President, AMP Europe, Middle East, Africa
(EMEA) and Vice President from 1995-1996.
Javad K. Hassan........... 57 Vice President, Global Strategy and Development
since 1998.
Mr. Hassan was divisional Vice President,
Technology from 1989 to 1992, Vice President,
Technology and Strategic Products in 1992, and
Vice President, Global Interconnect Systems
Business Group from 1992 to 1995, President,
Global Interconnect Systems Businesses and Vice
President from 1995 to 1997, and President,
Global Communications Businesses and Vice
President from 1997 to 1998.
David F. Henschel......... 47 Corporate Secretary and Associate General Legal
Counsel since 1993.
Mr. Henschel was Associate General Legal Counsel
from 1990 to 1993.
John H. Kegel............. 56 Vice President, Asia/Pacific since 1998.
Mr. Kegel was divisional Vice President, Systems
from 1989 to 1992 and divisional Vice President,
Logistics from 1992 to 1997.
Mark E. Lang.............. 48 Controller since 1998.
Mr. Lang joined the Company in 1994 in the
position of Controller, Aerospace Government
Systems Sector, a position he held until 1995.
He was Controller, Global Interconnect Systems
Business Group from 1995 to 1998.
Philippe Lemaitre......... 48 Vice President and Chief Technology Officer
since he joined the Company in 1997.
Joseph C. Overbaugh....... 52 Treasurer since 1993.
Mr. Overbaugh was Assistant Treasurer from 1987
to 1993.
Nazario Proietto.......... 50 President, Global Consumer, Industrial and Power
Technology Division since 1998 and Vice
President since 1997.
Mr. Proietto was General Manager - AMP Italia
from 1982 to 1990, divisional Vice President,
Southern Europe from 1990 to 1995, divisional
Vice President, Marketing - Europe in 1995,
divisional Vice President, Power and Utilities
from 1995 to 1997, and divisional Vice President
and President, AMP Power and Utilities Division
from 1997 to 1998.
* Member of the Executive Committee of the Board of Directors.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITYHOLDER
MATTERS
The Company's common stock, no par value, is listed on the New York Stock
Exchange and is traded on the New York, Boston, Cincinnati, Midwest, Pacific and
Philadelphia Exchanges under the symbol "AMP". Options in the Company's common
stock are traded on the Chicago Exchange. As of March 3, 1998 there were
approximately 15,200 holders of record of the Company's common stock. Over 80%
of the outstanding shares of the Company's common stock are held by over 500
institutions.
The following table sets forth the high and low sales prices for the
Company's common stock for each full quarterly period during the calendar years
ended December 31, 1996 and 1997, as reported on the New York Stock Exchange
Composite Tape.
For the Year Stock Price Range
------------ -----------------
1996 - First Quarter 44 5/8 - 37
- Second Quarter 46 1/8 - 39 5/8
- Third Quarter 41 3/8 - 36 5/8
- Fourth Quarter 39 1/2 - 32 7/8
1997 - First Quarter 43 - 34 3/8
- Second Quarter 42 1/2 - 33 7/8
- Third Quarter 56 9/16 - 42 1/8
- Fourth Quarter 54 1/8 - 39 1/4
Annual dividends, which are paid on a quarterly basis, have increased for
44 consecutive years. The compound annual growth rate for the Company's annual
dividends for the 5-year period ended December 31, 1997 is approximately 6.5%.
Annual dividends on a per share basis were $1.00 in 1996 and $1.04 in 1997. The
quarterly dividend increased to $.26 on March 3, 1997 and $.27 on March 2, 1998.
If the March 2, 1998 dividend rate continues through 1998, it will result in the
45th consecutive increase in annual dividends.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial data for the
Company and its subsidiaries covering the seven calendar year periods ended
December 31, 1997. This summary should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Supplementary Data provided in Items
7 and 8, respectively, of this Report on Form 10-K. All financial amounts and
per share data have been restated to account for the pooling-of-interests with
M/A-COM, Inc. on June 30, 1995.
<TABLE>
<CAPTION>
AMP Incorporated and subsidiaries
Historical Data
(Dollars in millions except per 1997<F1> 1996<F1> 1995 1994 1993 1992 1991
share data)
For the Year <F6>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $5,745.2 $5,468.0 $5,227.2 $4,369.1 $3,790.5 $3,725.0 $3,486.3
Gross Income 1,768.6 1,565.3 1,687.5 1,484.9 1,248.7 1,244.2 1,149.3
Selling, General and
Administrative Expenses 1,022.9 964.6 969.5 824.9 744.1 692.1 661.7
Restructuring and One-time
(Credits)/Charges <F1> (21.3) 98.0 -- -- -- -- --
Income from Operations 767.1 502.7 718.0 660.0 504.6 552.1 487.6
Operating Margin 13.4% 9.2% 13.7% 15.1% 13.3% 14.8% 14.0%
Interest Expense (31.8) (31.2) (36.8) (29.2) (28.0) (39.5) (47.5)
Other Deductions, net (57.3) (33.2) (13.4) (32.0) (15.4) (21.9) (2.2)
Income Before Income Taxes 678.0 438.3 667.7 598.8 461.2 490.7 437.8
Pretax Margin 11.8% 8.0% 12.8% 13.7% 12.2% 13.2% 12.6%
Income Taxes 220.3 151.3 240.4 225.0 176.9 191.4 167.8
Effective Tax Rate 32.5% 34.5% 36.0% 37.6% 38.4% 39.0% 38.3%
Income from Continuing Operations 457.6 287.0 427.3 373.8 284.4 299.3 270.0
Basic EPS <F3><F8> $2.08 $1.31 $1.97 $1.72 $1.31 $1.38 $1.23
Diluted EPS <F3><F8> $2.08 $1.31 $1.96 $1.72 $1.31 $1.38 $1.23
Discontinued Operations -- -- -- -- -- 3.1 20.9
Basic and Diluted EPS <F3><F8> -- -- -- -- -- $0.01 $0.10
Cumulative Effect of Accounting
Changes <F9> 15.5 -- -- -- 33.1 -- --
Basic and Diluted EPS <F3><F8> $0.07 -- -- -- $0.15 -- --
Net Income 473.1 287.0 427.3 373.8 317.4 302.4 290.8
Basic EPS <F3><F8> $2.15 $1.31 $1.97 $1.72 $1.46 $1.39 $1.33
Diluted EPS <F3><F8> $2.15 $1.31 $1.96 $1.72 $1.46 $1.39 $1.33
Cash Dividends <F2> 228.2 218.9 196.5 176.2 167.8 160.4 152.4
Per Share <F3><F7> $1.04 $1.00 $0.92 $0.84 $0.80 $0.76 $0.72
Capital Expenditures 481.3 592.3 713.0 472.6 369.8 329.2 331.1
Depreciation and Amortization 439.0 424.1 361.4 324.5 306.4 315.0 280.8
Total Research, Development,
and Engineering Expense 578.7 579.3 567.7 477.7 425.4 408.6 385.5
At December 31 <F6>
Working Capital $1,204.5 $911.3 $1,011.8 $1,067.4 $937.6 $822.5 $806.7
Property, Plant and Equipment, Net 1,916.0 2,027.6 1,938.3 1,574.7 1,351.8 1,271.6 1,292.8
Total Assets 4,848.1 4,685.7 4,504.7 4,092.6 3,448.9 3,332.4 3,364.2
% Return on Assets <F4> 9.6% 6.2% 9.9% 9.9% 8.4% 8.9% 8.1%
Long-Term Debt 159.7 181.6 212.5 278.8 199.3 112.0 135.4
Total Debt 624.9 601.0 530.7 461.2 389.7 428.3 473.0
Shareholders' Equity 2,951.5 2,789.9 2,768.0 2,495.8 2,206.5 2,071.1 2,029.2
% Return on Shareholders'
Equity <F4> 15.9% 10.3% 16.2% 15.9% 13.4% 14.6% 13.8%
Book Value Per Share <F3> $13.39 $12.70 $12.71 $11.50 $10.19 $9.51 $9.28
Backlog 944.0 970.0 1,000.0 825.0 707.0 719.0 777.0
Number of Employees 46,526 44,985 40,800 34,000 30,800 29,500 29,900
Floor Space (sq. ft. in millions) 17.1 16.1 14.6 12.0 11.4 11.0 10.8
Shares Outstanding For EPS Calculations
<F3><F8> (in millions)
Basic EPS Calculation 219.8 219.2 217.3 217.0 216.6 217.7 218.7
Diluted EPS Calculation 220.4 219.6 217.7 217.0 216.6 217.7 218.7
Stock Price/Earnings Ratio,
High-Low <F5> 27-17 35-26 23-18 23-17 26-21 25-19 24-17
<FN>
<F1> Restructuring and one-time charges were recorded in 1996 primarily as a
result of the Company's decision to exit certain product lines,
manufacturing operations, and investments. These charges were adjusted in
1997. See Note 2 to the Consolidated Financial Statements.
<F2> On January 28, 1998, a regular quarterly dividend of 27 cents per share was
declared - an indicated annual rate of $1.08.
<F3> Share data has been adjusted for the 2-for-1 stock split in 1995.
<F4> Computed based on income from continuing operations divided by average
total assets or shareholders' equity, as applicable, each year.
<F5> High and low stock price divided by reported income from continuing
operations per share for the year.
<F6> For years 1991 to 1994, M/A-COM, Inc.'s fiscal year ended the Saturday
closest to September 30th is included with AMP Incorporated's calendar
year-end.
<F7> Cash dividends per share were not restated for the pooling-of-interests
with M/A-COM, Inc.
<F8> Appropriate per share data has been adjusted for the effects of SFAS No.
128. See Note 1 to the Consolidated Financial Statements.
<F9> 1997 accounting change represents a change to inventory costing methodology
to include manufacturing engineering costs and a change in capacity
assumptions used to determine inventory standard costs. See Note 1 to
Consolidated Financial Statements.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under "Management's Discussion & Analysis" on
pages 26-32 of the Company's 1997 Annual Report to Shareholders is incorporated
by reference.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearning under "Market Risk and Financial Instruments" on
pages 31-32 of the Company's 1997 Annual Report to Shareholders is incorporated
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the related notes thereto,
together with the report thereon of Arthur Andersen LLP dated February 13, 1998,
appearing on pages 33-51 of the Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference.
Financial Statement Schedules are filed under Item 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Executive Officers of the Company, see
"Executive Officers of the Registrant" at the end of Part I of this Report. For
information with respect to the Directors of the Company, see "Election of
Directors" on pages 2-4 of the Proxy Statement for the AMP Incorporated 1998
Annual Shareholders' Meeting, which are incorporated by reference.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers, directors, and persons owning more than ten percent
of a registered class of the Corporation's equity securities to file reports of
ownership and changes in ownership of all equity and derivative securities of
the Corporation with the Securities and Exchange Commission ("SEC") and the New
York Stock Exchange. The SEC regulations also require that a copy of all such
Section 16(a) forms filed must be furnished to the Corporation by the officers,
directors and greater than ten percent shareholders.
Based solely on a review of the copies of such forms and amendments thereto
received by the Corporation, or written representations from the Corporation's
officers and directors that no Forms 5 were required to be filed, the
Corporation believes that during 1997 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were met with the exception of Richard P. Clark, for whom inadvertently
153 shares held by one son rather than two sons were reported in a Form 3 as
beneficially owned, and Juergen W. Gromer, for whom an exercise of stock options
was incorrectly reported as a "same day sale" rather than a "cashless for stock"
exercise whereby his holdings were increased by a net of 4,299 shares. Late or
amended filings were made promptly upon discovery of the oversight.
ITEM 11. EXECUTIVE COMPENSATION
Pages 6-19 and pages 26-27 of the Proxy Statement for the AMP Incorporated
1998 Annual Shareholders' Meeting are hereby incorporated by reference. These
pages set forth information on: i) compensation for directors; ii) benefit and
retirement oriented plans for directors; iii) Board of Directors committees and
meetings; iv) compensation for named executive officers; v) option/SAR grants in
1997; vi) options/SAR exercises in 1997 and fiscal year-end values; vii)
executive officers' retirement benefits; viii) termination of employment and
change of control arrangements; and ix) certain other relationships and related
transactions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pages 5-6 and pages 19-20 of the Proxy Statement for the AMP Incorporated
1998 Annual Shareholders' Meeting are incorporated by reference as to security
ownership of executive officers and directors.
Page 27 of the Proxy Statement for the AMP Incorporated 1998 Annual
Shareholders' Meeting is incorporated by reference as to principal shareholders
beneficially owning more than 5% of the outstanding Common Stock of the Company
as of March 3, 1998.
There are no arrangements known to the Company that may at a subsequent
date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Footnote (3) on page 7 and the section on page 27 entitled "Certain
Relationships and Related Transactions" of the Proxy Statement for the AMP
Incorporated 1998 Annual Shareholders' Meeting are incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of the Form 10-K Report
1. Consolidated Statements of Income, Shareholders' Equity, and Cash Flows,
for the years ended December 31, 1997, 1996 and 1995; Consolidated Balance
Sheets as of December 31, 1997 and 1996; the accompanying Notes to
Consolidated Financial Statements; and the Report of Independent Public
Accountants thereon, on pages 33-51 of the Annual Report to Shareholders
for the year ended December 31, 1997, are incorporated by reference.
Statements of the Registrant - Separate financial statements are omitted
for AMP Incorporated since it is primarily an operating company and all
subsidiaries included in the consolidated financial statements are wholly
owned and their restricted net assets are not material in relation to total
consolidated net assets at December 31, 1997.
2. Financial Statement Schedules:
Schedules Included:
II - Valuation and Qualifying Accounts and Reserves
Report of Company's Independent Public Accountants with respect
to the Financial Statement Schedules
Schedules Omitted: Schedules I, III, IV, and V are omitted as not
applicable because the required matter or conditions are not present.
3. EXHIBITS:
Exhibit
Number Description
------- -------------
3.(i) - Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.(i).B of the Report on Form 8-K filed on
January 31, 1995)
3.(ii) - Bylaws of the Company, as amended January 28, 1998
4.A - Shareholder Rights Plan adopted by the Company's Board of
Directors October 25, 1989 (incorporated by reference to Exhibit 4.A
of the Report on Form 10-K for the year ended December 31, 1994)
4.B - Amendment Rights Agreement between the Company and Chemical Bank,
as Rights Agent for the Shareholder Rights Plan, dated September 4,
1992
4.C - Instruments defining the rights of holders of long-term debt,
including indentures. Upon request of the Securities and Exchange
Commission, the Company hereby undertakes to furnish copies of the
instruments with respect to its long-term debt, none of which have
been registered or authorize securities in a total amount that
exceeds 10 percent of the total assets of the Company and its
subsidiaries on a consolidated basis
10.A* - AMP Incorporated Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 4.A of Registration No.
33-54277 on Form S-8 as filed with the Securities Exchange
Commission on June 24, 1994)
10.B* - Amendment to the AMP Incorporated Stock Option Plan for Outside
Directors dated October 26, 1996 (incorporated by reference to
Exhibit 10.B of the Report on Form 10-K for the year ended December
31, 1996)
10.C* - Second Amendment to the AMP Incorporated Stock Option Plan for
Outside Directors effective July 22, 1997 (incorporated by reference
to Exhibit 10.E of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.D* - Executive Severance Agreements dated August 8, 1996 between the
Company and certain of the Company's Executive Officers with amended
Schedule A listing the Executive Officers and noting differences
between the agreements entered with the Executive Officers (see
also the section entitled "Termination of Employment and Change of
Control Arrangements" on Page 26 of the Proxy Statement for the
AMP Incorporated 1998 Annual Shareholders' Meeting incorporated by
reference under Item 11, Part III of this Report)
10.E* - AMP Incorporated Bonus Plan (Stock Plus Cash) (see also footnote
(1) on Pages 15-16 of the Proxy Statement for the AMP Incorporated
1998 Annual Shareholders' Meeting incorporated by reference under
Item 11, Part III of this Report)
10.F* - AMP Incorporated Pension Restoration Plan (January 1, 1995
Restatement), a supplemental employee retirement plan (summarized
on Page 17 of the Proxy Statement for the AMP Incorporated 1998
Annual Shareholders' Meeting incorporated by reference under Item
11, Part III of this Report) (incorporated by reference to Exhibit
10.C of the Report on Form 10-Q for the quarter ended March 31,
1995)
10.G* - Amendment to the AMP Incorporated Pension Restoration Plan dated
as of July 23, 1997 (incorporated by reference to Exhibit 10.B of
the Report on Form 10-Q for the quarter ended June 30, 1997)
10.H* - Third Amendment to the AMP Incorporated Pension Restoration Plan
dated August 6, 1997 (incorporated by reference to Exhibit 10.L of
the Report on Form 10-Q for the quarter ended September 30, 1997)
10.I* - Executive life insurance plan - AMP Incorporated Split-Dollar Life
Insurance Plan effective October 1990, including the First Amendment
dated and effective March 1, 1995 (incorporated by reference to
Exhibit 10.F of the Report on Form 10-K for the year ended December
31, 1996)
10.J* - Second Amendment to the Split-Dollar Life Insurance Agreement in
the form dated October 1990, Amendment effective as of September 25,
1997 (incorporated by reference to Exhibit 10.J of the Report on
Form 10-Q for the quarter ended September 30, 1997)
10.K* - Executive split-dollar life insurance agreements in the form dated
January 1995 (incorporated by reference to Exhibit 10.B of the
Report on Form 10-Q for the quarter ended March 31, 1995)
10.L* - First Amendment to the Split-Dollar Life Insurance Agreement in
the form dated January 1995, Amendment effective as of September 25,
1997 (incorporated by reference to Exhibit 10.I of the Report on
Form 10-Q for the quarter ended September 30, 1997)
10.M* - AMP Incorporated Deferred Compensation Plan effective January 1,
1995 for selected management and highly compensated employees
(incorporated by reference to Exhibit 10.D of the Report on Form
10-Q for the quarter ended March 31, 1995)
10.N* - Amendment to the AMP Incorporated Deferred Compensation Plan for
selected management and highly compensated employees dated October
26, 1996 (incorporated by reference to Exhibit 10.J of the Report on
Form 10-K for the year ended December 31, 1996)
10.O* - Fourth Amendment to the AMP Incorporated Deferred Compensation
Plan for select management and highly compensated employees
effective July 22, 1997 (incorporated by reference to Exhibit 10.B
of the Report on Form 10-Q for the quarter ended September 30, 1997)
10.P* - Amendment to the AMP Incorporated Deferred Compensation Plan for
selected management and highly compensated employees effective as of
January 1, 1998
10.Q* - Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.F of the Report on Form
10-K for the year ended December 31, 1994)
10.R* - Amendment to the AMP Incorporated Deferred Compensation Plan for
Non-Employee Directors dated October 26, 1996 (incorporated by
reference to Exhibit 10.L of the Report on Form 10-K for the year
ended December 31, 1996)
10.S* - Second Amendment to the Deferred Compensation Plan for Non-
Employee Directors effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.F of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.T* - Retirement plan for outside directors (October 23, 1996
Restatement) (see also the section entitled "Retirement" on Pages
8-9 of the Proxy Statement for the AMP Incorporated 1998 Annual
Shareholders' Meeting)(incorporated by reference to Exhibit 10.M of
the Report on Form 10-K for the year ended December 31, 1996)
10.U* - First Amendment to the Retirement Plan for Outside Directors
effective as of July 22, 1997 (incorporated by reference to the
Exhibit 10.H of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.V* - Outside Directors Deferred Stock Accumulation Plan (see also the
section entitled "Retirement" on Pages 8-9 of the Proxy Statement
for the AMP Incorporated 1998 Annual Shareholders' meeting
incorporated by reference under Item 11, Part III of this Report)
(incorporated by reference to Exhibit 10.K of the Report on Form
10-K for the year ended December 31, 1995)
10.W* - Amendment to the Outside Directors Deferred Stock Accumulation
Plan dated October 26, 1996 (incorporated by reference to Exhibit
10.O of the Report on Form 10-K for the year ended December 31,
1996)
10.X* - Second Amendment to the Deferred Stock Accumulation Plan for
Outside Directors effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.G of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.Y* - Management Incentive Plan (January 1, 1996 Restatement) (see also
column (d) of the Summary Compensation Table on Page 11 of the Proxy
Statement for the AMP Incorporated 1998 Annual Shareholders' Meeting
incorporated by reference under Item 11, Part III of this Report)
(incorporated by reference to Exhibit 10 of the Report on Form
10-Q for the quarter ended March 31, 1996)
10.Z* - Director and officer indemnification agreements dated October 22,
1996 (incorporated by reference to Exhibit 10.S of the Report on
Form 10-K for the year ended December 31, 1996)
10.AA* - AMP Incorporated 1993 Long-Term Equity Incentive Plan (see also
footnote (1) on Page 13-14 of the Proxy Statement for the AMP
Incorporated 1998 Annual Shareholders' Meeting incorporated by
reference under Item 11, Part III of this Report) (incorporated by
reference to Exhibit 10.B of the Report on Form 10-Q for the quarter
ended September 30, 1995)
10.BB* - Amendment to the AMP Incorporated 1993 Long-Term Equity Incentive
Plan dated October 26, 1996 (incorporated by reference to Exhibit
10.U of the Report on Form 10-K for the year ended December 31,
1996)
10.CC* - Second Amendment to the AMP Incorporated 1993 Long-Term Equity
Incentive Plan effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.A of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.DD* - Amendment to the AMP Incorporated 1993 Long-Term Equity Incentive
Plan effective as of October 22, 1997
10.EE* - AMP Incorporated Stock Bonus Unit and Supplemental Cash Bonus
Agreement (incorporated by reference to Exhibit 10.B of the Report
on Form 10-Q for the quarter ended September 30, 1993)
10.FF* - AMP Incorporated Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.C of the Report on Form
10-Q for the quarter ended September 30, 1993)
10.GG* - AMP Incorporated Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.D of the Report on Form 10-Q for the quarter
ended September 30, 1993)
10.HH* - AMP Incorporated Performance Restricted Share Agreement
(incorporated by reference to Exhibit 10.C of the Report on Form
10-Q for the quarter ended September 30, 1995)
10.II* - Employment agreement between the Company and Mr. Phillipe Lemaitre
dated February 19, 1997 (incorporated by reference to Exhibit 10.A
of the Report on Form 10-Q for the quarter ended June 30, 1997)
10.JJ - AMP Incorporated Supplemental Benefit Trust Agreement entered into
as of April 1, 1997 between the Company and Dauphin Deposit Bank and
Trust Company (incorporated by reference to Exhibit 10.C of the
Report on Form 10-Q for the quarter ended June 30, 1997)
10.KK - First Amendment to the Supplemental Benefit Trust Agreement
effective September 25, 1997 (incorporated by reference to Exhibit
10.D of the Report on Form 10-Q for the quarter ended September 30,
1997)
10.LL* - AMP Incorporated Supplemental Executive Pension Plan dated June 9,
1997 (incorporated by reference to Exhibit 10.D of the Report on
Form 10-Q for the quarter ended June 30, 1997)
10.MM* - First Amendment to the AMP Incorporated Supplemental Executive
Pension Plan effective July 22, 1997 (incorporated by reference to
Exhibit 10.C of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.NN* - Restricted stock agreement between the Company and Mr. Robert Ripp
dated as of August 15, 1994 (incorporated by reference to Exhibit
10.R of the Report on Form 10-K for the year ended December 31,
1994)
13 - Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 that are specifically incorporated by reference
into this Report
21 - List of Subsidiaries
23 - Consent of Independent Public Accountants
27 - Financial Data Schedule
- ----------------------
* A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to the requirements of this 10-K
Annual Report.
THE COMPANY WILL FURNISH ANY EXHIBIT LISTED ABOVE UPON REQUEST. EXCEPT FOR THE
ANNUAL REPORT TO SHAREHOLDERS, PAYMENT FOR THE COST OF PROVIDING THE EXHIBIT
MAY BE REQUIRED FOR VOLUMINOUS EXHIBITS.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed for the three month period ended
December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized, as of the
27th day of March 1998.
AMP Incorporated
(Registrant)
/s/ William S. Urkiel
By______________________________
William S. Urkiel,
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the dates indicated.
Signature Title Date
/s/ J. E. Marley
____________________ Chairman March 27, 1998
(J. E. Marley)
/s/ W. J. Hudson
____________________ Chief Executive Officer and March 27, 1998
(W. J. Hudson) President and a Director
(Principal Executive Officer)
/s/ W. S. Urkiel
____________________ Vice President and March 27, 1998
(W. S. Urkiel) Chief Financial Officer
(Principal Financial Officer)
/s/ M. E. Lang
____________________ Controller March 27, 1998
(M. E. Lang)
____________________ Director March 27, 1998
(D. F. Baker)
/s/ Ralph D. DeNunzio
____________________ Director March 27, 1998
(R. D. DeNunzio)
/s/ B. H. Franklin
____________________ Director March 27, 1998
(B. H. Franklin)
/s/ J. M. Hixon
____________________ Director March 27, 1998
(J. M. Hixon)
/s/ J. M. Magliochetti
____________________ Director March 27, 1998
(J. M. Magliochetti)
/s/ H. A. McInnes
____________________ Director March 27, 1998
(H. A. McInnes)
/s/ J. J. Meyer
____________________ Director March 27, 1998
(J. J. Meyer)
____________________ Director March 27, 1998
(J. C. Morley)
/s/ P. G. Schloemer
____________________ Director March 27, 1998
(P. G. Schloemer)
/s/ T. Shiina
____________________ Director March 27, 1998
(T. Shiina)
<PAGE>
AMP INCORPORATED & SUBSIDIARIES
<TABLE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Balance at Additions Deductions Balance at
Beginning Charged to from Translation End
Description of Year Expense Reserves<F1> Adjustments of Year
- ----------- ----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Reserve for doubtful accounts--
Year ended December 31, 1997 $27,872,000 $ 6,483,000 $(3,708,000) $(1,968,000) $28,679,000
Year ended December 31, 1996 $24,539,000 $10,352,000 $(6,172,000) $ (847,000) $27,872,000
Year ended December 31, 1995 $22,701,000 $6,549,000 $(5,063,000) $ 352,000 $24,539,000
- ----------
<FN>
<F1> Uncollectible accounts charged against the reserve, net of recoveries.
</FN>
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMP Incorporated:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in AMP Incorporated's annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 13, 1998. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14-2 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Philadelphia, PA
February 13, 1998
/s/ Arthur Andersen LLP
----------------------------
Arthur Andersen LLP
APPENDIX
10-K Report for Year Ended December 31, 1997
1) Part III, Item 10, Directors and Executive Officers of the Registrant. Page
2 of the Proxy Statement for the AMP Incorporated 1998 Annual Shareholders'
Meeting includes portrait photographs of the following directors and
nominees for director: Ralph D. DeNunzio and Barbara Hackman Franklin. Page
3 of said Proxy Statement includes portrait photographs of the following
directors and nominees for director: Joseph M. Hixon III; William J.
Hudson, Jr.; Joseph M. Magliochetti, James E. Marley and Harold A. McInnes.
Page 4 of said Proxy Statement includes portrait photographs of the
following directors and nominees for director: Jerome J. Meyer; John C.
Morley; Paul G. Schloemer; and Takeo Shiina.
EXHIBIT INDEX
Exhibit
Number Description
------- -------------
3.(i) - Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.(i).B of the Report on Form 8-K filed on
January 31, 1995)
3.(ii) - Bylaws of the Company, as amended January 28, 1998
4.A - Shareholder Rights Plan adopted by the Company's Board of
Directors October 25, 1989 (incorporated by reference to Exhibit 4.A
of the Report on Form 10-K for the year ended December 31, 1994)
4.B - Amendment Rights Agreement between the Company and Chemical Bank,
as Rights Agent for the Shareholder Rights Plan, dated September 4,
1992
4.C - Instruments defining the rights of holders of long-term debt,
including indentures. Upon request of the Securities and Exchange
Commission, the Company hereby undertakes to furnish copies of the
instruments with respect to its long-term debt, none of which have
been registered or authorize securities in a total amount that
exceeds 10 percent of the total assets of the Company and its
subsidiaries on a consolidated basis
10.A* - AMP Incorporated Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 4.A of Registration No.
33-54277 on Form S-8 as filed with the Securities Exchange
Commission on June 24, 1994)
10.B* - Amendment to the AMP Incorporated Stock Option Plan for Outside
Directors dated October 26, 1996 (incorporated by reference to
Exhibit 10.B of the Report on Form 10-K for the year ended December
31, 1996)
10.C* - Second Amendment to the AMP Incorporated Stock Option Plan for
Outside Directors effective July 22, 1997 (incorporated by reference
to Exhibit 10.E of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.D* - Executive Severance Agreements dated August 8, 1996 between the
Company and certain of the Company's Executive Officers with amended
Schedule A listing the Executive Officers and noting differences
between the agreements entered with the Executive Officers (see
also the section entitled "Termination of Employment and Change of
Control Arrangements" on Page 26 of the Proxy Statement for the
AMP Incorporated 1998 Annual Shareholders' Meeting incorporated by
reference under Item 11, Part III of this Report)
10.E* - AMP Incorporated Bonus Plan (Stock Plus Cash) (see also footnote
(1) on Pages 15-16 of the Proxy Statement for the AMP Incorporated
1998 Annual Shareholders' Meeting incorporated by reference under
Item 11, Part III of this Report)
10.F* - AMP Incorporated Pension Restoration Plan (January 1, 1995
Restatement), a supplemental employee retirement plan (summarized
on Page 17 of the Proxy Statement for the AMP Incorporated 1998
Annual Shareholders' Meeting incorporated by reference under Item
11, Part III of this Report) (incorporated by reference to Exhibit
10.C of the Report on Form 10-Q for the quarter ended March 31,
1995)
10.G* - Amendment to the AMP Incorporated Pension Restoration Plan dated
as of July 23, 1997 (incorporated by reference to Exhibit 10.B of
the Report on Form 10-Q for the quarter ended June 30, 1997)
10.H* - Third Amendment to the AMP Incorporated Pension Restoration Plan
dated August 6, 1997 (incorporated by reference to Exhibit 10.L of
the Report on Form 10-Q for the quarter ended September 30, 1997)
10.I* - Executive life insurance plan - AMP Incorporated Split-Dollar Life
Insurance Plan effective October 1990, including the First Amendment
dated and effective March 1, 1995 (incorporated by reference to
Exhibit 10.F of the Report on Form 10-K for the year ended December
31, 1996)
10.J* - Second Amendment to the Split-Dollar Life Insurance Agreement in
the form dated October 1990, Amendment effective as of September 25,
1997 (incorporated by reference to Exhibit 10.J of the Report on
Form 10-Q for the quarter ended September 30, 1997)
10.K* - Executive split-dollar life insurance agreements in the form dated
January 1995 (incorporated by reference to Exhibit 10.B of the
Report on Form 10-Q for the quarter ended March 31, 1995)
10.L* - First Amendment to the Split-Dollar Life Insurance Agreement in
the form dated January 1995, Amendment effective as of September 25,
1997 (incorporated by reference to Exhibit 10.I of the Report on
Form 10-Q for the quarter ended September 30, 1997)
10.M* - AMP Incorporated Deferred Compensation Plan effective January 1,
1995 for selected management and highly compensated employees
(incorporated by reference to Exhibit 10.D of the Report on Form
10-Q for the quarter ended March 31, 1995)
10.N* - Amendment to the AMP Incorporated Deferred Compensation Plan for
selected management and highly compensated employees dated October
26, 1996 (incorporated by reference to Exhibit 10.J of the Report on
Form 10-K for the year ended December 31, 1996)
10.O* - Fourth Amendment to the AMP Incorporated Deferred Compensation
Plan for select management and highly compensated employees
effective July 22, 1997 (incorporated by reference to Exhibit 10.B
of the Report on Form 10-Q for the quarter ended September 30, 1997)
10.P* - Amendment to the AMP Incorporated Deferred Compensation Plan for
selected management and highly compensated employees effective as of
January 1, 1998
10.Q* - Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.F of the Report on Form
10-K for the year ended December 31, 1994)
10.R* - Amendment to the AMP Incorporated Deferred Compensation Plan for
Non-Employee Directors dated October 26, 1996 (incorporated by
reference to Exhibit 10.L of the Report on Form 10-K for the year
ended December 31, 1996)
10.S* - Second Amendment to the Deferred Compensation Plan for Non-
Employee Directors effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.F of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.T* - Retirement plan for outside directors (October 23, 1996
Restatement) (see also the section entitled "Retirement" on Pages
8-9 of the Proxy Statement for the AMP Incorporated 1998 Annual
Shareholders' Meeting)(incorporated by reference to Exhibit 10.M of
the Report on Form 10-K for the year ended December 31, 1996)
10.U* - First Amendment to the Retirement Plan for Outside Directors
effective as of July 22, 1997 (incorporated by reference to the
Exhibit 10.H of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.V* - Outside Directors Deferred Stock Accumulation Plan (see also the
section entitled "Retirement" on Pages 8-9 of the Proxy Statement
for the AMP Incorporated 1998 Annual Shareholders' meeting
incorporated by reference under Item 11, Part III of this Report)
(incorporated by reference to Exhibit 10.K of the Report on Form
10-K for the year ended December 31, 1995)
10.W* - Amendment to the Outside Directors Deferred Stock Accumulation
Plan dated October 26, 1996 (incorporated by reference to Exhibit
10.O of the Report on Form 10-K for the year ended December 31,
1996)
10.X* - Second Amendment to the Deferred Stock Accumulation Plan for
Outside Directors effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.G of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.Y* - Management Incentive Plan (January 1, 1996 Restatement) (see also
column (d) of the Summary Compensation Table on Page 11 of the Proxy
Statement for the AMP Incorporated 1998 Annual Shareholders' Meeting
incorporated by reference under Item 11, Part III of this Report)
(incorporated by reference to Exhibit 10 of the Report on Form
10-Q for the quarter ended March 31, 1996)
10.Z* - Director and officer indemnification agreements dated October 22,
1996 (incorporated by reference to Exhibit 10.S of the Report on
Form 10-K for the year ended December 31, 1996)
10.AA* - AMP Incorporated 1993 Long-Term Equity Incentive Plan (see also
footnote (1) on Page 13-14 of the Proxy Statement for the AMP
Incorporated 1998 Annual Shareholders' Meeting incorporated by
reference under Item 11, Part III of this Report) (incorporated by
reference to Exhibit 10.B of the Report on Form 10-Q for the quarter
ended September 30, 1995)
10.BB* - Amendment to the AMP Incorporated 1993 Long-Term Equity Incentive
Plan dated October 26, 1996 (incorporated by reference to Exhibit
10.U of the Report on Form 10-K for the year ended December 31,
1996)
10.CC* - Second Amendment to the AMP Incorporated 1993 Long-Term Equity
Incentive Plan effective as of July 22, 1997 (incorporated by
reference to Exhibit 10.A of the Report on Form 10-Q for the quarter
ended September 30, 1997)
10.DD* - Amendment to the AMP Incorporated 1993 Long-Term Equity Incentive
Plan effective as of October 22, 1997
10.EE* - AMP Incorporated Stock Bonus Unit and Supplemental Cash Bonus
Agreement (incorporated by reference to Exhibit 10.B of the Report
on Form 10-Q for the quarter ended September 30, 1993)
10.FF* - AMP Incorporated Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.C of the Report on Form
10-Q for the quarter ended September 30, 1993)
10.GG* - AMP Incorporated Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.D of the Report on Form 10-Q for the quarter
ended September 30, 1993)
10.HH* - AMP Incorporated Performance Restricted Share Agreement
(incorporated by reference to Exhibit 10.C of the Report on Form
10-Q for the quarter ended September 30, 1995)
10.II* - Employment agreement between the Company and Mr. Phillipe Lemaitre
dated February 19, 1997 (incorporated by reference to Exhibit 10.A
of the Report on Form 10-Q for the quarter ended June 30, 1997)
10.JJ - AMP Incorporated Supplemental Benefit Trust Agreement entered into
as of April 1, 1997 between the Company and Dauphin Deposit Bank and
Trust Company (incorporated by reference to Exhibit 10.C of the
Report on Form 10-Q for the quarter ended June 30, 1997)
10.KK - First Amendment to the Supplemental Benefit Trust Agreement
effective September 25, 1997 (incorporated by reference to Exhibit
10.D of the Report on Form 10-Q for the quarter ended September 30,
1997)
10.LL* - AMP Incorporated Supplemental Executive Pension Plan dated June 9,
1997 (incorporated by reference to Exhibit 10.D of the Report on
Form 10-Q for the quarter ended June 30, 1997)
10.MM* - First Amendment to the AMP Incorporated Supplemental Executive
Pension Plan effective July 22, 1997 (incorporated by reference to
Exhibit 10.C of the Report on Form 10-Q for the quarter ended
September 30, 1997)
10.NN* - Restricted stock agreement between the Company and Mr. Robert Ripp
dated as of August 15, 1994 (incorporated by reference to Exhibit
10.R of the Report on Form 10-K for the year ended December 31,
1994)
13 - Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 that are specifically incorporated by reference
into this Report
21 - List of Subsidiaries
23 - Consent of Independent Public Accountants
27 - Financial Data Schedule
EX.3.ii
January 28, 1998
AMP INCORPORATED
BYLAWS
ARTICLE 1
SHAREHOLDERS
Section 1.1. PLACE OF HOLDING MEETINGS.
Meetings of shareholders of AMP Incorporated ("Corporation") may be held at
such place, within or without the Commonwealth of Pennsylvania, as may be fixed
by the Board of Directors ("Board"). Unless otherwise fixed by the Board,
meetings of shareholders shall be held at the registered office of the
Corporation in the Commonwealth of Pennsylvania.
Section 1.2. NOTICE OF SHAREHOLDERS' MEETINGS.
Except as otherwise provided by law or these bylaws, written notice of the
time, date, place and purpose or purposes of every meeting of shareholders,
including Annual Meetings, shall be given not less than 5 days (or such longer
period as may be required by law) before the date of the meeting, either
personally or by first-class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission or in such other
manner as permitted by law, to each shareholder of record entitled to vote at
the meeting. When given by mail, telegraph or courier service, notice shall be
deemed to have been given when deposited in the United States mail in a postpaid
envelope addressed to the shareholder at such address as appears on the books of
the Corporation or when deposited with a telegraph office or courier service for
delivery to that person or, in the case of telex or TWX, when dispatched.
Section 1.3. WAIVER.
Whenever written notice of a meeting is required to be given, a waiver
thereof in writing, signed by the person entitled to the notice, whether before
or after the meeting, shall be deemed equivalent to the giving of the notice.
Attendance of a person at any meeting shall constitute a waiver of notice of the
meeting except where a person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 1.4. VOTING LIST.
The officer or agent having charge of the stock transfer records of the
Corporation shall make a complete list of the shareholders entitled to vote at
each shareholders' meeting or any adjournment thereof or, in lieu of such a list
the Corporation may make the information therein available at the shareholders'
meeting by any other means. Such list shall (a) be arranged alphabetically, with
the address of and the number of shares held by each shareholder; (b) be
produced and kept open at the time and place of the meeting; (c) be subject to
the inspection of any shareholder during the whole time of the meeting; and (d)
be prima facie evidence as to who are the shareholders entitled to examine such
list or to vote at such meeting.
Section 1.5. ANNUAL MEETING OF SHAREHOLDERS.
1.5.1 Date and Time. The Annual Meeting of the Shareholders, for the
election of Directors and the transaction of other business, if any, shall be
held on the fourth Wednesday in April of each year (or on such other date as may
be fixed by the Board and stated in the notice of the meeting) at such hour as
shall be fixed by the Board and stated in the notice of the meeting, at the
place fixed in accordance with Section 1.1 of this Article. Failure to hold such
meeting at the designated time or on the designated date or to elect some or all
of the members of the Board at such meeting or any adjournment thereof shall not
affect otherwise valid corporate acts or work a forfeiture or dissolution of the
Corporation.
1.5.2 Business to be Conducted. To be properly brought before the Annual
Meeting, business must be either (a) specified in the notice of Annual Meeting
(or any supplement thereto) given by or at the direction of the Board, (b)
otherwise properly brought before the Annual Meeting by or at the direction of
the Board, or (c) otherwise properly brought before the Annual Meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before an Annual Meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or mailed
to and received at the principal executive office of the Corporation at least 60
days in advance of the date in the then-current year that corresponds to the
date of the previous year's annual meeting; provided, however, that if the
meeting in the then-current year is held more than 15 days before or after the
date on which the previous year's annual meeting was held, then such notice
shall be delivered to or mailed to and received at the principal executive
office of the Corporation at least 60 days in advance of the actual date of the
Annual Meeting in the then-current year unless fewer than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, in which event notice by the shareholder to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the Annual Meeting was mailed or such public
disclosure was made, whichever first occurs. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the Annual Meeting (i) a brief description of the business desired to be
brought before the Annual Meeting and the reasons for conducting such business
at the Annual Meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. No business shall be conducted at the
Annual Meeting except in accordance with the procedures set forth in this
Section 1.5.2, provided, however, that nothing in this Section 1.5.2 shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the Annual Meeting. The Chairman of an Annual Meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the foregoing procedure,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
1.5.3 Nominations of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election by the
shareholders as directors. Nominations of persons for election to the Board may
be made by the Board, at the direction of the Board by any nominating committee
or person(s) appointed by the Board, by the persons named as proxies in the
proxy card in the event an unexpected vacancy arises in the original slate of
nominees and the Board neither designates a replacement nominee nor amends these
Bylaws to eliminate that office of director for which the vacancy arose, or by
any shareholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 1.5.3. Such nominations, other than those made by or at the
direction of the Board or by the persons named as proxies in the proxy card,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed to and received by the Secretary at the principal executive office of the
Corporation with respect to (i) an election to be held at an annual meeting of
shareholders, at least 60 days in advance of the date in the then-current year
which corresponds to the date of the previous year's annual meeting; provided,
however, that if the Annual Meeting in the then-current year is held more than
15 days before or after the date on which the previous year's annual meeting was
held, then such notice shall be delivered to or mailed to and received by the
Secretary at least 60 days in advance of the actual date of the Annual Meeting
in the then-current year, or (ii) an election to be held at a special meeting of
shareholders for the election of directors, the close of business on the tenth
day following the day on which notice of the date of the meeting was mailed to
shareholders or public disclosure was made, whichever first occurs. Such
shareholder's notice to the Secretary shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of the person, (ii)
the principal occupation or employment of the person, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the person, (iv) a description of all arrangements or understandings between the
shareholder and the person pursuant to which the nomination is proposed to be
made, and (v) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (or any
successor act or regulation); and (b) as to the shareholder giving the notice,
(i) the name and record address of such shareholder, (ii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
such shareholder, and (iii) a representation that the shareholder intends to
appear in person or by proxy at the meeting to nominate the person. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person shall
be eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 1.6. SPECIAL MEETINGS OF SHAREHOLDERS.
Special meetings of shareholders may be called at any time by the Chairman
of the Board, the Chief Executive Officer, or by resolution of the Board of
Directors.
Section 1.7. RECORD DATES.
1.7.1 Meetings and Other Purposes. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any consent, the Board may fix a record date, which record
date shall not be more than 90 days before the date of such meeting, nor more
than 90 days prior to any such other action. If no record date is fixed, the
record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given. The record date for any other
purpose other than shareholder action by written consent shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto. The determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
1.7.2 Written Consents. In order that the Corporation may determine the
shareholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date. Any shareholder of record seeking to
have the shareholders authorize or take corporate action by written consent
shall, by written notice to the Secretary of the Corporation, request the Board
to fix a record date. The Board shall promptly, but in all events within 10 days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board within 10 days of
the date on which such a request is received, the record date for determining
shareholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by applicable law, shall
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation by delivery to its
registered office in the Commonwealth of Pennsylvania, its principal place of
business, or an officer or agent of the Corporation having custody of the books
in which proceedings of shareholders' meetings are recorded, to the attention of
the Secretary of the Corporation. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required by applicable law, the
record date for determining shareholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the date on
which the Board adopts the resolution taking such prior action. 1.7.3 Validation
and Certification of Written Consents. In the event of the delivery to the
Corporation of a written consent or consents purporting to authorize or take
corporate action and/or related revocations (each such written consent and any
revocation thereof is referred to in this Section 1.7.3 as a "Consent"), the
Secretary of the Corporation shall provide for the safekeeping of such Consents
and shall as soon as practicable thereafter conduct such reasonable
investigation as he deems necessary or appropriate for the purpose of
ascertaining the validity of such Consents and all matters incident thereto,
including without limitation whether the holders of shares having the requisite
voting power to authorize or take the action specified in the Consents have
given consent; provided, however, that if the corporate action to which the
Consents relate is the removal or election of one or more members of the Board,
the Secretary of the Corporation shall designate an independent, qualified
inspector with respect to such Consents and such inspector shall discharge the
functions of the Secretary of the Corporation under this Section 1.7.3. If after
such investigation the Secretary or the inspector (as the case may be) shall
determine that any action purportedly taken by such Consents has been validly
taken, that fact shall be certified on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of the shareholders and the
Consents shall be filed with such records. In conducting the investigation
required by this Section 1.7.3, the Secretary or the inspector may, at the
expense of the Corporation, retain to assist them special legal counsel and any
other necessary or appropriate professional advisors, and such other personnel
as they may deem necessary or appropriate.
Section 1.8. QUORUM.
The presence in person or by proxy of the holders of shares entitled to
cast a majority of the votes that all shareholders are entitled to cast on a
particular matter to be acted upon at a meeting shall constitute a quorum at
such meeting for purposes of acting on such matter. The shareholders present at
a duly organized meeting may continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. The determination of what constitutes a quorum at a shareholders'
meeting that has been previously adjourned for lack of a quorum shall be made as
provided under Section 1756 of the Pennsylvania Business Corporation Law or any
successor provision thereto.
Section 1.9. ADJOURNMENT OF SHAREHOLDERS' MEETING.
When a meeting of shareholders is adjourned to another time, date or place,
it shall not be necessary to give any notice of the adjourned meeting or of the
business to be transacted at the adjourned meeting, other than by announcement
of the new time, date or place at the meeting at which the adjournment is taken,
unless the Board fixes a new record date for the adjourned meeting and provided
that at the adjourned meeting only such business is transacted as might have
been transacted at the original meeting. Any regular, special or Annual Meeting
of the shareholders, including one at which directors are to be elected, may be
adjourned for such period as the shareholders present in person or by proxy, and
entitled to vote, shall direct.
Section 1.10. VOTING.
(a) Except as otherwise provided herein or in the Articles of Incorporation
or by law, each outstanding share shall entitle the holder to one vote on each
matter submitted to a vote at a meeting of shareholders.
(b) Whenever any action is to be taken by a vote of the shareholders, it
shall be authorized by a majority of the votes cast at the meeting by holders of
shares entitled to vote thereon, unless a greater number or percentage of votes
is required by law or the Articles of Incorporation.
(c) Shares of the Corporation owned, directly or indirectly, by it and
controlled, directly or indirectly, by the Board of Directors of this
Corporation, as such, shall not be voted at any meeting and shall not be counted
in determining the total number of outstanding shares for voting purposes at any
given time.
(d) Shares standing in the name of another corporation may be voted by any
officer or agent or by proxy appointed by any officer or agent of such other
corporation unless the Secretary of the Corporation is furnished with a
certified copy of a resolution of the corporation's board of directors or of a
provision of its Articles or bylaws, designating another person to vote, and
then the shares shall be voted only by that designated person.
(e) Shares standing in the name of a trustee or other fiduciary, and shares
held by an assignee for the benefit of creditors or by a receiver, may be voted
by the trustee, fiduciary, assignee or receiver.
(f) Where shares are held jointly or as tenants in common by two or more
persons, as fiduciaries or otherwise, if only one or more of such persons is
present in person or by proxy, all of the shares standing in the names of such
persons shall be deemed to be represented for the purpose of determining a
quorum and the Corporation shall accept as the vote of all the shares the vote
cast by him or a majority of them; and if such persons are equally divided upon
whether to vote the shares or upon the manner of voting, the voting of the
shares shall be divided equally among them; provided, that if there has been
filed with the Secretary of the Corporation a copy, certified by an attorney to
be correct, of the relevant portions of the agreement under which the shares are
held, or the instrument by which the trust or estate was created, or an Order of
Court, the person or persons specified as having such voting power in the latest
document so filed shall be entitled to vote the shares but only in accordance
therewith.
(g) A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee or a
nominee of the pledgee.
(h) A shareholder may vote either in person or by proxy executed in writing
by the shareholder or his duly authorized attorney in fact and filed with the
Secretary of the Corporation. Where two or more proxies of a shareholder are
present, the Corporation shall, unless otherwise expressly provided for in the
proxy, accept as the vote of all shares represented thereby the vote cast by a
majority of them and, if a majority of the proxies cannot agree whether the
shares represented shall be voted or upon the manner of voting the shares, the
voting of the shares shall be divided equally among those persons. No proxy
shall be valid after three years from the date of its execution unless a longer
time is expressly provided therein. Unless coupled with an interest, a proxy
shall be revocable at will, but the revocation shall not be effective until
written notice thereof has been given to the Secretary of the Corporation. A
proxy shall not be revoked by the death or incapacity of the maker but shall
continue in force, subject to the foregoing limitations, unless before the vote
is counted or the authority is exercised written notice of such death or
incapacity is given to the Secretary of the Corporation. (i) Except as otherwise
provided by law or these bylaws, any matter submitted to a vote of shareholders
shall be by ballot.
Section 1.11. ELECTION OF DIRECTORS.
Election of directors shall be by ballot. At such elections every
shareholder entitled to vote at such election shall have the right to vote the
number of shares held by him for as many persons as there are directors to be
elected, but he shall not have the right to cumulate his votes.
Section 1.12. SELECTION OF JUDGES OF ELECTION.
(a) The Board may in advance of any shareholders' meeting appoint one or
three judges of election to act at the meeting or any adjournment thereof. If
judges of election are not so appointed or shall fail to qualify, the person
presiding at the shareholders' meeting may, and upon the request of any
shareholder entitled to vote thereat shall, make such appointment.
(b) In case any person appointed as judge fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding.
(c) No person shall be elected a director at a meeting at which he has
served as a judge.
Section 1.13. DUTIES OF JUDGES OF ELECTION.
The judges of election shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, and the validity and effect of proxies, and shall receive votes or
ballots, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes or ballots, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. If there are three judges, the act of a majority
shall govern. On request of the person presiding at the meeting or any
shareholder, the judge or judges shall make a report in writing of any
challenge, question or matter determined by him or them. Any report made by him
or them shall be prima facie evidence of the facts therein stated, and such
report shall be filed with the minutes of the meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. BOARD QUALIFICATIONS.
The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors ("Board"). Directors shall be at least 18
years of age and need not be United States citizens or residents of Pennsylvania
or shareholders of the Corporation.
Section 2.2. NUMBER.
The number of directors of the Corporation shall be at least three, with
the actual number of directors to be determined from time to time by the Board.
Section 2.3. TERM OF DIRECTORS.
Each director shall hold office until the next succeeding annual meeting of
shareholders and until his successor shall have been elected and qualified or
until his earlier death, resignation or removal. A director may resign by
written notice to the Corporation. The resignation shall be effective upon
receipt thereof by the Corporation or at such subsequent time as shall be
specified in the notice of resignation. A decrease in the number of directors
shall not have the effect of shortening the term of any incumbent director.
Section 2.4. VACANCIES.
Vacancies in the Board, however caused, including vacancies resulting from
an increase in the number of directors, may be filled by the affirmative vote of
a majority of the remaining directors even though less than a quorum of the
Board, or by a sole remaining director. When one or more directors shall resign
from the Board effective at a future date, the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective. A director elected by the Board to fill any such
directorship shall serve for the balance of the unexpired term and until his
successor shall have been elected and qualified.
Section 2.5. REMOVAL OF DIRECTORS.
(a) A director of the Corporation may be removed only for cause by the
shareholders by the affirmative vote of the shareholders entitled to cast at
least a majority of the votes which all shareholders would be entitled to cast
at any annual election of directors. The Board of Directors may be removed at
any time with or without cause by the unanimous vote or consent of shareholders
entitled to vote thereon.
(b) The Board by the affirmative vote of a majority of the directors in
office may remove a director if he or she be declared of unsound mind by an
order of court, or convicted of felony, or for any other proper cause, or if,
within 60 days after notice of his or her election, he or she does not accept
such office either in writing or by attending a meeting of the Board of
Directors and fulfill such other requirements of qualification as the bylaws may
specify.
Section 2.6. QUORUM OF DIRECTORS AND COMMITTEES.
A majority of the directors in office, or of those directors in office
serving on any committee of the Board, shall constitute a quorum for the
transaction of business by the Board or by the committee, respectively. The act
of a majority present and voting at a meeting at which a quorum is present shall
be the act of the Board or of the committee, unless the act of a greater number
is required by law or by the Articles of Incorporation. Less than a quorum may
adjourn.
Section 2.7. ACTION OF BOARD AND COMMITTEES WITHOUT A MEETING.
Any action required or permitted to be taken at a meeting of the Board or
any committee of the Board may be taken without a meeting if, prior or
subsequent to such action, all members of the Board or of such committee, as the
case may be, consent thereto in writing and such written consents are filed with
the Secretary of the Corporation.
Section 2.8. EXECUTIVE COMMITTEE AND OTHER COMMITTEES.
(a) The Board, by resolution adopted by a majority of the entire Board, may
appoint from among its members an Executive Committee and one or more other
committees, each of which shall have one or more members. The Board may fill any
vacancy in any committee; abolish any committee at its pleasure; and remove any
director from membership on any committee at any time, with or without cause.
(b) No committee of the Board shall have authority to make, alter or repeal
any bylaw of the Corporation; create or fill vacancies in the Board; submit to
shareholders any action that requires shareholders' approval; act on matters
committed by the bylaws or resolution of the Board to another committee of the
Board; or amend or repeal any resolution theretofore adopted by the Board that
by its terms is amendable or repealable only by the Board.
(c) Subject to the foregoing, the Executive Committee shall, during the
intervals between meetings of the Board, have and may exercise all of the powers
and authority of the Board, and any other committee of the Board shall have
authority to the extent provided in the resolution adopted by the Board.
(d) The Executive Committee of the Board shall consist of at least three
directors, including the Chairman of the Board, the Chief Executive Officer if a
director of the Corporation, and such other number of directors as the Board may
appoint.
(e) Actions taken at a meeting of any committee or by written consent shall
be reported to the Board at its next regular meeting following such committee
meeting.
(f) The Board may designate one or more directors as alternate members of
any committee who may replace any absent or disqualified member at any meeting
of the committee or for the purposes of any written action by the committee.
Section 2.9. MEETINGS OF BOARD AND COMMITTEES.
(a) Regular meetings of the Board shall be held on the fourth Wednesday of
January, April, June, July, September, and October at 8:00 o'clock, local time,
in the morning at the General Offices of the Corporation at Harrisburg,
Pennsylvania, or at such other time, date or place, within or without the
Commonwealth of Pennsylvania, as may be determined from time to time by
resolution of the Board at a duly convened meeting, or by unanimous written
consent of the Board. Upon such action being taken by the Board, no further
notice shall be required for the regular meetings of the Board and any business
that comes before such meetings may be transacted.
(b) Special meetings of the Board may be called at any time by the Chairman
of the Board, the Chief Executive Officer, or by any three directors, and may be
held at any time, date and place, within or without the Commonwealth of
Pennsylvania, as the notice of meeting shall provide. Notice of each special
meeting shall be given to each director in the manner provided for in these
bylaws.
(c) Regular meetings of any committee of the Board may be established by
resolution of the Board relating to the authorization of the committee, or by
resolution of the committee itself, and, provided that the meetings are held at
the General Offices of the Corporation at Harrisburg, Pennsylvania or at such
other place, within or without the Commonwealth of Pennsylvania, as may be
designated in the authorizing resolution of the Board or by resolution of the
committee itself, no further notice shall be required for such regular committee
meetings or of any business to come before the committee. Other meetings of any
committee of the Board may be called at any time by the Chairman of Board, the
Chief Executive Officer, the chairman of the committee, any two members of the
committee or as provided in the resolution of the Board relating to the
authorization of the committee, and may be held at any time, date and place as
the notice of meeting shall provide. Notice of each special meeting shall be
given to each member of the committee in the manner provided for in these
bylaws.
(d) Any or all directors may participate in a meeting of the Board or in a
meeting of a committee of the Board by means of a conference by telephone or any
means of communication by which all persons participating in the meeting are
able to hear each other. Such participation shall constitute presence in person
and a waiver of notice of the meeting by such participating director or
directors except where such director participates for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 2.10. NOTICE OF BOARD AND COMMITTEE MEETINGS.
When the giving of notice of any meeting of the Board or of a committee of
the Board is required, the following shall apply:
(a) the notice shall specify the time, date and place of the meeting, but
need not specify the business to be transacted at, nor the purpose of, the
meeting.
(b) notice may be given in writing (by mail, courier service, telex, TWX
with answerback received, facsimile transmission, telegraph with messenger
service specified, and the like, postage or other charges prepaid) or orally to
the director in person, by telephone or by means of any other similar
communication equipment.
(c) notice shall be given to each director or member of a committee at
least 5 days before the date of the meeting when given in writing by first class
mail; at least 48 hours in advance when given by express mail, courier service,
or telegraph; and at least 24 hours in advance when given in person or by
telephone or other similar communication equipment, telex, TWX or facsimile
transmission. When given by mail, telegraph or courier service, notice shall be
deemed to have been given when deposited in the United States mail in a postpaid
envelope addressed to the director or when deposited with a telegraph office or
courier service for delivery to that director or, in the case of telex or TWX,
when dispatched.
(d) When a meeting is adjourned, notice of the adjourned meeting need not
be given if the time, date and place are fixed at the meeting at which the
adjournment is taken.
(e) notice of a meeting may be waived in writing by any director before or
after the meeting. Attendance of any director at a meeting, except where such
attendance is for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not lawfully
called or convened, shall constitute a waiver of notice by such director.
Neither the business to be transacted at, nor the purpose of, any meeting need
be specified in the waiver of notice of such meeting.
Section 2.11. COMPENSATION OF DIRECTORS.
Directors may receive such salary or other compensation for their services
as directors and as members of a committee of the Board, and such fees and
expenses of attendance at meetings of the Board or committee, as the Board by
resolution shall from time to time determine. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise and receiving compensation therefor.
Section 2.12. INTEREST OF DIRECTORS.
No contract or other transaction between the Corporation and one or more of
its directors or between the Corporation and any other corporation, firm or
association of any type or kind in which one or more of its directors are
directors or are otherwise interested, shall be void or voidable solely by
reason of such common directorship or interest, or solely because such director
or directors are present at or participate in the meeting of the Board or a
committee thereof which authorizes or approves the contract or transaction, or
solely because his or their votes are counted for such purpose, if (a) the
contract or other transaction is fair as to this Corporation at the time it is
authorized, approved or ratified, or (b) the material facts as to the common
directorship or interest and as to the contract or transaction are disclosed to
or known by the Board or committee and the Board or committee authorizes,
approves or ratifies the contract or transaction by affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, or (c) the material facts as to the common directorship
or interest and as to the contract or transaction are disclosed to or known by
the shareholders and they authorize, approve or ratify the contract or
transaction in good faith.
Section 2.13. STANDARD OF CARE AND JUSTIFIABLE RELIANCE.
Directors and members of any committee of the Board shall stand in a
fiduciary relationship to the Corporation and shall perform their duties in good
faith, in a manner they reasonably believe to be in the best interests of the
Corporation, and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. In performing their duties, directors and members of any such
committee shall be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following:
(a) One or more officers or employees of the Corporation whom the directors
or members reasonably believe to be reliable and competent in the matters
presented.
(b) Counsel, public accountants or other persons as to matters which the
directors or members reasonably believe to be within the professional or expert
competence of such person.
(c) A committee of the Board upon which they do not serve, duly designated
in accordance with law, as to matters within its designated authority, which
committee the directors or members reasonably believe to merit confidence.
Directors or members shall not be considered to be acting in good faith if
they have knowledge concerning the matter in question that would cause their
reliance to be unwarranted.
In discharging the duties of their respective positions, the Board of
Directors, committees of the Board, and individual directors and members may, in
considering the best interests of the Corporation, consider to the extent they
deem appropriate: (1) the effects of any action upon any and all groups affected
by such action, including shareholders, employees, suppliers, customers and
creditors of the Corporation and upon communities in which offices or other
establishments of the Corporation are located; (2) the short-term and long-term
interests of the Corporation, including benefits that may accrue to the
Corporation from its long-term plans and the possibility that these interests
may be best served by the continued independence of the Corporation; (3) the
resources, intent and conduct (past, stated and potential) of any person seeking
to acquire control of the Corporation; and (4) all other pertinent factors. The
consideration of those factors shall not constitute a violation of the standard
of care provided above. The Board of Directors, committees of the Board, and
individual directors and members shall not be required, in considering the best
interests of the Corporation or the effects of any action, to regard any
corporate interest or the interests of any particular group affected by such
action as a dominant or controlling interest or factor.
Absent breach of fiduciary duty, lack of good faith or self- dealing,
actions taken as a director or member of a committee of the Board or any failure
to take any action shall be presumed to be in the best interest of the
Corporation.
Nothing in this Section 2.13 shall be deemed to limit the rights accorded
to the Corporation and the Board of Directors under Section 1715 of the
Pennsylvania Business Corporation Law or any successor provision thereto.
Section 2.14. PRESUMPTION OF ASSENT TO ACTION TAKEN.
A director who is present at a meeting of the Board or a committee thereof
of which he is a member at which action on any corporate matter is taken shall
be presumed to have concurred in the action taken unless his dissent is entered
in the minutes of the meeting, or he files a written dissent with the secretary
of the meeting before adjournment or transmits a written dissent to the
Secretary of the Corporation immediately after adjournment.
ARTICLE III
OFFICERS
Section 3.1. ENUMERATION AND ELECTION OR APPOINTMENT OF
OFFICERS.
Unless determined otherwise by the Board (which determination shall include
the failure to elect), the officers of the Corporation shall be a Chairman of
the Board, a Chief Executive Officer and President, a Chief Financial Officer,
one or more corporate Vice Presidents, a Treasurer, a Controller, a Secretary
and such additional officers as the Board may from time to time choose, all of
whom shall be elected by the Board. Any number of offices may be held by the
same person, unless the Articles of Incorporation, these Bylaws or the Business
Corporation Law of the Commonwealth of Pennsylvania otherwise provide. The
election of officers by the Board shall occur at each April meeting of the Board
or at such other date as an individual may be first elected as an officer by the
Board.
The Chairman of the Board or the Chief Executive Officer and President may
from time to time, within their respective areas of responsibility as prescribed
by the Board, appoint divisional Vice Presidents and such other officers or
assistant officers as may be deemed necessary or advisable, who shall hold
office for such period and perform such duties and exercise such powers as may
be delegated to them by the office that appointed them and to which they report.
Any such appointed officer may be removed at any time, with or without cause, by
the Board or by the officer to whom he/she reports.
Section 3.2. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the shareholders
and of the Board. In emergency circumstances where the Chief Executive Officer
and President cannot be reached or in the event of the Chief Executive Officer
and President's incapacity to act, the Chairman of the Board shall perform the
duties of the Chief Executive Officer and President and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer and President. The Chairman of the Board shall perform such
other duties and have such other powers as the Board may from time to time
prescribe.
Section 3.3. CHIEF EXECUTIVE OFFICER AND PRESIDENT.
The Chief Executive Officer and President shall be the chief executive
officer and president of the Corporation and shall have such powers, duties and
responsibilities as the Board may from time to time prescribe. In emergency
circumstances where the Chairman of the Board cannot be reached or in the event
of the Chairman of the Board's incapacity to act, the Chief Executive Officer
and President shall preside at all meetings of the shareholders and of the
Board.
Section 3.4. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall report to the Chief Executive Officer and
President and shall have such powers, duties and responsibilities as shall from
time to time be prescribed by the Board or delegated to him/her by the Chief
Executive Officer and President.
Section 3.5. EXECUTIVE VICE PRESIDENTS.
The Executive Vice Presidents, if any are elected, shall report to either
the Chairman of the Board or the Chief Executive Officer and President, as
designated by the Board, and shall have such powers, duties and responsibilities
as shall from time to time be prescribed by the Board or delegated to them by
the officer to whom each of them reports.
Section 3.6. SENIOR VICE PRESIDENTS.
The Senior Vice Presidents, if any are elected, shall report to the
Chairman of the Board, the Chief Executive Officer and President or an Executive
Vice President, as designated by the Board, and shall have such powers, duties
and responsibilities as shall from time to time be prescribed by the Board or
delegated to them by the officer to whom each of them reports.
Section 3.7. CORPORATE VICE PRESIDENTS.
The Corporate Vice Presidents shall report to the Chairman of the Board,
the Chief Executive Officer and President, an Executive Vice President or a
Senior Vice President, as designated by the Board, and shall have such powers,
duties and responsibilities as shall from time to time be prescribed by the
Board or delegated to them by the officer to whom each of them reports.
Section 3.8. TREASURER.
The Treasurer shall report to the Chief Financial Officer and shall have
such powers, duties and responsibilities as may from time to time be prescribed
by the Board or delegated to him/her by the Chief Executive Officer and
President or the Chief Financial Officer.
Section 3.9. CONTROLLER.
The Controller shall report to the Chief Financial Officer and shall have
such powers, duties and responsibilities as may from time to time be prescribed
by the Board or delegated to him/her by the Chief Executive Officer and
President or the Chief Financial Officer.
Section 3.10. SECRETARY.
The Secretary shall report to the Chairman of the Board and shall have such
powers, duties and responsibilities as may from time to time be prescribed by
the Board or delegated to him/her by the Chairman of the Board.
Section 3.11. COMPENSATION.
The salaries of the Chairman of the Board and the Chief Executive Officer
and President shall be determined by the Board based on recommendations made by
the Compensation and Management Development Committee (the "Committee") of the
Board. These officers in turn shall formulate the salary plan for the other
officers of the Corporation elected by the Board, with the review and oversight
of the Committee.
Section 3.12. TERM, REMOVAL, VACANCIES.
The elected officers of the Corporation shall hold office for a term of one
year and until their successors shall have been elected and qualified, or
otherwise until their death, resignation, or removal. Any elected officer may
resign at any time by giving written notice of such resignation to the Board or
to the officer to whom they report. Unless otherwise specified in such written
notice, the resignation shall take effect upon receipt and shall not require
acceptance in order to be effective. Any officer elected by the Board may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the Board. The Board may permit any office of the Corporation to
remain unfilled, except as otherwise required by law, or the Board may fill any
vacancy in such office.
Section 3.13. STANDARD OF CARE.
An officer of this Corporation shall not be liable by reason of having held
such position in the Corporation if the officer performs his or her duties as an
officer in good faith, in a manner such person reasonably believes to be in the
best interests of the Corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances.
ARTICLE IV
INDEMNIFICATION
Section 4.1. DIRECTORS' AND OFFICERS' RIGHT TO INDEMNIFICATION.
The Corporation, to the extent permitted by applicable law and the
provisions of this Article, shall indemnify any person who is, was or becomes a
director or officer of the Corporation and who is, was or becomes a party or is
threatened to be made a party to any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action, suit or proceeding by or
in the right of the Corporation to procure a judgment in its favor) and whether
formal or informal, and any appeal therein in which such person may be involved
(a "Proceeding") by reason of the fact that such person is or was a director,
officer, employee or agent ( a "Representative") of the Corporation, or a
constituent corporation absorbed in a consolidation or merger ("Constituent
Corporation"), or is or was serving at the request of the Corporation or a
Constituent Corporation as a Representative of another corporation, partnership,
joint venture, trust or other enterprise (including without limitation, any
employee benefit plan) (such other corporation, partnership, joint venture,
trust, or other enterprise or employee benefit plan hereafter being referred to
as a "Covered Entity"), against all expenses (including attorneys' fees and
disbursements), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding. Any right
of a director or officer to indemnification shall be a contract right.
Section 4.2. DERIVATIVE PROCEEDINGS
The Corporation, to the extent permitted by applicable law and the
provisions of this Article, shall indemnify any person who is, was or becomes a
director or officer of the Corporation and may indemnify any person (other than
a director or officer of the Corporation) who is, was or becomes an employee or
agent of the Corporation, when such director, officer, employee or agent is, was
or becomes a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or in the right of the
Corporation to procure a judgment in its favor (a "Derivative Proceeding") by
reason of the fact that such person is or was a Representative of the
Corporation or a Constituent Corporation, or is or was serving at the request of
the Corporation or a Constituent Corporation as a Representative of a Covered
Entity, against all expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection with the defense
or settlement of such Derivative Proceeding.
Indemnification shall not be made in a Derivative Proceeding in which the
person has been adjudged to be liable to the Corporation unless and only to the
extent that a court of competent jurisdiction determines upon application that
the person is fairly and reasonably entitled to indemnity for the expenses that
such court deems proper.
Section 4.3. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
Notwithstanding any other provision or provisions of this Article, the
Corporation, to the extent permitted by applicable law, may indemnify any
person, other than a director or officer of the Corporation, who is, was or
becomes an employee or agent of the Corporation and who is, was or becomes a
party or is threatened to be made a party to any threatened, pending or
completed Proceeding by reason of the fact that such person is or was a
Representative of the Corporation or a Constituent Corporation, or is or was
serving at the request of the Corporation or a Constituent Corporation as a
Representative of a Covered Entity, against all expenses (including attorneys'
fees and disbursements), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding.
Section 4.4. SCOPE OF COVERAGE.
The entitlement to indemnification provided in this Article shall not be
exclusive of any other rights to which an Indemnitee may otherwise be entitled,
and the provisions of this Article shall inure to the benefit of the heirs and
legal representatives of any Indemnitee (as hereinafter defined in Section 4.13
of this Article) under this Article and shall be applicable to Proceedings and
Derivative Proceedings commenced or continuing after the adoption of this
Article, whether arising from acts or omissions occurring before or after such
adoption.
Notwithstanding any other provision or provisions of this Article, to the
extent that a Representative of the Corporation or a Constituent Corporation, or
a Representative who is or was serving at the request of the Corporation or a
Constituent Corporation as a Representative of a Covered Entity, has been
successful on the merits or otherwise in defense of any Proceeding or Derivative
Proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by said person in connection
therewith.
Section 4.5. INSURANCE, CONTRACTS AND SUPPLEMENTARY COVERAGE.
The Board of Directors or its duly authorized committee shall have the
power to (a) authorize the Corporation to purchase and maintain, at the
Corporation's expense, insurance on behalf of the Corporation, its subsidiaries
and affiliates (the "Corporate Entities") and any person who is or was a
Representative of the Corporation or a Constituent Corporation, or is or was
serving at the request of the Corporation or a Constituent Corporation as a
Representative of a Covered Entity, against any liability asserted against such
person or incurred by such person in any such capacity, or arising out of said
person's status as such, whether or not the Corporation would have the power to
indemnify such person against that liability under the provisions of applicable
law, (b) enter into contracts with any Representative of the Corporate Entities
or a Constituent Corporation, and any person serving as a Representative of a
Covered Entity at the request of the Corporation or a Constituent Corporation,
in furtherance of the provisions of this Article, and (c) give other
indemnification to the extent not prohibited by applicable law.
Section 4.6. PROCEDURE FOR OBTAINING INDEMNIFICATION.
4.6.1 To obtain indemnification under this Article, an Indemnitee shall
submit to the General Legal Counsel of the Corporation a written request,
including such documentation or information as is reasonably available to the
Indemnitee or reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification shall be made
not later than 60 days after receipt by the Corporation of the written request
for indemnification together with the Supporting Documentation. The Secretary of
the Corporation shall, promptly upon receipt of notice from the General Legal
Counsel of such a request for indemnification, advise the Board of Directors or
its duly authorized committee in writing that the Indemnitee has requested
indemnification.
4.6.2 The Indemnitee's entitlement to indemnification under this Article
shall be determined in one of the following ways: (i) by a majority vote of the
Disinterested Directors (as hereinafter defined in Section 4.13 of this
Article), if they constitute a quorum of the Board of Directors; (ii) by a
written opinion of Independent Counsel (as hereinafter defined in Section 4.13
of this Article) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; or (iii) by the shareholders of the
Corporation (but only if a majority of the Disinterested Directors, if they
constitute a quorum of the Board of Directors, presents the issue of entitlement
to indemnification to the shareholders for their determination).
4.6.3 In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 4.6.2 of this Article, a
majority of such Disinterested Directors or, if the Disinterested Directors do
not constitute a quorum of the Board of Directors, a majority of the Board of
Directors shall select the Independent Counsel, but only an Independent Counsel
to which the Indemnitee does not reasonably object; provided, however, that if a
Change in Control (as hereinafter defined in Section 4.13 of this Article) shall
have occurred, the Indemnitee shall select such Independent Counsel to which a
majority of the Disinterested Directors or, if the Disinterested Directors do
not constitute a quorum of the Board of Directors, a majority of the Board of
Directors does not reasonably object.
Section 4.7. ADVANCEMENT OF EXPENSES.
All reasonable expenses (including attorneys' fees and disbursements)
incurred by or on behalf of an Indemnitee in connection with any Proceeding or
Derivative Proceeding shall be advanced to the Indemnitee by the Corporation
within 20 days after the receipt by the Corporation of a written statement or
statements from the Indemnitee requesting such advance or advances from time to
time prior to final disposition of such Proceeding or Derivative Proceeding.
Such statement or statements shall reasonably identify, describe and document
the legal expenses actually and reasonably incurred by the Indemnitee and, if
required by law at the time of such advance, shall include or be accompanied by
an undertaking by or on behalf of the Indemnitee to repay the amount advanced if
ultimately it should be determined that the Indemnitee is not entitled to be
indemnified against such expenses. Such expenses incurred by Indemnitee may be
paid as provided above upon such terms and conditions, if any, as the Board of
Directors or its duly authorized committee shall determine to be appropriate.
Section 4.8. LIMITATIONS ON INDEMNIFICATION.
Notwithstanding any other provision of this Article, an Indemnitee shall
not be entitled to indemnification or to the advancement of expenses under this
Article if and to the extent (a) the Indemnitee did not act in good faith and in
a manner the Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to any criminal proceeding,
had reasonable cause to believe his or her conduct was unlawful, or (b) the
Corporation, pursuant to Section 4.5(b) of this Article or otherwise, enters
into a contract with Indemnitee which establishes reasonable limitations or
conditions on the indemnification of or advancement of expenses to Indemnitee
and such limitations or conditions preclude indemnification or advancement of
expenses under the circumstances at hand, or (c) payment to the Indemnitee under
the indemnification or advancement of expenses would result in double payment to
the Indemnitee, or (d) a court having jurisdiction in the matter shall, by final
decision, determine that such indemnification or advancement of expenses is
unlawful.
Section 4.9. EFFECT OF CERTAIN PROCEEDINGS.
The termination of any Proceeding described in Sections 4.1 and 4.3 of this
Article or of any claim, issue or matter therein, by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, adversely affect the right of the Indemnitee to indemnification or
create a presumption that the Indemnitee did not act in good faith and in a
manner which the Indemnitee reasonably believed to be in or not opposed to the
best interests of the Corporation or, with respect to a criminal proceeding,
that the Indemnitee had reasonable cause to believe that such conduct was
unlawful.
Section 4.10. PAYMENT OF INDEMNIFICATION.
If a determination shall have been made pursuant to Section 4.6 of this
Article that the Indemnitee is entitled to indemnification, the Corporation
shall be obligated to pay the amounts constituting such indemnification within 5
days after such determination has been made and shall be conclusively bound by
such determination unless (i) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or in the
Supporting Documentation, or (ii) such indemnification is prohibited by law.
Section 4.11. ENFORCEMENT OF RIGHTS BY INDEMNITEE.
In the event that the Indemnitee seeks to enforce any rights of mandatory
indemnification that may be available to the Indemnitee under applicable law, or
to enforce rights under or to recover damages for breach of this Article, the
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any expenses actually and reasonably
incurred by the Indemnitee if the Indemnitee prevails in any such proceeding. If
it shall be determined that the Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with enforcing rights under this
Article or under applicable law shall be prorated accordingly.
Section 4.12. EFFECT OF PARTIAL INVALIDITY.
If any provision of this Article shall be held to be invalid, illegal or
unenforceable for any reason whatsoever, (1) such provision shall be invalid,
illegal or unenforceable only to the extent of such prohibition and the
validity, legality and enforceability of the remaining provisions of this
Article shall not in any way be affected or impaired thereby, and (2) to the
fullest extent possible, the remaining provisions of this Article shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
Section 4.13. DEFINITIONS.
For purposes of this Article IV:
(i) "Change in Control" means:
(a) the acquisition of beneficial ownership (other than from the
Corporation) by any person, entity or "group" within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), excluding, for this purpose, the Corporation or its
subsidiaries, or any employee benefit plan of the Corporation or its
subsidiaries that acquires beneficial ownership of voting securities of the
Corporation (within the meaning of Rule 13d-3 promulgated under the Exchange
Act), of 30% or more of either the then outstanding shares of common stock or
the combined voting power of the Corporation's then outstanding voting
securities entitled to vote generally in the election of directors; or
(b) a change in the persons constituting the Board of Directors as it
existed in the immediately preceding calendar year (the "Incumbent Board") such
that the directors of the Incumbent Board no longer constitute a majority of the
Board of Directors; provided that any person becoming a director in a subsequent
year 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 (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Corporation, as such terms are used in Rule 14a- 11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of the Plan,
considered as though such person were a member of the Incumbent Board; or
(c) approval by the shareholders of the Corporation of a reorganization,
merger or consolidation, in each case with respect to which persons who were the
shareholders of the Corporation immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of the
reorganized, merger or consolidated corporation's then outstanding voting
securities; or
(d) a liquidation or dissolution of the Corporation or the sale of all or
substantially all of the assets of the Corporation.
(ii) "Disinterested Director" means a director of the Corporation who
is not or was not a party to, or otherwise involved in, the Proceeding or
Derivative Proceeding in respect of which indemnification is sought by the
Indemnitee.
(iii) "Indemnitee" means any director or officer of the Corporation
entitled to indemnification as provided in Section 4.1 of this Article and any
employee or agent of the Corporation who may become entitled to indemnification
as provided in Section 4.3.
(iv) "Independent Counsel" means a law firm, or member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past 5 years has been, retained to represent: (A) the Corporation or the
Indemnitee in any matter material to either such party, or (B) any other party
to the Proceeding or Derivative Proceeding giving rise to a claim for
indemnification under this Article. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing under the law of the
Commonwealth of Pennsylvania, would have a conflict of interest in representing
either the Corporation or the Indemnitee in an action to determine the
Indemnitee's rights under this Article.
ARTICLE V
SHARE CERTIFICATES, TRANSFER, LOSS, ETC.
Section 5.1. CERTIFICATES.
(a) Except as otherwise permitted by the Pennsylvania Business Corporation
Law, no share certificate shall be issued for any share until such share is
fully paid. The shares of the Corporation shall be represented either by book
entries under the Direct Registration System or by certificates signed by, or in
the name of the Corporation by, the Chairman of the Board, the Chief Executive
Officer or a Vice President, and by the Treasurer or the Secretary of the
Corporation, which certificates may be sealed with the seal of the Corporation
or a facsimile thereof. If the certificate is countersigned by a transfer agent
or registrar, who is not an officer or employee of the Corporation, any and all
other signatures may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of its issue.
(b) Each certificate shall state upon the face thereof (i) that the
Corporation is organized under the laws of Pennsylvania; (ii) the name of the
person to whom issued; and (iii) the number and class of shares, and the
designation of the series, if any, which such certificate represents.
Section 5.2. TRANSFER OF SHARES.
Shares of the Corporation shall be transferable in accordance with the
provisions of Chapter 8 of the Uniform Commercial Code as adopted in
Pennsylvania (13 Pa. C.S.A. 8101 et seq.) as amended from time to time, except
as otherwise provided in the Pennsylvania Business Corporation Law.
Section 5.3. LOSS OR DESTRUCTION OF CERTIFICATES.
(a) Where a certificate for shares has been lost, actually or apparently
destroyed, or wrongfully taken and the owner thereof fails to so notify the
Corporation or the transfer agent within a reasonable time after he has notice
of that fact and the transfer agent or the Corporation registers a transfer of
the shares before receiving such a notification, the owner shall be precluded
from asserting against the Corporation any claim for registering the transfer of
such shares or any claim to a new certificate.
(b) Subject to the foregoing, where the owner of shares claims that the
certificate representing such shares has been lost, actually or apparently
destroyed or wrongfully taken, the Corporation shall issue a new certificate in
place of the original certificate if the registered owner thereof, or his legal
representative, requests the issue of a new certificate before the Corporation
has notice that the certificate has been acquired by a bona fide purchaser;
makes proof in affidavit form, satisfactory to the Secretary of the Corporation
and to its transfer agent, of his ownership of the shares represented by the
certificate and that the certificate has been lost, actually or apparently
destroyed or wrongfully taken; files an indemnity bond for an open or
unspecified amount or if authorized in a specific case by the Corporation, for
such fixed amount as the Chairman of the Board, the Chief Executive Officer or
the Secretary of the Corporation may specify, in such form and with such surety
as may be approved by the transfer agent and the Secretary of the Corporation,
indemnifying the Corporation and the transfer agent and registrar of the
Corporation against all loss, cost and damage which may arise from issuance of a
new certificate in place of the original certificate; and satisfies any other
reasonable requirements imposed by the Corporation or transfer agent. In case of
the surrender of the original certificate, in lieu of which a new certificate
has been issued, or the surrender of such new certificate, for cancellation, the
bond of indemnity given as a condition of the issuance of such new certificate
may be surrendered.
Section 5.4. HOLDERS OF RECORD.
The Corporation shall be entitled to treat the person in whose name any
share or shares of the Corporation stand on the books of the Corporation as the
absolute owner and holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it has actual or other notice
thereof, save as expressly provided by the laws of the Commonwealth of
Pennsylvania.
ARTICLE VI
CORPORATE FUNDS AND CONTRACTS
Section 6.1. DEPOSIT AND WITHDRAWAL OF CORPORATE FUNDS.
The Board by resolution, or one or more officers or employees of the
Corporation authorized by a resolution of the Board, may from time to time
designate a bank or banks in which the funds of the Corporation shall be
deposited and designate the person or persons authorized to withdraw in the name
of the Corporation the funds so deposited.
Section 6.2. CONTRACTS.
All contracts, deeds and other instruments required to be made or executed
for or on behalf of the Corporation shall be executed in the name of the
Corporation by the Chairman of the Board, the Chief Executive Officer and
President, or such other person or persons as may be authorized from time to
time by the Chairman of the Board or the Chief Executive Officer and President
within their respective areas of responsibility as prescribed by the Board, or
by resolution of the Board.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1. CORPORATE SEAL.
The Corporate Seal shall be circular in form and shall contain the name of
the Corporation and the word "PENNSYLVANIA". The seal or a facsimile thereof may
be impressed, printed, affixed, reproduced or other use made thereof by the
Secretary or Assistant Secretary or any other officer authorized by the Board.
Section 7.2. DELEGATION OF AUTHORITY TO COMMITTEES.
Any provision of these bylaws granting authority to the Board shall not be
construed as indicating that such authority may not be delegated by the Board to
a committee to the extent authorized by the Pennsylvania Business Corporation
Law, or any successor statute thereto, and these bylaws.
Section 7.3. FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first day of January
and end on the thirty-first day of December of each year.
ARTICLE VIII
ELIMINATION OF DIRECTORS' MONETARY LIABILITY
A director of this Corporation shall not be personally liable for monetary
damages as such for any action taken, or any failure to take any action, unless:
(a) the director has breached or failed to perform the duties of his or her
office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation
Law in good faith, in a manner he or she reasonably believes to be in the best
interests of the Corporation, and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use under similar
circumstances; and
(b) the breach or failure to perform constitutes self- dealing, willful
misconduct or recklessness. Provided, however, that this bylaw shall not apply
to:
(i) the responsibility or liability of a director pursuant to any
criminal statute; or
(ii) the liability of a director for the payment of taxes pursuant to
local, state or federal law.
ARTICLE IX
AMENDMENTS
Section 9.1. AMENDMENTS.
Any one or more of the foregoing bylaws and, except as herein otherwise
provided, any other bylaws made by the Board or by shareholders may be altered
or repealed by the Board. The shareholders or the Board may adopt new bylaws
except that the Board may not adopt, alter or repeal bylaws that the
Pennsylvania Business Corporation law, or any successor statute thereto,
specifies may be adopted only by shareholders, and the Board may not alter or
repeal any bylaw adopted by shareholders which prescribes that such bylaw shall
not be altered or repealed by the Board.
EX-4.B
AMENDMENT RIGHTS AGREEMENT
Amendment Rights Agreement, dated as of September 4, 1992 (the
"Amendment"), by and between AMP Incorporated, a Pennsylvania corporation (the
"Company"), and Chemical Bank, a corporation organized under the banking laws of
the State of New York (the "Rights Agent").
WITNESSETH:
WHEREAS, on October 28, 1989 the Company and Manufacturers Hanover Trust
Company, a New York corporation ("MHTCo") entered into a Rights Agreement (the
"Agreement"), the terms of which are incorporated herein by reference and made a
part hereof.
WHEREAS, on June 22, 1992 MHTCo was merged into the Rights Agent and all
contractual obligations of MHTCo were, as a consequence of said merger, assigned
to and assumed by the Rights Agent.
WHEREAS, on September 4, 1992 the Company reorganized its affiliate,
Pamcor, Inc., a Puerto Rican corporation, by terminating the Pamcor Stock Trust
into which all of the common stock, par value $1.00 per share, of Pamcor, Inc.
had been deposited and thereby causing Pamcor, Inc., pursuant to the terms of
the Pamcor Stock Trust Agreement among the Company, Pamcor, Inc. and Bankers
Trust Company, as Trustee, dated as of November 1, 1956 and as amended as of
April 23, 1970 and April 23, 1981 by which the Pamcor Stock Trust was created,
to become a wholly- owned subsidiary of the Company, as a result of which
certificates for shares of common stock, no par value, of the Company will no
longer represent a proportionate beneficial interest in shares of common stock
of Pamcor, Inc. nor bear the endorsement of the Trustee to that effect.
WHEREAS, the Company, with approval of the Board of Directors of the
Company, and the Rights Agent have mutually agreed to modify the terms of the
Agreement in certain respects;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, and intending to be legally bound hereby, the parties hereto
agree that the Agreement shall be and hereby is amended in the following manner:
1. The Rights Agent, as the successor corporation to MHTCo, is substituted
as the party that entered into the Agreement with the Company.
2. Section 1(f) of the Agreement is revised and restated to provide as
follows:
"Common Stock" shall mean the common stock, no par value of the Company,
except that "Common Stock" when used with reference to any Person other
than the Company shall mean the capital stock of such Person with the
greatest voting power, or the equity securities or other equity interest
having power to control or direct the management, of such Person."
It is expressly understood and agreed that except as provided above, all terms,
conditions and provisions contained in the Agreement shall remain in full force
and effect without any further change or modification whatsoever.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: AMP Incorporated
By: /s/ Charles W. Goonrey By: /s/ H. A. McInnes
- --------------------------------- -------------------------------------
Charles W. Goonrey H. A. McInnes
Assistant Secretary Chairman of the Board and
Chief Executive Officer
Attest: Chemical Bank
By: /s/ Nathan Hill By: /s/ Michael A. Nespoli
- -------------------------------- ------------------------------------
Name: Nathan Hill Michael A. Nespoli
Title: Assistant Vice President Vice President
EX-10.D
EXECUTIVE SEVERANCE AGREEMENT
(the "Agreement")
dated October 22, 1997
The Board of Directors ("Board") of AMP Incorporated, a Pennsylvania
corporation (the "Corporation"), and the Compensation and Management Development
Committee ("Committee") of the Board have determined that it is in the best
interests of the Corporation and its shareholders for the Corporation to agree,
as provided herein, to pay you, the undersigned, an executive of the
Corporation, termination compensation in the event you should leave the employ
of the Corporation under the circumstances described below.
The Board and the Committee recognize that as is the case with many
publicly held corporations, the possibility of a change of control of the
Corporation exists and is unsettling to you and other executives of the
Corporation. Therefore, these arrangements are being made to help assure a
continuing dedication by you to your duties to the Corporation notwithstanding
the occurrence of such an event. In particular, the Board believes it important
that you be able to perform your duties under such circumstances without being
influenced by the uncertainties of your own situation, to assess and advise the
Board whether any proposed transaction that would constitute a change of control
would be in the best interests of the Corporation and its shareholders and to
take such other action as the Board might determine to be appropriate. The Board
also wishes to demonstrate to you and other executives of the Corporation that
the Corporation is concerned with the welfare of its executives and intends to
see that the executives are treated fairly.
1.
(a) Severance Payment upon Change of Control. In view of the foregoing and
in further consideration of your continued employment with the
Corporation, the Corporation will promptly pay you as termination
compensation a lump sum amount, determined as provided below, in the
event that any time within two years after a "Change of Control" (as
defined below) of the Corporation your employment with the Corporation
(i) is terminated by the Corporation for any reason, other than death,
disability, or "Cause" (as defined below), or (ii) is terminated by
you for "Good Reason" (also as defined below). For the purpose of this
Section, any good faith determination of Good Reason made by you shall
be conclusive.
The termination compensation so payable in a lump sum amount (the
"Severance Payment") shall be equal to (Year) times the sum of (1)
your highest annual base salary rate in effect during the twelve
months prior to your termination plus (2) the highest amount of annual
cash incentive compensation earned by you in respect of the three
years prior to your termination or the Change of Control, whichever is
greater.
(b) Change of Control. For the purpose of this Agreement, a change of
control of the Corporation ("Change of Control") shall be deemed to
have occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(i) any Person (as defined below) is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), directly or indirectly,
of securities of the Corporation (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Corporation or its affiliates) representing 30%
or more of either the then outstanding shares of common stock of
the Corporation or the combined voting power of the Corporation's
then outstanding securities; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Corporation) whose
appointment or election by the Board or nomination for election
by the Corporation's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved;
or
(iii)there is consummated a merger or consolidation of the
Corporation with any other corporation or the issuance of voting
securities of the Corporation in connection with a merger or
consolidation of the Corporation (or any direct or indirect
subsidiary of the Corporation) pursuant to applicable stock
exchange requirements, other than (A) a merger or consolidation
that would result in the voting securities of the Corporation
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or
any parent thereof) at least 66 2/3% of the combined voting power
of the voting securities of the Corporation, or such surviving
entity or any parent thereof, outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Corporation (or
similar transaction) in which no Person is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Corporation or
its affiliates) representing 30% or more of either the then
outstanding shares of common stock of the Corporation or the
combined voting power of the Corporation's then outstanding
securities; or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's
assets, other than a sale or disposition by the Corporation of
all or substantially all of the Corporation's assets to an
entity, at least 70% of the combined voting power of the voting
securities of which are owned by Persons in substantially the
same proportions as their ownership of the Corporation
immediately prior to such sale.
(c) Person. For the purpose of this Agreement, "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and
used in Sections 13(d) and 14(d) thereof, except that such term shall
not include:
(i) the Corporation or any of its subsidiaries;
(ii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or any of its subsidiaries;
(iii) an underwriter temporarily holding securities pursuant to an
offering of such securities; or
(iv) a corporation owned, directly or indirectly, by the stockholders
of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation.
(d) Good Reason. For the purpose of this Agreement, "Good Reason" shall
mean the occurrence (without your written consent) after any Change of
Control or during any Pending Change of Control (as defined below), as
the case may be, of any one of the following acts by the Corporation,
or failures by the Corporation to act, unless, in the case of any act
or failure to act described in paragraph (i), (v), (vi) or (vii)
below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect
thereof:
(i) the assignment to you of any duties inconsistent in any respect
with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities
immediately before the Change of Control or Pending Change of
Control, as the case may be, or any other action by the
Corporation that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Corporation promptly after
receipt of notice thereof given by you;
(ii) the Corporation requiring you to be based at any office or
location that is more than 30 miles from your principal place of
employment immediately before the Change of Control or Pending
Change of Control, as the case may be, except for travel
reasonably required in the performance of your responsibilities;
(iii)any diminution in your rate of annual base salary or incentive
compensation opportunity immediately before the Change of Control
or Pending Change of Control, as the case may be;
(iv) the failure by the Corporation, without your consent, to pay to
you any portion of your current compensation, or to pay to you
any portion of an installment of deferred compensation under any
deferred compensation program of the Corporation, within 7 days
of the date such compensation is due;
(v) the failure by the Corporation to continue in effect any
compensation plan in which you participate immediately prior to
the Change of Control or Pending Change of Control, as the case
may be, which is material to your total compensation, including
but not limited to the Corporation's Management Incentive Plan,
1993 Long-Term Equity Incentive Plan, and Deferred Compensation
Plan, or any substitute plans adopted prior to the Change of
Control or Pending Change of Control, as applicable, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by the Corporation to continue your participation therein
(or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to
other participants, as existed at the time of the Change of
Control or Pending Change of Control, as applicable;
(vi) the failure by the Corporation to continue to provide you with
benefits substantially similar to those enjoyed by you under any
of the Corporation's pension, life insurance, medical, health and
accident, or disability plans in which you were participating at
the time of the Change of Control or Pending Change of Control,
as the case may be, the taking of any action by the Corporation
that would directly or indirectly materially reduce any of such
benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the Change of Control or Pending Change of
Control, as applicable, or the failure by the Corporation to
provide you with the number of paid vacation days to which you
are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation
policy in effect at the time of the Change of Control or Pending
Change of Control, as applicable; or
(vii)any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Section 5 hereof; for purpose of this Agreement,
no such purported termination shall be effective.
2. Compensation Other Than Severance Payment - Payable upon Change of Control.
In addition to the Severance Payment, in the event of a Change of Control:
(a) All outstanding Stock Bonus Units awarded to you under the Bonus Plan
(Stock plus Cash) ("Bonus Plan"), the 1993 Long-Term Equity Incentive
Plan ("1993 Plan") or any successor plan thereto with respect to which
a Stock and Supplemental Cash Bonus has not been previously computed
and distributed to you, including any 1993 Plan awards granted to you
subsequent to the date of any Change of Control but prior to your
termination, shall fully and irrevocably vest and shall be computed
and distributed to you in cash as if the date of the Change of Control
were a Bonus Computation Date with respect to all of such outstanding
Stock Bonus Units; and the Fair Market Value applicable to such
computation shall be either (i) the highest price paid for a share of
the common stock of the Corporation in a transaction constituting a
Change of Control, if applicable, or (ii) the highest trading price
for a share of common stock of the Corporation during the 30-day
period immediately preceding a Change of Control.
(b) All unvested and unexpired Stock Options awarded to you under the 1993
Plan or any successor plan thereto will automatically become
immediately vested and exercisable for the period of their remaining
terms.
(c) All unvested Performance Restricted Shares awarded to you under the
1993 Plan or any successor plan thereto will automatically become
immediately vested, the designated minimum average annual ROE target
for such Performance Restricted Shares shall be deemed to have been
attained, and the actual average annualized earnings growth rate over
the Performance Vesting Period applicable to each award comprising
such Performance Restricted Shares shall be deemed to be the
respective super- target level, with 200% of each such award
immediately vesting and being paid to you by either the issuance of
the appropriate number of shares of the common stock of the
Corporation or an amount in cash equal to the Fair Market Value of
such shares, calculated as set forth in Section 2(a) above.
(d) All unvested restricted shares, if any, granted to you pursuant to the
terms of a Restricted Stock Agreement with the Corporation shall be
paid in cash in equal installments on the date designated in such
Agreement for the vesting of restricted shares granted thereunder. The
price used to determine the amount of such cash payments for the
unvested restricted shares shall be closing price of the Corporation's
common stock on a nationally-recognized securities exchange on the day
prior to a Change of Control.
(e) Your interest in Matching Amounts, together with the amount of
investment return credited thereto, paid by the Corporation under its
Deferred Compensation Plan or any successor plan thereto immediately
shall be 100% vested.
(f) If you are, immediately prior to a Pending Change of Control, a
participant in the Corporation's Split Dollar Life Insurance Program,
the Corporation shall, upon a Pending Change of Control, create an
irrevocable grantor trust holding an amount of assets sufficient to
pay scheduled annual premiums owed by the Corporation (which trust
will be required to pay such premiums, whether or not employment with
the Corporation is terminated in the interim) for the period extending
until either the policy anniversary date following your 65th birthday
or the 15th anniversary of the policy, whichever occurs last;
provided, however, that if a Pending Change of Control shall occur
prior to a Change of Control and the Corporation has contributed the
required amount pursuant to the foregoing provisions and if a Change
of Control does not occur within the twelve-month period following the
most recent Pending Change of Control, the trustee of such grantor
trust shall, upon receipt of a written request by the Corporation,
return to the Corporation the assets contributed on account of such
Pending Change of Control. The Corporation further agrees to assign
its interest in such policy or policies to said grantor trust.
(g) You shall retain in confidence any confidential information known to
you concerning the Corporation and its business so long as such
information is not publicly disclosed.
3. Compensation Other Than Severance Payment - Payable upon Change of Control
and Termination of Employment. In addition to the Severance Payment and the
additional compensation provided for in Section 2 above in the event of a
Change of Control, in the event of the termination of your employment at
any time within two years after a Change of Control in accordance with
Section 1(a) above:
(a) All pension benefits credited to you under the provisions of the
Corporation's tax-qualified Pension Plan and Pension Restoration Plan
in effect immediately prior to the Change of Control shall thereupon
fully vest, together with the additional pension benefit that results
under the provisions of each such plan in which you are a participant
using (as applicable) your highest annual base salary rate in effect
during the twelve months prior to termination as your high consecutive
three year compensation amount under the Pension Plan formula and the
sum of (1) your highest annual base salary rate in effect during the
twelve months prior to your termination plus (2) the highest amount of
annual cash incentive compensation earned by you in respect of the
three years prior to either your termination or the Change of Control,
whichever is greater, as your high consecutive three year average
compensation amount under the Pension Restoration Plan, and using a
years of service multiplier under the plans' formulas equal to your
actual years of credited pension service at termination plus (Year).
Such pension shall be payable to you in accordance with the provisions
of the plans, including the election, at the time of your retirement
date, of a joint annuity option; provided that the additional amounts
provided for under this Section 2(f) (including vesting of accrued
benefits under the Pension Plan) shall be provided on an unfunded
basis, are not intended to meet the qualification requirements of
Section 401 of the Internal Revenue Code of 1986, as amended ("Code"),
and shall be payable solely from the general assets of the
Corporation.
(b) The principal amount of your group term life insurance, if any, under
the provisions of the Corporation's group contract for such insurance
in effect immediately prior to the Change of Control, will be
immediately converted in a like principal amount to a fully paid-up
permanent life insurance policy incorporating your designation of
owner and beneficiary and remaining in effect for a period of (Months)
months at the sole cost of the Corporation.
(c) You shall be entitled to a continuation of all hospital, major
medical, medical, dental and other insurance or benefits not otherwise
addressed in this Agreement in substantially the same manner and
amount to which you were entitled at the time of your employment with
the Corporation, at the sole cost of the Corporation, until the later
of (i) a period of (Months) months after termination or (ii) your
reaching the age or other circumstances under which such insurance or
benefits, to the extent they are normal post-termination insurance or
benefits afforded by the Corporation, would have been discontinued in
accordance with the terms of the related plan, program or arrangement
as in effect immediately prior to the Change of Control; provided,
that benefits payable under this Section 3(c) shall be reduced to the
extent comparable benefits are actually received by you from a new
employer without cost (and you shall report to the Corporation any
such benefits actually received).
4. Severance Payment Upon Pending Change of Control.
(a) The Corporation will promptly pay you as termination compensation the
Severance Payment in the event that any time during a "Pending Change
of Control" (as defined below) of the Corporation your employment with
the Corporation (i) is terminated by the Corporation for any reason,
other than death, disability, or Cause, or (ii) is terminated by you
for Good Reason; provided, however, that said termination compensation
shall only be paid to you by the Corporation if either (1) a Change of
Control occurs within one year of the last event constituting a
Pending Change of Control, or (2) you reasonably demonstrate that your
termination of employment either occurred at the request of a third
party whose actions gave rise to the Pending Change of Control or
otherwise occurred in connection with or in anticipation of a Change
of Control.
(b) Pending Change of Control. For the purpose of this Agreement, a
"Pending Change of Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(i) the Corporation enters into an agreement, the consummation of
which would result in the occurrence of a Change of Control;
(ii) the Corporation or any Person publicly announces an intention to
take or to consider actions, including but not limited to proxy
contests or consent solicitations, which, if consummated, would
constitute a Change of Control;
(iii)any Person becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 15% or more of either
the then outstanding shares of common stock of the Corporation or
the combined voting power of the Corporation's then outstanding
securities (not including in the securities beneficially owned by
such Person any securities acquired directly from the Corporation
or its affiliates); or
(iv) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Pending Change of Control has occurred.
(c) Compensation Other Than Severance Payment. In addition to the lump sum
payment provided in Section 4(a) above, in the event your employment
with the Corporation terminates in accordance with Section 4(a), you
shall receive the additional compensation and benefits described in
Sections 2 and 3 above; provided, however, that with respect to
Section 3, the compensation and benefits provided in that Section
shall not be further conditioned on a termination of your employment
in accordance with Section 1(a) above; and further provided, however,
that all references to "Change of Control" appearing in Sections 2 and
3 shall, for purposes of this Section 4(c), be deemed to mean Pending
Change of Control as defined herein.
5. Excise Tax Gross-Up Payment.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payments or benefits from the
Corporation to you or for your benefit in connection with a Change of
Control or your termination of employment, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise (such payments or benefits, excluding the Gross-up
Payment (as defined below), being hereinafter referred to as the
"Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then you shall be entitled to receive an additional payment (a
"Gross- up Payment") in an amount such that the net amount retained by
you, after deduction of any Excise Tax on the Total Payments and any
Federal, state and local income and employment taxes and Excise Tax
upon the Gross-up Payment, shall be equal to the Total Payments.
(b) Subject to the Provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether a Gross-up Payment
is required and the amount of such Gross-up Payment, shall be made by
Arthur Andersen LLP (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Corporation and you
within 15 business days after a Change of Control or your Date of
Termination, if applicable, or such earlier time as is requested by
the Corporation. The initial Gross-up Payment, if any, as determined
pursuant to this Section 5(b), shall be paid to you within 5 days of
the receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by you, it shall furnish
you with an opinion that you have substantial authority not to report
any excise tax on your Federal income tax return. Any determination by
the Accounting Firm shall be binding upon the Corporation and you. As
a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-up Payments that will not have
been made by the Corporation should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Corporation exhausts its remedies pursuant to Section
5(c) and you thereafter are required to make a payment of any excise
tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Corporation to you or for your benefit.
(c) You shall notify the Corporation in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Corporation of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than 10 business
days after you know of such claim and shall apprise the Corporation of
the nature of such claim and the date on which such claim is requested
to be paid. You shall not pay such claim prior to the expiration of
the 30-day period following the date on which you give such notice to
the Corporation (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Corporation notifies you in writing prior to the expiration of such
period that it desires to contest such claim, you shall:
(i) give the Corporation any information reasonably requested by the
Corporation relating to such claim,
(ii) take such action in connection with contesting such claim as the
Corporation shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Corporation,
(iii) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) permit the Corporation to participate in any proceedings relating
to such claim;
provided, however, that the Corporation shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold you harmless, on an after-tax basis, for any
Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 5(c), the Corporation shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct you to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and
you agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Corporation shall
determine; provided further, however, that if the Corporation
directs you to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to you, on
an interest-free basis, and shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and provided
further, that any extension of the statute of limitations
relating to payment of taxes for your taxable year with respect
to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Corporation's
control of the contest shall be limited to issues with respect to
which a Gross-up Payment would be payable hereunder and you shall
be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by you of an amount advanced by the Corporation
pursuant to Section 5(c), you become entitled to receive any refund
with respect to such claim, you shall (subject to the Corporation's
complying with the requirements of Section 5(c)) promptly pay to the
Corporation the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the
receipt by you of an amount advanced by the Corporation pursuant to
Section 5(c), a determination is made that you are not entitled to any
refund with respect to such claim and the Corporation does not notify
you in writing of its intent to contest such denial or refund prior to
the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount
of Gross-up Payment required to be paid.
6.
(a) Notice of Termination. Any purported termination of your employment
(other than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other party hereto.
For the purpose of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of your employment under the provision so indicated.
(b) Cause. "Cause" for termination by the Corporation of your employment
shall mean (i) your willful and continued failure to substantially
perform your duties with the Corporation (other than any such failure
resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after your issuance of a Notice
of Termination for Good Reason pursuant to Section 6(a) hereof) after
a written demand for substantial performance is delivered to you by
the Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your
duties, or (ii) your willful engaging in conduct that is demonstrably
and materially injurious to the Corporation or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your act, or failure to act, was in
the best interest of the Corporation. Your employment will not be
deemed to be terminated for Cause under this Section 6 unless there
has been duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board that was called and held for the purpose of
considering such termination (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before
the Board) a resolution that finds that you were guilty of conduct
constituting Cause, and specifying the particulars thereof in detail,
a copy of which resolution shall be delivered to you. Notwithstanding
the foregoing, in the event of a dispute concerning the application of
this provision, no claim by the Corporation that Cause exists shall be
given effect unless the Corporation establishes by clear and
convincing evidence that Cause exists.
(c) Date of Termination. "Date of Termination" shall mean (i) if your
employment is terminated for disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such 30 day period), and
(ii) if your employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a
termination by the Corporation, shall not be less than 30 days (except
in the case of a termination for Cause) and, in the case of a
termination by you, shall not be less than 15 days nor more than 60
days, respectively, from the date such Notice of Termination is
given).
(d) Extension For Disputes. If within fifteen (15) days after any Notice
of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 6(d)), the
party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of
Termination shall be extended until the date on which the dispute is
finally resolved, either by mutual written agreement of the parties or
by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute given by you only if such notice is
given in good faith and you pursue the resolution of such dispute with
reasonable diligence.
(e) Compensation During Extension. If a purported termination occurs and
the Date of Termination is extended in accordance with Section 6(d)
hereof, the Corporation shall continue to pay you the full
compensation in effect when the notice giving rise to the dispute was
given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which
you were participating when the notice giving rise to the dispute was
given, until the Date of Termination, as determined in accordance with
Section 6(d) hereof. Amounts paid under this Section 6(e) are in
addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this
Agreement.
7. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1997; provided, however, that
commencing January 1, 1998 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless,
not later than October 31 of the preceding year, the Corporation or you
shall have given notice not to extend this Agreement or a Change of Control
shall have occurred prior to such January 1; and further provided, however,
that if a Pending Change of Control or a Change of Control shall have
occurred during the term of this Agreement, this Agreement shall continue
in effect for a period of not less than one year beyond the month in which
such Pending Change of Control occurred and for a period of not less than
two years beyond the month in which such Change of Control occurred.
8. Reimbursement of Legal Fees to Enforce Agreement. The Corporation shall
indemnify and hold you harmless against any loss or damage, and shall
reimburse you for all legal fees and expenses, incurred by you in disputing
in good faith any issue hereunder relating to the termination of your
employment or in seeking in good faith to enforce any provision of this
Agreement or to receive any benefit or distribution or right under this
Agreement (including in connection with the application of the provisions
of Section 5 hereof) or any other Agreement or arrangement contemplated by
this Agreement. The Corporation further agrees to pay interest on any
amounts unpaid to you from 7 days after the date of your demand for
payment, calculated at the prime rate of The Chase Manhattan Bank N.A. for
its most credit-worthy customers in effect from time to time.
9. Absolute Right; No Mitigation. The Corporation agrees that, if your
employment with the Corporation terminates pursuant to the terms of this
Agreement, you are not required to seek other employment or to attempt in
any way to reduce any amounts payable to you by the Corporation pursuant to
Section 1(a), 2 or 3 hereof or Section 6(e) hereof. Further, except as set
forth herein, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by you as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by you to the Corporation, or
otherwise. The Corporation's obligation to pay you under this Agreement
shall be absolute and unconditional and shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
defense or other rights the Corporation may have against you or anyone
else.
10. Funding of Obligations. The Severance Payment and other compensation
payable to you pursuant to the terms of this Agreement shall be payable to
you from the general assets of the Corporation or, to the extent not so
paid, from the assets of an irrevocable grantor trust (or comparable asset
repository) established by the Corporation for the purpose of securing
payment of such liabilities. The Corporation shall, as soon as practicable
but in no event later than 30 days after the occurrence of a Change of
Control or Pending Change of Control giving rise to your entitlement to the
Severance Payment or other compensation hereunder, transfer sufficient
assets to such grantor trust (or comparable repository) to provide for
payment to you in full of all unpaid amounts due hereunder.
11. Entire Obligation. In the event of termination of employment under the
circumstances described above, the arrangements provided for by this
Agreement, or any other agreement between the Corporation and you in effect
at the time, and by any other applicable plan of the Corporation shall
constitute the entire obligation of the Corporation to you and performance
thereof shall constitute full settlement of any claim that you might
otherwise assert against the Corporation on account of such termination.
12. Successors; No Assignment. This Agreement shall be binding upon and inure
to the benefit of you and your estate, and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by you.
13. Mandatory Assumption by Successor. In addition to any obligations imposed
by law upon any successor to the Corporation, the Corporation will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
and/or assets of the Corporation to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation from the Corporation in the
same amount and on the same terms as you would be entitled to hereunder if
you were to terminate your employment for Good Reason after a Change of
Control, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination.
14. Continuance of Employment. This Agreement shall not be construed as
creating an express or implied contract of employment or continued
employment in any position or at any compensation and, except as otherwise
agreed in writing between you and the Corporation, nothing herein contained
shall in any way restrict the right of the Corporation or any subsidiary
thereof to terminate your employment at any time.
15. Waiver. The failure of either party to enforce the provisions hereof or to
exercise the rights granted hereunder, or the agreement of the parties to
waive enforcement thereof, at any time or for any period of time shall not
constitute or be construed to be a waiver of any other failure or breach of
such provisions or rights, or any other provision of this Agreement, or of
the right of such party thereafter to enforce each and every such provision
or right, nor shall such failure or agreement be deemed to be an amendment
to this Agreement. Each waiver under this Agreement must be in writing and
signed by the party against whom enforcement is sought.
16. Entire Agreement. This Agreement represents the entire understanding and
agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings either
written or oral. This Agreement may be modified or amended only by an
instrument in writing duly executed by you and an authorized representative
of the Corporation.
17. Severability. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction where it is sought to be enforced, shall
be ineffective only to the extent of such prohibition or unenforceability,
without invalidating or affecting the remaining provisions of this
Agreement or invalidating or rendering unenforceable such provision in any
other jurisdiction. 18. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed as of the date first
above written.
AMP Incorporated
By:______________________________________
Signature
Name:____________________________________
Title:___________________________________
APPENDIX
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<TABLE>
<CAPTION>
Name Year Months Signature Title
<S> <C> <C> <C> <C>
Herbert M. Cole two twenty-four William J. Hudson Chief Executive Officer and President
David C. Cornelius one twelve William J. Hudson Chief Executive Officer and President
Thomas J. DiClemente two twenty-four William J. Hudson Chief Executive Officer and President
Rudolf Gassner two twenty-four William J. Hudson Chief Executive Officer and President
Charles W. Goonrey one twelve James E. Marley Chairman
Juergen W. Gromer two twenty-four William J. Hudson Chief Executive Officer and President
John E. Gurski two twenty-four William J. Hudson Chief Executive Officer and President
Javad K. Hassan two twenty-four William J. Hudson Chief Executive Officer and President
David F. Henschel one twelve James E. Marley Chairman
William J. Hudson three thirty-six James E. Marley Chairman
Philippe Lemaitre two twenty-four William J. Hudson Chief Executive Officer and President
James E. Marley three thirty-six William J. Hudson Chief Executive Officer and President
Joseph C. Overbaugh one twelve William J. Hudson Chief Executive Officer and President
Nazario Proietto two twenty-four William J. Hudson Chief Executive Officer and President
Robert Ripp two twenty-four William J. Hudson Chief Executive Officer and President
William S. Urkiel two twenty-four William J. Hudson Chief Executive Officer and President
Merrill A. Yohe one twelve William J. Hudson Chief Executive Officer and President
</TABLE>
AMP Incorporated
(the "Corporation")
Bonus Plan (Stock plus Cash)
(the "Plan")
For the purpose (a) of providing added incentive to key employees to exert
their best efforts, (b) of retaining key employees and (c) of furthering the
identity of interest of such employees with the interest of shareholders, the
Corporation will transfer to Participants Endorsed Shares or the cash equivalent
thereof, and the Corporation will also pay to such Participant a Cash Bonus
intended to enable Participant to retain Endorsed Shares distributed to
Participant as a result of the Stock Bonus, but only pursuant to the terms and
conditions of the Plan.
This certificate evidences that the Board of Directors has designated
________________ as a Participant under the Plan and that it has credited
________ Bonus Units to him and that it has designated ___________________ as
the Designation Date for such Bonus Units, the sum of $_________ as the
Designated Value applicable to such Bonus Units, and the percentage to be
employed in computing the Cash Bonus to be paid in connection with any Stock
Bonus pursuant to Section 1.7 "Cash Bonus".
Distributions of the Stock Bonus and Cash Bonus shall be made as follows:
Article I. Definitions.
1.1. "Participant" means an officer or other employee of the Corporation or
any of its subsidiaries, including an officer or employee who is also director
of the Corporation or any such subsidiary, designated by the Board of Directors
of the Corporation to participate in the Plan.
1.2. "Endorsed Shares" means shares of common stock of the Corporation,
which have been or may hereafter be acquired by the Corporation, represented by
certificates bearing endorsement reflecting the beneficial interest in shares of
common stock of Pamcor, Inc., held in trust by Bankers Trust Company, Trustee
under Agreement among the Corporation, Bankers Trust Company and Pamcor, Inc.,
made as of November 1, 1956 as amended.
1.3. "Bonus Units" means units hereunder credited to a Participant for
determining Stock Bonus and Cash Bonus.
1.4. "Designation Date" means the date designated by the Board of Directors
as of which Bonus Units are credited to a Participant for purposes of
computations under the Plan.
1.5. "Bonus Computation Dates" means the fourth, fifth and sixth
anniversaries of the Participant's Designation Date as set forth in the Bonus
Certificate issued to Participant and the dates determined pursuant to Section
3.1 and 4.1 herein as Bonus Computation Dates.
1.6. "Stock Bonus" means a bonus of the number of Endorsed Shares, if any
(including the cash equivalent of a fractional share), which can be purchased on
each Bonus Computation Date at the then Market Value if there is applied to such
purchase an amount equal to 1/3 of the Bonus Units credited to Participant as
set forth in the Bonus Certificate issued to Participant as to which the
computation is being made, multiplied by the greater of:
(a) the increase in the Market Value as of the Bonus Computation Date over
the Designated Value, or
(b) the increase in the Market Value of the Bonus Computation Date over
the Designated Value adjusted in the manner as set forth below:
(i) the adjusted Designated Value will be 95% of an amount which,
when increased over the period between the Designation Date and
the Bonus Computation Date by compounding such amount at a
percentage which is one-half of the Growth Rate (as defined
below), will equal the Market Value on the Bonus Computation
Date. Such percentage shall not exceed 7.5% per year.
(ii) the Growth Rate will be the compounded average annual growth rate
in earnings per share calculated over the period between the
Designation Date and the Bonus Computation Date as measured by
the results of the four calendar quarters preceding each such
date as shown in the Corporation's reports to Shareholders, or as
subsequently restated as required by financial accounting
standards. Only income or loss from continuing operations shall
be included in the calculation of Growth Rate. Excluded therefrom
are net income or loss from investments accounted for by the
equity method, any income or loss from discontinued operations,
and any extraordinary gain or loss; provided, that, the foregoing
exclusions are of such material significance as to be presented
separately in the Combined Statement of Income contained in the
Corporation's financial Reports to Shareholders.
1.7. "Cash Bonus" means a bonus of the amount resulting from the
application of the percentage, as designated by the Board of Directors, to the
aggregate market value as of the Bonus Computation Date of the Endorsed Shares,
or their cash equivalent, (including the cash equivalent of fractional shares)
to be distributed to Participant. The designated percentage shall be calculated
so as to provide a Cash Bonus sufficient to pay the anticipated United States
federal income tax at a maximum rate for the highest taxable bracket with
respect to both the Stock Bonus and the Cash Bonus rounded up to the next
highest whole percentage point, but shall in no event exceed 50%. When the
Endorsed Shares are distributed in installments, as provided in Section 3.4,
Market Value for the purpose of computing the Cash Bonus shall be as of the
first day of the period for which the distribution is made but in no event shall
Market Value exceed the highest Market Value during the six months immediately
preceding Participant's Termination of Employment.
1.8. "Market Value" means the closing price at which Endorsed Shares were
sold on the New York Stock Exchange on the specified date if shares were sold on
such date and, if not, then such closing price of the preceding business day, or
if such specified date were a Saturday, Sunday or a legal holiday, then such
closing price on the next succeeding business day.
1.9. "Designated Value" means an amount designated by the Board of
Directors as of the date Participant is designated to participate in the Plan,
but not less than 95% of the Market Value on such date.
1.10. "Dividend Equivalents" means an amount equal to the total dividends
(other than stock dividends) but giving effect to any adjustments under Section
6.1 of the Plan and the fair market value of any rights, warrants and other
distributions not distributed with the Endorsed Shares but which the Participant
would have received if such Participant had been the owner of record of the
number of whole Endorsed Shares distributed as an installment of the Stock Bonus
during the period from the Bonus Computation Date to and including the date of
distribution of such installment. The Board of Directors in its sole discretion
shall determine the fair market value as of the date of distribution of any
rights, warrants or other distributions.
1.11. "Distribution Period" means the full calendar year, or the number of
full calendar years, next following the calendar year in which Termination of
Employment occurs, determined by the percentage to be applied as provided in
Section 3.1(b) as follows: (i) when said percentage is less than 40%, one such
calendar year; (ii) when said percentage is at least 40% but less than 60%, two
such calendar years; and (iii) when said percentage is 60% of more, three such
calendar years.
1.12. "Bonus Committee" means the committee appointed under Section 5.1 of
the Plan.
1.13. "Competing Business" means, as applied to a particular period of
time, a business which at such time is engaged in the manufacture, sale or other
disposition of a product or products which is in competition to a product or
products of the Corporation or its subsidiaries.
1.14. "Bonus Certificate" means a certificate in the form approved by the
Bonus Committee, setting forth Designation Date, Designated Value, number of
Bonus Units credited to Participant and Cash Bonus percentage, issued to
Participant who, by acceptance thereof, agrees to all the terms and conditions
of the Plan.
1.15. "Termination of Employment" means the termination of employment by
the Corporation or by a subsidiary as provided in Sections 3.1 or 3.2 and 3.3
but not the transfer of employment from the Corporation to a subsidiary of the
Corporation or vice versa or from one subsidiary of the Corporation to another
such subsidiary.
Article II. Distribution of Bonus.
2.1 "Distribution of Stock Bonus": On each Bonus Computation Date, or as
promptly as practicable thereafter, there shall be distributed to Participant
whose employment has not terminated for the purposes of the Plan, the Stock
Bonus as of such Bonus Computation Date. In lieu of the distribution of Endorsed
Shares, the Bonus Committee in its sole discretion may direct that the
distribution of the Stock Bonus, or any installments thereof, take the form, in
whole in part, of cash equivalent to the market value of Endorsed Shares on the
date as of which a Participant shall be entitled to distribution thereof.
Distribution of Endorsed Shares shall not be made to any Participant unless such
Participant who is an "insider" as currently defined as being subject to the
provisions of Section 16(b) of the Securities and Exchange Act of 1934 has
executed, as to such distribution, an election as required under Section 83(b)
of the Internal Revenue Code of 1954 and in the form as required by Internal
Revenue Service Regulation Section 1.83-2(e), to include the Market Value of
such Endorsed Shares in the Participant's gross income for United States income
tax purposes in the year in which such Endorsed Shares are distributed.
2.2. "Distribution of Cash Bonus": If and when the distribution of the
Stock Bonus, or an installment thereof, shall be made, the Cash Bonus in respect
of such distribution shall be paid to such Participant. Distribution of the Cash
Bonus shall not be made to any Participant unless such Participant has executed
the required election as set forth in Section 2.1 above.
Article III. Termination of Employment.
3.1. "Retirement, Death or Other Involuntary Termination of Employment
Without Fault": The date of retirement of a Participant pursuant to the
provisions of the retirement plan of the Corporation, or the date of Termination
of Employment of Participant because of Participant's death, illness, disability
or because of reasons not of Participant's own choosing and not due to any fault
on Participant's part shall constitute a Bonus Computation Date for computing
the Participant's Stock Bonus as follows:
(a) If such Bonus Computation Date is prior to the first anniversary of
the Designation Date, no Stock Bonus shall be computed or distributed
in respect of Bonus Units having such Designation Date.
(b) If such Bonus Computation Date is on or after the first anniversary
but prior to the fifth anniversary of the Designation Date, the Stock
Bonus will be computed in respect of Bonus Units having such Bonus
Computation Date as follows:
Multiply the Bonus Units by the aggregate of (i) a percentage equal to
20% for each full 12-month period between the Designation Date and
such Bonus Computation Date, plus (ii) a percentage equal to 1.667%
for each full calendar month between the immediately preceding
anniversary of the Designation Date and such Bonus Computation Date;
provided, that the total Bonus Units so computed shall be reduced by
the total number of Bonus Units with respect of which a computation
has previously been made.
(c) If such Bonus Computation Date is on or after the fifth anniversary of
the Designation Date, the Stock Bonus will be computed with respect of
all remaining Bonus Units having such Bonus Computation Date with
respect of which a computation has not previously been made.
In case of the death or disability of a Participant, the Bonus Committee
shall determine who whom distribution shall be made and distribution to the
person or persons designated by the Bonus Committee shall relieve the
Corporation from any and all further responsibility under the Plan.
3.2. "Other Termination of Employment": In case of Termination of
Employment of Participant otherwise than as provided in Section 3.1, Participant
shall upon such Termination of Employment have no rights whatsoever under this
Plan unless the Bonus Committee exercises the discretion hereinafter granted to
it. The Bonus Committee may in its sole discretion authorize the computation of
such a Participant's Stock Bonus in accordance with Section 3.1 hereof and
distribution of all or any part of any Stock or Cash Bonus as provided in
Section 3.4 hereof.
3.3. "Limitation on What Constitutes Termination of Employment": If the
Bonus Committee in its sole discretion so determines, employment shall not be
considered as terminated for the purposes of Sections 3.1 and 3.2 of this Plan
so long as a Participant continues to perform services for the Corporation or a
subsidiary thereof on either a full or part time basis either as an independent
contractor or on a consulting basis or otherwise.
3.4. "Distribution in Installments": Subject to and contingent upon the
fulfillment of the conditions set forth in Section 3.5 and subject to the
provisions of Section 4.1, a Stock Bonus computed pursuant to Section 3.1 shall
be distributed during the applicable Distribution Period in quarter-annual
installments, as nearly equal as practicable, commencing on the first day of
March of the Distribution Period, together with the Cash Bonus and related
Dividend Equivalents in respect of each such installment. If the aggregate
number of Endorsed Shares which results from the Stock Bonus computations and
which is distributable in installments during the Distribution Period shall not
be divisible into whole Endorsed Shares by the applicable number of
installments, each installment except the last shall consist of the nearest
number of whole Endorsed Shares into which such aggregate number of Endorsed
Shares shall be divisible by the applicable number of installments, and the last
installment shall consist of the total number of whole Endorsed Shares resulting
from the Stock Bonus computations less the total number of Endorsed Shares
theretofore distributed, with cash equivalent to its then Market Value in lieu
of any fractional share.
3.5. "Fulfillment of Conditions": The Corporation's obligation to
distribute any installment pursuant to Section 3.4 shall be contingent upon the
fulfillment of the conditions that:
(a) The Participant shall not, whether full time or part time, as an
employee, on a consulting or advisory basis or otherwise, engaged in
or perform any services, during the period between the date of
Participant's Termination of Employment and the end of the
Distribution Period, for a business which at such time shall be a
Competing Business following the expiration of a period of thirty days
after the mailing to Participant, by registered mail to Participant's
address as it last appeared on the books of the Corporation, of
written notice by the Secretary or any Assistant Secretary of the
Corporation to refrain from doing so, nor shall Participant at any
time (i) disclose information relative to the business of the
Corporation which is confidential or (ii) otherwise act, or conduct
himself, in a manner which is inimical or contrary to the best
interests of the Corporation, and
(b) The Participant shall be available during the period between the date
of Participant's Termination of Employment and the end of the
Distribution Period for such consulting and advisory services as the
Corporation may reasonably request, taking fairly into consideration
the age, health, residence and individual circumstances of the
Participant and the total amount of distributions to Participant under
the Plan during the Distribution Period.
In the event that any of such conditions shall not be fulfilled, the
obligations of the Corporation hereunder shall forthwith terminate and
the Participant's right to any further distribution of Endorsed
Shares, Dividend Equivalents and Cash Bonus shall be cancelled;
provided, that any such cancellation shall be in addition to and not
in lieu of any of the rights or remedies available to the Corporation
arising out of Participant's breach of any provision of the Plan.
Ownership as an investor of not more than five percent (5%) of the
outstanding shares of the stock of any company listed on a national
securities exchange or having at least one hundred (100) shareholders
shall not in itself be deemed a nonfulfillment of the conditions
herein set forth.
Article IV. Acceleration of Bonus Distributions.
4.1. "Accelerated Distributions": The Bonus Committee may, if and when in
its sole discretion it determines as to any Participant that the circumstances
justify such action and with or without the application or consent of such
Participant, at any time or times after the first anniversary of the Designation
Date designate a Bonus Computation Date with respect of all or any part of the
number of Bonus Unit that the Participant would be entitled to under Section 3.1
computed as if such Bonus Computation Date were a Termination of Employment date
or with respect of all or any part of the number of Bonus Units represented by
the Bonus Certificate with respect to which no distribution prior thereto has
been made. The Stock Bonus, together with the related Cash Bonus, shall
thereupon promptly be distributed to such Participant.
Article V. Administration of Plan.
5.1. "Bonus Committee": The Board of Directors of the Corporation shall
designate a committee of one or more of its members, none of whom shall be a
Participant in the Plan, to administer the Plan and make recommendations with
respect thereto. The Bonus Committee shall have full power to construe and
interpret the Plan and each provision thereof, and its constructions and
interpretations shall be in all respects final, conclusive and binding upon all
Participants and all persons claiming under or through them or under the Plan.
Article VI. Miscellaneous.
6.1. "Adjustment of Units": In the event that there shall be any change in
Endorsed Shares through merger, consolidation, stock dividend, stock split,
reorganization, reclassification or change in the Corporation's structure or
change of shares of stock, appropriate adjustment shall be made in (a) the
number of Bonus Units credited to each Participant with respect to which no
distribution has then been made; (b) the Designated Value to be used in Stock
Bonus computations for each Bonus Computation Date which is on or subsequent to
the effective date of such change in Endorsed Shares, and (c) the Endorsed
Shares to be distributed in installments on or after the effective date of such
change in Endorsed Shares and which have not been distributed prior to said
effective date. The decision of the Board of Directors of the Corporation with
respect to the nature and amount of the adjustment shall be conclusive and
binding upon all Participants and all persons claiming under or through them or
under the Plan.
6.2. "Continuance of Employment": Nothing herein contained shall in any way
restrict the right of the Corporation or any subsidiary thereof to terminate the
employment of a Participant at any time or be construed as evidence of an
agreement or understanding as to employment or continued employment in any
position or at any remuneration.
6.3. "Effect of Plan and Participation": Nothing in the Plan shall require
the Corporation to segregate or earmark any share of stock, cash or other
property. Neither a Participant, nor any person claiming under or through
Participant or under the Plan, shall have any right or interest, whether vested
or otherwise, in any shares of stock, cash or other property unless and until
the Participant or such other person shall be entitled to distribution thereof
after compliance with all the terms and conditions and provisions of the Plan.
6.4. "Withholding of Taxes": The Corporation shall have power to reduce any
distribution of Endorsed Shares resulting from a Stock Bonus by the number of
shares deemed by the Corporation in its sole discretion necessary to provide the
amount of tax required to be withheld by it in respect of such distribution;
provided, however, that the Corporation may provide such amount by reducing the
Cash Bonus distributable to a Participant, after provision for the amount of tax
required to be withheld in respect of such Cash Bonus, or may permit a
Participant to pay or reimburse the Corporation for any taxes required to be
withheld by the Corporation in respect of the distribution of such Stock Bonus.
6.5. "Non-Alienation of Benefits": No right or benefit under this Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, sell, assign, pledge,
encumber or charge the same shall be void. No right or benefit under the Plan
shall in any manner be liable for or subject to the debts, contracts,
liabilities, or torts of the person entitled to such benefit. If any Participant
under the Plan should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit under the Plan, then
such right or benefit shall, in the sole discretion of the Bonus Committee,
cease and determine, and in such event, the Corporation may hold or apply the
same or any part thereof for the benefit of the Participant, Participant's
spouse, children or other dependents, or any of them, in such manner and in such
proportion as the Bonus Committee may deem proper.
6.6. "Legal Holiday": If and when the date on which a computation or
distribution is to be made or other action is to be taken under the Plan falls
on a Saturday, Sunday, or a legal holiday, such computation or distribution
shall be made or such other action taken on the next succeeding business day.
AMP Incorporated
Dated:_________________ By:____________________________
------------------------
Participant hereby acknowledges receipt of this Bonus Certificate, accepts
his designation as a Participant under and subject to all the terms and
conditions set forth herein, and agrees to all such terms and conditions.
-------------------------------
Participant
Bonus Distributions Received
Bonus | Bonus Units | Stock Bonus | Cash Bonus | Signature
Computation | Computed | | |
Date | | | |
- -------------+----------------+-----------------+-----------------+------------
| | | |
| | | |
- -------------+----------------+-----------------+-----------------+------------
| | | |
| | | |
- -------------+----------------+-----------------+-----------------+------------
| | | |
| | | |
- -------------+----------------+-----------------+-----------------+------------
- -----------------------------------------------------------------------------
--------------------------------------------------------------------------
AMP Incorporated
General Offices
Harrisburg, Pennsylvania
-------------------------------------------
Bonus Certificate
Issued to
-------------------------------------
Participant
Date__________________________
--------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<PAGE>
AMENDMENTS TO AMP STOCK PLUS CASH BONUS PLAN
RESOLVED, that the Corporation's Bonus Plan (Stock plus Cash) (the "Plan"),
as amended, be and is hereby further amended, effective September 25, 1992,
1992, in the following respects:
(i) Section 4.1, entitled "Accelerated Distributions", is modified to state
as follows:
4.1. "Accelerated Distributions": The Bonus Committee may, if and when in
its sole discretion it determines as to any Qualified Participant (as
defined below) that the circumstances justify such action and with or
without the application or consent of such Qualified Participant, at
any time or times after the first anniversary of the Designation Date
designate a Bonus Computation Date with respect to all or any part of
the number of Bonus Units that the Qualified Participant would be
entitled to under Section 3.1 computed as if such Bonus Computation
Date were a Termination of Employment date, or with respect to all or
any part of the number of Bonus Units represented by the Bonus
Certificate with respect to which no distribution prior thereto has
been made. The Stock Bonus, together with the related Cash Bonus,
shall thereupon promptly be distributed to such Qualified Participant.
A "Qualified Participant" shall include any Participant other than a
Participant who is deemed to be a "director", "officer" or "10 percent
beneficial owner" of the Corporation within the meaning of those terms
under Section 16 of the Securities Exchange Act of 1934, as amended,
or who has only recently ceased such status and continues to be bound
by the Section 16 obligations under the terms thereof.
(ii) Section 5.1, entitled "Bonus Committee", is modified to state as
follows:
5.1. "Bonus Committee": The Board of Directors of the Corporation shall
designate a committee (the "Bonus Committee") of two or more of its
members, none of whom shall i) during the one year period prior to
becoming a member of said Bonus Committee or during service on the
Bonus Committee, have been awarded Bonus Units under the Plan or
equity securities pursuant to any other plan of the Corporation unless
permitted under Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934; and ii) during their service as a
member of the Bonus Committee, participate in any decisions of the
Bonus Committee which will or could affect their Stock Bonus or Cash
Bonus distributions under the Plan or other participation under the
Plan. The Bonus Committee shall administer the Plan and make
recommendations with respect thereto. The Bonus Committee shall have
full power to construe and interpret the Plan and each provision
thereof, and its constructions and interpretations shall be in all
respects final, conclusive and binding upon all Participants and all
persons claiming under or through them or under the Plan.
EX-10.P
Fifth Amendment
to the
AMP Incorporated Deferred Compensation Plan
Pursuant to an action taken by the Board of Directors of AMP Incorporated
on October 21, 1997, the AMP Incorporated Deferred Compensation Plan, as first
adopted effective January 1, 1995 and subsequently amended on four prior
occasions (the "Plan"), is further amended effective as of January 1, 1998 in
the following respects:
1. Exhibit A to the Plan is amended to add certain individuals as Eligible
Employees for Plan purposes. Effective as of January 1, 1998, the Exhibit A
attached hereto replaces and becomes Exhibit A for purposes of the Plan.
2. Exhibit B attached hereto replaces and becomes Exhibit B for purposes of
the Plan.
EXECUTED at Harrisburg, Pennsylvania this 23rd day of March, 1998.
AMP Incorporated
D. F. Henschel J. E. Marley
Attest:_______________________ By:___________________________
Corporate Secretary Title: Chairman of the Board
I.
EXHIBIT A
Re: Section 3.1 -Eligible Employees
Date: As amended, January 1, 1998
The Committee has determined that the following named individuals are
eligible to participate in the Plan as Eligible Employees:
Initial
Name SSAN Eligibility Date
Andrews, Kenneth ###-##-#### 01/01/98
Ballantyne, J. Peter ###-##-#### 01/01/96
Barnes, Harold ###-##-#### 01/01/98
Belt, James ###-##-#### 01/01/98
Booker, Harris ###-##-#### 01/01/98
Bruggeworth, Robert ###-##-#### 01/01/98
Cattin, Bernard ###-##-#### 01/01/98
Clark, Richard ###-##-#### 01/01/96
Cole, Herbert ###-##-#### 01/01/95
Coller, James ###-##-#### 01/01/98
Cornelius, David ###-##-#### 01/01/95
Dawson, Andrew ###-##-#### 01/01/98
DiClemente, Thomas ###-##-#### 01/01/96
Dittmann, Larry ###-##-#### 01/01/97
D'Lamater, Gary ###-##-#### 01/01/98
Donahue, Joseph ###-##-#### 01/01/98
Drysdale, J. Keith ###-##-#### 01/01/95
Gassner, Rudolf ###-##-#### 01/01/95
Goonrey, Charles ###-##-#### 01/01/95
Grabbe, Dimettry ###-##-#### 01/01/97
Gurski, John ###-##-#### 01/01/95
Haile, Edward ###-##-#### 01/01/98
Hassan, Javad ###-##-#### 01/01/95
Heisse, Jacqueline ###-##-#### 01/01/98
Henschel, David ###-##-#### 01/01/96
Hill, Jr., Leonard ###-##-#### 01/01/96
Hooper, Dean ###-##-#### 01/01/95
Horowitz, Dennis ###-##-#### 01/01/95
Hudson, Jr., William ###-##-#### 01/01/95
Johnson, Gregory ###-##-#### 01/01/98
Kaleida, Richard ###-##-#### 01/01/98
Kapany, Narinder ###-##-#### 01/01/97
Kastel, August ###-##-#### 01/01/95
Kegel, John ###-##-#### 01/01/95
Keizer, Alan ###-##-#### 01/01/96
Kohler, John ###-##-#### 01/01/98
Lang, Mark ###-##-#### 01/01/98
Laudeman, Michael ###-##-#### 01/01/98
Leggett, Robert ###-##-#### 01/01/98
Lemaitre, Philip ###-##-#### 04/01/97
Lightner, Linn ###-##-#### 01/01/98
Line III, Henry ###-##-#### 01/01/96
Marley, James ###-##-#### 01/01/95
Martin, David ###-##-#### 01/01/98
McElrath, Jennifer ###-##-#### 01/01/98
McNamara, Jr., James ###-##-#### 01/01/98
Miller, Jr., Lincoln ###-##-#### 01/01/96
Morris, S. William ###-##-#### 01/01/98
Overbaugh, Joseph ###-##-#### 01/01/96
Price, James ###-##-#### 01/01/98
Proietto, Nazario ###-##-#### 01/01/95
Reynolds, Charles ###-##-#### 01/01/98
Ripp, Robert ###-##-#### 01/01/95
Ritter, Carol ###-##-#### 01/01/96
Roche, N D'Arcy ###-##-#### 01/01/96
Rohler, Richard ###-##-#### 01/01/98
Spatz, Neal ###-##-#### 01/01/96
Stape, William ###-##-#### 01/01/98
Summers, Robert ###-##-#### 01/01/98
Sykes, James ###-##-#### 01/01/98
Timashenka, Paul ###-##-#### 01/01/96
Tropea, Lawrence ###-##-#### 01/01/97
Unter, Terence ###-##-#### 10/01/97
Urkiel, William ###-##-#### 01/01/96
Usner, John ###-##-#### 01/01/98
Valerio, Jr., Thomas ###-##-#### 01/01/98
Vance, Ronald ###-##-#### 01/01/96
Walker, Larry ###-##-#### 01/01/96
Ward, William ###-##-#### 01/01/98
Waybright, Gregory ###-##-#### 01/01/98
Weil, Keith ###-##-#### 01/01/98
Wilburne, Douglas ###-##-#### 01/01/98
Wilkie, Dan ###-##-#### 01/01/95
Wingate, Charles ###-##-#### 01/01/98
Yohe, Jr., Merrill ###-##-#### 01/01/96
Zettlemoyer, Anthony ###-##-#### 01/01/96
Zwieg, Jr., Grover ###-##-#### 01/01/98
II.
EXHIBIT B
Re: Section 4.1 - Amount of Deferral
Dated: As amended effective January 1, 1998
As of the date above, and effective until this Exhibit is Modified by the
Committee, the table below indicates the types of compensation which are
eligible for income deferral at the assigned percentages as noted:
Type of | Maximum Percentage |
Compensation | that can be deferred | Other Limitations
- ------------------------------------------------------------------------------
Base Salary | For each payroll | Deferrals to this
| period when an | Plan will be
| Eligible Employee is | further limited to
| not eligible to | prevent
| participate in a Code | Participant income
| Section 401(k) salary | for qualified plan
| deferral arrangement, | purposes from
| 50% of base salary | falling below the
| paid; otherwise, 50% | limit as described
| of salary paid reduced | in IRC
| by 100% of the then- | 401(a)(17),
| applicable maximum | currently set
| available Code Section | $160,000.
| 401(k) salary deferral |
| for the payroll period |
| resulting from |
| application of Code |
| Sections 402(g) and |
| 401(a)(17). For |
| example, an Eligible |
| Employee with base |
| salary paid in 1998 |
| equal to $340,000 who |
| was eligible for |
| 401(k) participation |
| for the full year |
| could defer under the |
| Plan for 1998 a |
| maximum of 50% of |
| $340,000, (i.e., |
| $170,000), reduced by |
| $10,000, which leaves |
| $160,000 as the |
| maximum base salary |
| deferral. * |
- ------------------------------------------------------------------------------
Management | 100% of Awarded Bonus | In increments of
Incentive Plan | | 25% or the entire
| | amount of the
| | Bonus awarded in
| | excess of a stated
| | dollar amount.
- ------------------------------------------------------------------------------
Any Other | 100% of Awarded Bonus | In increments of
Annual Cash | | 25% or the entire
Bonus Plan of | | amount of the
an Employer | | Bonus awarded in
| | excess of a stated
| | dollar amount.
* However, if the Eligible Employee is first eligible for 401(k) deferrals
July 1, through June 30 the employee could defer 50% of base salary each pay
period, and after June 30 could defer 50% of base salary reduced by $833.34 each
pay period (i.e., reduced by $10,000 divided over 12 pay periods).
<PAGE>
SECOND AMENDMENT
to the
AMP INCORPORATED
DEFERRED COMPENSATION PLAN
The AMP Incorporated Deferred Compensation Plan (the "Plan"), as first
adopted effective January 1, 1995, and thereafter amended on one occasion is
hereby further amended in the following respects:
1. Effective as of January 1, 1996, Section 6.6 of the Plan is amended to
provide as follows:
6.6 Commencement of Payments.
Commencement of payments under Section 6.1 of the Plan shall begin in
January of the year following the year in which occurs an event which
entitles a Participant (or a Beneficiary) to payments under the Plan.
2. Exhibit A to the Plan is hereby amended effective as of January 1, 1996
to add certain individuals as Eligible Employees for Plan purposes, and
effective as of January 1, 1996, the Exhibit A attached to this Amendment shall
replace and become Exhibit A for purposes of the Plan.
3. Exhibit B to the Plan is hereby amended effective January 1, 1996 to
amend the Plan's maximum permitted deferrals, and effective as of January 1,
1995, the Exhibit B attached to this amendment shall replace and become Exhibit
B for purposes of the Plan.
Executed this 21st day of December, 1995.
AMP Incorporated
/s/ J. E. Marley
By:_______________________________________
Chairman of the Board
Title:____________________________________
EX-10.DD
THIRD AMENDMENT
TO THE
AMP INCORPORATED
1993 LONG TERM EQUITY INCENTIVE PLAN
(as Amended and Restated Effective January 1, 1995)
Pursuant to an action taken by the Board of Directors of AMP Incorporated
on October 22, 1997, the AMP Incorporated 1993 Long Term Equity Incentive Plan,
as amended and restated in its entirety effective January 1, 1995, and further
amended on two prior occasions is further amended effective as of October 22,
1997 by the addition of a new Section 7(h), as follows:
h) The Committee, in its sole and absolute discretion, may amend any
outstanding Option Agreement evidencing Nonqualified Stock Options
granted after October 22, 1994 and may augment the terms of any future
Option Agreement to include a right to receive a replacement grant of
Nonqualified Stock Options at the initial exercise of each Option
covered by the right if and only if payment for such exercise is in
the form of an exchange of previously-owned Common Stock (a "stock
swap"), which right shall be subject to the following conditions and
restrictions:
i. The exercise price for the replacement Nonqualified Stock Options
shall be equal to the Fair Market Value of a share on the date of
the stock swap that triggered the replacement grant.
ii. The period within which the replacement Nonqualified Stock
Options may be exercised shall expire on the same date the
underlying Options that were exercised in the stock swap would
have expired.
iii. The number of replacement Nonqualified Stock Options to be
granted shall be equal to the number of shares exchanged in the
stock swap payment plus the number of further shares, if any,
swapped to cover taxes resultant from the exercise.
iv. The right to receive a replacement grant shall expire upon the
termination of the Option holder's employment or upon the
transfer of the Option pursuant to Section 18(b).
v. The right to receive a replacement grant of Nonqualified Stock
Options shall only apply upon the stock swap exercise of the
Options covered by the right; the subsequent exercise of a
replacement Nonqualified Stock Option shall in no event result in
the grant of a further replacement Nonqualified Stock Option.
Except as provided above, all terms, conditions and provisions of the 1993
Plan shall remain in full force and effect and without any further change or
modification whatsoever.
* * *
EXECUTED this 23rd day of March, 1998.
AMP Incorporated
D. F. Henschel J. E. Marley
Attest: ______________________ By: _________________________
Corporate Secretary Title: Chairman of the Board
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS - 1997 COMPARED WITH 1996
Sales for the year were $5.75 billion, increasing 5.1% in U.S. dollars and
10.1% in local currencies from $5.47 billion in 1996. The significant
strengthening of the U.S. dollar throughout 1997 resulted in a reduction in
reported net sales of $273 million. Terminal and connector products, the
Company's most significant group of product lines representing over 75% of
sales, grew at 9% in local currencies, outpacing the market growth of 6% to 8%.
This growth occurred in spite of the Company discontinuing its cylindrical
connector products as part of the 1996 Restructuring Plan. Other major groups of
product lines grew even faster with cable and fiber optic products growing at
31% and 12%, respectively and wireless products (formerly M/A-COM) achieving a
10% increase. Declines in the Company's sales of printed wiring board products
manufactured using the "additive process," as well as the elimination of various
other products in the former Global Interconnection Systems Business related to
the 1996 Restructuring Plan, also negatively impacted the 1997 growth rate.
Geographically, there was good sales growth in all regions where the
Company operates. The highest growth was in the Asia/Pacific region with 16.6%
growth over 1996 in local currencies and 8.2% in U.S. dollars. This region
accounts for 20% of AMP's worldwide sales. Similar to 1996, growth outside Japan
was strongest with growth rates averaging 25% in local currency. The strongest
industry sales growth was in the Communications Division related to the
communication equipment manufacturers and networking industries, the Personal
Computers Division, the Automotive Division and, within the Consumer Industrial
Division, sales to the business retail equipment industry. In Japan, sales
growth was more moderate at 9.3% in local currency. In this country, good growth
occurred primarily in the Consumer Industrial Division related to instrument and
measurement equipment, industrial machinery and equipment, home
entertainment/consumer electronics and business retail equipment. Growth rates
in Asia/Pacific decelerated somewhat in the fourth quarter to 13.4% in local
currencies and 2.9% in U.S. dollars as a result of the economic events unfolding
in the region. The Company anticipates some continued softness in the Asian
markets going into 1998 with a pickup in growth possible in the latter part of
the year.
Sales growth in the European segment was much stronger in 1997 versus the
prior year with a 10.7% increase in local currencies and 0.3% in U.S. dollars.
This region accounts for 30% of the Company's worldwide sales. Growth was over
10% for the Automotive Division and the Personal Computer Division and close to
20% in the Communications Division, particularly sales to the communications
equipment manufacturers market. Sales growth in the region was geographically
dispersed with high growth in Germany, France, Spain, Italy, Great Britain and
Northern Europe. The growth rate in this region accelerated in the fourth
quarter.
The Americas region, which includes the United States, Canada and Latin
America, grew 7.0% over 1996. The increase in sales in the United States was
6.5%. The regional growth rate was higher due to significant growth in Canada,
Mexico and at the Company's wire harness assembly operations in Brazil and
Argentina. There was a notable increase in sales through the wholesale and
retail trade channel. Industry growth was best in the networking industry
serviced by the Communications Division and in the Consumer Industrial Division,
specifically instrumentation and measurement equipment. Sales growth occurred at
more moderate rates in the Automotive Division and in the Communications
Division with respect to sales to communication equipment manufacturers.
The Company's expectations for 1998 sales are for slightly lower growth
rates overall. Based on current projections for industrial production, lower
economic growth is expected in both the Americas and Asia/Pacific regions,
offset by somewhat higher economic growth in Europe. Also, the strength of the
dollar based on current foreign currency exchange rates has tempered growth
expectations for sales after translation to U.S. dollars.
Net income for the year 1997 increased to $2.15 per share and includes the
$0.07 net benefit from the Company's changes in inventory costing practices
implemented in the first quarter (see Accounting Changes section and Note 1 to
the Consolidated Financial Statements). The positive impact of these changes was
presented as a cumulative effect of accounting changes on the Consolidated
Statement of Income. Other significant events affecting 1997 earnings per share
were the fourth quarter adjustment to decrease the restructuring reserve which
benefited net income by $0.08 per share (see 1996 Restructuring Plan), the
charge to write-down certain equity investments of $0.08 per share in the fourth
quarter and a charge for a legal reserve taken in the second quarter for $0.05
per share. Net income adjusted for the net impact of the preceding special items
is $2.13 per share for 1997 (adjusted
26 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
1997 net income per share). This compares to reported net income of $1.31 per
share in 1996 or $1.89 per share, which is 1996 net income excluding the
negative $0.58 impact of the restructuring and one-time charges taken in the
fourth quarter of 1996 (adjusted 1996 net income per share). Adjusted 1997 net
income per share of $2.13 increased 12.7% from the adjusted 1996 net income per
share of $1.89.
Gross margins improved substantially throughout 1997 to 30.8%, as reported,
and 30.7% excluding the benefit of decreasing the restructuring reserve. This
compares to a reported gross margin of 28.6% in 1996, which included a 1.2
percentage point impact due to restructuring charges recorded in cost of sales.
The operational improvement in gross margin between 1997 and 1996 of
approximately .9 percentage points resulted from cost reduction activities, the
prioritization and reduction of capital spending which reduced depreciation as a
percent of sales, new product introductions and the elimination of unprofitable
product lines as part of the execution of the 1996 Restructuring Plan. It is
management's strategy to continue improving gross margin on an annual basis
through the globalization of manufacturing operations related to the Company's
major product lines (i.e. competencies). The Global Competency executives are
charged with executing cost reduction initiatives to drive the continued
improvement in profitability.
Selling, general and administrative expenses (S,G&A) increased slightly as
a percentage of sales to 17.8% in 1997 from 17.6% in 1996. Investments in
information systems and personnel related to the Company's implementation of
SAP, an intergrated business information system, are the primary drivers of
increased expense, as well as to a much lesser extent, the necessity of
preparing for the impact of the Year 2000 issue on its systems and operations.
The Company initiated its efforts to obtain Year 2000 compliance in the
information systems area in June 1995 and plans to complete the project by
December 31, 1998. Incremental S,G&A expense in 1998 specific to the completion
of the information systems phase is expected to be approximately $14 million,
including both internal costs of labor and external expenses. Related
investments in capital above the normal cost of upgrades and replacements are
not expected to exceed $3 million. With respect to operational Year 2000
compliance issues, the Company has very few products that are, by their nature,
date dependent; however, certain of its manufacturing, logistics, administrative
and facility systems and equipment use embedded computer technology. The Company
is working with an outside consultant and using a specific methodology to
identify necessary actions and develop a plan for completion within AMP and
systematic assessment of suppliers and customers. The incremental internal labor
costs and external expenses for the operational compliance phase cannot be
determined at this time, but are not expected to be significant. The Company
does not anticipate any material negative impacts related to Year 2000 issues as
of December 31, 1997; however, the Company is reliant in part on the effective
execution by customers and suppliers in dealing with these issues.
The Company expects future S,G&A investments to continue at the current
level of almost 18% of sales as a result of expenses related to its ongoing
information systems projects over the next two to four years, as well as the
continued increase in sales engineers to drive growth.
Research, development and engineering expenses were consistent with the
prior year at $579 million. Engineering efforts are categorized into concept and
development versus manufacturing engineering activities. The concept and
development phases are consistent with the definition of research and
development as prescribed by Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development." Of the $579 million of expenditures
in 1997 and 1996, $320 million and $315 million, respectively, qualified for
classification as research and development under SFAS No. 2. During 1997, the
Company has been rationalizing and re-prioritizing its research and development
initiatives. Increases in development expenditures are planned in 1998,
particularly related to investments in the development of new products in both
the Consumer Industrial Division and the Communications Division.
Restructuring and one-time (credits)/charges presented as a separate line
in the Consolidated Statement of Income were a credit of $21.4 million in 1997
as compared to the original charge of $98 million taken in the fourth quarter of
1996. The favorable adjustment in the current year was the result of greater
liquidation of product through distributors, the receipt of additional cash from
the sales of various assets and the resolution of certain environmental issues
with government and regulatory authorities at less cost than originally
anticipated (See 1996 Restructuring Plan section for more detailed information).
Other deductions, net increased to $57.3 million in 1997 from $33.2 million
in 1996. In 1996, the Company recorded $34.5 million in one-time charges in
other deductions, net for the write-off of
AMP INCORPORATED 1997 ANNUAL REPORT 27
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MANAGEMENT'S DISCUSSION AND ANALYSIS
two equity investments and related commitments. The primary reasons for the
increase in other deductions from other income in 1996 of $1.3 million, before
one-time charges, are the $25.5 million charge taken in 1997 to write-down
certain equity investments, the reserve announced in the second quarter for
litigation matters of $17.7 million and the absence in 1997 of gains on the sale
of securities which occurred in 1996, offset by more interest income in 1997.
Interest expense of $31.8 million in 1997 was consistent with the $31.2
million incurred in 1996.
The effective tax rate decreased in 1997 to 32.5% from 34.5% in 1996 due to
a combination of factors including continued shifts in the geographic
composition of earnings, resolution of certain issues relating to tax filings in
prior years and the changing impact of foreign losses and their related
utilization.
1996 Restructuring Plan
In the fourth quarter of 1996, the Company's management performed a review
of product lines, manufacturing operations and other activities to rationalize
their existence based on performance trends. As a result of this review, the
decision was made to take $167.6 million pretax restructuring and one-time
charges in order to exit various product lines, manufacturing operations and
investments that were not performing or expected to perform at levels which
enhance shareholder value. The primary product lines and manufacturing
operations affected included the cylindrical connector products used in the
military/aerospace industry, the Company's printed wiring board manufacturing
operation that used the "additive process," various product lines in the former
Global Interconnection Systems Business organization, such as PC Cards and
maturing products in the networking industry, and several U.S. terminal &
connector plants and facilities which were outdated and/or specialized in one
particular manufacturing process. The restructuring and associated charges were
recorded in the 1996 Consolidated Statement of Income as follows: $35.1 million
in cost of sales, $98 million in restructuring and one-time (credits)/charges
and $34.5 million in other deductions, net. The amount recorded to other
deductions, net of $34.5 million related to equity investment write-offs and a
charge for related commitments for non-strategic and under-performing ventures
of the Company which were no longer supported. Approximately $70 million of the
charges involved anticipated cash outlays. In addition to these charges, another
$27.4 million of other one-time charges not directly connected to the Company's
restructuring plans were recorded in cost of sales related to canceled programs,
specialty products no longer supported and underutilized capacity. Including
these other one-time charges of $27.4 million, the Company recorded $195 million
of restructuring and one-time charges in the fourth quarter of 1996.
Throughout 1997, the Company executed the restructuring plan by closing the
selected facilities, reducing the related headcount, liquidating inventory and
equipment, transferring continued production to other facilities, preparing
facilities for divestiture, investigating environmental matters and negotiating
the termination of customer and supplier commitments. During the fourth quarter,
the Company assessed the status of the plan and concluded that the remaining
activities to be completed were the sale of various vacated manufacturing
plants, resolution of certain environmental exposures related to such plants and
product warranty and legal issues related to discontinued products. The
expenditures related to these future activities were estimated at $14.2 million.
Consequently, based on the remaining reserve balance, an adjustment to reduce
the restructuring reserve by $25.9 million pretax was recorded as a reduction to
cost of sales of $4.5 million and a credit of $21.4 million to restructuring and
one-time (credits)/charges.
The significant savings were primarily reductions in expected cash outlays
for distributor product returns, the receipt of cash from the sales of various
assets, less severance paid due to a lower number of terminated employees and
the resolution of certain environmental issues with government and regulatory
authorities at less cost. Note 2 to the Consolidated Financial Statements
presents further details on the charges and adjustments.
Results of Operations - 1996 Compared with 1995
Sales for the year were $5.47 billion, increasing 4.6% in U.S. dollars and
7.4% in local currencies from $5.23 billion in 1995. The strengthening of the
U.S. dollar in 1996 decreased worldwide sales by approximately $145 million from
the prior year. Double-digit growth in the Global Interconnection Systems
Business (GISB) and Circuits and Packaging (CIR-PAC) served to offset the more
modest growth experienced in the Terminal & Connector (T&C) and M/A-COM product
lines.
From a geographic perspective, sales in the European segment increased by
3.9% in local cur-
28 AMP INCORPORATED 1997 ANNUAL REPORT
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rencies and 1.6% in U.S. dollars. The sluggish growth was mainly the result of
weak economic conditions throughout the region, particularly in Germany. Spain
was one exception with growth in local currency greater than 20% fueled by sales
to the automotive industry. Industry growth was highest in networking and cable
systems, wholesale/retail and automotive. European segment sales were 32% of
worldwide sales in 1996, consistent with the prior year.
Asia/Pacific region sales, 19% of worldwide sales, increased 9.3% in local
currencies and were down slightly in reported U.S. dollars. There was
significant growth in local currencies in the Asian countries outside of Japan,
primarily related to sales in the personal computer, household appliances and
communication equipment manufacturers markets and in the automotive market in
Korea. Japan improved in the latter part of the year with good growth in
automotive, personal computers and wireless communications.
The Americas, including the United States, grew 9%, with the highest growth
in the United States, Canada and Brazil. Markets with double-digit growth in
1996 included automotive, networking and cabling systems, and instrumentation
and measurement equipment. Sales to the wireless communication market were up
7.9%.
Net income in 1996, which included restructuring and one-time charges,
decreased to $1.31 per share from $1.96 per share in the prior year.
Restructuring and one-time charges of $128 million, net of tax, reduced earnings
per share by $.58. Net income in 1996 of $1.89 per share before restructuring
and one-time charges was impacted by declining gross margins, offset by lower
interest expense and other deductions. The strengthening of the U.S. dollar
during the year also decreased these earnings. In addition, weighted average
shares outstanding increased due to the merger with Madison Cable Corporation,
which resulted in the issuance of 1.6 million shares. Although this transaction
was accounted for as a pooling-of-interests, no restatement of financial data
was performed since the effect was not material to the Consolidated Financial
Statements. Net income in 1995 without the negative impact of the merger
expenses associated with the merger with M/A-COM was $2.11 per share.
Gross income decreased to 28.6% of sales in 1996 from 32.3% in 1995.
Restructuring and one-time charges included in cost of sales amounted to $62.5
million and accounted for 1.2 percentage points of margin deterioration. Other
significant factors negatively impacting gross margin in 1996 included the
change in product mix, the unusual level of price erosion on T&C sales to the
personal computer industry, increased depreciation expense associated with the
higher level of capital expenditures in 1995 and the impact of the
under-performing products and operations included in the Company's restructuring
plans. Product mix had a greater impact in 1996 due to the modest growth of the
Company's T&C and M/A-COM sales, combined with sharp growth in GISB sales. T&C
and M/A-COM products have better margins than the GISB products. In addition,
the operating results of AMP Circuits, the former AMP-AKZO joint venture, were
included for a full 12 months in 1996 versus only 6 months in 1995. Certain
products and operations of AMP Circuits and GISB were included in the Company's
restructuring plans.
Selling, general and administrative expenses decreased as a percentage of
sales from 18.6% in 1995 to 17.6% in 1996 principally due to the absence of
$48.7 million in M/A-COM merger expenses incurred in 1995. S,G&A was held steady
as a percent of sales if computed without the inclusion of the M/A-COM merger
expenses in 1995.
Research, development and engineering expenses were $579 million in 1996 as
compared to $568 million in 1995. Engineering efforts are categorized into
concept and development versus manufacturing engineering activities. The concept
and development phases are consistent with the definition of research and
development as prescribed by Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development." Of the $579 million of expenditures
in 1996 and $568 million in 1995, $315 million and $309 million, respectively,
based on 1996 refined phase definitions, qualified for classification as
research and development under SFAS No. 2.
Other deductions, net in 1996 was $33.2 million as compared to $13.4
million in 1995, due primarily to a one-time write-off of equity investments and
related commitments in the amount of $34.5 million, offset by the absence of
$11.4 million of equity losses of the former AMP-AKZO joint venture that was
consolidated and included in the Company's operating income for all of 1996
versus only six months in 1995.
Despite higher debt levels, interest expense decreased by $5.7 million to
$31.2 million in 1996. The decrease was attributable to the redemption of $66
million of M/A-COM debt in August 1995 and declines in international borrowing
rates in 1996, particularly in Japan and Germany.
AMP INCORPORATED 1997 ANNUAL REPORT 29
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The effective tax rate decreased to 34.5% in 1996 from 36% in 1995 as a
result of the reduction in nondeductible acquisition and goodwill expenses and
the change in the overall level and geographic mix of income.
Price and Cost Trends
The prices paid for the Company's primary raw materials, including copper,
gold and plastics, were on average slightly lower than those paid in 1996.
Market prices for copper varied from a low of $.77 per pound to a high of $1.22
in 1997 as compared with a low of $.88 per pound to a high of $1.30 in 1996.
Similarly, gold prices were also lower in 1997, averaging $331 per troy ounce,
lower than the average prices paid in the last two years of $380 to $390 per
troy ounce. Offsetting these decreases was an increase in the price of zinc
which averaged $.60 a pound in 1997 as compared to $.47 per pound in 1996.
Plastic resin prices paid by the Company have increased due to higher demand;
however, cost reduction measures such as utilizing recycled material have offset
such increases. The Company's ability to manage the impact of commodity price
increases is largely dependent on more efficient material usage.
Wage rate increases remained modest and continued to parallel the industry,
regional, and national averages in the countries in which the Company operates.
The Company believes the availability of materials and labor skills it requires
should remain adequate during 1998 and for the next several years.
Despite the slight decrease in prices for raw materials in 1997 and the
continued stability of labor costs over the last several years, operating
margins were negatively impacted by price erosion on sales of end products to
customers of 5% in 1997, up from 4% in 1996 and from the average rate of 2% to
3% in the first half of this decade. The higher price erosion continues to be
driven by the computer industry, as well as the communications industry. The
Company expects the 1998 level of price erosion to be at least the rate
experienced in 1997.
Financial Position and Liquidity
The Company's working capital increased substantially in 1997 to $1.2
billion at December 31, 1997 versus $911 million at December 31, 1996. Cash and
short-term investments increased $178 million as a result of significantly
higher amounts of cash generated by operations, before funding other working
capital increases, and a $46 million increase in short-term debt. Higher levels
of cash also were caused by lower capital expenditures in 1997 of $481 million
compared to $592 in the prior year and the absence of any significant
acquisitions during the year, offset by an increase in shareholder dividends of
$9 million from the prior year. Accounts receivable increased $26 million due to
higher sales in the fourth quarter of 1997 as compared with the same period in
the prior year, with improvement in days sales outstanding year-to-year.
Inventory increased $122 million as a result of higher business volumes and
initiatives to improve customer delivery. Inventory turns deteriorated slightly
as a result of this increase.
Approximately half of the Company's operating cash flows are generated
overseas. There are currently no material restrictions on the transfers of these
funds within the Company; however, certain business decisions result in the
long-term investment of a portion of these funds in the international companies.
These investments have no significant impact on the Company's ability to fund
its cash requirements.
In 1998, the Company plans to fund the majority of normal working capital
needs, information system investments, including SAP and Year 2000 initiatives,
dividends and capital expenditures using cash flow from operations. External
financing is available if needed primarily through a commercial paper facility
and debt facilities in overseas markets where the interest rates are low and tax
advantages exist.
Capital Expenditures
Capital expenditures decreased 18.8% in 1997 to $481 million, as compared
to $592 million in 1996 and a high of $713 in 1995. Over 75% of the expenditures
made in 1997 were associated with investments in building, machinery and
equipment, molds and dies for production of new products, productivity
improvements or capacity in new or lower cost markets. Specific investments in
low cost areas included facilities in Hungary, Czech Republic, China and Mexico.
Approximately 14% of the expenditures were for information systems assets,
driven primarily by the implementation of SAP. Capital expenditures in 1998 are
expected to be about $600 million.
30 AMP INCORPORATED 1997 ANNUAL REPORT
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Accounting Changes
During the first quarter of 1997, the Company made two changes to the
accounting practices used to develop inventory costs. The first change was made
to standardize globally the definition of capacity used to determine volume
assumptions for overhead rates. The new definition more properly reflects the
Company's objectives for plant and equipment utilization and provides for
consistent measurements of AMP facilities. In an effort to provide increased
focus on engineering efforts for both product development and manufacturing cost
reductions, the Company also changed the inventory costing methodology to
include manufacturing engineering costs in inventory costs. Previously these
costs were expensed in the period incurred and included in cost of sales on the
Consolidated Statement of Income.
The net benefit after tax of the preceding changes in accounting for
inventory of $15.5 million or $.07 per share was presented as a cumulative
effect of accounting changes on the 1997 Consolidated Statement of Income.
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." The effect of this adoption did not have a material impact on the
Company's reported earnings per share.
Environmental Matters
The Company continued to implement and enhance its corporate-wide program
for managing environmental matters. Executive management and environmental
professionals around the globe are actively involved in guiding the Company's
comprehensive environmental management program and integrating environmental
management into ongoing operations, business strategies, and new acquisitions.
AMP's global environmental policy recognizes that fulfilling our responsibility
to protect the enviornment enhances our ability to produce competitive and
profitable products and services. The Company implements its environmental
program globally through uniform standards, environmental auditing, due
diligence for acquisitions, proactive property assessments, training at all
levels and periodic benchmarking. In addition, product design incorporates
environmental considerations to meet customers' and environmental needs.
The Company faces certain liabilities for investigative and remedial costs
as a result of past operations. The costs associated with these environmental
liabilities are not expected to have a material impact on the Company's
financial position, results of operations, liquidity and capital resources or
competitive position in the next several years.
Specifically, the Company has been named as a potentially responsible party
at eight federal "Superfund" (National Priorities List) sites in the U.S. and
three "State Superfund" sites. These are sites that are owned by third parties
to which the Company allegedly sent waste in prior years. Total costs for these
sites are not expected to exceed $5 million. In addition, the Company has
identified potential liabilities at 28 of its current or former facilities.
Investigations or remediation are ongoing at these properties as required by
government regulations or as part of the Company's property management policy.
Based on current information, expenses for these sites are not expected to
exceed $34 million in the aggregate over the next 5 years.
The Company is carefully managing its involvement with these sites to
ensure compliance, minimize costs and liabilities, and ensure protection of the
environment and the public. Legal action has been commenced by the Company
against historical liability insurers to recover for certain past and
anticipated future costs in connection with some of these sites.
The Company's accounting policy with respect to environmental costs in
general is described in Note 1 to the Consolidated Financial Statements.
Market Risk and Financial Instruments
The Company is subject to market risk associated with changes in interest
rates, foreign currency exchanges rates, stock prices and certain commodity
prices. In order to manage the volatility relating to its more significant
market risks over the short-term (less than 24 months), the Company enters into
forward foreign currency exchange contracts, foreign currency swaps and
commodity swaps. A formalized treasury risk management policy has been
implemented by the Company which describes the procedures and controls over
executing these transactions. All such transactions are executed by the
Company's Risk Committee which operates under policies and limits set by the
Board of Directors. There is an approved list of types of hedging instruments
which can be used, as well as an approved list of acceptable counter-parties.
Under the policy, the Company does not execute transactions or hold
AMP INCORPORATED 1997 ANNUAL REPORT 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS
derivative financial instruments for trading purposes. Hedging activities
related to the transactional risk of intercompany inventory purchases, dividends
and royalty streams, as well as commodity price exposures are executed with the
goal of hedging a significant portion of the exposure when it is cost effective
to do so.
Longer-term market risk associated with foreign currency exchange rate
fluctuations is managed using several strategies. The Company establishes local
production facilities in the major markets it serves and invoices customers in
the same currency as the source of the products. Currency parity clauses are
also included in agreements with foreign suppliers and customers. Furthermore,
an effort is made to source more product from countries with weaker currencies
and sell more into markets with stronger currencies. Translation exposure
related to investments in the net assets of foreign operations are mitigated by
minimizing parent company capital contributions and financing investments with
local currency debt, subject to local exchange controls and tax implications,
royalties and maximizing the repatriation of earnings through inter-company
dividends. On a much more limited basis, the Company will execute foreign
currency swaps to hedge the investment in the net assets of a foreign
subsidiary.
Interest rate exposure is managed centrally by Corporate Treasury by
offsetting surplus cash and deposits against borrowings on a currency by
currency basis. The interest rates on any net investments or borrowings for each
currency may be fixed for periods of over 12 months using fixed rate loans,
securities and interest rate swaps.
The Company does not anticipate any material changes in its primary market
risk exposures in 1998.
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." All items
described are non-trading and are stated in U.S. dollars at the contract
exchange rates. The Company's investments in bonds and its debt obligations are
not included in the table below since their carrying amounts approximate the
related fair values and the associated market risk is deemed not significant due
to the strategies described previously.
See Note 8 to the Consolidated Financial Statements for a description of
the accounting policies used to account for each of the financial instruments.
As of December 31, 1997, the Company holds marketable common stock investments
that are exposed to price risk with a cost basis of $14.8 million and a market
value of $14.1 million. The unrealized loss on marketable common stock
investments is recorded in shareholders' equity. <TABLE> <CAPTION>
Fair Value at
(U.S. dollars in 2000 to Year End 1997
thousands) 1998 1999 2002<F1> Thereafter Total gain/(loss)
- ----------------------------------------------------------------------------------------------------------
Interest:
<S> <C> <C> <C> <C> <C> <C>
Yen swap - receive $10,065 $10,065 $10,065 $ 15,098 $ 65,423
pay 6,915 6,915 6,915 10,373 44,948 $(14,834)
Foreign currency:
Yen swap - receive 150,000 150,000
- pay 150,000 150,000 27,750
Forward contracts<F2>
British Pound 82,803 82,803 (125)
French Franc 70,385 70,385 919
German Mark 50,665 50,665 682
Swiss Franc 30,873 30,873 (515)
Japanese Yen 11,693 11,693 1,724
Other 6,958 6,958 177
Commodities:
Forward contracts<F2>
Copper 49,426 10,095 59,521 (6,427)
Gold 28,338 28,338 (2,817)
- ----------------------------------------------------------------------------------------------------------
<FN>
<F1> Amounts represent cash flows paid and received each year from 2000 to 2002.
<F2> Amounts represent the notional amounts of the contracts.
</FN>
</TABLE>
32 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 5,745,235 $ 5,468,028 $ 5,227,226
Cost of Sales 3,976,606 3,902,733 3,539,715
- ---------------------------------------------------------------------------------------------------------
Gross income 1,768,629 1,565,295 1,687,511
Selling, General and Administrative Expenses 1,022,856 964,589 969,512
Restructuring and One-time (Credits)/Charges (21,338) 98,000 --
- ---------------------------------------------------------------------------------------------------------
Income from operations 767,111 502,706 717,999
Interest Expense (31,843) (31,156) (36,847)
Other Deductions, net (57,283) (33,242) (13,418)
- ---------------------------------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of
accounting changes 677,985 438,308 667,734
Income Taxes 220,345 151,324 240,400
- ---------------------------------------------------------------------------------------------------------
Net income before cumulative effect of accounting changes 457,640 286,984 427,334
Cumulative effect of accounting
changes (see Note 1) 15,450 -- --
- ---------------------------------------------------------------------------------------------------------
Net Income $ 473,090 $ 286,984 $ 427,334
- ---------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Earnings Per Share before cumulative
effect of accounting changes $ 2.08 $ 1.31 $ 1.97
Cumulative effect of accounting changes 0.07 -- --
- ---------------------------------------------------------------------------------------------------------
Earnings Per Share $ 2.15 $ 1.31 $ 1.97
- ---------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Earnings Per Share before cumulative
effect of accounting changes $ 2.08 $ 1.31 $ 1.96
Cumulative effect of accounting changes 0.07 -- --
- ---------------------------------------------------------------------------------------------------------
Earnings Per Share $ 2.15 $ 1.31 $ 1.96
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
AMP INCORPORATED 1997 ANNUAL REPORT 33
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
(dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 350,320 $ 223,779
Securities available for sale 79,350 27,971
Receivables 1,051,422 1,025,850
Inventories 908,219 786,623
Deferred income taxes 145,712 184,273
Other current assets 114,777 107,684
- -------------------------------------------------------------------------------
Total current assets 2,649,800 2,356,180
- -------------------------------------------------------------------------------
Property, Plant and Equipment 4,627,419 4,690,819
Less - Accumulated depreciation 2,711,434 2,663,211
- -------------------------------------------------------------------------------
Property, plant and equipment, net 1,915,985 2,027,608
- -------------------------------------------------------------------------------
Investments and Other Assets 282,318 301,917
- -------------------------------------------------------------------------------
Total Assets $ 4,848,103 $ 4,685,705
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 465,233 $ 419,411
Payables, trade and other 487,863 463,261
Accrued payrolls and employee benefits 175,527 164,842
Accrued income taxes 177,278 201,169
Other accrued liabilities 139,395 196,212
- -------------------------------------------------------------------------------
Total current liabilities 1,445,296 1,444,895
Long-Term Debt 159,695 181,599
Deferred Income Taxes 48,768 48,037
Other Liabilities 242,809 221,276
- -------------------------------------------------------------------------------
Total liabilities 1,896,568 1,895,807
- -------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, without par value-
Authorized 700,000,000 shares,
issued 232,496,129 shares 81,670 80,866
Other capital 91,575 85,325
Deferred compensation (11,169) (6,896)
Cumulative translation adjustments 27,079 112,179
Net unrealized investment (losses) gains (373) 6,134
Retained earnings 2,940,488 2,695,990
Treasury stock, at cost (177,735) (183,700)
- -------------------------------------------------------------------------------
Total shareholders' equity 2,951,535 2,789,898
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 4,848,103 $ 4,685,705
- -------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
34 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Cumulative Investment
Common Other Deferred Translation (Losses) Retained Treasury Stock
(amounts in thousands) Stock Capital Compensation Adjustments Gains Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $70,135 $80,105 $(4,568) $129,612 $ 21,585 $2,442,317 (15,004) $(243,431)
Net income 427,334
Cash dividends - 92 cents per share (196,521)
Change in subsidiary's year-end (5,375)
Purchases of treasury stock (87) (3,439)
Distributions of treasury stock
under stock award plans 1,075 (3,734) 209 7,228
Issuance of common stock
under stock award plans 9,445
Amortization of deferred
compensation 5,813
Translation adjustments 27,225
Change in net unrealized
investment (losses) gains (2,162)
ESOP termination 2,274
Acquisition of business 83 3,110
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 79,580 83,454 (2,489) 156,837 19,423 2,667,755 (14,799) (236,532)
Net income 286,984
Cash dividends - $1.00 per share (218,875)
Purchases of treasury stock (11) (439)
Distributions of treasury stock
under stock award plans 1,501 (5,651) 293 8,645
Issuance of common stock
under stock award plans 895
Amortization of deferred
compensation 1,244
Translation adjustments (44,658)
Change in net unrealized
investment (losses) gains (13,289)
Issuance of treasury shares in
pooling-of-interests 391 370 (39,874) 1,597 44,626
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 80,866 85,325 (6,896) 112,179 6,134 2,695,990 (12,920) (183,700)
Net income 473,090
Cash dividends - $1.04 per share (228,240)
Purchases of treasury stock (184) (7,578)
Distributions of treasury stock
under stock award plans 6,250 (7,883) 462 13,191
Issuance of common stock under
stock award plans 804
Amortization of deferred
compensation 3,610
Translation adjustments (85,100)
Change in net unrealized
investment (losses) gains (6,507)
Acquisition of business (352) 12 352
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $81,670 $91,575 $(11,169) $27,079 $ (373) $2,940,488 (12,630) $(177,735)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
AMP INCORPORATED 1997 ANNUAL REPORT 35
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Cash Equivalents at January 1 $ 223,779 $ 212,538 $ 244,568
- ---------------------------------------------------------------------------------------------------
Operating Activities:
Net income 473,090 286,984 427,334
Noncash adjustments-
Depreciation and amortization 438,956 424,100 361,394
Restructuring and one-time (credits)/charges (25,852) 195,000 --
Effect of accounting changes (22,889) -- --
Deferred income taxes 33,709 (42,922) 35,460
Increase to other liabilities 3,954 9,007 41,688
Other, net 56,596 15,438 42,292
Changes in operating assets and liabilities
net of effects of acquisitions of businesses (171,014) (95,474) (164,356)
Change in subsidiary's year end -- -- 3,164
- ---------------------------------------------------------------------------------------------------
Cash provided by operating activities 786,550 792,133 746,976
- ---------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property, plant and equipment (481,286) (592,341) (712,976)
(Increase) decrease in securities
available for sale (62,735) 30,226 97,545
Acquisitions of businesses, less cash acquired -- (50,052) (299)
Increase in investments (13,683) (32,604) (71,423)
Other, net 56,965 5,931 28,626
- ---------------------------------------------------------------------------------------------------
Cash used for investing activities (500,739) (638,840) (658,527)
- ---------------------------------------------------------------------------------------------------
Financing Activities:
Changes in short-term debt 90,475 105,394 139,968
Proceeds from long-term debt 46,610 10,239 36,773
Repayments of long-term debt (49,420) (33,608) (99,748)
Purchases of treasury stock (7,578) (439) (3,439)
Dividends paid (228,240) (218,875) (196,521)
Other, net -- -- 1,188
- ---------------------------------------------------------------------------------------------------
Cash used for financing activities (148,153) (137,289) (121,779)
- ---------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (11,117) (4,763) 1,300
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at December 31 $ 350,320 $ 223,779 $ 212,538
- ---------------------------------------------------------------------------------------------------
Changes in Operating Assets and Liabilities:
Receivables (92,525) (29,541) (78,348)
Inventories (119,443) (72,674) (103,359)
Other current assets (8,482) (10,465) 19,818
Payables, trade and other 52,406 13,256 14,460
Accrued payrolls and employee benefits 14,633 (1,226) 14,138
Other accrued liabilities (17,603) 5,176 (31,065)
- ---------------------------------------------------------------------------------------------------
$(171,014) $ (95,474) $(164,356)
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
36 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING PRINCIPLES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Investments
representing ownership of 20% to 50% in affiliates and joint ventures are
accounted for using the equity method.
The Company's former M/A-COM subsidiary (see Note 3) changed its fiscal
year-end in 1995 from the Saturday nearest September 30 to December 31 in order
to be consistent with the rest of the companies' year-ends. In accordance with
guidelines of the Securities and Exchange Commission, only twelve months of
income and expense for M/A-COM were included in the Consolidated Statement of
Income for 1995. Results of operations associated with the additional months
were recorded directly to retained earnings in 1995, and cash flow activity for
the same period was reflected as a single line item in the operating activities
section of the Consolidated Statement of Cash Flows.
Cash and Cash Equivalents--Cash and cash equivalents are comprised of cash
in banks, time deposits, repurchase agreements and investments with original
maturities of 91 days or less on their acquisition date.
Investments--The Company accounts for its investments using Statement of
Financial Accounting Standards No. 115, "Accounting For Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). This standard requires that
certain debt and equity securities be adjusted to market value at the end of
each accounting period. Unrealized market value gains and losses are charged to
earnings if the securities are traded for short-term profit. Otherwise, such
unrealized gains and losses are charged or credited to a separate component of
shareholders' equity.
Management determines the proper classifications of investments in
obligations with fixed maturities and marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. At
December 31, 1997 and 1996, all securities covered by SFAS No. 115 were
designated as available for sale. Accordingly, these securities are stated at
fair value, with unrealized gains and losses reported in a separate component of
shareholders' equity. Realized gains and losses on sales of investments, as
determined on a specific identification basis, are included in the Consolidated
Statements of Income.
Inventories--Inventories, consisting of material, labor and overhead, are
stated at the lower of first-in, first-out ("FIFO") cost or market.
Property, Plant and Equipment and Depreciation--Property, plant and
equipment is stated at cost, adjusted to current exchange rates where
applicable. Depreciation is computed by applying principally the straight-line
method to individual items. Depreciation rate ranges are substantially as
follows:
Buildings 5%
Leasehold improvements Life of lease
Machinery and equipment 10% to 33-1/3%
Machines and tools with customers 20% to 33-1/3%
Information systems assets 20% to 33-1/3%
Where different depreciation methods or lives are used for tax purposes,
deferred income taxes are recorded.
Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements which extend the lives of the related assets are capitalized
and depreciated at applicable straight-line rates.
The cost and accumulated depreciation of items of plant and equipment
retired or otherwise disposed of are removed from the related accounts, and any
residual values are charged or credited to operating income.
Other Assets-- The excess of cost over the fair value of assets acquired is
amortized over periods not exceeding 15 years. In 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 , "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"). This statement requires recognition of impairment losses for
long-lived assets whenever events or changes in circumstances result in the
carrying amount of the assets exceeding the sum of the expected future cash
flows associated with such assets. The measurement of the impairment losses to
be recognized is to be based on the difference between the fair values and the
carrying amounts of the assets. SFAS No.121 also requires that long-lived assets
held for sale be reported at the lower of carrying amount or fair value less
cost to sell. The effect of the adoption of this policy in 1996 was immaterial
to the consolidated financial results of the Company; however, as a result of
the restructuring actions and other issues discussed in Note 2, $68.1 million in
charges were recorded for write-downs of long-lived assets in the fourth quarter
of 1996.
AMP INCORPORATED 1997 ANNUAL REPORT 37
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Environmental Costs--Environmental expenditures which relate to current
operations are capitalized or charged to expense as appropriate. Future remedial
expenses are accrued without regard to possible recoveries from third parties
when their outcome appears probable and their potential liability can be
reasonably estimated.
Stock-Based Compensation--The Company follows Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") that provides for a fair value based method of accounting for grants
of equity instruments to employees or suppliers in return for goods or services.
As permitted under SFAS No. 123, the Company elected to continue to account for
compensation cost under the provisions prescribed by APB Opinion No. 25. The
Company has included pro forma disclosures of net income and basic and diluted
earnings per share in Note 14 as if the fair value based method had been applied
in measuring compensation cost.
Changes in Accounting Policies--On January 1, 1997, the Company made two
changes to the accounting practices used to develop inventory costs. The first
change was made to standardize globally the definition of capacity used to
determine volume assumptions for overhead rates. The new definition more
properly reflects the Company's objectives for plant and equipment utilization
and provides for consistent measurement of AMP facilities.
In an effort to provide increased focus on engineering efforts for both
product development and manufacturing cost reductions, the Company also changed
the inventory costing methodology to include manufacturing engineering costs in
inventory costs. Previously, these costs were expensed in the period incurred
and included in the cost of sales on the Consolidated Statement of Income.
The net after-tax benefit of the preceding changes in accounting for
inventory of $15,450,000, or $0.07 per share, was presented as a cumulative
effect of accounting changes on the Consolidated Statement of Income for 1997.
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which
supersedes APB Opinion No. 15 and requires dual presentation of Basic and
Diluted earnings per share on the face of the income statement. Under SFAS No.
128, Basic EPS is computed using only the weighted-average number of common
shares outstanding for the period while Diluted EPS is computed assuming the
conversion of all dilutive securities, such as options. The effect of the
adoption of this statement was immaterial to the consolidated financial
statements of the Company. In accordance with SFAS No. 128, all prior period per
share amounts have been restated to reflect the new calculation and
presentation. The statement requires a reconciliation of the numerators and
denominators used in the Basic and Diluted EPS calculations. The numerator, net
income, is identical in both calculations. The following table presents a
reconciliation of the shares used in the respective calculations as well as per
share amounts:
1997 1996 1995
- -------------------------------------------------------------------------------
Shares EPS Shares EPS Shares EPS
- -------------------------------------------------------------------------------
Basic Calculation 219,769,910 $2.15 219,181,787 $1.31 217,324,776 $1.97
Dilutive Securities
--Primarily Options 605,108 415,101 391,317
- -------------------------------------------------------------------------------
Diluted Calculation 220,375,018 $2.15 219,596,888 $1.31 217,716,093 $1.96
- -------------------------------------------------------------------------------
2. RESTRUCTURING AND ONE-TIME (CREDITS)/CHARGES
In 1997, the Company recorded one-time pretax charges of $17.7 million to
provide for litigation exposures and $25.5 million to write-down equity
investments. The Company also reduced the restructuring reserve established in
1996 by $25.9 million. In 1996, $195 million of pretax restructuring and other
one-time charges were recorded.
Restructuring and One-time (Credits)/Charges -- In the fourth quarter of
1996, the Company's management performed a review of product lines,
manufacturing operations and other activities to rationalize their existence
based on performance trends. As a result of this review, the decision was made
to take $167.6 million pretax restructuring and one-time charges in order to
exit various product lines, manufacturing
38 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
operations and investments that were not performing or expected to perform at
levels which enhance shareholder value. The primary product lines and
manufacturing operations affected included the cylindrical connector products
used in the military/aerospace industry, the printed wiring board manufacturing
operation that used the "additive process," various product lines in the former
Global Interconnection Systems Business organization, such as PC Cards and
maturing products in the networking industry, and several U. S. terminal and
connector plants and facilities which were outdated and/or specialized in one
particular manufacturing process. The restructuring and associated charges were
recorded in the 1996 Consolidated Statement of Income as follows: $35.1 million
in cost of sales, $98 million in restructuring and one-time (credits)/charges
and $34.5 million in other deductions, net. The amount recorded to other
deductions, net, of $34.5 million related to equity investment write-offs and a
charge for related commitments for non-strategic and underperforming ventures of
the Company which were no longer supported. Approximately $70 million of the
total charges involved anticipated cash outlays.
Throughout 1997, the Company executed the restructuring plan by closing the
selected facilities, reducing the related headcount, liquidating inventory and
equipment, transferring continued production to other facilities, preparing
facilities for divestiture, investigating environmental matters, and negotiating
the termination of customer and supplier commitments. As a result, $127.5
million was charged to the reserve established in 1996. During the fourth
quarter, the Company assessed the status of the plan and concluded that the
remaining activities still to be completed included the sale of various vacated
manufacturing plants, resolution of certain environmental exposures related to
such plants, and product warranty and legal issues related to discontinued
products. The expenditures related to these future activities are estimated at
$14.2 million and are expected to be paid over the next several years.
Consequently, based on the remaining reserve balance, an adjustment to reduce
the restructuring reserve by $25.9 million was recorded as a reduction to cost
of sales of $4.5 million and a credit of $21.4 million to restructuring and
one-time (credits)/charges.
The significant savings were primarily reductions in expected cash outlays
for distributor product returns, the receipt of additional cash from the sales
of various assets, less severance paid due to a lower number of terminated
employees and the resolution of certain environmental issues with government and
regulatory authorities for amounts less than originally estimated.
A summary of the pretax charges recorded in the fourth quarter of 1996,
costs charged to the reserve in 1997 and the restructuring credit recorded at
year-end are as follows:
Reserve Activity
- -------------------------------------------------------------------------------
Costs
(dollars in millions) Balance at Charged to Balance at
Income Statement Caption Dec. 31, 1996 Reserve Adjustment Dec. 31, 1997
- -------------------------------------------------------------------------------
Cost of Sales $35.1 $30.5 $4.5 $0.1
Restructuring and One-time
(Credits)/Charges
Severance 13.3 11.9 1.3 0.1
Facilities and Environmental 42.3 22.5 11.8 8.0
Contractual Commitments 26.6 14.4 6.2 6.0
Intangible Assets/Other 15.8 13.7 2.1 --
- -------------------------------------------------------------------------------
Total 98.0 62.5 21.4 14.1
- -------------------------------------------------------------------------------
Other Deductions, net 34.5 34.5 -- --
- -------------------------------------------------------------------------------
Total $167.6 $127.5 $25.9 $14.2
- -------------------------------------------------------------------------------
Other One-time Charges -- Other one-time charges taken in 1997 included a
$17.7 million pretax charge in the second quarter to establish a legal reserve
and a $25.5 million pretax charge in the fourth quarter to write-down certain
equity investments. Both of these 1997 charges were recorded in other
deductions, net. In 1996, the Company recorded a $27.4 million pretax charge to
cost of sales to reserve for inventory and equipment write-downs related to
canceled programs, specialty products no longer supported and excess capacity.
AMP INCORPORATED 1997 ANNUAL REPORT 39
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MERGER WITH M/A-COM, Inc.
On June 30, 1995, M/A-COM, Inc. ("M/A-COM") was merged with and into the
Company through the issuance of 7.6 million shares of AMP common stock which
were exchanged for all of the outstanding common shares of M/A-COM. The merger
qualified as a tax-free reorganization and was accounted for as a
pooling-of-interests. Accordingly, the Company's financial statements for
periods prior to the merger have been restated to include the results of
M/A-COM.
As discussed in Note 1, prior to the merger, M/A-COM used a fiscal year
ending on the Saturday nearest September 30. In connection with M/A-COM's change
in year-end to December 31, the net loss of M/A-COM for the three-month period
ended December 31, 1994 of $5.4 million was reflected as an adjustment to
retained earnings effective January 1, 1995.
Combined and separate results of AMP and M/A-COM during the period
preceding the merger were as follows (in millions):
Six Months Ended
June 30, 1995 (unaudited) AMP M/A-COM Adjustment Combined
- -------------------------------------------------------------------------------
Sales $2,440 $192 $ -- $2,632
Net income (loss) 233 1 (31) 203
- -------------------------------------------------------------------------------
The combined financial results presented above include adjustments made to
conform the accounting policies of the two companies, as well as transaction
fees and one-time expenses associated with the merger. No intercompany
transactions existed between the two companies during the period presented.
Transaction costs and one-time charges resulting from the merger of $48.7
million ($31 million net-of-tax) include expenses for investment banker and
professional fees, severance related costs and charges to standardize the
accounting practices of the companies.
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, property, plant and equipment was comprised of the
following:
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------
Land $ 73,236 $ 78,318
Buildings and leasehold improvements 976,188 976,701
Machinery and equipment 3,243,597 3,275,696
Machines and tools with customers 334,398 360,104
- ----------------------------------------------------------------
$4,627,419 $4,690,819
- ----------------------------------------------------------------
Depreciation expense was $424,919,000, $410,340,000, and $348,216,000 in
1997, 1996, and 1995, respectively.
40 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
5. SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, are summarized as follows:
Gross Gross
Unrealized Unrealized
Holding Holding Market
(dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------
December 31, 1997
U.S. Government Securities -
Maturing in 1 year or less $ 6,004 $ 8 $ -- $ 6,012
Maturing between 1 and 5 years 16,375 43 1 16,417
Maturing after 5 years 2,000 -- -- 2,000
State and Municipal Securities
Maturing after 5 years 10,600 -- -- 10,600
Commercial Paper 30,199 61 10 30,250
Common Stock 14,752 3,932 4,613 14,071
- -----------------------------------------------------------------------------
$79,930 $4,044 $4,624 $79,350
- -----------------------------------------------------------------------------
December 31, 1996
Commercial Paper $ 1,996 $ -- $ 17 $ 1,979
Common Stock 16,110 9,882 -- 25,992
- -----------------------------------------------------------------------------
$18,106 $9,882 $ 17 $27,971
- -----------------------------------------------------------------------------
Differences between cost and market of $580,000 (less deferred taxes of
$207,000) and $9,865,000 (less deferred taxes of $3,731,000) were debited and
credited to a separate component of shareholders' equity called "net unrealized
investment (losses) gains" as of December 31, 1997 and 1996, respectively.
Proceeds from sales of securities available for sale were approximately
$133,148,000 and $69,155,000 for the years ended December 31, 1997 and 1996,
respectively. In 1997 and 1996, gross gains on the sale of securities available
for sale amounted to $3,378,000 and $16,618,000; gross losses were not
significant in either year. At December 31, 1997 and 1996, approximately
$153,230,000 and $53,039,000 of securities available for sale with original
maturities of 91 days or less were included in cash and cash equivalents. The
market values of these securities approximate cost.
6. INVENTORIES
At December 31, inventories were comprised of the following:
(dollars in thousands) 1997 1996
- --------------------------------------------------------------
Finished goods and work in process $491,688 $430,595
Purchased and manufactured parts 314,375 253,829
Raw materials 102,156 102,199
- --------------------------------------------------------------
$908,219 $786,623
- --------------------------------------------------------------
7. LEASE COMMITMENTS
The Company leases certain buildings and transportation and other
equipment. Capital leases are not significant.
Total rental expense under operating leases for the year ended December 31
was $80,421,000 in 1997, $79,113,000 in 1996, and $79,978,000 in 1995. Minimum
rental commitments at December 31, 1997, under leases with initial terms in
excess of one year were:
1998--$47,195,000 2001--$14,586,000
1999--$33,835,000 2002--$12,853,000
2000--$18,954,000 2003 and beyond--$82,621,000
AMP INCORPORATED 1997 ANNUAL REPORT 41
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage well-defined
commodity price and foreign currency risks. Financial instruments are not used
for trading purposes.
Commodities swap agreements are utilized to hedge anticipated purchases of
certain metals used in the Company's manufacturing operations. Under these swap
agreements, payments are made or received based on the differential between a
specified price and the actual price of the metals. These contracts generally
cover a one-year period and are accounted for as hedges, with all gains and
losses recognized in cost of sales when the commodities are consumed. At
December 31, 1997 and 1996, commodity contracts involving notional amounts of
$87,900,000 and $48,200,000, respectively, were outstanding. These notional
amounts do not represent amounts exchanged by the parties; rather, they are used
as the basis to calculate the amounts due under the agreements.
From time to time the Company utilizes forward foreign currency exchange
contracts to minimize the impact of currency movements, principally on
anticipated intercompany royalties, inventory purchases, loans and dividends
denominated in currencies other than their functional currencies. The terms of
these contracts are generally less than one year. The purpose of the Company's
hedging is to protect it from the risk that the eventual functional currency
inflows resulting from the intercompany payments will be adversely affected by
changes in exchange rates. Since these agreements hedge intercompany cash flows,
gains and losses are recorded each period based on the market value of the
contract at period end. Contract values for the Company's open foreign currency
agreements, all with A-rated counterparties, at December 31 are summarized
below:
(dollars in thousands) 1997 1996
-----------------------------------------------------
U.S. $/British Pound $ 82,803 $ 88,558
U.S. $/French Franc 70,385 187,670
U.S. $/German Mark 50,665 24,999
U.S. $/Swiss Franc 30,873 53,060
U.S. $/Japanese Yen 11,693 1,614
Swiss Franc/British Pound -- 44,417
Others 6,958 17,565
-----------------------------------------------------
$253,377 $417,883
-----------------------------------------------------
On March 11, 1994, the Company entered into a foreign currency swap with a
AAA-rated counterparty to hedge a portion of its net investment in its Japanese
subsidiary. Under terms of the agreement, the Company will swap 15.9 billion yen
for U.S. $150 million in ten years based on the exchange rate on the day the
contract became effective. In addition, the contract provides for the Company to
make semi-annual interest payments of 4.61% on the 15.9 billion yen, while
receiving semi-annual interest payments of 6.71% on the U.S. $150 million. The
Company has the unilateral right to unwind the swap early. Due to the fact that
this contract is an effective hedge of an investment in a foreign entity, any
gain or loss on the contract is recorded directly to cumulative translation
adjustments in shareholders' equity.
While it is not the Company's intention to terminate any of the above
financial instruments, the fair values were estimated by obtaining quotes from
brokers which represented the amounts that the Company would receive or pay if
the agreements were terminated at the balance sheet dates. These fair values
indicated that termination of the commodities swap agreements, the forward
foreign currency exchange contracts and the foreign currency swap agreement at
December 31, 1997 would have resulted in a $9,200,000 loss, a $2,900,000 gain
and a $12,900,000 gain, respectively. Termination of these agreements at
December 31, 1996 would have resulted in a $1,700,000 gain on the commodities
contracts, a $2,100,000 loss on the forward exchange contracts and a $3,200,000
loss on the foreign currency swap agreement. Due to the volatility of currency
exchange rates and commodity prices, these estimated results may or may not be
realized.
9. INTEREST
The Company capitalizes interest costs associated with the construction of
certain assets. These costs are not significant. Interest paid during the
periods was approximately equal to amounts charged to expense. Interest income
for the year ended December 31 was $19,169,000 in 1997, $13,963,000 in 1996, and
$17,204,000 in 1995.
42 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
10. RESEARCH AND DEVELOPMENT
Research and development expenditures for the creation and application of
new products and processes for the year ended December 31 were $319,600,000 in
1997, $315,100,000 in 1996, and $308,800,000 in 1995. The Company refined its
definitions of engineering phases in 1996. These phases are used to categorize
engineering efforts into concept and development versus manufacturing
engineering activities.
11. DEBT
At December 31, debt was comprised of the following:
1997 1996
Due Due
Long Within Long Within
(dollars in thousands) Term One Year Term One Year
- -------------------------------------------------------------------------------
International bank loans,
5.2% weighted interest rate
(1996-5.2%), repayable in
varying amounts through 2013 $152,668 $ 46,616 $171,844 $ 20,962
Mortgages and other
indebtedness, 7.2% weighted
interest rate (1996-6.8%),
repayable through 2010 7,027 5,455 9,755 5,228
International overdrafts
and demand loans, 4.4% weighted
interest rate (1996-4.4%) -- 413,162 -- 393,221
- -------------------------------------------------------------------------------
$159,695 $465,233 $181,599 $419,411
- -------------------------------------------------------------------------------
At December 31, 1997, the payment schedule of debt due after one year is as
follows: $25,585,000 in 1999, $37,067,000 in 2000, $15,191,000 in 2001,
$24,274,000 in 2002 and $57,578,000 in 2003 and beyond.
The Company maintains a commercial paper program for maximum borrowing of
$200,000,000. In addition, an agreement for a $150,000,000 five-year revolving
credit facility was signed with a group of U.S. banks primarily to back-up the
commercial paper program. The credit facility was amended in August, 1997 to
extend the term until September 1, 2002 and lower the facility fee to 5 basis
points from 6.25 basis points annually. Interest rate options on the facility
include: (1) the higher of the Federal funds rate plus 1/2 of 1% or the prime
commercial lending rate of the lead bank, (2) LIBOR, or (3) rates determined as
part of a competitive bidding process. This formal syndicated credit facility
has a minimum shareholders' equity requirement of approximately $2 billion.
Neither of these funding sources were in use at December 31, 1997 and 1996.
At December 31, 1997 and 1996, the fair values of the Company's short-term
and long-term debt were not significantly different from the respective carrying
values.
12. SHAREHOLDERS' RIGHTS
On October 25, 1989, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend of one Common Stock Purchase Right (a "Right") for
each outstanding share of Common Stock. Such Rights only become exercisable, or
transferable apart from the Common Stock, ten business days after a person or
group (an "Acquiring Person") acquires beneficial ownership of, or commences a
tender or exchange offer for, 20% or more of the Company's Common Stock.
Each Right then may be exercised to acquire one share of the Company's
Common Stock at an exercise price of $87.50, subject to adjustment. Thereafter,
upon the occurrence of certain events (for example, if the Company is the
surviving corporation of a merger with an Acquiring Person), the Rights entitle
holders other than the Acquiring Person to acquire Common Stock having a value
of twice the exercise price of the Rights. Alternatively, upon the occurrence of
certain other events (for example, if the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation), the Rights would entitle holders other than the Acquiring Person
to acquire Common Stock of the Acquiring Person having a value twice the
exercise price of the Rights.
The Rights may be redeemed by the Company at a redemption price of 1/2 cent
per Right at any time until the tenth business day following public announcement
that a 20% position has been acquired or ten business days after commencement of
a tender or exchange offer. The Rights will expire on November 6, 1999.
AMP INCORPORATED 1997 ANNUAL REPORT 43
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE RETIREMENT PLANS AND RETIREE MEDICAL BENEFITS
Defined Benefit Plans--The Company sponsors a defined benefit pension plan
which covers the majority of its U.S. employees. Pension benefits are based on
years of service and earnings near retirement. Assets of the plan are comprised
principally of equity securities and fixed income investments. The plan includes
a provision to increase benefit obligations in the event of a change in control
of the Company, as defined. It is the Company's policy to fund at least the
minimum amounts required by Federal law and regulation.
Certain international subsidiaries also have pension plans. In most cases,
the plans are defined benefit in nature. Assets of the plans are comprised of
insurance contracts and equity securities --or book reserves are maintained.
Benefit formulas are similar to those used by the U.S. plan. It is the policy of
these subsidiaries to fund at least the minimum amounts required by local law
and regulation.
Defined Contribution Plans--The Company also provides supplemental
retirement benefits to the majority of its U.S. employees through defined
contribution 401(k) plans. Participation in these plans is elective, and
contributions made by employees are matched by the Company in varying amounts
based upon a percentage of gross wages and, in certain cases, seniority. Assets
of the plans are invested in mutual funds, a fixed income fund and AMP stock.
Charges to earnings for these plans amounted to $15,953,000 in 1997, $15,944,000
in 1996 and $15,330,000 in 1995.
Retiree Medical Benefits--In addition to providing pension and 401(k)
benefits, the Company also provides health care coverage continuation for
qualifying U.S. retirees from date of retirement to age 65.
Components of net periodic retiree medical cost for the year ended December
31 were:
(dollars in thousands) 1997 1996 1995
-----------------------------------------------------------------------
Service costs - benefits
earned during the period $1,946 $2,016 $1,595
Interest cost on accumulated
postretirement benefit obligation 1,953 1,915 1,882
Net amortization and deferral 691 689 615
-----------------------------------------------------------------------
Net periodic postretirement
benefit $4,590 $4,620 $4,092
-----------------------------------------------------------------------
The funded status of these retiree medical plans at December 31 was:
(dollars in thousands) 1997 1996
----------------------------------------------------------------------
Plan assets at fair value $ - $ -
----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees 9,332 8,924
Employees eligible to retire 4,792 4,868
Employees not eligible to retire 13,899 13,252
----------------------------------------------------------------------
Accumulated postretirement benefit $28,023 $27,044
obligation
----------------------------------------------------------------------
Plan assets less than accumulated $(28,023) $(27,044)
postretirement benefit obligation
----------------------------------------------------------------------
Accrued liability at year-end $(19,380) $(16,815)
Unrecognized net gain 7,421 6,906
Unrecognized transition amount,
net of amortization (16,064) (17,135)
----------------------------------------------------------------------
Plan assets less than accumulated
postretirement benefit obligation $(28,023) $(27,044)
----------------------------------------------------------------------
Retiree medical benefits expense was computed using a medical cost trend
rate of 10% graded to 5.5% in year 2002 and later. For each increase of 1% in
the medical cost trend rate the benefit obligation would increase approximately
$1,289,000 and annual expense would increase approximately $281,000. The
settlement rate used to compute the obligation was 7.0% and 7.5% at December 31,
1997 and 1996, respectively.
44 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
Key economic assumptions used for the defined benefit plans were:
International
U. S. Plans Plans
- ------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------
Settlement rate--
January 1 7.50% 7.00% 5.00% 5.25%
December 31 7.00% 7.50% 5.00% 5.00%
Rate of increase in compensation 4.50% 4.50% 3.00% 3.25%
levels
Expected long-term rate of return 9.50% 9.50% 6.50% 6.50%
Components of net periodic pension cost for the year ended December 31
were:
U. S. Plans International Plans
- -------------------------------------------------------------------------------
(dollars in
thousands) 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------
Service cost -
benefits earned
during the period $29,077 $29,496 $23,539 $16,031 $14,775 $14,044
Interest cost on
projected benefit
obligation 53,700 48,059 42,188 14,164 13,053 14,922
Actual return on
plan assets (148,484) (96,162) (126,967) (15,923) (13,756) (23,541)
Net amortization
and deferral 87,451 41,368 74,918 863 123 8,221
- -------------------------------------------------------------------------------
Net periodic
pension cost $ 21,744 $22,761 $13,678 $15,135 $14,195 $13,646
- -------------------------------------------------------------------------------
The funded status of these plans at December 31 was:
<TABLE>
<CAPTION>
International Plans
------------------------------------------------
Plans in Which Assets Plans in Which
Exceed Accumulated Accumulated Benefit
U. S. Plans Benefit Obligations Obligations Exceed Assets
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Plan assets at fair value $ 822,850 $ 701,592 $ 60,259 $ 224,317 $ 192,430 $ 34,244
- ----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 581,962 488,406 45,080 180,123 173,931 37,643
Nonvested benefits 61,862 51,451 1,042 31,898 40,086 10,094
- ----------------------------------------------------------------------------------------------------------
Accumulated benefit
obligation 643,824 539,857 46,122 212,021 214,017 47,737
Additional benefits based on
projected future salary
increases 167,674 133,102 5,348 26,285 33,084 13,711
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation $ 811,498 $ 672,959 $ 51,470 $ 238,306 $ 247,101 $ 61,448
- ----------------------------------------------------------------------------------------------------------
Plan assets greater (less)
than projected benefit
obligation $ 11,352 $ 28,633 $ 8,789 $ (13,989) $ (54,671) $(27,204)
- ----------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension
cost at year-end $(106,833) $ (86,242) $ (5,937) $ 10,467 $ (30,372) $(24,118)
Unrecognized net gain
(loss) 111,001 107,171 13,236 (16,799) (37,123) (80)
Unrecognized prior
service cost (5,563) (7,321) (412) (1,437) (887) --
Unrecognized transition
amount, net of
amortization 12,747 15,025 1,902 (6,220) (8,889) (3,006)
Adjustment to recognize
minimum liability -- -- -- -- 22,600 --
- ----------------------------------------------------------------------------------------------------------
Plan assets greater (less)
than projected benefit
obligation $ 11,352 $ 28,633 $ 8,789 $ (13,989) $ (54,671) $(27,204)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AMP INCORPORATED 1997 ANNUAL REPORT 45
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCK AWARD PLANS
Long-Term Equity Incentive Plans--In April 1993, the shareholders approved
the 1993 Long-Term Equity Incentive Plan (the "Plan"). The Plan, as amended in
April 1995, provides that Stock Bonus Units ("SARs"), Incentive Stock Options
("ISOs"), Non-Qualified Stock Options ("NQSOs") and/or performance restricted
stock may be issued to key employees. Awards of up to 10,000,000 shares of the
Company's Common Stock may be made under this Plan.
In years prior to 1996, M/A-COM also sponsored a long-term incentive plan
whereby 336,000 shares of its stock had been authorized for the granting of
ISOs, NQSOs, outside Directors' options, SARs and restricted stock. This plan,
adopted in 1990, replaced all of that company's existing stock award plans;
however, awards outstanding under prior plans were not affected. Subsequent to
June 30, 1995, this plan was terminated and all outstanding awards became part
of the Plan.
Stock Options--The Board of Directors determines the terms and conditions
applicable to each Stock Option award. The option price per share of Common
Stock will not be less than 100% of the fair value of the stock on the award
date. Options expire no later than ten years from date of grant and may not be
exercised earlier than twelve months from such date. Generally, options granted
under the Plan since inception become exercisable on the third anniversary of
the grant date.
The Company accounts for stock option awards as prescribed by Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees," and its
related interpretations. Accordingly, no compensation cost has been recognized
in the Consolidated Statements of Income. Had the Company recorded compensation
expense for the fair value of the options granted, as provided by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and basic and diluted earnings per share
would have been reduced to the pro forma amounts indicated below:
1997 1996 1995
---------- ---------- ----------
Net income-- As reported $473,090 $286,984 $427,334
Pro forma $461,778 $281,400 $425,876
Earnings per share--
Basic As reported $ 2.15 $ 1.31 $ 1.97
Pro forma $ 2.10 $ 1.28 $ 1.96
Diluted As reported $ 2.15 $ 1.31 $ 1.96
Pro forma $ 2.10 $ 1.28 $ 1.96
In order to calculate the fair value of stock options at date of grant, the
Company used the Black-Scholes option pricing model. The following assumptions
were used for both 1997 and 1996: expected option term-6.5 years, stock price
volatility factor-25.3 and dividend yield-2.5%. Risk free interest rates of
6.49% and 6.43% were used in 1997 and 1996, respectively.
A summary of the status of the Company's stock option plans follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Number Average Price Number Average Price Number Average Price
of Shares Per Share of Shares Per Share of Shares Per Share
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1 4,226,063 $36.69 2,539,519 $36.54 2,070,913 $29.79
Granted 2,040,900 47.03 1,838,200 36.61 1,010,480 42.71
Excercised (261,543) 32.09 (80,699) 25.74 (282,846) 20.44
Canceled (158,088) 39.83 (70,957) 41.80 (259,028) 22.60
- --------------------------------------------------------------------------------------------------------
Balance at December 31 5,847,332 $40.42 4,226,063 $36.69 2,539,519 $36.54
- --------------------------------------------------------------------------------------------------------
Exercisable at
December 31 1,231,783 $34.00 670,933 $29.61 154,429 $22.71
- --------------------------------------------------------------------------------------------------------
Fair value of options
granted during year $13.94 $10.88 $12.64
- --------------------------------------------------------------------------------------------------------
</TABLE>
46 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
Stock Bonus Units--Stock Bonus Units awarded under the Plan may be granted
to participants with or without a Supplemental Cash Bonus, at the discretion of
the Board of Directors. The designated value of each Stock Bonus Unit may not be
less than 95% of the average fair value of the stock over the 10 days preceding
the award date. Awards are computed by multiplying vested Bonus Units by the
excess of the market price of the Company's Common Stock over the designated
value of the Stock Bonus Unit. Approximately 75,000 shares would be distributed
in the years 1998 through 2000 for Stock Bonus Units granted before and
outstanding at December 31, 1997, based on the market price at that date.
Currently, it is the Company's intention that no future grants of Stock Bonus
Units will be made.
Performance Restricted Stock Plan--In April 1995, the Company's
shareholders approved an amendment to the Plan which provided for the issuance
of restricted stock to key executives. Shares vest over a three year period
based on the attainment of specified average annual earnings growth and
return-on-equity targets. Data relative to shares awarded is presented below:
1997 1996 1995
- ---------------------------------------------------------------------------
Number of shares awarded 175,900 154,300 87,100
Fair value of options granted during year $47.00 $36.63 $42.88
Charges to income before income taxes for current and future distributions
under these plans for the year ended December 31 totaled $6,761,000 in 1997,
$1,099,000 in 1996, and $21,273,000 in 1995. In years prior to 1996, charges
included expenses associated with the Company's Cash (or Stock) Plan, as
participants could elect payment in shares of the Company's Common Stock. For
awards granted in 1996 and thereafter, this election is no longer permitted.
15. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(dollars in thousands For the 3 Months Ended
- ----------------------------------------------------------------------------------------------------
except per share data) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $1,392,867 $1,468,005 $1,432,600 $1,451,763
Gross income 402,697 452,979 456,832 456,121
Net income before
cumulative effect
of accounting changes 101,328 107,293 121,605 127,414
Cumulative effect of
accounting changes 15,450 -- -- --
- ----------------------------------------------------------------------------------------------------
Net income 116,778 107,293 121,605 127,414
- ----------------------------------------------------------------------------------------------------
Basic and diluted net
income per share
before cumulative
effect of accounting
changes 46 cents 49 cents 55 cents 58 cents
Basic and diluted
cumulative effect of
accounting changes per
share 7 cents -- -- --
- ----------------------------------------------------------------------------------------------------
Basic and diluted net
income per share 53 cents 49 cents 55 cents 58 cents
- ----------------------------------------------------------------------------------------------------
1996
Net sales $1,362,975 $1,365,487 $1,336,233 $1,403,333
Gross income 430,390 417,790 387,439 329,676
Net income/(loss) 116,448 115,621 94,842 (39,927)
Basic and diluted net
income/(loss) per share 53 cents 53 cents 43 cents (18) cents
</TABLE>
See Note 1 to the Consolidated Financial Statements for an explanation of
the accounting changes reflected in the first quarter of 1997. The second
quarter of 1997 includes an after-tax charge to net income of $11.9 million or 5
cents per share to establish a litigation reserve. The fourth quarter of 1997
includes an after-tax charge of $17.2 million or 8 cents per share to write-down
certain equity investments and an offsetting after-tax benefit of $17.5 million
or 8 cents per share for the adjustment to reduce the restructuring reserve that
was established in 1996. The fourth quarter of 1996 includes restructuring and
one-time charges of $128 million net-of-tax which reduced net income per share
by 58 cents (See Note 2, Restructuring and One-time (Credits)/Charges for more
information on the 1997 and 1996 (credits)/charges).
AMP INCORPORATED 1997 ANNUAL REPORT 47
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. INCOME TAXES
Components of income tax expense for the year ended December 31 were:
(dollars in 1997 1996 1995
thousands)
- ------------------------------------------------------------------
U.S. Federal:
Taxes currently payable $ 96,207 $ 101,080 $ 107,698
Deferred taxes 47,729 (42,370) 8,243
Foreign:
Taxes currently payable 80,274 85,325 105,657
Deferred taxes (11,865) (711) 2,102
Other:
Taxes currently payable 10,155 7,841 17,082
Deferred taxes (2,155) 159 (382)
- ------------------------------------------------------------------
$ 220,345 $ 151,324 $ 240,400
- ------------------------------------------------------------------
At December 31, gross deferred tax assets and liabilities were:
(dollars in thousands) 1997 1996
- ------------------------------------------------------
Gross deferred tax assets:
Inventories $90,256 $109,236
Pensions 44,395 23,341
Bonus plans 9,671 12,686
Medical benefits 16,075 13,513
Accruals 27,034 49,922
NOL carryovers 10,264 24,055
Other 56,075 45,690
- ------------------------------------------------------
$253,770 $278,443
- ------------------------------------------------------
Gross deferred tax liabilities:
Depreciation $51,571 $45,846
Undistributed earnings of
subsidiaries 66,145 66,145
Other 39,110 30,216
- ------------------------------------------------------
$156,826 $142,207
- ------------------------------------------------------
The Company's effective tax rate varied from the U.S. Federal income tax
rate for the following reasons:
1997 1996 1995
- ------------------------------------------------------------------
U.S. Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 0.5% 0.2% 1.6%
Foreign income taxes 0.9% 1.8% 0.6%
Other items not individually
significant (3.9%) (2.5%) (1.2%)
- ------------------------------------------------------------------
Effective tax rate 32.5% 34.5% 36.0%
- ------------------------------------------------------------------
The Company has net operating loss carryforwards related to M/A-COM and
certain foreign subsidiaries. At December 31, 1997, the tax effect of these
losses and related valuation allowance was approximately $50 million and $40
million, respectively. The valuation allowance increased $17.1 million in 1997
due to current year losses at certain foreign subsidiaries. These tax benefits
expire as follows: $25 million in 2000 to 2004, $13 million in 2005 to 2009 and
$12 million have no expiration.
For the year ended December 31, income before income taxes, after
allocation of eliminations, is as follows:
(dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------
United States operations $521,963 $259,916 $395,126
- ------------------------------------------------------------------
International operations 156,022 178,392 272,608
- ------------------------------------------------------------------
Worldwide income before $677,985 $438,308 $667,734
income taxes
- ------------------------------------------------------------------
48 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Company's share of subsidiaries' undistributed earnings not deemed to be
indefinitely invested. Taxes have not been provided on international
subsidiaries' earnings of approximately $204,000,000 and $215,000,000 at
December 31, 1997 and 1996, respectively. These earnings are deemed to be
indefinitely invested.
Income tax payments were $155,215,000 in 1997, $168,598,000 in 1996 and
$243,500,000 in 1995.
17. BUSINESS SEGMENTS
AMP develops, manufactures and markets electrical, electronic and
electro-optic connection products, interconnection systems and
connector-intensive assemblies. The Company's customers include original
equipment manufacturers and their subcontractors, utilities, government
agencies, distributors and value-added resellers. Business is concentrated in
one product area--electrical and electronic components.
The operations of the Company are worldwide and can be grouped into several
geographic segments. The subsidiaries manufacture locally where required by
market conditions and/or customer demands, where cost beneficial, and where
permitted by economies of scale. Most are also self-financed. There are
substantial intersegment and intrasegment sales.
Pertinent financial data by major geographic segments for the year ended
December 31 are:
(dollars in
thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
Net sales to trade customers:
United States $2,570,338 $2,414,652 $ 2,238,594
Europe 1,731,072 1,725,377 1,698,407
Asia/Pacific 1,140,249 1,054,027 1,059,095
Americas 303,576 273,972 231,130
- ----------------------------------------------------------------------------
Total $5,745,235 $5,468,028 $ 5,227,226
- ----------------------------------------------------------------------------
Intersegment sales:
United States $ 673,613 $ 559,361 $ 482,962
Europe 98,336 79,265 64,688
Asia/Pacific 99,577 94,254 95,443
Americas 20,269 13,160 11,222
Eliminations (891,795) (746,040) (654,315)
- ----------------------------------------------------------------------------
Total $ -- $ -- $ --
- ----------------------------------------------------------------------------
Pretax income:
United States $ 536,379 $ 264,715 $ 398,826
Europe 128,086 141,884 192,807
Asia/Pacific 27,859 21,308 74,305
Americas 4,827 15,401 11,096
Eliminations (19,166) (5,000) (9,300)
- ----------------------------------------------------------------------------
Total $ 677,985 $ 438,308 $ 667,734
- ----------------------------------------------------------------------------
Identifiable assets:
United States $3,124,897 $2,778,391 $2,676,394
Europe 1,206,819 1,221,972 1,135,606
Asia/Pacific 1,094,184 1,081,335 1,022,667
Americas 199,597 170,755 121,489
Eliminations (777,394) (566,748) (451,417)
- ----------------------------------------------------------------------------
Total $4,848,103 $4,685,705 $4,504,739
- ----------------------------------------------------------------------------
Transfers between geographic segments are accounted for on an arms' length
pricing basis.
Availability of remittances to the parent company is subject to exchange
controls and other restrictions of the various countries.
Foreign currency transaction net gains and losses, after adjustment for
income taxes to the extent appropriate, increased net income by $4,890,000 in
1997 and $663,000 in 1996, and decreased net income by $5,525,000 in 1995.
AMP INCORPORATED 1997 ANNUAL REPORT 49
- -------------------------------------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY
The financial statements and other financial information contained in this
Annual Report are the responsibility of management. They have been prepared in
accordance with generally accepted accounting principles applied on a materially
consistent basis and are deemed to present fairly the consolidated financial
position of AMP Incorporated and subsidiaries, and the consolidated results of
their operations. Where necessary, management has made informed judgments and
estimates of the outcome of events and transactions, with due consideration
given to materiality.
As a means of fulfilling its responsibility for the integrity of financial
information included in this Annual Report, management relies on the Company's
system of internal controls. This system has been established to ensure, within
reasonable limits, that assets are safeguarded, that transactions are properly
recorded and executed in accordance with management's authorization and that the
accounting records provide a solid foundation from which to prepare the
financial statements. It is recognized that no system of internal controls can
detect and prevent all errors and irregularities. Management believes that the
established system provides an acceptable balance between benefits to be gained
and their related costs.
It has always been the policy and practice of the Company to conduct its
affairs ethically and in a socially responsible manner. Employee awareness of
these objectives is achieved through regular and continuing key written policy
statements. Management maintains a systematic program to ensure compliance with
these policies.
As part of their audit of the financial statements, the Company's
independent public accountants review and assess the effectiveness of selected
internal accounting controls to establish a basis for reliance thereon in
determining the nature, timing and extent of audit tests to be applied. In
addition, the Company maintains a staff of internal auditors who work with the
independent public accountants to ensure adequate auditing coverage of the
Company and who conduct operational audits of their own design. Management
emphasizes the need for constructive recommendations as part of the auditing
process and implements a high proportion of their suggestions.
The Audit Committee of the Board of Directors meets with the independent
public accountants, internal auditors and management periodically to review
their respective activities and the discharge of each of their responsibilities.
Both the independent public accountants and the internal auditors have free
access to the Audit Committee, with or without management, to discuss the scope
of their audits and the adequacy of the system of internal controls.
50 AMP INCORPORATED 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of AMP Incorporated:
We have audited the accompanying consolidated balance sheets of AMP
Incorporated (a Pennsylvania Corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AMP Incorporated and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for costing its
inventories.
Philadelphia, PA
February 13, 1998 Arthur Andersen LLP
AMP INCORPORATED 1997 ANNUAL REPORT 51
AMP Incorporated and subsidiaries
EX-21
AMP Building Technology, Inc.
Wilmington, Delaware
AMP Investments, Inc.
Wilmington, Delaware
AMP Technologies
Wilmington, Delaware
Connectware, LLC
Santa Clara, California
(Delaware, U.S.A.)
Madison Cable Corporation
Worchester, Massachusetts
The Whitaker Corporation
Wilmington, Delaware
AMP of Canada, Ltd.
Markham, Canada
AMP S. A. Argentina C.I.Y.F.
Buenos Aires, Argentina
Cablesa Sociedad Anonima Industrial Commercial Inmobiliaria Y Agropecuaria
Buenos Aires, Argentina
AMP do Brasil Conectores Electricos E Electronicos Ltda.
Sao Paulo, Brazil
Cablesa do Brasil Autopecas Ltda.
Sao Paulo, Brazil
AMP de Chile Conectores Electricos y Electronicos Limitada
Santiago, Chile
AMP de Colombia Ltda.
Bogota, Colombia
AMP de Mexico, S.A.
Mexico City, D.F. Mexico
AMP Amermex, S.A. de C.V.
Hermosillo, Mexico
AMP Osterreich Handelsgesellschaft m.b.H.
Vienna, Austria
AMP Belgium
Zaventem, Belgium
(Branch of AMP-Holland B.V.)
AMP Czech s.r.o.
Kurim, Czech Republic
AMP Danmark
Viby J, Denmark
(Branch of AMP-Holland B.V.)
AMP Eesti AS
Haabneeme, Estonia
AMP Finland Oy
Helsinki, Finland
AMP de France S.A.
Pontois, France
AMP Holding France S.A.S.
Pontoise, France
AMP Societe Industrielle Materiel Electrique S.A.
Gevrey-Chambertin, France
AMP Export S.A.R.L.
Pontoise, France
AMP Deutschland GmbH
Langen, Germany
JITEX Elektrovertrieb GmbH
Wuppertal, Germany
AMP Hellas MEPE
Athens, Greece
AMP of Great Britain Limited
Stanmore, England
M/A-COM LTD.
Dunstable, England
AMP Hungary Manufacturing Co. Ltd.
Esztergom, Hungary
AMP Hungary Trading Co. Ltd.
Budapest, Hungary
AMP Ireland Limited
Dublin, Ireland
AMP Isreal Technology and Communications, Ltd.
Tel-Aviv, Israel
AMP Italia S.p.A.
Collegno, Italy
AMP Italia Products S.p.A.
San Salvo, Italy
AMP-Holland B.V.
's-Hertogenbosch, The Netherlands
AMP Technology Europe B.V.
`s-Hertogenbosch, The Netherlands
AMP Norge AS
Nesbru, Norway
AMP Polska Sp.z o.o.
Warszawa, Poland
Madison Cable Ltd.
Dundee, Scotland
AMP d.o.o., in Slovenia
Ljubljana, Slovenia
AMP Espanola, S.A.
Barcelona, Spain
AMP PORTUGAL-CONECTORES ELECTRICOS E ELECRONICOS LDA
Lisbon, Spain
AMP Products South Africa (Proprietary) Limited
Johannesburg, South Africa
AMP Svenska AB
Stockholm, Sweden
AMP (Schweiz) AG
Steinach, Switzerland
AMP (Schweiz) HFI, AG
Steinach, Switzerland
AMP (Schweiz) Produktions AG
Steinach, Switzerland
DeColletage SA St. Maurice
St. Maurice, Switzerland
AMP Elektrik Elektronik Baglanti Sistemleri Ticaret Limited Sirketi
Istanbul, Turkey
AMP China Incorporated
Harrisburg, Pennsylvania
(Delaware, USA)
AMP Qingdao Connectors Co. Ltd.
Qingdao, Peoples' Republic of China
AMP Shunde Connector, Ltd.
Shunde, People's Republic of China
Australian AMP Pty. Ltd.
Sydney, Australia
AMP Products Pacific Limited
Hong Kong
AMP India Pvt. Ltd.
Bangalore, India
AMP Tools (India) Pvt. Ltd.
Cochin, India
AMP (Japan), Ltd.
Kawaskaki-shi, Japan
AMP Technology Japan, Ltd.
Kawasaki, Japan
Carroll Touch International, Ltd.
Tokyo, Japan
(Delaware, U.S.A.)
(Branch of AMP Inc. - Carroll Touch Div.)
AMP Korea
Kyung Sang Buk Do, Korea
AMP Connectors (Malaysia) Sdn. Bhd.
Kuala Lumpur, Malaysia
AMP Products (Malaysia) Sdn. Bhd.
Kuala Lumpur, Malaysia
New Zealand AMP Ltd.
Auckland, New Zealand
AMP Philippines Inc.
Manila, Philippines
AMP Singapore Pte. Ltd.
Singapore
AMP Manufacturing Singapore Pte., Ltd.
Singapore
AMP Taiwan B.V.
Taipei, Taiwan
(The Netherlands)
AMP Manufacturing Taiwan, Ltd.
Hsin-chu, Taiwan
AMP (Thailand) Limited
Bangkok, Thailand
JOINT VENTURES
AMP Shanghai Ltd.
Shanghai, Peoples Republic of China
AMP-AKZO LinLam vof
Arnhem, The Netherlands
(Dutch vof partnership)
Carolina Circuits Company
Greenville, South Carolina
Note: Subsidiaries and joint ventures are incorporated in the
country/state of location except where indicated
otherwise.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMP Incorporated:
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 13, 1998 included or incorporated by reference in
this Form 10-K, into the Company's previously filed Form S-8 Registration
Statements, Registration Nos. 33-55318, 33-65048, 33-54277, 333-06767 and
333-16107.
Philadelphia, PA
March 27, 1998 /s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S 1997
ANNUAL REPORT TO SHAREHOLDERS
AND IS QUALIFIED BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 350,320
<SECURITIES> 79,350
<RECEIVABLES> 1,051,422
<ALLOWANCES> 0
<INVENTORY> 908,219
<CURRENT-ASSETS> 2,649,800
<PP&E> 4,627,419
<DEPRECIATION> 2,711,434
<TOTAL-ASSETS> 4,848,103
<CURRENT-LIABILITIES> 1,445,296
<BONDS> 0
<COMMON> 81,670
0
0
<OTHER-SE> 2,869,865
<TOTAL-LIABILITY-AND-EQUITY> 4,848,103
<SALES> 5,745,235
<TOTAL-REVENUES> 5,745,235
<CGS> 3,976,606
<TOTAL-COSTS> 3,976,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,843
<INCOME-PRETAX> 677,985
<INCOME-TAX> 220,345
<INCOME-CONTINUING> 457,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 15,450
<NET-INCOME> 473,090
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
