SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
[XX] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
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
(Exact Name of Registrant as Specified in Charter)
********************************
Commonwealth of Pennsylvania 23-0332575
(State or Other Jurisdiction of Incorporation IRS Employer Identification No.
or Organization)
Harrisburg, Pennsylvania 17105-3608
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (717) 574-0100
********************************
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 [ ].
The number of shares of AMP Common Stock (without Par Value) outstanding at
November 10, 1998 was 218,791,159 (excluding shares held in the treasury of the
Corporation, all of which are issued but not outstanding and are not entitled to
vote).
Includes an Exhibit Index.
AMP Incorporated & Subsidiaries
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Consolidated Statements of Income for the three months and the nine
months ended September 30, 1998 and 1997, the Consolidated Statements of Cash
Flows for the nine months ended September 30, 1998 and 1997, and the
Consolidated Balance Sheets at September 30, 1998 and December 31, 1997, are
presented below. See the notes to these condensed consolidated financial
statements at the end thereof.
AMP Incorporated & Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands,
except per share data)
For the Three Months
Ended September 30,
1998 1997
----------- -----------
Net Sales ...................... $ 1,337,218 $ 1,432,600
Cost of Sales (see Notes 2 & 3). 940,950 954,530
----------- -----------
Gross Income ............... 396,268 478,070
Selling, General and
Administrative Expenses
(see Note 2) .............. 262,932 284,176
Restructuring and One-time
Charges (see Note 3) ......... 185,778 --
----------- -----------
(Loss) Income from
Operations .............. (52,442) 193,894
Interest Expense ............... (16,178) (8,098)
Other Deductions, Net........... (44,488) (5,640)
----------- -----------
(Loss) Income Before
Income Taxes ........... (113,108) 180,156
Income Tax (Benefit) Expense ... (36,760) 58,551
----------- -----------
Net (Loss) Income .............. $ (76,348) $ 121,605
=========== ===========
Basic and Diluted Per Share Earnings $(0.35) $0.55
Cash Dividends Per Share ....... $ 0.27 $0.26
=========== ===========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
AMP Incorporated & Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands,
except per share data)
For the Nine Months
Ended September 30,
1998 1997
----------- -----------
Net Sales ....................... $ 4,084,869 $ 4,293,472
Cost of Sales (see Notes 2 & 3) . 2,878,105 2,921,110
----------- -----------
Gross Income ................ 1,206,764 1,372,362
Selling, General and
Administrative Expenses
(see Note 2) ............... 822,968 828,516
Restructuring and One-time
Charges (see Note 3) .......... 185,778 --
----------- -----------
Income from Operations ...... 198,018 543,846
Interest Expense ................ (31,154) (25,160)
Other Deductions, Net............ (46,824) (29,463)
----------- -----------
Income Before Income Taxes... 120,040 489,223
Income Taxes .................... 39,015 158,997
----------- -----------
Net Income Before Cumulative
Effect of Accounting Changes.... $ 81,025 $ 330,226
Cumulative Effect of
Accounting Changes (see Note 2). -- 15,450
----------- -----------
Net Income....................... $ 81,025 $ 345,676
=========== ===========
Basic and Diluted Per Share Earnings
Net Income Before Cumulative
Effect of Accounting Changes.. $ 0.37 $ 1.50
Cumulative Effect of Accounting
Changes ...................... -- $0.07
----------- -----------
Net Income ................... $0.37 $1.57
=========== ===========
Cash Dividends Per Share ........ $0.81 $0.78
=========== ===========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
AMP Incorporated & Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and Unaudited)
(dollars in thousands)
For the Nine Months
Ended September 30,
1998 1997
--------- ---------
Cash and Cash Equivalents at January 1 ............. $ 350,320 $ 223,779
Operating Activities:
Net Income ...................................... 81,025 345,676
Non-Cash Items --
Depreciation and Amortization ................ 312,854 330,044
Restructuring and One-Time Charges............ 187,096
Cumulative Effect of Accounting Changes....... -- (22,889)
Changes in Operating Assets and Liabilities ..... (138,814) (141,184)
Other, Net ...................................... (41,325) 45,956
--------- ---------
Cash Provided by Operating Activities ........ 400,836 557,603
--------- ---------
Investing Activities:
Additions to Property, Plant and Equipment ...... (368,090) (331,232)
Changes in Marketable Securities ................ 64,191 (27,265)
Other, Net ...................................... 18,400 22,157
--------- ---------
Cash Used for Investing Activities ........... (285,499) (336,340)
--------- ---------
Financing Activities:
Changes in Short-Term Debt ...................... (4,625) 27,165
Proceeds from Long-Term Debt .................... 70,529 11,945
Repayments of Long-Term Debt .................... (54,931) (19,064)
Purchase of Treasury Stock ...................... (56,374) (2,636)
Dividends Paid .................................. (177,291) (171,138)
--------- ---------
Cash Used for Financing Activities ........... (222,692) (153,728)
--------- ---------
Effect of Exchange Rate Changes on Cash ............ (6,933) 1,235
--------- ---------
Cash and Cash Equivalents at September 30 .......... $ 236,032 $ 292,549
========= =========
Changes in Operating Assets and Liabilities:
Receivables ..................................... (1,166) (117,863)
Inventories ..................................... 8,744 (87,412)
Other Current Assets ............................ 14,800 (720)
Payables, Trade and Other ....................... (98,720) 10,361
Accrued Payrolls and Employee Benefits .......... 1,405 56,634
Other Accrued Liabilities ....................... (63,877) (2,184)
--------- ---------
(138,814) (141,184)
========= =========
Interest paid during the periods was approximately equal to amounts charged
to expense.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
AMP Incorporated & Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Condensed)
(dollars in thousands)
September 30, December 31,
1998 1997
---------- ----------
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents ......... $ 236,032 $ 350,320
Securities Available for Sale ..... 8,141 79,350
Receivables ....................... 1,059,858 1,051,422
Inventories
Finished Goods and Work in
Process ....................... 508,318 491,688
Purchased and Manufactured Parts. 279,672 314,375
Raw Materials.................... 115,445 102,156
---------- ----------
Total Inventories................ 903,435 908,219
Other Current Assets .............. 254,916 260,489
---------- ----------
Total Current Assets .......... 2,462,382 2,649,800
---------- ----------
Property, Plant and Equipment ....... 4,867,315 4,627,419
Less - Accumulated Depreciation ... 2,922,454 2,711,434
---------- ----------
Property, Plant and Equipment,
Net .......................... 1,944,861 1,915,985
---------- ----------
Investments and Other Assets ........ 311,022 282,318
---------- ----------
Total Assets ........................ $4,718,265 $4,848,103
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Debt ................... $ 459,108 $ 465,233
Payables, Trade and Other ......... 393,011 487,863
Accrued Liabilities ............... 514,865 492,200
---------- ----------
Total Current Liabilities...... 1,366,984 1,445,296
---------- ----------
Long-Term Debt ...................... 170,360 159,695
Other Liabilities and
Deferred Credits .................. 363,071 291,577
---------- ----------
Total Liabilities ............. 1,900,415 1,896,568
---------- ----------
Shareholders' Equity ................ 2,817,850 2,951,535
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ............................. $4,718,265 $4,848,103
========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
AMP Incorporated & Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(September 30, 1998, Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's latest
annual report and Form 10-K.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods.
The Company is involved in various legal proceedings with AlliedSignal,
Inc. ("AlliedSignal") and related Shareholder actions described in Part II,
"Other Information", Item 1, "Legal Proceedings". At the present time the
Company is unable to determine the outcome of these proceedings and the related
impact on its future financial position and results of operations. Accordingly,
no reserve has been provided for in the Condensed Consolidated Balance Sheet at
September 30, 1998.
The following table presents a reconciliation of the shares used to
calculate earnings per share as well as per share amounts:
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
- - ------------------------------------------------------------------------- --------------------------------------------
1998 1997 1998 1997
- - ------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares EPS Shares EPS Shares EPS Shares EPS
Basic Calculation 218,658,724 $(0.35) 219,849,633 $0.55 219,164,735 $0.37 219,705,978 $1.57
Dilutive Securities-
Primarily Options -- 1,109,200 721,045 561,598
- - ------------------------------------------------------------------------- --------------------------------------------
Diluted Calculation 218,658,724 $(0.35) 220,958,833 $0.55 219,885,780 $0.37 220,267,576 $1.57
- - ------------------------------------------------------------------------- --------------------------------------------
</TABLE>
2. ACCOUNTING CHANGES
Effective January 1, 1998, AMP Incorporated, the United States parent
company, consolidated the majority of its operating divisions and reorganized
into functional organizations, including manufacturing, materials management,
engineering and finance. As a result of this change, certain manufacturing
administrative functions are now included in general and administrative
expenses, a classification that is consistent with the Company's subsidiaries.
The prior period amounts have been reclassified to provide for consistent data
comparisons.
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
For interim periods, SFAS No. 130 permits footnote presentation of a statement
of adoption of SFAS No. 130, a description of the impact of SFAS No. 130 on the
Company, total comprehensive income, any material components of total
comprehensive income for the periods presented and cumulative other
comprehensive income. Under SFAS No. 130, comprehensive income is defined as the
total of net income and all other non-owner changes in equity. Non-owner changes
in equity include: unrealized holding gains/(losses) on securities classified as
available-for-sale under FASB Statement No. 115 and foreign currency translation
adjustments accounted for under FASB Statement No. 52. The adoption of SFAS No.
130 involves new disclosure requirements only and did not impact the reported
financial position or results of operations.
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net (Loss) Income $(76,348) $121,605 $81,025 $345,676
Unrealized gains/(losses) on securities (2,496) 2,463 (4,309) (1,555)
Cumulative translation adjustment 70,234 (29,944) 20,397 (76,782)
---------------------------------- ----------------------------------
Total comprehensive (loss) income $(8,610) $94,124 $97,113 $267,339
================================== ==================================
</TABLE>
Cumulative other comprehensive income was $42,794 and $26,706 at September
30, 1998 and December 31, 1997, respectively.
During the first quarter of 1997, the Company made two changes to the
accounting practices used to develop its 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
its 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 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 Consolidated Statement of Income for the nine months
ended September 30, 1997.
3. RESTRUCTURING AND ONE-TIME CHARGES
In July of 1998, the Company announced its Profit Improvement Plan which
included the reduction of support staff throughout all its business units and
the consolidation of manufacturing plants and other facilities, as well as sales
growth initiatives, such as simplifying pricing, guaranteed 24-hour shipment on
stock parts, and enterprise agreements. In the third quarter of 1998, to assist
in reducing the support staff, several early retirement programs were initiated
and involuntary separation programs were enacted under existing severance plans.
Charges for staff reductions recorded in the third quarter were $172.1 million
and related to the voluntary retirement and involuntary termination of 4,000
employees, primarily staff support personnel and some direct manufacturing
employees. These charges, which are reflected in Restructuring and One-Time
Charges in the Condensed Consolidated Statement of Income, were related to early
retirement programs with acceptance dates within the third quarter and severance
for involuntary separations computed based on management approved lists of
employees to be terminated. Of the $172.1 million in charges, $89.0 million was
associated with the Voluntary Early Retirement Program that was paid through an
existing defined benefit pension plan. This charge increased the pension
liability and included a $109.0 million charge for special termination benefits
offset by a $20.0 million gain on partial settlement and curtailment of
benefits. Approximately $6.0 million in severance was paid in the third quarter
of 1998. At September 30, 1998, approximately 2,450 employees have left the
Company.
In addition to the charges associated with staff reductions, the Company
recorded $15.0 million of charges related to six plant and facility closures and
consolidations, of which $1.3 million of inventory write-offs were included in
Cost of Sales, with the remaining $13.7 million recorded in Restructuring and
One-Time Charges on the Condensed Consolidated Statement of Income. These
charges were primarily associated with write-downs of property, plant, and
equipment. Approximately $1.0 million of these charges were paid in the third
quarter of 1998.
4. FLEXI-TRUST
On September 28, 1998, the Company's Board of Directors authorized the
Company's management to enter into a Flexitrust Agreement to establish the
Flexitrust, a grantor trust, to hold shares of the Company's Common Stock. The
Flexitrust is targeted to free operating cash flow, which would otherwise be
used to fund, among other things, cash benefit and compensation requirements of
approximately $1.0 billion over the next ten years. The Flexitrust will not
affect the Company's existing employee benefit and compensation plans. Pursuant
to the terms of the Flexitrust, the shares will periodically be released from
the Flexitrust, at which time they may be used in kind to satisfy certain
stock-based obligations or sold to raise the cash necessary to fund certain
cash-based obligations. The Flexitrust will be administered by a committee
consisting of the Company's Chief Financial Officer, General Counsel, and Chief
Human Resource Officer (the "Flexitrust Committee"). Assets of the Flexitrust
remain subject to the claims of the Company's creditors.
In connection with the establishment of the Flexitrust, the Company
expects, pursuant to a Stock Purchase Agreement, to sell to the Flexitrust on or
prior to the consummation of the Company's Self-Tender Offer (see Note 6 -
Self-Tender Offer and Financing), an aggregate of 25 million authorized but
unissued shares of Common Stock (the "Trust Shares") for a purchase price of
$39.1875 per share, the closing price per share on the New York Stock Exchange
on September 25, 1998. The Flexitrust will issue to the Company, as payment for
the Trust Shares, a 10-year note payable to the Company in the principal amount
of approximately $979.7 million. The Company's note receivable and related
interest income, as well as the Flexitrust's note payable and related interest
expense, will not be recognized in the Company's consolidated financial
statements. The Company will make future contributions to the Flexitrust which,
together with dividends paid in respect to the Trust Shares, will be sufficient
to allow the Flexitrust to make principal and interest payments due on such
note. Cash paid or contributed to the Flexitrust by the Company is not expected
to be retained by the Flexitrust, but rather returned to the Company as
previously described. As principal payments are made on the note, a
proportionate number of Trust Shares will become available for use by the
Flexitrust in satisfaction of certain benefit and compensation obligations of
the Company.
Generally, Trust Shares held by the Flexitrust will be voted or consented
on any matter or tendered in the same proportion that all other shares of Common
Stock are voted, consented, or tendered. However, in the case of a self tender
made by the Company, or in the case of a third party tender or exchange offer
for less than a majority of all outstanding shares of Common Stock, Trust Shares
will be tendered only upon direction of the Flexitrust Committee. The formation
of the Flexitrust and issuance of Trust Shares will have no effect on the
Company's earnings per share calculation initially and will not change the
number of shares to be issued under the Company's existing stock-based plans.
Until the note is paid down and Trust Shares become available for use by the
Flexitrust, the Trust Shares are not treated as outstanding for purposes of
earnings per share calculations.
5. UNSOLICITED OFFER FROM ALLIEDSIGNAL, INC.
On August 4, 1998, AlliedSignal announced its intention to commence an
offer to purchase all outstanding shares of the Company's Common Stock at a
price of $44.50 per share (the "Original AlliedSignal Offer"). The Original
AlliedSignal Offer was commenced on August 10, 1998 and had an initial
expiration date of September 11, 1998. At the time of the Original AlliedSignal
Offer, AlliedSignal announced its intention to solicit consents, among other
things, to amend the Company's By-laws to increase the size of the Board of
Directors from 11 to 28 and to elect 17 persons, all of whom are directors
and/or executive officers of AlliedSignal, to the Company's Board of Directors
(the "AlliedSignal Nominees"). A record date of October 15, 1998 was established
in connection with this consent solicitation. After careful consideration, the
Board of Directors, by unanimous vote of those present, determined to reject the
Original AlliedSignal Offer as inadequate, not reflective of the value and
prospects of the Company and not in the best interests of the Company and its
relevant constituencies, including its shareholders. At such time, the Board of
Directors also determined not to redeem the Rights (see Note 12 of the
Consolidated Financial Statements for the year ended December 31, 1997, included
in the Company's Form 10-K, for an explaination of the Shareholders' Rights
Plan), not to grant certain approvals under the Pennsylvania Business
Corporation Law (the "PBCL") which were a condition to the Original AlliedSignal
Offer, and to amend the Rights Agreement to provide, among other things, that
the Rights would become nonamendable until November 6, 1999 (when the Rights
Agreement will expire in accordance with its terms) if AlliedSignal were
successful in its efforts to elect persons which would cause the "disinterested
directors" (as such term is defined in Section 1715(e) of the PBCL) presently in
office not to constitute a majority of the members of the Company's Board of
Directors.
On September 14, 1998, AlliedSignal amended its offer (the "Amended
AlliedSignal Offer") to reduce to 40,000,000 the number of shares sought. The
Amended AlliedSignal Offer had an initial expiration date of September 25, 1998.
AlliedSignal has also announced its intention to commence another offer,
following the expiration of the Amended AlliedSignal Offer, to purchase any
shares not purchased in the Amended AlliedSignal Offer at a price of $44.50 per
share in cash (the "Second Offer"). According to AlliedSignal, the Second Offer
would be made upon essentially the same terms and subject to the same conditions
set forth in the Original AlliedSignal Offer. AlliedSignal has also stated that
depending on circumstances prevailing at the time of the Second Offer, including
then prevailing interest rates, stock market, financial, and other economic
conditions and the Company's business and financial condition, including any
actions taken by the Company, the price per share in the Second Offer could be
higher or lower and the other terms and conditions of the Second Offer may be
amended.
At the time of the Amended AlliedSignal Offer, AlliedSignal announced its
intention to solicit consents for a new proposal (the "Rights Plan Proposal")
which would amend the Company's By-laws to remove from the Board of Directors
and vest in persons designated by AlliedSignal and to be identified in the
amendment to the By-laws the power to make decisions under the Rights Agreement.
On September 17, 1998, the Company's Board of Directors rejected the
Amended AlliedSignal Offer and determined to amend the Rights Agreement to
reduce the threshold percentage at which the Rights become exercisable from 20%
to 10% (for any person which has made an unsolicited acquisition proposal) and
to make the Rights nonredeemable and the Rights Agreement nonamendable if the
Rights Plan Proposal is adopted.
On September 18, 1998, AlliedSignal amended the Amended AlliedSignal Offer
(the "Second Amended AlliedSignal Offer") to reduce to 20,000,000 the number of
shares sought. The Second Amended AlliedSignal Offer expired on October 8, 1998
and AlliedSignal announced that it was purchasing shares pursuant to the Second
Amended AlliedSignal Offer.
At a meeting of the Board of Directors held on September 22, 1998, the
Board of Directors fixed a record date of November 16, 1998 for the Rights Plan
Proposal.
On September 28, 1998, the Company announced its intention to execute a
Self-Tender Offer to purchase 30,000,000 shares of the Company's Common Stock at
a price of $55 per share (see Note 6 - "Self-Tender Offer and Financing").
As a result of the above events, the Company has incurred approximately $16
million in fees in defending against AlliedSignal's bid. These fees are related
primarily to legal, public relations, and financial consulting, as well as other
incremental costs associated with special meetings of the Company's Board of
Directors, advertisements, and services from lobbyists. These expenditures are
included in Other Deductions, net on the consolidated statement of income and
are expensed as incurred. The Company anticipates expenses related to these
activities at this level in future quarters as long as there are continued
efforts to maintain autonomy.
6. SELF-TENDER OFFER AND FINANCING
On September 28, 1998, the Company announced its intention to commence a
tender offer (the "Self-Tender") for 30 million Shares of the Company's Common
Stock for $55 per Share. The Self-Tender is a "down payment" to shareholders for
the expected benefits of the Profit Improvement Plan. The Self-Tender commenced
on October 9, 1998 and expires on November 20, 1998, unless extended, and is
subject to certain conditions, including receipt of the necessary financing and
no change in control of the Company.
The Company estimates that the total funds required to complete the
Self-Tender and to pay certain related fees and expenses will be approximately
$1.7 billion. The Company intends to source these funds from the proposed $2.6
billion Senior Secured Credit Facility, denominated in U.S. dollars, for which
the Company received revised commitments on October 28, 1998. This facility is
comprised of a term loan consisting of a $1.0 billion Tranche A payable over 5
years, accruing interest at the adjusted London Inter Bank Offer Rate ("LIBOR")
plus 2.0%, and a $400 million Tranche B payable over 7 years, accruing interest
at an adjusted LIBOR plus 2.75%. In addition, the facility provides for two
revolving credit facilities, including a 364-day, $400 million revolver with a
fee on any undrawn portion of 0.25% per annum, and a 5-year $800 million
revolver with a fee on any undrawn portion of 0.5% per annum. Both revolving
credit facilities accrue interest at the rate of adjusted LIBOR plus 2.0%.
Letters of Credit of up to $200 million can be issued under the $800 million
revolving facility, reducing the availability of that facility. If the loan is
funded in late November of 1998 upon execution of the Self-Tender, payments
under both Tranche A and B of the term loan would be due quarterly in the
specified calendar years as follows: 1999 - $11 million; 2000 - $138 million;
2001 - $233 million; 2002 - $287 million; 2003 - $348 million; 2004 - $35
million; and 2005 - $348 million. The facilities are secured by substantially
all of the Company's assets in the United States, which amounted to
approximately $3.1 billion at September 30, 1998. The Company will be subject to
certain covenants under the Senior Secured Credit Facility, including, but not
limited to, maximum leverage ratio, minimum interest expense coverage ratio,
minimum net worth, and possible restrictions on dividends and share repurchases
based on certain conditions including the Company's credit rating and available
free cash flow. The Company does not expect these restrictions to have a
significant impact on the amount of dividends paid in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the third quarter of 1998 were $1.337 billion, down 6.7% in
U.S. dollars and 4.1% in local currencies from the $1.433 billion in the
corresponding prior year quarter. For the nine months ended September 30, 1998,
net sales were $4.085 billion, representing a decrease of 4.9% in U.S. dollars
and 1.5% in local currencies from the $4.293 billion for the nine months ended
September 30, 1997. The continued strength of the U.S. dollar reduced sales by
approximately $36 million in the quarter and $145 million for the nine months
ended September 30, 1998. The dollar weakened against most currencies in
September 1998.
Bookings for the third quarter were $1.364 billion, up 4.4% in U.S. dollars
from second quarter bookings of $1.306 billion. Bookings for the third quarter
were down 5.8% in U.S. dollars and 3.1% in local currencies from the $1.448
billion in the corresponding prior year quarter. The Company's order backlog
increased $46 million to $967 million from $921 million at June 30, 1998. The
revaluation of backlog for currency exchange rate changes contributed $19
million to the increase in backlog.
Sales in the Americas, approximately 50% of total sales, were down 9.0% for
the quarter ended September 30, 1998 compared to the corresponding prior year
quarter. U.S. net sales decreased 10.0%, while sales in the rest of the Americas
decreased 0.9% in U.S. dollars and increased 7.8% in local currencies. Americas
sales growth in the communications equipment manufacturing market showed
improvement in the third quarter compared to the first and second quarters of
1998. Sales in the computer market were down as manufacturers continued shifting
production to the Far East. For the nine months ended September 30, 1998, net
sales were down 6.4% from the comparable prior year period, primarily in the
computer and communication equipment manufacturing markets.
Asia/Pacific sales, approximately 19% of total sales, were up 1.9% in local
currencies, but down 11.2% in U.S. dollars for the quarter ended September 30,
1998 as compared to the corresponding prior year quarter. For the nine months
ended September 30, 1998, net sales were down 1.2% in local currencies and 11.4%
in U.S. dollars from the comparable prior year period, due to continuing weak
economic conditions. Sales in Japan and Korea were down about 8.0% in local
currencies, but improved from the second quarter rate of approximately negative
11.0%. Outside of Japan and Korea, Asia/Pacific sales were up 13.0% in local
currencies, driven by strong double-digit local currency growth in the computer
market.
Europe, Middle East and Africa sales, approximately 31% of total sales,
were down 1.4% in local currencies, and up 0.7% in U.S. dollars, for the quarter
ended September 30, 1998 as compared to the corresponding prior year quarter.
Germany, Spain, Northern Europe, and Eastern Europe exhibited positive growth,
while sales were weaker in France, Great Britain, and Italy. Sales in the
automotive market were up solidly, while the migration of computer production to
the Far East negatively impacted computer sales. For the nine months ended
September 30, 1998, net sales were up 5.3% in local currencies and 2.1% in U.S.
dollars from the comparable prior year period, primarily in the motor vehicle
market.
Gross income, before restructuring charges, decreased to 29.7% of net sales
for the quarter ended September 30, 1998, from 33.4% in the corresponding prior
year quarter. Third quarter 1998 gross income as a percent of sales increased
compared to 27.7% in the second quarter 1998. The decrease from 1997 was the
result of the lower sales levels and the corresponding decrease in production,
which resulted in lower absorption of fixed manufacturing costs. Price erosion
also contributed to the gross margin decline from the comparable prior year
quarter. The increase from the second quarter of 1998 is the result of cost
reduction actions, including those implemented as part of the Company's Profit
Improvement Plan. For the nine months ended September 30, 1998, gross income
decreased to 29.5% of net sales from 32.0% in the comparable prior year period.
The primary factor causing this decrease was the decline in sales volume from
1997.
Selling, general and administrative expenses (S,G&A) decreased to 19.7% of
net sales for the quarter ended September 30, 1998, from 19.8% in the
corresponding prior year quarter. Third quarter 1998 S,G&A decreased as a
percent of sales compared to 21.0% in the second quarter of 1998. The decrease
in S,G&A, despite lower sales, is the result of strict management of
discretionary expenditures enacted during the third quarter due to the 1998
sales levels, and to a lesser extent, the impact of indirect headcount
reductions in September 1998. For the nine months ended September 30, 1998,
S,G&A increased to 20.1% of net sales from 19.3% in the comparable prior year
period.
Restructuring and one-time charges recorded in the third quarter of 1998
associated with the implementation of the Company's Profit Improvement Plan were
$187.1 million pretax ($126.3 million after tax) or $0.58 per share. The charges
were in connection with the estimated termination costs of approximately 4,000
employees through early retirement programs and involuntary separations. The
majority of the workforce reductions will be completed early in the fourth
quarter. Also included in the charge are costs to close certain facilities in
North America. See Note 3 to the Condensed Consolidated Financial Statements.
Interest expense for the third quarter of 1998 was $16.2 million, an
increase of $8.1 million over the comparable prior year period of $8.1 million.
The increase primarily related to $7.5 million in commitment fees related to
bank funding for the Company's Self-Tender offer under the bank facilities
negotiated and committed at September 29, 1998 (see Note 6 to the Condensed
Consolidated Financial Statements). The commitment fee was expensed as incurred
since it was associated with a Bridge Loan for which funding was considered
remote. On October 28, 1998, the bank facilities and related fee structure were
revised to eliminate the Bridge Loan and the related $7.5 million fee. The new
fee structure includes a $2.75 million commitment fee related to a portion of
the original financing that management deemed no longer necessary. As a result,
this fee is expensed as incurred. A credit to interest expense of $4.75 million
will be recorded in the fourth quarter to revise the commitment fees to be
expensed upon the execution of the final debt agreement. For the nine months
ended September 30, 1998, interest expense was $31.2 million, an increase of
$6.0 million from the comparable prior year period of $25.2 million. The
increase is primarily due to the $7.5 million in commitment fees discussed
above.
Other deductions, net for the third quarter of 1998 were $44.5 million, an
increase of $38.9 million from the comparable prior year period of $5.6 million.
The increase resulted from expenses incurred to defend against the unsolicited
offer from AlliedSignal (see Note 5 to the Condensed Consolidated Financial
Statements) of approximately $16 million, and a litigation reserve for the
estimated resolution of a judgment related to a former product line. For the
nine months ended September 30, 1998, other deductions, net were $46.8 million,
an increase of $17.3 million from the comparable prior year period of $29.5
million. The increase is primarily due to the expenses incurred to defend
against the unsolicited offer from AlliedSignal, as noted above, since the
comparable 1997 period also included a similar litigation settlement.
Net loss for the third quarter of 1998 was $(76.3) million or $(0.35) per
share. For the nine months ended September 30, 1998, net income was $81.0
million ($0.37 per share, basic and diluted), versus $345.7 million ($1.57 per
share, basic and diluted) in 1997. The 1998 third quarter restructuring charge
and the decline in performance in 1998 versus 1997 are the primary drivers of
this decline. Net income, before restructuring charges, for the third quarter
1998 was $79.3 million ($0.36 per share, basic and diluted), down $42.3 million,
or 35%, from $121.6 million ($0.55 per share, basic and diluted) in the
year-earlier quarter.
Capital expenditures for the third quarter of 1998 were $121.8 million, up
20.3% from $101.2 million in the prior year quarter. For the nine months ending
September 30, 1998, capital expenditures were $368.1 million, up 10.8% from
$332.1 million in the comparable prior year period. Although capital
expenditures have continued to increase over 1997 levels, the Company continues
to focus on improving existing asset utilization and productivity and expects
capital expenditures for 1998 to be approximately $500 million, up approximately
4% from 1997 spending.
Liquidity and Capital Resources
On September 28 1998, the Board of Directors authorized the Company to
enter into a Flexitrust Agreement to establish a grantor trust, which will hold
25 million shares of the Company's Common Stock. The shares will be released
from the trust and issued in order to fund approximately $1 billion of employee
benefits and compensation over the next 10 years. The assets of the Flexitrust
remain subject to the claims of the Company's creditors. See Note 4 of the
Condensed Consolidated Financial Statements for an explanation of the accounting
for the Flexitrust.
On October 9, 1998, the Company commenced a tender offer for 30 million
shares of its Common Stock for $55 per share (the "Self-Tender"). The
Self-Tender is a "down payment" to the shareholders for the expected benefits of
the Company's Profit Improvement Plan. The offer expires on November 20, 1998,
unless extended, and is subject to certain conditions, including receipt of the
necessary financing and no change in control of the Company.
The Company estimates that the total funds to complete the Self-Tender and
to pay certain related fees will be approximately $1.7 billion. The Company
intends to source these funds from the proposed $2.6 billion Senior Secured
Credit Facility for which the Company received commitment on October 28, 1998.
See Note 6 to the Condensed Consolidated Financial Statements for details on the
proposed financing. Currently, the execution of the Self-Tender and therefore
funding of this proposed bank facility is planned for November 25, 1998. If
executed, the Company will incur incremental interest expense, including
amortization of deferred financing fees, of approximately $12 million in
December of 1998 and $140 million in 1999. The sources of funds to cover the
future incremental cash interest expense include improved operating cash flow as
a result of the Profit Improvement Plan, operating cash flows previously used to
fund employee benefits and compensation now funded via the Flexitrust, and
improved management of working capital. The Company does not anticipate any
significant impact on its dividend policy as a result of this financing.
YEAR 2000
The Company's efforts to address Year 2000 issues regarding its information
systems began in 1995 and were expanded to address the impact of Year 2000 on
the Company's non-information systems areas, including Year 2000 compliance of
third parties, in 1997. The Company established a Year 2000 Steering Committee
in 1997 including officers of the Company, to oversee readiness efforts and
address Year 2000 issues. The Steering Committee members include leaders from
various corporate functions providing the Steering Committee with broad
perspectives and representation to address the numerous Year 2000 issues facing
the Company. These issues are similar to Year 2000 issues faced by nearly every
manufacturing company worldwide. Additionally, the Company has worked with a
leading Year 2000 consultant to develop and implement a plan for addressing Year
2000 issues.
The information systems aspect of the Company's Year 2000 readiness efforts
set a year end 1998 target date for completion of hardware and software
inventory, remediation and testing. The Company believes that over 95% of its
subsidiaries and divisions will meet this target. The target date for the other
subsidiaries and divisions is the end of the first quarter of 1999.
Additionally, the Company plans to conduct a Company-wide Year 2000 information
systems quality assurance test during September 1999. The Company has not
developed contingency plans regarding remediation of its information systems.
Upgrades or modifications and development of contingency plans are expected to
take place during the testing process. To enable the Company to focus on these
efforts and to ensure that previously tested systems are not corrupted for the
Year 2000, a temporary freeze on purchases or installation of new information
systems will go into effect on October 1, 1999 and continue through the first
quarter of 2000.
The non-information systems aspect of the Company's Year 2000 readiness
efforts encompasses a number of areas including products and embedded
technology. The term embedded technology refers to the process controls,
microprocessors or micro-code "embedded" in production machinery, building
controls and supporting automated equipment. With regard to the Company's
products, the vast majority, by their nature, are not date dependent. The
Company has identified potentially date dependent products and is in the process
of testing those products in accordance with an established test procedure.
Testing of products identified as potentially date dependent is scheduled to be
completed during the fourth quarter of 1998. The Company does not anticipate a
material impact on its results of operations or financial condition arising from
product claims associated with Year 2000 issues, but the Company may experience
increased warranty or other product claims as a result of the transition to the
Year 2000. The Company is considering options to mitigate risks associated with
any product determined to be not Year 2000 ready.
An inventory of the Company's manufacturing, logistics, administrative and
facility systems and equipment containing embedded technology is substantially
complete and the Company has developed a process and database to address
embedded technology issues to promote consistency in the remediation and testing
phases. The Company's timeline for completion of remediation and verification
testing is the end of the second quarter of 1999 with the exception of the
facilities initiative, which has a target completion date of September 1, 1999.
The Company does not anticipate a material impact on its results of operations
or financial condition arising from Year 2000 embedded technology issues.
However, the availability of resources and the ability to discover and correct
Year 2000 issues could result in a failure to remediate all Year 2000 embedded
technology issues and could impact the Company's ability to manufacture and
deliver product to meet customer demands. The Company plans to develop
contingency plans to mitigate this risk as the remediation and verification work
proceeds, including prioritization of tasks.
The Company is contacting its suppliers and soliciting information on
suppliers' Year 2000 compliance efforts and status. This interaction is useful
both to provide information necessary to address some embedded technology issues
and to assess the ability of suppliers to provide the Company with the materials
and services the Company will need in and after the Year 2000. The Company also
plans to meet with and audit a number of strategic suppliers. While the Company
does not anticipate a material impact on its results of operations or financial
condition, the Company faces some risk that its suppliers will not achieve Year
2000 compliance and the flow of materials and services to the Company may be
disrupted. The Company is considering options to mitigate this risk, such as
locating alternate sources of supply and increasing inventory levels of certain
materials.
To date, incremental internal costs and external expenses for the Company's
Year 2000 readiness efforts have been approximately $14 million. The total
incremental internal costs and external expenses are not anticipated to exceed
$40 million. The remaining costs will be incurred primarily in 1999.
At this time the Company does not anticipate any material negative impact
to its results of operations or financial condition related to Year 2000 issues;
however, the Company is reliant in part on the effective execution by customers
and suppliers in dealing with these issues. Accordingly, recognizing the many
factors affecting the Company which are outside of the Company's control, such
as suppliers of goods and services (including municipalities and utilities on a
global basis), the Company is not able to state it will be completely unaffected
by the Year 2000.
The statements that are not strictly historical facts and estimates and
conclusions in this disclosure are forward-looking statements and are based upon
currently available information and management's best estimate of future events,
employing assumptions regarding continued availability of internal and external
resources, third party action and numerous other factors. These statements,
estimates and conclusions may change as the Company performs its assessment,
remediation and testing phase of its embedded technology areas.
CONVERSION TO THE EURO
Since 1997 the Company has been assessing the potential impact of the
January 1, 1999 conversion in eleven European countries to a common currency,
the Euro. The Company has completed internal systems changes to accommodate the
conversion to the Euro in many European countries and anticipates being capable
of accepting orders and invoicing in the Euro in Europe by the end of 1998.
These are temporary systems solutions that will accomodate order fulfillment
requirements until the fully Euro compliant version of SAP is available in early
2000. It is expected that all of the AMP affiliates using the Euro will be using
this SAP system on January 1, 2002 in time for the July 1, 2002 withdrawl of the
replaced currencies.
Conversion to the Euro may create some impact on the Company's currency
exchange rate exposure because a larger proportion of transactions will be
conducted in the Euro with respect to transactions between affiliates using the
Euro currency. The Company's currency exchange gain/(loss) should decrease given
the larger number of cross border transactions that will be conducted in the
same currency. While the impact of increased pricing transparency cannot be
quantified at this time, the Company expects that price leveraging among the
countries converting to the Euro will occur over time and is taking steps to
address this issue. At this time, the Company does not anticipate any material
negative impacts related to the conversion to the Euro.
DIVIDEND ACTION
On October 28, 1998, the Board of Directors declared a regular quarterly
dividend of 27 cents per share, payable Monday, December 1, 1998 to shareholders
of record at the close of business on Monday, November 9, 1998. The annual rate
of $1.08 per share is up from $1.04 in 1997 and $1.00 in 1996, and is the 45th
consecutive annual increase.
FUTURE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
Early adoption at the beginning of any quarter after issuance is permitted, but
cannot be applied retroactively. The provisions of the statement must be applied
to derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.
The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing or method of
adoption. However, the Statement could increase volatility in earnings and
comprehensive income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative
disclosures in 1998. Reference is made to Item 7A in the Annual Report on Form
10-K for the year ended December 31, 1997.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
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Statements in this Report on Form 10-Q that are not strictly historical
facts are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are intended to be covered by the safe harbors
created thereby. These statements should be considered as subject to the many
uncertainties that exist in the Company's operations and business environment
which could render actual outcomes and results materially different than
predicted. These uncertainties, which include economic and currency conditions,
market demand and pricing, competitive and cost factors, and the like, are set
forth in the Company's Report on Form 10-K for the year ended December 31, 1997
filed with the Securities and Exchange Commission on March 30, 1998. In
addition, the realization of the benefits anticipated from the strategic
initiatives described in this Report will depend, in part, on management's
ability to execute its business plan and to motivate properly the AMP employees,
whose attention has been distracted by AlliedSignal's offer and whose number has
been reduced as a result of these initiatives.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
AlliedSignal Corporation v AMP Incorporated, Civil Action No. 98-CV-4058
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On August 4, 1998, AlliedSignal filed a complaint against AMP in the United
States District Court for the Eastern District of Pennsylvania. In its initial
complaint, AlliedSignal sought a declaratory judgment as to, among other things,
the applicability and/or validity of the Continuing Director provisions
contained in AMP's Rights Agreement and the constitutionality of certain
provisions of the Pennsylvania Business Corporation Law under the Commerce
Clause and Supremacy Clause of the United States Constitution. In addition,
AlliedSignal sought to enjoin AMP from, among other things, (i) fixing a record
date for determining the shareholders entitled to vote on the proposals in the
AlliedSignal Consent Solicitation more than ten days after the date of
AlliedSignal's written notice requesting that a record date be set; (ii)
increasing the size of AMP's Board and filling the new seats with Board nominees
after commencement of the AlliedSignal Consent Solicitation; (iii) refusing to
redeem the Rights issued under AMP's Rights Agreement or amending the Rights
Agreement so as to make the Rights inapplicable to the Original AlliedSignal
Offer, and refusing to grant prior approval of the Original AlliedSignal Offer
and second-step merger for purposes of the Pennsylvania Business Combination
Statute; (iv) amending its By-laws to in any way impede the effective exercise
of the shareholder franchise; or (v) taking any steps to impede or frustrate the
ability of AMP's shareholders to consider or make their own determination as to
whether to accept the terms of the Original AlliedSignal Offer and the proposals
in the AlliedSignal Consent Solicitation, or taking any other action to thwart
or interfere with the Original AlliedSignal Offer or the AlliedSignal Consent
Solicitation.
On August 24, 1998, AMP filed its answer to the complaint filed by
AlliedSignal on August 4, 1998 in the United States District Court for the
Eastern District of Pennsylvania. In its answer, AMP denied that AlliedSignal is
entitled to any relief under its complaint and raised several affirmative
defenses.
On September 14, 1998, AlliedSignal filed a motion to amend its complaint.
The proposed amended complaint sought (i) declaratory and injunctive relief
declaring Amendment No. 3 to the Rights Agreement ("Amendment No. 3"), approved
by the Board on August 20, 1998, to be invalid under Pennsylvania law; or to the
extent that Amendment No. 3 is permitted under Pennsylvania law, declaring the
law as so applied unconstitutional under the Supremacy and Commerce Clauses of
the United States Constitution and (ii) declaratory and injunctive relief
prohibiting AMP's Board from taking any further action which might interfere
with the Amended AlliedSignal Offer (as defined in Note 5 to Condensed
Consolidated Financial Statements) or the AlliedSignal Consent Solicitation. AMP
agreed not to oppose AlliedSignal's motion to amend the complaint. On the same
day, AlliedSignal also filed a motion for (1) partial summary judgment on the
claim for a declaratory judgment set forth in the amended complaint that
Amendment No. 3 is invalid, or, in the alternative, a preliminary injunction
restraining enforcement of Amendment No. 3; and (2) a preliminary injunction
prohibiting AMP's Board from taking any action that would make the shareholder
vote on the AlliedSignal Consent Solicitation invalid.
On September 18, 1998, AlliedSignal filed a cross-motion for summary
judgment which sought the dismissal, as a matter of law, of the claim in the
complaint filed by AMP against AlliedSignal and PMA alleging an improper board
packing scheme. AMP's claims against AlliedSignal are discussed below.
On September 22, 1998, AlliedSignal filed a motion for leave to file a
second amended complaint in the United States District Court for the Eastern
District of Pennsylvania. The proposed second amended complaint sought to
broaden AlliedSignal's claim regarding AMP's Amendment No. 3 to the Rights
Agreement to incorporate a challenge to AMP's Amendment No. 4 to the Rights
Agreement ("Amendment No. 4"). Among other things, it sought (i) a declaratory
judgment that certain provisions of Amendment No. 4 which make the Shareholder
Rights Plan non-amendable are in violation of Pennsylvania law, (ii) a
declaratory judgment that, to the extent that Pennsylvania law authorizes the
amendment, such law is unconstitutional under the Supremacy Clause of the United
States Constitution because it violates the Commerce Clause and the Williams
Act, (iii) an order enjoining the enforcement of Amendment No. 4, and (iv) an
order enjoining AMP and all persons acting on AMP's behalf from taking action to
interfere with the AlliedSignal Consent Solicitation. AlliedSignal also sought
summary judgment with respect to its expanded claim regarding AMP's amendments
to the Rights Plan.
College Retirement Equities Fund and the shareholder group plaintiffs
(identified below) filed amicus curiae motions and briefs in support of
AlliedSignal's motion for declaratory and injunctive relief on September 25,
1998.
On September 25, 1998, AlliedSignal filed a motion for leave to file a
third amended complaint, which was granted by the United States District Court
for the Eastern District of Pennsylvania. Adding to the claims asserted in its
earlier complaints, AlliedSignal's proposed third amended complaint challenged
the November 16, 1998 record date set by AMP's Board of Directors for the
solicitation of consents regarding the Rights Plan Proposal (as defined in Note
5 to Condensed Consolidated Financial Statements). AlliedSignal asked the Court
either to fix a record date of October 15, 1998 for the consent solicitation on
the Rights Plan Proposal or to order AMP to fix October 15, 1998 as the record
date for that proposal. As described below, the Court has denied AlliedSignal's
request to fix October 15, 1998 as the record date for the Rights Plan Proposal
and subsequently found the Rights Plan Proposal to be unlawful.
Blum v William J. Hudson, Jr. et al., Civil Action No. 98-CV-4109;
Silver v AMP Incorporated et al., Civil Action No. 98-CV-4120;
Goldstein v AMP Incorporated, et al., Civil Action No. 98-CV-4127;
Margolis Partnership v AMP Incorporated, et al., Civil Action No. 98-CV-4187
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Four purported shareholder class action lawsuits were filed by AMP
shareholders against AMP and its Board of Directors in the United States
District Court for the Eastern District of Pennsylvania on or about August 6 and
7, 1998. These complaints alleged similar acts of misconduct, i.e., that AMP and
its directors improperly refused to consider the Original AlliedSignal Offer (as
defined in Note 5 to Condensed Consolidated Financial Statements) and wrongfully
relied upon provisions of AMP's Rights Agreement and the Pennsylvania Business
Corporation Law to block the Original AlliedSignal Offer. Plaintiffs in these
suits sought, among other things, a declaratory judgment that (i) the Continuing
Director provisions contained in AMP's Rights Agreement violate Pennsylvania law
and the Board's fiduciary duties; (ii) certain provisions of the Pennsylvania
Business Corporation Law are unconstitutional under the Commerce, Supremacy and
Due Process Clauses of the United States Constitution; and (iii) establishes the
proper record date for the AlliedSignal Consent Solicitation. In addition,
plaintiffs sought to enjoining AMP and the Board from, among other things, (i)
refusing to redeem the Rights, to amend the Rights Agreement so as to eliminate
the Continuing Director provisions, or to render the Rights inapplicable to the
Original AlliedSignal Offer and second-step merger for purposes of the
Pennsylvania Business Combination Law; (ii) amending AMP's By-laws to impede the
effective exercise of the shareholder franchise; (iii) taking any other steps to
impede or frustrate the ability of AMP's shareholders to consider or make their
own determination as to whether to accept the terms of the Original AlliedSignal
Offer or the proposals in the AlliedSignal Consent Solicitation; (iv) increasing
the size of AMP's Board and filing the new seats with Board nominees after
commencement of the AlliedSignal Consent Solicitation; and (v) fixing a record
date for determining the shareholders entitled to vote on the proposals in the
AlliedSignal Consent Solicitation more than ten days after the date of
AlliedSignal's written notice to AMP. Plaintiffs further request that the Court
order AMP's Board to (i) cooperate fully with any entity or person, including
AlliedSignal, having a bonafide interest in proposing any transaction that would
maximize shareholder value; (ii) immediately undertake an appropriate evaluation
of AMP's worth as a merger or acquisition candidate; (iii) take all appropriate
steps to effectively expose AMP to the marketplace in an effort to create an
active auction of AMP; (iv) act independently so that the interests of AMP's
public shareholders will be protected; and (v) adequately ensure that no
conflicts of interest exist between the individual defendants' own interest and
their fiduciary obligations. On August 19, 1998, the Court ordered the
consolidation of the four shareholder actions, and further ordered that the
consolidated action be coordinated with the AlliedSignal action for purposes of
discovery.
On September 28, 1998, the shareholder plaintiffs filed their First
Consolidated Class Action Amended Complaint. The consolidated amended complaint
names as defendants AMP, all but one of the individual members of AMP's Board of
Directors and eighteen of AMP's officers. The complaint alleged (i) violations
of the Securities Exchange Act of 1934, as amended, for failure to set forth an
adequate explanation of the reasons for recommending rejection of the
AlliedSignal tender offer in AMP's Solicitation Recommendation Statement on
Schedule 14D-9 filed by AMP in connection with the AlliedSignal tender offer and
for failing to disclose material information regarding the reasons for
rejection; (ii) that Amendments Nos. 3 and 4 to the Rights Agreement adopted by
the Board of Directors are illegal under the Pennsylvania Business Corporation
Law; and (iii) that if Amendments Nos. 3 and 4 to the Rights Agreement are not
illegal under the Pennsylvania Business Corporation Law, then that statute
violates the Commerce, Supremacy and Due Process clauses of the United States
Constitution. The Plaintiffs sought, among other things, a declaratory judgment
(i) that certain provisions of the Pennsylvania Business Corporation Law are
unconstitutional; (ii) that Amendments Nos. 3 and 4 to the Rights Agreement
violate the Pennsylvania Business Corporation Law and should be enjoined; (iii)
that the individual defendants have infringed the voting rights of AMP
shareholders; and (iv) that the individual defendants have violated their
fiduciary duties to AMP, Plaintiffs also sought to enjoin the defendants from
entrenching themselves in office and from impairing the shareholders' rights to
vote on certain matters, and ask the Court to order defendants to disclose all
material facts relating to AMP's and AlliedSignal's solicitations.
AMP intends to continue to defend vigorously against these actions.
AMP Incorporated v AlliedSignal Corporation, et al., Civil Action No. 98-CV-4405
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On August 21, 1998, AMP filed a complaint in the United States District
Court for the Eastern District of Pennsylvania against AlliedSignal and PMA. The
complaint sought declaratory and injunctive relief to prevent AlliedSignal from
pursuing its attempt to pack the AMP Board of Directors with AlliedSignal
executive officers and directors who would have an irreconcilable conflict of
interest were they to serve as directors of AMP. The complaint alleged that the
Schedule 14D-1 filed by AlliedSignal and PMA with the Securities and Exchange
Commission is false and misleading because it fails to disclose that
AlliedSignal's representatives on the AMP Board of Directors would have a
conflict of interest and how AlliedSignal would propose to deal with such
conflict, and that AlliedSignal's attempt to pack the Board would prevent the
current members of the Board from fulfilling their fiduciary duties to AMP under
Pennsylvania law.
On September 11, 1998, AMP filed a motion for summary judgment on the
Second Claim for Relief of its complaint against AlliedSignal and PMA. The
Second Claim for Relief is based upon the fact that AlliedSignal's attempt to
pack the AMP Board with AlliedSignal's directors and senior management would
create pervasive, irreconcilable conflicts of interest. The AlliedSignal
Nominees have an undivided duty of loyalty to AlliedSignal that would conflict
with their ability to fulfill their fiduciary duties to AMP under Pennsylvania
law. AMP's motion sought an order declaring that the AlliedSignal Consent
Solicitation proposals are in violation of Pennsylvania law.
On September 22, 1998, AMP filed an amended complaint against AlliedSignal
in the United States District Court for the Eastern District of Pennsylvania.
The amended complaint broadens the claims asserted by AMP in its initial
complaint. It seeks, among other things, (i) an order declaring that the
Pennsylvania Control-Share Acquisitions statute bars AlliedSignal from voting
any shares acquired pursuant to the Amended AlliedSignal Offer and (ii) a
declaratory judgment that AlliedSignal's Rights Plan Proposal, which purports to
delegate to non-directors authority relating to the Shareholder Rights Plan,
violates Pennsylvania law. In addition to seeking to enjoin the AlliedSignal
board packing plan referenced in the initial complaint, the amended complaint
also alleged violations of certain requirements of the federal securities laws
relating to tender offers.
The Court heard arguments on AMP's and AlliedSignal's motions on September
28, 1998. The Court denied AlliedSignal's request to fix October 15, 1998 as the
record date for the Rights Plan Proposal.
On October 8, 1998, the Court entered an Order and Memorandum Opinion in
the above-referenced actions. With respect to AMP's motion for partial summary
judgment in the nature of a declaratory judgment regarding the Second Claim for
Relief of AMP's Complaint that AlliedSignal's consent solicitation plans are
unlawful, the Court enjoined AlliedSignal's board-packing consent proposals,
"until [AlliedSignal] states unequivocally that its director nominees have a
fiduciary duty solely to AMP under Pennsylvania law and includes a statement
from each nominee affirmatively committing personally to that duty." Shortly
thereafter, AlliedSignal stated that each of the AlliedSignal Nominees had
provided AlliedSignal with a letter purporting to comply with the Court Opinion.
At a hearing held on October 15, 1998, the Court ruled that its injunction
against AlliedSignal's board-packing proposals would remain in place, pending a
new hearing set for October 21, 1998 to determine whether AlliedSignal has
complied with the Court's October 8th Order. On October 16, 1998, AMP filed a
motion under Rule 59(e) for reconsideration of that part of the Court's October
8th order which denied in part AMP's motion for summary judgment declaring that
AlliedSignal's consent solicitation is unlawful and in violation of public
policy. AlliedSignal's response to the Rule 59(e) motion was filed on October
20, 1998. The Court issued its order denying AMP's Rule 59(e) motion on October
22, 1998.
In its October 8th Order, the Court denied AlliedSignal's motions for
summary judgment, preliminary injunction and declaratory judgment with respect
to the Rights Plan in their entirety. The Court held that "AMP's actions in
amending its shareholder rights plan cannot be enjoined as ultra vires acts or
breaches of fiduciary duty." In addition, the Court declared that AlliedSignal's
consent proposal to amend AMP's By-laws in order to place the Board of
Directors' authority over the shareholders rights plan in the hands of persons
not on the Board is unlawful.
The Court further held that shareholders participating in the shareholders'
litigation against AMP, in re: AMP Shareholder Litigation, do not have standing
to seek an injunction against the actions of the AMP Board for not acceding to
AlliedSignal's merger proposal.
On October 9, 1998, AlliedSignal filed two Notices of Appeal in the United
States District Court for the Eastern District of Pennsylvania from the Court's
October 8th Order. AlliedSignal is appealing the Court's (1) grant of partial
summary judgment to AMP in the nature of a declaratory judgment that
AlliedSignal's Rights Plan Proposal is unlawful; (2) order enjoining
AlliedSignal's consent solicitation to amend AMP's By-laws and expand the size
of the Board until AlliedSignal states unequivocally that its director nominees
have a fiduciary duty solely to AMP under Pennsylvania law and includes a
statement from each nominee affirmatively committing personally to that duty and
(3) denial of a preliminary injunction with respect to Amendment No. 3 and
Amendment No. 4 to AMP's Rights Plan. Also on October 9, 1998, AlliedSignal
filed a Motion for an Expedited Appeal in the United States Court of Appeals for
the Third Circuit, requesting that briefing for the appeals be completed by
October 16, 1998, with oral argument, if necessary, to be held as soon as
practicable thereafter.
On October 13, 1998, AMP filed in the District Court a motion for expedited
discovery in the form of depositions of the AlliedSignal Nominees. AlliedSignal
filed its opposition to this motion on October 19, 1998. The Court granted AMP's
motion for leave for expedited discovery in an order issued October 22, 1998.
AlliedSignal filed a Supplement to its Motion for an Expedited Appeal, as
well as its opening appellate brief and supporting materials, in the Court of
Appeals on October 13, 1998. AMP responded to the Motion for an Expedited Appeal
on October 14, 1998 and AlliedSignal filed its reply on October 14, 1998. The
Court of Appeals has granted the motion for expedited review, and set a briefing
schedule. On October 20, AMP filed with the Court of Appeals its brief in
opposition. On October 19, 1998, College Retirement Equities Fund and the
shareholders group plaintiffs separately filed briefs of amicus curiae in
support of reversal of the District Court's decision. AlliedSignal filed its
reply brief on October 23, 1998. AMP filed its brief in reply to the briefs of
the amici curiae on October 29, 1998.
On October 14, 1998, AMP filed in the District Court a motion for partial
summary judgment on Count Four in the First Amended Complaint against
AlliedSignal requesting that the Court find the shares of AMP Common Stock held
by AlliedSignal to be "control shares" under Subchapter G of Chapter 25 of the
Pennsylvania Business Corporation Law and seeking to have the Court enjoin
AlliedSignal from voting such shares until its voting rights are restored in
accordance with Subchapter G. On October 29, 1998, AlliedSignal filed its
cross-motion for partial summary judgment dismissing Count Four in AMP's First
Amended Complaint. AMP's reply memorandum of law was filed on November 4, 1998.
The Court heard argument on the motion on November 4, 1998. No decision has been
rendered.
On October 21, 1998, the Court considered the question as to whether it had
jurisdiction to review its order of October 8th in light of the appeal of that
order pending in the Court of Appeals for the Third Circuit. The Court postponed
until November 4, 1998 a hearing on AlliedSignal's compliance with the order and
AMP's claims that the AlliedSignal nominees are irreconcilably conflicted and
cannot be elected to the AMP Board and requested that each party file briefs on
the jurisdictional issue. On October 21, 1998, the Court entered an order
continuing the injunction under its October 8th order relating to AlliedSignal's
consent solicitation until such time that the Court issues an order dissolving
the injunction. This order was appealed to the Court of Appeals for the Third
Circuit by AlliedSignal on October 23, 1998. On that same date AlliedSignal also
filed a motion to consolidate all appeals pending with the Court of Appeals. On
October 29, 1998, AMP responded to AlliedSignal's motion to consolidate the
pending appeals.
On October 22, 1998 AlliedSignal filed an emergency motion with the Court
of Appeals for the Third Circuit seeking a stay of the injunction under the
Court's October 8th order pending an expedited appeal or, in the alternative,
for an emergency hearing on the merits of the issues on appeal. AMP filed its
response to this emergency motion on October 26, 1998 and AlliedSignal in turn
filed its reply brief on October 27, 1998. The Court of Appeals denied
AlliedSignal's emergency motion in an order issued on November 2, 1998.
On October 29, 1998 AMP filed its brief concerning the issue of the Court's
jurisdiction to consider AlliedSignal's compliance with the October 8th order
during the pendency of an appeal of that order. AlliedSignal's response was
filed with the Court on November 2, 1998.
At the hearing held on November 4, 1998, the Court determined that it would
hear testimony and receive documentary and deposition evidence but could not
take any action with respect to its October 8th Order until AlliedSignal
arranged for the Court of Appeals to remand jurisdiction with respect to the
injunction to the Court. Based on the evidence produced at the hearing, the
Court ruled that AlliedSignal was not in compliance with the Court's October 8th
order and that the consent solicitation remained enjoined until compliance was
established. The Court also found no basis to prevent AlliedSignal's consent
solicitation from proceeding by reason of irreconciliable conflicts.
Another hearing was held on November 6, 1998 to establish AlliedSignal's
compliance with the October 8th order. Again the Court found that AlliedSignal
had not met the requirements of the October 8th order and continued the
injunction.
MT Technologies, S.P.R.L. v Connectware, Inc., Cause No. 96-01963-C
- - -------------------------------------------------------------------
On September 29, 1998 a judgment was entered against Connectware, Inc., a
Delaware corporation and wholly owned subsidiary of the Company by the District
Court of Dallas County, Texas 68th Judicial District for approximately $18.4
million dollars, including prejudgment interest. Connectware has filed a motion
for a new trial, or alternately remittitur and a motion to modify or amend the
award of prejudgment interest. The Company has established a reserve as of
September 30, 1998.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits --
Exhibit
Number Description
------- -----------
10.A - Restricted Stock Agreement dated as of August 20, 1998
between AMP and Robert Ripp (incorporated by reference to
Exhibit 30 of Amendment No. 6 to Schedule 14D-9 filed
September 1, 1998)
10.B - Amendment to Executive Severance Agreement, dated as of
August 8, 1998, between AMP and Robert Ripp (incorporated by
reference to Exhibit 31 of Amendment No. 6 to Schedule 14D-9
filed September 1, 1998)
10.C - Form of Amendment to Executive Severance Agreement dated
as of August 8, 1998 (incorporated by reference to Exhibit 4
of the Schedule 14D-9 dated August 21, 1998)
10.D - Form of Amendment to Restricted Stock Agreement effective
as of August 20, 1998 (incorporated by reference to Exhibit
5 of the Schedule 14D-9 dated August 21, 1998)
10.E - AMP Incorporated Employee Severance Plan (incorporated by
reference to Exhibit 6 of the Schedule 14D-9 dated August
21, 1998)
10.F - Amendment to the AMP Incorporated Pension Plan, effective
as of August 20, 1998 (incorporated by reference to Exhibit
7 of the Schedule 14D-9 dated August 21, 1998)
10.G - Amendment No. 2 to the Rights Agreement dated as of August
12, 1998 (incorporated by reference to Exhibit 12 of the
Schedule 14D-9 dated August 21, 1998)
10.H - Amendment No. 3 to the Rights Agreement, dated August 20,
1998 (incorporated by reference to Exhibit 13 of the
Schedule 14D-9 dated August 21, 1998)
10.I - Amendment No. 4 to the Rights Agreement, dated September
17, 1998, by and between AMP and ChaseMellon Shareholder
Service L.L.C., as Rights Agent (incorporated by reference
to Exhibit 51 of Amendment No. 15 to the Schedule 14D-9
filed September 18, 1998)
10.J - Commitment Letter, dated September 27, 1998, by and between
Credit Suisse First Boston, DLJ Capital Funding, Inc. and
AMP (incorporated by reference to Exhibit 67 of Amendment
No. 20 to the Schedule 14D-9 filed September 28, 1998)
10.K - Commitment Letter, dated September 27, 1998, by and between
Credit Suisse First Boston, DLJ Bridge Finance, Inc. and
AMP (incorporated by reference to Exhibit 68 of Amendment
No. 20 to the Schedule 14D-9 filed September 28, 1998)
10.L - Trust Agreement, dated September 28, 1998, between AMP and
Wachovia Bank N.A. (incorporated by reference to Exhibit
69 of Amendment No. 20 to the Schedule 14D-9 filed
September 28, 1998)
10.M - Stock Purchase Agreement, dated September 28, 1998, by and
between AMP and Wachovia Bank N.A. [including, as an
Appendix thereto, the form of promissory note] (incorporated
by reference to Exhibit 70 of Amendment No. 20 to the
Schedule 14D-9 filed September 28, 1998)
10.N - Letter Agreement, dated August 20, 1998, by and between
AMP and James E. Marley (incorporated by reference to
Exhibit 84 of Amendment No. 25 to the Schedule 14D-9 filed
October 9, 1998)
10.O - Letter Agreement, dated August 20, 1998, by and between
AMP and William J. Hudson (incorporated by reference to
Exhibit 85 of Amendment No. 25 to the Schedule 14D-9
filed October 9, 1998)
10.P - Second Amendment to the Supplemental Executive Pension Plan
effective July 1, 1998
10.Q - Fifth Amendment to the AMP Incorporated Pension Restoration
Plan dated July 1, 1998
10.R - Consulting, Confidentiality and Non-Competition Agreement
and Release between AMP and Javad K. Hassan, dated
July 24, 1998
10.S - AMP Incorporated Retention Bonus Program, authorized as of
August 20, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1998 AMP INCORPORATED
(Registrant)
By: /s/ William S. Urkiel
----------------------------------
William S. Urkiel
Vice President and
Chief Financial Officer
By: /s/ Mark E. Lang
----------------------------------
Mark E. Lang
Controller
EXHIBIT INDEX
-------------
Exhibit
Number Description
------- -----------
10.A - Restricted Stock Agreement dated as of August 20, 1998
between AMP and Robert Ripp (incorporated by reference to
Exhibit 30 of Amendment No. 6 to Schedule 14D-9 filed
September 1, 1998)
10.B - Amendment to Executive Severance Agreement, dated as of
August 8, 1998, between AMP and Robert Ripp (incorporated by
reference to Exhibit 31 of Amendment No. 6 to Schedule 14D-9
filed September 1, 1998)
10.C - Form of Amendment to Executive Severance Agreement dated
as of August 8, 1998 (incorporated by reference to Exhibit 4
of the Schedule 14D-9 dated August 21, 1998)
10.D - Form of Amendment to Restricted Stock Agreement effective
as of August 20, 1998 (incorporated by reference to Exhibit
5 of the Schedule 14D-9 dated August 21, 1998)
10.E - AMP Incorporated Employee Severance Plan (incorporated by
reference to Exhibit 6 of the Schedule 14D-9 dated August
21, 1998)
10.F - Amendment to the AMP Incorporated Pension Plan, effective
as of August 20, 1998 (incorporated by reference to Exhibit
7 of the Schedule 14D-9 dated August 21, 1998)
10.G - Amendment No. 2 to the Rights Agreement dated as of August
12, 1998 (incorporated by reference to Exhibit 12 of the
Schedule 14D-9 dated August 21, 1998)
10.H - Amendment No. 3 to the Rights Agreement, dated August 20,
1998 (incorporated by reference to Exhibit 13 of the
Schedule 14D-9 dated August 21, 1998)
10.I - Amendment No. 4 to the Rights Agreement, dated September
17, 1998, by and between AMP and ChaseMellon Shareholder
Service L.L.C., as Rights Agent (incorporated by reference
to Exhibit 51 of Amendment No. 15 to the Schedule 14D-9
filed September 18, 1998)
10.J - Commitment Letter, dated September 27, 1998, by and between
Credit Suisse First Boston, DLJ Capital Funding, Inc. and
AMP (incorporated by reference to Exhibit 67 of Amendment
No. 20 to the Schedule 14D-9 filed September 28, 1998)
10.K - Commitment Letter, dated September 27, 1998, by and between
Credit Suisse First Boston, DLJ Bridge Finance, Inc. and
AMP (incorporated by reference to Exhibit 68 of Amendment
No. 20 to the Schedule 14D-9 filed September 28, 1998)
10.L - Trust Agreement, dated September 28, 1998, between AMP and
Wachovia Bank N.A. (incorporated by reference to Exhibit
69 of Amendment No. 20 to the Schedule 14D-9 filed
September 28, 1998)
10.M - Stock Purchase Agreement, dated September 28, 1998, by and
between AMP and Wachovia Bank N.A. [including, as an
Appendix thereto, the form of promissory note] (incorporated
by reference to Exhibit 70 of Amendment No. 20 to the
Schedule 14D-9 filed September 28, 1998)
10.N - Letter Agreement, dated August 20, 1998, by and between
AMP and James E. Marley (incorporated by reference to
Exhibit 84 of Amendment No. 25 to the Schedule 14D-9 filed
October 9, 1998)
10.O - Letter Agreement, dated August 20, 1998, by and between
AMP and William J. Hudson (incorporated by reference to
Exhibit 85 of Amendment No. 25 to the Schedule 14D-9
filed October 9, 1998)
10.P - Second Amendment to the Supplemental Executive Pension Plan
effective July 1, 1998
10.Q - Fifth Amendment to the AMP Incorporated Pension Restoration
Plan dated July 1, 1998
10.R - Consulting, Confidentiality and Non-Competition Agreement
and Release between AMP and Javad K. Hassan, dated
July 24, 1998
10.S - AMP Incorporated Retention Bonus Program, authorized as of
August 20, 1998
EX-10.P
SECOND AMENDMENT
TO THE
AMP INCORPORATED
SUPPLEMENTAL EXECUTIVE PENSION PLAN
The AMP Incorporated Pension Restoration Plan, as originally effective
January 1, 1997 and thereafter amended on one occasion, is hereby further
amended as set forth below.
1. Effective for Retirement Dates after January 1, 1998, Section 3.5 of the
Plan is amended to provide as follows:
3.5 Pensionable Earnings means an Employee's average earnings over the
highest three annual earnings measurement periods, where the earnings
amount for a given annual earnings measurement period is the sum of
the base salary and annual cash bonus amounts paid or payable in the
measurement period (without regard to whether a portion of such base
salary or cash bonus amounts are deferred under the terms of the AMP
Incorporated or Whitaker Corporation Deferred Compensation Plan or
under any Company-sponsored plan that complies with the provisions of
Sections 401(k) or 125 of the Code) and where annual earnings
measurement periods for Plan purposes shall be the twelve consecutive
calendar months that end on a relevant benefit computation date and
the nine immediately-prior such twelve month periods.
2. Effective July 1, 1998, a new Section 14 is added to
the Plan to provide as follows:
SECTION 14
VOLUNTARY EARLY RETIREMENT PROGRAM ("VERP")
14.1 An Employee who both is age 55 and has at least ten (10) Years of
Service as of October 1, 1998 is eligible for the enhanced normal
retirement benefits described in this Section 14 provided that the
Employee makes an irrevocable election during the period from July 1,
1998 to August 15, 1998, to retire on or before October 1, 1998, and
provided further that the Company, in its sole and absolute
discretion, may exercise the right to require the Employee to defer
his or her retirement to a date beyond October 1, 1998 as a condition
to receipt of such enhanced benefits.
14.2 The final annual accrued benefit under the Plan of an Employee
eligible for the VERP benefits will be computed as described in
Section 6.1, with the exceptions that the Employee's Pensionable
Earnings for VERP purposes will be the earnings attributable to the
final annual earnings measurement period rather than an average of
annual earnings over the high three such periods. The enhanced final
annual accrued benefit, as thus calculated, will be payable to the
Employee immediately upon retirement without application of the Plan's
.5% per month reduction factor ordinarily applied for benefit
commencements prior to age 60.
14.3 An Employee who retires under the VERP will have available as an
additional form of payment a lump sum distribution of a portion of the
value of the enhanced accrued benefit, with such portion computed as
the difference between the enhanced accrued benefit and the benefit
otherwise available to the Employee on the Retirement Date under the
normal provisions of the Plan.
14.4 An Employee who elects the VERP and whose Retirement Date is
deferred by the Company beyond October 1, 1998, shall be entitled on
the deferred Retirement Date to have his or her final monthly accrued
benefit under the Plan calculated with application of the
above-described enhancements, shall have available the additional form
of payment described above, and shall have as a minimum lump sum value
of his or her entire enhanced monthly accrued benefit under the Plan
the lump sum value that would have been available to the Employee had
he or she retired on October 1, 1998.
3. Effective July 1, 1998, Appendix A is hereby amended to add certain
individuals as eligible Employees for Plan purposes. As of such date, the
Appendix A attached to this Amendment shall replace and become Appendix A for
purposes of the Plan.
Executed this 16th day of November, 1998.
AMP Incorporated
By: /s/ R. Ripp
----------------------------
Title: Chairman & CEO
---------------------------
And: /s/ D. F. Henschel
----------------------------
Title: Corporate Secretary
----------------------------
APPENDIX A
----------
The following are Employees for purposes of the Plan on and after the indicated
effective date:
Name SSAN Percentage Eligibility Effective Date
---- ---- ---------- --------------------------
Hassan, Javad ###-##-#### 40% 4/22/97
Lemaitre, Philippe ###-##-#### 30% 4/22/97
Ripp, Rob ert ###-##-#### 30% 4/22/97
Goonrey, Charles ###-##-#### 31% 7/21/98
Urkiel, William ###-##-#### 30% 10/27/98
EX-10.Q
FIFTH AMENDMENT
TO THE
AMP INCORPORATED
PENSION RESTORATION PLAN
The AMP Incorporated Pension Restoration Plan (January 1, 1995
Restatement), as heretofore amended on four occasions, is hereby further amended
as set forth below.
1. Effective July 1, 1998, a new Section 14 is added to
the Plan to provide as follows:
SECTION 14
VOLUNTARY EARLY RETIREMENT PROGRAM
14.1 An Employee who both is age 55 and has at least ten (10) Years of
Service as of October 1, 1998 is eligible for the enhanced normal
retirement benefits described in this Section 14 provided that the
Employee makes an irrevocable election during the period from July 1,
1998 to August 15, 1998, to retire on or before October 1, 1998, and
provided further that the Company, in its sole and absolute
discretion, may exercise the right to require the Employee to defer
his or her retirement to a date beyond October 1, 1998 as a condition
to receipt of such enhanced benefits. Notwithstanding the generality
of the foregoing, the Employees serving in the capacities of Chairman
of the Board of the Company and Chief Executive Officer of the Company
were specifically excluded from eligibility to elect and participate
in this Voluntary Early Retirement Program (hereinafter, "VERP").
Employees with status "Retired VERP" in Appendix A made the above
election and became eligible for the VERP benefits.
14.2 The final monthly accrued benefit under the Plan of an Employee
eligible for the VERP benefits will be computed as described in
Section 6.1, with the exceptions that (a) the Employee's actual
credited years of service used in the benefit calculation will be
increased by three (3) years and (b) the Employee's earnings in the
Employee's final annual earnings measurement period will be used in
the benefit calculation rather than a three year average of annual
earnings. The enhanced final monthly accrued benefit, as thus
calculated, will be payable to the Employee immediately upon
retirement without application of the .5% per month reduction factor
ordinarily applied for benefit commencements prior to age 60.
14.3 An Employee who retires under the VERP will have available as an
additional form of payment a lump sum distribution of a portion of the
value of the enhanced accrued benefit, with such portion computed as
the difference between the enhanced accrued benefit and the benefit
otherwise available to the Employee on the Retirement Date under the
normal provisions of the Plan.
14.4 An Employee who elects the VERP and whose Retirement Date is
deferred by the Company beyond October 1, 1998, shall be entitled on
the deferred Retirement Date to have his or her final monthly accrued
benefit under the Plan calculated with application of the
above-described enhancements, shall have available the additional form
of payment described above, and shall have as a minimum lump sum value
of his or her entire enhanced monthly accrued benefit under the Plan
the lump sum value that would have been available to the Employee had
he or she retired on October 1, 1998.
14.5 An Employee not otherwise eligible to retire immediately under
the terms of the VERP who terminates his or her employment with the
Company during the period from October 1, 1998 to July 1, 1999
pursuant to an individually agreed Separation Agreement with the
Company shall be eligible upon separation from Company service to
receive his or her monthly accrued benefit, as modified in such
agreement, either in the form of an immediately commenced annuity or
in a single lump sum distribution.
2. Effective January 1, 1998, Appendix A is hereby amended to add certain
individuals as Eligible Employees for Plan purposes. As of such date, the
Appendix A attached to this Amendment shall replace and become Appendix A for
purposes of the Plan.
Executed this 16th day of November, 1998.
AMP Incorporated
By: /s/ R. Ripp
----------------------------
Title: Chairman & CEO
---------------------------
And: /s/ D. F. Henschel
----------------------------
Title: Corporate Secretary
----------------------------
CONSULTING, CONFIDENTIALITY AND NON-COMPETITION
AGREEMENT AND RELEASE
MADE this 24th day of July, 1998 by and between
AMP Incorporated, a Pennsylvania corporation having its
principal office in Harrisburg, Pennsylvania, USA ("AMP",
which term shall be construed herein to include all
subsidiaries and affiliates of AMP Incorporated), and Javad K.
Hassan ("Consultant").
W I T N E S S E T H:
WHEREAS, Consultant was first employed by AMP on March
14, 1988 and became an officer of AMP in 1989; and
WHEREAS, as a result of said employment and executive
status, Consultant has acquired and may continue to acquire
confidential and proprietary knowledge relating to the general
business affairs and operations, and in particular to the
global technology and business development activities of AMP;
and
WHEREAS, Consultant has come forward indicating his
intention to voluntarily retire from AMP's employment
effective August 1, 1998, and
WHEREAS, the parties entered into an Employment
Agreement dated February 28, 1988 (the "Employment
Agreement"), certain terms and conditions of which are still
in effect, and the parties intend to formally terminate said
agreement, except as otherwise provided herein, and
WHEREAS, AMP desires to retain to itself the sole
benefit of Consultant's knowledge and information concerning
these technology and business development activities and to
continue to derive advice, counsel and services from
Consultant from time to time.
NOW, THEREFORE, in consideration of the mutual
covenants and undertakings hereafter set forth, the parties
agree as follows:
1. Independent Contractor Status. AMP agrees to
retain Consultant as an independent contractor carrying out
specific projects identified by AMP and Consultant agrees to
perform such consulting services for AMP as may be designated
from time to time by AMP's President and Chief Executive
Officer, or by AMP's Chairman of the Board, or by their
designee. Such projects shall include, but not be limited to,
those identified in the attachment hereto. Consultant will
perform services pursuant to this Agreement as an independent
contractor and this Agreement will not be considered to create
the relationship of employer and employee. Consultant is not
authorized to make any representations, contract or commitment
on behalf of AMP without the prior written consent of AMP's
President and Chief Executive Officer or AMP's Chairman of the
Board or their designee.
2. Term. The original term of this Agreement shall
be one year, beginning on August 1, 1998 and ending July 31,
1999. This Agreement may be extended by a writing executed by
both of the parties hereto on the same terms and conditions as
herein contained or otherwise as may be then mutually agreed
upon by the said parties.
3. Compensation/Consideration. Consultant will be
compensated as follows for his performance of active
consulting services, for his adherence to his non-competition
and confidentiality covenants, and for his other agreements
herein:
(a) Consultant will be paid a fee of $31,250 per
month for the period from August 1, 1998 through July
31, 1999, with such monthly fee payable in arrears by
the 15th day of the next following month, and will
receive a 1998 stock option award under AMP's Long
Term Equity Incentive Plan equal to 30,000 options,
which will vest on the third anniversary of grant,
have an exercise period extending to the tenth
anniversary of grant, and have an exercise price equal
to the date of grant fair market value. The $15,625
monthly amount due Consultant during his first two
years after leaving AMP's employment pursuant to
Section 7 of his Employment Agreement shall be paid to
Consultant (again in arrears by the 15th day of the
next following month) with respect to the period from
August 1, 1998 to July 31, 2000, during which period
the non-competition provisions of said Section 7 shall
continue to apply.
(b) Upon receipt from Consultant of a lump sum
payment of 44,835 pounds sterling, AMP will transfer
to Consultant AMP's interest in the Mercedes
automobile currently provided for Consultant's use in
the United Kingdom. If and only if Consultant opts to
purchase the automobile, AMP will make a pre-tax
payment to Consultant of $46,000. In return for such
payment, Consultant waives any repatriation allowance
and costs otherwise provided under AMP's international
assignee policy. This right to purchase the automobile
shall expire September 1, 1998, at which time the
vehicle, if not purchased, will be returned to AMP's
possession in the United Kingdom.
(c) Contingent upon Consultant's faithful
adherence to his covenants herein and his continuing
non-competition, (1) AMP will extend the expiration
date of each AMP stock option grant Consultant holds
at retirement, including any options first granted to
him in 1998, beyond his August 1, 1998 retirement date
to the tenth-anniversary-of-grant expiration date that
was originally applicable to a given grant, and (2),
solely for purposes of the continued vesting and
payout to the Consultant of the 1996 and 1997
Performance Restricted Shares held by Consultant at
his retirement (which will be paid out, to the extent
vested, in January 1999, and January 2000,
respectively), Consultant's employment with AMP will
not be considered as terminated during the initial
term of this Agreement.
(d) At the start of each month Consultant shall
submit a written report to AMP's President and Chief
Executive Officer summarizing in reasonable detail his
AMP consulting services and his other non-AMP business
activities for the immediately prior month and his
planned AMP-related travel and consulting activities
for the current month. The $31,250 monthly payment
under paragraph (a) above will be contingent upon
receipt of this report, with the Agreement otherwise
continuing in full force and effect during any payment
deferral period resulting from a late report.
(e) Consultant will be paid ordinary and
reasonable travel and business expenses incurred while
performing consulting services hereunder. Expense
payments will be made upon presentment to and approval
by AMP's President and Chief Executive Officer of an
AMP expense voucher (with appropriate receipts
itemizing the expenses incurred). Expense vouchers
shall be submitted no later than ten (ten) days after
the end of the month of receipt of the credit card
bill(s) relating to the expenses.
(f) Consultant's "Pensionable Earnings" for
purposes of the AMP Incorporated Supplemental
Executive Pension Plan shall be the actual base
earnings and annual cash bonus paid or payable to him
during the period from August 1 1997 to July 31,1998,
and the enhanced benefit amount resultant from this
use of final year rather than three year average
earnings shall be payable to him beginning immediately
with no reduction for commencement prior to age 60.
Consultant shall otherwise be deemed eligible to
participate in the AMP Voluntary Early Retirement
Program in effect until August 15, 1998, which means
he will be eligible for an enhanced benefit under the
AMP Incorporated Pension Plan and Pension Restoration
Plans (which benefits are offsets to the enhanced
Supplemental Executive Pension Plan benefit) and for a
continuation of his AMP health care benefit coverage
to age 65 on the terms and conditions such health care
benefits are provided to active employees.
(g) Upon Consultant's August 1, 1998 retirement
from AMP, his status as an employee of AMP on
international assignment will end, and for periods of
time thereafter he will not be eligible for any of the
international assignment allowances, tax advance and
tax equalization payments, or other benefits afforded
under AMP's international assignee policies, with the
exceptions that the international assignee allowances
currently provided will be continued on a month-to-
month basis until the earlier of September 30, 1998 or
Consultant's actual repatriation to the United States
and repatriation costs and allowances (unless waived
pursuant to paragraph (b) above) will be covered if
repatriation occurs by September 30, 1998, and with
the further exception that the costs of his tax return
preparation and tax equalization will be covered for
the period of his international assignment ending no
later than September 30, 1998. Should Consultant not
promptly repatriate to the United States during the
two months following his retirement date, (1) AMP will
cover the costs of shipping his U.S.-stored household
goods to him in the United Kingdom and agrees to sell
or otherwise transfer over to him at fair market value
AMP's interest in any household goods and appliances
currently being provided to him, (2) AMP will
cooperate with Consultant within reasonable bounds in
whatever steps may be necessary to modify or update
his United Kingdom visa status, with the understanding
that consultant is personally responsible for filing
the necessary documents and obtaining the necessary
approvals to change his current visa status, (3) any
and all costs inherent in or resulting from
maintaining two residences or otherwise attributable
to cost-of-living differentials between the U.S. and
the United Kingdom will be solely the responsibility
of Consultant to bear, and (4) any and all U.S. and
United Kingdom taxes and tax compliance costs that
arise on and after October 1, 1998 attributable to
compensation paid to Consultant from AMP under this
agreement or otherwise on and after October 1, 1998
will be solely the responsibility of Consultant to
resolve and discharge.
(h) AMP agrees that the services of Cendant
Mobility, Inc. will be available to Consultant on an
assigned sale basis to handle the settlement of his
home in Hershey, Pennsylvania. The settlement process
must be completed by December 31, 1998.
(i) While Consultant is providing consulting
services in Harrisburg, Pennsylvania, AMP will provide
him with office space and appropriate
administrative/clerical support.
4. Consultant's Covenants. In addition to
Consultant's obligation to perform consulting services
pursuant to Section 1 of this Agreement, Consultant
specifically covenants and agrees and it is an essential
condition of this Agreement that:
(a) He will not disclose to unauthorized persons
any information whatsoever relative to AMP's business
or the business of its subsidiaries and affiliates,
whether previously acquired or otherwise and, to that
end, he will at all times observe the strictest
secrecy with regard to all matters, without
limitation, concerning AMP's business, and this
obligation to secrecy shall continue not only through
the period of this Consulting Agreement and
performance hereunder but permanently thereafter.
(b) Consultant confirms his continuing post-
employment confidentiality obligations under the terms
and conditions of his Employment Agreement and Exhibit
F to his Employment Agreement, or otherwise entered
into between Consultant and AMP during Consultant's
employment with AMP.
(c) During the term of this Agreement and while he
is receiving any payment or other consideration from
AMP pursuant to this Agreement he will not engage in
or perform any services as an employee, partner,
owner, stockholder, consultant or advisor or otherwise
for any other business organization or individuals in
connection with any matter in respect of which the
interest of such other business organization or
individual is or might reasonably be expected by AMP
to be adverse to or inconsistent with that of AMP.
Ownership as an investor of not more than five percent
(5%) of the outstanding shares of stock of any company
having at least one hundred (100) shareholders shall
not in itself constitute a violation of this covenant.
(d) Consultant confirms his obligation to comply
with any and all convenants not to compete either
contained in the Employment Agreement and Exhibits, or
otherwise entered into between Consultant and AMP
during Consultant's employment with AMP.
(e) He will not take or remove from AMP's premises
without the written consent of the President and Chief
Executive Officer or the Chairman of the Board any
reports, papers, documents or any reproductions
thereof relating to AMP's business .
(f) He will not at any time act or conduct himself
in any manner which he knows or should have reason to
believe is inimical or contrary to AMP's best
interests.
(g) All intellectual property, whether patentable
or not, conceived, developed or reduced to practice in
the performance of Consultant's services under this
Agreement, including but not limited to inventions,
processes, know how, ideas, discoveries, designs,
improvements, methods, copyrights, trademarks,
software, mask works or the like and actual and
potential client contact lists, shall be and hereby is
assigned by Consultant to AMP, to include all such
rights throughout the world. Further, all models,
prototypes, contrivances and structures made or
prepared for AMP in the performance of services under
this Agreement shall be the property of AMP.
Consultant understands and agrees that all written or
other tangible data developed by Consultant in
performing services pursuant to this Agreement,
whether in printed or electronic form, and all films,
tapes, documents, reports, evaluations, plans,
specifications, drawings, programs, worksheets and
materials are works made for hire and that AMP will
have all right, title and interest in such data.
(h) Consultant confirms his post-employment
obligations under the terms and conditions of the
Intellectual Property Agreement, attached to the
Employment Agreement as Exhibit G, or otherwise
entered into between Consultant and AMP during
Consultant's employment with AMP.
(5) Release. In exchange for good and valuable
consideration described above, including but not limited to
the consideration in the form of cash compensation, a 1998
stock option grant, an enhanced pension benefit, continuing
health care benefits to age 65, and extensions of stock
options and Performance Restricted Share awards beyond
termination of employment, Consultant, on his own behalf and
on behalf of any heirs, representatives, executors,
administrators, successors and assigns, agrees to release and
forever discharge AMP, each and every officer, director, and
employee of AMP and their successors and assigns, and any
person, firm, corporation, association or partnership
affiliated with the AMP, whether currently known or unknown to
the Consultant (collectively, "Releasees"), from all actions,
suits, debts, covenants, contracts, agreements, judgments,
claims and demands whatsoever, in law or equity (collectively,
"claims"), whether known or unknown to Consultant, arising out
of or in any way connected with Consultant's employment with
AMP or the termination of that employment, with the
understanding that as a retiree from AMP Consultant has rights
to receive his accrued AMP-provided pension benefits, to
receive his accumulated Employee Savings and Thrift Plan and
Deferred Compensation Plan account balances, to retain his
split-dollar life insurance coverage and those rights are
continuing and unaffected by this release. By this release,
Consultant understands that he is giving up all claims against
AMP, or against any person acting on AMP's behalf, related to
his employment with AMP and the termination of that
employment. Further, Consultant agrees that his release
includes but is not limited to claims for breach of contract,
impairment of economic opportunity, wrongful discharge,
intentional infliction of emotional harm, promissory estoppel,
defamation, fraud, misrepresentation, or any other tort, and
also claims arising under Title VII of the Civil Rights Act of
1964, 42 U.S.C. 2000e et seq. (relating to sex, race, and
certain other kinds of job discrimination); the Age
Discrimination in Employment Act, 29 U.S.C. 929 et seq.
(relating to age discrimination in employment); the
Pennsylvania Human Relations Act, 43 Pa. Cons. Stat. Ann. 951
et seq. (relating to all the above-mentioned forms of job
discrimination); and any other foreign, federal, state or
municipal statute, ordinance, executive order or regulation
relating to discrimination in employment or in any way
pertaining to employment relationships, which against the
above-described Releasees Consultant now has or ever had (but
not which may arise subsequent to the date of execution of
this Agreement). Consultant represents and warrants that he
has disclosed all actual or suspected violations of foreign,
federal, state and local law or regulations of which he is
aware, and Consultant releases the Releasees from any claims
related thereto, both directly and derivatively.
6. Age Discrimination in Employment Act Notice. The
following information is required by federal law to be
included in an agreement of this type:
(a) Consultant has 21 days in which to review this
Agreement, including the above release, sign
and date it, and return an executed copy to AMP. Consultant is
advised to consult an attorney prior to signing.
(b) Following Consultant's signing of this
Agreement, Consultant has an additional seven days
in which to revoke this Agreement. To be effective,
Consultant's revocation must be in writing, signed, dated,
and provided to AMP (Attn: W.J. Hudson) at P.O. Box 3608,
Harrisburg, PA 17105-3608, no later than seven days from the
date on which Consultant first signed and dated his
acceptance of this Agreement.
7. Employment References. Requests for employment
references directed to AMP will be responded to by the CEO or
by the Chairman of the Board and will be neutral in scope.
8. No Assignments. This Agreement is personal to
Consultant and he shall not assign either this Agreement or
any of his rights, benefits or interests herein and this
provision applies equally to Consultant's wife, estate or
anyone else claiming through Consultant. No right, benefit or
interest under this Agreement shall be subject to
anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same
shall be void. No right, benefit or interest under this
Agreement shall in any manner be liable for or subject to the
debts, contracts, liabilities, or torts of Consultant. If
Consultant should become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge any right,
benefit or interest under this Agreement, then such right,
benefit or interest shall, in the sole uncontrolled discretion
of AMP, cease and determine.
9. Survival of Undertakings. Notwithstanding the
condition for payment as set forth in Section 4 herein, if
this Agreement is terminated pursuant to any provision or
provisions herein set forth or for the convenience of the
parties hereto or by Consultant for any reason, Consultant's
undertakings as set forth in Section 4, shall nevertheless
survive for a continuous period of 24 months from the date of
any such termination of this Agreement with no further cost or
obligation for payment to Consultant by AMP.
10 Entire Agreement. This Agreement constitutes the
entire understanding between AMP and Consultant with reference
to its subject matter and shall not be changed or modified
except by a written instrument signed by the parties hereto.
11. Waiver/Estoppel. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there
by an estoppel to enforce any term or provision of this
Agreement, except by a written instrument of the party charged
with such waiver or estoppel executed with the same formality
attending the execution of this Agreement.
12. Cooperation in Litigation. Consultant agrees to
provide AMP with reasonable cooperation and assistance,
including the taking of depositions and the giving of
testimony at trial if deemed necessary, for all lawsuits for
which Consultant's testimony may be warranted. AMP will
reimburse Consultant for any reasonable and necessary expense
incurred as a result of such cooperation and assistance.
13. Indemnity Agreement. AMP acknowledges that the
terms of the Indemnity Agreement between Consultant and AMP
dated October 22, 1996 shall remain effective until ten years
after the date as of which Consultant ends his service as an
employee of AMP or the final termination of all proceedings
and derivative proceedings in respect of which Consultant is
or may be entitled to be granted rights of indemnification
under the terms of that agreement.
14. Executive Severance Agreement. Consultant Agrees
that the Executive Severance Agreement dated October 22, 1996
between him and AMP applicable upon a change of control of AMP
terminates as of his August 1, 1998 retirement date.
15. Severability. Should any part, term or provision
of this Agreement be determined by any court to be illegal or
invalid, such finding shall not affect the validity of the
remaining parts, terms and provisions of this Agreement.
16. No Admission. This Agreement shall not be
construed as an admission by AMP of any liability to you or of
the violation of any statute or legal or equitable obligation.
17. Governing Law. This Agreement shall be governed
by and construed under the laws of the Commonwealth of
Pennsylvania, without respect to the Commonwealth's conflicts
of laws provisions, and applicable federal law.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the day and year first
above written intending to be legally bound.
AMP Incorporated
Attest: /s/ D. F. Henschel
---------------------- By: /s/ W. J. Hudson
David F. Henschel ---------------------
Corporate Secretary Its: President & CEO
RELEASE:
By his signature below, Consultant certifies that he has read the terms of this
Agreement, that he has had the opportunity to discuss this Agreement with his
attorney, that AMP has advised him he has up to twenty one (21) days to review
this Agreement and the meaning and consequences of it with his attorney, and
that he understands its terms and effects. Consultant acknowledges that he is
executing this Agreement voluntarily, with a full understanding of its terms and
effects, intending to be legally bound hereby, in exchange for consideration,
which he acknowledges is adequate and satisfactory to him. Consultant
understands he has seven (7) days from the execution of this Agreement to advise
AMP that he is revoking it, and he understands that at the end of the seven-day
period, if he does not revoke it, it will be in full force and effect.
Consultant intends for this Agreement to comply with Section 201 of the Older
Workers Benefit Protection Act of 1990.
ACCEPTED AND AGREED:
/s/ J. K. Hassan
___________________________ Date: 7/24/98
Javad K. Hassan
RETENTION BONUS
Purpose
To provide an incentive to key personnel to remain with AMP during this period
of uncertainty where a hostile change of control by Allied Signal is possible.
These key personnel are generally identified as strong performers in critical
roles (typically as evidenced through participation in the stock option plan)
and whose positions are most likely to be effected by a change of control (i.e.
eliminated or reduced in scope). These positions are most likely to be Corporate
functions, key support positions or senior level operations/business positions
whose incumbents are more likely to be replaced. This Retention Bonus does not
apply to anyone currently having an executive severance agreement (a "golden
parachute").
Bonus Award
A Retention Bonus of three (3) or six (6) months "compensation" may be
recommended. To receive payment of the bonus, the following must occur:
- - - PARTICIPANT MUST REMAIN EMPLOYED BY AMP UNTIL A HOSTILE CHANGE IN CONTROL WITH
ALLIED SIGNAL HAS OCCURRED, EFFECTIVE THROUGH THE PERIOD ENDING DECEMBER 31,
1999. A bonus will not be paid if a hostile change of control with Allied
Signal has not occurred, based on the premise that the employee's position is
not in jeopardy under AMP management structure. AMP management reserves the
right to extend the Retention Bonus should the change of control issue still
be in question beyond December 31, 1999.
Other program features include:
- - - Retention Bonus is paid in a lump sum at the time of a
change in control.
- - - Payment of the Retention Bonus is not dependent on whether the participant's
employment or position is impacted by the change in control.
- - - "Compensation" shall mean base salary.
- - - Payment of the Retention Bonus will be in addition to the terms of the AMP
Employee Severance Plan.
RETENTION BONUS PLAN STATISTICS/ESTIMATES
Participants @ 3 months level 128 (81.5%)
Participants @ 6 months level 29 (18.5%)
Total Participants 157
U.S. Participants 119
Non-U.S. Participants 38
Total Participants 157
Average Bonus - 3.55 months salary
Payout in event of Change of Control by Allied - $5.5 - $6 Million
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S 1998
THIRD QUARTER 10Q AND IS
QUALIFIED BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 236,032
<SECURITIES> 8,141
<RECEIVABLES> 1,059,858
<ALLOWANCES> 0
<INVENTORY> 903,435
<CURRENT-ASSETS> 2,462,382
<PP&E> 4,867,315
<DEPRECIATION> 2,922,454
<TOTAL-ASSETS> 4,718,265
<CURRENT-LIABILITIES> 1,366,984
<BONDS> 0
<COMMON> 81,764
0
0
<OTHER-SE> 2,736,086
<TOTAL-LIABILITY-AND-EQUITY> 4,718,265
<SALES> 4,084,869
<TOTAL-REVENUES> 4,084,869
<CGS> 2,878,105
<TOTAL-COSTS> 2,878,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,154
<INCOME-PRETAX> 120,040
<INCOME-TAX> 39,015
<INCOME-CONTINUING> 81,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,025
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
