UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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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 number 1-8974
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Honeywell International Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2640650
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
101 Columbia Road
P.O. Box 4000
Morristown, New Jersey 07962-2497
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(Address of principal executive offices) (Zip Code)
(973)455-2000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 2000
- --------------------- ------------------
$1 par value 798,160,974 shares
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Honeywell International Inc.
Index
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Page No.
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Part I. - Financial Information
----------------------
Item 1. Condensed Financial Statements:
Consolidated Balance Sheet -
March 31, 2000 and December 31, 1999 3
Consolidated Statement of Income -
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Financial Statements 6
Report on Review by Independent
Accountants 14
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
Part II.- Other Information
------------------
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 22
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Honeywell International Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 1,000 $ 1,991
Accounts and notes receivable 3,926 3,896
Inventories 3,744 3,436
Other current assets 1,080 1,099
----- -----
Total current assets 9,750 10,422
Investments and long-term receivables 1,050 782
Property, plant and equipment - net 5,637 5,630
Goodwill and other intangible
assets - net 6,204 4,660
Other assets 2,196 2,033
----- -----
Total assets $24,837 $23,527
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 2,173 $ 2,129
Short-term borrowings 129 302
Commercial paper 2,320 2,023
Current maturities of long-term debt 399 284
Accrued liabilities 3,293 3,534
------- -------
Total current liabilities 8,314 8,272
Long-term debt 3,477 2,457
Deferred income taxes 877 864
Postretirement benefit obligations
other than pensions 1,948 1,968
Other liabilities 1,276 1,367
SHAREOWNERS' EQUITY
Capital - common stock issued 958 958
- additional paid-in capital 2,347 2,318
Common stock held in treasury, at cost (4,258) (4,254)
Accumulated other nonowner changes (391) (355)
Retained earnings 10,289 9,932
------ -----
Total shareowners' equity 8,945 8,599
----- -----
Total liabilities and shareowners' equity $24,837 $23,527
======= =======
The Notes to Financial Statements are an integral part of this
statement.
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Honeywell International Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(Dollars in millions
except per share amounts)
Net sales $6,044 $5,582
------ ------
Costs, expenses and other
Cost of goods sold 4,450 4,192
Selling, general and administrative
expenses 758 699
Equity in income of affiliated
companies (4) (10)
Other (income) expense (10) (18)
Interest and other financial charges 111 73
------- -------
5,305 4,936
------- -------
Income before taxes on income 739 646
Taxes on income 233 206
------- -------
Net income $ 506 $ 440
====== ======
Earnings per share of common
stock - basic $ 0.64 $ 0.55
====== ======
Earnings per share of common
stock - assuming dilution $ 0.63 $ 0.55
====== ======
Cash dividends per share of
common stock $.1875 $ .17
====== ======
The Notes to Financial Statements are an integral part of this
statement.
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Honeywell International Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(Dollars in millions)
Cash flows from operating activities:
Net income $ 506 $440
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 262 221
Equity income, net of distributions 17 (1)
Deferred income taxes 4 37
Other (196) 9
Changes in assets and liabilities, net of the effects
of acquisitions and divestitures:
Accounts and notes receivable 208 131
Inventories 23 (76)
Other current assets (41) (8)
Accounts payable (57) (118)
Accrued liabilities (339) (298)
----- -----
Net cash provided by operating activities 387 337
----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment (164) (204)
Proceeds from disposals of property, plant and
equipment 42 40
(Increase) in investments - (3)
Cash paid for acquisitions (2,313) (31)
Proceeds from sales of businesses 21 68
Decrease in short-term investments 1 4
------- ------
Net cash (used for) investing activities (2,413) (126)
------- ------
Cash flows from financing activities:
Net increase in commercial paper 297 189
Net (decrease) in short-term borrowings (173) (10)
Proceeds from issuance of common stock 33 118
Proceeds from issuance of long-term debt 1,051 1
Payments of long-term debt (24) (95)
Repurchases of common stock - (433)
Cash dividends on common stock (149) (130)
----- -----
Net cash provided by (used for) financing activities 1,035 (360)
------ -----
Net (decrease) in cash and cash equivalents (991) (149)
Cash and cash equivalents at beginning of year 1,991 1,018
------ -----
Cash and cash equivalents at end of period $1,000 $869
====== ====
The Notes to Financial Statements are an integral part of this statement.
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Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions except per share amounts)
Note 1. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting only of normal adjustments, necessary to present fairly
the financial position of Honeywell International Inc. and its
consolidated subsidiaries at March 31, 2000 and the results of
operations and cash flows for the three months ended March 31, 2000
and 1999. The results of operations for the three-month period
ended March 31, 2000 should not necessarily be taken as indicative
of the results of operations that may be expected for the entire
year 2000.
The financial information as of March 31, 2000 should be read in
conjunction with the financial statements contained in our Form 10-K
Annual Report for 1999.
Note 2. Accounts and notes receivable consist of the following:
March 31, December 31,
2000 1999
--------- -----------
Trade $3,690 $3,545
Other 329 435
------ ------
4,019 3,980
Less - Allowance for doubtful
accounts and refunds (93) (84)
----- -----
$3,926 $3,896
====== ======
Note 3. Inventories consist of the following:
March 31, December 31,
2000 1999
---------- -----------
Raw materials $1,095 $1,027
Work in process 952 973
Finished products 1,853 1,589
------ ------
3,900 3,589
Less - Progress payments (47) (44)
Reduction to LIFO cost basis (109) (109)
------ -----
$3,744 $3,436
====== ======
Note 4. Total nonowner changes in shareowners' equity for the three
months ended March 31, 2000 and 1999 were $470 and $314 million,
respectively. Nonowner changes in shareowners' equity consist of
net income, foreign exchange translation adjustments, unrealized
holding gains and losses on marketable securities and a minimum
pension liability adjustment.
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Note 5. Segment financial data follows:
Three Months Ended March 31,
---------------------------------------------
Net Sales Segment Profit
---------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Aerospace Solutions $2,396 $2,328 $ 493 $ 395
Automation & Control (a) 1,700 1,390 190 120
Performance Materials 1,025 983 95 149
Power & Transportation
Products 904 859 88 70
Corporate 19 22 (30) (43)
------ ------ ------ -----
$6,044 $5,582 $ 836 $ 691
====== ====== ------ ------
Equity in income of
affiliated companies 4 10
Other income (expense) 10 18
Interest and other
financial charges (111) (73)
----- ----
Income before taxes
on income $ 739 $ 646
====== =====
(a) In March 2000, the name of this segment was changed to
Automation & Control from Automation & Asset Management. There was
no change in the strategic business units comprising this segment.
Note 6. The details of the earnings per share calculations for the
three-month periods ended March 31, 2000 and 1999 follow:
2000 1999
------------------- ---------------------
Per Per
Average Share Average Share
Income Shares Amount Income Shares Amount
----- ------ ------- ------ ------ -------
Earnings per share of
common stock - basic $506 796.6 $.64 $440 793.1 $.55
Dilutive securities issuable
in connection with stock 10.1 13.5
plans ---- ----- ---- ---- ---- ----
Earnings per share of common
stock - assuming dilution $506 806.7 $.63 $440 806.6 $.55
==== ===== ==== ==== ===== ====
The diluted earnings per share calculation excludes the effect of
stock options when the options' exercise prices exceed the average
market price of the common shares during the period. For the three-
month periods ended March 31, 2000 and 1999, the number of stock
options not included in the computations was 13.2 and 5.4 million,
respectively. These stock options were outstanding at the end of
each of the respective periods.
Note 7. In December 1999, upon completion of the merger between
AlliedSignal and the former Honeywell, we recognized a pretax charge
of $642 million for the costs of actions designed to improve our
combined competitiveness and productivity and improve future
profitability. The merger-related actions included the elimination
of redundant corporate offices and functional administrative
overhead;
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elimination of redundant and excess facilities and
workforce in our combined aerospace businesses; adoption of six
sigma productivity initiatives at the former Honeywell businesses;
and, the transition to a global shared services model. The
components of the charge included severance costs of $342 million,
asset impairments of $108 million, other exit costs of $57 million
and merger-related transaction and period expenses of $135 million.
Planned global workforce reductions consisted of approximately 6,500
administrative and manufacturing positions of which approximately
2,100 positions have been eliminated as of March 31, 2000. Asset
impairments principally related to the elimination of redundant or
excess corporate and aerospace facilities and equipment. Other exit
costs were related to lease terminations and contract cancellation
losses negotiated or subject to reasonable estimation at year-end.
Merger-related transaction and period expenses consisted of
investment banking and legal fees, former Honeywell deferred
compensation vested upon change in control and other direct merger-
related expenses incurred in the period the merger was completed.
All merger-related actions are expected to be completed by December
31, 2000.
In 1999, we also recognized a pretax charge of $321 million for the
costs of actions designed to reposition principally the AlliedSignal
business units for improved productivity and future profitability.
These repositioning actions included the organizational realignment
of our aerospace businesses to strengthen market focus and simplify
business structure; elimination of an unprofitable product line and
rationalization of manufacturing capacity and infrastructure in our
Performance Polymers business; a reduction in the infrastructure in
our Turbocharging Systems business; closing of a wax refinery and
carbon materials plant and rationalization of manufacturing capacity
in our Specialty Chemicals business; elimination of two
manufacturing facilities in our Electronic Materials business; a
plant closure and outsourcing activity in our automotive Consumer
Products Group business; and related and general workforce
reductions in all AlliedSignal businesses and our Industrial Control
business. The components of the charge included severance costs of
$140 million, asset impairments of $149 million, and other exit
costs of $32 million. Global workforce reductions consisted of
approximately 5,100 manufacturing, administrative, and sales
positions of which approximately 3,000 positions have been
eliminated as of March 31, 2000. Asset impairments principally
related to manufacturing plant and equipment held for sale and
capable of being taken out of service and actively marketed in the
period of impairment. Other exit costs principally consisted of
environmental exit costs associated with chemical plant shutdowns.
All repositioning actions, excluding environmental remediation, are
expected to be completed by December 31, 2000.
The following table summarizes the status of the 1999 merger and
repositioning actions:
1999 1999 Balance at 2000 Balance at
Charges Usage 12/31/99 Usage 3/31/2000
--------- ------ ---------- ------ ----------
Severance costs $482 $(58) $424 $(119) $305
Asset impairments 257 (257) - - -
Exit costs 89 (4) 85 (3) 82
Merger fees and expenses 135 (77) 58 (18) 40
---- ---- ---- ----- ----
Total $963 $(396) $567 $ (140) $427
==== ===== ==== ====== ====
Note 8. In February 2000, we acquired all of the outstanding shares
of Pittway Corporation (Pittway) Common Stock and Class A Stock for
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approximately $2.2 billion, including the assumption of the net
debt of Pittway of approximately $167 million. Pittway designs,
manufactures and distributes security and fire systems for homes
and buildings and had 1999 sales of $1.6 billion. The acquisition
was funded through the issuance of long-term debt (see Note 9)
and commercial paper.
The acquisition was accounted for under the purchase method of
accounting. The assets acquired and liabilities assumed of Pittway
were recorded at their estimated fair values at the acquisition
date, and are subject to adjustment when additional information
concerning asset and liability valuations is finalized. The excess
of purchase price over the estimated fair values of the net assets
acquired of approximately $1.6 billion was recorded as goodwill.
The pro forma results for the three months ended March 31, 2000,
assuming the acquisition had been made at the beginning of the year,
would not be materially different from reported results.
Note 9. In February 2000, we issued $1 billion of 7.50% Notes,
which will mature in 2010. Interest on the Notes is payable semi-
annually in arrears on March 1 and September 1 of each year,
beginning in September 2000. In February 2000, we also entered into
interest rate swap agreements, which effectively changed $750
million of this fixed rate debt to LIBOR based floating rate debt.
Note 10. On March 13, 1990, Litton Systems, Inc. (Litton) filed a
legal action against the former Honeywell in U.S. District Court,
Central District of California, Los Angeles (the trial court) with
claims that were subsequently split into two separate cases. One
alleges patent infringement under federal law for using an ion-beam
process to coat mirrors incorporated in the former Honeywell's ring
laser gyroscopes, and tortious interference under state law for
interfering with Litton's prospective advantage with customers and
contractual relationships with an inventor and his company, Ojai
Research, Inc. The other case alleges monopolization and attempted
monopolization under federal antitrust laws by the former Honeywell
in the sale of inertial reference systems containing ring laser
gyroscopes into the commercial aircraft market. The former Honeywell
generally denied Litton's allegations in both cases. In the
patent/tort case, the former Honeywell also contested the validity
as well as the infringement of the patent, alleging, among other
things, that the patent had been obtained by Litton's inequitable
conduct before the United States Patent and Trademark Office.
Patent/Tort Case U.S. District Court Judge Mariana Pfaelzer
presided over a three-month patent infringement and tortious
interference trial in 1993. On August 31, 1993, a jury returned a
verdict in favor of Litton, awarding damages against the former
Honeywell in the amount of $1.2 billion on three claims. The former
Honeywell filed post-trial motions contesting the verdict and damage
award. On January 9, 1995, the trial court set them all aside,
ruling, among other things, that the Litton patent was invalid due
to obviousness, unenforceable because of Litton's inequitable
conduct before the Patent and Trademark Office, and in any case, not
infringed by the former Honeywell's current process. It further
ruled that Litton's state tort claims were not supported by
sufficient evidence. The trial court also held that if its rulings
concerning liability were vacated or reversed on appeal, the former
Honeywell should at least be granted a new trial on the issue of
damages because the jury's award was inconsistent with the clear
weight of the evidence and based upon a speculative damage study.
The trial court's rulings were appealed to the U.S. Court of Appeals
for the Federal Circuit, and on July 3, 1996, in a two to one split
decision, a three judge panel of that court reversed the trial
court's rulings of patent
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invalidity, unenforceability and non-infringement, and also found the
former Honeywell to have violated California law by intentionally
interfering with Litton's consultant contracts and customer prospects.
However, the panel upheld two trial court rulings favorable to the
former Honeywell, namely that the former Honeywell was entitled to a
new trial for damages on all claims, and also to a grant of intervening
patent rights which are to be defined and quantified by the trial court.
After unsuccessfully requesting a rehearing of the panel's decision by
the full Federal Circuit appellate court, the former Honeywell filed a
petition with the U.S. Supreme Court on November 26, 1996, seeking
review of the panel's decision. In the interim, Litton filed a
motion and briefs with the trial court seeking injunctive relief
against the former Honeywell's commercial ring laser gyroscope
sales. After the former Honeywell and certain aircraft manufacturers
filed briefs and made oral arguments opposing the injunction, the
trial court denied Litton's motion on public interest grounds on
December 23, 1996, and then scheduled the patent/tort damages
retrial for May 6, 1997.
On March 17, 1997, the U.S. Supreme Court granted the former
Honeywell's petition for review and vacated the July 3, 1996 Federal
Circuit panel decision. The case was remanded to the Federal Circuit
panel for reconsideration in light of a recent decision by the U.S.
Supreme Court in the Warner-Jenkinson vs. Hilton Davis case, which
refined the law concerning patent infringement under the doctrine of
equivalents. On March 21, 1997, Litton filed a notice of appeal to
the Federal Circuit of the trial court's December 23, 1996 decision
to deny injunctive relief, but the Federal Circuit stayed any
briefing or consideration of that matter until such time as it
completed its reconsideration of liability issues ordered by the
U.S. Supreme Court.
The liability issues were argued before the same three-judge Federal
Circuit panel on September 30, 1997. On April 7, 1998, the panel
issued its decision: (i) affirming the trial court's ruling that the
former Honeywell's hollow cathode and RF ion-beam processes do not literally
infringe the asserted claims of Litton's '849 reissue patent (Litton's
patent); (ii) vacating the trial court's ruling that the former
Honeywell's RF ion-beam process does not infringe the asserted
claims of Litton's patent under the doctrine of equivalents, but
also vacating the jury's verdict on that issue and remanding that
issue to the trial court for further proceedings in accordance with
the Warner-Jenkinson decision; (iii) vacating the jury's verdict
that the former Honeywell's hollow cathode process infringes the
asserted claims of Litton's patent under the doctrine of
equivalents and remanding that issue to the trial court for further
proceedings; (iv) reversing the trial court's ruling with respect
to the torts of intentional interference with contractual
relations and intentional interference with prospective economic
advantage, but also vacating the jury's verdict on that issue,
and remanding the issue to the trial court for further proceedings
in accordance with California state law; (v) affirming the trial
court's grant of a new trial to the former Honeywell on damages for
all claims, if necessary; (vi) affirming the trial court's order
granting intervening rights to the former Honeywell in the patent
claim; (vii) reversing the trial court's ruling that the asserted
claims of Litton's patent were invalid due to obviousness and
reinstating the jury's verdict on that issue; and (viii) reversing
the trial court's determination that Litton had obtained Litton's
patent through inequitable conduct.
Litton's request for a rehearing of the panel's decision by the full
Federal Circuit court was denied and its appeal of the denial of an
injunction was dismissed. The case was remanded to the trial court
for further legal and perhaps factual review. The parties filed
motions with the trial court to dispose of the remanded issues as
matters of law, which were argued before the trial court on July 26,
1999. On September 23, 1999, the trial court issued dispositive
rulings
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in the case, granting the former Honeywell's Motion for
Judgment as a Matter of Law and Summary Judgment on the Patent
claims on various grounds; granting the former Honeywell's Motion
for Judgment as a Matter of Law on the State Law Claims on the
grounds of insufficient evidence; and denying Litton's Motion for
Partial Summary Judgment. We expect that Litton will appeal the
trial court's rulings.
When preparing for the patent/tort damages retrial that was
scheduled for May 1997, Litton had submitted a revised damage study
to the trial court, seeking damages as high as $1.9 billion. We
believe that our ion-beam processes do not infringe Litton's patent,
and further, that Litton's damage study remains flawed and
speculative for a number of reasons. We expect that the trial
court's latest rulings in the case will eventually be affirmed since
they are consistent with the Federal Circuit's most recent opinions
in this case and others which deal with alleged patent infringement
under the doctrine of equivalents, and since, absent any patent
infringement, Litton has not proven any tortious behavior by the
former Honeywell which interfered with its contracts or business
prospects. We also believe that it is reasonably possible that no
damages will ultimately be awarded to Litton.
Although it is not possible at this time to predict the result of
any further appeals in this case, potential does remain for an
adverse outcome which could be material to our financial position or
results of operations. We believe however, that any potential award
of damages for an adverse judgment of infringement or interference
should be based upon a reasonable royalty reflecting the value of
the ion-beam coating process, and further that such an award would
not be material to our financial position or results of operations.
As a result of the uncertainty regarding the outcome of this matter,
no provision has been made in the financial statements with respect
to this contingent liability.
Antitrust Case Preparations for, and conduct of, the trial in the
antitrust case have generally followed the completion of comparable
proceedings in the patent/tort case. The antitrust trial did not
begin until November 20, 1995. Judge Pfaelzer also presided over the
trial, but it was held before a different jury. At the close of
evidence and before jury deliberations began, the trial court
dismissed, for failure of proof, Litton's contentions that the
former Honeywell had illegally monopolized and attempted to
monopolize by: (i) engaging in below-cost predatory pricing; (ii)
tying and bundling product offerings under packaged pricing; (iii)
misrepresenting its products and disparaging Litton products; and
(iv) acquiring the Sperry Avionics business in 1986.
On February 2, 1996, the case was submitted to the jury on the
remaining allegations that the former Honeywell had illegally
monopolized and attempted to monopolize by: (i) entering into
certain long-term exclusive dealing and penalty arrangements with
aircraft manufacturers and airlines to exclude Litton from the
commercial aircraft market, and (ii) failing to provide Litton with
access to proprietary software used in the cockpits of certain
business jets.
On February 29, 1996, the jury returned a $234 million single
damages verdict against the former Honeywell for illegal
monopolization, which verdict would have been automatically trebled.
On March 1, 1996, the jury indicated that it was unable to reach a
verdict on damages for the attempt to monopolize claim, and a
mistrial was declared as to that claim.
The former Honeywell subsequently filed a motion for judgment as a
matter of law and a motion for a new trial, contending, among other
things, that the jury's partial verdict should be overturned because
the former Honeywell was prejudiced at trial, and Litton failed to
prove essential elements of liability or submit competent evidence
to support its speculative, all-or-nothing $298.5 million
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damage claim. Litton filed motions for entry of judgment and injunctive
relief. On July 24, 1996, the trial court denied the former
Honeywell's alternative motions for judgment as a matter of law or a
complete new trial, but concluded that Litton's damage study was
seriously flawed and granted the former Honeywell a retrial on
damages only. The court also denied Litton's two motions. At that
time, Judge Pfaelzer was expected to conduct the retrial of
antitrust damages sometime following the retrial of patent/tort
damages. However, after the U.S. Supreme Court remanded the
patent/tort case to the Federal Circuit in March 1997, Litton moved
to have the trial court expeditiously schedule the antitrust damages
retrial. In September 1997, the trial court rejected that motion,
indicating that it wished to know the outcome of the current
patent/tort appeal before scheduling retrials of any type.
Following the April 7, 1998 Federal Circuit panel decision in the
patent/tort case, Litton again petitioned the trial court to
schedule the retrial of antitrust damages. The trial court
tentatively scheduled the trial to commence in the fourth quarter of
1998, and reopened limited discovery and other pretrial
preparations. Litton then filed another antitrust damage claim of
nearly $300 million.
The damages only retrial began October 29, 1998 before Judge
Pfaelzer and a new jury. On December 9, 1998, the jury returned
verdicts against the former Honeywell totaling $250 million, $220
million of which is in favor of Litton and $30 million of which is
in favor of its sister corporation, Litton Systems, Canada, Limited.
On January 27, 1999, the court vacated its prior mistrial ruling
with respect to the attempt to monopolize claim and entered a treble
damages judgment in the total amount of $750 million for actual and
attempted monopolization. The former Honeywell filed appropriate
post-judgment motions with the trial court and Litton filed motions
seeking to add substantial attorney's fees and costs to the
judgment. A hearing on the post-judgment motions was held before the
trial court on May 20, 1999. On September 24, 1999, the trial court
issued rulings denying the former Honeywell's Motion for Judgment as
a Matter of Law and Motion for New Trial and Remittitur as they
related to Litton Systems Inc., but granting the former Honeywell's
Motion for Judgment as a Matter of Law as it relates to Litton
Systems, Canada, Limited. The net effect of these rulings was to
reduce the existing judgment against the former Honeywell of $750
million to $660 million, plus attorney fees and costs of
approximately $35 million. Both parties have appealed the judgment,
as to both liability and damages, to the U.S. Court of Appeals for
the Ninth Circuit. Execution of the trial court's judgment will be
stayed pending resolution of the former Honeywell's post-judgment
motions and the disposition of any appeals filed by the parties.
We expect to obtain substantial relief from the current adverse
judgment in the antitrust case by an appeal to the Ninth Circuit,
based upon sound substantive and procedural legal grounds. We
believe that there was no factual or legal basis for the magnitude
of the jury's award in the damages retrial and that, as was the case
in the first trial, the jury's award should be overturned. We also
believe there are serious questions concerning the identity and
nature of the business arrangements and conduct which were found by
the first antitrust jury in 1996 to be anti-competitive and damaging
to Litton, and the verdict of liability should be overturned as a
matter of law.
Although it is not possible at this time to predict the result of
any eventual appeals in this case, potential remains for an adverse
outcome which could be material to our financial position or results
of operations. As a result of the uncertainty regarding the outcome
of this matter, no provision has been made in
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the financial statements with respect to this contingent liability.
We also believe that it would be inappropriate for Litton to obtain
recovery of the same damages, e.g. losses it suffered due to the former
Honeywell's sales of ring laser gyroscope-based inertial systems to
OEMs and airline customers, under multiple legal theories, claims,
and cases, and that eventually any duplicative recovery would be
eliminated from the antitrust and patent/tort cases.
In the fall of 1996, Litton and the former Honeywell commenced a
court ordered mediation of the patent, tort and antitrust claims. No
claim was resolved or settled, and the mediation is currently in
recess.
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Report on Review by Independent Accountants
--------------------------------------------
To the Shareowners and Directors
of Honeywell International Inc.
We have reviewed the accompanying consolidated balance sheet of
Honeywell International Inc. and its subsidiaries as of March 31,
2000, and the related consolidated statements of income and of cash
flows for each of the three-month periods ended March 31, 2000 and
1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated interim
financial statements for them to be in conformity with generally
accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999,
and the related consolidated statements of income, of shareowners'
equity, and of cash flows for the year then ended (not presented
herein), and in our report dated January 27, 2000, except as to Note 25
which is as of February 4, 2000, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet information as of
December 31, 1999, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, NJ
May 5, 2000
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
A. Results of Operations - First Quarter 2000 Compared with First Quarter 1999
---------------------------------------------------------------------------
Net sales in the first quarter of 2000 were $6,044 million, an
increase of $462 million, or 8 percent compared with the first
quarter of 1999. Excluding the effects of foreign exchange,
acquisitions and divestitures, sales increased approximately 4
percent. Fluctuations in foreign currency rates decreased sales
approximately 2 percent.
Segment profit in the first quarter of 2000 was $836 million, an
increase of $145 million, or 21 percent compared with the first
quarter of 1999. Segment profit margin for the first quarter of 2000
was 13.8 percent compared with 12.4 percent for the comparable
period in 1999. The increase in segment profit in the first quarter
of 2000 was led by a substantial improvement by the Aerospace
Solutions, Automation & Control and Power & Transportation Products
segments. Lower Corporate expenses also contributed to the
increase. A substantial decrease in segment profit for the
Performance Materials segment was a partial offset. Segment profit
is discussed in detail by segment in the Review of Business Segments
section below.
Other (income) expense, $10 million of income in the first
quarter of 2000, decreased by $8 million compared with the first
quarter of 1999. The decrease principally reflects lower investment
income as the prior year's results included dividend income from our
investment in AMP Incorporated.
Interest and other financial charges of $111 million in the first
quarter of 2000 increased by $38 million, or 52 percent compared
with the first quarter of 1999. The increase reflects higher
average levels of debt during the current quarter versus the
comparable period in the prior year due to the Pittway acquisition
and the impact of tax interest expense.
Net income of $506 million, or $0.63 per share, in the first
quarter of 2000 was 15% higher than the prior year's first quarter
net income of $440 million, or $0.55 per share. The higher net
income in the first quarter of 2000 was the result of substantially
improved earnings for the Aerospace Solutions, Automation & Control
and Power & Transportation Products segments. The Performance
Materials segment had lower earnings.
Review of Business Segments
- ---------------------------
Aerospace Solutions sales of $2,396 million in the first
quarter of 2000 were $68 million, or 3 percent higher compared with
the first quarter of 1999, led by continued strong sales to the
aftermarket. The growth in sales to the aftermarket was driven by
higher repair and overhaul services revenues from air transport,
general aviation and military customers. Original equipment sales to
business, regional and general aviation customers were also higher
than in the prior year due primarily to increased engine deliveries.
This increase was partially offset by lower sales to air transport
original equipment manufacturers and a decrease in engineering
services revenue.
Aerospace Solutions segment profit of $493 million in the first
quarter of 2000 increased by $98 million, or 25 percent compared
with the first quarter of 1999 due to higher sales volume and an
improved mix of higher margin aftermarket products and services.
Cost structure improvements, primarily from workforce and
15
<PAGE>
benefit cost reductions, also contributed to the improvement in
segment profit.
Automation & Control sales of $1,700 million in the first
quarter of 2000 increased by $310 million, or 22 percent compared
with the comparable period in 1999. Sales for Home & Building
Control were significantly higher due principally to the acquisition
in February 2000 of Pittway Corporation, a manufacturer and
distributor of security and fire systems for homes and buildings.
Sales for Industrial Control were flat compared with the comparable
period in the prior year. Industrial Control continues to be
negatively impacted by weakness in the pulp and paper and
hydrocarbon processing industries, although there were some signs of
recovery in these key industries in the first quarter of 2000.
Automation & Control segment profit of $190 million in the
first quarter of 2000 increased by $70 million, or 58 percent
compared with the first quarter of 1999. Segment profit for both
the Home & Building Control and Industrial Control businesses
improved primarily as a result of lower costs due to workforce and
benefit cost reductions. The acquisition of Pittway also
contributed to improved segment profit.
Performance Materials sales of $1,025 million in the first
quarter of 2000 increased by $42 million, or 4 percent compared with
the first quarter of 1999. Sales increased due to the acquisition
in August 1999 of Johnson Matthey Electronics, a supplier of wafer
fabrication materials and interconnect products to the electronics
and telecommunications industries. Sales growth in fluorines,
plastics and specialty waxes also contributed to the increase. The
divestiture of the Laminate Systems business in September 1999 was a
partial offset.
Performance Materials segment profit of $95 million in the
first quarter of 2000 was lower by $54 million, or 36 percent
compared with the same period in the prior year. The decrease
principally reflects higher raw material costs in the Performance
Polymers businesses. The impact of recent acquisitions and
divestitures also contributed to the decrease.
Power & Transportation Products sales of $904 million in the
first quarter of 2000 increased by $45 million, or 5 percent
compared with the first quarter of 1999 led by a significant
improvement for the Turbocharging Systems business due primarily to
continued strong sales in Europe.
Power & Transportation Products segment profit of $88 million
in the first quarter of 2000 improved by $18 million, or 26 percent
compared with the first quarter of 1999. Cost structure
improvements in the Turbocharging Systems and Commercial Vehicle
Systems businesses resulting from six sigma initiatives, material
procurement savings and workforce reductions were primarily
responsible for the increase. Higher sales for the Turbocharging
Systems business also contributed to the increase.
16
<PAGE>
B. Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
Total assets at March 31, 2000 were $24,837 million, an
increase of $1,310 million, or 6 percent from December 31, 1999.
The increase relates principally to the acquisition of Pittway.
Cash provided by operating activities of $387 million during
the first three months of 2000 increased by $50 million compared
with the first three months of 1999 due principally to higher net
income and improved working capital. Spending related to the 1999
merger and repositioning actions was a partial offset.
Cash used for investing activities of $2,413 million during the
first three months of 2000 increased by $2,287 million compared with
the first three months of 1999 due principally to the acquisition of
Pittway. See Note 8 on page 8 of this Form 10-Q for further
details.
We continuously assess the relative strength of each business
in our portfolio as to strategic fit, market position and profit
contribution in order to upgrade our combined portfolio and identify
operating units that will most benefit from increased investment.
We identify acquisition candidates that will further our strategic
plan and strengthen our existing core businesses. We also identify
operating units that do not fit into our long-term strategic plan
based on their market position, relative profitability or growth
potential. These operating units are considered for potential
divestiture, restructuring or other repositioning action subject to
regulatory constraints.
Cash provided by financing activities of $1,035 million during
the first three months of 2000 increased by $1,395 million compared
with the first three months of 1999. The increase relates to
issuance of $1 billion of 7.50% Notes in February 2000. See Note 9
on page 9 of this Form 10-Q for further details. Total debt of
$6,325 million at March 31, 2000 was $1,259 million, or 25 percent
higher than at December 31, 1999 due to the Pittway acquisition. The
absence of stock repurchases in the current year also contributed to
the increase in cash provided by financing activities.
Merger and Repositioning Charges
- --------------------------------
In December 1999, upon completion of the merger between
AlliedSignal and the former Honeywell, we recognized a pretax charge
of $642 million for the costs of actions designed to improve our
combined competitiveness and productivity and improve future
profitability. The merger-related actions included the elimination
of redundant corporate offices and functional administrative
overhead; elimination of redundant and excess facilities and
workforce in our combined aerospace businesses; adoption of six
sigma productivity initiatives at the former Honeywell businesses;
and the transition to a global shared services model. The
components of the charge included severance costs of $342 million,
asset impairments of $108 million, other exit costs of $57 million
and merger-related transaction and period expenses of $135 million.
Planned global workforce reductions consisted of approximately 6,500
administrative and manufacturing positions of which approximately
2,100 positions have been eliminated as of March 31, 2000. Asset
impairments principally related to the elimination of redundant or
excess corporate and aerospace facilities and equipment. Other exit
costs were related to lease terminations and contract cancellation
losses negotiated or subject to reasonable estimation at year-end.
Merger-related transaction and period expenses consisted of
investment banking and legal fees, former Honeywell
17
<PAGE>
deferred compensation vested upon change in control and other
direct merger-related expenses incurred in the period the merger
was completed. All merger-related actions are expected to be
completed by December 31, 2000.
In 1999, we also recognized a pretax charge of $321 million for
the costs of actions designed to reposition principally the
AlliedSignal business units for improved productivity and future
profitability. These repositioning actions included the
organizational realignment of our aerospace businesses to strengthen
market focus and simplify business structure; elimination of an
unprofitable product line and rationalization of manufacturing
capacity and infrastructure in our Performance Polymers business; a
reduction in the infrastructure in our Turbocharging Systems
business; closing of a wax refinery and carbon materials plant and
rationalization of manufacturing capacity in our Specialty Chemicals
business; elimination of two manufacturing facilities in our
Electronic Materials business; a plant closure and outsourcing
activity in our automotive Consumer Products Group business; and
related and general workforce reductions in all AlliedSignal
businesses and our Industrial Control business. The components of
the charge included severance costs of $140 million, asset
impairments of $149 million, and other exit costs of $32 million.
Global workforce reductions consisted of approximately 5,100
manufacturing, administrative, and sales positions of which
approximately 3,000 positions have been eliminated as of March 31,
2000. Asset impairments principally related to manufacturing plant
and equipment held for sale and capable of being taken out of
service and actively marketed in the period of impairment. Other
exit costs principally consisted of environmental exit costs
associated with chemical plant shutdowns. All repositioning
actions, excluding environmental remediation, are expected to be
completed by December 31, 2000.
We expect that the merger and repositioning actions committed
to in 1999 will generate incremental pretax savings of $250 million
in 2000, $575 million in 2001 and $750 million in 2002 principally
from planned workforce reductions and facility consolidations. Cash
expenditures for severance, other exit costs, and future period
expenses necessary to execute these actions will exceed $500 million
and will principally be incurred in 2000. Cash expenditures for
severance, other exit costs and merger fees and expenses were $140
million for the three-month period ended March 31, 2000 and were
funded through operating cash flows.
C. Other Matters
-------------
Euro Conversion
---------------
On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing
currencies and the European Union's common currency (Euro). The
transition period for the introduction of the Euro is between
January 1, 1999 and January 1, 2002. We have identified and are
ensuring that all Euro conversion compliance issues are addressed.
Although we cannot predict the impact of the Euro conversion at this
time, we do not expect that the Euro conversion will have a material
adverse effect on our consolidated results of operations.
18
<PAGE>
Review by Independent Accountants
- ---------------------------------
The "Report on Review by Independent Accountants'" included
herein is not a "report" or "part of a Registration Statement"
prepared or certified by an independent accountant within the
meanings of Section 7 and 11 of the Securities Act of 1933, and the
accountants' Section 11 liability does not extend to such report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
See Honeywell's most recent annual report filed on Form 10-K
(Item 7A). At March 31, 2000, except for the issuance of $1 billion
of 7.50% Notes and the related interest rate swap agreements entered
into in February 2000, as described in Note 9 on page 9 of this
Form 10-Q, there has been no material change in this information.
At March 31, 2000, the market risk associated with the $1 billion
of 7.50% notes was substantially offset by the related interest
rate swap agreements.
19
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareowners of Honeywell held on May 1,
2000, the following matters set forth in our Proxy Statement dated
March 13, 2000, which was filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, were voted upon with the results indicated below.
(1) The nominees listed below were elected directors for a
three-year term ending at the 2003 Annual Meeting with the respective
votes set forth opposite their names:
FOR WITHHELD
Hans W. Becherer 658,120,241 15,787,072
Gordon M. Bethune 658,087,636 15,819,677
Jaime Chico Pardo 658,340,478 15,566,835
Ann M. Fudge 657,961,379 15,945,934
(2) A proposal seeking approval of the appointment of
PricewaterhouseCoopers LLP as independent accountants for 2000 was
approved, with 663,817,411 votes cast FOR, 5,438,657 votes cast
AGAINST, and 4,651,245 abstentions;
(3) A shareowner proposal regarding CEO compensation was
not approved, with 69,720,158 votes cast FOR, 486,553,921 votes cast
AGAINST, 40,864,412 abstentions and 76,768,822 broker non-votes;
(4) A shareowner proposal recommending the annual election of
directors was approved, with 320,447,503 votes cast FOR, 236,527,223
votes cast AGAINST, 40,163,765 abstentions and 76,768,822 broker non-
votes;
(5) A shareowner proposal recommending a change in shareowner
voting provisions was approved, with 327,270,958 votes cast FOR,
229,187,424 votes cast AGAINST, 40,680,109 abstentions and
76,768,822 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits. The following exhibits are filed with this Form 10-Q:
10.6 Supplemental Non-Qualified Savings Plan for Highly
Compensated Employees of Honeywell International Inc.
and its Subsidiaries, as amended
10.16 Long Term Performance Plan for Key Executives of
Honeywell International Inc.
15 Independent Accountants' Acknowledgment Letter
as to the incorporation of their report relating
20
<PAGE>
to unaudited interim financial statements
27 Financial Data Schedule
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the three months ended March 31, 2000:
1. On January 21, 2000 a report was filed reporting our results of
operations for the three-month and twelve-month periods ended
December 31, 1999;
2. On February 14, 2000 a report was filed reporting our financial
statements and pro forma financial information required as a result
of the merger involving AlliedSignal and the former Honeywell;
3. On February 29, 2000 a report was filed reporting our execution
and delivery of an underwriting agreement relating to our offer
and sale of US $1 billion of 7.50% notes due 2010.
21
<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.
Honeywell International Inc.
Date: May 12, 2000 By: /s/ Richard J. Diemer, Jr.
-----------------------------
Richard J. Diemer Jr.
Vice President and Controller
(on behalf of the Registrant
and as the Registrant's
Principal Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
2 Omitted (Inapplicable)
3 Omitted (Inapplicable)
4 Omitted (Inapplicable)
10.6 Supplemental Non-Qualified Savings
Plan for Highly Compensated Employees
of Honeywell International Inc. and its
Subsidiaries, as amended
10.16 Long Term Performance Plan for Key
Executives of Honeywell International Inc.
11 Omitted (Inapplicable)
15 Independent Accountants'
Acknowledgment Letter as to
the incorporation of their
report relating to unaudited
interim financial statements
18 Omitted (Inapplicable)
19 Omitted (Inapplicable)
22 Omitted (Inapplicable)
23 Omitted (Inapplicable)
24 Omitted (Inapplicable)
27 Financial Data Schedule
99 Omitted (Inapplicable)
23
<PAGE>
Exhibit 10.6
SUPPLEMENTAL NON-QUALIFIED SAVINGS PLAN FOR HIGHLY COMPENSATED
EMPLOYEES OF HONEYWELL INTERNATIONAL INC. AND ITS SUBSIDIARIES
(Career Band 6 and above)
(As Amended and Restated as of March 7, 2000)
1. Eligibility
-----------
Those highly compensated employees ("HCEs") of Honeywell
International Inc. (the "Corporation") and its subsidiaries
within the meaning of Section 414(q) of the Internal Revenue Code
of 1986 (the "Code") in Career Band 6 and above who are eligible
to participate in any of the qualified (as determined under Code
Section 401(a)) savings plans maintained by the Corporation or
its subsidiaries, other than any such plan maintained by
Honeywell Inc. prior to April 1, 2000, (the "Qualified Savings
Plans") are eligible to participate in the Supplemental Non-
Qualified Savings Plan for Highly Compensated Employees of
Honeywell International Inc. and its Subsidiaries (Career Band 6
and above) (the "Plan").
2. Definitions
-----------
Capitalized terms not otherwise defined in the Plan have the
respective meanings set forth in the applicable Qualified Savings
Plans.
3. Participation
-------------
(a) Time and Form of Election. Any eligible employee may
------------------------
become a participant in the Plan (a "Participant") as of the
beginning of the next available pay period, by executing a written
or electronic notice of election to participate and filing such
notice with the Plan Administrator (as defined in Section 10(a))
prior to the beginning of such pay period. Such notice may
direct that a portion (determined in accordance with paragraph
4(a)) of the base annual salary exclusive of shift differentials,
overtime or other premium pay, bonus, incentive or other extra
compensation, but inclusive of severance pay (unless otherwise
specifically excluded by the severance pay plan) or salary
deferred under this Plan or otherwise ("Base Annual Salary"),
which would have been payable to such Participant during such pay
period and succeeding pay periods, in lieu of such payment, be
credited to a deferred compensation account maintained under the
Plan as an unfunded book entry stated as a cash balance (the
"Participant's Account"). Amounts so credited to the
Participant's Account shall constitute "Participant Deferred
Contributions." A Participant's election to direct that a
portion of his or her Base Annual Salary be credited to the
Participant's Account shall continue in effect until the
Participant terminates such election, the Participant is no
longer an HCE or the Participant is no longer eligible to
contribute to the Qualified Savings Plans. Any such termination
shall be effective only with respect to the Participant's Base
Annual Salary payable after the end of the pay period in which
one of the events in the preceding sentence occurs. Amounts
credited to the Participant's Account prior to the effective date
of the termination of the election shall not be
<PAGE>
affected and shall be distributed only in accordance with the
terms of the Plan and Participant's distribution election thereunder.
(b) Change or Resumption of Amount Deferred. A Participant may
---------------------------------------
elect at any time to modify the amount of Base Annual Salary to be
credited to the Participant's Account under the Plan, which
modification shall be effective for the next available pay period
following his or her election. Amounts credited to the
Participant's Account prior to the effective date of such change
shall not be affected by such change and shall be distributed
only in accordance with the terms of the Plan.
4. Contributions to Participants' Accounts
---------------------------------------
(a) Participant Deferred Contributions. A Participant may elect
----------------------------------
to defer an aggregate amount, rounded to the nearest full dollar,
equal to the difference between (i) a full percentage of such
Participant's Base Annual Salary from 1% to the maximum
percentage permitted under the Qualified Savings Plans and Code
Section 415(c)(1)(B) for Before-Tax Contributions by an
individual who is not an HCE and who is eligible to participate
in the Qualified Savings Plans, without regard to any other
limitations which may apply under the Code and without regard to
any After-Tax Contributions which might be made under the
Qualified Savings Plans, and (ii) the full amount of Before-Tax
Contributions made by such Participant under the Qualified
Savings Plans; provided, however, that a Participant who elects
to defer any amount hereunder shall be required to make the
maximum Before-Tax Contributions permissible under the Qualified
Savings Plans for the applicable Plan Year (after giving effect
to deferrals under the Plan or otherwise). Notwithstanding the
preceding sentence, there shall be credited to the Participant's
Account an amount equal to the product of (x) the number of whole
shares of common stock of Honeywell International Inc. ("Common
Stock") credited to such Participant's Account under Section
5(b), and (y) $.077 (such product rounded to the nearest full
dollar). The amount determined under the preceding sentence
shall be credited to the Participant's Account as Participant
Deferred Contributions in accordance with Section 5(a) and shall
be credited to such Account no later than the last day of the
calendar year in which this amended and restated Plan is
effective.
(b) Plan Employer Contributions. There shall be credited to
---------------------------
the Participant's Account employer contributions under the Plan
("Plan Employer Contributions") in an aggregate amount equal to
(i) minus (ii), where (i) is 50% (for participants in the
Qualified Savings Plans with less than 60 Months of
Participation) or 100% (for participants in the Qualified Savings
Plans with at least 60 Months of Participation) of the lesser of
(x) 8% of the Participant's Base Annual Salary, or (y) the sum of
the Participant's Participant Contributions under the Qualified
Savings Plans and Participant Deferred Contributions under the
Plan, expressed as a percentage of Base Annual Salary, and (ii)
is the total amount of Employer Contributions made with respect
to the Participant under the Qualified Savings Plans; provided,
however, that in no event shall the combined Plan Employer
Contributions and Employer Contributions made with respect to the
Participant exceed 8% of the Participant's Base Annual Salary,
and provided, further, that Plan Employer Contributions shall not
be made with respect to a Participant during any period of
suspension of Employer Contributions with respect to such
Participant under the terms of the
2
<PAGE>
Qualified Savings Plans, whether or not such Participant
continues to make Participant Contributions under the Qualified
Savings Plans during the period of such suspension.
(c) Vesting. Participant Deferred Contributions, Plan Employer
-------
Contributions (collectively "Total Contribution Amounts") and all
amounts accrued with respect to Total Contribution Amounts in
accordance with Section 5, shall be vested at the time such
amounts are credited to the Participant's Account.
(d) All Contributions Prorated. Total Contribution Amounts shall
--------------------------
be credited to a Participant's Account each pay period.
5. The Participant's Account
-------------------------
(a) Crediting of Participant's Accounts. Participant
--------------------------------------
Deferred Contributions shall be credited to the Participant's Account
under the Plan as unfunded book entries stated as cash balances.
Participant Deferred Contributions credited to the Participant's
Account prior to January 1, 1994 or after the Participant has
terminated employment shall accrue amounts (to be posted each
Valuation Date) equivalent to interest, compounded daily, at a
rate based upon the cost to the Corporation of borrowing at a
fixed rate for a 15-year term. Such rate shall be determined
annually by the Chief Financial Officer of the Corporation in
consultation with the Treasurer of the Corporation. Participant
Deferred Contributions credited to the Participant's Account on
or after January 1, 1994, but before a Participant terminates
employment, shall accrue amounts (to be posted each Valuation
Date) equivalent to interest, compounded daily, at a rate
determined annually by the Management Development and
Compensation Committee (the "Committee") of the Board of
Directors (the "Board") of the Corporation. The rate established
in the preceding sentence shall not exceed the greater of (i)
10%, or (ii) 200% of the 10-year U.S. Treasury Bond rate at the
time of determination and, once established for a calendar year,
shall remain in effect with respect to all Participant Deferred
Contributions credited to the Participant's Account during such
calendar year until such amounts are distributed. Plan Employer
Contributions shall be credited to the Participant's Account
under the Plan as unfunded book entries stated as shares of
Common Stock (including fractional shares). The number of shares
of Common Stock credited to a Participant's Account shall be
determined by dividing the equivalent cash amount (as determined
under Section 4(b)) by the closing price of Common Stock on the
day that such Plan Employer Contributions are credited to the
Participant's Account. Amounts equivalent to the dividends that
would have been payable in respect of the Common Stock shall be
credited to the Participant's Account as if reinvested in Common
Stock, with the number of shares credited determined by dividing
the equivalent cash dividend amount by the closing price of
Common Stock on the date the dividends would have been payable.
Amounts credited to the Participant's Account shall accrue
amounts equivalent to interest and dividends, as the case may be,
until distributed in accordance with the Plan.
(b) Transition Rule for Plan Employer Contributions. The
-----------------------------------------------
balance of each Participant's Account attributable to Plan Employer
Contributions, determined as of the close of business on the day
prior to the effective date of the amendment and restatement of
the Plan and adjusted to reflect all gains, losses and dividends
that have been credited to such Participant's Account through the
day prior to such effective date, shall be converted into the
equivalent
3
<PAGE>
number of shares of Common Stock by dividing such balance by
the closing price of Common Stock on the trading date next
preceding such effective date. Such amount shall be an
unfunded book entry only and shall (i) thereafter be credited
with equivalent dividend amounts in accordance with Section 5(a),
and (ii) be distributed in accordance with Section 6(a)(ii).
6. Distribution from Accounts
--------------------------
(a) Form of Election.
----------------
(i) Participant Deferred Contributions. At the time a
----------------------------------
Participant makes an election pursuant to Section 3(a), the
Participant shall also make an election with respect to the
distribution of the aggregate amount of the Participant Deferred
Contributions, plus earnings credited thereon pursuant to Section
5 (collectively the "Participant Deferred Contribution Amounts"),
credited to the Participant's Account pursuant to such election.
A Participant may elect to receive such amount in one lump-sum
payment or in a number of annual installments (up to fifteen
installments). The lump-sum payment or the first installment
shall be paid in cash as soon as practicable during the month of
January of such future calendar year as the Participant may
designate or, if the Participant so elects, as soon as
practicable during the month of January of the calendar year
immediately following the later of the year in which the
Participant last contributed to the Plan or the year in which the
Participant terminates employment with the Corporation or any of
its subsidiaries (whether by reason of Retirement or otherwise).
Except as otherwise provided in Section 8, subsequent
installments shall be paid in cash as soon as practicable during
the month of January of each succeeding calendar year until the
entire amount of the Participant Deferred Contribution Amounts
shall have been paid. The amount of each installment shall be
determined by multiplying the balance of the Participant Deferred
Contribution Amounts each year by a fraction, the numerator of
which is one and the denominator of which is (A) the number of
installments elected, reduced by (B) one for each annual
installment previously received.
(ii) Plan Employer Contributions. The distribution election
---------------------------
made pursuant to subsection (i) above shall also apply to the
timing of the distribution of the aggregate number of shares of
Common Stock representing the Plan Employer Contributions plus
reinvested dividends pursuant to Section 5 (collectively the
"Plan Employer Contribution Amounts") credited to the
Participant's Account pursuant to Section 5. Except to the
extent otherwise provided with respect to fractional shares, all
distributions of Plan Employer Contribution Amounts shall be made
in Common Stock. A Participant may elect to receive such Plan
Employer Contribution Amounts in one lump-sum payment or in a
number of annual installments (up to fifteen installments). The
lump-sum payment or the first installment shall be paid as soon
as practicable during the month of January of such future
calendar year as the Participant may designate, or, if the
Participant so elects, as soon as practicable during the month of
January of the calendar year immediately following the later of
the year in which the Participant last contributed to the Plan or
the year in which the Participant terminates employment with the
Corporation or any of its subsidiaries (whether by reason of
Retirement or otherwise). Except as otherwise provided in
Section 8, subsequent installments shall be paid as soon as
practicable during the month of January of each succeeding
calendar year until the entire amount of the Plan Employer
Contribution Amounts shall have been paid. The amount of each
4
<PAGE>
installment shall be determined by (A) multiplying the balance of
the Plan Employer Contribution Amounts on the last Valuation Date
of each year by a fraction, the numerator of which is one and the
denominator of which is (x) the number of installments elected,
reduced by (y) one for each annual installment previously
received, and (B) rounding the result down to the next whole
share of Common Stock; provided, however, the amount of the last
installment shall be determined without regard to the rounding
requirement of the preceding portion of this sentence. Any
fractional shares of Common Stock shall be paid in an equivalent
cash amount, as determined using the closing price of Common
Stock on the trading date next preceding the distribution date.
(b) Adjustment of Method of Distribution. Prior to the
------------------------------------
beginning of any calendar year, a Participant may elect to change
the timing and method of distribution of the Participant Deferred
Contribution Amounts and Plan Employer Contribution Amounts
credited to the Participant's Account commencing with such
calendar year. Participant Deferred Contribution Amounts and
Plan Employer Contribution Amounts credited to the Participant's
Account prior to the effective date of such change (the "Prior
Balance"), and all amounts thereafter accrued with respect to the
Prior Balance, shall not be affected by such change and, except
as otherwise determined by the Plan Administrator pursuant to
Section 8, shall be distributed only in accordance with the
election in effect at the time such Prior Balance was credited to
the Participant's Account.
(c)(i) Distribution Default for Participant Deferred Contribution Amounts.
------------------------------------------------------------------
Any Participant Deferred Contribution Amounts credited to a Participant's
Account which are not covered by a timely distribution election under
subsections (a) and (b) above shall be distributed to the Participant
in one lump-sum cash payment as soon as practicable during the month
of January of the calendar year immediately following the later of the
year in which the Participant last contributed to the Plan or the year
in which the Participant terminates his employment with the Corporation
or any of its subsidiaries (whether by reason of Retirement or
otherwise); provided, however, if the Participant has made an
election pursuant to Sections 9(a)(i) or 9(a)(ii), the lump sum
payment shall be made within the 90-day period following a Change
in Control, as defined in Section 9(c).
(c)(ii) Distribution Default for Plan Employer Contribution Amounts.
-----------------------------------------------------------
Any Plan Employer Contribution Amounts credited to a Participant's
Account which are not covered by a timely distribution election
under subsections (a) and (b) above shall be distributed to the
Participant in Common Stock as soon as practicable during the
month of January of the calendar year immediately following the
later of the year in which the Participant last contributed to
the Plan or the year in which the Participant terminates his
employment with the Corporation or any of it subsidiaries
(whether by reason of Retirement or otherwise); provided,
however, if the Participant has made an election pursuant to
Sections 9(a)(i) or (ii), the distribution shall be made within
the 90-day period following a Change in Control, as defined in
Section 9(c). Any fractional shares of Common Stock shall be
paid in an equivalent cash amount, as determined using the
closing price of Common Stock on the trading date next preceding
the distribution date.
5
<PAGE>
7. Distribution on Death
---------------------
(a) Participant Deferred Contribution Amounts. If a Participant
-----------------------------------------
should die before all Participant Deferred Contribution Amounts
credited to the Participant's Account have been paid in
accordance with the election referred to in Sections 6(a) or
6(b), the balance of the Participant Deferred Contribution
Amounts in such Participant's Account shall be paid in cash as
soon as practicable following the Participant's death to the
beneficiary designated in writing by the Participant and filed
with the Plan Administrator; provided, however, if the
Participant has made an election pursuant to Sections 9(a)(i) or
9(a)(ii), such amount shall be paid within the 90-day period
following a Change in Control, as defined in Section 9(c). If
(i) no beneficiary designation has been made, or (ii) the
designated beneficiary shall have predeceased the Participant and
no further designation has been made, then such balance shall be
paid to the estate of the Participant. A Participant may change
the designated beneficiary at any time during the Participant's
lifetime by filing a subsequent designation in writing with the
Plan Administrator.
(b) Plan Employer Contribution Amounts. If a Participant
----------------------------------
should die before all Plan Employer Contribution Amounts credited
to the Participant's Account have been paid in accordance with the
election referred to in Sections 6(a) or 6(b), the balance of the
Plan Employer Contribution Amounts in such Participant's Account
shall be paid in Common Stock as soon as practicable following
the Participant's death to the beneficiary designated in writing
by the Participant and filed with the Plan Administrator;
provided, however, if the Participant has made an election
pursuant to Sections 9(a)(i) or 9(a)(ii), such amount shall be
paid within the 90-day period following a Change in Control, as
defined in Section 9(c). If (i) no such beneficiary designation
has been made, or (ii) the designated beneficiary shall have
predeceased the Participant and no further designation has been
made, then such balance shall be paid to the estate of the
Participant. A Participant may change the designated beneficiary
at any time during the Participant's lifetime by filing a
subsequent designation in writing with the Plan Administrator.
Any fractional shares of Common Stock shall be paid in an
equivalent cash amount, as determined using the closing price of
Common Stock on the trading date next preceding the distribution
date.
8. Payment in the Event of Hardship
--------------------------------
Upon receipt of a request from a Participant, delivered in
writing to the Plan Administrator along with a Certificate of
Unavailability of Resources form, the Plan Administrator, or his
designee, may cause the Corporation to accelerate (or require the
subsidiary of the Corporation which employs or employed the
Participant to accelerate) payment of all or any part of the
amount credited to the Participant's Account, including accrued
amounts, if it finds in its sole discretion that payment of such
amounts in accordance with the Participant's prior election under
Sections 6(a) or 6(b) would result in severe financial hardship
to the Participant, and such hardship is the result of an
unforeseeable emergency caused by circumstances beyond the
control of the Participant. Acceleration of payment may not be
made under this Section 8 to the extent that such hardship is or
may be relieved (a) through reimbursement or compensation by
insurance or otherwise, (b) by liquidation of the Participant's
assets, to the extent the liquidation of assets would not itself
cause severe financial hardship, or
6
<PAGE>
(c) by cessation of deferrals under this Plan or any tax-
qualified savings plan of the Corporation or its subsidiaries.
Any distribution of Participant Deferred Contribution Amounts
pursuant to this Section 8 shall be made in cash, while any
distribution of Plan Employer Contribution Amounts pursuant to
this Section 8 shall be made in Common Stock. Any fractional
shares of Common Stock shall be paid in an equivalent cash amount,
as determined using the closing price of Common Stock on the trading
date next preceding the distribution date.
9. Change in Control
-----------------
(a)(i) Initial Lump-Sum Payment Election.
---------------------------------
Notwitstanding any election made pursuant to Section 6, any person
who becomes eligible to participate in the Plan may file a written
election with the Plan Administrator at the time the individual
makes an election to participate pursuant to Section 3(a) to have
the aggregate amount credited to the Participant's Account
(commencing with the date on which such written election is
filed) paid in one-lump sum payment as soon as practicable
following a Change in Control, but in no event later than 90 days
after such Change in Control. Any distribution of Participant
Deferred Contribution Amounts pursuant to this Section 9 shall be
made in cash, while any distribution of Plan Employer
Contribution Amounts pursuant to this Section 9 shall be made in
Common Stock (or the common stock of any successor corporation
issued in exchange for, or with respect to, Common Stock incident
to the Change in Control). Any fractional shares of Common Stock
(or the common stock of any successor corporation issued in
exchange for, or with respect to, Common Stock incident to the
Change in Control) shall be paid in an equivalent cash amount.
(a)(ii) Subsequent Lump-Sum Payment Election. A
-----------------------------------------
Participant who did not make an election pursuant to Section 9(a)(i)
or who has revoked, pursuant to Section 9(a)(iii), an election
previously made under Section 9(a)(i) or this Section 9(a)(ii) may,
prior to the earlier of a Change in Control or the beginning of the
calendar year in which the election is to take effect, elect to
have the aggregate amount credited to the Participant's Account
for all calendar years commencing with the first calendar year
beginning after the date the election is made, paid in one lump-
sum payment as soon as practicable following a Change in Control,
but in no event later than 90 days after such Change in Control.
Amounts credited to the Participant's Account prior to the
effective date of the election made pursuant to this Section
9(a)(ii) shall not be affected by such election and shall be
distributed following a Change in Control in accordance with any
prior election in effect under Sections 9(a)(i) or 9(a)(ii).
(a)(iii) Revocation of Lump-Sum Payment Elections. A
-------------------------------------------
Participant may, prior to the earlier of a Change in Control or the
beginning of any calendar year, file an election revoking any
election made pursuant to Sections 9(a)(i) or 9(a)(ii), with respect
to amounts credited to the Participant's Account commencing with
the first calendar year beginning after the election is made. Amounts
credited to the Participant's Account prior to the effective date
of the election made pursuant to this Section 9(a)(iii) shall not
be affected by such election and shall be distributed following a
Change in Control in accordance with any prior election in effect
under Sections 9(a)(i) or 9(a)(ii).
(b) Interest Equivalents. Notwithstanding anything to the
---------------------
contrary in the Plan, after a Change in Control, the Plan may not
provide, or be amended to provide, interest accruals with
7
<PAGE>
respect to Participant Deferred Contributions at rates lower than
the rates in effect under Section 5 immediately prior to the Change
in Control.
(c) Definition of Change in Control. For purposes of the Plan,
-------------------------------
a Change in Control is deemed to occur at the time (i) when any
entity, person or group (other than the Corporation, any
subsidiary or any savings, pension or other benefit plan for the
benefit of employees of the Corporation or its subsidiaries)
which therefore beneficially owned less than 30% of the common
stock then outstanding acquires shares of Common Stock in a
transaction or series of transactions that results in such
entity, person or group directly or indirectly owning
beneficially 30% or more of the outstanding Common Stock, (ii) of
the purchase of shares of Common Stock pursuant to a tender offer
or exchange offer (other than an offer by the Corporation) for
all, or any part of, the Common Stock, (iii) of a merger in which
the Corporation will not survive as an independent, publicly
owned corporation, a consolidation, or a sale, exchange or other
disposition of all or substantially all of the Corporation's
assets, (iv) of a substantial change in the composition of the
Board during any period of two consecutive years such that
individuals who at the beginning of such period were members of
the Board cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by
the stockholders of the Corporation, of each new director was
approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the
period, or (v) of any transaction or other event which the
Corporate Governance Committee of the Board, in its discretion,
determines to be a Change in Control for purposes of the Plan.
10. Administration
-------------
(a) Plan Administrator. The Plan Administrator and "named
------------------
fiduciary" for purposes of ERISA shall be the Senior Vice
President-Human Resources and Communications of the Corporation
(or the person acting in such capacity in the event such position
is abolished, restructured or renamed). The Plan Administrator
shall have the authority to appoint one or more other named
fiduciaries of the Plan and to designate persons, other than
named fiduciaries, to carry out fiduciary responsibilities under
the Plan, pursuant to Section 405(c)(1)(B) of ERISA. Any person
acting on behalf of the Plan Administrator shall serve without
additional compensation. The Plan Administrator shall keep or
cause to be kept such records and shall prepare or cause to be
prepared such returns or reports as may be required by law or
necessary for the proper administration of the Plan.
(b) Powers and Duties of Plan Administrator. The Plan
------------------------------------------
Administrator shall have the full discretionary power and authority
to construe and interpret the Plan (including, without limitation,
supplying omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan); to
determine all questions of fact arising under the Plan, including
questions as to eligibility for and the amount of benefits; to
establish such rules and regulations (consistent with the terms
of the Plan) as it deems necessary or appropriate for
administration of the Plan; to delegate responsibilities to
others to assist it in administering the Plan; to retain
attorneys, consultants, accountants or other persons (who may be
employees of the Corporation and its subsidiaries) to render
advice and assistance as it shall determine to be necessary to
effect the proper discharge of any duty for which it is
responsible; and to perform all other acts it believes reasonable
and proper in connection with the administration of the Plan.
8
<PAGE>
The Plan Administrator shall be entitled to rely on the records
of the Corporation and its subsidiaries in determining any
Participant's entitlement to and the amount of benefits payable
under the Plan. Any determination of the Plan Administrator,
including interpretations of the Plan and determinations of
questions of fact, shall be final and binding on all parties.
(c) Indemnification. To the extent permitted by law, the
---------------
Corporation shall indemnify the Plan Administrator from all claims
for liability, loss, or damage (including payment of expenses in
connection with defense against such claims) arising from any act
or failure to act in connection with the Plan.
11. Claims Procedures and Appeals
-----------------------------
(a) Any request or claim for Plan benefits must be made in
writing and shall be deemed to be filed by a Participant when a
written request is made by the claimant or the claimant's
authorized representative which is reasonably calculated to bring
the claim to the attention of the Plan Administrator.
(b) The Plan Administrator shall provide notice in writing
to any Participant when a claim for benefits under the Plan has
been denied in whole or in part. Such notice shall be provided
within 90 days of the receipt by the Plan Administrator of the
Participant's claim or, if special circumstances require, and the
Participant is so notified in writing, within 180 days of the
receipt by the Plan Administrator of the Participant's claim.
The notice shall be written in a manner calculated to be
understood by the claimant and shall:
(i) set forth the specific reasons for the denial of
benefits;
(ii) contain specific references to Plan provisions
relative to the denial;
(iii) describe any material and information, if
any, necessary for the claim for benefits to be allowed, that had
been requested, but not received by the Plan Administrator; and
(iv) advise the Participant that any appeal of the Plan
Administrator's adverse determination must be made in writing to
the Plan Administrator within 60 days after receipt of the
initial denial notification, and must set forth the facts upon
which the appeal is based.
(c) If notice of the denial of a claim is not furnished
within the time periods set forth above, the claim shall be
deemed denied and the claimant shall be permitted to proceed to
the review procedures set forth below. If the Participant fails
to appeal the Plan Administrator's denial of benefits in writing
and within 60 days after receipt by the claimant of written
notification of denial of the claim (or within 60 days after a
deemed denial of the claim), the Plan Administrator's
determination shall become final and conclusive.
(d) If the Participant appeals the Plan Administrator's
denial of benefits in a timely fashion, the Plan Administrator
shall re-examine all issues relevant to the original denial of
benefits. Any such claimant, or his or her duly authorized
representative, may review any
9
<PAGE>
pertinent documents, as determined by the Plan Administrator, and
submit in writing any issues or comments to be addressed on appeal.
(e) The Plan Administrator shall advise the Participant and
such individual's representative of its decision, which shall be
written in a manner calculated to be understood by the claimant,
and include specific references to the pertinent Plan provisions
on which the decision is based. Such response shall be made
within 60 days of receipt of the written appeal, unless special
circumstances require an extension of such 60-day period for not
more than an additional 60 days. Where such extension is
necessary, the claimant shall be given written notice of the
delay. If the decision on review is not furnished within the
time set forth above, the claim shall be deemed denied on review.
(f) Any dispute, controversy, or claim arising out of or
relating to any Plan benefit, including, without limitation, any
dispute, controversy or claim as to whether the decision of the
Plan Administrator respecting the benefits under this Plan or
interpretation of this Plan is arbitrary and capricious, that is
not settled in accordance with the procedures outlined in this
Section 11, shall be settled by final and binding arbitration in
accordance with the American Arbitration Association Employment
Dispute Resolution or other applicable Rules. Before resorting
to arbitration, an aggrieved Participant must first follow the
review procedure outlined in this Section of the Plan. If there
is still a dispute after the procedures in this Section have been
exhausted, the Participant must request arbitration in writing
within six (6) months after the Plan Administrator issues, or is
deemed to have issued, its determination under subparagraph (e)
above.
The arbitrator shall be selected by mutual agreement of
the parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA"). The selection process shall be that
which is set forth in the AAA Employment Dispute Resolution
Rules, except that, if the parties fail to select an arbitrator
from one or more panels, AAA shall not have the power to make an
appointment but shall continue to submit additional panels until
an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be borne by the Corporation. The
arbitrator shall have no power to amend, add to or subtract from
this Plan. The award shall be admissible in any court or agency
action seeking to enforce or render unenforceable this Plan or
any portion thereof. Any action to enforce or vacate the
arbitrator's award shall be governed by the Federal Arbitration
Act if applicable.
12. Miscellaneous.
-------------
(a) Anti-Alienation. The right of a Participant to receive any
---------------
amount credited to the Participant's Account shall not be
transferable or assignable by the Participant, except by will or
by the laws of descent and distribution. To the extent that any
person acquires a right to receive any amount credited to a
Participant's Account hereunder, such right shall be no greater
than that of an unsecured general creditor of the Corporation.
Except as expressly provided herein, any
10
<PAGE>
person having an interest in any amount credited to a Participant's
Account under the Plan shall not be entitled to payment until the
date the amount is due and payable. No person shall be entitled to
anticipate any payment by assignment, pledge or transfer in any
form or manner prior to actual or constructive receipt thereof.
(b) Unsecured General Creditor. Neither the Corporation nor
--------------------------
any of its subsidiaries shall be required to reserve or otherwise
set aside funds, Common Stock or other assets for the payment of
its obligations hereunder. However, the Corporation or any
subsidiary may, in its sole discretion, establish funds for
payment of its obligations hereunder. Any such funds shall
remain assets of the Corporation or such subsidiary, as the case
may be, and subject to the claims of its general creditors. Such
funds, if any, shall not be deemed to be assets of the Plan. The
Plan is intended to be unfunded for tax purposes and for purposes
of Title I of the Employee Retirement Income Security Act of
1974, as amended.
(c) Withholding. The Corporation shall withhold from any
-----------
distribution made from Participant Deferred Contribution Amounts
the amount necessary to satisfy applicable federal, state and
local tax withholding requirements. With respect to
distributions of Plan Employer Contribution Amounts, the delivery
of the shares of Common Stock shall be delayed until the
Participant makes arrangements, pursuant to procedures to be
adopted by the Plan Administrator, to satisfy the applicable
federal, state and local tax withholding requirements.
(d) Termination and Amendment. The Corporation may at any
-------------------------
time amend or terminate the Plan. No amendment or termination shall
impair the rights of a Participant with respect to amounts then
credited to the Participant's Account.
(e) Benefit Statements. Each Participant will receive periodic
------------------
statements (not less frequently than annually) regarding the
Participant's Account. Each such statement shall indicate the
amount of the balances credited to the Participant's Account as
of the end of the period covered by such statement.
(f) Legal Interpretation. This Plan and its provisions shall
--------------------
be construed in accordance with the laws of the State of Delaware
to the extent such Delaware law is not inconsistent with the
provisions of ERISA. The text of this Plan shall, to the extent
permitted by law, govern the determination of the rights and
obligations created or referred to herein. Headings to the
Sections, paragraphs and subparagraphs are for reference purposes
only and do not limit or extend the meaning of any of the Plan's
provisions.
(g) Employment. The adoption and maintenance of this Plan
----------
shall not be deemed to constitute a contract between the Corporation
or its subsidiaries and any employee or to be a consideration for
or condition of employment of any person. No provision of the Plan
shall be deemed to give any employee the right to continue in the
employ of the Corporation or its subsidiaries or to interfere
with the right of the Corporation or its subsidiaries to
discharge any employee at any time without regard to the effect
which such discharge might have upon the employee's participation
in the Plan or benefits under it.
11
<PAGE>
(h) Fiduciary Capacities. Any person or group of persons
--------------------
may serve in more than one fiduciary capacity with respect to the Plan.
For purposes of this Section 12(h), the term "fiduciary" shall have
the same meaning as in ERISA.
(i) Participants Subject to Section 16. Notwithstanding
------------------------------------
anything herein to the contrary, if any request, election or other
action under the Plan affecting a Participant subject to Section 16
of the Securities Exchange Act of 1934 should require the approval
of the Committee to exempt such request, election or other action
from potential liability under Section 16, then the approval of
the Committee shall be obtained in lieu of the approval of the
Plan Administrator.
12
<PAGE>
Exhibit 10.16
--------------
Summary of the Long Term Performance Plan for Key Executives
Of Honeywell International Inc.
The Long Term Performance Plan of Honeywell
International Inc. (formerly AlliedSignal Inc.) became
effective January 1, 1998 and was terminated December 31,
1999 as a result of integration of compensation programs
following the merger involving AlliedSignal and Honeywell;
however, participants will receive any applicable
performance payments based on performance in 1998 and 1999
in the first quarter of 2001. The Plan offered the
Presidents of strategic business units and the Vice
Presidents of Growth and Six Sigma & Productivity with cash
payments based on the operating performance of the
corporation and/or their respective strategic business
units.
The Plan originally provided that participants would
receive payments in the first quarter of 2001 based on
operating performance during the three years ended December
31, 2000. With the termination of the Plan effective
December 31, 1999, participants will receive payments in the
first quarter of 2001 based on operating performance during
a shortened two-year measurement period ended December 31,
1999.
Payments are based on the realization of net income and
revenue targets for both the strategic business unit for
which the participant is responsible, if any, and the
corporation as a whole for the measurement period. Based on
the percentage realization of the targets, participants may
receive payments equal to between 0% and 200% of their
cumulative cash earnings (base pay plus actual bonus) during
the measurement period. Individual behaviors, acquisitions
and divestitures, and other relevant factors may be taken
into account in determining the payment.
Exhibit 15
----------
May 12, 2000
Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549
Commissioners:
We are aware that our report dated May 5, 2000 on our review of
interim financial information of Honeywell International Inc.
for the period ended March 31, 2000 and included in Honeywell's
quarterly report on form 10-Q for the quarter then ended is
incorporated by reference in its Registration Statements on
Forms S-8 (Nos. 33-09896, 33-51455, 33-55410, 33-58347, 33-
60261, 333-57509, 333-57515, 333-57517, 333-57519, 333-83511,
333-88141, 333-31368, 333-31370 and 333-34764), on Forms S-3
(Nos. 33-14071, 33-55425, 33-64245, 333-22355, 333-49455, 333-
68847, 333-74075, 333-86157 and 333-34760) on Form S-4 (No. 333-
82049) and on Form S-8 (filed as an amendment to Form S-14, No.
2-99416-01).
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at March 31, 2000 and the consolidated statement of
income for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 3,690
<ALLOWANCES> 93
<INVENTORY> 3,744
<CURRENT-ASSETS> 9,750
<PP&E> 12,767
<DEPRECIATION> 7,130
<TOTAL-ASSETS> 24,837
<CURRENT-LIABILITIES> 8,314
<BONDS> 3,477
0
0
<COMMON> 958
<OTHER-SE> 7,987
<TOTAL-LIABILITY-AND-EQUITY> 24,837
<SALES> 6,044
<TOTAL-REVENUES> 6,044
<CGS> 4,450
<TOTAL-COSTS> 4,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 739
<INCOME-TAX> 233
<INCOME-CONTINUING> 506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.63
</TABLE>
