<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5358
SUNDSTRAND CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-1840610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4949 HARRISON AVENUE
P.O. BOX 7003
ROCKFORD, ILLINOIS 61125-7003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 226-6000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH THE COMMON
TITLE OF EACH CLASS STOCK AND RIGHTS ARE REGISTERED
Common stock - $.50 par value New York Stock Exchange
Common stock purchase rights Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
$2,927,079,891 as of February 24, 1999.*
*For purposes of this calculation, the Registrant has assumed that its directors
and executive officers are affiliates.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
53,962,426 shares of common stock outstanding at February 24, 1999.
DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
DOCUMENT FORM 10-K REFERENCE
Portions of Registrant's Proxy Statement for the Part III
1999 Annual Meeting of Stockholders
===============================================================================
<PAGE> 2
Sundstrand Corporation hereby amends its Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 as filed with the Securities and Exchange
Commission on March 31, 1999.
LIST OF ITEMS AMENDED
<TABLE>
<CAPTION>
Part Item Description
- ---- ---- -----------
<S> <C> <C>
III 10 Directors and Executive Officers of the Registrant
III 11 Executive Compensation
III 12 Security Ownership of Certain Beneficial Owners and Management
III 13 Certain Relationships and Related Transactions
IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
</TABLE>
REASON FOR AMENDMENTS
Information required by Items 10 through 13 of Part III were incorporated by
reference to the Registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders (Proxy Statement) in the Form 10-K filed on March 31, 1999. As a
result of the pending merger with United Technologies Corporation, the
Registrant's Proxy Statement will not be filed with the Securities and Exchange
Commission prior to the end of the 120-day period after the Registrant's fiscal
year end covered by the Form 10-K which is required in order to incorporate such
information by reference. This amendment is being filed to include all
information required by Items 10 through 13 of Part III in the Annual Report on
Form 10-K for the Registrant's fiscal year ended December 31, 1998.
Item 14 is being amended to include Exhibit 12 "Computation of Ratio of Earnings
to Fixed Charges".
AMENDMENTS
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to the Executive Officers of
Sundstrand appears at the end of Part I of the Form 10-K on pages 7 and 8.
NOMINEES FOR ELECTION TO SUNDSTRAND BOARD FOR TERMS EXPIRING IN 2002
KLAUS H. MURMANN, 67, has served as a director of Sundstrand Corporation since
1981. Mr. Murmann is a director and since 1989 Chairman and Chief Executive
Officer of Sauer Inc., Ames, Iowa, a holding company for businesses engaged in
the manufacture of hydrostatic transmissions for use in off-highway mobile
equipment. He is a member of the supervisory boards of Fried. Krupp AG
Hoesch-Krupp, Essen, a German industrial company; and Preussen Elektra AG,
Hannover, a German utility concern. He is Chairman of the Board of Gothaer
Insurance Group, Gottingen/Cologne, a German insurance company; a member of the
board of BankgesellschaftBerlin AG, Berlin, a German bank; and a director of GKN
PLC, United Kingdom, a manufacturing company.
BERGER G. WALLIN, 68, has served as a director of Sundstrand Corporation since
1995. From January 1996 until his retirement later that year he was the
Executive Vice President for Special Projects of Sundstrand Corporation. From
1990 to 1995 he was Executive Vice President and Chief Operating Officer,
Industrial of Sundstrand.
RICHARD A. ABDOO, 55, has served as a director of Sundstrand Corporation since
1996. Mr. Abdoo is a director and since 1991 the Chairman, President and Chief
Executive Officer of Wisconsin Energy Corporation, Milwaukee, Wisconsin, a
public utility holding company, and since 1990 the Chairman and Chief Executive
Officer of Wisconsin Electric Power Company, Wisconsin Energy Corporation's
principal subsidiary. From 1990 to 1995 he was Chairman
Page 2
<PAGE> 3
and Chief Executive Officer of Wisconsin Natural Gas Company, a former
subsidiary of Wisconsin Energy Corporation. He is a director of United Wisconsin
Services, Inc., Milwaukee, Wisconsin, a managed care company; Marshall & Ilsley
Corporation, Milwaukee, Wisconsin, a multi-bank holding company; and Universal
Foods Corporation, Milwaukee, Wisconsin, an ingredient manufacturer.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
CHARLES MARSHALL, 69, has served as a director of Sundstrand Corporation since
1989. Since June 1989 he has been the retired Vice Chairman of American
Telephone and Telegraph Company, New York, New York, a company involved in
information movement, management systems and communications. He is a director of
Hartmarx Corporation, Chicago, Illinois, a company involved in the manufacture
of clothing; Ceridian Corporation, Minneapolis, Minnesota, a diversified company
in financial and educational services; GATX Corporation, Chicago, Illinois, a
company involved in the operation of rail cars and Great Lakes vessels, bulk
liquid terminals and financing for capital equipment and real estate; and Sonat,
Inc., Birmingham, Alabama, a holding company for energy and energy services.
ILENE S. GORDON, 45, has served as a director of Sundstrand Corporation since
1997. Since 1997 Ms. Gordon has served as the Vice President and General Manager
of the Folding Carton Business of Tenneco Packaging, a unit of Tenneco, Inc.,
Greenwich, Connecticut, a global manufacturing company with interests in
packaging and automotive parts. From 1994 to 1997 she was Corporate Vice
President, Operations of Tenneco.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
WARD SMITH, 68, has served as a director of Sundstrand Corporation since 1983.
From 1991 until his retirement in 1994 he was the Chairman of NACCO Industries,
Inc., Mayfield Heights, Ohio, a coal mining company and a manufacturer of small
home appliances and fork lift trucks. He is a director of Gulftech International
Company, Pueblo, Colorado, a manufacturer of produce processing machinery; and a
trustee of various mutual funds managed by Massachusetts Financial Services
Company, Boston, Massachusetts, an investment adviser.
J. P. BOLDUC, 59, has served as a director of Sundstrand Corporation since 1991.
Mr. Bolduc is a director and since 1995 Chairman and Chief Executive Officer of
JPB Enterprises, Inc., Columbia, Maryland, a holding company with interests in
the food, beverage, real estate, retail and manufacturing industries. From 1993
to 1995 Mr. Bolduc was President and Chief Executive Officer of W. R. Grace &
Co., Boca Raton, Florida. He is a director of Marshall & Ilsley Corporation,
Milwaukee, Wisconsin, a multi-bank holding company; Unisys Corporation, Blue
Bell, Pennsylvania, a computer manufacturer and information technology company;
Brothers Gourmet Coffees, Inc., Boca Raton, Florida, a specialty coffee company;
and Proudfoot PLC, Richmond, England, an international management consultancy.
GERALD GRINSTEIN, 66, has served as a director of Sundstrand Corporation since
1991. Mr. Grinstein is a director and since August 1997 the nonexecutive
Chairman of the Board of Delta Air Lines, Inc., Atlanta, Georgia, a commercial
airline. From September 1995 until his retirement at the end of that year he was
Chairman of Burlington Northern Santa Fe Corporation, Fort Worth, Texas, a
diversified company in railroads and other businesses. From October 1990 to
September 1995, Mr. Grinstein was Chairman and Chief Executive Officer of
Burlington Northern, Inc. He is a director of Browning-Ferris Industries, Inc.,
Houston, Texas, a waste disposal company; Imperial Sugar Corporation, Sugar
Land, Texas, a producer/marketer of refined sugar; PACCAR Inc., Bellevue,
Washington, a heavy-duty truck manufacturer; The Pittston Company, Glen Allen,
Virginia, a security services, freight transportation, logistics management and
coal and gold mining exploration company; and Vans, Inc., Santa Fe Springs,
California, a sporting goods manufacturer.
ROBERT H. JENKINS, 56, has served as a director of Sundstrand Corporation since
1995 and has been its Chairman of the Board, President and Chief Executive
Officer since 1997. From 1995 to 1997 he was the President and Chief Executive
Officer of Sundstrand. From 1990 to 1995 he was Executive Vice President of
Illinois Tool Works Inc., Glenview, Illinois, a company involved in the
manufacture of construction products, engineered polymers, automotive and
specialty components, packaging products/systems, and finishing systems. He is a
director of AK Steel Holding Corporation, Middletown, Ohio, a steel
manufacturer; Solutia, Inc., St. Louis, Missouri, a chemical company; and
Cordant Technologies, Inc., Salt Lake City, Utah, an aerospace and industrial
company.
Page 3
<PAGE> 4
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Sundstrand's directors and officers to file reports with the Securities and
Exchange Commission and the New York Stock Exchange indicating their beneficial
ownership of Sundstrand's common stock.
Based upon a review of forms that were received with respect to 1998,
Sundstrand believes that all Section 16(a) filing requirements applicable to its
directors and officers have been met, except that one late report on Form 4 was
filed by each of Charles Marshall covering the exercise of 1,500 stock options
issued to him under Sundstrand's Nonemployee Director Stock Option Plan, Klaus
H. Murmann covering the purchase of 8,700 shares of Sundstrand's common stock,
and Patrick L. Thomas covering the sale of 259 shares of Sundstrand's common
stock to meet tax withholding requirements with respect to a release of
restricted stock.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, with a membership of only nonemployee
directors, has been assigned the overall responsibility for the review,
modification and approval of the salary and other forms of compensation of the
executive officers of Sundstrand. This compensation includes, among other
things, restricted stock, restricted stock units, and options which may be
granted under stock programs.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The executive compensation program is designed to achieve the following:
* Attract, retain and motivate high quality executives and leaders on a
long-term basis. One of the tools to achieve these goals is to provide
Sundstrand officers with a compensation package that meets the
competition in the marketplace. The Committee uses a selected peer
group of companies to make that determination, and also takes into
account the experience, responsibility and performance of the
individual executive.
* Maintain an appropriate balance between base salary and short- and
long-term incentive opportunities.
* Place a significant amount of compensation at risk at the higher
executive levels. The Committee defines "at risk" to mean conditioning
a portion of the incentive compensation of an executive on the
financial results of Sundstrand as well as his or her independent
performance as leader, team member and contributor to the attainment of
those results in both a long- and near-term sense.
* Link the financial interests of executives with those of the
stockholders through significant stock ownership.
The peer group of companies consists of 22 corporations. Three of these
companies are in the Standard & Poor's Diversified Manufacturing Index and two
are in the Standard & Poor's Aerospace/Defense Index. These indices are
incorporated into the performance graph and table which appear under the heading
Performance Graph and Table.
Sundstrand's executive compensation program is currently composed of the
following: (1) an annual base salary; (2) an annual cash bonus; (3) the annual
grant of restricted stock or restricted stock units and stock options; (4) a
general benefit package consisting of retirement benefits and life, medical and
disability insurance; and (5) personal benefits which include among other things
physical examinations, financial counseling, tax preparation and the use of
Sundstrand planes.
The Committee has an established objective that, when compared with the
compensation paid by the peer group of companies, the base salary paid to
Sundstrand's executive officers shall be at the 60th percentile, with total cash
compensation (salary plus bonus) to be at the 75th percentile, with long-term
incentive compensation (restricted stock and stock option grants) to be at the
50th percentile, and with net total compensation to be at the 60th percentile.
Page 4
<PAGE> 5
ANNUAL COMPONENT
BASE SALARY
The Committee annually reviews the salary of each of Sundstrand's executive
officers. In December 1998 Sundstrand's chief executive officer reviewed with
the Committee each of the officers' performance, other than himself. He also
commented upon the appropriateness of the salary and bonus compensation being
paid to these officers. He discussed both the officers' performance and a
comparison with the salary and bonus paid by the peer group of companies, taking
into account the Committee's established objectives. Based on this review and
other criteria the Committee made various adjustments to the salary of each of
Sundstrand's executive officers.
INCENTIVE COMPENSATION PLANS
If in the applicable year Sundstrand achieved at least a 12% return on
average total equity, Sundstrand's Officer Incentive Compensation Plan (the
"Bonus Plan") provides Sundstrand executive officers with the opportunity to
receive an annual cash bonus based upon the achievement by Sundstrand of
financial performance goals set by the Committee. The Committee determines the
performance elements, their relative weight, and the bonus value assigned for
various levels of element achievement. For each element the Committee sets a
threshold, target and maximum achievement level. If the threshold level for any
element is not achieved, no bonus can be earned with respect to that element. At
target, the bonus amount is 100% and at the maximum the bonus amount generally
is 160% of the target bonus amount. The target bonus amount under the Bonus Plan
for each officer is a percentage of such officer's base salary and varies from
30% to 100% based on the position held. For 1998 Mr. Jenkins had the highest
target potential at 100% of base salary. For 1999 there is no maximum
achievement level on bonuses other than the plan limit of $1.5 million.
The Committee selected earnings per share, cash flow from operations after
capital expenditures and return on average total equity as the performance
elements upon which 1998 bonus compensation would be based, with one-half of the
bonus for Mr. Thomas and Mr. McKenna to be tied to similar performance elements
for the Industrial or Aerospace Segment of Sundstrand as applicable. The
elements were essentially equally weighted, and specific threshold, target and
maximum achievement levels were set.
After the performance of Sundstrand for 1998 was determined (and after
adjustment for unusual and nonrecurring accounting issues), bonuses were
determined for each of the executive officers other than Mr. Jenkins based upon
the performance level achieved compared to the preestablished achievement
levels. Although the Committee may adjust the bonus amounts as calculated, it
did not elect to make any adjustments for 1998, other than for Mr. Jenkins,
allowing his bonus to be limited only by the plan limit of $1.5 million.
LONG-TERM COMPONENT
STOCK OPTIONS AND RESTRICTED STOCK
Sundstrand maintains stock plans under which the Committee may grant stock
options, restricted stock and restricted stock units to executive officers of
Sundstrand. The number of options, restricted shares and restricted stock units
granted to an officer each year will vary based upon the position the officer
holds and the officer's performance evaluation. Each year the Committee selects
a performance element and achievement level which must be reached for an award
of restricted stock and restricted stock units to be made. For 1998 the
performance element and achievement level were a 12% return on average total
equity.
Stock options granted to an executive officer under Sundstrand Stock
Incentive Plan presently are granted at an exercise price equal to the fair
market value of a share of Sundstrand common stock on the date of grant, become
exercisable in increments of 25% on each of the second through fifth anniversary
dates of the grant, and generally remain exercisable until the tenth anniversary
date of the grant. Grants of restricted stock and restricted stock units are
without cost to the executive officer and vest in increments of 20% per year in
each of the fifth through ninth anniversary dates of the grant. A restricted
stock unit entitles the executive officer to receive a share of Sundstrand
common stock upon vesting of the unit.
In December 1998, the Committee awarded both stock options and restricted
stock units to Sundstrand's executive
Page 5
<PAGE> 6
officers. The size of the restricted stock unit awards generally was consistent
with the Committee's objectives for long-term incentive compensation and took
into account the anticipated record sales and earnings for Sundstrand for 1998
as well as the officer's performance evaluation.
BENEFIT COMPONENT
The Committee annually reviews with Sundstrand's chief executive officer
the general and personal benefits available to the executive officers and makes
recommendations as to the appropriateness of this compensation. The Committee
determined that the level of general and personal benefits is consistent with
the Committee's objectives and accordingly for 1998 did not recommend any
changes.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
During the officer performance evaluation and the review of compensation of
the peer group of companies made by the Committee at its December, 1998,
meeting, the Committee decided to increase Mr. Jenkins' salary from $700,000 to
$750,000 since it was determined to be below the Committee's objective that his
salary should be at the 60th percentile for the peer group of companies and to
reflect his role in leading Sundstrand to the achievement of record sales and
earnings.
The cash bonus earned by Mr. Jenkins during 1998 was $1.5 million. This
amount was determined in part based upon Sundstrand's financial performance as
compared to the preestablished achievement levels for 1998 as discussed under
the heading "Incentive Compensation Plans." Since Sundstrand's performance in
1998, when compared to the selected preestablished achievement levels was well
above target, Mr. Jenkins' bonus was set at the maximum permitted under the
plan. Mr. Jenkins' opportunity level for 1998 was 100% of base salary at the
target level. At the Committee's December, 1998, meeting, it was decided that
the opportunity level for 1999 for Mr. Jenkins will continue at 100% of base
salary at the target level, with the maximum, as previously indicated, being
limited only by the plan limit of $1.5 million.
The Committee, as part of its compensation review in December 1998, granted
to Mr. Jenkins 20,000 restricted stock units and 60,000 options, which options
have a purchase price of $50.5938 per share representing the fair market value
at the date of grant. In making these grants, the Committee considered
Sundstrand's favorable performance compared to objectives established with Mr.
Jenkins early in the year and Mr. Jenkins' role in leading Sundstrand to the
achievement of record sales and earnings. In addition, the Committee determined
that these grants were consistent with its objectives for the level of long-term
incentives granted to Sundstrand's chief executive officer as compared to the
chief executive officers of the selected peer group of companies.
COMPENSATION COMMITTEE
Gerald Grinstein, Chairman
Klaus H. Murmann
Ward Smith
J. P. Bolduc
Page 6
<PAGE> 7
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of Sundstrand's chairman of
the board, president and chief executive officer and Sundstrand's four other
most highly compensated executive officers.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($)(2)(3) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert H. Jenkins 1998 $700,000 $1,500,000 $ -- $1,028,316 60,000 $55,983 (4)
Chairman of the 1997 650,000 1,034,150 -- 769,688 50,000 26,709
Board, President 1996 650,000 452,075 -- 467,250 40,000 83,062 (5)
And Chief
Executive Officer
Ronald F. McKenna 1998 $400,000 $437,500 $ -- $ 404,750 35,000 $35,956 (4)
Executive Vice 1997 360,000 401,940 -- 307,875 30,000 14,399
President and 1996 263,087 166,920 -- 368,875 25,000 6,541
Chief Operating
Officer, Aerospace
Patrick L. Thomas 1998 $385,000 $359,917 $ -- $ 354,157 35,000 $35,254 (4)
Executive Vice 1997 375,000 358,838 -- 307,875 30,000 18,762
President and 1996 350,000 194,740 -- 233,625 25,000 8,194
Chief Operating
Officer, Industrial
Paul Donovan 1998 $375,000 $373,669 $8,155 (1) $ 354,157 35,000 $41,981 (4)
Executive Vice 1997 360,000 343,656 -- 256,563 30,000 19,032
President and 1996 330,000 183,612 -- 155,750 20,000 8,003
Chief Financial
Officer
DeWayne J. Fellows 1998 $230,000 $158,666 $ -- $ 126,485 11,000 $12,766 (4)
Vice President and 1997 210,000 133,644 -- 102,625 10,000 6,521
Controller 1996 210,000 87,633 -- 58,406 8,000 4,603
</TABLE>
(1) The amount represents compensation for the payment of taxes on income
imputed for tax purposes.
(2) The amounts for 1998 report the fair market value of the restricted stock
units awarded to the named executive officer in 1998. The amounts for 1996
and 1997 represent the fair value of restricted stock awarded to the named
executive officer in each of these years. Dividends on restricted stock and
on restricted stock units are paid at the same time and in the same amounts
as dividends paid on Sundstrand's common stock, but such amounts are not
included in this column.
(3) On December 31, 1998, Mr. Jenkins held 27,256 shares of restricted stock
and 84,000 restricted stock units
Page 7
<PAGE> 8
which had an aggregate market value of $5,639,289; Mr. McKenna held 22,800
shares of restricted stock and 12,000 restricted stock units which had an
aggregate market value of $1,763,925; Mr. Thomas held 16,000 shares of
restricted stock and 21,400 restricted stock units which had an aggregate
market value of $1,895,713; Mr. Donovan held 16,200 shares of restricted
stock and 22,600 restricted stock units which had an aggregate market value
of $1,966,675; and Mr. Fellows held 8,300 shares of restricted stock and
12,500 restricted stock units which had an aggregate market value of
$1,054,300.
(4) The amounts include the portion of the projected cash surrender value
available to the executive officer at the maturity of his split-dollar life
insurance policy under Sundstrand's Executive Life Insurance Program, the
contributions by Sundstrand on behalf of the executive officer under
Sundstrand's Employee Savings Plan and the Supplemental Savings Plan (as
further described under the heading Retirement Plans) and the difference
between market interest rates determined pursuant to rules of the
Securities and Exchange Commission ("SEC") and the interest credited by
Sundstrand on salary and bonus deferred by the executive officers under
Sundstrand's Deferred Compensation Plan, as follows:
<TABLE>
<CAPTION>
1998 ALLOCATION 1998 1998 DIFFERENCE
OF PROJECTED CASH SAVINGS PLAN BETWEEN MARKET INTEREST
EXECUTIVE OFFICER SURRENDER VALUE CONTRIBUTION RATES AND EARNED RATES
<S> <C> <C> <C>
Robert H. Jenkins $ 13,681 $34,683 $ 7,619
Ronald F. McKenna $ 7,817 $15,861 $12,278
Patrick L. Thomas $ 7,524 $14,877 $12,853
Paul Donovan $ 7,329 $14,373 $20,279
DeWayne J. Fellows $ 4,495 $ 7,273 $ 998
</TABLE>
(5) The amount set forth includes $69,137 incurred by Sundstrand in connection
with Mr. Jenkins' relocation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information on the exercise of stock options
by the named executive officers in 1998, the number of options which were
exercisable and nonexercisable in 1998, and the value of these options based
upon the difference between the exercise price and the market price of the
underlying shares of Sundstrand common stock as of December 31, 1998. The actual
value before tax will be the excess of the market price of Sundstrand common
stock over the exercise price at the time of exercise. There is no assurance
that the values shown in the table will be realized.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FY-END OPTIONS AT FY-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Robert H. Jenkins -- -- 55,000/185,000 $ 947,890/$1,188,512
Ronald F. McKenna 10,000 $473,125 10,750/ 85,250 200,844/ 266,062
Patrick L. Thomas -- -- 20,500/ 86,250 497,563/ 294,374
Paul Donovan 10,314 $391,769 10,000/ 85,000 200,313/ 321,093
DeWayne J. Fellows 6,126 $205,031 5,000/ 30,000 108,438/ 156,469
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the 1998 grants of nonqualified stock
options under the Sundstrand Stock Incentive Plan to named executive officers.
The hypothetical present values on the date of grant shown for stock options
granted in 1998 are calculated under the Black-Scholes model for pricing
options. The actual value before tax will be the excess of the market price of
the Sundstrand common stock at the time of exercise over the grant price. There
is no assurance that the present value shown in the table will be realized.
INDIVIDUAL GRANTS
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTIONS EXERCISE OR
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED (1) IN FISCAL YEAR ($/SHARE) DATE PRESENT VALUE (2)
<S> <C> <C> <C> <C> <C>
Robert H. Jenkins 60,000 7.21% $50.5938 12/08/08 $814,200
Ronald F. McKenna 35,000 4.21% 50.5938 12/08/08 474,950
Patrick L. Thomas 35,000 4.21% 50.5938 12/08/08 474,950
Paul Donovan 35,000 4.21% 50.5938 12/08/08 474,950
DeWayne J. Fellows 11,000 1.32% 50.5938 12/08/08 149,270
</TABLE>
(1) Options become exercisable at a rate of 25% of each grant on the second
through fifth anniversary dates of the date of grant, provided that if a
Change in Control occurs as defined under the heading Employment
Agreements, they will become immediately exercisable.
(2) The values are based on the Black-Scholes option pricing model, which is a
mathematical formula used to value options traded on stock exchanges.
Factors used to value the options granted on December 8, 1998, include a
capital expected volatility rate of 22.3%, a risk-free rate of return based
upon a ten year zero-coupon Treasury bond at 4.60%, a dividend yield of
1.3%, a projected time of exercise of seven years and a forfeiture rate of
3%.
RETIREMENT PLANS
Generally, the retirement benefit to which an executive officer will be
entitled upon retirement is provided under the tax-qualified Sundstrand
Corporation Retirement Plan-Aerospace (the "Retirement Plan") and Sundstrand's
non-tax-qualified Supplemental Retirement Plan (the "Supplemental Retirement
Plan"). The eligibility for both plans is the same. The Supplemental Retirement
Plan provides a lump sum option for the total benefit accrued under that plan,
while the Retirement Plan provides a lump sum option for the portion of the
benefit accrued under that plan prior to December 31, 1991.
The following table sets forth estimated annual retirement benefits for
representative years of service and three-year average annual earnings amounts.
<TABLE>
<CAPTION>
HIGHEST CONSECUTIVE
THREE-YEAR ESTIMATED ANNUAL RETIREMENT BENEFIT
AVERAGE ANNUAL EARNINGS FOR REPRESENTATIVE YEARS OF SERVICE
30 OR
10 YEARS 15 YEARS 20 YEARS 25 YEARS MORE YEARS
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 66,667 $100,000 $133,333 $ 166,667 $ 200,000
600,000 133,333 200,000 266,667 333,333 400,000
600,000 900,000 200,000 300,000 400,000 500,000
1,200,000 266,667 400,000 533,333 666,667 800,000
1,500,000 333,333 500,000 666,667 833,333 1,000,000
1,800,000 400,000 600,000 800,000 1,000,000 1,200,000
2,100,000 466,667 700,000 933,333 1,166,667 1,400,000
2,400,000 533,333 800,000 1,066,667 1,333,333 1,600,000
</TABLE>
The combined amounts shown in the "Salary" and "Bonus" columns of the table
under "Summary Compensation Table" are expected to approximate the three-year
average annual earnings of an executive officer that would be used to determine
his total retirement benefit under the Retirement Plan and the Supplemental
Retirement Plan.
Messrs. Jenkins, McKenna, Thomas, Donovan and Fellows, upon attainment of
age 65, the normal retirement age under the plans, will have 12.5, 35.9, 40.7,
24.0 and 46.5 actual years of service with Sundstrand, respectively. Under
Page 9
<PAGE> 10
the Supplemental Retirement Plan certain of the elected officers, including
Messrs. Jenkins and Donovan, are being credited with service using an
accelerated formula. Accordingly, at age 65 they will have 30.0 and 30.0 years
of service, respectively, used to determine their retirement benefit.
Although the Retirement Plan benefit formula includes a reduction for 50%
of a participant's monthly primary Social Security benefit earned at retirement,
the amounts shown in the table do not reflect this reduction. The benefit
amounts shown in the table are calculated based upon the straight life annuity
form of payment under the Retirement Plan and the Supplemental Retirement Plan.
In addition to the foregoing, Sundstrand in 1998 matched, at the rate of
$0.50 for each $1.00 of contribution, contributions made by an executive officer
to Sundstrand's Employee Savings Plan with a current maximum match of 2% of the
executive officer's eligible compensation. These amounts are reflected in the
Summary Compensation Table. Under Sundstrand's Deferred Compensation Plan,
benefits are provided which are not available under Sundstrand's Employee
Savings Plan because of Internal Revenue Code limitations on the amount of
annual compensation that may be considered for determining contributions to
Sundstrand's Employee Savings Plan.
At the time of his employment, Mr. Jenkins entered into an agreement with
Sundstrand which provides that he will receive a nonqualified benefit which,
when combined with his benefits under the Retirement Plan and the Supplemental
Retirement Plan, will equal the benefit that would be payable from these plans
if it is assumed at such time that he had twice his actual years of service with
Sundstrand. If he retires prior to age 65, Mr. Jenkins will receive the greater
of the benefit determined under this agreement or the benefit determined under
the Retirement and Supplemental Retirement Plans.
Mr. Jenkins also has accrued a benefit under Sundstrand's Director Emeritus
Retirement Plan for his 2.5 years of service on the Board prior to April, 1998.
The plan is described under the heading Director Compensation.
EMPLOYMENT AGREEMENTS
Sundstrand maintains an employment agreement with Mr. Jenkins (the "Jenkins
Agreement") that is designed to assure Sundstrand of the ongoing benefit of his
services. The Jenkins Agreement covers a three-year period (the "Employment
Period"), which reduces to two years immediately prior to the automatic one-year
extension which occurs each September 30, unless written notice is given to the
contrary. Under the Jenkins Agreement, during the Employment Period Mr. Jenkins
agrees not to compete with Sundstrand or to disclose confidential information
concerning Sundstrand.
The Jenkins Agreement provides that throughout the Employment Period,
Sundstrand shall neither demote Mr. Jenkins nor assign to him any duties or
responsibilities that are inconsistent with his position, duties and
responsibilities as Sundstrand's chief executive officer. The Jenkins Agreement
also provides that Sundstrand may not assign duties to Mr. Jenkins which would
require him to move the location of his principal business office or principal
place of residence outside the Rockford, Illinois area. Under the Jenkins
Agreement, during the Employment Period, Mr. Jenkins is to receive a salary of
not less than $750,000 per year, paid vacations and holidays, and fringe
benefits and perquisites. He also is eligible to participate in Sundstrand's
employee benefit plans, practices and programs, and is eligible to participate
in other benefit plans which are in effect, including Sundstrand's Bonus Plan,
Stock Incentive Plan, 1989 Restricted Stock Plan, Deferred Compensation Plan and
Supplemental Retirement Plan.
In the event Sundstrand fails to meets its obligation under the Jenkins
Agreement, Mr. Jenkins will be entitled to receive for the Employment Period the
salary and benefits he would have otherwise received if his employment had
continued for such period. These benefits would not be payable, however, in the
event his employment is terminated by reason of (1) conviction of a felony, (2)
death, or (3) breach during the Employment Period of either his covenant not to
compete or his covenant not to disclose confidential information and failure to
cure such breach (the "enumerated reasons"). The Jenkins Agreement also provides
for the reimbursement of legal expenses incurred in connection with certain
claims or legal proceedings brought under or involving the agreement.
The Jenkins Agreement requires Sundstrand to make an additional "gross-up
payment" to Mr. Jenkins to offset the effect of any excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), on
any payment made to him in connection with his employment with Sundstrand. The
amount of the gross-
Page 10
<PAGE> 11
up payment, if any, may be substantial and will depend upon
numerous factors, including the price per share of Sundstrand common stock and
the extent, if any, that payments or benefits made to Mr. Jenkins constitute
"excess parachute payments" within the meaning of Section 280G of the Code.
The Jenkins Agreement provides, upon a Change in Control (as hereinafter
described) during the Employment Period, that: (1) all restrictions on any
restricted stock or restricted stock units granted to Mr. Jenkins under any
stock plan sponsored by Sundstrand shall lapse with all the stock and stock
units immediately vesting; (2) all outstanding stock options held by Mr. Jenkins
shall become fully vested and immediately exercisable; (3) commencing at the
time of Mr. Jenkins' termination of employment, he shall be provided with the
same health care coverage as provided to other eligible retirees and with a life
insurance benefit of five times his base salary as in effect on the date of his
termination for three years following the date of termination, and one time such
base salary thereafter; and (4) Mr. Jenkins shall become fully vested in a
retirement benefit determined pursuant to the provisions of the Retirement Plan
and Supplemental Retirement Plan, with such benefit calculated as though he had
at least 20 years of service. The Jenkins Agreement also provides that upon his
termination of employment following a Change in Control, in addition to all
other amounts payable under the Jenkins Agreement, he will within five days of
such termination be paid in a single lump sum all amounts accrued but unpaid
under the agreement, including salary, vacation pay, bonuses and other incentive
compensation plus, if his employment is terminated for any reason other than the
enumerated reasons or disability or certain voluntary terminations, he will
receive (1) a "Pro Rata Bonus" (as defined in the Jenkins Agreement), (2) a lump
sum cash payment equal to three times the sum of the base salary and bonus (the
base salary at least equal to his base salary in effect prior to a "Change in
Control" and the "Bonus Amount" (as defined in the Jenkins Agreement), subject
to certain adjustments, (3) continuation of life insurance, disability, medical,
dental, hospitalization, pension, profit-sharing, savings and retirement
benefits for a period of up to 36 months are (4) a lump sum cash amount equal to
three years of contribution to Mr. Jenkins' savings and supplemental savings
accounts.
Assuming a Change in Control occurred on June 1, 1999, and his employment
were terminated in a manner giving rise to payment of severance benefits on that
date, the approximate value of the cash payments that would be paid pursuant to
the Jenkins Agreement as described above (other than the gross-up payments, if
applicable) would be $13,378,935. In addition, he would be entitled to receive
111,256 shares of restricted stock and restricted stock units, and the 185,000
unexercisable stock options held by him would become fully exercisable. Mr.
Jenkins also would be entitled to receive the non-cash benefits described in the
previous paragraph.
On June 1, 1998, Sundstrand entered into substantially identical employment
agreements with Messrs. McKenna, Thomas, Donovan and Fellows. These four
agreements are collectively referred to as the "Employment Agreement." The
rights and obligations set forth in the Employment Agreement arise for a period
of up to three years following a Change in Control (the "Term") provided that
the Change in Control occurs during the "Protected Period" defined in the
Employment Agreement. The Employment Agreement sets forth the terms and
conditions of the executive's employment, annual base salary and participation
by the executive in Sundstrand's benefit plans. If the executive's employment is
terminated during the Term (1) by Sundstrand other than for "Cause" (as defined
in the Employment Agreement), (2) by the executive for "Good Reason" (as defined
in the Employment Agreement) or (3) by the executive having given notice during
the eight months following the Change in Control, effective as of the first
anniversary of the Change in Control, he will be entitled to receive (a) a
"Pro-Rata Bonus" (as defined in the Employment Agreement), (b) a lump sum cash
payment equal to three times the sum of his base salary and bonus (the base
salary at least equal to his base salary in effect prior to a Change in Control
and the bonus equal to the "Bonus Amount" as defined in the Employment
Agreement), subject to certain adjustments, (c) continuation of life insurance,
disability, medical, dental and hospitalization benefits for a period of up to
36 months and (d) a lump sum cash payment reflecting certain retirement benefits
he would have been entitled to receive had he remained employed by Sundstrand
for an additional three years, subject to certain adjustments. In addition, (1)
for purposes of Sundstrand's supplemental retirement plan, he will be treated
(other than for purposes of calculating years of service credit thereunder) as
if he was at least age 55 as of the date of termination, (2) the eligibility
requirements of Sundstrand's retiree health insurance plan will be waived, and
commencing on the executive's termination of employment he will be provided with
the same health care coverage as provided to other eligible retirees and (3) the
age and service requirements of Sundstrand's executive life insurance program
will be waived, and he will be provided with a life insurance benefit of five
times the base salary in effect on the date of termination for three years
following the termination date and one times such base salary thereafter.
In addition, under the Employment Agreement all restrictions on any
outstanding incentive awards will lapse and become fully vested, and all
outstanding stock options shall become fully vested and immediately exercisable.
The
Page 11
<PAGE> 12
Employment Agreement also provides that Sundstrand will pay all legal fees
and related expenses incurred by the executive arising out of his employment or
termination of employment if, in general, the circumstances for which he has
retained legal counsel occurred on or after a Change in Control. Under the
Employment Agreement, Sundstrand also is required to make an additional
"gross-up payment" to the executive to fully offset the effect of any excise tax
imposed under Section 4999 of the Code on any payment made to him under the
Employment Agreement, the 1989 Restricted Stock Plan, the Stock Incentive Plan,
or any other incentive compensation or bonus plan. The amount of the gross-up,
if any, may be substantial and will depend upon numerous factors, including the
price per share of Sundstrand common stock and the extent, if any, that payments
or benefits made to the executive constitute "excess parachute payments" within
the meaning of Section 280G of the Code.
Assuming a Change in Control occurred on June 1, 1999, and their employment
was terminated in a manner giving rise to the payment of severance benefits on
that date, the approximate amount of cash payments that would have been made
pursuant to the Employment Agreement as described above (other than the gross-up
payment, if applicable) would have been $3,416,060 for Mr. McKenna, $5,571,304
for Mr. Thomas, $6,435,190 for Mr. Donovan and $2,604,024 for Mr. Fellows. The
number of shares of restricted stock and/or restricted stock units they would
have been entitled to receive and the number of unexercisable stock options that
would have become fully exercisable as a result of the Change in Control would
have been 34,240 shares and units and 85,250 stock options for Mr. McKenna;
36,600 shares and units and 86,250 stock options for Mr. Thomas; 38,800 shares
and units and 85,000 stock options for Mr. Donovan; and 20,800 shares and units
and 30,000 options for Mr. Fellows. Messrs. McKenna, Thomas, Donovan and Fellows
also would be entitled to the non-cash benefits described above. The retirement
benefit to which each of the executives would be entitled would be paid pursuant
to the Retirement and Supplemental Retirement Plans as discussed under the
heading Retirement Plans.
In general, for purposes of the Jenkins Agreement, each Employment
Agreement and the various stock plans maintained by Sundstrand, a Change in
Control is defined as any of the following events: (1) the acquisition (other
than from Sundstrand) by any person (as defined in Sections 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended [the "1934 Act"]) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
25% or more of the combined voting power of Sundstrand's then-outstanding voting
securities; (2) the individuals who, as of June 1, 1998, are members of
Sundstrand's board (the "Incumbent Board"), cease for any reason to constitute a
majority of Sundstrand's board, unless the election, or nomination for election,
by Sundstrand's stockholders of any new director was approved by a vote of a
majority of the Incumbent Board; or (3) approval by Sundstrand stockholders of
(a) a merger or consolidation involving Sundstrand if the Sundstrand
stockholders, immediately before such merger or consolidation, do not, as a
result of such merger or consolidation, own, directly or indirectly, more than
67% of the combined voting power of the then-outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of Sundstrand outstanding immediately before such merger or
consolidation or (b) a complete liquidation or dissolution of Sundstrand or an
agreement for the sale or other disposition of all or substantially all of the
assets of Sundstrand. A Change in Control shall not be deemed to occur by reason
of an acquisition referred to in clause (1) above because 25% or more of the
combined voting power of Sundstrand's then-outstanding securities is acquired by
(1) a trustee or other fiduciary holding securities under one or more employee
benefit plans maintained by Sundstrand or any of its subsidiaries or (2) any
corporation that, immediately prior to such acquisition, is owned directly or
indirectly by the Sundstrand stockholders in the same proportion as their
ownership of stock in Sundstrand immediately prior to such acquisition.
On February 22, 1999, Sundstrand and United Technologies Corporation
("UTC") announced that UTC has agreed to acquire Sundstrand. The acquisition by
UTC will result in a Change in Control for purposes of the Jenkins Agreement and
the Employment Agreements.
DIRECTOR COMPENSATION
For 1998, director compensation included:
Annual Retainer * $26,000
Page 12
<PAGE> 13
Attendance Fees * $1,200 for each Sundstrand board
meeting
$1,000 for each Sundstrand board
Committee meeting
Expenses related to attendance
Stock Options * 2,000 options
Additional Annual Retainer * the number of shares Sundstrand
Paid in Restricted Stock common stock having a fair market
value on the annual meeting date
equal to $16,500
The annual retainer, at the directors' election, may be paid in the form of
cash or Sundstrand common stock or be deferred in either an interest bearing
account under Sundstrand's Deferred Compensation Plan or in the form of
restricted stock units under Sundstrand's Director Compensation Plan.
The restricted stock which is paid as the additional retainer will be
released upon the retirement of a director, and when Sundstrand's annualized
return on equity commencing with the year of the award equals at least 12%. Mr.
Jenkins is the only Sundstrand board member who is also a salaried employee.
Since he is a salaried employee, the only portion of the director compensation
that Mr. Jenkins is paid is the additional retainer.
In addition, Sundstrand directors are provided a paid physical examination
for themselves and their spouses, the use of Sundstrand's planes on an emergency
basis, and participation in the Sundstrand Corporation Foundation's matching
gifts program, which annually matches up to $2,000 of charitable gifts on a $2
for $1 of gift basis.
Under the Director Emeritus Retirement Plan those directors whose service
on the Sundstrand board began prior to April, 1998, upon retirement from the
Sundstrand board are entitled to an annual retirement benefit equal to the
retainer fee being paid to directors at the time of retirement. This retirement
benefit is to be paid for a period of time equal to the time the director served
on the Sundstrand board prior to April, 1998.
PERFORMANCE GRAPH AND TABLE
The following performance graph and table compare the five-year cumulative
total stockholder return, assuming reinvestment of dividends, on $100 invested
on December 31, 1993, in each of Sundstrand common stock, Standard & Poor's 500
Stock Index, Standard & Poor's Aerospace/Defense Index and Standard & Poor's
Diversified Manufacturing Index. The Standard & Poor's Aerospace/Defense and
Diversified Manufacturing Indices were selected as properly reflecting
Sundstrand's involvement in the aerospace and industrial market segments, the
sales in each of these market segments being 61.3% and 38.7%, respectively, of
Sundstrand's total sales in 1998.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
---------------------------------------------
1993 1994 1995 1996 1997 1998
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sundstrand $100 $111 $176 $216 $260 $271
S&P 500 $100 $101 $140 $172 $229 $294
S&P Aerospace/Defense $100 $107 $177 $228 $237 $218
S&P Diversified Mfg $100 $103 $145 $193 $265 $325
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF SUNDSTRAND COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of Sundstrand's common stock by (1) each person or group that is known
to be the beneficial owner of more than 5% of the outstanding Sundstrand common
stock, (2) each of the nominees and the directors, (3) each of the executive
officers named in the Summary Compensation under Item 11, and (4) by the
nominees, directors and officers as a group.
Page 13
<PAGE> 14
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF COMMON
NAME BENEFICIALLY OWNED STOCK OUTSTANDING
<S> <C> <C>
Capital Research and Management Company and 4,340,100 and 7.9%
SMALLCAP World Fund, Inc. 3,200,000 (1) 6.8%
John A. Levin & Co., Inc. and
Baker, Fentress & Company 2,797,896 (2) 5.1%
Klaus H. Murmann 30,120* (3) **
Berger G. Wallin 127,681* (3) **
Richard A. Abdoo 3,090* (3) **
Charles Marshall 16,003* (3) **
Ilene S. Gordon 965* (3) **
Ward Smith 14,044* (3) **
J. P. Bolduc 7,848* (3) **
Gerald Grinstein 9,897* (3) **
Robert H. Jenkins 83,710* (3) (4) **
Ronald F. McKenna 53,678* (3) (4) **
Patrick L. Thomas 50,145* (3) (4) **
Paul Donovan 41,760* (3) (4) **
DeWayne J. Fellows 23,312* (3) (4) **
The Directors and Officers as a Group
(17 persons, including those named above) 496,864* (3) (4) **
</TABLE>
* Shares owned as of February 17, 1999.
** Less than 1%.
(1) Based on Schedule 13-G dated February 8, 1999, shares held of record by
Capital Research and Management Registrant, 333 South Hope Street, Los
Angeles, California 90071, an investment adviser registered under the
Investment Advisors Act of 1940 was 4,340,100 shares and shares held by
SMALLCAP World Fund Inc., 333 South Hope Street, Los Angeles, California
90071, an investment company registered under the Investment Company Act of
1940, which is advised by Capital Research and Management Company was
3,200,000.
(2) Based on Schedule 13-G dated February 12, 1999, shares held of record by
John A. Levin & Co., Inc., One Rockefeller Plaza, New York, New York 10020
and Baker, Fentress & Company, 200 West Madison Street, Chicago, Illinois
60606. John A. Levin & Co., Inc. is an investment adviser registered under
the Investment Advisors Act of 1940. Baker, Fentress & Company is an
investment company registered under the Investment Company Act of 1940.
Baker, Fentress is the shareholder of Levin Management Co., Inc., which is
the sole stockholder of John A. Levin & Co., Inc.
(3) The number of shares of Sundstrand common stock beneficially owned includes
stock options awarded under Sundstrand's Stock Incentive Plan, Management
Stock Performance Plan, or Nonemployee Director Stock Option Plan that such
persons have a right to exercise within 60 days as follows: Mr. Jenkins -
55,000; Mr. McKenna - 10,750; Mr. Thomas - 20,500; Mr. Donovan - 10,000;
Mr. Fellows - 5,000; Mr. Murmann - 4,500; Mr. Wallin - 20,500; Mr. Abdoo -
1,500; Mr. Marshall - 1,500; Mr. Smith - 4,500; Mr. Bolduc - 4,500; Mr.
Grinstein - 4,500; and the nominees, directors and officers as a group -
156,425.
(4) The number of shares of Sundstrand common stock beneficially owned does not
include restricted stock units held by the five named officers under
Sundstrand's 1989 Restricted Stock Plan and its Stock Incentive Plan. Such
units held by the named officers are described in footnote (3) to the
Summary Compensation Table. The officers as a group hold 158,900 restricted
stock units. The restricted stock units held by the officers reflect a
conversion of restricted stock granted prior to 1998 under the 1989
Restricted Stock Plan to such units and a grant of such units in December,
1998 under the Stock Incentive Plan.
Page 14
<PAGE> 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS AND LOANS WITH MANAGEMENT
Effective October 1, 1992, Sundstrand discontinued making loans under its
1984 Elected Officers' Loan Program but allowed existing loans to continue to
maturity. As of March 29, 1999, Messrs. Donovan and Fellows had loans
outstanding in the amount of $957,000 and $215,000, respectively. The interest
rate charged on each of the loans is 5.89%, and each loan will mature on
September 1, 2000. The loans are fully collateralized. The indicated amounts
were the largest amounts outstanding during 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(a) 1. Consolidated Financial Statements Included in Part II
Management's Report.......................................... 21
Independent Auditors' Report................................. 21
Consolidated Statement of Earnings, Years Ended
December 31, 1998, 1997, and 1996........................... 22
Consolidated Statement of Cash Flows, Years Ended
December 31, 1998, 1997, and 1996........................... 23
Consolidated Balance Sheet, December 31, 1998 and 1997....... 24
Consolidated Statement of Shareholders' Equity, Years
Ended December 31, 1998, 1997, and 1996..................... 25
Information by Operating Segment for the Years Ended
December 31, 1998, 1997, and 1996........................... 26
Notes to Consolidated Financial Statements................... 28
Quarterly Results (Unaudited) for 1998 and 1997.............. 45
</TABLE>
(a) 2. Financial Statement Schedules
The schedules have been omitted as the required information is not
applicable or not required.
(a) 3. Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession
(a) Agreement and Plan of Merger, dated as of February 21, 1999
among the Registrant, United Technologies and HSSail Inc.
(filed as Exhibit 2.1 to Registrant's Report on Form 8-K dated
February 23, 1999, File No 1-5358, and incorporated herein by
reference).
(3) Articles of Incorporation and By-Laws
(a) Registrant's Restated Certificate of Incorporation as
effective December 19, 1991 (filed as Exhibit (3)(a) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, File No. 1-5358, and incorporated
herein by reference).
(b) Registrant's By-Laws, including all amendments, as effective
September 22, 1998 (filed as Exhibit (3)(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1998, File No. 1-5358, and incorporated herein by
reference).
(4) Instruments Defining the Rights of Security Holders, including
Indentures
(a) Credit Agreement dated as of January 28, 1993, among
Registrant and seven banking institutions including Morgan
Guaranty Trust Company of New York, as Agent (filed as Exhibit
(4)(a) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-5358, and
incorporated herein by reference); Amendment No. 1 dated
October 15, 1993, and Amendment No. 2 dated October 31, 1994,
to the Credit Agreement (filed as Exhibit (4)(b) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, File No. 1-5358, and incorporated
herein by reference); and Amendment No. 3 dated November 30,
1995, to the Credit Agreement
Page 15
<PAGE> 16
(filed as Exhibit (4)(c) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File No. 1-5358,
and incorporated herein by reference); and Amended and Restated
Credit Agreement dated December 16, 1996, to the Credit Agreement
(filed as Exhibit 4(a) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, File No. 1-5358, and
incorporated herein by reference).
(b) Credit Agreement dated, as of October 1, 1998, between the
Registrant and the First National Bank of Chicago (filed as
Exhibit (4)(a) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, File No. 1-5358, and
incorporated herein by reference).
(c) Second Amended and Restated Rights Agreement between Registrant
and Harris Trust and Savings Bank, as Rights Agent, dated November
21, 1995 (filed as Exhibit 1 to Registrant's Form 8-A/A (Amendment
No. 2) dated November 27, 1995, File No. 1-5358, and incorporated
herein by reference); and First Amendment to Second Amended and
Restated Rights Agreement, dated February 20, 1996 (filed as
Exhibit (4)(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-5358, and
incorporated herein by reference).
(d) Lease dated as of December 14, 1987, between Registrant and
Greyhound Real Estate Investment Six, Inc. (filed as Exhibit
(4)(f) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, File No. 1-5358, and incorporated
herein by reference).
(e) Note Agreement of Registrant dated May 15, 1991 (filed as Exhibit
(19)(c) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, File No. 1-5358, and incorporated
herein by reference); and Amendment effective December 31, 1991,
to the Note Agreement (filed as Exhibit (19)(c) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992, File No. 1-5358, and incorporated herein by reference).
(f) Note Agreement of Registrant dated October 31, 1991 (filed as
Exhibit (4)(l) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, File No. 1-5358, and
incorporated herein by reference); and Amendment dated December 1,
1995, to the Note Agreement (filed as Exhibit (4)(l) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5358, and incorporated herein by
reference).
(g) Note Agreement of Registrant dated December 2, 1991 (filed as
Exhibit (4)(m) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, File No. 1-5358, and
incorporated herein by reference).
(h) Amendment dated December 11, 1995, to Registrant's Note Agreement
dated May 15, 1991, as amended December 31, 1991, and to
Registrant's Note Agreement dated December 2, 1991 (filed as
Exhibit (4)(n) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-5358, and
incorporated herein by reference).
(10) Material Contracts
(a) Employment Agreement dated June 1, 1998, between Registrant and
Robert H. Jenkins, Registrant's Chairman of the Board, President
and Chief Executive Officer (filed as Exhibit (10)(a) to
Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, File No. 1-5358, and incorporated herein by
reference). *
(b) Form of Employment Agreement between Registrant and each of Paul
Donovan, Registrant's Executive Vice President and Chief Financial
Officer; Patrick L. Thomas, Registrant's Executive Vice President
and Chief Operating Officer, Industrial; Ronald F. McKenna,
Registrant's Executive Vice President and Chief Operating Officer,
Aerospace; Mary Ann Hynes, Registrant's Vice President and General
Counsel and Secretary; and DeWayne J. Fellows, Registrant's Vice
President and Controller (filed as Exhibit (10)(b) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
File No. 1-5358, and incorporated herein by reference). *
(c) Amendment and Restatement of Registrant's Stock Incentive Plan
effective September 22, 1998. *
(d) First Amendment to Registrant's amended and restated Stock
Incentive Plan effective January 15, 1999. *
Page 16
<PAGE> 17
(e) Registrant's Nonemployee Director Stock Option Plan effective
August 1, 1994 (filed as Exhibit A to Registrant's Proxy Statement
dated March 7, 1995, File No. 1-5358, and incorporated herein by
reference). *
(f) Text of resolution adopted by the Board of Directors of Registrant
on February 20, 1996, amending Registrant's Nonemployee Director
Stock Option Plan, which amendment became effective April 16,
1996, upon stockholder approval. *
(g) Second Amendment to Registrant's Nonemployee Director Stock Option
Plan effective as of December 8, 1998.
(h) Registrant's Director Compensation Plan effective August 1, 1994
(filed as Exhibit B to Registrant's Proxy Statement dated March 7,
1995, File No. 1-5358, and incorporated herein by reference). *
(i) First Amendment to Registrant's Director Compensation Plan
effective as of April 21, 1998 (filed as Exhibit (10)(k) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-5358 and incorporated herein by
reference). *
(j) Second Amendment to Registrant's Director Compensation Plan
effective as of December 8, 1998. *
(k) Registrant's 1989 Restricted Stock Plan as adopted April 20, 1989,
by the stockholders of Registrant (filed as Exhibit (10)(v) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-5358, and incorporated herein by
reference). *
(l) Text of resolution adopted by the Board of Directors of Registrant
on August 7, 1990, amending Registrant's 1989 Restricted Stock
Plan (filed as Exhibit (19)(f) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990, File No.
1-5358, and incorporated herein by reference). *
(m) Text of resolution adopted by the Board of Directors of Registrant
on November 21, 1995, amending Registrant's 1989 Restricted Stock
Plan. *
(n) Third Amendment to Registrant's 1989 Restricted Stock Plan
effective as of June 1, 1998. *
(o) Fourth Amendment to Registrant's 1989 Restricted Stock Plan
effective as of September 22, 1998. *
(p) Fifth Amendment to Registrant's 1989 Restricted Stock Plan
effective as of January 15, 1999. *
(q) Text of resolution adopted by the Board of Directors of Registrant
on July 16, 1989, adopting a Director Emeritus Retirement Plan and
copy of such plan as effective July 20, 1989 (filed as Exhibit
(10)(dd) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 1-5358, and incorporated
herein by reference). *
(r) First Amendment to Registrant's Director Emeritus Retirement Plan
effective as of April 21, 1997 (filed as Exhibit (10)(q) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-5358 and incorporated herein by
reference). *
(s) Text of resolution adopted by the Board of Directors of Registrant
on October 17, 1984, establishing a 1984 Elected Officers' Loan
Program (filed as Exhibit (10)(i) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1984, File No.
1-5358, and incorporated herein by reference). *
(t) Text of resolution adopted by the Board of Directors of Registrant
on October 15, 1991, amending the 1984 Elected Officers' Loan
Program (filed as Exhibit (10)(ff) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991, File No.
1-5358, and incorporated herein by reference). *
(u) Amendment and Restatement of Registrant's Management Stock
Performance Plan effective as of September 22, 1998. *
(v) First Amendment to Registrant's amended and restated Management
Stock performance Plan effective January 15, 1999. *
(w) Registrant's Supplemental Retirement Plan effective as of December
10, 1975, including all amendments (filed as Exhibit 10(u) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5358 and incorporated herein by
Page 17
<PAGE> 18
reference).*
(x) Fifth Amendment to Registrant's Supplemental Retirement Plan
effective as of December 8, 1998. *
(y) Registrant's Officer Performance Compensation Plan effective as of
January 1, 1997 (filed as Exhibit A to Registrant's Proxy
Statement dated March 5, 1997, File No. 1-5358, and incorporated
herein by reference.). *
(z) Amended and Restated Deferred Compensation Plan of Registrant
effective as of December 19, 1997 (filed as Exhibit (10)(w) to
Registrant's Annual Report on form 10-K for the fiscal year ended
December 31, 1997, File No. 1-5358, and incorporated herein by
reference).
(aa) First Amendment to Registrant's amended and restated Deferred
Compensation Plan effective as of April 21, 1998. *
(bb) Second Amendment to Registrant's amended and restated Deferred
Compensation Plan effective as of June 1, 1998. *
(cc) Third Amendment to Registrant's amended and restated Deferred
Compensation Plan effective as of September 22, 1998. *
(ad) Fourth Amendment to Registrant's amended and restated Deferred
Compensation Plan effective as of December 8, 1998. *
(ae) Consulting Agreement dated April 15, 1997, between Registrant and
Don R. O'Hare, Registrant's retired Chairman of the Board,
effective April 15, 1997 (filed as Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, File No. 1-5358, and incorporated herein by reference). *
(af) Consulting agreement dated September 22, 1997, between Registrant
and Richard M. Schilling, Registrant's retired Vice President,
General Counsel and Secretary, effective December 31, 1997 (filed
as Exhibit (10)(y) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, File No. 1-5358, and
incorporated herein by reference).
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of Registrant
(23) Consents of Experts and Counsel
(a) Consent of Independent Auditors (Ernst & Young LLP).
(24) Power of Attorney
(27) Financial Data Schedule
(99) Additional Exhibits
(a) Undertakings (filed as Exhibit (28)(a) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1982,
File No. 1-5358, and incorporated herein by reference).
(b) Reports on Form 8-K Form 8-K dated February 23, 1999, regarding an
Agreement and Plan of Merger between the Registrant and United
Technologies Corporation.
* Management contract or compensatory plan.
Page 18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 23th day of
April, 1999.
SUNDSTRAND CORPORATION
(Registrant)
By: /s/ Paul Donovan
--------------------
Paul Donovan
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Robert H. Jenkins )
Chairman of the Board, President )
and Chief Executive Officer )
)
Paul Donovan )
Executive Vice President )
and Chief Financial Officer )
)
DeWayne J. Fellows )
Vice President and Controller )
)
Richard A. Abdoo )
Director )
)
J. P. Bolduc ) April 23, 1999
Director )
)
Ilene S. Gordon )
Director )
)
Gerald Grinstein )
Director )
)
Charles Marshall )
Director )
)
Klaus H. Murmann )
Director )
)
Ward Smith )
Director )
)
Berger G. Wallin )
Director )
By: /s/ Paul Donovan
------------------------------
Paul Donovan, Attorney-in-Fact
Page 19
<PAGE> 1
EXHIBIT (12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Income from continuing operations before
income taxes and cumulative effect of
accounting change $347.0 $294.0 $184.0 $135.0 $149.4 $133.3
Equity in undistributed earnings of less-
than-fifty-percent-owned companies (0.2) (1.6) (1.0) (1.0) - (0.4)
Fixed charges, excluding capitalized
interest 39.0 34.3 33.3 38.0 34.5 45.5
------ ------ ------ ------ ------ ------
$385.8 $326.7 $216.3 $172.0 $183.9 $178.4
====== ====== ====== ====== ====== ======
Fixed Charges:
Interest expense on indebtedness, $ 35.0 $ 30.0 $ 29.0 $ 33.0 $ 29.6 $ 40.0
excluding capitalized interest
Capitalized interest 0.4 0.1 0.3 0.1 0.3 0.1
One-third of rental expense, net of
subleasing, for operating leases 4.0 4.3 4.3 5.0 4.9 5.5
------ ------ ------ ------ ------ ------
$ 39.4 $ 34.4 $ 33.6 $ 38.1 $ 34.8 $ 45.6
====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges $ 9.8 $ 9.5 $ 6.4 $ 4.5 $ 5.3 $ 3.9
====== ====== ====== ====== ====== ======
</TABLE>
Page 20
