-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G9mxAl3zIugwVCC9mg+rsb4sZYnq2Am4dYit14YWyvshRzy4iR2guZSveW9eEtJV PQ2AksdjvcDO6uctMgPftg== 0000950128-96-000664.txt : 19961220 0000950128-96-000664.hdr.sgml : 19961220 ACCESSION NUMBER: 0000950128-96-000664 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961219 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ROCKWELL INTERNATIONAL CORP CENTRAL INDEX KEY: 0001024478 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12383 FILM NUMBER: 96683352 BUSINESS ADDRESS: STREET 1: 625 LIBERTY AVE CITY: PITTSBURGH STATE: PA ZIP: 15222-3123 BUSINESS PHONE: 4125654090 MAIL ADDRESS: STREET 1: 2201 SEAL BEACH BLVD CITY: SEAL BEACH STATE: CA ZIP: 90740-8250 10-K 1 ROCKWELL 10-K 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996. COMMISSION FILE NUMBER 1-12383 ------------------------ ROCKWELL INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 25-1797617 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2201 SEAL BEACH BOULEVARD, SEAL BEACH, CALIFORNIA 90740-8250 ---------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 565-4090 (OFFICE OF THE SECRETARY) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $1 Par Value New York and Pacific Stock Exchanges (including the associated Preferred Share Purchase Rights) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock, $1 Par Value (including the associated Preferred Share Purchase Rights) (TITLE OF CLASS) 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 No X* --- --- * On December 6, 1996, registrant succeeded for financial reporting purposes to the former Rockwell International Corporation, which had been subject to such filing requirements for more than 90 days. 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. [ ] The aggregate market value of registrant's voting stock held by non-affiliates of registrant on December 9, 1996 was approximately $13.2 billion. 191,597,110 shares of registrant's Common Stock, par value $1 per share, and 27,370,844 shares of registrant's Class A Common Stock, par value $1 per share, were outstanding on December 9, 1996. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of registrant to be held on February 5, 1997 is incorporated by reference into Part III hereof. =============================================================================== 2 PART I ITEM 1. BUSINESS. Rockwell International Corporation (the Company or Rockwell), a Delaware corporation, is engaged in research, development and manufacture of many diversified products. The Company was incorporated in 1996 and is the successor to the former Rockwell International Corporation as the result of a tax-free reorganization completed on December 6, 1996 (the Reorganization). The predecessor corporation was incorporated in 1928. Pursuant to the Reorganization, the Company divested its former Aerospace and Defense businesses (the A&D Business) to The Boeing Company (Boeing) for approximately $3.2 billion by means of a merger in which the Company's predecessor corporation became a wholly-owned subsidiary of Boeing. Immediately prior to the merger, substantially all of the Company's businesses and assets (other than the A&D Business) were contributed to the Company, or to one or more wholly-owned operating subsidiaries of the Company, and all outstanding shares of the Company were distributed to shareowners of the predecessor corporation on a one-for-one share basis. As used herein, the terms the "Company" or "Rockwell" include subsidiaries and predecessors unless the context indicates otherwise. For purposes hereof, whenever reference is made in any Item of this Annual Report on Form 10-K to information under specific captions in Item 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (the MD&A), or in Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (the Financial Statements), or to information in the Proxy Statement for the Annual Meeting of Shareowners of the Company to be held on February 5, 1997 (the 1997 Proxy Statement), such information shall be deemed to be incorporated therein by such reference. BUSINESS SEGMENTS The Company's business segments are engaged in research, development, and manufacture of diversified products as follows: Electronics: Automation--industrial automation equipment and systems, including control logic, sensors, human-machine interface devices, motors, power and mechanical devices, and software products. Avionics & Communications--avionics products and systems and related communications technologies primarily used in commercial and military aircraft and defense electronic systems for command, control, communications, and intelligence. Semiconductor Systems--system-level semiconductor chipset solutions for personal communication electronics markets, including chipsets for facsimile and personal computer data modems, wireless communications products such as global positioning systems ("GPS"), packet data, cordless and cellular chipsets, and automated call distribution equipment. Automotive--components and systems for heavy- and medium-duty trucks, buses, trailers and heavy-duty off-highway vehicles (Heavy Vehicle Systems); and components and systems for light trucks and passenger cars (Light Vehicle Systems). Financial information with respect to the Company's business segments, including their contributions to sales and operating earnings and their identifiable assets for the three years ended September 30, 1996, is contained under the caption RESULTS OF OPERATIONS in the MD&A on pages 12-14 hereof, and in Note 19 of the NOTES TO FINANCIAL STATEMENTS in the Financial Statements on pages 33-36 hereof. 2 3 Electronics The sales and operating earnings of the businesses that comprise the Company's Electronics business segment for the three fiscal years ended September 30, 1996 were as follows:
1996 1995 1994 ------- ------- ------- (IN MILLIONS) Sales: Automation....................................... $4,165 $3,590 $2,085 Avionics & Communications........................ 1,475 1,468 1,419 Semiconductor Systems............................ 1,593 875 691 ------ ------ ------ Total Electronics................................ $7,233 $5,933 $4,195 ====== ====== ====== Operating Earnings: Automation....................................... $ 537 $ 481 $ 265 Avionics & Communications........................ 163 178 182 Semiconductor Systems............................ 330 113 98 ------ ------ ------ Total Electronics................................ $1,030 $ 772 $ 545 ====== ====== ======
Automation. The acquisition of Reliance Electric Company (Reliance) in the second quarter of fiscal 1995 made Automation the Company's largest business. The Company's automation products include programmable controllers, human-machine interface devices, communications networks, programming and application software, AC/DC drives and drive systems, sensing and motion control devices, machine vision, computer numeric control systems, and data acquisition products and global support services. The Reliance acquisition added standard and engineered motors and mechanical power transmission equipment. The Company is a leader in plant floor automation, focusing on helping customers control processes and become more competitive through increased flexibility, improved productivity and information flow. Avionics & Communications. Rockwell's Avionics & Communications businesses provide electronic equipment for flight control, cockpit display, navigation, voice and data communication, cockpit management, radar, global positioning and other systems for airlines, corporate aircraft, general aviation, government and military applications, command, control and communications devices and systems and products and systems for the land transportation market (including electronic brake systems and integrated cab electronics). Semiconductor Systems. The Company's Semiconductor Systems business provides semiconductor solutions for fax, voice and data modems for facsimile machines and personal computers. This business is making significant investments in mixed-signal computing semiconductor process, device design and communications algorithm core technologies. Applying these core technologies, this business is expanding into related personal communications electronics markets, such as entering the market for wireless communications, by supplying chipsets for cellular and cordless phones, wireless modem communications devices for laptop computers and modules for GPS receivers. In September 1996, the Company acquired for $278 million Brooktree Corporation (Brooktree), a designer and manufacturer of digital and mixed-signal integrated circuits for computer graphics, multimedia, imaging, and communications applications. The Company took a one-time special charge of $121 million in the fourth quarter of fiscal 1996 for purchased in-process research and development in connection with this acquisition. 3 4 Automotive The sales and operating earnings of the businesses that comprise the Company's Automotive business segment for the three fiscal years ended September 30, 1996 were as follows:
1996 1995 1994 ------- ------- ------- (IN MILLIONS) Sales: Heavy Vehicle Systems............................ $1,822 $1,929 $1,744 Light Vehicle Systems............................ 1,318 1,192 900 ------ ------ ------ Total Automotive................................. $3,140 $3,121 $2,644 ====== ====== ====== Operating Earnings............................... $ 218 $ 212 $ 114 ====== ====== ======
Heavy Vehicle Systems. Automotive's Heavy Vehicle Systems business is a major global supplier of drivetrain components and systems for heavy- and medium-duty commercial trucks, buses, trailers and off-highway vehicles, and government heavy-duty wheeled vehicles. Major components include front steer axles, single and tandem rear drive axles, trailer axles, clutches, transmissions, drivelines, brakes, automatic slack adjusters and anti-lock braking systems. North American factory sales of heavy-duty trucks totaled 205,000 units in fiscal 1996, compared with 244,000 the prior year. Sales of medium-duty trucks, used primarily for short hauls and local delivery, were 126,000 units in fiscal 1996, compared with 150,000 in fiscal 1995. Trailer sales were 266,000 units, compared with 321,000 in the previous year. Light Vehicle Systems. The Company's Light Vehicle Systems business is a leading supplier of roof, door, access control, seat adjusting and suspension systems and wheels for the world's passenger car and light truck industries. The Company is emphasizing products that provide added value to its customers by concentrating its resources on the systems and electronics product lines. For example, Rockwell is moving from providing just individual components toward more comprehensive systems with various power and electronic options. COMPETITIVE POSTURE The Company competes with many manufacturers which, depending on the product involved, range from large diversified enterprises comparable in scope and resources to the Company to smaller companies specializing in particular products. Factors which affect the Company's competitive posture are its research and development efforts, the quality of its products and services and its marketing and pricing strategies. The products of the Company's Electronics business segment are sold by its own sales force and through distributors and agents. The Company's automotive components primarily are sold directly to original equipment manufacturers, some of which also are competitors in that they produce for their own use many of the products manufactured by the Company. Management believes that the Company is one of the largest independent manufacturers of automotive components and parts in North America. GOVERNMENT CONTRACTS The Avionics & Communications business supplies certain military equipment to the United States government. In addition to normal business risks, companies engaged in supplying military equipment to the United States government are subject to unusual risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and regulations and other policies which may reflect military and political developments, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, constant necessity for design improvements, intense competition for available United States government business necessitating increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work and other factors characteristic of the industry. Changes are customary over the life of United States government contracts, particularly development contracts, and generally result in adjustments of contract prices. 4 5 Moreover, various claims (whether based on United States government or Company audits and investigations or otherwise) have been or may be instituted or asserted against the Company related to its United States government contract work, including claims based on business practices and cost classifications. Although such claims are usually resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, the cancellation of or suspension of payments under one or more United States government contracts, suspension or debarment proceedings affecting potential further business with the United States government, or alteration of the Company's procedures relating to the performance or obtaining of United States government contracts. Management of the Company believes there are no claims, audits or investigations currently pending which will have a material adverse effect on either the Company's business or its financial condition. ACQUISITIONS AND DISPOSITIONS The Company regularly considers the acquisition or development of new businesses and reviews the prospects of its existing businesses to determine whether any of them should be modified, sold or otherwise discontinued. As a result of the Reorganization, the Company has an extremely low debt to total capital ratio, which enhances its ability, among other things, to make acquisitions. In September 1996, the Company acquired Brooktree for $278 million. The Company also acquired several other businesses in fiscal 1996, at a net cost of $68 million. In January 1995, the Company completed its acquisition of Reliance, a major manufacturer of industrial products and telecommunications equipment, for $1,066 million, net of proceeds from the sale of Reliance's telecommunications business. In October 1996, the Company sold its Graphic Systems business to an affiliate of Stonington Partners, Inc. for approximately $600 million. On December 6, 1996, the Company completed the divestiture of the A&D Business to Boeing. The assets and liabilities of the Graphic Systems business and the A&D Business have been classified on the Company's balance sheet as net assets (liabilities) of discontinued operations and the net income (loss) from operations of the Graphic Systems business and the A&D Business has been reflected on the Company's statement of consolidated income as income from discontinued operations. GEOGRAPHIC INFORMATION The Company conducts operations in the United States and in 37 foreign countries. Selected financial information by major geographic area for the three years ended September 30, 1996 is contained in Note 19 of the NOTES TO FINANCIAL STATEMENTS in the Financial Statements. The Company's principal markets outside the United States are in Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, the Netherlands, Southeast Asia, Spain and the United Kingdom. In addition to normal business risks, operations outside the United States are subject to other risks including, among other factors, the political, economic and social environments, governmental laws and regulations, and currency revaluations and fluctuations. RESEARCH AND DEVELOPMENT The Company's Science Center conducts a basic research program to support the strategies of the operating businesses and continues to provide research services to the A&D Business at agreed rates. At September 30, 1996, the Company employed approximately 7,052 professional engineers and scientists and 3,068 supporting technical personnel (excluding employees of the Graphic Systems business and the A&D Business). EMPLOYEES At October 31, 1996, the Company had 58,639 employees (excluding employees of the Graphic Systems business and the A&D Business), of whom 18,011 were employed outside the United States. 5 6 RAW MATERIALS AND SUPPLIES Raw materials essential to the conduct of all the Company's business segments generally are available at competitive prices. Many items of equipment and components used in the production of the Company's products in all the Company's business segments are purchased from others. In addition, the Avionics & Communications business in the Electronics business segment generally subcontracts major portions of systems. Although the Company has a broad base of suppliers and subcontractors, it is dependent upon the ability of its suppliers and subcontractors to meet performance and quality specifications and delivery schedules. ENVIRONMENTAL PROTECTION REQUIREMENTS Information with respect to the effect on the Company and its manufacturing operations of compliance with environmental protection requirements and resolution of environmental claims is contained under the caption ENVIRONMENTAL ISSUES in the MD&A on pages 15-16 hereof. See also Item 3, LEGAL PROCEEDINGS, on pages 7-9 hereof. PATENTS, LICENSES AND TRADEMARKS Numerous patents and patent applications are owned or licensed by the Company and utilized in its activities and manufacturing operations. Various claims of patent infringement have been made against the Company. Management believes that none of these claims will have a material adverse effect on the consolidated financial statements of the Company. While in the aggregate the Company's patents and licenses are considered important in the operation of its business, management does not consider them of such importance that loss or termination of any one of them would materially affect the Company's business. The Company's name, its registered trademarks "Rockwell" and "Rockwell International" and its symbol are important to all of its business segments. In addition, the Company owns a large number of other important trademarks applicable to only certain of its products, such as "Collins" for navigation and communication equipment, "Allen-Bradley" and "A-B" for electronic controls and systems for industrial automation and "Reliance" for electric motors and mechanical power transmission products. SEASONALITY None of the Company's business segments is seasonal. ITEM 2. PROPERTIES. At September 30, 1996, and excluding facilities of the Graphic Systems business and the A&D Business, the Company operated 162 plants and research and development facilities throughout the United States and in Europe, Brazil, Canada, India, Mexico, Australia and the Far East. It also had approximately 400 sales offices, warehouses and service centers. These facilities had an aggregate floor space of approximately 32.2 million square feet. Of this floor space, approximately 76.7% was owned by the Company and approximately 23.3% was leased. At September 30, 1996, and excluding facilities of the Graphic Systems business and the A&D Business, the Company had 400,000 square feet of floor space that were not in use, all of which was in owned facilities. There are no major encumbrances (other than financing arrangements which in the aggregate are not material) on any of the Company's plants or equipment. In the opinion of management, the Company's properties have been well maintained, are in sound operating condition and contain all equipment and facilities 6 7 necessary to operate at present levels. A summary of floor space of these facilities at September 30, 1996 is as follows:
OWNED LEASED LOCATION AND SEGMENTS FACILITIES FACILITIES TOTAL --------------------- ---------- ---------- ----- (IN MILLIONS OF SQUARE FEET) United States: Automation............................................. 9.7 3.0 12.7 Avionics & Communications.............................. 3.6 0.7 4.3 Semiconductor Systems.................................. 0.5 0.3 0.8 Automotive............................................. 4.4 0.2 4.6 Europe: Automation............................................. 0.3 1.4 1.7 Avionics & Communications.............................. -- 0.1 0.1 Semiconductor Systems.................................. -- -- -- Automotive............................................. 3.2 0.3 3.5 South America: Automation............................................. -- 0.2 0.2 Avionics & Communications.............................. -- -- -- Semiconductor Systems.................................. -- -- -- Automotive............................................. 0.9 -- 0.9 Canada and other areas: Automation............................................. 0.3 0.7 1.0 Avionics & Communications.............................. -- -- -- Semiconductor Systems.................................. 0.1 0.1 0.2 Automotive............................................. 1.5 0.1 1.6 Corporate Offices (including certain research and development facilities)................................ 0.2 0.4 0.6 ----- --- ---- Total.......................................... 24.7 7.5 32.2 ===== === ====
ITEM 3. LEGAL PROCEEDINGS. Rocky Flats Plant. On January 30, 1990, a civil action was brought in the United States District Court for the District of Colorado against the Company and another former operator of the Rocky Flats Plant (the Plant), Golden, Colorado, operated from 1975 through December 31, 1989 by the Company for the Department of Energy (DOE). The action alleges the improper production, handling and disposal of radioactive and other hazardous substances, constituting, among other things, violations of various environmental, health and safety laws and regulations, and misrepresentation and concealment of the facts relating thereto. The plaintiffs, who purportedly represent two classes, sought compensatory damages of $250 million for diminution in value of real estate and other economic loss; the creation of a fund of $150 million to finance medical monitoring and surveillance services; exemplary damages of $300 million; CERCLA response costs in an undetermined amount; attorneys' fees; an injunction; and other proper relief. On February 13, 1991, the court granted certain of the motions of the defendants to dismiss the case. The plaintiffs subsequently filed a new complaint, and on November 26, 1991, the court granted in part a renewed motion to dismiss. The remaining portion of the case is pending before the court. On October 8, 1993, the court certified separate medical monitoring and property value classes. Effective August 1, 1996, the DOE assumed control of the defense of the contractor defendants, including the Company, in the action. Beginning on that date, the costs of the Company's defense, which had previously been reimbursed to the Company by the DOE, have been and are being paid directly by the DOE. The Company believes that it is entitled under applicable law and its contract with the DOE to be indemnified for all costs and any liability associated with this action. 7 8 On November 13, 1990, the Company was served with a summons and complaint in another civil action, which the Company believes is totally without merit, brought against the Company in the same court by James Stone, claiming to act in the name of the United States, alleging violations of the U.S. False Claims Act in connection with the Company's operation of the Plant (and seeking treble damages and forfeitures) as well as a personal cause of action for alleged wrongful termination of employment, seeking reinstatement with back pay and other unspecified damages. On August 8, 1991, the court dismissed the personal cause of action. On February 2, 1994, the court denied Rockwell's motion to dismiss the complaint for lack of subject matter jurisdiction, and discovery is proceeding. On December 6, 1995, the DOE notified the Company that it would no longer reimburse costs incurred by the Company in defense of the action. On November 19, 1996, the court granted the Department of Justice leave to intervene in the case on the government's behalf. The Company believes it is entitled under applicable law and its contract with the DOE to be indemnified for all costs and any liability associated with this action. On January 8, 1991, the Company filed suit in the United States Claims Court against the DOE, seeking recovery of $6.5 million of award fees to which the Company alleges it is entitled under the terms of its contract with the DOE for management and operation of the Plant during the period October 1, 1988 through September 30, 1989. On July 17, 1996, the government filed an amended answer and counterclaim against the Company alleging violations of the U.S. False Claims Act previously asserted in the civil action described in the preceding paragraph. The Company believes the government's counterclaim is without merit. Hanford Nuclear Reservation. On August 6, 1990 and August 9, 1990, civil actions were filed in the United States District Court for the Eastern District of Washington against the Company and the present and other former operators of the DOE's Hanford Nuclear Reservation (Hanford), Hanford, Washington. The Company operated part of Hanford for the DOE from 1977 through June 1987. Both actions purport to be brought on behalf of various classes of persons and numerous individual plaintiffs who resided, worked, owned or leased real property, or operated businesses, at or near Hanford or downwind or downriver from Hanford, at any time since 1944. The actions allege the improper handling and disposal of radioactive and other hazardous substances and assert various statutory and common law claims. The relief sought includes unspecified compensatory and punitive damages for personal injuries and for economic losses, and various injunctive and other equitable relief. Other cases asserting similar claims (the follow-on claims) on behalf of the same and similarly situated individuals and groups have been filed from time to time since August 1990, and may continue to be filed from time to time in the future. These actions and the follow-on claims have been (and any additional follow-on claims that may be filed are expected to be) consolidated in the United States District Court for the Eastern District of Washington under the name In re Hanford Nuclear Reservation Litigation. Because the claims and classes of claimants included in the actions described in the preceding paragraph are so broadly defined, the follow-on claims filed as of December 19, 1996 have not altered, and possible future follow-on claims are not expected to alter, in any material respect the scope of the litigation. Effective October 1, 1994, the DOE assumed control of the defense of certain of the contractor defendants (including the Company) in the In re Hanford Nuclear Reservation Litigation. Beginning on that date, the costs of the Company's defense, which had previously been reimbursed to the Company by the DOE, have been and are being paid directly by the DOE. The Company believes it is entitled under applicable law and its contracts with the DOE to be indemnified for all costs and any liability associated with these actions. Other. On June 24, 1996, judgment was entered against the Company in a civil action in the Circuit Court of Logan County, Kentucky on a jury verdict awarding $8 million in compensatory and $210 million in punitive damages for property damage. The action had been brought August 12, 1993 by owners of flood plain real property near Russellville, Kentucky allegedly damaged by PCBs discharged from a plant owned and operated by the Company's Measurement & Flow Control Division prior to its divestiture in March 1989. The Company believes that the verdict is unsupported by the evidence and, on July 3, 1996, moved for judgment in its favor notwithstanding the verdict, or in the alternative, for a new trial. Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, environmental, 8 9 safety and health, intellectual property, employment, and government contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the 1996 fiscal year. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY. The name, age, positions and offices held with the Company and principal occupations and employment during the past five years of each of the executive officers of the Company as of December 19, 1996 are as follows:
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE ------------------------------------------------------------------- --- DONALD R. BEALL--Chairman of the Board and Chief Executive Officer of Rockwell................................................................... 58 DON H. DAVIS, JR.--President and Chief Operating Officer of Rockwell since July 1995; Executive Vice President and Chief Operating Officer of Rockwell from January 1994 to July 1995; Senior Vice President and President, Automation of Rockwell from June 1993 to January 1994; President of Allen-Bradley prior thereto................................................ 57 W. MICHAEL BARNES--Senior Vice President, Finance & Planning and Chief Financial Officer of Rockwell.............................................. 54 WILLIAM J. CALISE, JR.--Senior Vice President, General Counsel and Secretary of Rockwell since November 1994; senior partner of Chadbourne & Parke (law firm) prior thereto .................................................. 58 LEE H. CRAMER--Vice President and Treasurer of Rockwell...................... 51 WILLIAM D. FLETCHER--Senior Vice President, Technology & Business Development of Rockwell since June 1996; Senior Vice President, International of Rockwell from October 1995 to June 1996; President, Asia-Pacific Sales Region of Allen-Bradley from March 1995 to October 1995; President of the Asia-Pacific Region of Allen-Bradley from June 1993 to March 1995; Senior Vice President, International Group and Motion Control Division of Allen-Bradley from January 1992 to June 1993; Senior Vice President, International Group of Allen-Bradley prior thereto......................... 57 JODIE K. GLORE--Senior Vice President of Rockwell and President & Chief Operating Officer-Rockwell Automation since October 1995; President of Allen-Bradley from January 1994 to October 1995; Senior Vice President, Automation Group (formerly Industrial Computer and Communication Group) of Allen-Bradley from January 1992 to January 1994; Vice President, Sales and Marketing of Square D Company (electrical distribution and industrial control products) prior thereto............................................ 49 LAWRENCE J. KOMATZ--Vice President and Controller of Rockwell................ 54 THOMAS A. MADDEN--Vice President, Corporate Development of Rockwell since September 1996; Vice President--Finance & Administration, Light Vehicle Systems of Rockwell from May 1996 to September 1996; Vice President--Finance & Administration, Automotive Business of Rockwell from October 1994 to May 1996; Assistant Controller of Rockwell prior thereto... 43 ROBERT H. MURPHY--Senior Vice President since December 1996; Senior Vice President, Organization and Human Resources of Rockwell prior thereto...... 58 WILLIAM A. SANTE, II--General Auditor of Rockwell............................ 53 JOHN R. STOCKER--Vice President, Law of Rockwell since November 1994; Vice President and Associate General Counsel of Rockwell prior thereto.......... 55
9 10
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE ------------------------------------------------------------------- --- JOEL R. STONE--Senior Vice President, Organization and Human Resources of Rockwell since December 1996; Vice President of Compensation & Benefits of Rockwell prior thereto.................................................. 52 CHARLES C. STOOPS, JR.--General Tax Counsel of Rockwell...................... 63 EARL S. WASHINGTON--Senior Vice President, Communications of Rockwell since September 1995; Vice President, Advertising and Public Relations of Rockwell from March 1994 to September 1995; Vice President, Business Development of Rockwell from June 1993 to March 1994; Vice President of Strategic Management for Rockwell's Defense Electronics businesses from June 1990 to June 1993 and Vice President of Transportation Systems of Rockwell's Defense Electronics businesses from June 1992 to June 1993...... 51
There are no family relationships, as defined, between any of the above executive officers. No officer of the Company was selected pursuant to any arrangement or understanding between him and any person other than the Company. All executive officers are elected annually. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market on which the Company's Common Stock, par value $1 per share, is traded is the New York Stock Exchange. The Company's Common Stock, par value $1 per share, is also traded on the Pacific Stock Exchange. There is no trading market for the Company's Class A Common Stock, par value $1 per share, but a sale may be effected by selling the Common Stock into which Class A Common Stock is convertible. On December 9, 1996, there were 61,184 shareowners of record of the Company's Common Stock and 44,685 shareowners of record of the Company's Class A Common Stock. The following table sets forth the high and low trading price of the Company's Common Stock on the New York Stock Exchange--Composite Transactions during each quarter of the Company's fiscal years ended September 30, 1996 and 1995:
1996 1995 ------------ ------------ FISCAL QUARTERS HIGH LOW HIGH LOW --------------- ---- --- ---- --- First..................................... 53 44 36 7/8 33 5/8 Second.................................... 63 1/4 51 1/2 39 7/8 35 Third..................................... 60 1/4 55 47 1/8 38 3/4 Fourth.................................... 57 47 1/2 48 43
During fiscal year 1996 the Company repurchased, through daily open-market purchases, 0.9 million shares of Common Stock. Shares repurchased under the Company's stock repurchase program are to be used for employee stock option and other benefit and compensation plans, conversion of the Company's convertible securities and other corporate purposes. The following table sets forth the aggregate quarterly dividends per common share (comprised of the Common Stock and Class A Common Stock) during each of the Company's five fiscal years ended September 30, 1996:
DIVIDENDS PER FISCAL YEAR COMMON SHARE ----------- ------------- 1996.......................................................... $1.16 1995.......................................................... 1.08 1994.......................................................... 1.02 1993.......................................................... 0.96 1992.......................................................... 0.92
10 11 ITEM 6. SELECTED FINANCIAL DATA. The following sets forth selected consolidated financial data of the Company's businesses, excluding financial data pertaining to the A&D Business and the Graphic Systems business and to certain indebtedness of the Company retained by the A&D Business. The selected consolidated financial data have been derived from the consolidated financial statements of the Company. The data should be read in conjunction with the MD&A and the Financial Statements. The income statement data for the five years ended September 30, 1996 and the balance sheet data as of the same dates have been derived from the audited consolidated financial statements of the Company.
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales from continuing operations............... $10,373 $9,065 $7,029 $6,204 $5,856 Operating earnings............................. 1,248 953 667 593 479 Interest expense............................... 32 25 17 18 35 Income from continuing operations.............. 555 493 351 302 243 Earnings per share from continuing operations................................... 2.55(1) 2.27 1.59 1.37 1.09 Cash dividends per share....................... 1.16 1.08 1.02 0.96 0.92 BALANCE SHEET DATA: (at end of period) Total assets................................. $10,065 $9,229 $6,593 $6,298 $6,090 Long-term debt............................... 161 178 30 20 23 Shareowners' equity.......................... 4,256 3,782 3,356 2,956 2,778
- --------- (1) Includes 56 cents per share special charge for the write-off of purchased research and development in connection with the acquisition of Brooktree. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The sale of the A&D Business marks an important further step in the transformation of Rockwell. The Company has shifted its strategic focus from aerospace and defense to higher growth U.S. commercial and international markets. Rockwell is now predominantly an electronics company, with 70 percent of 1996 sales coming from its electronics businesses compared to 1984 when 63 percent of Rockwell's sales were aerospace and defense. Sales outside the United States have grown to 43 percent of total sales in 1996 compared to 13 percent in 1984. Over the past five years, the financial performance of Rockwell's continuing businesses has been outstanding. Sales have grown at a 15 percent average annual rate and operating earnings increased at a 27 percent average annual rate. Earnings per share from continuing operations, excluding a one-time acquisition-related charge in 1996 of 56 cents per share, have increased from $1.09 per share in 1992 to $3.11 per share in 1996, an average annual increase of 30 percent. Cash flow from these continuing businesses has been equally impressive, with cash provided by operating activities increasing from $200 million in 1992 to $1.2 billion in 1996. Rockwell's financial condition continues to be a strength that provides substantial flexibility for its businesses to grow through internal investments and acquisitions. The Company's debt to total capital ratio was a low 11 percent at September 30, 1996, excluding the $2.165 billion of Rockwell debt assumed by Boeing in its acquisition of the A&D Business. Year-end cash balances totaled $700 million and further increased with the $600 million sale of the Graphic Systems business in October, 1996. Looking ahead, management has established long-term financial goals for average annual sales growth of 8 percent and average annual earnings per share growth of 15 percent. In addition, the Company was recapitalized in the Reorganization, resulting in very low debt leverage, a major increase in Rockwell's equity 11 12 and a return on equity in the 14 percent range. The Company's plan is to increase return on equity to 20 percent over the next three years. RESULTS OF OPERATIONS 1996 Compared to 1995 Sales from Rockwell's continuing businesses in 1996 were up 14 percent to $10.4 billion from $9.1 billion in 1995 led by significant increases in the Automation, Semiconductor Systems and Automotive's Light Vehicle Systems businesses. The composition of sales was as follows (in billions):
1996 1995 ----- ---- U.S. Commercial....................................................... $ 5.3 $4.5 International......................................................... 4.5 3.9 U.S. Government....................................................... .6 .7 ----- ---- Total............................................................ $10.4 $9.1 ===== ====
Income from continuing operations in 1996, before a $121 million, or 56 cents per share, special charge, was $676 million, or $3.11 per share, a 37 percent increase over 1995's comparable income of $493 million, or $2.27 per share. Including this charge, income from continuing operations in 1996 was $555 million, or $2.55 per share, an increase of 12 percent over 1995. The 1996 one-time special charge was for the write-off of purchased research and development in connection with the Company's acquisition of Brooktree. In 1996 the Company also recorded a $77 million after-tax restructuring charge related to a decision to exit several non-strategic product lines and the costs associated with staff reductions in several businesses. This charge was offset by favorable settlements of prior years' income tax and insurance claims of $76 million after tax. Continuing Operations Sales and Earnings by Business Segment
YEARS ENDED SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- (IN MILLIONS) SALES Electronics Automation............................. $ 4,165 $ 3,590 $ 2,085 $ 1,716 $ 1,471 Avionics & Communications.............. 1,475 1,468 1,419 1,407 1,503 Semiconductor Systems.................. 1,593 875 691 530 431 ------- ------- ------- ------- ------- Total Electronics.................... 7,233 5,933 4,195 3,653 3,405 ------- ------- ------- ------- ------- Automotive Heavy Vehicle Systems.................. 1,822 1,929 1,744 1,455 1,373 Light Vehicle Systems.................. 1,318 1,192 900 893 896 ------- ------- ------- ------- ------- Total Automotive..................... 3,140 3,121 2,644 2,348 2,269 ------- ------- ------- ------- ------- Divested businesses....................... -- 11 190 203 182 ------- ------- ------- ------- ------- Total sales.......................... $10,373 $ 9,065 $ 7,029 $ 6,204 $ 5,856 ======= ======= ======= ======= =======
12 13
YEARS ENDED SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- (IN MILLIONS) OPERATING EARNINGS Electronics Automation............................. $ 537 $ 481 $ 265 $ 193 $ 102 Avionics & Communications.............. 163 178 182 221 228 Semiconductor Systems.................. 330 113 98 57 26 ------- ------- ------- ------- ------- Total Electronics.................... 1,030 772 545 471 356 Automotive................................ 218 212 114 135 107 Divested businesses....................... -- (31) 8 (13) 16 ------- ------- ------- ------- ------- Operating earnings.......................... 1,248 953 667 593 479 Restructuring charge........................ (122) -- -- -- -- Purchased research and development.......... (121) -- -- -- -- General corporate--net...................... (77) (117) (82) (83) (54) Interest expense............................ (32) (25) (17) (18) (35) Provision for income taxes.................. (341) (318) (217) (190) (147) ------- ------- ------- ------- ------- Income from continuing operations...... $ 555 $ 493 $ 351 $ 302 $ 243 ======= ======= ======= ======= =======
The Company's Electronics businesses accounted for 70 percent of total 1996 sales and 83 percent of total operating earnings. Following is a discussion of sales and earnings of Rockwell's continuing businesses. Automation, Rockwell's largest business with 40 percent of total sales, reported a 16 percent sales increase over 1995 with 7 percent due to stronger worldwide markets and 9 percent due to the inclusion of Reliance sales for the full year compared to nine months in 1995. Although growth in Automation's served markets continued in 1996, the rate of growth in this industry slowed from 1995's record levels. Automation's 1996 earnings increased 12 percent over 1995 due to higher sales and improved profit margins. Automation's earnings as a percentage of sales increased each quarter during 1996, from 11.3 percent in the first quarter to 14.3 percent in the fourth quarter. Semiconductor Systems, Rockwell's fastest growing business, achieved an 82 percent increase in 1996 sales while earnings were triple 1995 earnings due to strong customer demand for its very high speed personal computer modem chipsets. For the year, Semiconductor Systems achieved an excellent 21 percent return on sales compared to 13 percent in 1995. Semiconductor Systems operates in a volatile industry, characterized by rapid technological advances and constantly changing customer demand patterns. Participation in this industry requires significant investments in research and development, frequent new product introductions or enhancements, and aggressive pricing practices. Future sales and earnings of this business are dependent on the continued successful development of advanced technologies and timely introduction of new products. While management does not see the Semiconductor Systems business sustaining the dramatic sales and earnings growth rates achieved in 1996, it does expect continued growth in 1997. Avionics & Communications 1996 sales were up slightly from 1995 while earnings were down 8 percent. Record sales and earnings by the business' General Aviation division were more than offset by a charge resulting from the bankruptcy of Fokker N.V. and higher commercial air transport research and development expenditures. Strengthening in the commercial air transport market during the second half of the fiscal year positions Avionics & Communications to achieve strong sales and earnings improvements in 1997. Automotive represents 30 percent of the Company's total sales. In 1996 Automotive's sales and earnings were slightly ahead of 1995 with a return on sales of 7 percent compared to 6.8 percent in 1995. Within Automotive, earnings of the Heavy Vehicle Systems business were up 7 percent with improved cost performance in North America and gains on property sales more than offsetting a significant sales and earnings decline in the Brazilian operations due to depressed economic conditions. In the Light Vehicle Systems business, higher volume related earnings were offset by new product launch costs in the roof and seat systems operations. Sales for this business increased 11 percent in 1996. 13 14 1995 Compared to 1994 Sales for 1995 increased $2 billion, or 29 percent, from 1994 sales. The acquisition of Reliance in January 1995 contributed $1 billion to this sales increase, while strong markets, new product introductions and increased market share led to substantial sales increases by the Semiconductor Systems, Automation, and Light and Heavy Vehicle Systems businesses. Avionics & Communications 1995 sales were also up from 1994. International sales increased 29 percent over 1994. Income from continuing operations for 1995 increased 40 percent over 1994. Automation's 1995 earnings were up 82 percent over 1994, 45 percent due to strong worldwide markets for Allen-Bradley products and 37 percent to the inclusion of Reliance in 1995's results. Excluding Reliance, Automation posted 1995 sales increases of 19 percent in the United States, 36 percent in Canada, 38 percent in Asia-Pacific, 28 percent in Europe, and 26 percent in Latin America. Semiconductor Systems' earnings were 15 percent higher than 1994 due to strong customer demand for its new high speed data modem chipsets which reached full production during 1995's third quarter. In the fourth quarter, Semiconductor Systems' earnings were more than three times higher than 1994's fourth quarter earnings. Avionics & Communications' 1995 earnings were approximately the same as 1994 as a result of significant investments in products to address the land transportation electronics market being offset by strengthening commercial avionics markets in the second half of 1995 and substantial completion of development work on the Boeing 777 program. Automotive's 1995 earnings were up 86 percent over 1994 due to sales increases and improved operating performance in both its Heavy and Light Vehicle Systems businesses, and lower Heavy Vehicle Systems product warranty costs. Earnings of Heavy Vehicle Systems in 1995 more than doubled 1994's results, while earnings of Light Vehicle Systems were up 32 percent over 1994. Automotive's return on sales increased to 6.8 percent in 1995 compared to 4.3 percent in 1994. INCOME TAXES The Company's effective income tax rate from continuing operations in 1996 was 38 percent compared to 39.2 percent in 1995. A favorable $65 million settlement of prior years' research and experimentation tax credit refund claim reduced the current year's effective income tax rate by 7.2 percent. This reduction was partially offset by a 4.7 percent increase in the effective income tax rate due to the one-time write-off of purchased research and development, which is not deductible for tax purposes. At September 30, 1996, the Company had unrecognized tax benefits from foreign net operating loss carryforwards of approximately $37 million. The Company also had foreign tax credit carryforwards of approximately $52 million and an unrecognized tax benefit from a capital loss carryforward of $45 million, resulting from the sale of Reliance's telecommunications business. These tax benefits generally expire between 1997 and 2001 and are available to reduce future income taxes of the Company. DISCONTINUED OPERATIONS Discontinued operations consist of the A&D Business sold to Boeing and the Graphic Systems business sold to an affiliate of Stonington Partners, Inc., as well as the interest expense associated with the debt assumed by Boeing and corporate expenses related to these businesses. The decrease in 1996 earnings from discontinued operations primarily reflects a significant adverse contract adjustment in the defense electronics business and losses in the commercial printing press business. FINANCIAL CONDITION Bolstered by the excellent 1996 earnings performance of continuing businesses, cash provided by operating activities rose to $1.2 billion compared to $700 million in 1995. This is after funding the working 14 15 capital needs of the businesses as well as record research and new product development expenditures of $691 million. The major use of cash in 1996 was $866 million for capital expenditures to fund the growth of the Company's businesses. Substantially all the capital expenditures were for facilities and equipment to support growth initiatives as well as cost reduction and quality improvement programs. Nearly half of these capital expenditures were spent by the Semiconductor Systems business. In July 1996, the Semiconductor Systems business announced that, due to current and forecasted favorable pricing in the worldwide semiconductor silicon wafer fabrication market, it delayed production start-up of a new facility currently under construction in Colorado Springs, Colorado. The facility is now planned to start production in 1998. For 1997 the Company's capital expenditures are planned to be about $900 million with two-thirds being spent by the Semiconductor Systems and Automation businesses. The major use of cash in 1995 was the acquisition of Reliance for $1.1 billion (net of $475 million proceeds from the sale of its telecommunications business). The largest acquisition in 1996 was Brooktree for $278 million. Another use of the Company's cash is payment of dividends. In 1996 dividend payments totaled a record $253 million, or 35 percent of net income. RETIREMENT BENEFITS The Company's retirement benefit payments over the next several years will be significantly lower as a result of the sale of the A&D Business. Medical payments for Rockwell retirees totaled $206 million in 1996, including $122 million for retirees of the A&D Business, for whom payment will in the future be the responsibility of Boeing. Rockwell's pension payments to retirees will be very low in 1997 since Boeing has assumed the pension liabilities for substantially all of Rockwell's U.S. employees who retired prior to January 1, 1996, as well as future pension liabilities for the active employees of the A&D Business. Pension plan assets substantially in excess of assumed pension liabilities were transferred to Boeing. Rockwell's continuing pension plans remain overfunded and even though current benefit payments are projected to be insignificant in the near future, the Company intends to fund the plans on a regular basis. ENVIRONMENTAL ISSUES Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on the manufacturing operations of the Company. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on the Company's liquidity and capital resources, competitive position, or financial statements. The Company has been designated as a potentially responsible party at 31 Superfund sites, excluding sites as to which the Company's records disclose no involvement or as to which the Company's potential liability has been finally determined. Management estimates the total reasonably possible costs the Company could incur for the remediation of Superfund sites at September 30, 1996 to be about $52 million, of which $35 million has been accrued. Various other lawsuits, claims, and proceedings have been asserted against the Company alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental impairments, principally at previously disposed of properties. For these matters, management has estimated the total reasonably possible costs the Company could incur at September 30, 1996 to be about $140 million. The Company has recorded environmental accruals for these matters of $112 million, of which $50 million relate to Reliance. A major portion of the $50 million accrual for Reliance's environmental obligations is recoverable from Exxon Corporation, based on an agreement between Exxon and Reliance whereby Exxon agreed to pay 15 16 substantially all costs related to certain environmental matters. An offsetting $19 million receivable from Exxon has been recorded at September 30, 1996. The Company believes Reliance is entitled to indemnification from Exxon for an additional $21 million of costs, but no receivable has been recorded since Exxon is disputing its indemnification obligation. Based on its assessment, management believes that the Company's expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the Company's liquidity and capital resources, competitive position, or financial statements. Management cannot assess the possible effect of compliance with future requirements. CAUTIONARY STATEMENT This Annual Report on Form 10-K contains statements relating to future results of the Company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in political and economic conditions; domestic and foreign government spending, budgetary and trade policies; demand for and market acceptance of new and existing products; successful development of advanced technologies; and competitive product and pricing pressures, as well as other risks and uncertainties, including but not limited to those described above in the discussion of the Semiconductor Systems business under Results of Operations, 1996 Compared to 1995, on page 13 hereof and those detailed from time to time in the filings of the Company with the Securities and Exchange Commission. 16 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. CONSOLIDATED BALANCE SHEET (IN MILLIONS)
SEPTEMBER 30, ------------------ ASSETS 1996 1995 ------- ------ CURRENT ASSETS Cash (includes time deposits and certificates of deposit: 1996, $432; 1995, $447)................................................. $ 715 $ 686 Receivables (less allowance for doubtful accounts: 1996, $98; 1995, $54)................................................... 1,661 1,547 Inventories............................................................... 1,780 1,596 Deferred income taxes..................................................... 306 222 Other current assets...................................................... 336 225 Net assets of Graphic Systems............................................. 560 569 ------- ------ Total current assets............................................... 5,358 4,845 ------- ------ PROPERTY Land...................................................................... 101 87 Land and leasehold improvements........................................... 83 84 Buildings................................................................. 1,042 950 Machinery and equipment................................................... 2,881 2,586 Office and data processing equipment...................................... 663 592 Construction in progress.................................................. 486 274 ------- ------ Total.............................................................. 5,256 4,573 Less accumulated depreciation............................................. 2,594 2,308 ------- ------ Net property.............................................................. 2,662 2,265 ------- ------ INTANGIBLE ASSETS......................................................... 1,809 1,861 ------- ------ OTHER ASSETS.............................................................. 236 258 ------- ------ TOTAL.............................................................. $10,065 $9,229 ======= ======
See notes to financial statements. 17 18 CONSOLIDATED BALANCE SHEET (IN MILLIONS)
SEPTEMBER 30, ------------------ LIABILITIES AND SHAREOWNERS' EQUITY 1996 1995 ------- ------ CURRENT LIABILITIES Short-term debt........................................................... $ 350 $ 115 Accounts payable.......................................................... 1,220 1,081 Accrued compensation and benefits......................................... 508 454 Accrued income taxes...................................................... 154 113 Other current liabilities................................................. 740 565 Net liabilities of A&D Business........................................... 1,309 1,457 ------- ------ Total current liabilities.......................................... 4,281 3,785 ------- ------ LONG-TERM DEBT............................................................ 161 178 ------- ------ ACCRUED RETIREMENT BENEFITS............................................... 1,096 1,129 ------- ------ OTHER LIABILITIES......................................................... 271 355 ------- ------ SHAREOWNERS' EQUITY Common Stock (shares issued--209.5)....................................... 210 210 Class A Common Stock (shares issued: 1996, 27.9; 1995, 32.9).............. 28 33 Additional paid-in capital................................................ 199 187 Retained earnings......................................................... 4,466 4,158 Currency translation and pension adjustments.............................. (103) (99) Common Stock in treasury, at cost (shares held: 1996, 18.9; 1995, 25.4)................................................. (544) (707) ------- ------ Total shareowners' equity................................................. 4,256 3,782 ------- ------ TOTAL.............................................................. $10,065 $9,229 ======= ======
See notes to financial statements. 18 19 STATEMENT OF CONSOLIDATED INCOME (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30, ----------------------------- 1996 1995 1994 ------- ------ ------ REVENUES Sales............................................................ $10,373 $9,065 $7,029 Other income..................................................... 169 73 44 ------- ------ ------ Total revenues................................................... 10,542 9,138 7,073 ------- ------ ------ COSTS AND EXPENSES Cost of sales.................................................... 7,877 6,991 5,455 Selling, general, and administrative............................. 1,494 1,311 1,033 Restructuring.................................................... 122 -- -- Purchased research and development............................... 121 -- -- Interest......................................................... 32 25 17 ------- ------ ------ Total costs and expenses......................................... 9,646 8,327 6,505 ------- ------ ------ Income from continuing operations before income taxes............ 896 811 568 Provision for income taxes....................................... 341 318 217 ------- ------ ------ INCOME FROM CONTINUING OPERATIONS................................ 555 493 351 Income from discontinued operations.............................. 171 249 283 ------- ------ ------ NET INCOME....................................................... $ 726 $ 742 $ 634 ======= ====== ====== EARNINGS PER SHARE: Continuing operations.......................................... $ 2.55 $ 2.27 $ 1.59 Discontinued operations........................................ .79 1.15 1.28 ------- ------ ------ Net income..................................................... $ 3.34 $ 3.42 $ 2.87 ======= ====== ====== AVERAGE SHARES OUTSTANDING....................................... 217.6 217.2 220.5 ======= ====== ======
See notes to financial statements. 19 20 STATEMENT OF CONSOLIDATED CASH FLOWS (IN MILLIONS)
YEAR ENDED SEPTEMBER 30, ------------------------------- 1996 1995 1994 ------- ------- ------- CONTINUING OPERATIONS: OPERATING ACTIVITIES Income from continuing operations.............................. $ 555 $ 493 $ 351 Adjustments to income from continuing operations to arrive at cash provided by operating activities: Depreciation................................................. 421 333 289 Amortization of intangible assets............................ 121 95 53 Deferred income taxes........................................ (124) (7) (27) Pension expense, net of contributions........................ 98 68 53 Restructuring, net of expenditures........................... 111 -- -- Purchased research and development........................... 121 -- -- Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency adjustments: Receivables............................................... (105) (162) (127) Inventories............................................... (201) (141) (68) Accounts payable.......................................... 114 154 146 Accrued income taxes...................................... 41 (96) 66 Other assets and liabilities.............................. 12 (27) 4 ------- ------- ------- CASH PROVIDED BY OPERATING ACTIVITIES..................... 1,164 710 740 ------- ------- ------- INVESTING ACTIVITIES Property additions............................................. (866) (590) (470) Acquisitions of businesses (net of cash acquired).............. (322) (1,158) (18) Proceeds from the disposition of property and businesses....... 79 18 93 ------- ------- ------- CASH USED FOR INVESTING ACTIVITIES........................ (1,109) (1,730) (395) ------- ------- ------- FINANCING ACTIVITIES Increase (decrease) in short-term borrowings................... 232 (208) (68) Payments of long-term debt..................................... (31) (44) (25) Long-term borrowings........................................... -- 29 22 ------- ------- ------- Net increase (decrease) in debt.............................. 201 (223) (71) Purchase of treasury stock..................................... (48) (137) (155) Dividends...................................................... (253) (235) (225) Reissuance of common stock..................................... 42 50 38 ------- ------- ------- CASH USED FOR FINANCING ACTIVITIES........................ (58) (545) (413) ------- ------- ------- CASH USED FOR CONTINUING OPERATIONS............................ (3) (1,565) (68) ------- ------- ------- DISCONTINUED OPERATIONS: Operating activities......................................... 90 439 246 Investing activities......................................... (84) (104) (89) Financing activities......................................... 26 1,295 (168) ------- ------- ------- CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS............ 32 1,630 (11) ------- ------- ------- INCREASE (DECREASE) IN CASH.................................... 29 65 (79) ------- ------- ------- CASH AT BEGINNING OF YEAR...................................... 686 621 700 ------- ------- ------- CASH AT END OF YEAR............................................ $ 715 $ 686 $ 621 ======= ======= =======
See notes to financial statements. 20 21 STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30, ---------------------------- 1996 1995 1994 ------ ------ ------ COMMON STOCK (no shares issued during years)...................... $ 210 $ 210 $ 210 ------ ------ ------ CLASS A COMMON STOCK Beginning balance................................................. 33 37 42 Conversions into Common Stock..................................... (5) (4) (5) ------ ------ ------ Ending balance.................................................... 28 33 37 ------ ------ ------ ADDITIONAL PAID-IN CAPITAL Beginning balance................................................. 187 175 165 Exercise of stock options......................................... 12 12 10 ------ ------ ------ Ending balance.................................................... 199 187 175 ------ ------ ------ RETAINED EARNINGS Beginning balance................................................. 4,158 3,762 3,472 Net income........................................................ 726 742 634 Dividends per common share (1996, $1.16; 1995, $1.08; 1994, $1.02).......................................................... (253) (235) (225) Treasury stock reissuances........................................ (165) (111) (119) ------ ------ ------ Ending balance.................................................... 4,466 4,158 3,762 ------ ------ ------ CURRENCY TRANSLATION AND PENSION ADJUSTMENTS Beginning balance................................................. (99) (97) (197) Currency translation.............................................. (4) (2) 20 Pension adjustment................................................ -- -- 80 ------ ------ ------ Ending balance.................................................... (103) (99) (97) ------ ------ ------ TREASURY STOCK Beginning balance................................................. (707) (731) (736) Purchases......................................................... (48) (137) (155) Reissuances, principally Class A Common Stock conversions......... 211 161 160 ------ ------ ------ Ending balance.................................................... (544) (707) (731) ------ ------ ------ TOTAL SHAREOWNERS' EQUITY......................................... $4,256 $3,782 $3,356 ====== ====== ======
See notes to financial statements. 21 22 NOTES TO FINANCIAL STATEMENTS 1. FINANCIAL STATEMENT PRESENTATION During fiscal 1996, the Company entered into definitive agreements to sell its Graphic Systems business to an affiliate of Stonington Partners, Inc. and to merge the A&D Business with a subsidiary of Boeing. The Graphic Systems business was sold in October 1996 for approximately $600 million. The merger of the Company's A&D Business with Boeing was completed in December 1996. The Graphic Systems business and the A&D Business are reflected in the financial statements as discontinued operations for all periods presented (see Note 3). The A&D Business was merged with a subsidiary of Boeing in a tax-free transaction valued at approximately $3.2 billion, including the assumption by Boeing of approximately $2.3 billion of liabilities, principally debt. Boeing issued approximately $860 million of its stock in exchange for the Company's shareowners' interest in the A&D Business. Immediately prior to the merger, the Company transferred its Automation, Avionics & Communications, Semiconductor Systems, and Automotive businesses to a new company (New Rockwell), which has retained the Rockwell name, and is reflected in the financial statements as the continuing operations of Rockwell for all periods presented. Shares of New Rockwell were distributed to the Company's shareowners on the effective date of the transaction on a one-for-one share basis. The financial statements have been prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform with the current presentation. Except as indicated, amounts reflected in the financial statements or disclosed in the notes to financial statements relate to the Company's continuing operations. 2. ACCOUNTING POLICIES Inventories Inventories are stated at the lower of cost (using LIFO, FIFO, or average methods) or market (determined on the basis of estimated realizable values). Property Property is stated at cost. Depreciation of property is provided based on estimated useful lives generally using accelerated and straight-line methods. Significant renewals and betterments are capitalized and replaced units are written off. Maintenance and repairs, as well as renewals of minor amount, are charged to expense. Intangible Assets Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at the date of acquisition and is amortized by the straight-line method over periods ranging from 10 to 40 years. Trademarks, patents, product technology, and other intangibles are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 40 years. Management reviews periodically the realizability of goodwill and other intangible assets based on an evaluation of remaining useful lives, cash flows, and profitability projections and has determined that there is no impairment at September 30, 1996. 22 23 Environmental Matters The Company records accruals for environmental issues in the accounting period in which its responsibility is established and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the Company records a liability for its allocable share of costs related to its involvement with the site as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which the Company is the only responsible party, the Company records a liability for the total estimated costs of remediation before consideration of recovery from insurers or other third parties. If recovery from a third party is determined to be probable, the Company records a receivable for the estimated recovery. Earnings Per Share Earnings per common share are based on the weighted average number of common shares outstanding during each year. The computation does not include a negligible dilutive effect of stock options. New Accounting Standards The company has adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed Of." The adoption of this standard did not have a material effect on the financial statements. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation," which is effective for fiscal year 1997. Under SFAS No. 123, companies can elect, but are not required, to recognize compensation expense for all stock-based awards, using a fair value methodology. The Company expects to implement in fiscal year 1997 the disclosure only provisions, as permitted by SFAS No. 123. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position No. 96-1, "Environmental Remediation Liabilities," which is effective for fiscal year 1998. The Company does not expect adoption of this statement to have a material effect on the financial statements. 3. DISCONTINUED OPERATIONS Discontinued operations includes the Graphic Systems business and the A&D Business (see Note 1). The assets and liabilities of the A&D Business have been classified on the balance sheet as net liabilities of the A&D Business and consist of the following (in millions):
SEPTEMBER 30, ----------------- 1996 1995 ------ ------ Receivables................................................................ $ 738 $ 799 Inventories................................................................ 327 251 Net property............................................................... 540 583 Prepaid pension costs...................................................... 1,261 1,158 Other assets............................................................... 238 253 ------ ------ Total assets of A&D Business.......................................... 3,104 3,044 ------ ------ Short-term debt............................................................ 565 539 Accounts payable and accrued liabilities................................... 782 833 Long-term debt............................................................. 1,597 1,597 Accrued retirement benefits................................................ 1,469 1,532 ------ ------ Total liabilities of A&D Business..................................... 4,413 4,501 ------ ------ Net liabilities of A&D Business....................................... $1,309 $1,457 ====== ======
Pursuant to the merger agreement, in addition to the A&D Business, Boeing acquired certain Rockwell corporate property and United States pension plan assets and assumed pension obligations related to certain 23 24 former employees of the continuing businesses (see Note 15). Boeing also assumed $2,165 million of the short- and long-term domestic borrowings of the Company (see Notes 8 and 10). Accordingly, these amounts have been presented on the balance sheet as net liabilities of the A&D Business. The net liabilities of the A&D Business at the date of this transaction have been recorded as an increase to additional paid-in capital in fiscal year 1997. The assets and liabilities of the Graphic Systems business have been classified on the balance sheet as net assets of Graphic Systems and consist of the following (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Receivables............................................................... $ 169 $ 142 Inventories............................................................... 157 224 Other current assets...................................................... 50 44 Net property.............................................................. 140 178 Customer finance receivables.............................................. 174 203 Other assets.............................................................. 164 180 ------- ------ Total assets of Graphic Systems......................................... 854 971 Accounts payable and accrued liabilities.................................. 294 402 ------- ------ Net assets of Graphic Systems........................................... $ 560 $ 569 ======= ======
The net income (loss) from operations of the A&D Business and the Graphic Systems business has been reflected on the statement of income as income from discontinued operations. Summarized results of discontinued operations are as follows (in millions):
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- GRAPHIC GRAPHIC GRAPHIC A&D SYSTEMS A&D SYSTEMS A&D SYSTEMS ------ ------- ------ ------- ------ ------- Revenues................................. $3,089 $ 712 $3,244 $ 717 $3,458 $ 674 Income before income taxes............... 311 8 353 62 425 28 Income taxes............................. 133 15 141 25 159 11 Net income (loss)........................ 178 (7) 212 37 266 17
The net loss for Graphic Systems for the year ended September 30, 1996 includes net income from operations of $3 million offset by a provision for loss on the sale of $10 million. The Graphic Systems business and the A&D Business utilized certain services which are provided for all of the Company's businesses on a centralized basis, including payroll administration, data processing, and telecommunications services. These businesses were also allocated costs of centrally administered programs, including employee medical claims and property and casualty insurance. These costs were charged to businesses based on actual usage of these services and programs and were $107 million, $150 million, and $180 million in 1996, 1995, and 1994, respectively. These businesses also received other services provided by the Company, including financial, legal, tax, corporate communications, and human resources. The costs of these services are allowable overhead costs on government contracts and, accordingly, have been included in the results of operations of the A&D Business. These costs have been allocated to the A&D Business using a variety of factors, including sales, assets, inventory, and payroll and were $35 million, $32 million, and $40 million in 1996, 1995, and 1994, respectively. Management believes that the methods of allocating costs to these businesses are reasonable. Interest expense of $159 million, $142 million, and $75 million in 1996, 1995, and 1994, respectively, has been allocated to the A&D Business based on the actual interest expense associated with the borrowings assumed by Boeing. 24 25 4. RESTRUCTURING During 1996, the Company recorded restructuring charges of $122 million before tax ($77 million after tax, or 35 cents per share). The restructuring charges relate to a decision to exit non-strategic product lines involving certain truck communications and intelligent transportation products, as well as the costs associated with staff reductions in several businesses. The provision includes asset impairments of $71 million, severance and other employee costs of $35 million, and contractual commitments and other costs of $16 million. As of September 30, 1996, the Company had expended $11 million related to these actions, which are expected to be completed by the end of 1997. 5. ACQUISITION OF BUSINESSES In September 1996, the Company acquired Brooktree, a designer and manufacturer of digital and mixed-signal integrated circuits for computer graphics, multimedia, imaging, and communications applications, for $278 million. The acquisition was accounted for as a purchase as of September 30, 1996 and the price allocation included a write-off of $121 million for purchased research and development. The Company also acquired several other businesses in 1996 at a net cost of $68 million. Pro forma information is not presented as the results of operations of Brooktree and the other acquisitions are not material in relation to the Company's income from continuing operations. In January 1995, the Company completed its acquisition of Reliance, a major manufacturer of industrial products and telecommunications equipment, for $1,066 million, net of proceeds from the sale of Reliance's telecommunications business. The acquisition of Reliance was accounted for as a purchase as of December 31, 1994 and the results of operations, exclusive of the divested telecommunications business, have been included in the statement of income since that date. The following unaudited pro forma information has been prepared assuming Reliance had been acquired as of the beginning of the years presented. The pro forma information is presented for informational purposes and is not necessarily indicative of what would have occurred if the acquisition had been made as of those dates. The pro forma information is not intended to be a projection of future results.
YEAR ENDED SEPTEMBER 30, ------------------ PRO FORMA INFORMATION (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE) 1995 1994 ------- ------ Revenues.................................................................. $ 9,467 $8,311 Net income................................................................ 742 600 Earnings per share........................................................ 3.42 2.72
6. INVENTORIES Inventories are summarized as follows (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Finished goods............................................................ $ 491 $ 456 Work in process........................................................... 880 749 Raw materials, parts, and supplies........................................ 466 445 ------- ------ Total..................................................................... 1,837 1,650 Less allowance to adjust the carrying value of certain inventories (1996, $737; 1995, $801) to a LIFO basis....................................... 57 54 ------- ------ Inventories............................................................... $ 1,780 $1,596 ======= ======
25 26 7. INTANGIBLE ASSETS Intangible assets are summarized as follows (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Goodwill, less accumulated amortization (1996, $238; 1995, $200).......... $ 1,289 $1,328 Trademarks, patents, product technology, and other intangibles, less accumulated amortization (1996, $371; 1995, $350)....................... 520 533 ------- ------ Intangible assets......................................................... $ 1,809 $1,861 ======= ======
8. SHORT-TERM DEBT Short-term debt consisted of the following (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Commercial paper.......................................................... $ 210 $ -- Short-term foreign bank borrowings........................................ 123 97 Current portion of long-term debt......................................... 17 18 ------- ------ Short-term debt........................................................... $ 350 $ 115 ======= ======
Short-term debt of $565 million and $539 million at September 30, 1996 and 1995, respectively, has been included in net liabilities of the A&D Business as Boeing assumed $565 million of short-term borrowings in connection with the Reorganization (see Note 1). Weighted average interest rates on the remaining short-term borrowings:
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Commercial paper.......................................................... 5.4% -- Short-term foreign bank borrowings........................................ 4.1% 4.6%
At September 30, 1996, the Company had $1.5 billion of unsecured credit facilities with various banks to support commercial paper borrowings. There were no significant commitment fees or compensating balance requirements under these facilities. Short-term credit facilities available to foreign subsidiaries amounted to $505 million at September 30, 1996 and consisted of arrangements for which there are no significant commitment fees. 9. OTHER CURRENT LIABILITIES Other current liabilities are summarized as follows (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ Accrued product warranties................................................ $ 215 $ 184 Contract reserves and advance payments.................................... 131 117 Accrued taxes other than income taxes..................................... 73 67 Other..................................................................... 321 197 ------- ------ Other current liabilities................................................. $ 740 $ 565 ======= ======
26 27 10. LONG-TERM DEBT Long-term debt consisted of the following (in millions):
SEPTEMBER 30, ------------------ 1996 1995 ------- ------ 6.8% notes, payable in 2003............................................... $ 139 $ 138 Other obligations, principally foreign.................................... 39 58 ------- ------ Total..................................................................... 178 196 Less current portion...................................................... 17 18 ------- ------ Long-term debt............................................................ $ 161 $ 178 ======= ======
Long-term debt obligations of $1,597 million at September 30, 1996 and 1995 are included in net liabilities of the A&D Business as Boeing assumed responsibility for these obligations in connection with the Reorganization (see Note 1). At September 30, 1996, aggregate maturities of long-term debt during the five years ending September 30, 2001 were as follows (in millions): 1997, $17; 1998, $4; 1999, $3; 2000, $3; and 2001, $1. 11. FINANCIAL INSTRUMENTS The Company's financial instruments include cash, short- and long-term debt, and foreign currency forward exchange contracts. At September 30, 1996, the carrying values of the Company's financial instruments approximated their fair values based on current market prices and rates. It is the policy of the Company not to enter into derivative financial instruments for speculative purposes. The Company does enter into foreign currency forward exchange contracts to protect itself from adverse currency rate fluctuations on foreign currency commitments entered into in the ordinary course of business. These commitments are generally for terms of less than one year. The foreign currency forward exchange contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. The notional amount of all of the Company's outstanding foreign currency forward exchange contracts aggregated $919 million and $681 million at September 30, 1996 and 1995, respectively. The Company does not anticipate any material adverse effect on its results of operations or financial position relating to these foreign currency forward exchange contracts. 12. CAPITAL STOCK At September 30, 1996, the authorized stock of the Company consisted of 600 million shares of Common Stock and 200 million shares of Class A Common Stock, each with a $1 par value, and 12 million shares of preferred stock without par value. The Class A Common Stock was substantially identical to the Common Stock except that each share of Class A Common Stock entitled the holder to ten votes on all matters on which holders of Common Stock were entitled to vote, was not transferable except in certain limited circumstances, and was convertible at any time into Common Stock on a share-for-share basis. At September 30, 1996, 26 million shares of common stock were reserved for various employee incentive plans. In 1996, 117,821 shares of Series A and Series B preferred stock were converted into common stock. The remaining 9,892 shares were redeemed by the Company at prices of $100.00 per share for the Series A stock and $36.00 per share for the Series B stock. Changes in outstanding common shares are summarized as follows (in millions):
1996 1995 1994 ----- ----- ----- Beginning balance...................................................... 217.0 218.6 221.0 Treasury stock purchases............................................... (.9) (3.5) (4.1) Other, principally stock option exercises.............................. 2.4 1.9 1.7 ----- ----- ----- Ending balance......................................................... 218.5 217.0 218.6 ===== ===== =====
27 28 Outstanding common stock at September 30, 1996 consisted of 190.6 million shares of Common Stock and 27.9 million shares of Class A Common Stock. As a result of the Reorganization, the Company is authorized to issue 1,000,000,000 shares of Common Stock and 100,000,000 shares of Class A Common Stock, each with a $1 par value, and 25,000,000 shares of Preferred Stock without par value. Shareowners of the Company received one share of New Rockwell Common Stock and Class A Common Stock for each share held of Rockwell Common Stock and Class A Common Stock, respectively, in connection with the Reorganization. The terms of the New Rockwell Common Stock and Class A Common Stock are substantially the same as those of the Rockwell Common Stock and Class A Common Stock. Associated with each share of New Rockwell Common Stock and Class A Common Stock is a Preferred Share Purchase Right (Right) pursuant to which the holder of each such share of Common Stock and Class A Common Stock may, in certain takeover-related circumstances, become entitled to purchase from the Company 1/100 of a share of Series A Junior Participating Preferred Stock at a price of $250. The terms and conditions of the Rights are set forth in a Rights Agreement dated as of November 30, 1996 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. The New Rockwell Class A Common Stock will be automatically converted into New Rockwell Common Stock on February 23, 1997. 13. EMPLOYEE STOCK OPTIONS Options to purchase common stock of the Company have been granted under various incentive plans to directors, officers and other key employees at prices equal to or above the fair market value of such stock on the dates the options were granted. The plans provide that the option price for certain options granted under the plans may be paid in cash, the Company's common stock, or a combination thereof. The options have vesting periods which range from 1 to 3 years. Information relative to employee stock options is as follows (shares in thousands):
1996 1995 1994 ------- ------- ------- Number of shares under option: Outstanding at beginning of year................................ 10,363 10,336 9,676 Granted......................................................... 1,840 1,776 2,157 Exercised....................................................... (1,295) (1,713) (1,401) Expired......................................................... (37) (36) (96) ------- ------- ------- Outstanding at end of year...................................... 10,871 10,363 10,336 ======= ======= ======= Exercisable at end of year...................................... 8,594 8,601 8,222 ======= ======= ======= The ranges of exercise prices per share for options outstanding at September 30: High.......................................................... $ 60.88 $ 46.75 $ 41.88 Low.......................................................... $ 16.75 $ 16.75 $ 16.75
Options outstanding and exercisable at September 30, 1996 included 175,890 related to Class A Common Stock. Shares available for future grant or payment under various incentive plans were 14.7 million at September 30, 1996. Outstanding options expire at various dates from December 2, 1997 to July 10, 2006. None of the incentive plans presently permits options to be granted after July 10, 2006. In connection with the Reorganization, stock options of Rockwell were converted into stock options of New Rockwell. The number of options and exercise price of each option were adjusted to preserve the aggregate intrinsic value of the options. 14. RETIREMENT MEDICAL PLANS The Company has retirement medical plans which cover most of its United States employees and provide for the payment of medical costs of eligible employees and dependents upon retirement. 28 29 Retirement medical expense for continuing operations consisted of the following (in millions):
1996 1995 1994 ---- ---- ---- Service cost--benefits attributed to service during the year.......... $ 10 $ 9 $ 9 Interest accrued on accumulated retirement medical obligation......... 75 72 64 Amortization of plan amendments and net actuarial gains............... (18) (22) (21) ---- ---- ---- Retirement medical expense............................................ $ 67 $ 59 $ 52 ==== ==== ====
The Company's retirement medical obligation at September 30, 1996 and 1995 consisted of the following (in millions):
1996 1995 ------ ------ Accumulated retirement medical obligation: Retirees............................................................... $ 796 $ 753 Employees eligible to retire........................................... 88 99 Employees not eligible to retire....................................... 150 179 ------ ------ Total............................................................... 1,034 1,031 Unamortized amounts: Plan amendments........................................................ 83 98 Net actuarial losses................................................... (109) (106) ------ ------ Recorded liability....................................................... $1,008 $1,023 ====== ====== Assumptions used (June 30 measurement date): Discount rate.......................................................... 7.75% 7.5% Health care cost trend rates........................................... 8.0%* 8.5%*
* Decreasing to 5.5% after 2015 Retirement medical liabilities related to current and former employees of the A&D Business of $1,453 million and $1,516 million are included in net liabilities of the A&D Business at September 30, 1996 and 1995, respectively, as Boeing assumed such liabilities in connection with the Reorganization. Changing the health care cost trend rates by one percentage point would change the accumulated retirement medical obligation at September 30, 1996 by approximately $79 million and would change retirement medical expense by approximately $8 million. 15. RETIREMENT PENSION PLANS The Company has pension plans which cover most of its employees and provide for monthly pension payments to eligible employees upon retirement. Pension benefits for salaried employees generally are based on years of credited service and average earnings. Pension benefits for hourly employees generally are based on specified benefit amounts and years of service. Net pension expense for continuing operations consisted of the following (in millions):
1996 1995 1994 ----- ----- ----- Service cost--benefits earned during the year...................... $ 80 $ 65 $ 60 Interest accrued on projected benefit obligation................... 284 269 238 Assumed return on plan assets...................................... (278) (261) (240) Initial net asset amortization..................................... (23) (23) (23) Prior service cost amortization.................................... 15 20 12 Net actuarial loss amortization.................................... 35 16 36 ----- ----- ----- Net pension expense................................................ $ 113 $ 86 $ 83 ===== ===== =====
Pension plan assets are primarily equity securities, United States Government obligations, and fixed income investments whose values are subject to fluctuations of the securities market. The actual return on 29 30 plan assets allocated to continuing operations was $627 million, $511 million, and $52 million in 1996, 1995, and 1994, respectively. Differences between these actual returns and the related assumed returns on plan assets are deferred and considered in the determination of net pension income or expense in future periods. Pension plan obligations attributable to United States active employees of continuing businesses as of January 1, 1996 and a proportionate share of pension plan assets were transferred prior to the Reorganization from the Company's United States pension plan to a newly-established New Rockwell pension plan. Pension plan assets and obligations related to employees of the A&D Business and all retirees of the Company's United States pension plan prior to January 1, 1996 have been classified as net liabilities of the A&D Business as the remainder of the Company's United States pension plan was retained by the A&D Business pursuant to the merger agreement with Boeing. The following table reconciles the funded status of the assets and liabilities attributable to the New Rockwell pension plan and the Company's other overfunded pension plans to amounts recorded in the balance sheet (in millions):
1996 1995 ------ ------ Accumulated benefit obligation, principally vested......................... $1,516 $1,304 Effects of projected compensation increases................................ 282 271 ------ ------ Projected benefit obligation............................................... 1,798 1,575 Fair value of plan assets.................................................. 1,869 1,522 ------ ------ Plan assets in excess of (less than) projected benefit obligation.......... 71 (53) Items not yet recognized in the balance sheet: Net actuarial losses..................................................... 33 245 Prior service cost....................................................... 50 51 Remaining initial net asset.............................................. (68) (80) ------ ------ Prepaid pension costs at September 30...................................... $ 86 $ 163 ====== ======
1996 1995 ---- ---- Assumptions used (June 30 measurement date): Discount rate........................................................... 7.75% 7.5 % Compensation increase rate.............................................. 4.5 % 4.5 % Long-term rate of return on plan assets................................. 9.0 % 9.0 %
The Company also sponsors certain defined contribution savings plans for eligible employees. Expense related to these plans was $44 million, $35 million, and $34 million for 1996, 1995, and 1994, respectively. 30 31 16. INCOME TAXES The components of the provision for income taxes are as follows (in millions):
1996 1995 1994 ----- ---- ---- Current: United States...................................................... $ 364 $202 $138 Research and experimentation credit................................ (65) -- -- Foreign............................................................ 102 81 77 State and local.................................................... 64 42 29 ----- ---- ---- Total current........................................................ 465 325 244 ----- ---- ---- Deferred: United States...................................................... (96) (15) (13) Foreign............................................................ (13) 14 (4) State and local.................................................... (15) (6) (10) ----- ---- ---- Total deferred....................................................... (124) (7) (27) ----- ---- ---- Provision for income taxes........................................... $ 341 $318 $217 ===== ==== ====
In July 1996, the Company reached an agreement with the Internal Revenue Service concerning its research and experimentation tax credit refund claim for the years 1981 though 1991. The settlement, pursuant to which the Company will receive approximately $65 million, is subject to the approval of the Joint Congressional Committee on Taxation. Net deferred income tax benefits included in the balance sheet at September 30, 1996 and 1995 consist of the tax effects of temporary differences related to the following (in millions):
1996 1995 ---- ---- Accrued compensation and benefits............................................. $105 $ 80 Accrued product warranties.................................................... 83 79 Inventory..................................................................... 38 (1) Other--net.................................................................... 80 64 ---- ---- Current deferred income taxes................................................. $306 $222 ==== ====
Net deferred income taxes included in Other Liabilities in the balance sheet at September 30, 1996 and 1995 consist of the tax effects of temporary differences related to the following (in millions):
1996 1995 ----- ----- Retirement benefits......................................................... $(315) $(340) Property.................................................................... 201 221 Intangible assets........................................................... 126 116 Loss carryforwards.......................................................... (101) (46) Foreign tax credit carryforwards............................................ (52) (57) Other--net.................................................................. 9 121 ----- ----- Subtotal.................................................................... (132) 15 Valuation allowance......................................................... 134 96 ----- ----- Long-term deferred income taxes............................................. $ 2 $ 111 ===== =====
Management believes it is more likely than not that current and long-term tax assets will be realized through the reduction of future taxable income. Significant factors considered by management in its determination of the probability of the realization of the deferred tax assets included: (a) the historical operating results of the Company ($1.5 billion of United States income from continuing operations before income taxes over the past three years), (b) expectations of future earnings, and (c) the extended period of time over which the retirement medical liability will be paid. The valuation allowance represents the amount 31 32 of tax benefits related to net operating loss, capital loss and foreign tax credit carryforwards that have not yet been recognized. The carryforward period for net operating losses expires between 1997 and 2004. The carryforward period for foreign tax credits expires between 1997 and 2001. The tax benefit of a capital loss carryforward resulting from the sale of Reliance's telecommunications business was recorded during 1996 and is substantially offset by a valuation allowance. The consolidated effective tax rate was different from the United States statutory rate for the reasons set forth below:
1996 1995 1994 ---- ---- ---- Statutory tax rate.................................................... 35.0% 35.0% 35.0% State and local income taxes.......................................... 3.6 3.1 2.7 Foreign income taxes.................................................. 1.2 2.8 3.7 Non-deductible goodwill............................................... 1.4 2.1 .9 Utilization of foreign loss carryforwards............................. (.9 ) (2.0) (1.9) Purchased research and development.................................... 4.7 -- -- Research and experimentation settlement............................... (7.2) -- -- Other................................................................. .2 (1.8) (2.2) ---- ---- ---- Effective tax rate.................................................... 38.0% 39.2% 38.2% ==== ==== ====
The income tax provisions were calculated based upon the following components of income from continuing operations before income taxes (in millions):
1996 1995 1994 ---- ---- ---- United States income.................................................. $545 $545 $374 Foreign income........................................................ 351 266 194 ---- ---- ---- Total................................................................. $896 $811 $568 ==== ==== ====
No provision has been made for United States, state, or additional foreign income taxes related to approximately $532 million of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested. The Company's United States income tax returns for the years 1989 through 1991 are currently under examination. Pursuant to the merger agreement with Boeing, the Company has retained all tax liabilities and the right to all tax refunds related to operations of the A&D Business for periods prior to the merger. Management believes that adequate provision for income taxes has been made for all years through 1996. 17. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
1996 1995 1994 ---- ---- ---- STATEMENT OF CASH FLOWS INFORMATION (IN MILLIONS): Interest payments on all borrowings................................. $198 $154 $ 98 Income taxes paid................................................... 604 448 299 STATEMENT OF INCOME INFORMATION (IN MILLIONS): Maintenance and repairs............................................. $243 $182 $165 Research and development............................................ 691 608 571 Rental expense...................................................... 129 112 92
Minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $235 million as of September 30, 1996 and are payable as follows (in millions): 1997, $65; 1998 $51; 1999, $38; 2000, $23; 2001, $15; and after 2001, $43. 32 33 18. CONTINGENT LIABILITIES Claims have been asserted against the Company for utilizing the intellectual property rights of others in certain of the Company's products. The resolution of these matters may result in the negotiation of a license agreement, a settlement or the legal resolution of such claims. The Company accrues the estimated cost of disposition of these matters. Management believes that the resolution of these matters will not have a material adverse effect on the Company's financial statements. Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, safety and health, environmental, and employment matters. The Company has agreed to indemnify Boeing and the A&D Business for certain government contract and environmental matters related to operations of the A&D Business for periods prior to the merger. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company's financial statements. 19. BUSINESS SEGMENT INFORMATION The Company's business segments are engaged in research, development, and manufacture of diversified products as follows: ELECTRONICS: Automation--industrial automation equipment and systems, including control logic, sensors, human-machine interface devices, motors, power and mechanical devices, and software products. Avionics & Communications--avionics products and systems and related communications technologies primarily used in commercial and military aircraft and defense electronic systems for command, control, communications, and intelligence. Semiconductor Systems--system-level semiconductor chipset solutions for personal communication electronics markets, including chipsets for facsimile and personal computer data modems, wireless communications products such as global positioning systems, packet data, cordless and cellular chipsets, and automated call distribution equipment. AUTOMOTIVE--components and systems for heavy- and medium-duty trucks, buses, trailers and heavy-duty off-highway vehicles (Heavy Vehicle Systems); and components and systems for light trucks and passenger cars (Light Vehicle Systems). Divested businesses include the sales, operating results, and gains or losses on the disposition of significant businesses and product lines. Divested businesses include the Semiconductor Systems Local Area Networking product line in 1995 and the Automotive Plastics business in 1994. 33 34 The following tables summarize segment information (in millions): SALES AND EARNINGS BY BUSINESS SEGMENT
SALES ----------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------- BUSINESS SEGMENT 1996 1995 1994 - ---------------- ------ ------ ------ Electronics: Automation.................................................... $ 4,165 $3,590 $2,085 Avionics & Communications..................................... 1,475 1,468 1,419 Semiconductor Systems......................................... 1,593 875 691 ------- ------ ------ Total Electronics.......................................... 7,233 5,933 4,195 ------- ------ ------ Automotive: Heavy Vehicle Systems......................................... 1,822 1,929 1,744 Light Vehicle Systems......................................... 1,318 1,192 900 ------- ------ ------ Total Automotive........................................... 3,140 3,121 2,644 ------- ------ ------ Divested businesses............................................. -- 11 190 ------- ------ ------ Total sales..................................................... $10,373 $9,065 $7,029 ======= ====== ======
EARNINGS -------------------------- YEAR ENDED SEPTEMBER 30, -------------------------- BUSINESS SEGMENT 1996 1995 1994 - ---------------- ------ ----- ----- Electronics: Automation...................................................... $ 537 $ 481 $ 265 Avionics & Communications....................................... 163 178 182 Semiconductor Systems........................................... 330 113 98 ------ ----- ----- Total Electronics............................................ 1,030 772 545 Automotive........................................................ 218 212 114 Divested businesses............................................... -- (31) 8 ------ ----- ----- Operating earnings................................................ 1,248 953 667 Restructuring charge.............................................. (122) -- -- Purchased research and development................................ (121) -- -- General corporate-net............................................. (77) (117) (82) Interest expense.................................................. (32) (25) (17) Provision for income taxes........................................ (341) (318) (217) ------ ----- ----- Income from continuing operations................................. $ 555 $ 493 $ 351 ====== ===== =====
Restructuring charge relates to the business segments as follows (in millions): Automation, $11; Avionics & Communications, $60; Automotive, $36; and General corporate-net, $15. Purchased research and development relates to the acquisition of Brooktree, a Semiconductor Systems business. 34 35 ASSET INFORMATION BY BUSINESS SEGMENT
PROVISION FOR DEPRECIATION AND IDENTIFIABLE ASSETS AMORTIZATION ----------------------------- ------------------------ YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ----------------------------- ------------------------ BUSINESS SEGMENT 1996 1995 1994 1996 1995 1994 - ---------------- ------- ------ ------ ---- ---- ---- Electronics: Automation.......................... $ 4,237 $4,254 $1,799 $234 $192 $121 Avionics & Communications........... 965 918 827 52 48 50 Semiconductor Systems............... 1,411 730 586 144 72 53 ------- ------ ------ ---- ---- ---- Total Electronics................... 6,613 5,902 3,212 430 312 224 Automotive............................ 1,604 1,595 1,473 102 97 93 ------- ------ ------ ---- ---- ---- Business segment totals............... 8,217 7,497 4,685 532 409 317 Corporate............................. 1,288 1,156 1,224 10 14 16 Divested businesses................... -- 7 30 -- 5 9 Net assets of Graphic Systems......... 560 569 654 -- -- -- ------- ------ ------ ---- ---- ---- Total................................. $10,065 $9,229 $6,593 $542 $428 $342 ======= ====== ====== ==== ==== ====
Automation's assets include $1,184 million and $1,234 million of intangible assets and goodwill related to the acquisition of Reliance at September 30, 1996 and 1995, respectively. Automation's provision for depreciation and amortization includes $36 million and $27 million for the years ended September 30, 1996 and 1995, respectively, related to the amortization of Reliance intangible assets and goodwill. Corporate identifiable assets include cash and net deferred income tax assets.
CAPITAL EXPENDITURES ------------------------- YEAR ENDED SEPTEMBER 30, ------------------------- BUSINESS SEGMENT 1996 1995 1994 - ---------------- ---- ---- ---- Electronics: Automation.......................................................... $229 $237 $120 Avionics & Communications........................................... 60 49 51 Semiconductor Systems............................................... 414 175 151 ---- ---- ---- Total Electronics................................................... 703 461 322 Automotive............................................................ 152 119 102 ---- ---- ---- Business segment totals............................................... 855 580 424 Corporate............................................................. 11 9 36 Divested businesses................................................... -- 1 10 ---- ---- ---- Total................................................................. $866 $590 $470 ==== ==== ====
35 36 SALES, EARNINGS AND ASSETS BY GEOGRAPHIC AREA
SALES EARNINGS ----------------------------- -------------------------- YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ----------------------------- -------------------------- 1996 1995 1994 1996 1995 1994 ------- ------ ------ ------ ----- ----- United States...................... $ 7,841 $6,645 $4,977 $ 941 $ 726 $ 466 Canada............................. 628 592 454 75 70 85 Europe............................. 2,050 1,863 1,473 164 141 80 Asia-Pacific....................... 509 396 286 20 19 3 Latin America...................... 421 428 352 48 28 25 Divested businesses................ -- 11 190 -- (31) 8 Eliminations....................... (1,076) (870) (703) -- -- -- ------- ------ ------ ------ ----- ----- Total.............................. $10,373 $9,065 $7,029 1,248 953 667 ======= ====== ====== Restructuring charge............... (122) -- -- Purchased research and development...................... (121) -- -- General corporate--net............. (77) (117) (82) Interest expense................... (32) (25) (17) Provision for income taxes......... (341) (318) (217) ------ ----- ----- Income from continuing operations....................... $ 555 $ 493 $ 351 ====== ===== =====
United States sales include export sales to customers and international subsidiaries of $1,947 million in 1996, $1,513 million in 1995, and $1,152 million in 1994. The 1996 export sales were to the following geographic areas: Canada, $426 million; Europe, $557 million; Asia-Pacific, $870 million; and Latin America, $94 million.
IDENTIFIABLE ASSETS --------------------------------------------------------------- SEGMENTS CORPORATE ---------------------------- ---------------------------- YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ---------------------------- ---------------------------- GEOGRAPHIC AREA 1996 1995 1994 1996 1995 1994 - --------------- ------ ------ ------ ------ ------ ------ United States...................... $6,204 $5,641 $3,177 $ 651 $ 513 $ 641 Canada............................. 260 227 190 349 429 399 Europe............................. 1,143 1,103 921 147 141 151 Asia-Pacific....................... 314 267 185 60 62 32 Latin America...................... 296 259 212 81 11 1 Divested businesses................ -- 7 30 -- -- -- Net assets of Graphic Systems...... 560 569 654 -- -- -- ------ ------ ------ ------ ------ ------ Total.............................. $8,777 $8,073 $5,369 $1,288 $1,156 $1,224 ====== ====== ====== ====== ====== ======
36 37 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1996 FISCAL QUARTERS --------------------------------------- FIRST SECOND THIRD FOURTH 1996 ------ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Sales........................................ $2,385 $2,631 $2,696 $2,661 $10,373 Cost of sales................................ 1,810 2,009 2,047 2,011 7,877 Income from continuing operations before special charge............................. 152 160 172 192 676 Income from continuing operations............ 152 160 172 71 555 Net income................................... 192 214 223 97 726 Earnings per share: Continuing operations before special charge.................................. $ .70 $ .74 $ .79 $ .88 $ 3.11 ------ ------ ------ ------ ------- Continuing operations...................... $ .70 $ .74 $ .79 $ .32 $ 2.55 Discontinued operations.................... .19 .24 .23 .13 .79 ------ ------ ------ ------ ------- Net income.............................. $ .89 $ .98 $ 1.02 $ .45 $ 3.34 ====== ====== ====== ====== =======
The fourth quarter and full year income from continuing operations includes a $121 million, or 56 cents per share, write-off of purchased research and development in connection with the acquisition of Brooktree.
1995 FISCAL QUARTERS --------------------------------------- FIRST SECOND THIRD FOURTH 1995 ------ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Sales........................................ $1,747 $2,348 $2,476 $2,494 $ 9,065 Cost of sales................................ 1,366 1,793 1,897 1,935 6,991 Income from continuing operations............ 93 133 152 115 493 Net income................................... 165 191 197 189 742 Earnings per share: Continuing operations...................... $ .43 $ .61 $ .70 $ .53 $ 2.27 Discontinued operations.................... .33 .27 .20 .35 1.15 ------ ------ ------ ------ ------- Net income.............................. $ .76 $ .88 $ .90 $ .88 $ 3.42 ====== ====== ====== ====== =======
37 38 INDEPENDENT AUDITORS' REPORT TO THE DIRECTORS AND SHAREOWNERS OF ROCKWELL INTERNATIONAL CORPORATION: We have audited the accompanying consolidated balance sheet of Rockwell International Corporation and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of income, shareowners' equity, and cash flows for each of the three years in the period ended September 30, 1996. Our audit also included the financial statement schedule listed at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Rockwell International Corporation and subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Pittsburgh, Pennsylvania November 6, 1996 (December 6, 1996 as to the sale of the Aerospace and Defense business to The Boeing Company described in Note 1) 38 39 See also the table under the caption Continuing Operations, Sales and Earnings by Business Segment in the MD&A on pages 12-13 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. See the information under the captions ELECTION OF DIRECTORS and INFORMATION AS TO NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS on pages 3-7 of the 1997 Proxy Statement. No nominee for director was selected pursuant to any arrangement or understanding between the nominee and any person other than the Company pursuant to which such person is or was to be selected as a director or nominee. See also the information with respect to executive officers of the Company under Item 4a of Part I hereof. ITEM 11. EXECUTIVE COMPENSATION. See the information under the captions EXECUTIVE COMPENSATION, OPTION GRANTS, AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES on pages 11-13 and RETIREMENT PLANS on pages 19-20 of the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See the information under the captions VOTING SECURITIES and OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES on pages 3 and 10, respectively, of the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the information under the caption CERTAIN TRANSACTIONS AND OTHER RELATIONSHIPS on page 9 of the 1997 Proxy Statement. 39 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits. (1) Financial Statements (all financial statements listed below are those of the Company and its consolidated subsidiaries). Consolidated Balance Sheet, September 30, 1996 and 1995. Statement of Consolidated Income, years ended September 30, 1996, 1995 and 1994. Statement of Consolidated Cash Flows, years ended September 30, 1996, 1995 and 1994. Statement of Consolidated Shareowners' Equity, years ended September 30, 1996, 1995 and 1994. Notes to Financial Statements. Independent Auditors' Report. Sales and Earnings by Business Segment, years ended September 30, 1992 through 1996. (2) Financial Statement Schedule for the years ended September 30, 1996, 1995 and 1994.
PAGE ---- Schedule II--Valuation and Qualifying Accounts...................... S-1
Schedules not filed herewith are omitted because of the absence of conditions under which they are required or because the information called for is shown in the financial statements or notes thereto. (3) Exhibits. 3-a-1 Restated Certificate of Incorporation of the Company, as amended. 3-b-1 By-Laws of the Company. 4-a-1 Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as rights agent, dated as of November 30, 1996, filed as Exhibit 4-c to Registration Statement No. 333-17031, is hereby incorporated by reference. 4-b-1 Indenture dated as of April 1, 1993 between Reliance and Bankers Trust Company, as Trustee, pursuant to which the 6.8% Notes of Reliance due April 15, 2003 have been issued, filed as Exhibit 4.7 to Registration Statement No. 33-60066, is hereby incorporated by reference. 4-b-2 First Supplemental Indenture dated April 14, 1993 to the Indenture listed as Exhibit 4-b-1 above, filed as Exhibit 4.1 to Current Report on Form 8-K of Reliance dated April 19, 1993, is hereby incorporated by reference. 4-b-3 Form of the 6.8% Notes of Reliance due April 15, 2003, filed as Exhibit 4-8 to Registration Statement No. 33-60066, is hereby incorporated by reference. *10-a-1 Copy of the Company's 1979 Stock Plan for Key Employees, as amended, filed as Exhibit 4-d-1 to Registration Statement No. 33-11946, is hereby incorporated by reference.
- --------- * Management contract or compensatory plan or arrangement. 40 41 *10-a-2 Forms of Stock Option and Stock Appreciation Rights Agreements under the Company's 1979 Stock Plan for Key Employees, as amended, for options and stock appreciation rights granted after December 1, 1987, filed as Exhibit 10-b-7 to the Company's Annual Report on Form 10-K for the year ended September 30, 1987, are hereby incorporated by reference. *10-a-3 Copy of resolution of the Board of Directors of the Company, adopted May 7, 1980, adjusting the number of shares subject to outstanding options and stock appreciation rights under the Company's 1979 Stock Option Plan for Key Employees (now the 1979 Stock Plan for Key Employees, as amended) and the number of shares transferable under the Company's Incentive Compensation Plan, filed as Exhibit 10-d-2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1987, is hereby incorporated by reference. *10-a-4 Copy of resolution of the Board of Directors of the Company, adopted May 4, 1983, adjusting the number of shares subject to outstanding options and stock appreciation rights under the Company's 1979 Stock Plan for Key Employees, as amended, filed as Exhibit 4-e-5 to Registration Statement No. 33-11946, is hereby incorporated by reference. *10-a-5 Copy of resolution of the Board of Directors of the Company, adopted February 11, 1987, adjusting the number of shares subject to outstanding options and stock appreciation rights under the Company's 1979 Stock Plan for Key Employees, as amended, filed as Exhibit 4-e-6 to Registration Statement No. 33-11946, is hereby incorporated by reference. *10-b-1 Copy of the Company's 1988 Long-Term Incentives Plan, as amended through November 30, 1994, filed as Exhibit 10-d-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is hereby incorporated by reference. *10-b-2 Forms of Stock Option Agreements under the Company's 1988 Long-Term Incentives Plan for options granted prior to May 1, 1992, filed as Exhibit 10-d-2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988, are hereby incorporated by reference. *10-b-3 Forms of Stock Option and Stock Appreciation Rights Agreements under the Company's 1988 Long-Term Incentives Plan for options and stock appreciation rights granted prior to May 1, 1992, filed as Exhibit 10-d-3 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988, are hereby incorporated by reference. *10-b-4 Form of Stock Option Agreement under the Company's 1988 Long-Term Incentives Plan for options granted after May 1, 1992 and prior to March 1, 1993, filed as Exhibit 28-a-1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, is hereby incorporated by reference. *10-b-5 Forms of Stock Option Agreement under the Company's 1988 Long-Term Incentives Plan for options granted after March 1, 1993 and prior to November 1, 1993, filed as Exhibit 28-a to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, are hereby incorporated by reference. *10-b-6 Forms of Stock Option Agreement under the Company's 1988 Long-Term Incentives Plan for options granted after November 1, 1993 and prior to December 1, 1994, filed as Exhibit 10-d-6 to the Company's Annual Report on Form 10-K for the year ended September 30, 1993, are hereby incorporated by reference.
- --------- * Management contract or compensatory plan or arrangement. 41 42 *10-b-7 Forms of Stock Option Agreement under the Company's 1988 Long-Term Incentives Plan for options granted after December 1, 1994, filed as Exhibit 10-d-7 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, are hereby incorporated by reference. *10-c-1 Copy of the Company's 1995 Long-Term Incentives Plan, filed as Exhibit 10-e-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is hereby incorporated by reference. *10-c-2 Forms of Stock Option Agreement under the Company's 1995 Long-Term Incentives Plan, filed as Exhibit 10-e-2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, are hereby incorporated by reference. *10-c-3 Copy of resolution of the Board of Directors of the Company, adopted September 11, 1996, amending the Company's 1995 Long-Term Incentives Plan, filed as Exhibit 10-c-2 to Registration Statement No. 333-14969, is hereby incorporated by reference. *10-d-1 Copy of the Company's Directors Stock Plan, as amended, filed as Exhibit B to the Company's Proxy Statement for its 1996 Annual Meeting of Shareowners, is hereby incorporated by reference. *10-d-2 Form of Stock Option Agreement under the Company's Directors Stock Plan, filed as Exhibit 10-d to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is hereby incorporated by reference. *10-d-3 Copy of Restricted Stock Agreement dated February 7, 1996 between the Company and William H. Gray, III, filed as Exhibit 10-a to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is hereby incorporated by reference. *10-d-4 Copy of Restricted Stock Agreement dated February 7, 1996 between the Company and J. Clayburn La Force, Jr., filed as Exhibit 10-b to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is hereby incorporated by reference. *10-d-5 Copy of Restricted Stock Agreement dated February 7, 1996 between the Company and William T. McCormick, Jr., filed as Exhibit 10-c to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is hereby incorporated by reference. *10-e-1 Copy of resolution of the Board of Directors of the Company, adopted November 6, 1996, amending the Company's 1988 Long-Term Incentives Plan and 1995 Long-Term Incentives Plan, filed as Exhibit 4-g-1 to Registration Statement No. 333-17055, is hereby incorporated by reference. *10-e-2 Copy of resolution of the Board of Directors of the Company, adopted November 6, 1996, adjusting outstanding awards under the Company's (i) 1979 Stock Plan for Key Employees, (ii) 1988 Long-Term Incentives Plan, (iii) 1995 Long-Term Incentives Plan and (iv) Directors Stock Plan, filed as Exhibit 4-g-2 to Registration Statement No. 333-17055, is hereby incorporated by reference. *10-f-1 Copy of the Company's Incentive Compensation Plan, as amended through December 6, 1995, filed as Exhibit 10-f-1 to Registration Statement No. 333-14969, is hereby incorporated by reference. *10-g-1 Copy of the Company's Deferred Compensation Plan, as amended effective as of October 1, 1992, filed as Exhibit 10-g-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1993, is hereby incorporated by reference.
- --------- * Management contract or compensatory plan or arrangement. 42 43 *10-h-1 Copy of resolution of the Board of Directors of the Company, adopted November 6, 1996, authorizing the assignment of certain compensation and employee benefit plans to New Rockwell International Corporation, including the Company's (i) 1979 Stock Plan for Key Employees, (ii) 1988 Long-Term Incentives Plan, (iii) 1995 Long-Term Incentives Plan, (iv) Directors Stock Plan, (v) Incentive Compensation Plan, (vi) Deferred Compensation Plan and (vii) Annual Incentive Compensation Plan for Senior Executive Officers, filed as Exhibit 4-g-3 to Registration Statement No. 333-17055, is hereby incorporated by reference. *10-h-2 Copy of resolution of the Board of Directors of New Rockwell International Corporation, adopted December 4, 1996, assuming and adopting the Company's (i) 1979 Stock Plan for Key Employees, (ii) 1988 Long-Term Incentives Plan, (iii) 1995 Long-Term Incentives Plan, (iv) Directors Stock Plan, (v) Incentive Compensation Plan, (vi) Deferred Compensation Plan and (vii) Annual Incentive Compensation Plan for Senior Executive Officers. *10-i-1 Copy of resolutions of the Board of Directors of the Company, adopted November 3, 1993, providing for the Company's Deferred Compensation Policy for Non-Employee Directors, filed as Exhibit 10-h-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is hereby incorporated by reference. *10-i-2 Copy of resolutions of the Compensation Committee of the Board of Directors of the Company, adopted July 6, 1994, modifying the Company's Deferred Compensation Policy for Non-Employee Directors, filed as Exhibit 10-h-2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is hereby incorporated by reference. *10-i-3 Copy of resolutions of the Board of Directors of New Rockwell International Corporation, adopted December 4, 1996, providing for its Deferred Compensation Policy for Non-Employee Directors. *10-j-1 Copy of resolutions of the Board of Directors of the Company, adopted November 2, 1994, providing for the Company's Retirement Policy for Non-Employee Directors, filed as Exhibit 10-j-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, is hereby incorporated by reference. *10-j-2 Copy of resolutions of the Board of Directors of the Company, adopted December 6, 1995, rescinding the Company's Retirement Policy for Non-Employee Directors (except to the extent applicable to Directors then age 67 or older and former Directors then retired), filed as Exhibit 10-j-2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, is hereby incorporated by reference. *10-j-3 Copy of resolution of the Board of Directors of New Rockwell International Corporation, adopted December 4, 1996, assuming and adopting the Company's Retirement Policy for Non-Employee Directors (applicable to Directors of the Company who were age 67 or older on December 6, 1995 and former Directors then retired). *10-k-1 Copy of the Company's Annual Incentive Compensation Plan for Senior Executive Officers, filed as Exhibit A to the Company's Proxy Statement for its 1996 Annual Meeting of Shareowners, is hereby incorporated by reference.
- --------- * Management contract or compensatory plan or arrangement. 43 44 *10-l-1 Restricted Stock Agreement dated December 6, 1995 between the Company and Don H. Davis, Jr., filed as Exhibit 10-l-1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, is hereby incorporated by reference. *10-m-1 Copy of letter dated February 1, 1995 from the Company to Judith L. Estrin, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, is hereby incorporated by reference. 11 Computation of Earnings Per Share for the Five Years Ended September 30, 1996. 21 List of Subsidiaries of the Company. 23 Independent Auditors' Consent. 24 Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the Company. 27 Financial Data Schedule for this Annual Report on Form 10-K.
- --------- * Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this Report. 44 45 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. ROCKWELL INTERNATIONAL CORPORATION By /s/ WILLIAM J. CALISE, JR. ------------------------------- WILLIAM J. CALISE, JR. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Dated: December 19, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON THE 19TH DAY OF DECEMBER 1996 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED. DONALD R. BEALL* CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) AND DIRECTOR DON H. DAVIS, JR.* DIRECTOR LEW ALLEN, JR.* DIRECTOR RICHARD M. BRESSLER* DIRECTOR JOHN J. CREEDON* DIRECTOR JUDITH L. ESTRIN* DIRECTOR WILLIAM H. GRAY, III* DIRECTOR JAMES CLAYBURN LA FORCE, JR.* DIRECTOR WILLIAM T. MCCORMICK, JR.* DIRECTOR JOHN D. NICHOLS* DIRECTOR BRUCE M. ROCKWELL* DIRECTOR WILLIAM S. SNEATH* DIRECTOR JOSEPH F. TOOT, JR.* DIRECTOR W. MICHAEL BARNES* SENIOR VICE PRESIDENT, FINANCE & PLANNING AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) LAWRENCE J. KOMATZ* VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
*By /s/ WILLIAM J. CALISE, JR., ---------------------------------------------- WILLIAM J. CALISE, JR., ATTORNEY-IN-FACT** ** BY AUTHORITY OF POWERS OF ATTORNEY FILED HEREWITH. 45 46 SCHEDULE II ROCKWELL INTERNATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF YEAR(A) EXPENSES ACCOUNTS(B) DEDUCTIONS YEAR(A) - ----------- ---------- ---------- ----------- ---------- ---------- (IN MILLIONS) Year ended September 30, 1996: Allowance for doubtful accounts.... $ 78.3 $ 55.9 $ 0.1 $ 13.2(c) $125.1 (4.0)(d) Year ended September 30, 1995: Allowance for doubtful accounts.... $ 46.2 $ 15.5 $ 0.1 $ 5.3(c) $ 78.3 (21.8)(d) Year ended September 30, 1994: Allowance for doubtful accounts.... $ 35.3 $ 13.6 $ 1.1 $ 7.0(c) $ 46.2 (3.2)(d)
- --------------- (a) Includes allowances for commercial and other long-term receivables. (b) Collection of accounts previously written off. (c) Uncollectible accounts written off. (d) Consists principally of amounts relating to businesses acquired, businesses sold and foreign currency translation adjustments. S-1 EX-3.A.1 2 ROCKWELL INTERNATIONAL 10-K 1 EXHIBIT 3-a-1 RESTATED CERTIFICATE OF INCORPORATION OF ROCKWELL INTERNATIONAL CORPORATION (As Amended December 6, 1996) FIRST: The name of the Corporation is ROCKWELL INTERNATIONAL CORPORATION SECOND: The Corporation's registered office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on, are: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 1,125,000,000, of which 25,000,000 shares without par value are to be of a class designated Preferred Stock, 1,000,000,000 shares of the par value of $1 each are to be of a class designated Common Stock, and 100,000,000 shares of the par value of $1 each are to be of a class designated Class A Common Stock, subject, however, to the provisions of paragraph 3.4 below. In this Article Fourth, any reference to a section or paragraph, without further attribution, within a provision relating to a particular class of stock is intended to refer solely to the specified section or paragraph of the other provisions relating to the same class of stock. COMMON STOCK AND CLASS A COMMON STOCK The Common Stock and Class A Common Stock shall have the following voting powers, designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations or restrictions thereof: 2 1. Dividends. 1.1. Whenever the full dividends upon any outstanding Preferred Stock for all past dividend periods shall have been paid and the full dividends thereon for the then current respective dividend periods shall have been paid, or declared and a sum sufficient for the respective payments thereof set apart, the holders of shares of the Common Stock and Class A Common Stock shall be entitled to receive such dividends and distributions, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, provided that all such dividends or distributions shall be paid or made in equal amounts, share for share, to the holders of the Common Stock and Class A Common Stock as if a single class, except that (a) in the event that any dividend shall be declared in shares of Common Stock or Class A Common Stock, such dividend shall be declared at the same rate per share on Common Stock and Class A Common Stock, but the dividend payable on shares of Common Stock shall be payable in shares of Common Stock, and the dividend payable on shares of Class A Common Stock shall be payable in shares of Class A Common Stock; and (b) any dividend described in paragraph 1.2 below may be paid as therein described. If the Corporation shall in any manner split, subdivide or combine the outstanding shares of Common Stock or Class A Common Stock, the outstanding shares of the other such class of stock shall be split, subdivided or combined in the same manner proportionately and on the same basis per share. Following the distribution of shares of Class A Common Stock to the holders of shares of Class A Common Stock, par value $1 per share, of Rockwell International Corporation, a Delaware corporation ("Oldco Class A Common Stock"), on the record date fixed for determining the holders thereof entitled to receive the distribution (such record date being herein referred to as the "Distribution Record Date"), the Corporation shall not issue any shares of Class A Common Stock except (x) pursuant to this paragraph 1.1; (y) upon exercise of employee stock options (whether or not outstanding or exercisable on the Distribution Record Date); and (z) in connection with any contribution made by the Corporation to any employee benefit or stock ownership plan of the Corporation. 1.2. In the event the Corporation shall distribute to the holders of the shares of Common Stock and Class A Common Stock the common stock or substantially equivalent equity securities of any subsidiary of the Corporation, the Board of Directors shall have power, but shall not be obligated, to capitalize or recapitalize such subsidiary with classes of common equity having the powers, designations, preferences, and relative, participating, optional, or other special rights and qualifications, limitations, and restrictions thereof, corresponding, respectively, insofar as practicable, to those of the Common Stock and the Class A Common Stock, 2 3 and the Board of Directors of the Corporation shall have the power, but shall not be obligated, to distribute to the holders of shares of the Common Stock, the shares of the subsidiary with rights corresponding to those of the Common Stock, and to distribute to the holders of shares of the Class A Common Stock, the shares of the subsidiary with rights corresponding to those of the Class A Common Stock; provided, that holders of shares of Common Stock and holders of shares of Class A Common Stock shall respectively receive the same number of shares of such subsidiary per share of Common Stock and per share of Class A Common Stock held. 2. Rights on Liquidation. In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, after the payment or setting apart for payment to the holders of any outstanding Preferred Stock of the full preferential amounts to which such holders are entitled as herein provided or referred to, all of the remaining assets of the Corporation shall belong to and be distributable in equal amounts per share to the holders of the Common Stock and the holders of Class A Common Stock, as if such classes constituted a single class. For purposes of this paragraph 2, a consolidation or merger of the Corporation with any other corporation, or the sale, transfer or lease of all or substantially all its assets shall not constitute or be deemed a liquidation, dissolution or winding-up of the Corporation. 3. Conversion of Class A Common Stock. 3.1. The holders of Class A Common Stock shall have the right, at their option, to convert any or all such shares into shares of Common Stock of the Corporation on the following terms and conditions: (i) Each share of Class A Common Stock shall be convertible, at any time, at the office of any transfer agent for shares of Common Stock of the Corporation, and at such other place or places, if any, as the Board of Directors may determine, into one fully paid and nonassessable share of Common Stock of the Corporation upon surrender at such office or other place of the certificate or certificates representing the shares of Class A Common Stock so to be converted. In no event, upon conversion of any shares of Class A Common Stock into shares of Common Stock, shall any allowance or adjustment be made in respect of dividends on the Class A Common Stock or the Common Stock. (ii) Shares of Class A Common Stock shall be deemed to have been converted and the person converting the same shall become a holder of shares of Common Stock for the purpose of receiving dividends and for all other 3 4 purposes whatsoever as of the date when the certificate or certificates for the shares of Class A Common Stock to be converted are surrendered to the Corporation as provided in paragraph 3.1(v). (iii) A number of shares of Common Stock sufficient to provide, upon the basis hereinbefore set forth, for the conversion of all shares of the Class A Common Stock outstanding shall at all times be reserved by the Corporation for the exercise of the conversion rights of the holders of shares of the Class A Common Stock. (iv) If the Corporation shall, at any time, be consolidated or merged with, or shall sell its property as an entirety or substantially as an entirety to, any other corporation or corporations, or in the event of any recapitalization or reclassification of its shares, proper provisions shall be made as a part of the terms of each such consolidation, merger, sale, recapitalization or reclassification so that the holder of any shares of the Class A Common Stock outstanding immediately prior to such consolidation, merger, sale, recapitalization or reclassification shall thereafter be entitled to and only entitled to conversion rights upon the terms and with respect to such securities of the consolidated, merged or purchasing corporation, or with respect to such securities issued upon such recapitalization or reclassification, as such holder would have been entitled to receive upon such consolidation, merger, sale, recapitalization or reclassification if such holder had exercised the conversion privilege immediately prior thereto. The provisions of this paragraph 3.1(iv) shall similarly apply to successive consolidations, mergers, sales, recapitalizations or reclassifications. (v) Before any holder of Class A Common Stock shall be entitled to convert the same into Common Stock, he shall surrender his certificate or certificates for such Class A Common Stock to the Corporation at the office of a transfer agent for the Common Stock, or at such other place or places, if any, as the Board of Directors may determine, duly endorsed or accompanied if appropriate by duly executed instruments of transfer and shall give written notice to the Corporation at said office or place that he elects so to convert the shares of Class A Common Stock represented by the certificate or certificates so surrendered. Unless the Common Stock is to be issued in the name of the registered owner of the certificates surrendered, the holder shall state in writing the name or names in which he wishes the certificate or certificates for Common Stock to be issued, and shall furnish all requisite stock transfer 4 5 and stock issuance tax stamps, or funds therefor. The Corporation shall as soon as practicable after such deposit of certificates for Class A Common Stock, accompanied by the written notice above prescribed, issue and deliver, at the office or place at which such certificates were deposited, to the person for whose account Class A Common Stock was so surrendered, or to his nominee or nominees, certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid. 3.2. All outstanding shares of Class A Common Stock shall automatically, without any act or deed on the part of the Corporation or any other person, be converted into shares of Common Stock on a share-for-share basis (i) at any time after the Distribution when the total number of shares of Class A Common Stock outstanding and reserved for issuance upon exercise of employee stock options is less than 10,000,000; (ii) on February 23, 1997, the tenth anniversary of the record date for the initial issuance of Oldco Class A Common Stock unless prior thereto the Board of Directors shall have extended the date for such conversion on one or more occasions but in no event to a date later than February 23, 2002; (iii) if at any time the Board of Directors, in its sole discretion, determines that there has been a material adverse change in the liquidity, marketability, or market value of the outstanding Common Stock due to a delisting of the Common Stock from a national securities exchange or a national over-the-counter listing or due to requirements under applicable state securities laws in any such case attributable to the existence of the Class A Common Stock; or (iv) if the Board of Directors, in its sole discretion, elects to effect a conversion in connection with its approval of any sale or lease of all or substantially all of the Corporation's assets or any merger, consolidation, liquidation or dissolution of the Corporation. In the event of any such automatic conversion, each stock certificate theretofore representing Class A Common Stock will thereafter represent the same number of shares of Common Stock. 3.3. The provisions of this paragraph 3 shall be in addition to the provisions of paragraphs 5.1(i)(A)(3), 5.1(ii) and 5.1(iv), which require automatic conversion of Class A Common Stock in the circumstances provided therein. 3.4. Shares of the Class A Common Stock converted into Common Stock as provided in paragraph 3.1 or paragraph 5 shall resume the status of authorized but unissued shares of Class A Common Stock. Upon any automatic conversion of Class A Common Stock into Common Stock pursuant to paragraph 3.2, the Class A Common Stock shall no longer be authorized for issuance. 5 6 4. Voting. 4.1. Except as otherwise provided by the laws of the State of Delaware or by this Article Fourth, each share of Common Stock shall entitle the holder thereof to one vote. 4.2. Except as otherwise provided by the laws of the State of Delaware or by this Article Fourth, each share of Class A Common Stock shall entitle the holder thereof to ten votes. Except as otherwise provided herein or required by law, holders of Common Stock and Class A Common Stock shall at all times vote on all matters (including the election of directors) together as one class and together with the holders of any other series or class of stock of the Corporation accorded such class voting right. 4.3. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock and of Class A Common Stock, each voting separately as a class, shall be required to: (i) authorize additional shares of Class A Common Stock; (ii) modify or eliminate the last sentence of paragraph 1.1, above; or (iii) adopt any other amendment hereof that alters or changes the designations or powers or the preferences, qualifications, limitations, restrictions or the relative or special rights of either the Common Stock or the Class A Common Stock so as to affect holders of shares of such class adversely. 5. Limitations on Transfer and Issuance of Class A Common Stock. 5.1. (i) No person holding any share of Class A Common Stock may transfer, and the Corporation shall not register the transfer of such share of Class A Common Stock or any interest therein, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a "Permitted Transferee" of such person. The term "Permitted Transferee" shall mean only, (A) In the case of a holder of Class A Common Stock (a "Holder") who is a natural person and the holder of record and beneficial owner of shares subject to a proposed transfer, "Permitted Transferee" means: (1) The Holder, the spouse of such Holder, any lineal descendant of a grandparent of such Holder, or any spouse of such lineal descendant (herein collectively referred to as "such Holder's Family Members"); (2) The trustee of a trust solely for 6 7 the benefit of such Holder or such Holder's Family Members, provided that such trust may also grant a general or special power of appointment to one or more of such Holder's Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Holder's Family Members payable by reason of the death of any of such Family Members; (3) A corporation if all of the outstanding capital stock of such corporation is beneficially owned by, or a partnership if all of the partners are and all of the partnership interests are beneficially owned by, the Holder and his Permitted Transferees determined under this paragraph 5.1(i)(A), provided that if by reason of any change in the ownership of such stock or partners or partnership interests, such corporation or partnership would no longer qualify as a Permitted Transferee of such Holder or his Permitted Transferees, all shares of Class A Common Stock then held by such corporation or partnership shall immediately and automatically, without further act or deed on the part of the Corporation or any other person, be converted into shares of Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class A Common Stock shall thereupon and thereafter be deemed to represent the like number of shares of Common Stock; (4) An organization established by the Holder or such Holder's Family Members, contributions to which are deductible for federal income, estate or gift tax purposes; or (5) The executor, administrator or personal representative of the estate of such Holder or the guardian or conservator of such Holder adjudged disabled by a court of competent jurisdiction, acting in his capacity as such. (B) In the case of a Holder holding the shares subject to a proposed transfer as trustee pursuant to a trust (other than a trust described in paragraph 5.1(i)(C) below), "Permitted Transferee" means (1) the person who established such trust and (2) any Permitted Transferee of such person determined pursuant to paragraph 5.1(i)(A) above. (C) In the case of a Holder holding shares subject to a proposed transfer as trustee pursuant to a trust which was irrevocable on the Distribution Record Date, "Permitted Transferee" means (1) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment 7 8 or otherwise (excluding beneficiaries of any employee benefit plan) and (2) any Permitted Transferee of any such person determined pursuant to paragraph 5.1(i)(A) above. (D) In the case of a Holder which is a partnership or corporation, with respect to shares of Class A Common Stock beneficial ownership of which was acquired pursuant to the Distribution or thereafter pursuant to a dividend paid in shares of Class A Common Stock or a split, subdivision or combination of shares of Class A Common Stock, "Permitted Transferee" means (1) any partner of such partnership, or shareowner of such corporation, receiving such shares pro rata to his interest in such partnership or stock ownership in such corporation on the Distribution Record Date pursuant to a liquidating distribution or a dividend or (2) any Permitted Transferee of any partner or shareowner to the extent that he is a Permitted Transferee pursuant to the foregoing clause (1) determined under paragraph 5.1(i)(A) above. (E) In the case of a Holder which is a corporation or partnership, with respect to shares of Class A Common Stock other than as described in paragraph 5.1(i)(D), "Permitted Transferee" means (1) any person who transferred to such corporation or partnership the shares that are the subject of the proposed transfer and (2) any Permitted Transferee of any such person determined under paragraph 5.1(i)(A) above. (F) In the case of a Holder which is an employee benefit or stock ownership plan for the benefit of employees of the Corporation or any of its subsidiaries, "Permitted Transferee" shall include any beneficiary of such plan to whom shares of stock of the Corporation may be distributed, but only as to shares so distributable. (G) In the case of a Holder who is the executor, administrator or personal representative of the estate of a deceased Holder, guardian or conservator of the estate of a disabled Holder or who is a trustee of the estate of a bankrupt or insolvent Holder, and provided such deceased, disabled, bankrupt or insolvent Holder, as the case may be, was the record and beneficial owner of the shares subject to a proposed transfer, "Permitted Transferee" means a Permitted Transferee of such deceased, disabled, bankrupt or insolvent Holder as 8 9 determined pursuant to paragraph 5.1(i)(A), (D) or (E) above, as the case may be. (ii) Notwithstanding anything to the contrary set forth herein, any holder of Class A Common Stock may pledge his shares of Class A Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares may not be transferred to or registered in the name of the pledgee unless such pledgee is a Permitted Transferee. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class A Common Stock shall automatically, without any act or deed on the part of the Corporation or any other person, be converted into shares of Common Stock on a share-for-share basis, unless within five business days after such foreclosure or similar event such pledged shares are returned to the pledgor or transferred to a Permitted Transferee of the pledgor. (iii) For purposes of this paragraph 5.1: (A) The relationship of any person that is derived by or through legal adoption shall be considered a natural one. (B) Each joint owner of shares of Class A Common Stock shall be considered a Holder of such shares. (C) A minor for whom shares of Class A Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Holder of such shares. (D) Unless otherwise specified, the term "person" means both natural persons and legal entities. (iv) Any purported transfer of Class A Common Stock other than to a Permitted Transferee shall automatically, without any further act or deed on the part of the Corporation or any other person, result in the conversion of such shares into shares of Common Stock on a share-for-share basis, effective on the date of such purported transfer. The Corporation may, as a condition to transfer or registration of transfer of shares of Class A Common Stock to a purported Permitted Transferee, require that the record holder establish to the satisfaction of the Corporation, by filing with the transfer agent an appropriate affidavit or certificate or such other proof as the Corporation shall deem necessary, that such transferee is a Permitted Transferee. 9 10 5.2. Anything in this Article Fourth to the contrary notwithstanding, no share of Class A Common Stock may be held of record but not beneficially by a broker or dealer in securities, a bank or voting trustee or a nominee of any such, or otherwise held of record but not beneficially by a nominee of the beneficial owner of such share other than by an employee benefit or stock ownership plan of the Corporation (any such form of holding being referred to herein as holding in "street" or nominee name) and the Corporation shall issue a share of Common Stock for each share of Class A Common Stock that would otherwise be issuable to such nominee in any instance in which the Corporation reasonably believes that the proposed record holder intends to hold any such share in "street" or nominee name for the beneficial owner thereof; provided, however, that if any person establishes to the satisfaction of the Corporation in accordance with this paragraph 5.2 that he is the beneficial owner of any such share of Class A Common Stock, the Corporation shall issue such share in the name of such beneficial owner. Any such beneficial owner who desires to have shares of Class A Common Stock issued in his name under the circumstances described in this paragraph 5.2 shall file an affidavit or certificate with the Secretary of the Corporation setting forth the name and address of such beneficial owner and certifying that he is the beneficial owner of shares of Oldco Class A Common Stock held in "street" or nominee name in respect of which the shares of Class A Common Stock are to be issued. Any such affidavit or certificate shall be deemed filed only if it is satisfactory in form to the Corporation and received within 30 days after the Distribution Record Date. If such affidavit or certificate shall not establish to the satisfaction of the Corporation the facts stated therein, then the Corporation shall issue to such beneficial owner Common Stock as provided in this paragraph 5.2. 5.3. The Corporation shall note on the certificates representing the shares of Class A Common Stock that there are restrictions on transfer and registration of transfer imposed by paragraphs 5.1 and 5.2. 5.4. (i) For purposes of this paragraph 5, "beneficial ownership" shall mean possession of the power to vote or to direct the vote and to dispose of or to direct the disposition of the share of Class A Common Stock in question, and a "beneficial owner" of a share of Class A Common Stock shall be the person having beneficial ownership thereof. (ii) The Board of Directors may, from time to time, establish practices and procedures and promulgate rules and regulations, in addition to those set forth in this Article Fourth, and amend or revoke any such, regarding 10 11 the evidence necessary to establish entitlement of any transferee or purported transferee of Class A Common Stock to be registered as such. Should the transferee or purported transferee of any share wish to contest any decision of the Corporation on the question whether the transferee or purported transferee has established entitlement to be registered as a transferee of Class A Common Stock, then the Board of Directors shall in its sole discretion make the final determination. 6. Other Matters. In case the Corporation shall at any time issue to the holders of its shares of Common Stock as such options or rights to subscribe for shares of Common Stock (including shares held in the Corporation's treasury) or any other security (whether of the Corporation or otherwise), the Corporation shall issue such options or rights to the holders of the Class A Common Stock in the respective amounts equal to the amounts that such holders would have been entitled to receive had their respective shares of Class A Common Stock been converted into Common Stock on the day prior to the date for the determination of the holders of Common Stock entitled to receive such options or rights. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) the designation of the series, which may be by distinguishing number, letter or title; (b) the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding); (c) whether dividends, if any, shall be cumulative or noncumulative and the dividend rate of the series; 11 12 (d) the dates at which dividends, if any, shall be payable; (e) the redemption rights and price or prices, if any, for shares of the series; (f) the terms and amount of any sinking fund provided for the purchase or redemption of shares of the series; (g) the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; (h) whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates as of which such shares shall be convertible and all other terms and conditions upon which such conversion may be made; (i) restrictions on the issuance of shares of the same series or of any other class or series; and (j) the voting rights, if any, of the holders of shares of the series. Except as may be provided in this Certificate of Incorporation or in a Preferred Stock Designation, the Common Stock and the Class A Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and holders of Preferred Stock shall not be entitled to receive notice of any meeting of shareowners at which they are not entitled to vote. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding Common Stock and Class A Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation. The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law. 12 13 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK 1. Designation and Amount. A series of Preferred Stock, without par value, is hereby created and shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 2,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. 13 14 2. Dividends and Distributions. 2.1. Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock or Class A Common Stock, and of any other junior stock of the Corporation, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the second Monday of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or Class A Common Stock or a subdivision of the outstanding shares of Common Stock or Class A Common Stock (by reclassification or otherwise), declared on the Common Stock or Class A Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 2.2. The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph 2.1 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly 14 15 Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 2.3. Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: 3.1. Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareowners of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 15 16 3.2. Except as otherwise provided herein, in any other Preferred Stock Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and Class A Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareowners of the Corporation. 3.3. Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock and Class A Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. 4.1. Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in paragraph 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (a) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (b) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or 16 17 (d) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. 4.2. The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (a) of paragraph 4.1, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Preferred Stock Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law. 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (ii) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corpora- 17 18 tion shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (i) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special 18 19 rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. FIFTH: The Corporation is to have perpetual existence. SIXTH: The private property of the shareowners of the Corporation shall not be subject to the payment of corporate debts to any extent whatever. SEVENTH: Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. A director need not be a shareowner. The election of directors of the Corporation need not be by ballot unless the by-laws so require. The directors, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation, shall be divided into three classes, as nearly equal in number as possible. One class of directors shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1997, another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1998, and another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1999. Members of each class shall hold office until their successors are elected and shall have qualified. At each annual meeting of the shareowners of the Corporation, commencing with the 1997 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of shareowners held in the third year following the year of their election. Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of shareowners at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors con- 19 20 stituting the whole Board of Directors shall shorten the term of any incumbent director. Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation, to elect additional directors under specific circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of the then outstanding capital stock of the Corporation (the "Capital Stock") entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. No director of the Corporation shall be liable to the Corporation or its shareowners for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its shareowners, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This paragraph shall not eliminate or limit the liability of a director for any act or omission occurring prior to the effective date of its adoption. No repeal or modification of this paragraph, directly or by adoption of an inconsistent provision of this Certificate of Incorporation, by the shareowners of the Corporation shall be effective with respect to any cause of action, suit, claim or other matter that, but for this paragraph, would accrue or arise prior to such repeal or modification. EIGHTH: Unless otherwise determined by the Board of Directors, no holder of stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any stock of any class which the Corporation may issue or sell, whether or not exchangeable for any stock of the Corporation of any class or classes and whether out of unissued shares authorized by the Certificate of Incorporation of the Corporation as originally filed or by any amendment thereof or out of shares of stock of the Corporation acquired by it after the issue thereof. NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its shareowners or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or shareowner thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of 20 21 section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the shareowners or class of shareowners of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the shareowners or class of shareowners of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the shareowners or class of shareowners, of this Corporation, as the case may be, and also on this Corporation. TENTH: 1. Amendment of Certificate of Incorporation. From time to time any of the provisions of the Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the statutes of the State of Delaware at the time in force may be added or inserted in the manner at the time prescribed by said statutes, and all rights at any time conferred upon the shareowners of the Corporation by its Certificate of Incorporation are granted subject to the provisions of this Article Tenth. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal Article Seventh, this Article Tenth or Article Twelfth or adopt any provision inconsistent with any of the foregoing articles. 2. By-laws. The Board of Directors is expressly authorized to make, alter, amend and repeal the by-laws of the Corporation, in any manner not inconsistent with the laws of the State of Delaware or of the Certificate of Incorporation of the Corporation, subject to the power of the holders of the Capital Stock to alter or repeal the by-laws made by the Board of Directors; provided, that any such amendment or repeal by shareowners shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class. ELEVENTH: The shareowner vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this Article Eleventh. 21 22 1. Higher Vote for Business Combinations. In addition to any affirmative vote required by law, this Certificate of Incorporation or the by-laws of the Corporation, and except as otherwise expressly provided in Section 2 of this Article Eleventh, a Business Combination shall not be consummated without the affirmative vote of the holders of at least 80% of the combined voting power of the then outstanding shares of the Voting Stock, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. 2. When Higher Vote Is Not Required. The provisions of Section 1 of this Article Eleventh shall not be applicable to a Business Combination if the conditions specified in either of the following paragraphs A or B are met. A. Approval by Continuing Directors. The Business Combination shall have been approved by at least two-thirds of the Continuing Directors (as hereinafter defined), whether such approval is made prior to or subsequent to the date on which the Interested Shareowner (as hereinafter defined) became an Interested Shareowner (the "Determination Date"). B. Price and Procedure Requirements. Each of the seven conditions specified in the following subparagraphs (i) through (vii) shall have been met: (i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be an amount at least equal to the higher amount determined under clauses (a) and (b) below (the requirements of this paragraph B (i) shall be applicable with respect to all shares of Common Stock outstanding, whether or not the Interested Shareowner has previously acquired any shares of the Common Stock): (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareowner for any shares of Common Stock acquired beneficially by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Shareowner, whichever is higher, plus interest compounded annually from the Determination 22 23 Date through the Consummation Date at the prime rate of interest of Morgan Guaranty Trust Company of New York (or other major bank headquartered in New York City selected by at least two-thirds of the Continuing Directors) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, per share of Common Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; and (b) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher. (ii) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock, other than the Common Stock, in such Business Combination shall be an amount at least equal to the highest amount determined under clauses (a), (b) and (c) below (the requirements of this paragraph B(ii) shall be applicable with respect to all shares of every class or series of outstanding Capital Stock, other than the Common Stock, whether or not the Interested Shareowner has previously acquired any shares of a particular class or series of Capital Stock): (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareowner for any shares of such class or series of Capital Stock acquired beneficially by it (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Shareowner, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Morgan Guaranty Trust Company of New York (or other major bank headquartered in New York City selected by at least two-thirds of the Continuing Directors) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, per share of such class or series of Capital Stock from the Determination 23 24 Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Capital Stock; and (b) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher; and (c) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event. (iii) The consideration to be received by holders of a particular class or series of outstanding Capital Stock (including Common Stock) shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Shareowner in its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Shareowner. (iv) After such Interested Shareowner has become an Interested Shareowner and prior to the consummation of such Business Combination, such Interested Shareowner shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Shareowner becoming an Interested Shareowner and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Shareowner's percentage beneficial ownership of any class or series of Capital Stock; and, except as approved by at least two-thirds of the Continuing Directors: (a) there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (b) there shall have been no 24 25 reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock); and (c) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock. (v) After such Interested Shareowner has become an Interested Shareowner, such Interested Shareowner shall not have received the benefit, directly or indirectly (except proportionately as a shareowner of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all shareowners of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by at least two-thirds of the Continuing Directors, the opinion of an investment banking firm selected for and on behalf of the Corporation by at least two-thirds of the Continuing Directors as to the fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Shareowner and its Affiliates or Associates (as hereinafter defined). (vii) Such Interested Shareowner shall not have made any material change in the Corporation's business or equity capital structure without the 25 26 approval of at least two-thirds of the Continuing Directors. Any Business Combination to which Section 1 of this Article Eleventh shall not apply by reason of this Section 2 shall require only such affirmative vote as is required by law, any other provision of this Certificate of Incorporation, the by-laws of the Corporation or any agreement with any national securities exchange. 3. Certain Definitions. For the purposes of this Article Eleventh: A. A "Business Combination" shall mean: (i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Shareowner or (ii) any other corporation (whether or not itself an Interested Shareowner) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Shareowner; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner involving any assets or securities of the Corporation, any Subsidiary or any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner having an aggregate Fair Market Value of $25,000,000 or more; or (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareowner or any Affiliate or Associate of any Interested Shareowner; or (iv) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareowner) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner; or (v) any agreement, contract, arrangement or other understanding providing for any one or more of the actions specified in clauses (i) through (iv) above. 26 27 B. A "person" shall mean any individual, firm, corporation or other entity and shall include any group composed of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. C. "Interested Shareowner" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (i) is the beneficial owner of Voting Stock having 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (ii) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock having 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareowner, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. D. A person shall be a "beneficial owner" of any Capital Stock: (i) which such person or any Affiliate or Associate of such person beneficially owns, directly or indirectly; or (ii) which such person or any Affiliate or Associate of such person has, directly or indirectly, (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or 27 28 (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. E. For the purposes of determining whether a person is an Interested Shareowner pursuant to paragraph C of this Section 3, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed owned by the Interested Shareowner through application of paragraph D of this Section 3 but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. F. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on October 28, 1996 (the term "registrant" in such Rule 12b-2 meaning in this case the Corporation). G. "Subsidiary" means any corporation of which a majority of any class of equity security is beneficially owned by the Corporation; provided, however, that for the purposes of the definition of Interested Shareowner set forth in paragraph C of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is beneficially owned by the Corporation. H. "Continuing Director" means any member of the Board of Directors of the Corporation (the "Board") who is not an Affiliate or Associate or representative of the Interested Shareowner and was a member of the Board prior to the time that the Interested Shareowner became an Interested Shareowner, and any successor of a Continuing Director who is not an Affiliate or Associate or representative of the Interested Shareowner and is recommended or elected to succeed a Continuing Director by at least two-thirds of Continuing Directors then members of the Board. I. "Fair Market Value" means: (i) in the case of cash, the amount of such cash; (ii) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid 28 29 quotation with respect to a share of such stock during the 30-day period immediately preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by at least two-thirds of the Continuing Directors; and (iii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by at least two-thirds of the Continuing Directors. J. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs B(i) and (ii) of Section 2 of this Article Eleventh shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares. 4. Powers of Continuing Directors. Any determination as to compliance with this Article Eleventh, including without limitation (A) whether a person is an Interested Shareowner, (B) the number of shares of Capital Stock or other securities beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether the requirements of paragraph B of Section 2 have been met with respect to any Business Combination, and (E) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $25,000,000 or more shall be made only upon action by not less than two-thirds of the Continuing Directors of the Corporation; and the good faith determination of at least two-thirds of the Continuing Directors on such matters shall be conclusive and binding for all the purposes of this Article Eleventh. 5. No Effect on Fiduciary Obligations. Nothing contained in this Article Eleventh shall be construed to relieve the Board of Directors or any Interested Shareowner from any fiduciary obligation imposed by law. 6. Amendment, Repeal, etc. Notwithstanding any other provisions of this Certificate of Incorporation or the by-laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the by-laws of the Corporation), the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions 29 30 inconsistent with, this Article Eleventh; provided, however, that the preceding provisions of this Section 6 shall not apply to any amendment to this Article Eleventh, and such amendment shall require only such affirmative vote as is required by law and any other provisions of this Certificate of Incorporation or the by-laws of the Corporation, if such amendment shall have been approved by at least two-thirds of the members of the Board who are persons who would be eligible to serve as Continuing Directors. TWELFTH: Any action required or permitted to be taken by the shareowners shall be taken only at an annual or special meeting of such shareowners and not by consent in writing. Special meetings of the shareowners for any purpose or purposes shall be called only by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. 30 EX-3.B.1 3 ROCKWELL 10-K 1 EXHIBIT 3-b-1 BY-LAWS OF ROCKWELL INTERNATIONAL CORPORATION (AS AMENDED EFFECTIVE DECEMBER 6, 1996) ARTICLE I. OFFICES SECTION 1. REGISTERED OFFICE IN DELAWARE; RESIDENT AGENT. The address of the Corporation's registered office in the State of Delaware and the name and address of its resident agent in charge thereof are as filed with the Secretary of State of the State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have an office or offices at such other place or places either within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation requires. ARTICLE II. MEETINGS OF SHAREOWNERS SECTION 1. PLACE OF MEETINGS. All meetings of the shareowners of the Corporation shall be held at such place, within or without the State of Delaware, as may from time to time be designated by resolution passed by the Board of Directors. SECTION 2. ANNUAL MEETING. An annual meeting of the shareowners for the election of directors and for the transaction of such other proper business, notice of which was given in the notice of meeting, shall be held on a date and at a time as may from time to time be designated by resolution passed by the Board of Directors. SECTION 3. SPECIAL MEETINGS. A special meeting of the shareowners for any purpose or purposes shall be called only by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law, written notice of each meeting of the shareowners, whether annual or special, shall be mailed, postage prepaid, not less than ten nor more than sixty days before the date of the meeting, to each shareowner entitled to vote at such meeting, at the shareowner's address as it appears on the records 2 of the Corporation. Every such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice of any adjourned meeting of the shareowners shall not be required to be given, except when expressly required by law. SECTION 5. LIST OF SHAREOWNERS. The Secretary shall, from information obtained from the transfer agent, prepare and make, at least ten days before every meeting of shareowners, a complete list of the shareowners entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareowner and the number of shares registered in the name of each shareowner. Such list shall be open to the examination of any shareowner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareowner who is present. The stock ledger shall be the only evidence as to who are the shareowners entitled to examine the stock ledger, the list referred to in this section or the books of the Corporation, or to vote in person or by proxy at any meeting of shareowners. SECTION 6. QUORUM. At each meeting of the shareowners, the holders of a majority of the issued and outstanding stock of the Corporation present either in person or by proxy shall constitute a quorum for the transaction of business except where otherwise provided by law or by the Certificate of Incorporation or by these by-laws for a specified action. Except as otherwise provided by law, in the absence of a quorum, a majority in interest of the shareowners of the Corporation present in person or by proxy and entitled to vote shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until shareowners holding the requisite amount of stock shall be present or represented. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at a meeting as originally called, and only those shareowners entitled to vote at the meeting as originally called shall be entitled to vote at any adjournment or adjournments thereof. The absence from any meeting of the number of shareowners required by law or by the Certificate of Incorporation or by these by-laws for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if the number of shareowners required in respect of such other matter or matters shall be present. SECTION 7. ORGANIZATION. At every meeting of the shareowners the Chairman of the Board, or, in his absence, the 2 3 President, or in the absence of the Chairman and the President, a director or an officer of the Corporation designated by the Board shall act as Chairman. The Secretary, or, in his absence, an Assistant Secretary, shall act as Secretary at all meetings of the shareowners. In the absence from any such meeting of the Secretary and the Assistant Secretaries, the Chairman may appoint any person to act as Secretary of the meeting. SECTION 8. NOTICE OF SHAREOWNER BUSINESS AND NOMINATIONS. (A) Annual Meetings of Shareowners. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an annual meeting of shareowners (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any shareowner of the Corporation who was a shareowner of record at the time of giving of notice provided for in this by-law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law. (2) For nominations or other business to be properly brought before an annual meeting by a shareowner pursuant to clause (c) of paragraph (A)(1) of this by-law, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareowner action. To be timely, a shareowner's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareowner to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareowner's notice as described above. Such shareowner's notice shall set forth (a) as to each person whom the shareowner proposes to nominate for election or reelection as a 3 4 director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareowner proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareowner and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareowner giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareowner, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareowner and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this by-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a shareowner's notice required by this by-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Shareowners. Only such business shall be conducted at a special meeting of shareowners as 4 5 shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareowners at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this by-law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law. In the event the Corporation calls a special meeting of shareowners for the purpose of electing one or more directors to the Board of Directors, any such shareowner may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareowner's notice required by paragraph (A)(2) of this by-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareowner's notice as described above. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this by-law shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareowners as shall have been brought before the meeting in accordance with the procedures set forth in this by-law. Except as otherwise provided by law, the Certificate of Incorporation or these by-laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this by-law and, if any proposed nomination or business is not in compliance with this by-law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this by-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this by-law, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this by-law. 5 6 Nothing in this by-law shall be deemed to affect any rights (i) of shareowners to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 9. BUSINESS AND ORDER OF BUSINESS. At each meeting of the shareowners such business may be transacted as may properly be brought before such meeting, except as otherwise provided by law or in these by-laws. The order of business at all meetings of the shareowners shall be as determined by the Chairman, unless otherwise determined by a majority in interest of the shareowners present in person or by proxy at such meeting and entitled to vote thereat. SECTION 10. VOTING. Except as otherwise provided by law, the Certificate of Incorporation or these by-laws, each shareowner shall at every meeting of the shareowners be entitled to one vote for each share of stock held by such shareowner. Any vote on stock may be given by the shareowner entitled thereto in person or by proxy appointed by an instrument in writing, subscribed (or transmitted by electronic means and authenticated as provided by law) by such shareowner or by the shareowner's attorney thereunto authorized, and delivered to the Secretary; provided, however, that no proxy shall be voted after three years from its date unless the proxy provides for a longer period. Except as otherwise provided by law, the Certificate of Incorporation or these by-laws, at all meetings of the shareowners, all matters shall be decided by the vote (which need not be by ballot) of a majority in interest of the shareowners present in person or by proxy and entitled to vote thereat, a quorum being present. ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The property, affairs and business of the Corporation shall be managed by or under the direction of its Board of Directors. SECTION 2. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. A director need not be a shareowner. The directors, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation, 6 7 shall be divided into three classes, as nearly equal in number as possible. One class of directors shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1997, another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1998, and another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 1999. Members of each class shall hold office until their successors are elected and shall have qualified. At each annual meeting of the shareowners of the Corporation, commencing with the 1997 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of shareowners held in the third year following the year of their election. SECTION 3. ELECTION OF DIRECTORS. At each meeting of the shareowners for the election of directors, at which a quorum is present, the directors shall be the persons receiving the greatest number of votes cast by the holders of stock entitled to vote for such directors. SECTION 4. QUORUM AND MANNER OF ACTING. A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business at any meeting, and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise provided by law, the Certificate of Incorporation or these by-laws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum shall be obtained. Notice of any adjourned meeting need not be given. The directors shall act only as a board and the individual directors shall have no power as such. SECTION 5. PLACE OF MEETINGS. The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 6. FIRST MEETING. Promptly after each annual election of directors, the Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, at the same place as that at which the annual meeting of shareowners was held or as otherwise determined by the Board. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such places and at such times 7 8 as the Board shall from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. SECTION 8. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board and shall be called by the Chairman of the Board or the Secretary at the written request of three directors. Notice of each such meeting stating the time and place of the meeting shall be given to each director by mail, telephone, other electronic transmission or personally. If by mail, such notice shall be given not less than five days before the meeting; and if by telephone, other electronic transmission or personally, not less than two days before the meeting. A notice mailed at least two weeks before the meeting need not state the purpose thereof except as otherwise provided in these by-laws. In all other cases the notice shall state the principal purpose or purposes of the meeting. Notice of any meeting of the Board need not be given to a director, however, if waived by the director in writing before or after such meeting or if the director shall be present at the meeting. SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the Chairman of the Board, or, in his absence, the President, or, in the absence of the Chairman and the President, a director or an officer of the Corporation designated by the Board shall act as Chairman. The Secretary, or, in the Secretary's absence, any person appointed by the Chairman, shall act as Secretary of the meeting. SECTION 10. ORDER OF BUSINESS. At all meetings of the Board of Directors, business shall be transacted in the order determined by the Board. SECTION 11. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 12. COMPENSATION. Each director shall be paid such compensation, if any, as shall be fixed by the Board of Directors. SECTION 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (A) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, 8 9 pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (B) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. 9 10 (C) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (A) and (B), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection therewith. If any such person is not wholly successful in any such action, suit or proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters therein, the Corporation shall indemnify such person against all expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection with each claim, issue or matter that is successfully resolved. For purposes of this subsection and without limitation, the termination of any claim, issue or matter by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. (D) Notwithstanding any other provision of this section, to the extent any person is a witness in, but not a party to, any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise, such person shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection therewith. (E) Indemnification under subsections (A) and (B) (unless ordered by a court) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (A) and (B). Such determination shall be made (1) if a Change of Control (as hereinafter defined) shall not have occurred, (a) by the Board of Directors by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum or (b) if there are no Disinterested Directors or, even if there are Disinterested Directors, a majority of such Disinterested Directors so directs, by (i) Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (ii) the shareowners of the Corporation; or (2) if a Change of Control shall have occurred, by Independent Counsel selected by the claimant in a 10 11 written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, unless the claimant shall request that such determination be made by or at the direction of the Board of Directors, in which case it shall be made in accordance with clause (1) of this sentence. Any claimant shall be entitled to be indemnified against the expenses (including attorneys' fees) actually and reasonably incurred by such claimant in cooperating with the person or entity making the determination of entitlement to indemnification (irrespective of the determination as to the claimant's entitlement to indemnification) and, to the extent successful, in connection with any litigation or arbitration with respect to such claim or the enforcement thereof. (F) If a Change of Control shall not have occurred, or if a Change of Control shall have occurred and a director, officer, employee or agent requests pursuant to clause (2) of the second sentence in subsection (E) that the determination whether the claimant is entitled to indemnification be made by or at the direction of the Board of Directors, the claimant shall be conclusively presumed to have been determined pursuant to subsection (E) to be entitled to indemnification if (1)(a) within fifteen days after the next regularly scheduled meeting of the Board of Directors following receipt by the Corporation of the request therefor, the Board of Directors shall not have resolved by majority vote of the Disinterested Directors to submit such determination to (i) Independent Counsel for its determination or (ii) the shareowners for their determination at the next annual meeting, or any special meeting that may be held earlier, after such receipt, and (b) within sixty days after receipt by the Corporation of the request therefor (or within ninety days after such receipt if the Board of Directors in good faith determines that additional time is required by it for the determination and, prior to expiration of such sixty-day period, notifies the claimant thereof), the Board of Directors shall not have made the determination by a majority vote of the Disinterested Directors, or (2) after a resolution of the Board of Directors, timely made pursuant to clause (1)(a)(ii) above, to submit the determination to the shareowners, the shareowners meeting at which the determination is to be made shall not have been held on or before the date prescribed (or on or before a later date, not to exceed sixty days beyond the original date, to which such meeting may have been postponed or adjourned on good cause by the Board of Directors acting in good faith); provided, however, that this sentence shall not apply if the claimant has misstated or failed to state a material fact in connection with his or her request for indemnification. Such presumed determination that a claimant is entitled to indemnification shall be deemed to have been made (I) at the end of the sixty-day or ninety-day period (as the case may be) referred to in clause (1)(b) of the immediately preceding sentence or (II) if the Board of Directors has resolved on a timely basis to submit the determination to the shareowners, on the last date within the period prescribed by law for holding such 11 12 shareowners meeting (or a postponement or adjournment thereof as permitted above). (G) Expenses (including attorneys' fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding to a director or officer, promptly after receipt of a request therefor stating in reasonable detail the expenses incurred, and to an employee or agent as authorized by the Board of Directors; provided that in each case the Corporation shall have received an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this section. (H) The Board of Directors shall establish reasonable procedures for the submission of claims for indemnification pursuant to this section, determination of the entitlement of any person thereto and review of any such determination. Such procedures shall be set forth in an appendix to these by-laws and shall be deemed for all purposes to be a part hereof. (I) For purposes of this section, (1) "Change of Control" means a change of control of the Corporation at any time after the distribution of the shares of capital stock of the Corporation to the holders of capital stock of Rockwell International Corporation of a nature that would be required to be reported in a proxy statement pursuant to Section 14(a) of the Exchange Act or in a Form 8-K pursuant to Section 13 of the Exchange Act (or in any similar form or schedule under either of those provisions or any successor provision), whether or not the Corporation is then subject to such reporting requirement; provided, however, that, without limitation, a Change of Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors immediately thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the 12 13 Corporation's shareowners was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (2) "Disinterested Director" means a director of the Corporation who is not and was not a party to an action, suit or proceeding in respect of which indemnification is sought by a director, officer, employee or agent. (3) "Independent Counsel" means a law firm, or a member of a law firm, that (i) is experienced in matters of corporation law; (ii) neither presently is, nor in the past five years has been, retained to represent the Corporation, the director, officer, employee or agent claiming indemnification or any other party to the action, suit, or proceeding giving rise to a claim for indemnification under this section, in any matter material to the Corporation, the claimant or any such other party; and (iii) would not, under applicable standards of professional conduct then prevailing, have a conflict of interest in representing either the Corporation or such director, officer, employee or agent in an action to determine the Corporation's or such person's rights under this section. (J) The Indemnification and advancement of expenses herein provided, or granted pursuant hereto, shall not be deemed exclusive of any other rights to which any of those indemnified or eligible for advancement of expenses may be entitled under any agreement, vote of shareowners or Disinterested Directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Notwithstanding any amendment, alteration or repeal of this section or any of its provisions, or of any of the procedures established by the Board of Directors pursuant to subsection (H) hereof, any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of any partnership, joint venture, employee benefit plan or other enterprise shall be entitled to indemnification in accordance with the provisions hereof and thereof with respect to any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law. (K) No indemnification shall be payable pursuant to this section with respect to any action against the Corporation commenced by an officer, director, employee or agent unless the Board of Directors shall have authorized the commencement thereof or unless and to the extent that this section or the procedures established pursuant to subsection (H) shall specifically provide 13 14 for indemnification of expenses relating to the enforcement of rights under this section and such procedures. ARTICLE IV. COMMITTEES SECTION 1. APPOINTMENT AND POWERS. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more directors of the Corporation, which, to the extent provided in said resolution or in these by-laws and not inconsistent with Section 141 of the Delaware General Corporation Law, as amended, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. SECTION 2. TERM OF OFFICE AND VACANCIES. Each member of a committee shall continue in office until a director to succeed him or her shall have been elected and shall have qualified, or until he or she ceases to be a director or until he or she shall have resigned or shall have been removed in the manner hereinafter provided. Any vacancy in a committee shall be filled by the vote of a majority of the whole Board of Directors at any regular or special meeting thereof. SECTION 3. ALTERNATES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. SECTION 4. ORGANIZATION. Unless otherwise provided by the Board of Directors, each committee shall appoint a chairman. Each committee shall keep a record of its acts and proceedings and report the same from time to time to the Board of Directors. SECTION 5. RESIGNATIONS. Any regular or alternate member of a committee may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time of the receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. REMOVAL. Any regular or alternate member of a committee may be removed with or without cause at any time by 14 15 resolution passed by a majority of the whole Board of Directors at any regular or special meeting. SECTION 7. MEETINGS. Regular meetings of each committee, of which no notice shall be necessary, shall be held on such days and at such places as the chairman of the committee shall determine or as shall be fixed by a resolution passed by a majority of all the members of such committee. Special meetings of each committee will be called by the Secretary at the request of any two members of such committee, or in such other manner as may be determined by the committee. Notice of each special meeting of a committee shall be mailed to each member thereof at least two days before the meeting or shall be given personally or by telephone or other electronic transmission at least one day before the meeting. Every such notice shall state the time and place, but need not state the purposes of the meeting. No notice of any meeting of a committee shall be required to be given to any alternate. SECTION 8. QUORUM AND MANNER OF ACTING. Unless otherwise provided by resolution of the Board of Directors, a majority of a committee (including alternates when acting in lieu of regular members of such committee) shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of such committee. The members of each committee shall act only as a committee and the individual members shall have no power as such. SECTION 9. COMPENSATION. Each regular or alternate member of a committee shall be paid such compensation, if any, as shall be fixed by the Board of Directors. ARTICLE V. OFFICERS SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of the Board of Directors and a President, each of whom shall be chosen from the members of the Board of Directors, one or more Vice Presidents (one or more of whom may be Executive Vice Presidents, Senior Vice Presidents or otherwise as may be designated by the Board), a Secretary and a Treasurer, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. The Board of Directors may also from time to time elect such other officers as it deems necessary. SECTION 2. TERM OF OFFICE. Each officer shall hold office until his or her successor shall have been duly elected and qualified in his or her stead, or until 15 16 his or her death or until he or she shall have resigned or shall have been removed in the manner hereinafter provided. SECTION 3. ADDITIONAL OFFICERS; AGENTS. The Chairman of the Board or the President may from time to time appoint and remove such additional officers and agents as may be deemed necessary. Such persons shall hold office for such period, have such authority, and perform such duties as in these by-laws provided or as the Chairman of the Board or the President may from time to time prescribe. The Board of Directors or the Chairman of the Board or the President may from time to time authorize any officer to appoint and remove agents and employees and to prescribe their powers and duties. SECTION 4. SALARIES. Unless otherwise provided by resolution passed by a majority of the whole Board, the salaries of all officers elected by the Board of Directors shall be fixed by the Board of Directors. SECTION 5. REMOVAL. Except where otherwise expressly provided in a contract authorized by the Board of Directors, any officer may be removed, either with or without cause, by the vote of a majority of the Board at any regular or special meeting or, except in the case of an officer elected by the Board, by any superior officer upon whom the power of removal may be conferred by the Board or by these by-laws. SECTION 6. RESIGNATIONS. Any officer elected by the Board of Directors may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. Any other officer may resign at any time by giving written notice to the Chairman of the Board or the President. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 7. VACANCIES. A vacancy in any office because of death, resignation, removal, or otherwise, shall be filled for the unexpired portion of the term in the manner provided in these by-laws for regular election or appointment to such office. SECTION 8. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general and overall charge of the business and affairs of the Corporation and of its officers. He shall keep the Board of Directors appropriately informed on the business and affairs of the Corporation. He shall preside at all meetings of the shareowners and of the Board of Directors and shall enforce the observance of the rules of order for the 16 17 meetings of the Board and the shareowners and the by-laws of the Corporation. SECTION 9. PRESIDENT. The President shall be the chief operating officer of the Corporation and, subject to the control of the Chairman of the Board, shall direct and be responsible for the operation of the business and affairs of the Corporation. The President shall keep the Chairman of the Board and the Board of Directors appropriately informed on the business and affairs of the Corporation. In the case of the absence or disability of the Chairman of the Board, the President shall perform all the duties and functions and exercise all the powers of, and be subject to all the restrictions upon, the Chairman of the Board. SECTION 10. EXECUTIVE VICE PRESIDENTS. One or more Executive Vice Presidents shall, subject to the control of the Chairman of the Board and the President, have lead accountability for components or functions of the Corporation as and to the extent designated by the Chairman of the Board and the President. Each Executive Vice President shall keep the Chairman of the Board and President appropriately informed on the business and affairs of the designated components or functions of the Corporation. SECTION 11. VICE PRESIDENTS. The Vice Presidents shall perform such duties as may from time to time be assigned to them or any of them by the Chairman of the Board or the President. SECTION 12. SECRETARY. The Secretary shall keep or cause to be kept in books provided for the purpose the minutes of the meetings of the shareowners, of the Board of Directors and of any committee constituted pursuant to Article IV of these by-laws. The Secretary shall be custodian of the corporate seal and see that it is affixed to all documents as required and attest the same. The Secretary shall perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her. SECTION 13. ASSISTANT SECRETARIES. At the request of the Secretary, or in his or her absence or disability, the Assistant Secretary designated by him or her shall perform all the duties of the Secretary and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them. SECTION 14. TREASURER. The Treasurer shall have charge of and be responsible for the receipt, disbursement and safekeeping of all funds and securities of the Corporation. The Treasurer shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of these 17 18 by-laws. From time to time and whenever requested to do so, the Treasurer shall render statements of the condition of the finances of the Corporation to the Board of Directors. The Treasurer shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her. SECTION 15. ASSISTANT TREASURERS. At the request of the Treasurer, or in his or her absence or disability, the Assistant Treasurer designated by him or her shall perform all the duties of the Treasurer and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them. SECTION 16. CERTAIN AGREEMENTS. The Board of Directors shall have power to authorize or direct the proper officers of the Corporation, on behalf of the Corporation, to enter into valid and binding agreements in respect of employment, incentive or deferred compensation, stock options, and similar or related matters, notwithstanding the fact that a person with whom the Corporation so contracts may be a member of its Board of Directors. Any such agreement may validly and lawfully bind the Corporation for a term of more than one year, in accordance with its terms, notwithstanding the fact that one of the elements of any such agreement may involve the employment by the Corporation of an officer, as such, for such term. ARTICLE VI. AUTHORIZATIONS SECTION 1. CONTRACTS. The Board of Directors, except as in these by-laws otherwise provided, may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loan shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name, unless authorized by the Board of Directors. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined in accordance with authorization of the Board of Directors. 18 19 SECTION 4. DEPOSITS. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may from time to time designate, or as may be designated by any officer or officers of the Corporation to whom such power may be delegated by the Board, and for the purpose of such deposit the officers and employees who have been authorized to do so in accordance with the determinations of the Board may endorse, assign and deliver checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation. SECTION 5. PROXIES. Except as otherwise provided in these by-laws or in the Certificate of Incorporation, and unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board, the President or any other officer may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation to cast the votes which the Corporation may be entitled to cast as a shareowner or otherwise in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporations, or to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such vote or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. ARTICLE VII. SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES OF STOCK. Certificates for shares of the stock of the Corporation shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issue, by class and series, and shall be signed by the Chairman of the Board, the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation. If such certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. 19 20 SECTION 2. RECORD OWNERSHIP. A record of the name and address of the holder of each certificate, the number of shares represented thereby and the date of issuance thereof shall be made on the Corporation's books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by law. SECTION 3. TRANSFER OF STOCK. Shares of stock shall be transferable on the books of the Corporation by the person named in the certificate for such stock in person or by such person's attorney or other duly constituted representative upon surrender of such certificate with an assignment endorsed thereon or attached thereto duly executed and with such guarantee of signature as the Corporation may reasonably require. SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 5. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where the shares of the stock of the Corporation shall be directly transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the stock of the Corporation, in respect of which a registrar and transfer agent shall have been designated, shall be valid unless countersigned by such transfer agent and registered by such registrar. The Board of Directors may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 6. FIXING RECORD DATE. For the purpose of determining the shareowners entitled to notice of or to vote at any meeting of shareowners or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the 20 21 purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed (1) the record date for determining shareowners entitled to notice of or to vote at a meeting of shareowners shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining shareowners for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of shareowners of record entitled to notice of or to vote at a meeting of shareowners shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 7. EXAMINATION OF BOOKS BY SHAREOWNERS. The Board of Directors shall, subject to the laws of the State of Delaware, have power to determine from time to time, whether and to what extent and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the shareowners; and no shareowner shall have any right to inspect any book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the shareowners of the Corporation. ARTICLE VIII. NOTICE SECTION 1. MANNER OF GIVING WRITTEN NOTICE. Any notice in writing required by law or by these by-laws to be given to any person may be delivered personally, may be transmitted by electronic means or may be given by depositing the same in the post office or letter box in a postpaid envelope addressed to such person at such address as appears on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed, and notice by other means shall be deemed given when actually delivered (and in the case of notice transmitted by electronic means, when authenticated if and as required by law). SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given to any person, a waiver thereof by such person in writing or transmitted by electronic means (and authenticated if and as required by law), whether before or after the time stated therein, shall be deemed equivalent thereto. 21 22 ARTICLE IX. SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal" and "Delaware". ARTICLE X. FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of October in each year. 22 23 APPENDIX PROCEDURES FOR SUBMISSION AND DETERMINATION OF CLAIMS FOR INDEMNIFICATION PURSUANT TO ARTICLE III, SECTION 13 OF THE BY-LAWS. SECTION 1. PURPOSE. The Procedures for Submission and Determination of Claims for Indemnification Pursuant to Article III, Section 13 of the by-laws (the "Procedures") are to implement the provisions of Article III, Section 13 of the by-laws of the Corporation (the "by-laws") in compliance with the requirement of subsection (H) thereof. SECTION 2. DEFINITIONS. For purposes of these Procedures: (A) All terms that are defined in Article III, Section 13 of the by-laws shall have the meanings ascribed to them therein when used in these Procedures unless otherwise defined herein. (B) "Expenses" include all reasonable attorneys' fees, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in, a Proceeding; and shall also include such retainers as counsel may reasonably require in advance of undertaking the representation of an indemnitee in a Proceeding. (C) "Indemnitee" includes any person who was or is, or is threatened to be made, a witness in or a party to any Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under Article III, Section 13 of the by-laws) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise. (D) "Proceeding" includes any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee unless the Board of Directors shall have authorized the commencement thereof. 24 SECTION 3. SUBMISSION AND DETERMINATION OF CLAIMS. (A) To obtain indemnification or advancement of Expenses under Article III, Section 13 of the by-laws, an Indemnitee shall submit to the Secretary of the Corporation a written request therefor, including therein or therewith such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to permit a determination as to whether and what extent the Indemnitee is entitled to indemnification or advancement of Expenses, as the case may be. The Secretary shall, promptly upon receipt of a request for indemnification, advise the Board of Directors thereof in writing if a determination in accordance with Article III, Section 13(E) of the by-laws is required. (B) Upon written request by an Indemnitee for indemnification pursuant to Section 3(A) hereof, a determination with respect to the Indemnitee's entitlement thereto in the specific case, if required by the by-laws, shall be made in accordance with Article III, Section 13(E) of the by-laws, and, if it is so determined that the Indemnitee is entitled to indemnification, payment to the Indemnitee shall be made within ten days after such determination. The Indemnitee shall cooperate with the person, persons or entity making such determination, with respect to the Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. (C) If entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the by-laws, the Independent Counsel shall be selected as provided in this Section 3(C). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Corporation shall give written notice to the Indemnitee advising the Indemnitee of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors, in which event the immediately preceding sentence shall apply), and the Indemnitee shall give written notice to the Corporation advising it of the identity of the Independent Counsel so selected. In either event, the Indemnitee or the Corporation, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the Corporation or to the Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Article III, Section 13 of the by-laws, and 2 25 the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty days after the next regularly scheduled Board of Directors meeting following submission by the Indemnitee of a written request for indemnification pursuant to Section 3(A) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel under Article III, Section 13(E) of the by-laws. The Corporation shall pay any and all reasonable fees and expenses (including without limitation any advance retainers reasonably required by counsel) of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Article III, Section 13(E) of the by-laws, and the Corporation shall pay all reasonable fees and expenses (including without limitation any advance retainers reasonably required by counsel) incident to the procedures of Article III, Section 13(E) of the by-laws and this Section 3(C), regardless of the manner in which Independent Counsel was selected or appointed. Upon the delivery of its opinion pursuant to Article III, Section 13 of the by-laws or, if earlier, the due commencement of any judicial proceeding or arbitration pursuant to Section 4(A)(3) of these Procedures, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). (D) If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification under the by-laws, the person, persons or entity making such determination shall presume that an Indemnitee is entitled to indemnification under the by-laws if the Indemnitee has submitted a request for indemnification in accordance with Section 3(A) hereof, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. SECTION 4. REVIEW AND ENFORCEMENT OF DETERMINATION. (A) In the event that (1) advancement of Expenses is not timely made pursuant to Article III, Section 13(G) of the by-laws, (2) payment of indemnification is not made pursuant to Article III, Section 13(C) or (D) of the by-laws within ten days after receipt by the Corporation of written request therefor, (3) 3 26 a determination is made pursuant to Article III, Section 13(E) of the by-laws that an Indemnitee is not entitled to indemnification under the by-laws, (4) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the by-laws and such determination shall not have been made and delivered in a written opinion within ninety days after receipt by the Corporation of the written request for indemnification, or (5) payment of indemnification is not made within ten days after a determination has been made pursuant to Article III, Section 13(E) of the by-laws that an Indemnitee is entitled to indemnification or within ten days after such determination is deemed to have been made pursuant to Article III, Section 13(F) of the by-laws, the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of the Indemnitee's entitlement to such indemnification or advancement of Expenses. Alternatively, the Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one year following the date on which the Indemnitee first has the right to commence such proceeding pursuant to this Section 4(A). The Corporation shall not oppose the Indemnitee's right to seek any such adjudication or award in arbitration. (B) In the event that a determination shall have been made pursuant to Article III, Section 13(E) of the by-laws that an Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 4 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, the Corporation shall have the burden of proving in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (C) If a determination shall have been made or deemed to have been made pursuant to Article III, Section 13(E) or (F) of the by-laws that an Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 4, absent (1) a misstatement or omission of a material fact in connection with the Indemnitee's request for indemnification, or (2) a prohibition of such indemnification under applicable law. (D) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the procedures and presumptions of these Procedures are not valid, binding and enforceable, and shall 4 27 stipulate in any such judicial proceeding or arbitration that the Corporation is bound by all the provisions of these Procedures. (E) In the event that an Indemnitee, pursuant to this Section 4, seeks to enforce the Indemnitee's rights under, or to recover damages for breach of, Article III, Section 13 of the by-laws or these Procedures in a judicial proceeding or arbitration, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses (of the types described in the definition of Expenses in Section 2 of these Procedures) actually and reasonably incurred in such judicial proceeding or arbitration, but only if the Indemnitee prevails therein. If it shall be determined in such judicial proceeding or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by the Indemnitee in connection with such judicial proceeding or arbitration shall be appropriately prorated. SECTION 5. AMENDMENTS. These Procedures may be amended at any time and from time to time in the same manner as any by-law of the Corporation in accordance with the Certificate of Incorporation; provided, however, that notwithstanding any amendment, alteration or repeal of these Procedures or any provision hereof, any Indemnitee shall be entitled to utilize these Procedures with respect to any claim for indemnification arising out of any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law. 5 EX-10.H.2 4 ROCKWELL INTERNATIONAL 10-K 1 EXHIBIT 10-h-2 NEW ROCKWELL INTERNATIONAL CORPORATION RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 4, 1996 o APPROVAL OF ASSUMPTION AND ADOPTION OF COMPENSATION AND BENEFIT PLANS --------------------------------------------------------------------- RESOLVED, that, this Corporation's proposed succession to, and assumption of, sponsorship, effective as of the Time of Contribution (as defined in the Merger Agreement), of those compensation and benefit plans listed below which were sponsored by Rockwell immediately prior to the Time of Contribution, together with any and all sub-plans, agreements, undertakings or other liabilities thereunder, including but not limited to any liabilities in respect of outstanding stock options, stock appreciation rights or restricted stock, in connection with the Contribution (as defined in the Merger Agreement), be, and they hereby are, authorized and approved: Rockwell International Corporation Supplemental Savings Plan for Highly Compensated Employees Rockwell Retirement Savings Plan Excess Benefit Savings Plan 1979 Stock Plan for Key Employees 1988 Long-Term Incentives Plan 1995 Long-Term Incentives Plan Directors Stock Plan Incentive Compensation Plan Deferred Compensation Plan Annual Incentive Compensation Plan for Senior Executive Officers Deferred Compensation Policy for Non-Employee Directors of Rockwell International Corporation EX-10.I.3 5 ROCKWELL INTERNATIONAL 10-K 1 EXHIBIT 10-i-3 NEW ROCKWELL INTERNATIONAL CORPORATION RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 4, 1996 RESOLVED, that any Director of this Corporation may elect to defer all or any part of the retainer fees paid in cash which such Director will be entitled to receive from this Corporation for board, committee or other service beginning January 1 of the following year by delivering to the Secretary of this Corporation a written notice, specifying the percentage of such future fees paid in cash to be deferred and the time when, or period during which, such deferred fees shall be paid to him or her or, in the event of his or her death, to his or her estate or beneficiary; that any such election shall continue in effect for successive periods of one calendar year each so long as the Director continues as a member of this Board of Directors unless and until such Director shall elect to terminate such deferral with respect to future fees by delivering a written notice to that effect to the Secretary of this Corporation, with such termination to be effective as to fees paid on or after the January 1 next following the date of receipt by the Secretary of this Corporation of such Director's written notice of termination of deferral; that there shall be credited to the total amount deferred by each Director at the end of each calendar quarter an additional amount equal to the amount then deferred and owing multiplied by one-fourth of the annual rate for quarterly compounding that is 120% of the "applicable Federal long-term rate" determined by the Secretary of the Treasury pursuant to Section 1274(d) of the Internal Revenue Code, as amended, or any successor provision, for the last month in such calendar quarter, such additional amount to be paid at the same time and in the same proportion as the payments of the fees so deferred; that this Board of Directors may terminate any such deferral at any time and may change the period of payment of any deferred amounts or cause any deferred amounts to be paid in a lump sum regardless of a Director's instructions with respect thereto; that no deferred fees or additional amounts credited thereon may be assigned or otherwise transferred; and that deferral pursuant to this resolution shall be available in addition to or as an alternative to the election available pursuant to Section 9 of this Corporation's Directors Stock Plan; provided, however, that the total of the portions of a Director's retainer fees paid in cash deferred under that Section and under this resolution shall in no event exceed the total amount of such fees to which such Director may be entitled for any calendar year. EX-10.J.3 6 ROCKWELL INTERNATIONAL 10-K 1 EXHIBIT 10-j-3 NEW ROCKWELL INTERNATIONAL CORPORATION RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 4, 1996 RESOLVED, that the proposed assumption and adoption by this Corporation of the Directors Retirement Policy (the "Policy") of Rockwell, as set forth in the first one of the resolutions heretofore adopted by Rockwell's Board of Directors on November 2, 1994 entitled "Directors Retirement Policy", as modified by the sixth one of the resolutions heretofore adopted by Rockwell's Board of Directors on December 6, 1995 entitled "Amendment of Directors Stock Plan", together with any and all agreements, undertakings or other liabilities pursuant thereto, in connection with and effective upon consummation of the Contribution, be and it hereby is approved; and that the Policy shall be continued for the benefit of each Director of this Corporation immediately after the consummation of the Contribution who immediately prior to the consummation of the Contribution and on December 6, 1995 was a Director of Rockwell and who was at least age 67 on December 6, 1995; provided, that, for purposes of the Policy as so continued, a Director's number of years of Board service shall include his or her service for Rockwell, its predecessors and this Corporation. EX-11 7 ROCKWELL 10-K 1 EXHIBIT 11 ROCKWELL INTERNATIONAL CORPORATION COMPUTATION OF EARNINGS PER SHARE FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1996
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRIMARY EARNINGS PER SHARE: Income from continuing operations before change in accounting....................................... $555.0 $493.0 $351.0 $302.0 $243.0 Deduct dividend requirements on preferred stock.... 0.2 0.2 0.3 0.3 0.3 ------ ------ ------ ------ ------ Total primary earnings from continuing operations before change in accounting... $554.8 $492.8 $350.7 $301.7 $242.7 ====== ====== ====== ====== ====== Average number of common shares outstanding during the year......................................... 217.6 217.2 220.5 219.8 223.6 ====== ====== ====== ====== ====== Primary earnings per share from continuing operations before change in accounting........... $ 2.55 $ 2.27 $ 1.59 $ 1.37 $ 1.09 Primary earnings per share from discontinued operations before change in accounting........... 0.79 1.15 1.28 1.18 1.07 Cumulative effect of change in accounting for retirement medical benefits...................... -- -- -- -- (6.78)* ------ ------ ------ ------ ------ Net primary earnings (loss) per share.............. $ 3.34 $ 3.42 $ 2.87 $ 2.55 $(4.62) ====== ====== ====== ====== ====== FULLY DILUTED EARNINGS PER SHARE: Income from continuing operations before change in accounting....................................... $555.0 $493.0 $351.0 $302.0 $243.0 ====== ====== ====== ====== ====== Average number of common shares outstanding during the year: Common stock..................................... 217.6 217.2 220.5 219.8 223.6 Assumed issuance of stock under award plans and conversion of preferred stock and convertible debentures.................................... 3.5 3.9 4.0 4.5 2.5 ------ ------ ------ ------ ------ Total shares, assuming full dilution........ 221.1 221.1 224.5 224.3 226.1 ====== ====== ====== ====== ====== Fully diluted earnings per share from continuing operations before change in accounting........... $ 2.51 $ 2.23 $ 1.56 $ 1.35 $ 1.08 Fully diluted earnings per share from discontinued operations before change in accounting........... 0.77 1.13 1.26 1.16 1.06 Cumulative effect of change in accounting for retirement medical benefits...................... -- -- -- -- (6.70)* ------ ------ ------ ------ ------ Net fully diluted earnings (loss) per share........ $ 3.28 $ 3.36 $ 2.82 $ 2.51 $(4.56) ====== ====== ====== ====== ======
- --------------- * The per share amounts pertaining to the cumulative effect of change in accounting in 1992 were computed using average outstanding shares for the second quarter, which approximate full year 1992 average outstanding shares. EX-21 8 ROCKWELL 10-K 1 EXHIBIT 21 ROCKWELL INTERNATIONAL CORPORATION LIST OF SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 19, 1996
PERCENTAGE OF VOTING SECURITIES OWNED BY ------------------------- NAME AND JURISDICTION REGISTRANT SUBSIDIARY --------------------- ---------- ---------- Allen-Bradley Company, Inc. (Wisconsin)................................ 100% Reliance Electric Company (Delaware)................................. 100% Rockwell Collins, Inc. (Delaware)...................................... 100% Rockwell Heavy Vehicle Systems, Inc. (Delaware)........................ 100% Rockwell Light Vehicle Systems, Inc. (Delaware)........................ 100% Rockwell Semiconductor Systems, Inc. (Delaware)........................ 100% Rockwell International Finance Corporation (Delaware)................ 100%
Listed above are certain consolidated subsidiaries included in the consolidated financial statements of the Company. Unlisted subsidiaries, considered in the aggregate, do not constitute a significant subsidiary. EX-23 9 ROCKWELL 10-K 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-17031, 333-17055 and 333-17405 on Form S-8 of New Rockwell International Corporation of our report dated November 6, 1996 (December 6, 1996 as to the sale of the Aerospace and Defense business to The Boeing Company described in Note 1), appearing in the Annual Report on Form 10-K of Rockwell International Corporation for the year ended September 30, 1996, and to the reference to us under the heading "Experts" in the Prospectuses, which are part of the Registration Statements. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania December 19, 1996 EX-24 10 ROCKWELL 10-K 1 EXHIBIT 24 POWER OF ATTORNEY I, the undersigned Director and/or Officer of New Rockwell International Corporation (to be renamed Rockwell International Corporation), a Delaware corporation (the Company), hereby constitute WILLIAM J. CALISE, JR., EDWARD T. MOEN, II and PETER R. KOLYER, and each of them singly, my true and lawful attorneys with full power to them and each of them to sign for me, and in my name and in the capacity or capacities indicated below, (1) the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 and any amendments thereto; (2) Registration Statements and any and all amendments (including post-effective amendments) and supplements thereto for the purpose of registering under the Securities Act of 1933, as amended, debt securities of the Company in an aggregate principal amount of up to $1,000,000,000; and (3) a Registration Statement and any and all amendments (including post-effective amendments) and supplements thereto for the purpose of registering under the Securities Act of 1933, as amended, securities to be sold pursuant to the Allen-Bradley Company Savings and Investment Plan for Represented Hourly Employees; and (4) any and all amendments (including supplements and post-effective amendments) to (a) the Registration Statement on Form S-8 registering securities to be sold under the Company's 1995 Long-Term Incentives Plan, 1988 Long-Term Incentives Plan and 1979 Stock Plan for Key Employees (Registration No. 333-17055); and (b) the Registration Statement on Form S-8 registering securities to be sold pursuant to the Company's Savings Plan, as amended, the Company's Retirement Savings Plan for Certain Employees, as amended, the Allen-Bradley Company Savings and Investment Plan for Salaried Employees, as amended, the Allen-Bradley Company Savings and Investment Plan for Hourly Employees, as amended, and the Reliance Electric Company Savings and Investment Plan, as amended (Registration No. 333-17031).
SIGNATURE TITLE DATE --------- ----- ---- /S/ DONALD R. BEALL Chairman of the Board and December 4, 1996 - ----------------------------------- Chief Executive Officer (Donald R. Beall) (principal executive officer) and Director /S/ DON H. DAVIS, JR. Director December 4, 1996 - ----------------------------------- (Don H. Davis, Jr.) /S/ LEW ALLEN, JR. Director December 4, 1996 - ----------------------------------- (Lew Allen, Jr.) /S/ RICHARD M. BRESSLER Director December 4, 1996 - ----------------------------------- (Richard M. Bressler) /S/ JOHN J. CREEDON Director December 4, 1996 - ----------------------------------- (John J. Creedon) /S/ JUDITH L. ESTRIN Director December 4, 1996 - ----------------------------------- (Judith L. Estrin) /S/ WILLIAM H. GRAY, III Director December 4, 1996 - ----------------------------------- (William H. Gray, III) /S/ JAMES CLAYBURN LA FORCE, JR. Director December 4, 1996 - ----------------------------------- (James Clayburn La Force, Jr.)
2
SIGNATURE TITLE DATE --------- ----- ---- /S/ WILLIAM T. MCCORMICK, JR. Director December 4, 1996 - ----------------------------------- (William T. McCormick, Jr.) /S/ JOHN D. NICHOLS Director December 4, 1996 - ----------------------------------- (John D. Nichols) /S/ BRUCE M. ROCKWELL Director December 4, 1996 - ----------------------------------- (Bruce M. Rockwell) /S/ WILLIAM S. SNEATH Director December 4, 1996 - ----------------------------------- (William S. Sneath) /S/ JOSEPH F. TOOT, JR. Director December 4, 1996 - ----------------------------------- (Joseph F. Toot, Jr.) /S/ W. M. BARNES Senior Vice President, December 4, 1996 - ----------------------------------- Finance & Planning and (W. M. Barnes) Chief Financial Officer (principal financial officer) /S/ LAWRENCE J. KOMATZ Vice President and Controller December 4, 1996 - ----------------------------------- (principal accounting officer) (Lawrence J. Komatz)
EX-27 11 ROCKWELL FINANCIAL DATA SCHEDULE TO 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1996 CONSOLIDATED BALANCE SHEET, STATEMENT OF CONSOLIDATED INCOME FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND NOTES TO FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1996 SEP-30-1996 715 432 1,661 98 1,780 5,358 2,662 2,594 10,065 4,281 161 0 0 238 4,018 10,065 10,373 10,542 7,877 9,646 0 0 32 896 341 555 171 0 0 726 3.34 3.28
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