Back to GetFilings.com
________________________________________________________________________________
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8974
ALLIEDSIGNAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2640650
- ---------------------------------------- ---------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Columbia Road
P.O. Box 4000
Morristown, New Jersey 07962-2497
- ---------------------------------------- ---------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973)455-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ---------------------------------------- ---------------------------------------------
Common Stock, par value $1 per share* New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Money Multiplier Notes due 1998-2000 New York Stock Exchange
9 7/8% Debentures due June 1, 2002 New York Stock Exchange
9.20% Debentures due February 15, 2003 New York Stock Exchange
Zero Coupon Serial Bonds due 1999-2009 New York Stock Exchange
9 1/2% Debentures due June 1, 2016 New York Stock Exchange
- ------------
* The common stock is also listed for trading on the London stock exchange.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $22.0 billion at January 31, 1998.
There were 566,016,991 shares of Common Stock outstanding at January 31, 1998.
Documents Incorporated by Reference
-----------------------------------
Part I and II: Annual Report to Shareowners for the Year Ended December
31, 1997.
Part III: Proxy Statement for Annual Meeting of Shareowners to be held
April 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
ALLIEDSIGNAL INC.
CROSS REFERENCE SHEET
Page(s) in
Form 10-K Heading(s) in Annual Report to Shareowners for Annual
Item No. Year Ended December 31, 1997 Report
- ---------------------------------- ------------------------------------------------------------ ------------
1. Business Note 25. Segment Financial Data ............................ 38
Note 26. Geographic Areas -- Financial Data................. 39
Management's Discussion and Analysis........................ 19
3. Legal Proceedings Note 21. Commitments and Contingencies...................... 36
5. Market for the Regis- Note 27. Unaudited Quarterly Financial
trant's Common Equity Information................................................. 39
and Related Stock- Selected Financial Data..................................... 18
holder Matters
6. Selected Financial Data Selected Financial Data..................................... 18
7. Management's Discussion and Management's Discussion and Analysis........................ 19
Analysis of Financial
Condition and Results of
Operations
8. Financial Statements and Report of Independent Accountants........................... 40
Supplementary Data Consolidated Statement of Income............................ 26
Consolidated Statement of Retained Earnings................. 26
Consolidated Balance Sheet.................................. 27
Consolidated Statement of Cash Flows........................ 28
Notes to Financial Statements............................... 29
Heading(s) in Proxy Statement for Page(s) in
Annual Meeting of Shareowners Proxy
to be held April 27, 1998 Statement
------------------------------------------------------------ ------------
10. Directors and Executive Election of Directors; Voting Securities.................... *
Officers of the Registrant
11. Executive Compensation Election of Directors -- Compensation of Directors;
Executive Compensation...................................... *
12. Security Ownership of Certain Voting Securities........................................... *
Beneficial Owners and
Management
- ------------
* To be included in a definitive Proxy Statement to be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997.
2
NOTE: AlliedSignal Inc. is sometimes referred to in this Report as the
Registrant and as the Company, and AlliedSignal Inc. and its consolidated
subsidiaries are sometimes referred to as the Company, as the context may
require.
TABLE OF CONTENTS
ITEM PAGE
--------------------------------------------------------------------------------------------------- ----
Part I. 1 Business........................................................................................ 4
2 Properties...................................................................................... 15
3 Legal Proceedings............................................................................... 16
4 Submission of Matters to a Vote of Security Holders............................................. 16
Executive Officers of the Registrant............................................................... 16
Part II. 5 Market for the Registrant's Common Equity and Related Stockholder Matters....................... 17
6 Selected Financial Data......................................................................... 17
7 Management's Discussion and Analysis of Financial Condition and Results of Operations........... 17
7A Quantitative and Qualitative Disclosure About Market Risk...................................... 18
8 Financial Statements and Supplementary Data..................................................... 19
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 19
Part III. 10 Directors and Executive Officers of the Registrant............................................. 19(a)
11 Executive Compensation......................................................................... 19(a)
12 Security Ownership of Certain Beneficial Owners and Management................................. 20(a)
13 Certain Relationships and Related Transactions................................................. 20
Part IV. 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 20
Signatures.................................................................................................... 21
- ------------
(a) These items are omitted since the Registrant will file with the Securities
and Exchange Commission a definitive Proxy Statement pursuant to Regulation
14A involving the election of directors not later than 120 days after
December 31, 1997. Certain other information relating to the Executive
Officers of the Registrant appears at pages 16 and 17 of this Report.
3
PART I.
ITEM 1. BUSINESS
AlliedSignal Inc. (with its consolidated subsidiaries referred to in this
Report as the Company) was organized in the State of Delaware in 1985. The
Company is the successor to Allied Corporation, which was organized in the State
of New York in 1920.
MAJOR BUSINESSES
AlliedSignal Inc. is an advanced technology and manufacturing company
serving customers worldwide with aerospace and automotive products and
engineered materials, including chemicals, fibers, plastics and advanced
materials. The Company's operations are conducted by ten major businesses, which
are grouped under three major product areas, as follows:
MAJOR PRODUCT AREAS MAJOR BUSINESSES
- --------------------- ---------------------------------
Aerospace products Engines
Aerospace Equipment Systems
Electronic & Avionics Systems
Government Services
Automotive products Turbocharging Systems
Automotive Products Group
Truck Brake Systems
Engineered materials Polymers
Specialty Chemicals
Electronic Materials
Following is a description of the Company's major businesses:
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Engines Turbine propulsion TFE731 turbofan Business, regional Pratt & Whitney
engines TPE331 turboprop and military trainer Canada
TFE1042 turbofan aircraft Rolls-Royce/
F124 turbofan Commercial and military Allison Engine
LF507 turbofan helicopters Company
CFE738 turbofan Military vehicles Turbomeca
T53, T55 Commercial and military
LT101 turboshaft marine craft
T800 turboshaft
TF40 turboshaft
AGT1500 turboshaft
Repair, overhaul and
spare parts
------------------------------------------------------------------------------------------------------
Auxiliary power units Airborne auxiliary Commercial and Pratt & Whitney
(APUs) power units military aircraft Canada
Jet fuel starters Ground power Sundstrand
Secondary power
systems
Ground power units
Repair, overhaul and
spare parts
------------------------------------------------------------------------------------------------------
Industrial power ASE 8 turboshaft Ground based Solar
ASE 40/50 utilities, industrial Rolls-Royce/
turboshaft or mechanical Allison Engine
ASE 120 turboshaft drives Company
European Gas
Turbines
- ---------------------------------------------------------------------------------------------------------------------------
4
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Aerospace Environmental control Air conditioning Commercial, regional Hamilton Standard
Equipment systems systems and general Intertechnique
Systems Bleed air control aviation aircraft Liebherr
systems Military aircraft Nord Micro
Cabin pressure systems Spacecraft Parker Hannifin
Environmental and Sundstrand
thermal control for
spacecraft
Smoke detection
systems
Repair, overhaul and
spare parts
------------------------------------------------------------------------------------------------------
Engine systems and Electronic, Commercial, military, Chandler-Evans
accessories hydromechanical and regional and general Hamilton Standard
pneumatic gas turbine aviation aircraft Liebherr
engine controls engines Lockheed Martin
Digital electronic Spacecraft Lucas
engine controls for Military battle tanks
military battle tanks
Fuel flow metering
components
Pressure transducers
Repair, overhaul and
spare parts
------------------------------------------------------------------------------------------------------
Power management and Electric, hydraulic and Commercial, military, Auxilec
generation systems pneumatic power regional and general B.F. Goodrich
generation systems aviation aircraft Hella
Exterior and Ground vehicles Lucas
interior lighting Parker Bertea
systems Smiths
Power distribution and Sundstrand
power management Teleflex
systems
Pumps, starters,
converters, controls,
electrical actuation
for flight surfaces
Repair, overhaul and
spare parts
------------------------------------------------------------------------------------------------------
Aircraft landing systems Wheels and brakes Commercial and Aircraft Braking
Friction products military aircraft Systems
Brake control systems Dunlop
Wheel and brake B.F. Goodrich
overhaul services Messier-Bugatti
- ---------------------------------------------------------------------------------------------------------------------------
Electronic & Avionics systems Flight safety systems: Commercial, business Century
Avionics Systems Enhanced Ground and general aviation Garmin
Proximity Warning aircraft B.F. Goodrich
Systems (EGPWS) Government aviation Honeywell
Traffic Alert and II Marrow
Collision Avoidance Litton
Systems (TCAS) Lockheed Martin
Windshear detection Narco
systems and weather Rockwell/Collins
radar Sextant
Flight data and cockpit Smiths
voice recorders S-tec
Communication and Trimble/Terra
navigation systems: Universal
Flight management
systems
Data management and
aircraft performance
monitoring systems
Air-to-ground
telephones
Global positioning
systems
Automatic flight
control systems
Navigation systems
Identification systems
Integrated systems
Vehicle management
systems
Cockpit display systems
------------------------------------------------------------------------------------------------------
5
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Automatic test systems Computer-controlled U.S. Government and GDE Systems
automatic test systems international logistics Honeywell
Functional testers and centers Litton
ancillaries Military aviation Lockheed Martin
Portable test and Northrop Grumman
diagnostic systems
Advanced battery
analyzer/charger
------------------------------------------------------------------------------------------------------
Guidance systems Inertial sensors/systems Military and Astronautics-
and star sensors/ commercial vehicles Kearfott
systems for guidance, Commercial spacecraft Ball
stabilization, and launch vehicles BEI
navigation and control Energy GEC
Transportation Honeywell
Missiles Litton
Munitions Rockwell/Collins
------------------------------------------------------------------------------------------------------
Tactical command, Combat identification Military aviation Harris
control, communications, systems (Identification Military communications Hughes/
computers and Friend or Foe (IFF)) Civil communications Magnavox
intelligence Commercial information Commercial information Litton
security equipment security Lockheed Martin
Satellite communication Motorola
terminals (SATCOM) Raytheon/
Secured communication E-Systems
equipment (INFOSEC) Rockwell/Collins
Mortar fire control Thomson-CSF/
system (MFCS) Hazeltine
------------------------------------------------------------------------------------------------------
Radar systems Aircraft precision Global and U.S. airspace Hughes
landing agencies Motorola
Ground surveillance Military aviation Raytheon
Target detection devices Military missiles Rockwell
Thomson-CSF
- ---------------------------------------------------------------------------------------------------------------------------
Government Management and technical Maintenance/operation of U.S. and foreign Computer Sciences
Services services space systems and government space and Dyncorp
facilities communications Lockheed Martin
Systems engineering, facilities Raytheon
integration and Commercial space SAIC
training facilities
services
Management of data
processing facilities
------------------------------------------------------------------------------------------------------
Federal manufacturing Non-nuclear components U.S. Department of Federally funded
and technologies for nuclear weapons Energy
- ---------------------------------------------------------------------------------------------------------------------------
Turbocharging Charge-air systems Turbochargers Automotive and heavy Aisin Seiki
Systems Thermal systems Charge-air coolers vehicle original Behr/McCord
Aluminum radiators equipment manufacturers Hitachi
Aluminum cooling (OEMs) Holset
modules Engine manufacturers IHI
Superchargers Aftermarket distributors KKK
Remanufactured components and dealers Mitsubishi/MHI
Modine
Schwitzer
Valeo
------------------------------------------------------------------------------------------------------
Electrical generators Turbogenerators Electrical power Electric Utilities
Capstone
- ---------------------------------------------------------------------------------------------------------------------------
6
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Automotive Products Aftermarket: Oil, air, fuel, Automotive and heavy Abex/Cooper
Group filters and electronic, transmission and vehicle aftermarket AC/Delphi/GM
brake and steering coolant filters channels and original ArmorAll
components, car care PCV valves equipment service Belden/Cooper
products Spark plugs (OES) Bosch
Wire and cable Mass merchandisers Champion/Cooper
Disc pads and brake EIS/Standard Motor
linings Eyquem
Disc and drum brake Ferodo/T&N
components Girling/Lucas
Brake hydraulic Havoline (Texaco)
components Knecht
Brake fluid Labinal
Ball-joints Lockheed/AP
Rack & pinions Mann & Hummel
Power-steering pumps Mintex, Textar/BBA
and components NGK
Antifreeze/coolant Purolator/Mark IV
Driveway ice melter Quinton
Windshield de-icer Hazel/Echlin
washer fluid Raybestos/Echlin
Teves/ITT
Turtle Wax
Wix/Dana
Zerex (Valvoline)
ZF
------------------------------------------------------------------------------------------------------
Friction materials Disc brake pads Automotive and heavy Abex/Cooper
Drum brake linings vehicle OEMs, OES and Akebono
Brake blocks aftermarket channels BBA Group
Aircraft brake linings Railway and commercial/ Delco
Railway linings military aircraft OEMs Echlin
and brake manufacturers Ferodo/T&N
JBI
Nisshinbo
Pagid
Sumitomo
Teves/ITT
------------------------------------------------------------------------------------------------------
Filters and spark plugs Oil, air, transmission, Automotive and heavy AC/Delphi/GM
fuel and cabin vehicle OEMs, OES and Bosch
air filters aftermarket channels Champion/Cooper
Spark plugs Champion
Labs/U.I.S.
Denso
NGK
Purolator/Mark IV
Wix/Dana
- ---------------------------------------------------------------------------------------------------------------------------
Truck Brake Systems Air brake systems Anti-lock braking systems On-highway medium and Bosch
(joint venture) (ABS) heavy truck, Cummins/Holset
Air disc brakes bus and trailer OEMs Echlin/Midland-
Air compressors Off-highway equipment Grau
Air valves OEMs Rockwell WABCO
Air dryers Aftermarket distributors
Actuators and dealers/OES
Truck electronics
Competitive
remanufactured
products
- ---------------------------------------------------------------------------------------------------------------------------
Polymers Carpet fiber Nylon filament and staple Commercial, residential BASF
yarns and specialty carpet Beaulieu
Bulk continuous markets DuPont
filament Monsanto
Novalis
------------------------------------------------------------------------------------------------------
Industrial fiber Industrial nylon and Passenger car and truck Akzo
polyester yarns tires DuPont
Auto and light truck Hoechst/Celanese
seatbelts and airbags Kolon
Broad woven fabrics Rhone-Poulenc
Ropes and mechanical Tong Yang
rubber goods
Luggage
Sports gear
------------------------------------------------------------------------------------------------------
7
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Chemical intermediates Caprolactam Nylon for fibers, BASF
Phenol engineered resins and DSM
Acetone film DuPont
Ammonium sulfate Phenol resins Enichem
Hydroxylamine Fertilizer ingredients Monsanto
Alphamethyl styrene Specialty chemicals Phenol Chemie
Cyclohexanol Vitamins Rhone-Poulenc
Cyclohexanone Carbonization Ube
Adipic acid
------------------------------------------------------------------------------------------------------
Engineering plastics Thermoplastic nylon Food and pharmaceutical BASF
Thermoplastic alloys and packaging Bayer
blends Engine housings DuPont
Post-consumer recycled (e.g., electric hand General Electric
PET resins tools, chain saws) Hoechst/Celanese
Recycled nylon resins Automotive body components Monsanto
Office furniture
Electrical and electronics
------------------------------------------------------------------------------------------------------
Textile nylon Fine denier nylon yarns Hosiery BASF
Lingerie DuPont/ICI
Active wear FCFC
Recreational equipment Fibra
Luggage Nylstar
------------------------------------------------------------------------------------------------------
Spectra performance Extended-chain Cordage for commercial, Akzo
materials polyethylene fishing and recreational DSM
composites use DuPont
Sports equipment
composites
Bullet resistant vests,
helmets and heavy
armor
Cut-resistant industrial
gloves
Sailcloth
------------------------------------------------------------------------------------------------------
Specialty film Cast nylon Food DuPont
Biaxially oriented nylon Pharmaceuticals Kolan
film Packaging and industrial Reynolds
Fluoropolymer film applications Toyobo
- ---------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals Pharmaceutical and Oxime-based fine Agrichemicals DSM
agricultural chemicals chemicals Pharmaceuticals Zeneca
Fluoroaromatics
Bromoaromatics
------------------------------------------------------------------------------------------------------
Polymer additives and Processing aids (wax) Plastics Atochem
catalysts UV absorbers Coatings BASF
Flame retardants Cosmetics Eastman
Catalysts Hoechst
------------------------------------------------------------------------------------------------------
Coatings and sealants Polyethylene waxes Sealants, adhesives, BASF
Curing agents coatings and lubricants Eastman
Technical preservatives Exxon
Hoechst
Mobil
Rohm & Haas
Thor
Zeneca
------------------------------------------------------------------------------------------------------
Electronic chemicals HF/derivatives Semiconductors LaPorte
Solvents Merck
Inorganic acids Olin
High purity solvents
------------------------------------------------------------------------------------------------------
Industrial specialties Lab chemicals Diverse by product type Varies by
Electroplating chemicals product line
Luminescent pigments
Photo dyes
Hydroxylamine sulfate
------------------------------------------------------------------------------------------------------
Hydrofluoric acid (HF) Anhydrous and aqueous Fluorocarbons Ashland
hydrofluoric acid Steel Atochem
Ultra-high purity Oil refining DuPont
hydrofluoric acid Chemical intermediates Hashimoto
Electronics Merck
Norfluor
Quimaco Fluor
------------------------------------------------------------------------------------------------------
8
MAJOR BUSINESSES PRODUCT CLASSES MAJOR PRODUCTS/SERVICES MAJOR MARKETS COMPETITORS
- -------------------- --------------------------- ------------------------- -------------------------- ------------------
Fluorocarbons Genetron'r' refrigerants, Refrigeration Atochem
aerosol and Air conditioning DuPont
insulation foam blowing Polyurethane foam ICI
agents Rigid-board insulation
Genesolv'r' solvents Electronics
Oxyfume sterilant gases Optical
Metalworking
Hospitals
Medical equipment
manufacturers
------------------------------------------------------------------------------------------------------
Fluorine specialties Sulfur hexafluoride (SF6) Resins Air Products
Iodine pentafluoride Catalysts Asahi Glass
(IF5) Atochem
Antimony pentafluoride Ausimont
(SbF5) Kanto Denka Kogyo
Solvay Fluor
------------------------------------------------------------------------------------------------------
Nuclear services UF6 conversion services Nuclear fuel British Nuclear
Electric utilities Fuels
Cameco (Canada)
Cogema (France)
Tennex (Russia)
------------------------------------------------------------------------------------------------------
Carbon materials Binder pitch Aluminum and carbon Koppers
Creosote oils industries Posco Chem
Refined naphthalene Wood products Reilly Industries
Driveway sealer tar and Chemicals Rutgers
roofing pitch Construction
------------------------------------------------------------------------------------------------------
UOP (joint venture): Processes Petroleum, ABB Lummus Global
Catalysts petrochemical, gas Criterion
Molecular sieves processing and IFP (France)
Adsorbents chemical industries Procatalyse
Design of process (France)
plants and equipment Stone & Webster
Customer catalyst Zeochem
manufacturing
- ---------------------------------------------------------------------------------------------------------------------------
Electronic Materials Multilayer circuitry Laminates Military ADI/Isola
materials Prepregs Telecommunications Nanya
Copper foil Automotive Nelco
Computers Polyclad
Consumer electronics
------------------------------------------------------------------------------------------------------
Copper-clad rigid Laminates Military ADI/Isola
laminates for circuitry Telecommunications General Electric
Automotive Nanya
Computers Nelco
Consumer electronics Polyclad
------------------------------------------------------------------------------------------------------
Advanced Materials for computer Semiconductors Tokyo-Ohka
microelectronic chip manufacturing Microelectronics
materials
------------------------------------------------------------------------------------------------------
Amorphous metals Amorphous metal ribbons Electrical distribution Allegheny-Ludlum
and components transformers Steel
High frequency electronics Armco Steel
Metal joining Kawasaki Steel
Theft deterrent Nippon Steel
- ---------------------------------------------------------------------------------------------------------------------------
The Aerospace-related businesses have organized their marketing, sales,
service, technical support, repair and overhaul and distribution capabilities
into a single, dedicated point of contact for its customers -- the Marketing,
Sales & Service (MS&S) unit.
Additionally, the environmental catalysts business, a joint-venture with
the General Motors Corporation, is a major worldwide supplier of catalysts used
in catalytic converters for automobiles.
GENERAL
The Aerospace-related businesses serve key commercial and military
components of the aviation, defense and space markets with a broad array of
systems, subsystems, components and services. They design, develop, manufacture,
market and service hundreds of products found on all types of aircraft, from
single-piston engine aircraft, business aircraft and wide-bodied 'jumbos' flown
by the world's commercial airlines, to trainers, transports, bombers, fighters
and helicopters used by the U.S.
9
and other countries for national defense. The Company's global business consists
primarily of original equipment (OE) sales and an extensive aftermarket
business, including spare parts, maintenance and repair, and retrofitting.
Worldwide customers include the U.S. and foreign governments, all of the major
airframe and engine manufacturers, including Boeing, Lockheed Martin, Airbus
Industrie, Aero International (Regional), Raytheon, Israeli Aircraft Industries,
Northrop Grumman, British Aerospace, Cessna, Fairchild/Dornier, Dassault,
Gulfstream, Bombardier, Rockwell International, Pratt & Whitney, General
Electric and Rolls-Royce, as well as the world's leading airlines and business
aircraft and general aviation aircraft operators, and dealers and distributors
of general aviation products. The Company also provides field engineering
management and technical support services to Boeing, the National Aeronautics
and Space Administration (NASA), the U.S. Department of Defense (DoD), the U.S.
Department of Energy, other federal civilian agencies as well as state and local
governments and other commercial entities.
The Company is affected by U.S. Government budget constraints for defense
and space programs as well as the level of production of commercial, business
and general aviation aircraft which are impacted by business cycles and world
economic conditions. Growth in the Company's commercial business for aerospace
products is expected, over the long term, to help mitigate the reductions in
U.S. defense spending. Moreover, sales of aerospace products are not dependent
on any one key defense program or commercial customer.
In 1997, world defense spending stabilized after declining in prior years.
Meanwhile, substantial improvement was seen in the commercial aircraft market,
with build rates for large airlines at near record levels. This level of
commercial activity is expected to continue in 1998. Regional airlines
experienced strong traffic growth and new regional aircraft orders were also
higher in 1997. The high-end business aviation market experienced significant
growth and the commercial aftermarket spare parts and repair and overhaul
business also showed strong improvement during 1997.
The Automotive businesses design, engineer, manufacture and distribute
systems and components for worldwide vehicle manufacturers and aftermarket
customers. As a result of recent acquisitions and divestitures, however, the
Company's automotive businesses are shifting their focus to the worldwide
aftermarket. The Automotive businesses market and distribute popular
customer-branded products as well as private-label brands through warehouse
distributors, mass merchandisers and parts retailers worldwide.
In 1997 and 1996, excluding the impact of the divested safety restraints
and braking businesses, aftermarket sales, including OES sales, accounted for
62% and 63%, respectively, of the total sales of the Automotive businesses and
worldwide passenger car and truck OE sales accounted for the balance. In 1997
and 1996, Automotive-related operations outside the U.S. accounted for $1,384
and $1,332 million, or 46% and 49%, respectively, of total Automotive related
sales.
The Engineered Materials product area has three business units: Polymers,
Specialty Chemicals and Electronic Materials. The Engineered Materials
businesses manufacture chemicals, fibers, plastics and advanced materials with
applications for numerous industries, including electronics, automotive,
carpeting, refrigeration, construction, computers and utilities.
The Polymers business is comprised of fibers, chemicals and plastic resin.
It operates caprolactam, ammonium sulfate and phenol plants. Polymers' market
positions include nylon fiber for carpets and textiles, polyester fiber for
industrial applications and intermediate chemicals. Polymers also makes
Spectra'r' fiber used in armor and sporting goods.
The Specialty Chemicals business manufactures fluorine, hydrofluoric acid
and polyethylene wax products. Specialty Chemicals serves the refrigeration and
air conditioning, insulating foams, sterilization, hydrofluoric acid,
pharmaceutical, agricultural, semiconductor, electronics, polymers, coatings and
sealants and nuclear markets with key specialty and fine chemicals. Included in
Specialty Chemicals is the Company's UOP joint venture with Union Carbide, a
global leader in process technology for the petroleum industry. The integration
of the German chemical company Riedel-de Haen into Specialty Chemicals in 1996
significantly increased Specialty Chemicals' role as a global supplier of
pharmaceutical intermediates.
10
The Electronic Materials business includes laminate systems, materials used
in the production of printed wiring boards, and advanced microelectronic
materials which serves the semiconductor fabrication industry. Also included in
this unit is the amorphous metals business which makes specialty metals for
transformers.
The Company continuously assesses the relative strength of its portfolio of
businesses as to strategic fit, market position and profit contribution in order
to upgrade its combined portfolio and identify operating units that will most
benefit from increased investment. The Company considers acquisition candidates
that will further its strategic plan and strengthen its existing core
businesses. The Company also identifies operating units that do not fit into its
long-term strategic plan based on their market position, relative profitability
or growth potential. These operating units are considered for potential
divestiture, restructuring or other repositioning action.
U.S. GOVERNMENT CONTRACTS
Aerospace-related sales to the U.S. Government, acting through its various
departments and agencies and through prime contractors, amounted to $1,851
million for 1997 and $1,833 million for 1996, which includes sales to the DoD of
$1,338 million in 1997 and $1,237 million in 1996. Approximately 59% and 55% of
sales to the U.S. Government in 1997 and 1996, respectively, were made under
fixed-price contracts in which the Company agrees to perform a contract for a
fixed price and retains for itself any benefits of cost savings or must bear the
burden of cost overruns.
In addition to normal business risks, companies engaged in supplying
military and other equipment to the U.S. 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 U.S. 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 U.S. Government contracts,
particularly development contracts, and generally result in adjustments of
contract prices.
The Company, as are other government contractors, is subject to government
investigations of business practices and compliance with government procurement
regulations. Although such regulations provide that a contractor may be
suspended or debarred from government contracts under certain circumstances, and
the outcome of pending government investigations cannot be predicted with
certainty, management is not currently aware of any such investigations that it
expects will have a material adverse effect on the Company. In addition, the
Company carries out proactive compliance programs focused on areas of potential
exposure.
BACKLOG
Orders for certain aerospace-related products sold to general and
commercial aviation customers mainly consist of relatively short-term and
frequently renewed commitments. Government procurement agencies generally issue
contracts covering relatively long periods of time. Total backlog for
aerospace-related products and services for both government and commercial
contracts was $5,087 million at December 31, 1997 and $4,514 million at December
31, 1996 of which U.S. and foreign government orders were $1,908 million and
$1,906 million for the respective years. The Company anticipates that
approximately $4,247 million of the total 1997 backlog will be filled during
1998.
Backlog information may not be an accurate indicator of future sales.
Government contracts and, in general, subcontracts thereunder are terminable, in
whole or in part, for default or for convenience by the government or the higher
level contractor if deemed in their best interest. Upon termination for
convenience, the contractor is normally entitled to reimbursement for allowable
costs and to an allowance for profit. However, if the contract is terminated
because of the contractor's default, the
11
contractor may not recover all of its costs and may be liable for any excess
costs incurred by the government in procuring undelivered items from another
source.
In addition to the right of the government to terminate, government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds on a fiscal-year basis even
though contract performance may extend over many years. Consequently, at the
outset of a program, the prime contract is usually partially funded and
additional funds are normally only appropriated to the contract by Congress in
future years. Fixed-price subcontracts are normally fully funded, but are
subject to convenience termination if the prime contract is not funded.
In addition, changes in the general economic environment and the financial
condition of the airline industry may result in commercial customer requests for
rescheduling, reduction or cancellation of firm contractual orders.
SEGMENT FINANCIAL DATA
Note 25 (Segment Financial Data) of Notes to Financial Statements in the
Company's 1997 Annual Report to shareowners is incorporated herein by reference.
DOMESTIC AND FOREIGN FINANCIAL DATA
Note 26 (Geographic Areas -- Financial Data) of Notes to Financial
Statements in the Company's 1997 Annual Report to shareowners is incorporated
herein by reference.
RECENT DEVELOPMENTS
In June 1997, the Company acquired Prestone Products Corporation (Prestone)
for approximately $400 million, including assumed liabilities. Prestone is a
supplier of premium car care products and has annual sales of approximately $300
million. In July 1997, the Company acquired Grimes Aerospace Company (Grimes), a
manufacturer of exterior and interior aircraft lighting systems, for
approximately $475 million, including assumed liabilities. Grimes, which has
annual sales of approximately $230 million, also manufactures aircraft engine
components such as valves and heat exchangers, as well as electronic systems,
including flight warning computers and active matrix liquid crystal displays. In
October 1997, the Company acquired Astor Holdings, Inc. (Astor) for
approximately $370 million, including assumed liabilities. Astor, a producer of
value-added, wax-based processing aids, sealants and adhesives, has annual sales
of approximately $300 million. In November 1997, the Company acquired Holt Lloyd
Group Ltd. for approximately $150 million. Holt Lloyd is a supplier of car care
products primarily in Europe and Asia and has annual sales of approximately $150
million. In January 1998, the Company also acquired the Hardware Group and
PacAero unit of Banner Aerospace, distributors of aircraft hardware, for
approximately $350 million. The acquired operations have annual sales of about
$250 million, principally to commercial air transport and general aviation
customers. The Company also made several smaller acquisitions in 1997.
To speed delivery of aftermarket products, the Company formed strategic
alliances in 1997 to streamline the Company's distribution processes. UPS
Worldwide Logistics distributes the Company's automotive aftermarket products to
customer locations across North America and Caterpillar Logistics Services
directs the global distribution of spare parts used in the repair and overhaul
of the Company's aerospace products.
In October 1997, the Company completed the sale of its automotive safety
restraints business to Breed Technologies for $710 million in cash, subject to
post-closing adjustments. The safety restraints business had 1996 net sales and
income from operations of $940 and $70 million, respectively, from the sale of
seat belts and air bags. In the first quarter of 1998, the Company expects to
complete the sale of its underwater detection systems business to L-3
Communications Corporation for $70 million in cash, subject to post-closing
adjustments. The ocean systems unit had annual revenues of about $70 million.
During 1997, the Company also sold certain non-strategic businesses and other
assets.
In April 1996, the Company sold a major component of its worldwide braking
business to Robert Bosch GmbH, a privately held German company, for $1.5 billion
in cash, subject to certain post-closing
12
adjustments which were finalized in October 1997. Included in the sale were the
worldwide light-vehicle and medium-heavy truck hydraulic braking and ABS
businesses. These businesses had 1995 net sales of $2.0 billion.
In 1997, the Company eliminated its three sector offices, consolidated its
automotive products and avionics groups and repositioned some of its businesses.
The Company has recognized the need to ensure that its computer operations
and operating systems will not be adversely affected by the upcoming calendar
year 2000 and is cognizant of the time sensitive nature of the problem. The
Company has assessed how it may be impacted by Year 2000 and has formulated and
commenced implementation of a comprehensive plan to address known issues as they
relate to its information systems. The plan, as it relates to information
systems, involves a combination of software modification, upgrades and
replacement. The Company estimates that the cost of Year 2000 compliance for its
information systems will not have a material adverse effect on the future
consolidated results of operations of the Company. The Company is not yet able
to estimate the cost for Year 2000 compliance with respect to production
systems, products, customers and suppliers; however, based on a preliminary
review, management does not expect that such costs will have a material adverse
effect on the future consolidated results of operations of the Company.
COMPETITION
The Company encounters substantial competition, in each of its product
areas, with businesses producing the same or similar products or with businesses
producing different products designed for the same uses. Such competition is
expected to continue both in the U.S. and in global markets. Depending on the
particular market involved, the Company's businesses compete on a variety of
factors, such as price, quality, delivery, customer service, performance,
product innovation and product recognition. Other competitive factors for
certain products include breadth of product line, research and development
efforts and technical and managerial capability. While the Company's competitive
position varies among its products, the Company believes it is a significant
factor in each of its major product classes.
Aerospace-related products and services are sold in competition with those
of a large number of other companies, some of which have substantial financial
resources and significant technological capabilities. The Automotive-related
products are sold in competition with other independent suppliers or with the
captive component divisions of the vehicle manufacturers. Engineered
materials-related businesses are aligned around markets, customers and common
technologies. Brand identity, service to customers and quality are important
competitive factors in the market and there is considerable price competition.
INTERNATIONAL OPERATIONS
The Company and affiliated companies are engaged in manufacturing, sales
and/or research and development mainly in the U.S., Europe, Canada, Asia and
Latin America. U.S. exports and foreign manufactured products are significant to
the Company's operations. U.S. exports comprised 17% of total Company sales in
both 1997 and 1996 and foreign manufactured products and services were 22% and
23% of total Company sales in 1997 and 1996, respectively.
The Company's international operations, including U.S. exports, are
potentially subject to a number of unique risks and limitations, including:
fluctuations in currency value; exchange control regulations; wage and price
controls; employment regulations; effects of foreign investment laws; import and
trade restrictions, including embargoes; and governmental instability.
The Aerospace-related international operations consist primarily of
exporting U.S. manufactured products and systems, performance of services that
include operating aircraft repair and overhaul facilities, and licensing
activities. The principal manufacturing facility outside of the U.S. is in
Canada.
Automotive-related foreign operations are located in Australia, Brazil,
Canada, China, France, Germany, India, Ireland, Italy, Japan, Malaysia, Mexico,
South Korea, Spain and the United Kingdom. Distribution and marketing are
conducted in these and numerous other countries as well. Automotive
13
related operations outside the U.S. are conducted through various foreign
companies in which it has interests ranging from minor to complete control.
International operations also include the exporting of U.S. manufactured
products and licensing activities. Internationally, products are marketed under
the Bendix, Fram, Autolite and Garrett trademarks.
Regarding Engineered Materials, Polymer's foreign operations are located in
Germany, France and China; Specialty Chemicals' manufacturing facilities are
located in Germany, Belgium, Canada and the Netherlands and Electronic Materials
maintains facilities in Germany and Southeast Asia, including Taiwan, Singapore
and China.
RAW MATERIALS
The principal raw materials used by the Company's businesses include:
Aerospace businesses -- carbon fiber; electronic, optical and mechanical
component parts and assemblies; electronic and electromechanical devices and
metallic products; Automotive businesses -- castings, forgings, steel and bar
stock, copper, aluminum, platinum and titanium and Engineered Materials
businesses -- cumene, natural gas, sulfur, terephthalic acid, ethylene and
ethylene glycol, fluorspar, HF, carbon tetrachloride, chloroform, nylon resins,
fiberglass, copper foil, platinum, rhodium, polyester chips, lubricating oil
by-products, butylrubber and coal tar pitch. The Company is producing virtually
all of its HF and nylon resin requirements. The principal raw materials used in
the Company's operations are generally readily available. Major requirements for
key raw materials and fuels are typically purchased pursuant to multi-year
contracts. The Company is not dependent on any one supplier for a material
amount of its raw material or fuel requirements, however, the Company is highly
dependent on its suppliers and subcontractors in order to meet commitments to
its customers, and many major components and product equipment items are
procured or subcontracted on a sole-source basis with a number of domestic and
foreign companies. The Company maintains a qualification and performance
surveillance process to control risk associated with such reliance on third
parties. The Company believes that sources of supply for raw materials and
components are generally adequate, however, temporary shortages may occur from
time to time.
PATENTS AND TRADEMARKS
The Company owns approximately 9,060 patents or patent applications and is
licensed under other patents covering certain of its products and processes. It
believes that, in the aggregate, the rights under such patents and licenses are
generally important to its operations, but does not consider that any patent or
patent license agreement or group of them related to a specific process or
product is of material importance in relation to the Company's total business.
The Company also has registered trademarks for a number of its products.
Some of the more significant trademarks include: AiResearch, Anso, Autolite,
Bendix, Bendix/King, Capron, Fram, Garrett, Genetron, King, Prestone and Norplex
Oak.
RESEARCH AND DEVELOPMENT
The Company's research activities are directed toward the discovery and
development of new products and processes, improvements in existing products and
processes, and the development of new uses of existing products.
Research and development expense totaled $349, $345 and $353 million in
1997, 1996 and 1995, respectively. Customer-sponsored (principally the U.S.
Government) research and development activities amounted to an additional $597,
$536 and $536 million in 1997, 1996 and 1995, respectively.
ENVIRONMENT
The Company is subject to various federal, state and local requirements
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment. It is the Company's policy to comply with
these requirements and the Company believes that, as a general matter, its
policies, practices and procedures are properly designed to prevent unreasonable
risk of
14
environmental damage, and of resulting financial liability, in connection with
its business. Some risk of environmental damage is, however, inherent in certain
operations and products of the Company, as it is with other companies engaged in
similar businesses.
The Company is and has been engaged in the handling, manufacture, use or
disposal of many substances which are classified as hazardous or toxic by one or
more regulatory agencies. The Company believes that, as a general matter, its
handling, manufacture, use and disposal of such substances are in accord with
environmental laws and regulations. It is possible, however, that future
knowledge or other developments, such as improved capability to detect
substances in the environment, increasingly strict environmental laws and
standards and enforcement policies thereunder, could bring into question the
Company's handling, manufacture, use or disposal of such substances.
Among other environmental requirements, the Company is subject to the
federal superfund law, and similar state laws, under which the Company has been
designated as a potentially responsible party which may be liable for cleanup
costs associated with various hazardous waste sites, some of which are on the
U.S. Environmental Protection Agency's superfund priority list. Although, under
some court interpretations of these laws, there is a possibility that a
responsible party might have to bear more than its proportional share of the
cleanup costs if it is unable to obtain appropriate contribution from other
responsible parties, the Company has not had to bear significantly more than its
proportional share in multi-party situations taken as a whole.
Capital expenditures for environmental control facilities at existing
operations were $69 million in 1997. The Company estimates that during each of
the years 1998 and 1999 such capital expenditures will be in the $70 to $75
million range. In addition to capital expenditures, the Company has incurred and
will continue to incur operating costs in connection with such facilities.
Reference is made to Management's Discussion and Analysis at page 21 of the
Company's 1997 Annual Report to shareowners, incorporated herein by reference,
for further information regarding environmental matters.
EMPLOYEES
The Company had an aggregate of 70,500 salaried and hourly employees at
December 31, 1997. Approximately 51,900 were located in the United States, and,
of these employees, about 25% were unionized employees represented by various
local or national unions.
ITEM 2. PROPERTIES
The Company has 356 locations consisting of plants, research laboratories,
sales offices and other facilities. The plants are generally located to serve
large marketing areas and to provide accessibility to raw materials and labor
pools. The properties are generally maintained in good operating condition.
Utilization of these plants may vary with government spending and other business
conditions; however, no major operating facility is significantly idle. The
facilities, together with planned expansions, are expected to meet the Company's
needs for the foreseeable future. The Company owns or leases warehouses,
railroad cars, barges, automobiles, trucks, airplanes and materials handling and
data processing equipment. It also leases space for administrative and sales
staffs. The Company's headquarters and administrative complex are located at
Morris Township, New Jersey.
15
The principal plants, which are owned in fee unless otherwise indicated,
are as follows:
AEROSPACE
Anniston AL South Bend, IN Teterboro, NJ
Phoenix, AZ (4 plants, 3 fully leased, 1 partially leased) Lawrence, KS Rocky Mount, NC
Tempe, AZ Olathe, KS Urbana, OH
Tucson, AZ (partially leased) Columbia, MD Rexdale, Ont., Canada (partially leased)
Torrance, CA (partially leased) Towson, MD Raunheim, Germany
Stratford, CT (owned by the U.S. Government and managed by the Company) Singapore
AUTOMOTIVE
Torrance, CA Greenville, OH Glinde, Germany
Huntington, IN Conde, France Skelmersdale, United Kingdom
Fostoria, OH Thaon-Les-Vosges, France
ENGINEERED MATERIALS
Metropolis, IL Philadelphia, PA Hopewell, VA
Baton Rouge, LA Pottsville, PA Longlaville, France
Geismar, LA Columbia, SC Seelze, Germany
Moncure, NC Chesterfield, VA
ITEM 3. LEGAL PROCEEDINGS
The first and second paragraphs of Note 21 (Commitments and Contingencies)
of Notes to Financial Statements at page 36 of the Company's 1997 Annual Report
to shareowners are incorporated herein by reference.
On September 27, 1997 the Company asked the United States District Court
for the Northern District of New York to resolve a dispute over whether the
Company was late in delivering a mercury modeling report to the State of New
York. The report was delivered pursuant to a consent decree between the Company
and the State addressing a remedial investigation of the Onondaga Lake system
where the Company had operations prior to 1987. On December 19, 1997, the Court
ruled that the State had properly established a deadline for the report of April
15, 1997, and that a $191,000 stipulated penalty was payable under the consent
decree because the report had been delivered 58 days after the deadline.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, listed as follows, are elected
annually in April. There are no family relationships among them.
NAME, AGE,
DATE FIRST
ELECTED AN OFFICER BUSINESS EXPERIENCE
- ------------------------------- ----------------------------------------------------------------------------
Lawrence A. Bossidy (a), 62 Chairman of the Board since January 1992. Chief Executive Officer of the
1991 Company since July 1991.
Daniel P. Burnham (a), 51 Vice Chairman since October 1997. Executive Vice President and President,
AlliedSignal Aerospace from January 1992 to September 1997.
1991
Frederic M. Poses (a), 55 Vice Chairman since October 1997. Executive Vice President and President,
AlliedSignal Engineered Materials from April 1988 to September 1997.
1988
- ------------
(a) Also a director.
(list continued on next page)
16
(list continued from previous page)
NAME, AGE,
DATE FIRST
ELECTED AN OFFICER BUSINESS EXPERIENCE
- ------------------------------- ----------------------------------------------------------------------------
Peter M. Kreindler, 52 Senior Vice President, General Counsel and Secretary since December 1994.
1992 Senior Vice President and General Counsel from March 1992 to November
1994.
Donald J. Redlinger, 53 Senior Vice President -- Human Resources and Communications since February
1991 1995. Senior Vice President -- Human Resources from January 1991 to
January 1995.
Richard F. Wallman, 46 Senior Vice President and Chief Financial Officer since March 1995. Vice
1995 President and Controller of International Business Machines Corp. (IBM)
(manufacturer of information-handling systems) from April 1994 to February
1995. General Assistant Controller of IBM from October 1993 to March 1994.
Assistant Controller -- Sales & Marketing of Chrysler Corporation
(automobile manufacturer) from April 1989 to September 1993.
Nancy A. Garvey, 48 Vice President and Controller since September 1996. Vice President and
1994 Treasurer from February 1994 to August 1996. Staff Vice
President -- Investor Relations from November 1989 to January 1994.
Larry E. Kittelberger, 49 Vice President and Chief Information Officer since August 1995 (Executive
1996 Officer since February 1996). Corporate Chairman -- Information Officer
Leadership Committee of Tenneco Inc. (diversified industrial concern) from
June 1989 to July 1995.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and dividend information for the Registrant's common stock is
contained in Note 27 (Unaudited Quarterly Financial Information) of Notes to
Financial Statements at page 39 of the Company's 1997 Annual Report to
shareowners, and such information is incorporated herein by reference.
The number of record holders of the Registrant's common stock is contained
in the statement 'Selected Financial Data' at page 18 of the Company's 1997
Annual Report to shareowners, and such information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information included under the captions 'For the Year' and 'At
Year-End' in the statement 'Selected Financial Data' at page 18 of the Company's
1997 Annual Report to shareowners is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
'Management's Discussion and Analysis' on pages 19 through 25 of the
Company's 1997 Annual Report to shareowners is incorporated herein by reference.
This Report contains, or incorporates by reference, certain statements that
may be deemed 'forward-looking statements' within the meaning of Section 21E of
the Securities Exchange Act of 1934. All statements, other than statements of
historical fact, that address activities, events or developments that the
Company or management intends, expects, projects, believes or anticipates will
or may occur in the future are forward-looking statements. Such statements are
based upon certain
17
assumptions and assessments made by management of the Company in light of its
experience and its perception of historical trends, current conditions, expected
future developments and other factors it believes to be appropriate. The
forward-looking statements included in this Report are also subject to a number
of material risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Such forward-looking
statements are not guarantees of future performance and actual results,
developments and business decisions may differ from those envisaged by such
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates which may adversely affect its results of
operations and financial condition. The Company seeks to minimize the risks from
these interest rates and foreign currency exchange rate fluctuations through its
regular operating and financing activities and, when deemed appropriate, through
the use of derivative financial instruments. The Company does not use financial
instruments for trading or other speculative purposes and is not a party to any
leveraged financial instruments.
A discussion of the Company's accounting policies for financial instruments
is included in Note 1 (Summary of Significant Accounting Policies) of Notes to
Financial Statements at page 29 of the Company's 1997 Annual Report to
shareowners, and such information is incorporated herein by reference.
Additional disclosure relating to financial instruments is included in Note 17
(Financial Instruments) of Notes to Financial Statements at pages 34 and 35 of
the Company's 1997 Annual Report to shareowners, and such information is
incorporated herein by reference.
The Company uses foreign currency forward and option contracts to hedge the
exposure to adverse changes in foreign currency exchange rates. The Company's
principal currency exposures relate to the French franc, the German deutsche
mark and the British pound against the U.S. dollar. The Company's exposure to
changes in foreign currency exchange rates arises from intercompany loans
utilized to finance foreign subsidiaries, receivables, payables and firm
commitments arising from international transactions. The Company attempts to
have all such transaction exposures hedged with internal natural offsets to the
fullest extent possible and, once these opportunities have been exhausted,
through derivative financial instruments with third parties using forward or
option agreements. The Company also uses derivative financial instruments to
hedge the Company's exposure to changes in foreign currency exchange rates for
the translated U.S. dollar value of net income of a number of foreign
subsidiaries. Forward and option agreements used to hedge net income are marked
to market and recognized immediately in income.
The Company utilizes both fixed-rate and variable-rate debt as described in
Note 15 (Long-term Debt and Credit Agreement) of Notes to Financial Statements
at page 33 of the Company's 1997 Annual Report to shareowners, and such
information is incorporated herein by reference. The Company uses interest rate
swaps to manage the Company's exposure to interest rate movements and reduce
borrowing costs.
The Company also maintains debt investments classified as
available-for-sale and carried at their quoted market value. These short-term
investments result from excess cash on hand.
The Company manages market risk by restricting the use of derivative
financial instruments to hedging activities and by limiting potential interest
and currency rate exposures to amounts that are not material to the Company's
consolidated results of operations and cash flows. The Company also has
procedures to monitor the impact of market risk on the fair value of its
long-term debt, short-term debt investments and other financial instruments,
considering reasonably possible changes in interest and currency rates. These
procedures include the use of sensitivity analysis to estimate the impact of
interest rate and currency rate changes on future cash flows and fair values.
The following table illustrates the potential change in fair value for interest
rate sensitive instruments based on a hypothetical immediate 1% point increase
in interest rates across all maturities and the potential change in fair value
for foreign exchange sensitive instruments based on a 10% increase in U.S.
dollar per local currency exchange rates across all maturities at December 31,
1997 (dollars in millions):
18
ESTIMATED
FACE OR CARRYING FAIR INCREASE/(DECREASE)
NOTIONAL AMOUNT VALUE(1) VALUE(1) IN FAIR VALUE
--------------- --------- -------- -------------------
Interest Rate Sensitive Instruments
- -----------------------------------
Short-term debt investments....................... 143 152 152 (6)
Long-term debt (including current
maturities)(2).................................. 1,429 (1,396) (1,584) (51)
Interest rate swaps............................... 358 -- 3 (3)
Foreign Exchange Rate Sensitive Instruments
- -------------------------------------------
Foreign currency forward agreements written(3).... 649 22 23 51
Foreign currency forward agreements held(3)....... 708 1 1 (64)
Foreign currency options held..................... 150 4 4 9
- ------------
(1) Asset or (liability)
(2) Excludes capitalized leases.
(3) Increases and decreases in the fair value of foreign currency forward
agreements are completely offset by changes in the fair value of net
underlying foreign currency transaction exposures.
The above discussion of the Company's procedures to monitor market risk and
the estimated changes in fair value resulting from the Company's sensitivity
analyses are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from
these estimated results due to actual developments in the global financial
markets. The analysis methods used by the Company to assess and mitigate risk
discussed above should not be considered projections of future events or losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, together with the report
thereon of Price Waterhouse LLP dated January 28, 1998 appearing on pages 26
through 40 of the Company's 1997 Annual Report to shareowners, are incorporated
herein by reference. With the exception of the aforementioned information and
the information incorporated by reference in Items 1, 3, 5, 6, 7 and 7A, the
1997 Annual Report to shareowners is not to be deemed filed as part of this Form
10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Registrant, as well as information
relating to compliance with Section 16(a) of the Securities Exchange Act of
1934, will be contained in a definitive Proxy Statement involving the election
of directors which the Registrant will file with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after December 31,
1997, and such information is incorporated herein by reference. Certain other
information relating to Executive Officers of the Registrant appears at pages 16
and 17 of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is contained in the Proxy
Statement referred to above in 'Item 10. Directors and Executive Officers of the
Registrant,' and such information is incorporated herein by reference.
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management is contained in the Proxy Statement referred to above in 'Item 10.
Directors and Executive Officers of the Registrant,' and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE IN
ANNUAL REPORT TO
SHAREOWNERS
----------------
(a)(1.) Index to Consolidated Financial Statements:
Incorporated by reference to the 1997 Annual Report to shareowners:
Report of Independent Accountants.................................................... 40
Consolidated Statement of Income for the years ended December 31, 1997, 1996 and
1995................................................................................ 26
Consolidated Statement of Retained Earnings for the years ended December 31, 1997,
1996 and 1995....................................................................... 26
Consolidated Balance Sheet at December 31, 1997 and 1996............................. 27
Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and
1995................................................................................ 28
Notes to Financial Statements........................................................ 29
(a)(2.) Consolidated Financial Statement Schedules
The two financial statement schedules applicable to the Company have been
omitted because of the absence of the conditions under which they are required.
(a)(3.) Exhibits
See the Exhibit Index to this Form 10-K Annual Report. The following
exhibits listed on the Exhibit Index are filed with this Form 10-K Annual
Report:
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------
10.13* AlliedSignal Inc. Supplemental Pension Plan, as amended
13 Pages 18 through 40 (except for the data included under the captions 'Financial
Statistics' on page 18) of the Company's 1997 Annual Report to shareowners
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
24 Powers of Attorney
27 Financial Data Schedule
The exhibits identified in the Exhibit Index with an asterisk(*) are
management contracts or compensatory plans or arrangements.
(b) Reports on Form 8-K
During the three months ended December 31, 1997, reports on Form 8-K were
filed on October 22, November 17 and December 18, in each case reporting, under
Item 9, unregistered sales of the Company's Common Stock in reliance on
Regulation S under the Act.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AlliedSignal Inc.
February 26, 1998 By: /s/ NANCY A. GARVEY
---------------------------------
Nancy A. Garvey
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
NAME NAME
---- ----
* *
- ------------------------------------------------------ ------------------------------------------------------
Lawrence A. Bossidy Robert B. Palmer
Chairman of the Board and Chief Executive Director
Officer and Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Daniel P. Burnham Russell E. Palmer
Director Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Frederic M. Poses Ivan G. Seidenberg
Director Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Hans W. Becherer Andrew C. Sigler
Director Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Ann M. Fudge John R. Stafford
Director Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Paul X. Kelley Thomas P. Stafford
Director Director
* *
- ------------------------------------------------------ ------------------------------------------------------
Robert P. Luciano Robert C. Winters
Director Director
*
------------------------------------------------------
Henry T. Yang
Director
/s/ RICHARD F. WALLMAN /s/ NANCY A. GARVEY
- ------------------------------------------------------ ------------------------------------------------------
Richard F. Wallman Nancy A. Garvey
Senior Vice President and Vice President and Controller
Chief Financial Officer (Chief Accounting Officer)
*By: /s/ RICHARD F. WALLMAN
----------------------------------------------
(Richard F. Wallman
Attorney-in-fact)
February 26, 1998
21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
3(i) Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit
3(i) to the Company's Form 10-Q for the quarter ended March 31, 1997)
3(ii) By-laws of the Company, as amended (incorporated by reference to Exhibit 3(ii) to the
Company's Form 10-Q for the quarter ended March 31, 1996)
4 The Company is a party to several long-term debt instruments under which, in each case, the
total amount of securities authorized does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to
the Securities and Exchange Commission upon request.
9 Omitted (Inapplicable)
10.1 Master Support Agreement, dated as of February 26, 1986 as amended and restated as of January
27, 1987, as further amended as of July 1, 1987 and as again amended and restated as of
December 7, 1988, by and among the Company, Wheelabrator Technologies Inc., certain
subsidiaries of Wheelabrator Technologies Inc., The Henley Group, Inc. and Henley Newco
Inc. (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K for the year
ended December 31, 1988)
10.2* Deferred Compensation Plan for Non-Employee Directors of AlliedSignal Inc., as amended
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended
December 31, 1996)
10.3* Stock Plan for Non-Employee Directors of AlliedSignal Inc., as amended (incorporated by
reference to Exhibit C to the Company's Proxy Statement, dated March 10, 1994, filed
pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
10.4* 1985 Stock Plan for Employees of Allied-Signal Inc. and its Subsidiaries, as amended
(incorporated by reference to Exhibit 19.3 to the Company's Form 10-Q for the quarter ended
September 30, 1991)
10.5* AlliedSignal Inc. Incentive Compensation Plan for Executive Employees, as amended
(incorporated by reference to Exhibit B to the Company's Proxy Statement, dated March 10,
1994, filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
10.6* Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of AlliedSignal Inc.
and its Subsidiaries, as amended (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March 31, 1995)
10.7* 1982 Stock Option Plan for Executive Employees of Allied Corporation and its Subsidiaries, as
amended (incorporated by reference to Exhibit 19.4 to the Company's Form 10-Q for the
quarter ended September 30, 1991)
10.8* AlliedSignal Inc. Severance Plan for Senior Executives, as amended (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994)
10.9* Salary Deferral Plan for Selected Employees of AlliedSignal Inc. and its Affiliates, as
amended (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended March 31, 1995)
10.10* 1993 Stock Plan for Employees of AlliedSignal Inc. and its Affiliates (incorporated by
reference to Exhibit A to the Company's Proxy Statement, dated March 10, 1994, filed
pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.11* Amended and restated Agreement, as amended dated May 6, 1994 between the Company and Lawrence
A. Bossidy (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended June 30, 1994 and to Exhibit 10.15 to the Company's Form 10-Q for the quarter
ended June 30, 1997)
10.12 Five-Year Credit Agreement dated as of June 30, 1995 as amended by and between AlliedSignal
Inc., a Delaware corporation, the banks, financial institutions and other institutional
lenders listed on the signature pages thereof (the 'Lenders'), Citibank, N.A., as agent,
and ABN Amro Bank N.V. and Morgan Guaranty Trust Company of New York, as co-agents, for the
Lenders (incorporated by reference to Exhibit 10.1 to the Company's Forms 10-Q for the
quarters ended June 30, 1995 and June 30, 1996 and to Exhibit 10.13 to the Company's Form
10-Q for the quarter ended June 30, 1997)
10.13* AlliedSignal Inc. Supplemental Pension Plan, as amended (filed herewith)
11 Omitted (Inapplicable)
12 Omitted (Inapplicable)
13 Pages 18 through 40 (except for the data included under the captions 'Financial Statistics'
on page 18) of the Company's 1997 Annual Report to shareowners (filed herewith)
16 Omitted (Inapplicable)
18 Omitted (Inapplicable)
21 Subsidiaries of the Registrant (filed herewith)
22 Omitted (Inapplicable)
23 Consent of Independent Accountants (filed herewith)
24 Powers of Attorney (filed herewith)
27 Financial Data Schedule (filed herewith)
28 Omitted (Inapplicable)
99 Omitted (Inapplicable)
- ------------
The Exhibits identified above with an asterisk(*) are management contracts
or compensatory plans or arrangements.
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as......................'r'