Our broad-based capital structure makes it possible to offer a wide variety of packages to the stockholders of the company we want to woo. We have cash resources available which can be increased substantially through debt as required to meet the needs of our program.

We also have roughly 3 million shares of authorized but unissued convertible preferred stock, and we have about 16 million shares of authorized but unissued common stock. Our stock enjoys excellent marketability. The nearly 24 million common shares outstanding, with a $2 per share annual dividend rate, are listed and actively traded on the New York Stock Exchange as well as six regional exchanges. The outstanding 773,000 shares of $4.75 convertible preferred are listed on the Boston Stock Exchange as well as the Big Board.

Before discussing our criteria for company selection, I should tell you our philosophy about such criteria. We believe

(1) The existence of criteria tends to focus the acquisition efforts in a large, diverse company in the most efficient, profitable, and consistent directions without being unduly restrictive.

(2) No criterion is considered inflexible or rigid, for good opportunities may arise that may be in the best interest of the company and therefore can alter the company's objectives.

(3) Criteria are a standard against which opportunities can be judged. (4) If agreed-upon criteria do exist, each new opportunity can be judged quickly and acted upon without building the case from scratch every time an idea is presented.

This reminds me of a little rhyme of R. H. Barham:

"Thrice happy's the wooing
that's not long a-doing,

So much time is saved

in the billing and cooing."

Our acquisition program has three primary thrusts. The first is our corporate domestic program. The second is our corporate international program. And the third is our group extension program. These are our basic criteria for screening corporate domestic acquisitions to gain for us major market diversification while obtaining for us new outlets for our technological resources:

(a) The company under consideration for acquisition must have substantial sales in its field.

(b) The company must have good management in place, or else feasible plans must be determinable to build the necessary management team.

(c) The company must be a leader in its major markets.

(d) The company's growth potential must have the reasonable probability of attaining our corporate growth goal of at least 10 percent annually.

(e) The company's price/earnings ratio must be reasonable relative to our price/earnings ratio.

(f) The return on investment possibilities must be commensurate with our total corporate goals.

(g) Mutual advantages must be expected from the acquisition because of the relationship of the company's activities with ours.

Initially we have selected five major areas of primary acquisition interest for our corporate domestic program. For example; one of these is special industry machinery such as for the textile industry.

To obtain major geographic diversification, our corporate international program for acquisition emphasizes European companies with sales of at least $15 million in the United Kingdom and the Common Market. Otherwise, the criteria are much the same as those for domestic acquisition candidates. Our six selected fields of primary interest abroad include, for example, advanced electronic end-products.

We recently sold $20 million of 5-year guaranteed notes outside the United States. The purpose of this offering is to be able to cooperate with the U.S. balance of payments program while carrying out our foreign market development activities.

Our group extension program is proceeding actively now. We are working at identifying target companies which represent logical extensions of present products, markets, and technologies. A key goal here is to capture attractive new business growth potential in the least expensive way. To obtain this secondary application of our products and technologies, we are seeking companies with sales of over $10 million and other characteristics resembling those criteria established for our major corporate domestic program.

We are looking at 11 areas for our Aerospace and Systems Group. Examples are ocean engineering, information systems, and welding equipment.

For our Commercial Products Group we have identified seven areas for acquisition interest for our group extension program. An example is fluid power.

To be sure, the areas we have identified may not appear to be very glamorous. But we believe they are areas to which we can apply our aerospace and systems expertise. We, therefore, intend to endow them with the dynamic and dramatic technologies of the space age. We are expecting to be the forerunner in what we are calling the second industrial revolution.

Certainly it's not hard to identify desirable acquisition candidates. But some companies seem to be more successful than others in negotiation and consummating acquisitions. It's my personal experience in this field that success is dependent upon several special factors.

First and foremost, success requires that the chief executive officer really wants to make acquisitions and finally becomes a strong advocate of acquiring specific companies. For unless he does become a strong and enthusiastic advocate, the probability is no acquisition ever will be consummated. Of course, it's implicit that proper evaluation and examination of the acquisition candidates already will have been made by the supporting staff.

Second, the acquisition officer must have ready access to the chief executive officer and other key elements of the decisionmaking process. Access, as here defined, means nights and weekends as well as at the office. For instance, the key discussions and negotiations that resulted in the acquisition of Draper Corp. actually took place last Easter weekend.

Third, the acquisition officer must know what resources he has to draw upon in the contact, negotiation, and evaluation phases. He also must know when and how to orchestrate and direct these resources, and this implies prompt availability to them. I am referring here to investment bankers as well as commercial bankers; both inside house counsel and outside law firms; inside financial men and outside auditors; and various other types of management skills from within the company and from outside consultants in such fields as engineering, production, marketing, and science.

And fourth, the board of directors must give the chief executive officer a good deal of freedom in the area of acquisitions. However, to the extent he can't engage personally in this activity because of the press of his many other duties, he must delegate some of this freedom of action to his acquisition officer.

Without these four factors an acquisition program, in my experience, just isn't very workable.

In certain market or technological areas, joint ventures may be the most appropriate means of external growth for North American Rockwell when acquisition is not feasible and the assets of more than one company are required. Consequently, joint ventures are part of our growth concept.

For example, we recently announced a joint study team between Brown, Boveri & Co. of Switzerland and our Atomics International Division which has been developing nuclear powerplants for some 20 years. Brown, Boveri is one of the world's three leading manufacturers of electric turbogenerators and transmission equipment. We are studying the feasibility of jointly undertaking the manufacture in the United States of electric generating equipment designed by Brown, Boveri and of marketing such equipment to the U.S. electric utility industry. Thus, when added to our nuclear powerplant capabilities, this could enable us to produce a total energy system. A power company could purchase the complete package from our one source.

We recognize that divestment of some activities will be a necessary part of an overall growth program. Any piece of the North American Rockwell operation that does not have the capability in some way to contribute to the realization of corporate objectives becomes a hindrance to the company.

Undoubtedly, some of our larger mergers or acquisitions will contain elements that are not appropriate for North American Rockwell because of one reason or another. But we are ready to acknowledge misjudgments and dispose of them when acquisitions or present activities do not meet expectations.

This, then, is the blueprint for our growth concept including marketing by acquisition. We intend to build a growth company by using our technological resources and space-age discoveries to penetrate new commercial markets as well as broaden our penetration in the markets we already serve and, thereby, benefit the economy while profiting our shareowners. We expect to continue our rapid internal growth and to accelerate our overall growth by employing a carefully planned merger and acquisition program. An aggressive and sound acquisition program, built on top of solid internal growth, can open the world of tomorrow for the benefit of our company today.

And basic to all of this, of course, is the imaginative fulfillment of an integrated marketing plan. This means continued aggressive marketing to those areas we best can serve with our unique resources. It means searching out and finding new markets. It means developing and producing new and improved products for those newly discovered markets as well as our traditional markets. It means worldwide market planning and execution.

If I sound enthusiastic about our future, it is because all of us at North American Rockwell are enthusiastic.

Our total program-to convert our growth concept into profitable reality-is ambitious and obviously will require substantial commitment on the part of top management. We are dedicated to this effort.

It has been a pleasure for me to participate in this meeting. I appreciate very much having had this opportunity to tell you about our “growth concept" company. As the screen actors in Hollywood say: "If you have a superior product, it doesn't pay to keep your trap shut, whether your product is talent or a mousetrap.'

Thank you very much.

THE TECHNOLOGY TRANSFER PROCESS BETWEEN A LARGE SCIENCE-ORIENTED AND A LARGE MARKET-ORIENTED COMPANY: THE NORTH AMERICAN ROCKWELL CHALLENGE

(By John R. Moore, president, Aerospace and Systems Group, North American Rockwell Corp., March 22, 1968)

The subject that I am billed to talk about is the technology transfer process between a large science-oriented and a large market-oriented company-the North American Rockwell Challenge.

In addressing this subject, I would first like to clarify it. The company that was North American Aviation, and is now the Aerospace and Systems Group of North American Rockwell, is not primarily science oriented. Science is certainly part of its orientation, but the application of science through engineering and production is a much bigger part.

It would also be wrong to consider that it is not market oriented. It is very much market oriented, but it is a very special kind of market-a market characterized primarily by a single large complex customer-the Government. An orientation toward that kind of a market turns out to be a rather poor training ground for orientation toward the kinds of markets that exist outside the aerospace industry-markets in which there are larger numbers of customers, none of whom approach in complexity the various government agencies with which we deal.

Correspondingly, the company that was the Rockwell-Standard Corp., and is now the Commercial Products Group of North American Rockwell, is certainly market oriented, but it is also engineering and production oriented. It has a continuing history of product improvement through research and development, and it may be said that the technology transfer process can be a two-way street between these two groups of North American Rockwell, and in fact, it actually is going that way at the present time.

We are attempting to transfer some of our sophisticated ideas and techniques to them, and they are successfully transferring some of their practical production means and even some of their production processes to us. Let me set the stage further by telling you some more about North American Rockwell.

The company has thousands of products. It has more than 100 product lines. It is engaged in some 19 of the industries that are listed in the Fortune directory. The Aerospace and Systems Group alone has seven divisions with nearly 94,000 people, 17,000 of whom have professional degrees, and 3,300 of whom have advanced professional degrees. These degrees are in more than 200 different majors. The products of the Aerospace and Systems Group are characterized by a very high technical content. They are characterized by galloping obsolescence. They range from the tiniest components of microelectronics to the largest and possibly most complex system that man has ever worked on-the Apollo program. We are in the business of creating new markets and filling pentup demands and then turning to other fields which we hopefully can conquer. This is vastly different from the other kind of business, where steady demand is more the rule and where advances are made by improving products, growing as fast or faster than the nerease in gross national product, and supplying the replacement market.

I suppose we should begin by discussing technology. We might define technology as consisting of facts, skills, and techniques drawn from science and engineering and capable of accomplishing some useful technical goals.

Technology in the form that it can be transferred takes a number of different shapes. It exists in patents, processes and procedures for research, engineering, and manufacturing. It consists of designs for products, for tools and test equipment; of analytical methods and techniques; and, perhaps most importantly, of capabilities for problem-solving, for analyzing, for inventing, for designing, and for testing. Generally speaking, it is stored in files, in models, in capital equipment, in individuals, and now more and more in teams of individuals consisting of representatives of several different disciplines and specialties headed up by what we have come to refer to these days as "generalists.'

To survive and flourish, technology needs, first of all, trained and resourceful people. These people must be properly directed and managed. They must be working on projects and tasks of importance and challenge. They must have enough freedom to be creative, but they must have enough discipline to maximize their useful output and to avoid confusion and anarchy. They must have access to information regarding the work of others. They must also understand and appreciate the potential application of the things that they are doint beyond the immediate projects upon which they happen to be working. And finally, they must have financial and professional motivation for accomplishment. And this motivation must be for accomplishments of the organization which they serve, not just their own accomplishments.

I remember when we unsuccessfully tried to come up with a reward to keep people from inventing because we were having too much "NIH"-"Not Invented Here." I say it was unsuccessful-we still have some people who want to patent something that a search of the literature would reveal had already been patented. But we haven't yet found any way to measure their failure to search the literature. Technology is a resource, a most important resource, just like capital. We might try to place a value on it. This is a very difficult thing to do, but we can perhaps oversimplify the problem by setting some limits. If, we think of commercial industries with relatively high technical content as a model, and we try to relate their performance to the amount of money they spend on research and development, we might say that a lower limit of the annual value of technology is something like 30 times the amount of money spent on research and development in any particular year.

That's in sales. If I were to apply that to the Aerospace and Systems Group with sales of nearly $2 billion, and something like $100 million in research and development activity not aimed at any specific contract projects, I would say that we are falling about $1 billion short in sales by applying the criteria which I postulated as the lower bound.

As an upper bound we might say that it should generate profits that are twice as great as the amount of money spent on research and development. This is very much in line with the average of many commercial industries-3 percent spent on research and development, 6 percent net profit after taxes. If this were to be taken as an upper bound for our objectives, you see that we have a long way to go.

All of this constitutes a serious management challenge, and management attempts to meet these objectives in a number of ways. In our case, first, by winning profitable contracts and, of course, by perpetuating our capability to win more and more of these contracts. Second, by designing, manufacturing and marketing profitable products. Third, by selling, in the form of services or patents those things which we cannot convert directly to products or to contracts. Fourth, by trading technology for profitable equity. For example, North American Rockwell has a partially owned subsidiary in Germany called Interatom. Our initial contribution to it was only technology. We didn't put any capital into it, and we have considered this as a model of one way of placing a value on technology. Finally, when all these other things which are more or less within the direct ken of the manager fail, we turn to other parts of the company and try to pass the ball to them. This is technology transfer.

There has been so much interest in this subject recently that the opinion may prevail that it is a new concept. Actually, the transfer of technology from one field to another, or between military and civilian applications, is almost as old as history. Let me simply quote one of the earliest recorded references to technology transfer from the Bible-the first chapter of Isaiah: "They shall beat their swords into plowshares, and their spears into pruning hooks." That sums up a lot of what we are trying to do in a much more complicated way.

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Technology transfer is one of the most difficult and important types of communication. Communication, along with information handling, is becoming a science, and the fact that we are meeting here today is evidence that we are trying to structure this kind of communication. It is one of the great challenges of this era of the technology explosion. The sheer quantity of information is itself tremendous, and taken in all of its possible useful and useless combinations, it is almost overwhelming.

Technology transfer is certainly not easy. Many have tried with more or less success over all the years of recognized technology. There have been numerous examples where a single company has transferred technology between commercial and military business, but still within its particular specialized field, such as aircraft, electronics, chemicals, and motor vehicles.

I believe we are entering a new era of such transfer-one in which we move technology across industrial lines. We at North American Rockwell propose to do just this-for example, to transfer technology between automotive and aerospace products. More to the point, we propose to transfer technology between product areas of rapid obsolescence and high technical content on the one hand and those of comparatively slow obsolescence and relatively low technical content on the other. This is the real challenge of North American Rockwell's technology transfer efforts.

Next, let us be sure we understand the objectives of a company's technology transfer program. In general, its short-term objective is to achieve a competitive advantage through product improvement, and its long-term objective is to achieve company growth through expanded product lines, new products, and new markets. You will agree, I am sure, that these are highly important objectives, and coincide fairly well with a company's overall goals. For this reason, technology transfer is not a function that is merely an adjunct to a company's primary business. On the contrary, it must be planned, organized, budgeted, and scheduled. Because it is a highly competitive activity, technology transfer is more than mere progress. It must be rapid progress-if possible, faster than the competition. And it must be cost-effective progress-worth the effort in anticipated returns.

Therefore, the management of it is more than technical management or communications management. It is also schedule and cost management, and it is these two factors that will probably make the difference between strong and weak companies in the realm of technology transfer.

Technology transfer is not a new concept in industry at large, nor is it in any way new to my company. While we have not, prior to the merger with RockwellStandard, transferred much technology to commercial fields, technology transfer has been the key to our expansion within Government markets since World War II. Beginning in 1945, North American Aviation began extending the missile technology achieved by the Germans during World War II to strategic missile programs in this country. This required not only a transfer of aerodynamic and related technology, but also pioneering work in such young fields as rocket propropulsion and inertial navigation. Most of these technologies were, in turn, transferred to the field of space exploration, and we are now extending some of them into the area of ocean systems.

It should be noted that In each of these instances, we are not simply applying technology to the improvement of a product. We are helping to open up whole new markets in missiles, space vehicles, ocean systems and electronics. But technology transfer will not take place without planning and pressure from all levels of management. For example, we have a science center of which we are very proud. As a source of scientific knowledge and capability it is, we feel, a tremendous asset. Yet we were not really able to bring the science center's efforts and capabilities to bear upon our mainline activities until we established budgets in the using organizations-that is, the operating divisions of the group-for the application of science center activities. It took management direction to begin this kind of technology transfer.

With our recent merger we face a new opportunity to transfer technology between existing commercial and aerospace product lines. We do not overlook the opening of entirely new markets, but our initial concern is the mastery of technology transfer within our present markets. In fact, we are already aware that we have more technology than we can effectively transfer. Mindful of this, we established a set of ground rules to make our beginning.

1. The aerospace and systems group and the commercial product group will both have major responsibilities in technology transfer.

2. Every attempt will be made to avoid overcomplicating the management process involved in the exploitation of technology.