-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MfP7VCDeQRCtnxirm3/Ckqjoh+VPOBZt1NbK60Q5zAdedI+qoS6oIzjfEDr7+/B5 tICRkuAy/Q+B+XPCc8eqDA== 0000912057-96-004835.txt : 19960321 0000912057-96-004835.hdr.sgml : 19960321 ACCESSION NUMBER: 0000912057-96-004835 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRW INC CENTRAL INDEX KEY: 0000100030 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340575430 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02384 FILM NUMBER: 96536674 BUSINESS ADDRESS: STREET 1: 1900 RICHMOND RD CITY: CLEVELAND STATE: OH ZIP: 44124 BUSINESS PHONE: 2162917000 MAIL ADDRESS: STREET 1: 1900 RICHMOND ROAD CITY: CLEVELAND STATE: OH ZIP: 44124 10-K 1 FORM 10-K [LOGO] 1995 SEC FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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 1-2384 TRW INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-0575430 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1900 RICHMOND ROAD, CLEVELAND, OHIO 44124 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (216) 291-7000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 $0.625 per share New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Rights to Purchase Cumulative Redeemable New York Stock Exchange Serial Preference Stock II, Series 4 Chicago Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Cumulative Serial Preference Stock II, New York Stock Exchange $4.40 Convertible Series 1 Cumulative Serial Preference Stock II, New York Stock Exchange $4.50 Convertible Series 3
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 registrant's voting stock held by non-affiliates was $5,594,990,827 as of March 1, 1996. This amount was computed on the basis of the closing price of the registrant's voting securities included in the NYSE-Composite Transactions report for such date, as published in the Midwest edition of THE WALL STREET JOURNAL or, in the case of the registrant's voting cumulative preference stock, for the date of the most recent trade, as reported in the Dow Jones News Retrieval Service. As of March 1, 1996 there were 65,988,663 shares of TRW Common Stock, $0.625 par value, outstanding. The following documents have been incorporated herein by reference to the extent indicated herein: TRW Proxy Statement dated March 20, 1996 Part III TRW Annual Report to Security Holders for the year ended December 31, 1995 Parts I, II and IV TRW INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
PART I PAGE Item 1. Business.......................................................................... 1 Item 2. Properties........................................................................ 6 Item 3. Legal Proceedings................................................................. 6 Item 4. Submission of Matters to a Vote of Security Holders............................... 7 Executive Officers of the Registrant......................................................... 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............. 10 Item 6. Selected Financial Data........................................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 11 Item 8. Financial Statements and Supplementary Data....................................... 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................................................... 11 PART III Item 10. Directors and Executive Officers of the Registrant................................ 11 Item 11. Executive Compensation............................................................ 11 Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 12 Item 13. Certain Relationships and Related Transactions.................................... 12 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 12
PART I ITEM 1. BUSINESS INDUSTRY SEGMENTS AND PRODUCT CLASSIFICATIONS TRW is an international company that provides advanced technology products and services. The principal businesses of TRW and its subsidiaries are the design, manufacture and sale of products and the performance of systems engineering, research and technical services for industry and the United States Government in three industry segments: Automotive; Space & Defense; and Information Systems & Services. TRW's principal products and services include automotive systems and components; spacecraft; software and systems engineering support services; electronic systems, equipment and services; and information systems and services. TRW was incorporated under the laws of Ohio on June 17, 1916. As used herein the terms "TRW" and the "Company" refer to TRW Inc. or to TRW Inc. and its subsidiaries or to a subsidiary of TRW Inc. AUTOMOTIVE TRW's Automotive segment designs, manufactures and sells a broad range of steering, suspension, engine, safety, engineered fastening, electronic, electromechanical and other components and systems as original equipment for passenger cars and commercial vehicles, including trucks, buses, farm machinery and off-highway vehicles. These products include occupant safety systems such as seat belt systems and inflatable restraint systems, manual and power steering gears, engine valves and valve train components, suspension components, electronic monitoring and control systems, electromechanical assemblies, fasteners, stud welding systems and other components. Automotive original equipment included in this industry segment is sold primarily to original equipment manufacturers. In addition, TRW sells its automotive components for use as aftermarket parts to original equipment manufacturers and others for resale through their own independent distribution networks. SPACE & DEFENSE TRW's Space & Defense segment includes spacecraft, software and systems engineering support services and electronic systems, equipment and services. The Company's spacecraft activities include the design and manufacture of spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads, high-energy lasers and laser technology and other high-reliability components. TRW's software and systems engineering support services are in the fields of command and control, security for defense and nondefense applications, counterterrorism, undersea surveillance, antisubmarine warfare and other high-technology space and defense mission support systems, management of radioactive waste, automated fingerprint matching, upgrading of the nation's air traffic control program and other civilian applications. The Company's electronic systems, equipment and services include the design and manufacture of communications systems, avionics systems and other electronic technologies for space and defense applications. Products and services in this industry segment are sold and distributed principally to the United States Government. TRW's spacecraft business involves the sale to the United States Government of subsystems and components for space propulsion and unmanned spacecraft for defense, scientific research and communications purposes. TRW is currently participating in a number of spacecraft programs. Software and systems engineering and integration support services are sold primarily to the United States Government defense agencies and to Federal civilian and other state and local governmental agencies. These services include a wide variety of computer software systems and analytical services for space and defense, air traffic control, and advanced communication and data retrieval applications. Sales to the United States Government of electronic systems, equipment and services consist of systems and subsystems for defense and space applications, including communications, command and 1 control, guidance, navigation, electric power, sensing and electronic display equipment. While classified projects are not discussed herein, the operating results relating to classified projects are included in the Company's consolidated financial statements and the business risks associated with such projects do not differ materially from those of other projects for the United States Government. TRW also performs diverse testing and general research projects in many of the technical disciplines related to its Space & Defense products and services under both private and United States Government contracts, including several advanced defense system projects. INFORMATION SYSTEMS & SERVICES TRW's Information Systems & Services segment includes consumer credit information services, real estate information services, direct marketing services and business credit information services. Products and services in this industry segment are sold primarily to commercial entities. Consumer and business credit information services are sold primarily to credit-granting organizations and businesses. Real estate information services are sold to financial institutions, title companies and other customers. Marketing services are sold primarily to direct marketing customers. On February 9, 1996, the Company entered into an agreement to sell substantially all of the businesses in the Information Systems & Services segment. The proposed sale, which has been structured as a recapitalization and is expected to be completed in the second half of 1996, is subject to corporate and governmental approvals and certain significant conditions to closing, including the implementation of certain computer systems. RESULTS BY INDUSTRY SEGMENT Reference is made to the information relating to the Company's industry segments, including sales, operating profit and identifiable assets attributable to each segment for each of the years 1993 through 1995, presented under the note entitled "Industry segments" in the Notes to Financial Statements on pages 37 and 38 of the TRW 1995 Annual Report. Such information is incorporated herein by reference. FOREIGN AND DOMESTIC OPERATIONS TRW manufactures products and has facilities in 23 countries throughout the world. TRW's operations outside the United States are in Australia, Austria, Brazil, Canada, China, the Czech Republic, France, Germany, India, Italy, Japan, Malaysia, Mexico, Poland, South Africa, South Korea, Spain, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela. TRW also exports products manufactured by it in the United States. Such export sales accounted for 8% of total sales during 1995, 7% of total sales during 1994 and 6% during 1993, or $842 million, $638 million and $438 million, respectively. TRW's foreign operations are subject to the usual risks that may affect such operations. These include, among other things, customary exchange controls and currency restrictions, currency fluctuations, changes in local economic conditions, exposure to possible expropriation or other government actions, unsettled political conditions and foreign government-sponsored boycotts of the Company's products or services for noncommercial reasons. Most of the identifiable assets associated with TRW's foreign operations are located in countries where the Company believes such risks to be minimal. Reference is made to the information relating to the dollar amounts of sales, operating profit and identifiable assets by geographic area for each of the years 1993 through 1995 presented under the note entitled "Geographic segments" in the Notes to Financial Statements on page 38 of the TRW 1995 Annual Report. Such information is incorporated herein by reference. 2 GENERAL COMPETITION TRW encounters intense competition in substantially all segments of its business. The Company's competitive position varies for its different products and services. However, TRW believes that it is a significant supplier of many of the products it manufactures and of many of the services it provides. In the Automotive segment, competitors include independent suppliers of parts and components as well as the Company's original equipment customers, many of whom are integrated manufacturers and produce or could produce substantial portions of their requirements for parts and components internally. Depending on the particular product, the number of the Company's competitors may vary significantly and many of the products have high capital requirements and require high engineering content. In the Automotive segment, the principal methods of competition are price, engineering excellence, product quality, customer service, delivery time and proprietary position. TRW competes for contracts covering a variety of United States Government projects and programs, principally in the Space & Defense segment of its business. Such competition is based primarily on technical ability, product quality and price. TRW's competitors for United States Government contracts typically are large, technically-competent firms with substantial assets. In its Information Systems & Services segment, TRW competes in markets for consumer and business credit information services, real estate information services and marketing services with other large firms doing business nationally and with many smaller local and regional firms. Competitive factors in this business include proprietary position, product quality, customer service, delivery time and price. CUSTOMERS Sales, directly and indirectly, to the United States Government, including the Department of Defense, the National Aeronautics and Space Administration and other agencies, constituted 28% of TRW's sales for 1995 and 28% for 1994, or $2,899 million and $2,545 million, respectively. Sales to the United States Government represented 93% of the sales of the Space & Defense segment in 1995 and 90% in 1994, or $2,887 million and $2,528 million, respectively. Companies engaged in United States Government contracting are subject to certain unique business risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in Government policies that may reflect military and political developments, time required for design and development, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity of design improvements, difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work and other factors characteristic of the industry. United States Government contracting laws also provide that the Government is to do business only with responsible contractors. In this regard, the United States Department of Defense and other federal agencies have the authority, under certain circumstances, to suspend or debar a contractor or organizational parts of a contractor from further Government contracting for a certain period "to protect the Government's interest." Such action may be taken for, among other reasons, commission of fraud or a criminal offense in connection with a United States Government contract. A suspension may also be imposed if a contractor is indicted for such matters. In the event of any suspension or debarment, the Company's existing contracts would continue unless terminated or canceled by the United States Government under applicable contract provisions. Other than the United States Government, TRW's largest customers (determined by including sales to their affiliates throughout the world but excluding sales to such customers or their affiliates that ultimately result in sales to the United States Government) are Ford Motor Company, Volkswagen AG and General Motors Corporation. Such sales by TRW's Automotive segment to Ford, Volkswagen and General Motors and their respective subsidiaries during 1995 accounted for 23%, 10% and 10%, respectively, of total sales of the Automotive segment, compared to 24%, 9% and 10%, respectively, during 1994. 3 BACKLOG The backlog of orders for TRW's domestic operations, without options, at December 31, 1995 and December 31, 1994 is estimated to have been approximately $5,438 million and $4,640 million, respectively, of which it is estimated that, directly or indirectly, United States Government business accounted for approximately $4,466 million and $3,895 million, respectively. Reported backlog at the end of 1995 does not include approximately $2.6 billion of negotiated and priced, but unexercised, options for defense and non-defense programs. Unexercised options at the end of 1994 were valued at $1.0 billion. The exercise of options is at the discretion of the customer, and as in the case of Government contracts generally, dependent on future government funding. Of the total domestic backlog at December 31, 1995 and at December 31, 1994, 90% and 89%, respectively, were attributable to the Space & Defense segment, and virtually all of the backlog attributable to United States Government business related to that segment. The determination of TRW's backlog involves substantial estimating, particularly with respect to customer requirements contracts and long-term contracts of a cost-reimbursement or incentive nature. A substantial portion of the variations in the estimated backlog of TRW in recent years is attributable to the timing of the award and performance of United States Government and certain other contracts. Subject to various qualifications, including those set forth herein, and assuming no terminations, cancellations or changes and completion of orders in the normal course, TRW has estimated that approximately 55% of the December 31, 1995 backlog will be delivered in 1996, 24% in 1997 and 21% thereafter. United States Government contracts and related customer orders generally are subject to termination in whole or in part at the convenience of the Government whenever the Government believes that such termination would be in its best interest. Multi-year Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent contract year become unavailable. If any of its Government contracts were to be terminated or canceled under these circumstances, TRW generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. Whether the occurrence of any such termination or cancellation would have an adverse effect on TRW would depend upon the particular contract and the circumstances of the termination or cancellation. Backlog data and comparisons thereof as of different dates may not be reliable indicators of either future sales or the ratio of future direct and indirect United States Government sales to other sales. INTELLECTUAL PROPERTY TRW owns significant intellectual property, including a large number of patents, copyrights and trade secrets, and is involved in numerous licensing arrangements. Although TRW's intellectual property plays an important role in maintaining TRW's competitive position in a number of the markets that it serves, no single patent, copyright, trade secret or license, or group of related patents, copyrights, trade secrets or licenses, is, in the opinion of management, of such value to TRW that the business of TRW or of any industry segment of TRW would be materially affected by the expiration or termination thereof. TRW's general policy is to apply for patents on an ongoing basis in the United States and appropriate other countries on its significant patentable developments. TRW is party to a lawsuit involving air bag patents and technology. See "Item 3. -- Legal Proceedings" for a further discussion of this suit. TRW also views its name and mark as significant to its business as a whole. In addition, TRW owns a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products. RESEARCH AND DEVELOPMENT Research and development costs totaled $1,963 million, $1,709 million and $1,737 million in 1995, 1994 and 1993, respectively, of which customer-funded research and development was $1,387 million in 1995, $1,157 million in 1994 and $1,223 million in 1993. Company-funded research and development costs, which included research and development for commercial products, independent research and development and bid and proposal work related to government products and services, totaled $422 million in 1995, $412 million in 1994 and $378 million in 1993. 4 A portion of the cost incurred for independent research and development and bid and proposal work is recoverable through overhead charged to government contracts. Company-funded product development costs, including engineering and field support for new customer requirements, were $154 million in 1995, $140 million in 1994 and $136 million in 1993. EMPLOYEES At December 31, 1995, TRW had approximately 66,500 employees, of whom approximately 37,000 were employed in the United States. RAW MATERIALS AND SUPPLIES Materials used by TRW include or contain steel, stainless steel, pig iron, ferro-chrome, aluminum, brass, copper, tin, platinum, special alloys, sodium azide, glass, ceramics, plastic powders and laminations, carbon and plastic materials, synthetic rubber, paper, and gold, silver, nickel, zinc and copper plating materials. TRW also purchases from suppliers various types of equipment and component parts that may include such materials. TRW's operations are dependent upon the ability of its suppliers of materials, equipment and component parts to meet performance and quality specifications and delivery schedules. In some cases, there is only a limited number of suppliers for a material or product due to the specialized nature of the item. Shortages of certain raw materials, equipment and component parts have existed in the past and may exist again in the future. TRW has taken a number of steps to protect against and to minimize the effect of such shortages. However, any future inability of TRW to obtain raw materials, equipment or component parts could have a material adverse effect on the Company. TRW's operations also are dependent on adequate supplies of energy. TRW has continued its programs to conserve energy used in its operations and has made available alternative sources of energy. ENVIRONMENTAL REGULATIONS Federal, state and local requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had and will continue to have an effect on TRW and its operations. The Company has made and continues to make expenditures for projects relating to the environment, including pollution control devices for new and existing facilities. The Company is conducting a number of environmental investigations and remedial actions at current and former Company locations to comply with various federal, state and local laws and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to the Company. A reserve estimate reflecting cost ranges is established using standard engineering cost estimating techniques for each matter for which sufficient information is available. In the determination of cost ranges, consideration is given to the professional judgment of the Company's environmental engineers in consultation with outside environmental specialists when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1995, the Company had reserves for environmental matters of $84 million, including $7 million of accruals recorded during the year. The Company aggressively pursues reimbursement for environmental costs from its insurance carriers. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. The Company does not believe that compliance with environmental protection laws and regulations will have a material effect upon its capital expenditures or competitive position, and TRW's capital expenditures for environmental control facilities during 1996 and 1997 are not expected to be material to the Company. The Company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on the Company's earnings. However, the Company cannot predict the effect on future earnings of expenditures for aspects of certain matters for which there is insufficient information. In addition, the Company cannot predict the effect on future earnings of compliance with environmental laws and regulations with respect to currently unknown environmental matters or the possible effect on future earnings of compliance with environmental requirements imposed in the future. 5 CAPITAL EXPENDITURES During the five years ended December 31, 1995, TRW's capital expenditures and the net book value of its assets retired or sold were:
(IN MILLIONS) ---------------------------------------------------------------- CAPITAL EXPENDITURES --------------------------------------------- LAND, BUILDINGS NET BOOK VALUE OF YEAR ENDED AND LEASEHOLD MACHINERY AND ASSETS RETIRED OR DECEMBER 31, IMPROVEMENTS EQUIPMENT TOTAL SOLD - -------------------------- ----------------- ------------- ----- ----------------- 1995.................... $ 77 $ 408 $ 485 $ 23 1994.................... 93 413 506 21 1993.................... 77 405 482 61 1992.................... 95 435 530 74 1991.................... 73 464 537 71
On an industry segment basis, capital expenditures during 1995 and 1994 were as follows: Automotive, $314 million and $388 million, respectively; Space & Defense, $114 million and $98 million, respectively; and Information Systems & Services, $19 million and $18 million, respectively. Of total capital expenditures, 67% in 1995 and 64% in 1994 were invested in the United States. ITEM 2. PROPERTIES TRW's operations include numerous manufacturing, research and development and warehousing facilities located in 28 states in the United States and in 22 other countries. TRW owns a majority of its facilities; the remainder were leased. In 1995, approximately 42% of the domestic facilities were used by the Automotive segment, 50% were used by the Space & Defense segment and 8% were used by the Information Systems & Services segment. Substantially all of the foreign facilities were used by the Automotive segment. The Company also owns or leases certain smaller research and development properties and administrative, processing, marketing, sales and office facilities throughout the United States and in various parts of the world. In addition, TRW operates facilities on property owned directly or indirectly by the United States Government. The Company owns its world headquarters in Lyndhurst, Ohio and its regional headquarters for its Space & Defense segment in Redondo Beach, California. In the opinion of management, the Company's facilities are generally well maintained and are suitable and adequate for their intended use. Reference is made to the information concerning long-term rental obligations under operating leases presented under the note entitled "Lease commitments" in the Notes to Financial Statements on page 35 of the TRW 1995 Annual Report. Such information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS On December 15, 1987, the Commissioner of the Indiana Department of Environmental Management issued an Order to TRW and several other respondents relating to alleged contamination of the public water supply in Shelbyville, Indiana by, among other sources, two closed facilities that were formerly operated by TRW's Connectors Division. The Order requires the respondents to fund the relocation of the main well field for Shelbyville to a location that can provide a safe source of potable water and to perform a remedial investigation of the source and extent of contamination within a one-mile radius of the well field. The Order also requires the 6 respondents to pay civil penalties of $25,000 per day for violations of law which allegedly occurred prior to issuance of the Order. TRW has filed a petition for review of the Order. The Order is not expected to have a material effect on the Company's financial position. On February 15, 1994, TRW filed suit in the United States District Court for the District of Arizona against Talley Industries, Inc. and certain Talley subsidiary companies. The suit relates to TRW's 1989 purchase of Talley's air bag business. In the complaint, TRW claimed that, among other violations of TRW's rights, Talley breached the non-compete provision contained in the purchase agreement by providing products and services to competitors of TRW. As a result of the breach, TRW exercised its rights under the agreement and the license from Talley to TRW to make a one-time payment of $26.5 million to Talley for a paid-up royalty-free license to use Talley's air bag patents and technology. On March 1, 1994, Talley filed an answer and counterclaims against TRW alleging that TRW had acted improperly in making the $26.5 million payment and requesting that TRW be ordered to pay immediately to Talley the value of all anticipated royalties, claimed by Talley to be not less than $250 million. On May 19, 1994, the court granted Talley's motion for an injunction requiring TRW to continue to make quarterly royalty payments pursuant to the 1989 asset purchase agreement and ancillary agreements pending trial of TRW's claims. On April 5, 1995, trial began before a jury on TRW's claims and Talley's counterclaims. On May 30, 1995, at the close of all the evidence, the trial judge directed a verdict against TRW on TRW's claims against Talley, ruling that there was not sufficient evidence to send TRW's claims to the jury. However, the judge allowed Talley's counterclaims to go to the jury. On June 6, 1995, the jury entered its verdict that Talley was entitled to the present value of the future royalty stream in the sum of $138 million on the contract claim, but that TRW had not acted in bad faith and that the technology on which royalties were due was limited to that in existence when TRW purchased Talley's air bag business. Judgment was entered against TRW on June 27, 1995 and TRW timely filed a notice of appeal on July 12, 1995. On July 26, 1995, the trial judge entered an order requiring that TRW continue to pay quarterly royalty payments to Talley as they become due, notwithstanding the fact it filed an appropriate bond in connection with its notice of appeal. TRW immediately appealed the judge's ruling requiring that TRW continue to pay the royalties pending appeal; however, the Ninth Circuit U.S. Court of Appeals denied TRW's appeal without prejudice and accelerated the schedule for the appeal on the judge's decision directing a verdict against TRW in connection with TRW's claims against Talley. Oral argument before the Ninth Circuit took place on February 14, 1996. The judgment against TRW, if it stands after appeal, is not expected to have a material financial effect on the Company. On November 13, 1995, TRW Vehicle Safety Systems Inc. ("VSSI") entered into agreements with the Arizona Attorney General's Office and the Arizona Department of Environmental Quality ("ADEQ") regarding a September 16, 1994 accident at Mesa Plant I as well as other outstanding issues between VSSI and ADEQ. Under the agreement with the Attorney General, on November 13, 1995 VSSI pleaded no contest to a single misdemeanor charge of violating hazardous waste management requirements which was filed on the same date. VSSI agreed to pay a fine and restitution of $1.0 million. VSSI also agreed to pay $100,000 in investigative costs to the Attorney General's office. Under the agreement with the ADEQ, VSSI agreed to implement plans to continue to improve emergency response procedures and reporting requirements as well as implement site assessments and other safety and environmental quality studies. VSSI agreed to pay $79,000 in administrative penalties to ADEQ. The State of Arizona has a penalty assessment provision of 57% that increased the total fines paid by TRW to $1.75 million. These actions resolve all material outstanding proceedings arising out of the September 16, 1994 accident. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter of 1995. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of, and the positions and offices held by, each person designated an executive officer of the Company as of March 20, 1996, together with the offices held by each such person during the last five years, are listed below. For purposes hereof, the term "executive officer" includes the Chairman of the Board, the President, 7 each Vice President in charge of a principal business function and any other officer who performs a policy-making function for the Company. Each executive officer is elected annually and, unless the executive officer resigns or terminates employment with the Company or is removed from office by action of the Company's Directors, will hold office for the ensuing year or until a successor is elected in accordance with the Company's Regulations. None of the Company's executive officers has a family relationship to any other executive officer.
POSITIONS AND BUSINESS EXPERIENCE NAME AGE DURING THE PAST FIVE YEARS - ------------------------- ---- ----------------------------------------------- M. A. Coyle 54 Executive Vice President (1989 to the present), General Counsel (1980 to the present) and Secretary (1976 to the present) J. T. Gorman 58 Chairman of the Board and Chief Executive Officer (1988 to the present) and Director (1984 to the present) President (1985 - 1991) T. W. Hannemann 53 Executive Vice President and General Manager, TRW Space & Electronics Group (1993 to the present) Executive Vice President and General Manager, TRW Space & Defense Sector (1991 - 1992) Vice President and General Manager, TRW Electronic Systems Group (1989 - 1991) P. S. Hellman 46 President, Chief Operating Officer and Director (1995 to the present) Executive Vice President and Assistant President (1994) Executive Vice President, Chief Financial Officer and Assistant President (1994) Executive Vice President and Chief Financial Officer (1991 - 1994) Vice President and Treasurer (1989 - 1991) J. A. Janitz 53 Executive Vice President and General Manager, TRW Occupant Restraint Systems Group (1994 to the present) Vice President and General Manager, TRW Vehicle Safety Systems, Inc. (1991 - 1994) Vice President and General Manager, TRW Steering & Suspension Systems, North America (1990 - 1991) H. V. Knicely 60 Executive Vice President, Human Resources and Communications (1995 to the present) Executive Vice President, Human Resources, Communications & Information Resources (1989 - 1994)
8
POSITIONS AND BUSINESS EXPERIENCE NAME AGE DURING THE PAST FIVE YEARS - ------------------------- ---- ----------------------------------------------- W. B. Lawrence 51 Executive Vice President, Planning, Development & Government Affairs (1989 to the present) C. G. Miller 53 Executive Vice President, Chief Financial Officer and Controller (1996 to the present) Vice President and Controller (1990 - 1996) J. S. Remick 57 Executive Vice President and General Manager, TRW Steering, Suspension & Engine Group (1995 to the present) Vice President and Deputy General Manager, Automotive (1995) Vice President and General Manager, TRW Steering & Suspension Systems, North and South America (1991 - 1995) Deputy General Manager, TRW Steering Systems Group (1990 - 1991) D. V. Skilling 62 Executive Vice President and General Manager, TRW Information Systems & Services Group (1989 to the present) P. Staudhammer 62 Vice President, Science & Technology (1993 to the present) Vice President and Director of the Center for Automotive Technology (1990 - 1993) J. P. Stenbit 55 Executive Vice President and General Manager, TRW Systems Integration Group (1994 to the present) Vice President and General Manager, TRW Systems Integration Group (1990 - 1994) R. D. Sugar 47 Executive Vice President and General Manager, TRW Automotive Electronics Group (1996 to the present) Executive Vice President and Chief Financial Officer (1994 - 1996) Vice President, Group Development, TRW Space & Electronics Group (1992 - 1994) Vice President, Strategic Business Development, TRW Space & Defense Sector (1992) Vice President and General Manager, TRW Space Communications Division (1987 - 1992)
9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Reference is made to the information set forth in the table presented under "Stock prices and dividends (unaudited)" on page 39 of the TRW 1995 Annual Report and to the information presented under the note entitled "Debt and credit agreements" in the Notes to Financial Statements on pages 34 and 35 of the TRW 1995 Annual Report. The information contained in such table and the information contained in the second paragraph of text on page 35 in such note to financial statements are incorporated herein by reference. The Company's Common Stock is traded principally on the New York Stock Exchange and is also traded on the Chicago, Pacific, Philadelphia, London and Frankfurt exchanges. On March 1, 1996, there were 27,168 shareholders of record of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) ----------------------------------------------------- YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1995 1994 1993 1992 1991 --------- --------- --------- --------- --------- Sales........................................... $ 10,172 $ 9,087 $ 7,948 $ 8,311 $ 7,913 Net earnings (loss)............................. 446 333 195 (156) (140) Per share of Common Stock: Fully diluted earnings (loss)................. 6.62 5.01 2.97 (2.51) (2.30) Primary earnings (loss)....................... 6.69 5.05 3.01 (2.51) (2.30) Cash dividends declared....................... 2.10 1.97 1.88 1.84 1.80 Total assets.................................... 5,890 5,636 5,336 5,458 5,635 Long-term debt.................................. 541 694 870 941 1,213 Shares used in computing per share amounts: Fully diluted................................. 67.4 66.4 65.7 62.3 61.2 Primary....................................... 66.6 65.8 64.7 62.3 61.2
In February 1996, the Company entered into a sales agreement to sell substantially all of the businesses in the Information Systems and Services segment. The sale is subject to corporate and regulatory approvals and other significant conditions to closing, including the implementation of certain computer systems. The impact of the proposed divestiture, which is expected to result in a gain, has not been fully determined. In 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," and took a one-time charge of $25 million, or $.38 per share, for the prior years' cumulative effect of the accounting change. The effect of this accounting change on 1993 operating results, after recording the cumulative effect for years prior to 1993, was immaterial. In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its U.S. and Canadian retiree health care and life insurance plans and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and took a one-time charge of $350 million, or $5.60 per share, for the prior years' cumulative effect of the accounting changes. In 1992, net earnings were reduced by $23 million for the change in accounting for postretirement benefits and were increased by $11 million for the change in accounting for income taxes. 10 In December 1991, TRW announced a restructuring plan. Net earnings (loss) for 1991 include the effect of an aftertax charge of $256 million, or $4.18 per share, to cover costs associated with divestiture and restructuring activities, including reserves relating to environmental costs. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information presented under the heading "Management's Discussion and Analysis of the Results of Operations and Financial Condition" on pages 19 through 22 of the TRW 1995 Annual Report. Such information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements headed "Statements of Earnings," "Balance Sheets," "Statements of Cash Flows" and "Statements of Changes in Shareholders' Investment," and the accompanying notes thereto, on pages 23 through 38 of the TRW 1995 Annual Report. Reference is also made to the information included in the table presented under the headings "Events subsequent to date of independent auditors' report (unaudited)" and "Quarterly financial information (unaudited)" on page 39 of such report. Such statements, the accompanying notes and such table are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information relating to TRW's Directors which is presented under the heading "Election of Directors" on pages 1 through 5 of the TRW Proxy Statement dated March 20, 1996, as filed with the Securities and Exchange Commission (the "TRW Proxy Statement"). Such information, beginning with the third full paragraph on page 1 and ending with the first paragraph on page 5, is incorporated herein by reference. Reference is made to the information relating to Section 16(a) compliance which is presented under the heading "Section 16(a) Compliance" on page 7 of the TRW Proxy Statement. Such information is incorporated herein by reference. See the information presented in Part I of this Report under the heading "Executive Officers of the Registrant" for information relating to TRW's executive officers. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information presented under the heading "Compensation of Executive Officers" on pages 9 through 18 of the TRW Proxy Statement. Reference is also made to the information presented under the heading "Relationships and Transactions" on pages 6 through 7 of the TRW Proxy Statement. Such information is incorporated herein by reference. 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information presented under the heading "Ownership of Shares" on page 6 of the TRW Proxy Statement. Reference is also made to the information presented under the heading "Outstanding Securities" on pages 19 through 20 of the TRW Proxy Statement. Such information is incorporated herein by reference. There are no agreements or arrangements known to TRW that might, at a subsequent date, result in a change in control of TRW. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the information presented under the heading "Relationships and Transactions" on pages 6 through 7 of the TRW Proxy Statement. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES (1) FINANCIAL STATEMENTS The following financial statements of the registrant and its subsidiaries included in the TRW 1995 Annual Report are incorporated herein by reference: Statements of Earnings -- Years ended December 31, 1995, 1994 and 1993 (page 23) Balance Sheets -- December 31, 1995 and 1994 (pages 24 and 25) Statements of Cash Flows -- Years ended December 31, 1995, 1994 and 1993 (page 26) Statements of Changes in Shareholders' Investment -- Years ended December 31, 1995, 1994 and 1993 (page 27) Notes to Financial Statements -- (pages 28 - 38) (2) FINANCIAL STATEMENT SCHEDULES All Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. Financial statements and summarized financial information of unconsolidated subsidiaries and 50% or less owned persons accounted for by the equity method have been omitted because such subsidiaries and persons, considered individually or in the aggregate, do not constitute a significant subsidiary. (3) EXHIBITS 3(a) Amended Articles of Incorporation as amended December 14, 1988 (Exhibit 3(a) to TRW Annual Report on Form 10-K for the year ended December 31, 1988 is incorporated herein by reference). 3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1980 is incorporated herein by reference).
12 4(a) Rights Agreement dated as of December 14, 1988 between TRW Inc. and National City Bank, as successor Rights Agent (Exhibit 2 to TRW Form 8-A Registration Statement dated December 21, 1988 is incorporated herein by reference). 4(b) Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of May 1, 1986 (Exhibit 2 to TRW Form 8-A Registration Statement dated July 3, 1986 is incorporated herein by reference). 4(c) First Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of July 26, 1989 (Exhibit 4(b) to TRW Form S-3 Registration Statement, File No. 33-30350, is incorporated herein by reference). *10(a) 1967, 1973 and 1979 Stock Option Plans as amended April 28, 1982 (Exhibit A to TRW Proxy Statement dated March 18, 1982 is incorporated herein by reference). *10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1989 is incorporated herein by reference). *10(c) TRW Executive Health Care Plan as amended and restated effective August 1, 1995. *10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated March 19, 1984 is incorporated herein by reference). *10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 17, 1989 is incorporated herein by reference). *10(f) 1994 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 17, 1994 is incorporated herein by reference). *10(g) Form of Strategic Incentive Grant (Exhibit 10(g) to TRW Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference). *10(h) Form of Nonqualified Stock Option Agreement. *10(i) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. reflecting amendments effective August 1, 1990 (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(j) TRW Directors' Pension Plan as amended and restated effective August 1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(k) Form of Amended and Restated Employment Continuation Agreements with executive officers. *10(l) Consulting Agreement dated December 11, 1995 between TRW Inc. and C. O. Macey. *10(m) Consulting Agreement dated January 16, 1996 between TRW Inc. and R. G. Williams. 10(n) Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 19.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 is incorporated herein by reference). 10(o) Amendment dated June 30, 1993 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions. (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 is incorporated herein by reference). 10(p) Amendment dated as of March 1, 1994 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions. (Exhibit 10(cc) to TRW Annual Report on Form 10-K for the year ended December 31, 1993 is incorporated herein by reference). 10(q) Amendment dated February 28, 1995 to Multi-Year Revolving Credit Agreement (formerly entitled Three Year Revolving Credit Agreement) dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 10(u) to TRW Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference). *10(r) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and Restated, effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is incorporated herein by reference).
13 *10(s) TRW Inc. Deferred Compensation Plan (as Amended and Restated December 13, 1995). *10(t) TRW Benefits Equalization Plan (as Amended and Restated, effective August 1, 1995) (Exhibit 10.3 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is incorporated herein by reference). *10(u) TRW Supplementary Retirement Income Plan (as Amended and Restated, effective August 1, 1995) (Exhibit 10.4 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is incorporated herein by reference). *10(v) TRW Inc. Key Executive Life Insurance Plan dated as of February 7, 1996. *10(w) TRW Inc. Financial Counseling Program. 11 Computation of Earnings per Share. 12 Computation of Ratio of Earnings to Fixed Charges - Unaudited. 13 Portions of the TRW Annual Report to Security Holders for the year ended December 31, 1995 incorporated by reference herein. 21 Subsidiaries of the Registrant. 23(a) Consent of Independent Auditors. 23(b) Consent of Independent Auditors (with respect to financial statements of The TRW Canada Stock Savings Plan). 24(a) Power of Attorney. 24(b) Certified Resolutions. 27 Financial Data Schedule 99(a) Financial Statements of The TRW Employee Stock Ownership and Stock Savings Plan for the year ended December 31, 1995. 99(b) Financial Statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1995.
Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish to the Commission a copy of each such instrument upon request. *Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. (b) REPORTS ON FORM 8-K Form 8-K dated February 29, 1996. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRW INC. Date: March 20, 1996 By /s/ MARTIN A. COYLE ------------------------------------ MARTIN A. COYLE, EXECUTIVE VICE PRESIDENT AND SECRETARY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------- -------------------------------- -------------- J. T. GORMAN* Chairman of the Board, Chief Executive Officer and Director P. S. HELLMAN* President, Chief Operating Officer and Director C. G. MILLER* Executive Vice President, Chief Financial Officer and Controller M. H. ARMACOST* Director M. FELDSTEIN* Director March 20, 1996 R. M. GATES* Director C. H. HAHN* Director G. H. HEILMEIER* Director K. N. HORN* Director E. B. JONES* Director W. S. KISER* Director D. B. LEWIS* Director J. T. LYNN* Director R. W. POGUE* Director
MARTIN A. COYLE, by signing his name hereto, does hereby sign and execute this report on behalf of each of the above-named officers and Directors of TRW Inc., pursuant to a power of attorney executed by each of such officers and Directors and filed with the Securities and Exchange Commission as an exhibit to this report. *By /s/ MARTIN A. COYLE March 20, 1996 - ------------------------------------------- MARTIN A. COYLE, ATTORNEY-IN-FACT 15 REPORT OF INDEPENDENT AUDITORS Shareholders and Directors TRW Inc. We have audited the consolidated financial statements of TRW Inc. and subsidiaries listed in Item 14(a)(1) of the annual report on Form 10-K of TRW Inc. for the year ended December 31, 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TRW Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the notes to financial statements, effective January 1, 1993, the company changed its method of accounting for postemployment benefits. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio January 23, 1996 F-1 EX-10.(C) 2 EXHIBIT 10(C) EXHIBIT 10(c) TRW EXECUTIVE HEALTH CARE PLAN EHCP 8/95 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - ------------------------------------------------------------------------------ TABLE OF CONTENTS Introduction................................................1 Who Is Eligible.............................................1 Contributions...............................................1 Eligible Dependents.........................................1 Comprehensive Health Care Expense Benefits..................2 Covered Health Care Expenses................................2 Examples of Health Care Expenses Covered by the Plan........3 Examples of Health Care Expenses to be Approved in Advance..3 Examples of Health Care Expenses Not Covered by the Plan....4 Definitions.................................................5 Payment of Claims and Recordkeeping.........................6 Coordination of Benefits Provision..........................6 Reimbursement From a Third Party............................7 When Your Health Care Coverage Terminates...................7 After Health Care Coverage Terminates.......................7 Continuation of Coverage--COBRA.............................8 Cost of COBRA Coverage......................................8 Duration of COBRA Coverage..................................8 TRW Retirement Medical Plan.................................8 Additional Information......................................9 Plan Administration.........................................9 Employee Rights............................................11 Appendix...................................................12
TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- INTRODUCTION The TRW Executive Health Care Plan ("Plan") is a plan which provides payment for a wide range of health care expenses. To encourage good health, the Plan covers the expenses for physical examinations, as well as other preventive care. A simplified claim reimbursement procedure is also a major feature of the Plan. TRW reserves the right to modify or terminate the Plan at its discretion at any time. The elections you make when enrolled must remain in effect until the end of the plan year (calendar year), unless you have an eligible change in life status. Even then, the only changes allowed are those consistent with your change in life status or as required to add a dependent as a result of a Qualified Medical Child Support Order. Please see allowable life status changes listed in the ChoicePlus Employee Benefits Book applicable for your unit. WHO IS ELIGIBLE You are eligible for the benefits of the Plan as of the date you have been designated as a member of the Special Executive Group by the Chief Executive Office. Your eligible dependents will be covered on the date your coverage begins or the date he or she becomes a dependent, or is first enrolled, whichever is latest. Your eligibility for benefits from any other TRW health insurance plan will cease when you become a member of the Plan. CONTRIBUTIONS All participants are required to contribute to the cost of the Plan. Your contribution will be determined by TRW and will be based on the number of dependents you elect to include in the Plan. IRS regulations require that your contribution be made on an "after-tax" basis. The amount of the contribution will be reviewed annually. ELIGIBLE DEPENDENTS Dependents eligible for benefits are: - - your legal spouse; - - your unmarried child up to age 19 or age 25, if a full-time student; (If the dependent is on an internship through the school and is not over age 25, the employee may continue to cover the dependent through the end of the internship or age 25.) - - your child regardless of age if incapable of self-sustaining employment, because of mental or physical disability. The term "child" also includes your legally adopted child or one placed with you for adoption, foster child, stepchild, or any other child living with you in a regular parent-child relationship. To qualify as a dependent for purposes of the Plan, each child must also qualify as a "Dependent" under Section 152(a) of the Internal Revenue Code. Where this summary of the Plan refers to a dependent below, it means a person who is eligible to be and has been enrolled in the Plan. Dependents not enrolled when first eligible may be added in accordance with the Life Status Change Rules described in the "Life Status Change" section of the ChoicePlus Employee Benefits Book. Page 1 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- COMPREHENSIVE HEALTH CARE EXPENSE BENEFITS Full reimbursement will be made for covered medical, dental and vision expenses incurred by you or your eligible dependents while covered by the Plan. Reimbursement will be made regardless of where the expenses are incurred- - -whether in or out of the hospital--as long as they are incurred in connection with health care (see "Definitions" page 5). Except as described in the section entitled "After Health Care Coverage Terminates" (page 7), all expenses must be incurred while you or your dependents are covered by the Plan. An expense or charge will be deemed incurred as of the date the service is rendered or the supply is furnished. Services rendered after the termination of coverage will not be paid. COVERED HEALTH CARE EXPENSES Covered Health Care Expenses are the reasonable charges incurred in connection with the medical, dental, and vision care of you or your eligible dependent, and must be those which would qualify as a tax deduction. Covered Health Care Expenses, therefore, are those which are Reasonably Necessary and if not reimbursed, could be deducted by you (or you and your spouse in a joint return) when computing your taxable income under Section 213 of the Internal Revenue Code. The provision of Section 213 which limits deductible expenses to an amount measured against adjusted gross income does not apply. Covered Health Care Expenses include, but are not limited to, the following expenses for services and supplies: - - Room, board, and other medical services and supplies furnished by a hospital or other institution qualified to provide medical care. - - Services of any legally qualified doctor of medicine (M.D.), doctor of osteopathy (D.O.), doctor of podiatry (D.P.M.), doctor of chiropracty (D.C.), doctor of optometry (O.D.), doctor of chiropody (D.P.M. - D.S. C.), dentist (D.D.S. or D.M.D.), Christian Science practitioner listed in the Christian Science Journal (C.S.), registered nurse (R.N.), licensed practical or vocational nurse under the direction of an R.N. (L.P.N. or L.V.N.), midwife, physician's assistant certified by the National Commission on Certification of Physicians' Assistants (P.A.), audiologist, occupational therapist, physical therapist, psychologist, respiratory therapist, social worker, or speech therapist. - - Necessary transportation to and from an area or facility where the services or supplies covered hereunder may be obtained, including transportation by personal automobile. - - Drugs or medicines prescribed by a physician. - - Purchase or rental of medical or surgical supplies, aids, and prosthetic appliances, including eyeglasses, hearing aids, or dental prosthetic appliances. Examples of health care expenses that must be approved in advance are shown on page 3. Examples of health care expenses covered and NOT covered are shown on pages 3 and 4. Page 2 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- EXAMPLES OF HEALTH CARE EXPENSES COVERED BY THE PLAN - - AMBULANCE SERVICES - - DIAGNOSTIC & PREVENTATIVE SERVICES - Allergy & Dermatology Tests - Immunization & Inoculations - Physical Examinations - - X-ray & Laboratory Examinations - - DRUGS & SUPPLIES - Crutches - Eyeglasses - Hearing Aids - Hospital Beds - Prescription Drugs - Prostheses - Wheelchairs - HOSPITAL SERVICES - Emergency Care - Inpatient Care - Outpatient Care - - NURSING SERVICES - Licensed Vocational Nurses - Practical Nurses - Registered Nurses - - PHYSICAL THERAPY - - PROFESSIONAL SERVICES - Chiropodists - Chiropractors - Christian Science Practitioners - Dentists - Optometrists - Osteopaths - Physicians - Podiatrists - Psychiatrists - Psychologists EXAMPLES OF HEALTH CARE EXPENSES TO BE APPROVED IN ADVANCE Since reimbursement is made only when the expense is both reasonable and tax deductible, you should request approval from The Prudential Insurance Company (216-668-6662) for any unusual expense prior to the date it is incurred. Some examples of expenses that must be approved in advance are: - - Charges made by suppliers other than: - licensed medical practitioners, - licensed medical care institutions, or - providers of medically-related services and supplies. - - Charges representing, in whole or in part, expenses of a capital nature. - - Charges for medically necessary cosmetic procedures, including surgery. - - Charges which appear to have been made for purely custodial care. - - Charges for the use of scheduled airline and any other transportation expense except: - Those representing reimbursement for the reasonable use of a personal auto at the prevailing rate per mile, as defined by the IRS for medical transportation. - Those representing the actual cost of any mode of necessary emergency transportation. - - Meals and lodging not furnished by a hospital or similar institution as a necessary incident to medical care. - - Dental implants. Page 3 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - ------------------------------------------------------------------------------ EXAMPLES OF HEALTH CARE EXPENSES NOT COVERED BY THE PLAN - - Non-prescription drugs. - - Antiseptic diaper service. - - Bottled distilled water. - - Care of a normal and healthy baby by a nurse. - - Cosmetic surgery, similar procedures and related expenses unless necessary to correct a birth defect, an accidental injury or trauma, or a disease. This includes non-surgical medical or dental procedures which are primarily directed at improving bodily function rather than preventing/treating illness or disease. - - Domestic help. - - Funeral and burial expenses. - - Health club dues. - - Insurance premiums for hospitalization and medical care (including contact lens insurance). - - Social activities, such as dancing lessons, swimming lessons, etc. for the general improvement of health, even though recommended by a doctor. - - Trips and services for the general improvement of health, or to visit a sick or injured family member unless the traveler is an integral part of the treatment. - - Vitamins for general health (vitamins prescribed for a specific condition are covered). - - Personal and household expenses such as electric bills or cosmetics (including hypoallergenic cosmetics) and toiletries. - - Tuition or room and board expenses for day camps or schools with a primary focus on education rather than licensed medical care. - - Expenses associated with work-related injuries which are covered under Workers' Compensation. Page 4 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- DEFINITIONS COSMETIC SURGERY A procedure done to improve a patient's appearance and not to promote the body's proper function or to prevent or treat a disease. HEALTH CARE The diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body due to defect, illness or accidental bodily injury, or care during and following pregnancy, including treatment of any condition arising therefrom. INTERNAL REVENUE CODE Chapter 1 of Subtitle A of Title 26 of the United States Code of 1986, as currently constituted and as it may be later amended. PLAN The TRW Executive Health Care Plan ("Plan") is a plan which provides payment for a wide range of health care expenses. As used in this booklet, the term Plan refers to the "TRW Executive Health Care Plan." REASONABLE CHARGE An amount determined by the frequency, duration, and cost of services and supplies as compared with those customarily incurred for similarly situated individuals. REASONABLY NECESSARY The service or supply must be ordered by a physician and must be commonly and customarily recognized throughout the physician's profession as appropriate in the treatment of the patient's diagnosed sickness or injury. The service or supply must not be educational or experimental in nature, nor provided primarily for the purpose of medical or other research. In addition, in the case of hospital confinement on an inpatient basis, the length of confinement and hospital services and supplies will be considered "Reasonably Necessary" only to the extent that they are determined by The Prudential to be (a) related to the treatment of the condition involved and (b) not allocable to scholastic education or vocational training of the patient. TOTAL DISABILITY 1. Your complete inability to perform every duty pertaining to your occupation or employment. 2. Your dependent's complete inability to perform the normal activities of a person of similar age and sex. Page 5 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- PAYMENT OF CLAIMS AND RECORDKEEPING The Plan will reimburse you for covered expenses promptly after receipt of your claim. The Plan is designed to reimburse participants directly for covered expenses. You may wish to authorize payment directly to the provider in the case of significant expense such as in the case of hospital confinement. Benefits should not be assigned for other than a significant expense. Participants should file a claim for reimbursement by the Plan of any expenses resulting from an annual physical. Examinations may be performed by any physician selected by the participant, who is located within a reasonable distance of the participant's home. The procedures for claiming reimbursement for the expense of the examination are the same as for any other expenses. You may claim reimbursement of any Covered Health Care Expense simply by completing a "Claim Expense Form," attaching a copy of either your bill or receipt, and sending it to your Plan representative (as indicated in your enrollment package issued to all members when first eligible for the Plan) or if on direct claim processing, submit it directly to The Prudential Insurance Company. If more convenient, however, you may use an itemized statement to claim reimbursement and not complete the Claim Expense Form. Itemized statements must include the following information: - - Name and social security number of patient. - - Nature of illness or injury. - - Name, address, and tax identification number of the doctor, hospital, or supplier. - - Date of charge. - - Amount of charge. Cancelled checks or balance due bills are not acceptable as proof of loss. A claim for reimbursement must be made within two years after incurring the expense. In the case of minor expenses, it may be helpful for you to record them on the Claim Expense Form at the time they are incurred, and file for reimbursement when you feel a sufficient amount has been accumulated. A separate Claim Expense Form must be submitted for each individual family member for whom a claim is filed; therefore, records of medical expenses incurred for yourself and each of your dependents should be kept separately. COORDINATION OF BENEFITS PROVISION The purpose of health care coverage is to reimburse participants for health care expenses which they have incurred. In line with that purpose, our Plan contains a provision for coordinating with other group plans under which an employee or dependent is covered so that the total benefits available do not exceed 100 percent of the allowable expenses. When there is coverage by two or more group plans for health care treatment for an employee and/or dependent, the insurance companies involved work together to arrive at a payment of up to 100 percent of the allowable expenses, but no more. If any of your dependents are employed and have other coverage, that coverage is considered primary. In this case, the individual should submit the claim/bill to his/her primary insurance carrier first. Once the individual receives an explanation of benefits (EOB) from the primary insurance carrier and if there is a balance owing, he/she can then submit a copy of the original bill and the EOB from the primary insurance carrier to the secondary payer (The Prudential). Alternately, if he/she has received a statement from the provider (doctor/dentist, etc.) which shows the amount the primary insurance carrier has paid and a balance owed by the patient, he/she can submit this document alone to The Prudential for payment. No other documentation is needed in this situation in order for The Prudential to pay as secondary payer. Page 6 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- REIMBURSEMENT FROM A THIRD PARTY If a covered person receives Plan benefits to which that person is not entitled under the Plan (because a third party is responsible), the covered person will be charged for the amount of such benefits that have been paid by this Plan. When someone other than the covered person is responsible for a sickness or injury, the covered person must, in return for the Plan's providing benefits for that sickness or injury, reimburse the Plan immediately upon receipt of any payments or damages with respect to that sickness or injury. Examples include payments received through a lawsuit, a settlement, or from any third party or his or her insurer (including no-fault insurance). The employee's agreement to reimburse the Plan will apply regardless of whether the responsible party admits liability or the payments are itemized. WHEN YOUR HEALTH CARE COVERAGE TERMINATES Your coverage under the Plan will terminate, unless otherwise agreed in writing, at the earliest time stated below: 1. the end of the month next following the month in which your employment terminates; 2. the end of the month coinciding with the month in which your retirement from active employment is effective; 3. the date you cease to be a member of the Special Executive Group, or; 4. the date the Plan is discontinued or modified. In addition to the above, coverage terminates with respect to an individual dependent when he/she ceases to meet the eligibility requirements of the Plan (i.e., a child who reaches the age limit or a spouse who becomes divorced from you). However, coverage will not terminate until the end of the third month following the month in which a dependent attains the applicable age limitation or the divorce is effective. In the event of your death while covered by the Plan, coverage for your dependents will be continued for a period of six months following the end of the month in which death occurs. AFTER HEALTH CARE COVERAGE TERMINATES Reimbursement will not be made for expenses which are incurred after coverage terminates unless they are incurred with respect to an injury or illness, including pregnancy, that cause you or your dependent to be continuously and totally disabled from such termination date. Only those expenses incurred relating to a continuous and total disability during the calendar year in which coverage terminates and the next calendar year shall be reimbursed, unless such expenses are reimbursed under any other group insurance policy or plan. Page 7 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- CONTINUATION OF COVERAGE--COBRA Under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA), you or your dependents are eligible to continue coverage, at your expense, but only if that coverage ends as the result of one of the following "qualifying events." 1. Termination of employment for any reason (except gross misconduct); reduction in hours, layoff or retirement; 2. Death of the employee; 3. Divorce or legal separation; 4. Loss of dependent status by a dependent child due to attainment of the maximum age limitation under the Plan, or cessation of full-time schooling. COST OF COBRA COVERAGE Coverage may be continued at the same rates applicable to active employees, with an administration charge of two percent. You are required to pay the full cost of the coverage. DURATION OF COBRA COVERAGE If your active employee coverage would cease because of retirement, termination of employment, layoff, leave of absence, or reduction in your work hours, you or your dependents may elect to continue the existing coverage for up to 18 months from the date of the qualifying event (or up to 29 months if disabled). For all other qualifying events, you or your dependents may elect to continue coverage for up to 36 months. However, COBRA coverage will not continue beyond the date that the earliest of the following occurs: 1. Failure to pay the required premiums. 2. Entitlement to Medicare. 3. Coverage under another employer-sponsored health plan which does not contain pre-existing condition exclusions applicable to the COBRA participant. 4. Any payment of COBRA costs by the company will not extend the applicable 18 or 36 month period. If your dependent loses coverage as a result of a divorce or loss of dependent status, it is your or your dependent's responsibility to advise TRW within 60 days of the later of the qualifying event or the date of loss of coverage, if you wish to continue coverage. Any questions regarding the COBRA eligibility and coverage provisions should be directed to your TRW Plan representative. TRW RETIREMENT MEDICAL PLAN If your coverage is ceasing due to your retirement, you may be entitled to enroll in TRW's Retirement Medical Plan (RMP). At retirement, you may elect only one option--RMP or COBRA. Page 8 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION In providing this Plan to employees, certain legal requirements must be met. You must be fully informed of the benefits being provided and your rights regarding these benefits under the Employee Retirement Income Security Act of 1974. ERISA was signed into law to provide additional protection for employees covered under any benefit plan. Your rights, as specified by law, are described on page 11. PLAN ADMINISTRATION 1. NAME, ADDRESS, AND TELEPHONE NUMBER OF EMPLOYER WHOSE EMPLOYEES ARE COVERED BY THE PLAN: TRW Inc. 1900 Richmond Road Cleveland, OH 44124 Phone No.: 216.291.7000 2. PLAN ADMINISTRATOR: TRW Inc. 1900 Richmond Road Cleveland, OH 44124 Phone No.: 216.291.7436 3. SOURCE OF CONTRIBUTIONS TO THE PLAN: Employer and employee contributions. 4. PLAN YEAR: Plan Year ends on each December 31. 5. THE AGENT FOR SERVICE OF LEGAL PROCESS: Secretary TRW Inc. 1900 Richmond Road Cleveland, OH 44124 6. TYPE OF ADMINISTRATION OF THE PLAN: The Plan is insured by The Prudential Insurance Company of America, Central Group Operations, Horsham, Pennsylvania 19044. 7. PLAN NUMBERS: The Plan is on file with the Department of Labor under TRW's Employer Identification Number 34-0575430. The Plan number is 705. The Prudential control number is 39400. Page 9 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- PLAN ADMINISTRATION cont'd 8. CLAIMS NOTICE OF DECISION: The Prudential Insurance Company will provide notice of decision on a wholly or partially-denied claim to the participant no later than 90 days after receipt of the claim by the Plan, unless special circumstances require an extension. If an extension is required, written notice of the extension shall be provided before the end of the initial 90-day period, and the extension itself shall not exceed 90 days from the end of the initial period. A denial notice should also give the specific reason for the denial, a specific reference to pertinent Plan provisions, a description of any additional material necessary to perfect the claim, and information on steps to be taken to appeal the denial. 8. APPEALS PROCESS: If you are denied a claim, you can request a review of your claim, review pertinent documents, and submit issues and comments in writing to The Prudential Insurance Company, P.O. Box 3699, Akron, OH 44309-3699 within 60 days of the initial denial of your claim. The Prudential will review the appeal no later than 60 days after its receipt, unless special circumstances require an extension, in which case a decision shall be rendered no later than 120 days after receipt of the request for review. The participant will be notified if an extension of time is needed. 9. PLAN TERMINATION: TRW reserves the right to terminate, suspend, withdraw, or amend the Plan in whole or in part at any time. Page 10 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- EMPLOYEE RIGHTS As a participant in this benefit Plan at TRW Inc., you are entitled to: - - Examine, without charge, at the Plan Administrator's office all Plan documents filed for the Plan with the U. S. Department of Labor, such as annual reports and Plan descriptions and all insurance contracts. - - Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies. - - Receive a summary of the Plan's annual financial report. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. In addition to creating rights for Plan participants, ERISA imposes obligations upon the persons who are responsible for the operation of the employee benefit Plan. These persons are referred to as "fiduciaries" in the law. Fiduciaries must act in the interest of the Plan participants and do so prudently. Fiduciaries who violate ERISA may be removed and required to make good any losses they have caused the Plan. Your employer may not fire you or discriminate against you to prevent you from obtaining a benefit or exercising your rights under ERISA. If you are improperly denied a benefit in full or in part, you have a right to file suit in a federal or state court. You may also file suit in federal court if any Plan documents or any other materials to which you are entitled are not received within 30 days of your written request, and the court may require the Plan Administrator to pay up to $100 for each day's delay until the materials are received, unless the failure was beyond the control of the Plan Administrator. If Plan fiduciaries are misusing the Plan's money, or if you are discriminated against for asserting your rights, you have the right to file suit in a federal court or request assistance from the U.S. Department of Labor. The court will decide who should pay court costs and legal fees. If you are successful in your lawsuit, the court may, if it so decides, require the other party to pay your legal costs, including attorney's fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about this statement or your rights under ERISA, you should contact the Plan Administrator or the nearest Area Office of the U.S. Labor-Management Service Administration, Department of Labor. Page 11 TRW EXECUTIVE HEALTH CARE PLAN (EHCP) - -------------------------------------------------------------------------------- APPENDIX
COVERED EXPENSES BENEFIT - ---------------- ------- HOSPITAL Charges by a hospital for medical 100% of eligible charges services on an inpatient or outpatient basis, including room and board, operating room, intensive care, tests, therapy, medication, and drugs dis- pensed for inpatient care, and other services. Covered services include medical care and diagnostic services. SURGERY Charges by a physician for performing 100% of eligible charges surgery on an inpatient or outpatient basis. Services include the surgeon, assistant surgeon, anesthesiologist, anesthetist and other professional personnel supporting the surgical procedure. PRESCRIPTION DRUGS Drugs requiring a prescription. Insulin is also covered. 100% of eligible charges MAJOR MEDICAL Charges for medical care and diagnos- 100% of eligible charges tic services and equipment. Included are physician services, routine medical examinations, nursing services, rental of wheelchairs or other needed medical equipment (or purchase where appro- priate), tests, therapy, and other professional health care services. DENTAL Charges for dental services and sup- 100% of eligible charges plies. Included are dentists, dental hygienists, prosthodontics, oral surgery, and others. VISION Charges for vision services and sup- 100% of eligible charges plies. Included are optometrists and professional eye care supplies.
Page 12 EX-10.(H) 3 EXHIBIT 10(H) EXHIBIT 10(h) [TRW LOGO] NONQUALIFIED STOCK OPTION AGREEMENT To: Name - ---------------------------- SS Number - ----------------------------- (SOCIAL SECURITY NUMBER) There hereby is granted to you, as a key employee of TRW Inc. ("TRW") or of a subsidiary, an option to purchase (AMOUNT) shares of Common Stock, par value $0.625 each, of TRW ("TRW Common") at an option price of $87.94 per share. This option is granted to you pursuant to the Plan and is subject to the terms and - --------------------------------- conditions set forth below. Date of Grant: February 7, 1996 This option is not intended to be an incentive stock option as defined in Section 422A of the Internal Revenue Code. TRW INC. By: ----------------------------------------- AUTHORIZED OFFICER - -------------------------------------------------------------------------------- TERMS AND CONDITIONS 1. PURCHASE RIGHTS. This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase up to 33-1/3% of the shares covered by this option, rounded down to the nearest whole share for each of the first two years, for each full year of your continuous employment with TRW after the date of grant. The purchase rights accumulate as shown in the following table.
Cumulative Maximum Number of Full Years Percentage of Of Continous Service Optioned Shares That After Date of Grant May Be Purchased - --------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100%
Notwithstanding the foregoing, in the event of a change in control of TRW, this option will immediately become exercisable in respect of all of the shares covered by this grant. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation and Stock Option Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two- thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. EXERCISE IN WHOLE OR PART. To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. TERM OF OPTION. To the extent this option has become exercisable in accordance with paragraph 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised at the end of the 10-year period, your unexercised purchase rights will terminate. To the extent unexercised, this stock option will terminate before the end of such 10-year period in the following cases: (a) If your employment with TRW terminates before you reach age 55, your unexercised purchase rights will terminate three months after the date your employment terminates. (b) If the Directors of TRW shall find that you intentionally committed an act materially inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. If your employment is terminated by death or disability, your purchase rights will not be subject to termination under clause (a) above and will continue for the entire 10-year period. In the event of a change in control of TRW (as defined herein), your purchase rights will not under any circumstances be subject to termination before the end of the 10-year period beginning on the date of grant. Nothing contained in this option shall extend this option beyond a 10-year period beginning on the date of grant or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. PAYMENT OF OPTION PRICE. The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, in full shares of TRW Common, or in a combination of both, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation and Stock Option Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. Cash payments shall be made in United States dollars, except that, if at the time of exercise you are employed by or on assignment for TRW or a subsidiary at a location outside the United States, a cash payment may, with the prior approval of the Secretary of TRW, be made in the official currency used at such location in an amount specified by the Secretary as equivalent to the same amount in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the mean of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of THE WALL STREET JOURNAL (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation and Stock Option Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. TAXES. Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation and Stock Option Committee of TRW, to pay a portion or all of the amount of required withholding taxes in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. SECURITIES LAWS. This option shall not be exercisable if such exercise would violate any Federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop- transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. TRANSFERABILITY. This option is not transferable other than by will or the laws of descent and distribution and shall be exercisable during your lifetime only by you or your guardian or legal representative. 8. LEAVES OF ABSENCE. If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. ADJUSTMENTS. The Compensation and Stock Option Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. CERTAIN DEFINITIONS. For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. 11. MISCELLANEOUS. This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation and Stock Option Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. EX-10.(K) 4 EXHIBIT 10(K) EXHIBIT 10(k) AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT This AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT (this "Agreement"), is made and entered into on this 7th day of February, 1996, by TRW INC., an Ohio corporation (the "Company"), and _________________ (the "Executive"). WITNESSETH: WHEREAS, the Executive presently is the ____________________ of the Company and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case with many publicly- held companies, the possibility of a Change in Control (as that term is hereafter defined) exists; WHEREAS, the Company wishes to assure itself of both present and future continuity of management in the event of any Change in Control; WHEREAS, the Company wishes to ensure that certain of its executives are not practically disabled from discharging their duties upon a Change in Control; WHEREAS, the Company and the Executive are parties to an Employment Continuation Agreement (the "Prior Agreement") providing certain benefits in the event of a Change in Control and the Company and the Executive desire to amend and restate the Prior Agreement; and WHEREAS, although effective and binding as of the date hereof, this Agreement shall become operative only upon the occurrence of a Change in Control; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Operation of the Agreement. (a) This Agreement shall be effective and binding immediately upon its execution, but anything in this Agreement to the contrary notwithstanding, this Agreement shall not be operative unless and until there shall have occurred a Change in Control. For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the Term (as that word is hereafter defined) any of the following events shall occur: (i) The Company is merged or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 51% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction is held in the aggregate by the holders of then-outstanding securities entitled to vote generally in the election of Directors ("Voting Stock") of the Company immediately prior to such transaction; -2- (ii) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person if less than 51% of the combined voting power of the then- outstanding Voting Stock of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale or transfer; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the then-outstanding Voting Stock of the Company; (iv) The Company shall file a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(e) of Schedule 14A thereunder (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or -3- (v) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each Director of the Company first elected during such period was approved by a vote of at least two-thirds of the Directors of the Company then still in office who were Directors of the Company at the beginning of any such period. Notwithstanding the foregoing provisions of Section 1(a)(iii) and 1(a)(iv) hereof, a Change in Control shall not be deemed to have occurred for purposes of this Agreement solely because (A) the Company, (B) an entity in which the Company directly or indirectly beneficially owns more than 50% of the voting securities or (C) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, or any entity holding shares of Voting Stock for or pursuant to the terms of any such plan, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Item 1 of Form 8-K or Item 6(e) of Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock of the Company, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership by the entities described in clauses (A), (B) and (C) of this paragraph. -4- (b) Upon the occurrence of a Change in Control at any time during the Term, this Agreement shall become immediately operative. (c) The period during which this Agreement shall be in effect (the "Term") shall commence as of the date hereof and shall expire as of the later of (i) the close of business on June 1, 2001 or (ii) the expiration of the Period of Employment (as that term is hereafter defined); provided, however, that (i) commencing on June 1, 1997 and each June 1 thereafter, the Term of this Agreement shall automatically be extended for an additional year unless, not later than January 1 of each such year, the Company or the Executive shall have given notice that it or he, as the case may be, does not wish to have the Term extended, and (ii) subject to Section 14 hereof, if, prior to a Change in Control, the Executive ceases for any reason to be an elected officer or assistant officer of the Company, thereupon the Term shall be deemed to have expired and this Agreement shall immediately terminate and have no further effect. 2. Employment; Period of Employment. (a) Subject to the terms and conditions of this Agreement, upon the occurrence of a Change in Control, the Company shall continue the Executive in its employ and the Executive shall remain in the employ of the Company for the period set forth in Section 2(b) below (the "Period of Employment"), with the duties and responsibilities set forth in Schedule A hereto and any additional duties and responsibilities that he may have immediately prior to the Change in Control or to which the Company and the Executive may hereafter mutually agree -5- in writing. So long as the Executive remains in the employ of the Company, the Executive shall devote substantially all of his time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company as in effect for executives immediately prior to the Change in Control) to the business and affairs of the Company, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business so long as such activity would not constitute Competitive Activity (as that term is hereafter defined), (ii) engaging in charitable and community activities or (iii) managing his personal affairs. (b) The Period of Employment shall commence on the date of the occurrence of a Change in Control and, subject only to the provisions of Section 4 hereof, shall continue until the earlier of (i) the Executive's death; (ii) the Executive's attainment of age 65; or (iii) the expiration of the third anniversary of the occurrence of the Change in Control. 3. Compensation During Period of Employment. (a) Upon the occurrence of a Change in Control, the Executive shall receive during the Period of Employment (i) annual base salary at a rate not less than the Executive's annual fixed or base compensation as in effect immediately prior to a Change in Control or such higher rate as may be determined from time to time by the Company, payable monthly or otherwise as in effect immediately prior to a Change in Control ("Base Pay") and (ii) an annual amount equal to not -6- less than the highest annual aggregate bonuses or incentive payments of compensation in addition to the amounts referred to in clause (i) above made or to be made (regardless of when, or in what form, such compensation is paid) for services rendered in any calendar year during the three calendar years immediately preceding the year in which a Change in Control occurred pursuant to any bonus, incentive, profit-sharing or similar policy, plan, program or arrangement of the Company or any successor thereto ("Incentive Pay"); provided, however, that nothing herein shall preclude a change in the mix of Base Pay and Incentive Pay by an increase in the relative amount of Base Pay, provided that the aggregate compensation received by the Executive in any one year is not reduced and provided, further, that in no event shall any increase in the Executive's aggregate compensation or any portion thereof in any way diminish any other obligation of the Company under this Agreement. For the purposes of this Agreement, any compensation the Executive elected to defer under any policy, plan, program or arrangement shall be included in the determination of Base Pay and/or Incentive Pay, as applicable. (b) For his service pursuant to Section 2(a) hereof, during the Period of Employment the Executive shall be a full participant in any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which executives of the Company participate immediately prior to the Change in Control or during the Period of Employment, including without limitation the TRW Salaried Pension Plan ("Retirement Plan"), the TRW Nonqualified Supplementary Retirement Income Plan ("SRIP"), the TRW Benefits Equalization Plan -7- ("BEP"), the TRW Employee Stock Ownership and Stock Savings Plan ("ESOSSP"), the TRW Long-Term Disability Benefits Plan (the "Disability Plan"), the TRW Deferred Compensation Plan (the "DCP") and any executive automobile, stock option, stock purchase, stock appreciation, performance improvement, long-term incentive, medical or health, life insurance, vacation, disability, salary continuation and any other retirement income or welfare benefit policy, plan, program or arrangement or any equivalent successor policy, plan, program or arrangement that may now exist or be adopted hereafter by the Company or any successor thereto providing benefits and other perquisites at least as great as are payable thereunder prior to a Change in Control (collectively, "Employee Benefits"). If and to the extent that any such Employee Benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company as a result of the amendment or termination thereof, the Company shall itself pay or provide therefor. Nothing in this Agreement shall preclude improvement of reward opportunities in any Employee Benefits, provided that no such improvement shall in any way diminish any other obligation of the Company under this Agreement. 4. Termination Following a Change in Control. (a) In the event of the occurrence of a Change in Control, this Agreement may be terminated by the Company during the Period of Employment only upon the occurrence thereafter of one or more of the following events: (i) If the Executive shall become permanently disabled and begins actually to receive disability benefits pursuant -8- to the Disability Plan or any successor plan adopted prior to a Change in Control; or (ii) For "Cause", which for purposes of this Agreement shall mean that, prior to any termination pursuant to Section 4(b) hereof, the Executive shall have committed: (A) an act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company; (B) intentional wrongful damage to the property of the Company; (C) intentional wrongful disclosure of secret processes or confidential information of the Company; or (D) intentional wrongful engagement in any Competitive Activity (as that term is hereafter defined) while the Executive remains in the employ of the Company; and any such act shall be determined by the Directors of the Company as hereafter provided to have been materially harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive shall be deemed for "Cause" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Direc- -9- tors then in office at a meeting of the Directors called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Directors), finding that, in the good faith opinion of the Directors, the Executive had committed an act set forth above in this Section 4(a)(ii) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (b) In the event of the occurrence of a Change in Control, this Agreement may be terminated by the Executive with the right to receive benefits under Section 5 hereof and, if applicable, Section 6 hereof, only upon the occurrence thereafter of one or more of the following events: (i) Any termination by the Company of the employment of the Executive during the Period of Employment, unless (x) Cause for termination shall exist or (y) as a result of the death of the Executive or (z) by reason of the Executive's disability and the actual receipt of disability benefits as provided in Section 4(a)(i) hereof; or (ii) Termination by the Executive of his employment with the Company during the Period of Employment and upon the occurrence of any of the following events: (A) Failure to elect, reelect or otherwise maintain the Executive in the office or position in the Company which the Executive held immediately prior to a -10- Change in Control, or the removal of the Executive as a Director of the Company (or any successor thereof) if the Executive shall have been a Director of the Company immediately prior to the Change in Control; (B) A significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties in respect of the Company which the Executive had immediately prior to the Change in Control, a reduction in the aggregate of the Executive's Base Pay and Incentive Pay received from the Company, or the termination of the Executive's rights to Employee Benefits to which he was entitled immediately prior to the Change in Control or a reduction in scope or value thereof without the prior written consent of the Executive, any of which is not remedied within 10 calendar days after receipt by the Company of written notice from the Executive of such change, reduction or termination, as the case may be; (C) A determination by the Executive (which determination will be conclusive and binding upon the parties hereto provided it has been made in good faith and in all events will be presumed to have been made in good faith unless otherwise shown by the Company by clear and convincing evidence) that a change in circumstances has occurred significantly affecting his position, including without limitation a change in the scope of the business or other activities for which he was responsible or a substantial -11- reduction in any of the resources available to carry out any of the authorities, powers, functions, responsibilities or duties that he had immediately prior to the Change in Control, has been rendered substantially unable to carry out, has been substantially hindered in the performance of or has suffered a substantial reduction in any of such authorities, powers, functions, responsibilities or duties, which situation is not remedied within 10 calendar days after receipt by the Company of written notice from the Executive of such determination; (D) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 8 hereof; (E) The relocation of the Company's principal executive offices or the requirement by the Company that the Executive change his principal location of work to any location which is in excess of 35 miles from his principal location immediately prior to the Change in Control or travel away from his office in the course of discharging his responsibilities or duties hereunder more than 20 consecutive cal- -12- endar days or an aggregate of more than 30 calendar days in any consecutive 90 calendar-day period without in either case his prior written consent; or (F) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company. The Executive's continued employment shall constitute consent to, and a waiver of rights with respect to, any event described in this Section 4(b)(ii) unless the Executive terminates his employment with the Company within 120 days after the Executive has actual knowledge of the occurrence of an event described in this Section 4(b)(ii) that is not remedied as provided herein. The parties agree that any consent to or waiver of any such event shall not be deemed to constitute a consent to or waiver of any other circumstance constituting an event described in this Section 4(b)(ii). (c) Notwithstanding anything contained in this Agreement to the contrary, in the event of a Change in Control, the Executive may terminate employment with the Company for any reason, or without reason, during the 60-day period immediately following the first anniversary of the first occurrence of a Change in Control, with the right to severance compensation as provided in Section 5 hereof and, if applicable, Section 6 hereof. (d) A termination by the Company pursuant to Section 4(a) hereof or by the Executive pursuant to Section 4(b) or Section 4(c) hereof shall not affect any rights which the Executive may have pursuant to any other agreement, policy, plan, program or -13- arrangement of the Company providing Employee Benefits, which rights shall be governed by the terms thereof; provided, however, that if the Executive shall have received or shall be receiving benefits under Section 5 hereof and, if applicable, Section 6 hereof, the Executive shall not be entitled to receive benefits under any other policy, plan, program or arrangement of the Company providing severance compensation to which the Executive would otherwise be entitled. If this Agreement or the employment of the Executive is terminated under circumstances in which the Executive is not entitled to any payments under Sections 3 or 5 hereof, the Executive shall have no further obligation or liability to the Company hereunder with respect to his prior or any future employment by the Company. (e) The Company shall provide the Executive with timely notice of any of the events referred to in Section 4(b)(ii)(D) hereof so that a determination can be made as to the assumption of duties and obligations by any successor or successors. 5. Severance Compensation. (a) If, following the occurrence of a Change in Control, the Company shall terminate the Executive's employment other than pursuant to Section 4(a) hereof, or if the Executive shall terminate his employment pursuant to Section 4(b) or Section 4(c) hereof: (i) The Company shall pay or cause to be paid to the Executive, within five business days after the effective date of any such termination (the "Termination Date"), in lieu of any further payments to the Executive for the portion of the Period of Employment subsequent to the Termination Date, but without -14- affecting the rights of the Executive referred to in Section 5(b) hereof and the Executive's rights at law or in equity (other than rights to damages for termination of his employment or this Agreement), a lump sum severance payment (the "Severance Payment") equal to the present value (using a discount rate equal to the applicable interest rate promulgated by the Internal Revenue Service "IRS" under Section 417(e)(3) of the Code for the third month preceding the month in which the Termination Date occurs, and if the IRS ceases to promulgate such interest rates, the last such interest rate so promulgated) of the sum of (A) the aggregate Base Pay (at the highest rate in effect at any time during the Period of Employment or immediately prior to the Change in Control) which the Executive would have received pursuant to this Agreement for (x) each remaining year or fraction thereof during the Period of Employment or (y) two years, whichever is the longer period, had his employment with the Company continued for the longer of such periods; plus (B) the aggregate Incentive Pay (based upon the highest annual aggregate Incentive Pay that the Executive received with respect to any calendar year during the three calendar years immediately preceding the calendar year in which the Change in Control occurred or the Incentive Pay that the Executive received with respect to the calendar year preceding the calendar year in which the Termination Date occurs, whichever is the larger amount) which the Executive would have received pursuant to this Agreement with respect to (x) each remaining year or fraction thereof during the Period of Employ- -15- ment or (y) two years, whichever is the longer period, had his employment with the Company continued for the longer of such periods; plus (C) the cash value of all Employee Benefits, other than stock option, stock purchase, stock appreciation or similar compensatory benefits (based upon the highest annual aggregate rate that the Executive received Employee Benefits with respect to any calendar year during the three calendar years immediately preceding the calendar year in which the Change in Control occurred or the Employee Benefits that the Executive received with respect to the calendar year preceding the calendar year in which the Termination Date occurs, whichever is the larger amount), which the Executive would have received pursuant to this Agreement with respect to (x) each remaining year or fraction thereof during the Period of Employment or (y) two years, whichever is the longer period, had his employment with the Company continued for the longer of such periods, other than Employee Benefits providing Base Pay, Incentive Pay and the Employee Benefits to be provided pursuant to Sections 5(a)(ii) and 5(a)(iv) hereof; (ii) The Company shall pay or cause to be paid to the Executive, within five business days after the Termination Date, a lump sum payment equal to the sum of the following: (A) The present value of the benefit that would be payable to the Executive from the SRIP and the Defined Benefit Portion of the BEP (as such term is used therein), commencing at the earliest time permissible under the SRIP and the BEP, assuming, -16- solely for the purposes of the SRIP and the BEP (but not for purposes of the Retirement Plan), that (I) the SRIP and the BEP contained no vesting requirements, (II) the Executive was credited with additional service with the Company equal to the remaining Period of Employment or two years, whichever is the longer period, (III) the Executive's age was increased an amount equal to the remaining Period of Employment or two years, whichever is the longer period, and (IV) the Executive's final average compensation was determined by including the compensation that would have been paid to the Executive for a period equal to the remaining Period of Employment or two years, whichever is the longer period, had his employment with the Company continued for the longer of such periods, if the Executive's annual compensation for such period was the sum of the amounts described in Sections 5(a)(i)(A) and 5(a)(i)(B), such present value to be determined using the applicable mortality table promulgated by the IRS under Section 417(e)(3) of the Code in effect on the Termination Date and the applicable interest rate promulgated by the IRS under Section 417(e)(3) of the Code for the third month preceding the month in which the Termination Date occurs, and if the IRS ceases to promulgate such interest rates, the last such interest rate so promulgated. The Executive hereby waives, in consideration of, and subject to receipt of, the payment contemplated by this Section 5(ii)(A), any payments under the provisions of the SRIP and the Defined Benefit Portion of the BEP. -17- (B) The amount credited to the Executive's Account (as such term is defined in the BEP) under the defined contribution portion of the BEP. The Executive hereby waives, in consideration of, and subject to receipt of, the payment contemplated by this Section 5(ii)(B), any payments under the provisions of the defined contribution portion of the BEP. (C) The amount of TRW Matching Contributions (as such term is defined in the ESOSSP) that would have been contributed to the ESOSSP on behalf of the Executive for the remaining Period of Employment or two years, whichever is the longer period, had his employment with the Company continued for the longer of such periods, if (I) the Executive's employment had not been terminated, (II) the Executive had received Base Pay and Incentive Pay during such period at the rates or in the amounts described in Section 5(a)(i) hereof, (III) the ESOSSP did not contain provisions implementing the requirements of Sections 401(a)(4), 401(a)(17), 401(k), 401(m), 402(g), and 415 of the Code or any other provisions of the Code limiting the amount of contributions that may be made to the ESOSSP by or on behalf of the Executive and (IV) the Executive had elected to contribute the maximum amount of Before-Tax Contributions (as such term is defined in the ESOSSP) permitted to be contributed to the ESOSSP for such period. (D) The amounts (including interest through the Termination Date) credited to the Executive's Account (as such term is defined in the DCP). The Executive acknowledges that the Execu- -18- tive's receipt of the payment contemplated by this Section 5(ii)(D) shall discharge the Company's obligations to the Executive under the DCP. The Executive and the Company acknowledge that references in this Section 5(a)(ii) to the Retirement Plan, the ESOSSP, the BEP, the SRIP and the DCP shall be deemed to be references to such plans as amended or restated from time to time and to any similar plan of the Company that supplements or supersedes any such plans; provided that any amendment following a Change in Control that reduces benefits under the Retirement Plan, the ESOSSP, the BEP, the SRIP or the DCP (or any similar plan of the Company that supplements or supersedes any of such plans) in any way (including without limitation by reducing the rate of benefit accruals or contribution levels under any of such plans, or by changing the basis upon which actuarial equivalents are determined under any such plans) shall be disregarded for purposes of this Section 5(a)(ii). In addition, the Executive and the Company acknowledge that references in this Section 5 to any Section of the Code shall be deemed to be references to such Section as amended from time to time or to any successor thereto. (iii) The Company shall pay all legal fees and expenses incurred by the Executive as a result of such termination (including without limitation all such fees and expenses, if any, incurred in seeking to obtain or enforce any right or benefit provided by this Agreement in accordance with Section 17 hereof); and (iv) The Company shall arrange to provide to the Executive, for the remainder of the Period of Employment or two years, -19- whichever is the longer period, with Employee Benefits that are welfare benefits (and not stock option, stock purchase, stock appreciation or similar compensatory benefits) which the Executive was receiving or entitled to receive during the Period of Employment. If and to the extent that any such Employee Benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company (i) solely due to the fact that the Executive is no longer an officer or employee of the Company or did not continue as an officer or employee of the Company during the remainder of the Period of Employment or (ii) as a result of the amendment or termination of any such Employee Benefit, the Company shall itself pay or provide for the payment of such Employee Benefits to the Executive, his dependents and beneficiaries. Without otherwise limiting the purposes or effect of Section 7 hereof, Employee Benefits payable to the Executive (including his dependents and beneficiaries) pursuant to this Section 5(a)(iii) by reason of any "welfare benefit plan" of the Company (as the term "welfare benefit plan" is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) shall be reduced to the extent comparable welfare benefits are actually received by the Executive (including his dependents and beneficiaries) from another employer during such period, and any such benefits actually received by the Executive shall be reported by the Executive to the Company. (b) Any Incentive Pay that is payable to the Executive with respect to a period that is less than a full calendar year (a "partial calendar year") shall be prorated by multiplying (i) the Incentive Pay that would have been payable to the Executive with respect to the -20- entire calendar year had the Executive's employment with the Company continued until the end of such year by (ii) a fraction, the numerator of which equals the number of days in the partial calendar year and the denominator of which equals 365. (c) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. (d) Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite "prime rate" as quoted from time to time during the relevant period in the Northeast Edition of THE WALL STREET JOURNAL, plus three percent. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change. (e) In the event a Change in Control occurs, the Company shall deposit in trust, pursuant to certain trust agreements to which the Company shall be a party, cash or other property in such an amount as necessary to assure the payment of the amounts due to the Executive under this Agreement. Any failure by the Company to satisfy any of its obligations under this Section 5(e) shall not limit the rights of the Executive hereunder. Notwithstanding the foregoing, the Executive shall have the status of a general unsecured creditor of the Company and shall have no right to, or security interest in, any assets of the Company. 21 6. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that this Agreement shall become operative and it shall be determined (as hereafter provided) that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 (or any successor thereto) of the Code, or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided, however, that no Gross-Up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 6(e) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by the Executive and the amount of -22- such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized firm of certified public accountants (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 15 calendar days after the Termination Date, if applicable, or such earlier time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of the aforesaid determination and calculations. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment to be paid by the Company within such 15 calendar-day period shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 (or any successor thereto) of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(e) thereof and the Executive thereafter is required to make a payment of any Excise Tax, -23- the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive within three calendar days after receipt of such determination and calculations. (c) The Company and the Executive shall each cooperate with the Accounting Firm in connection with the preparation and issuance of the determination provided for in Section 6(b) hereof. Such cooperation shall include without limitation providing the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, that are reasonably requested by the Accounting Firm. (d) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations provided for in Section 6(b) hereof shall be paid by the Executive. The Company shall reimburse the Executive for his payment of such costs and expenses within five business days after receipt from the Executive of a statement therefor and evidence of his payment thereof. (e) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive receives notice of such claim and shall apprise the Company of the nature of such claim and the date on which -24- such claim is requested to be paid. The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30 calendar-day period following the date on which it gives such notice to the Company or (ii) the date that any payment of taxes with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(e), the Company shall control all proceedings taken in connection with such contest -25- and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conference with the taxing authority in respect of such claim (but the Executive may participate therein at his own cost and expense) and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of such contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (f) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, the Execu- -26- tive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(e) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. No Mitigation Obligation. The Company hereby acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following the Termination Date. In addition, the Company acknowledges that its severance pay plans and policies applicable in general to its salaried employees do not provide for mitigation, offset or reduction of any severance payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement shall be liquidated damages and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any miti- -27- gation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in Section 5(a)(iv) hereof. 8. Successors and Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement and each of the Company's obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of or to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but shall not otherwise be assignable or delegable by the Company. (b) This Agreement shall insure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Section 8(a) hereof. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable or transferable, whether by -28- pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 8(c), the Company shall have no liability to pay to the purported assignee or transferee any amount so attempted to be assigned or transferred. (d) The Company and the Executive recognize that each party will have no adequate remedy at law for any material breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 9. Notice. For all purposes of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of -29- the State of Ohio, without giving effect to the principles of conflict of laws of such State. 11. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement. 14. Employment Rights. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Executive to have the Executive continue as an officer or assistant officer of the Company or to remain in the employment of the Company prior to any Change in Control; provided, however, that any termination of employment of the Executive or removal of the Executive as an -30- elected officer or assistant officer of the Company following the commencement of any discussion with or communication from a third person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement. 15. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 16. Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive's participation, without the written consent of an officer of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 25% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 25% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (ii) participation in management of any enterprise or business operation thereof other than in connection with the competitive operation of such enterprise. 17. Legal Fees and Expenses. It is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or -31- other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare the Agreement void or unenforceable or institutes any litigation designed to deny, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action relating thereto, whether by or against the Company or any Director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and any such counsel, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The Company shall pay or cause to be paid and be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive (i) as a result of the Company's failure to perform this Agreement or any provision hereof or (ii) as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid. -32- 18. Prior Agreement. This Agreement amends and restates in its entirety the Employment Continuation Agreement, dated _____________, 19__ between the Company and the Executive. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above. TRW INC. By _____________________________ William S. Kiser Chairman of the Compensation and Stock Option Committee of the Directors of TRW Inc. __________________________________ Executive -33- EX-10.(L) 5 EXHIBIT 10(L) EXHIBIT 10(l) December 11, 1995 Mr. Chester O. Macey 2155 Edgeview Hudson, Ohio 44236 Dear Ches: This letter will confirm our understanding relating to your consulting agreement with TRW. The attached terms and conditions, together with this letter, constitute our "Agreement." We will request your consulting services and advice primarily for the Steering, Suspension & Engine Group, with special emphasis on Project ELITE. The timing and extent of your activities will be flexible; however, you will not be obligated to devote more than 25 percent of your time in any year to such services. Your consulting services will be rendered at such times and places as are mutually satisfactory and TRW will have no control over any reasonable manner or methods used by you in rendering such services. Our arrangement will become effective on January 1, 1996 and will continue for two years, terminating on December 31, 1997. The Agreement may be terminated by either of us in accordance with the terms and conditions set forth in the attached Exhibit A. As compensation for your services as a Consultant, TRW will pay to you $100,000 per year, to be paid in January of each year. TRW will also reimburse you for first-class airfare and all other reasonable out-of-pocket travel, entertainment, telephone and other business expenses incurred by you in performing your duties. Receipts for such expenses, accompanied by an expense report substantially the same as the TRW expense report form with which you are familiar should be submitted to me for processing and approval. For the convenience of TRW, during the term of this Agreement, we will also provide or reimburse you for required secretarial and other appropriate services. -1- If you agree to be bound by the terms of this Agreement, please sign at the bottom of this letter and initial each page of the attached terms and conditions and return them to me. Please keep a copy of the letter and the terms and conditions for your records. Sincerely, /s/ Peter S. Hellman - ----------------------- Peter S. Hellman ACCEPTED AND AGREED: /s/ Chester O. Macey - ------------------------ Chester O. Macey Date: December 18, 1995 -2- EXHIBIT A TERMS AND CONDITIONS I. CONFIDENTIAL INFORMATION The term "TRW Confidential Information" refers to all data, reports, drawings, tapes, formulas, interpretations, forecasts, business plans and analyses, records, trade secrets, customer lists, documents, proposals, information regarding products, pricing, terms of sale, processes, research and development, apparatus and application methods and all other information reflecting upon or concerning TRW Inc., its subsidiaries or affiliates (hereinafter referred to as "TRW") that TRW protects against unrestricted disclosure to others, are not openly communicated or made accessible by TRW to third parties and that Consultant obtains from TRW, its employees, subsidiaries or affiliates, or otherwise acquires while engaged hereunder, including information of a third party as to which TRW has a nondisclosure obligation. Additionally, TRW Confidential Information will include any and all reports to TRW made by Contractor hereunder or the contents thereof. In view of the sensitive information to which Consultant will have access during Consultant's engagement hereunder, any information reflecting upon or concerning TRW and known, communicated or accessible to Consultant shall be deemed to be TRW Confidential Information unless such information has been published by TRW in publicly available documents. Such TRW Confidential Information includes, but is not limited to, secret or confidential matters (a) of a technical nature, (b) of a business nature and (c) of either nature pertaining to future development. Consultant: (a) agrees that TRW Confidential Information is the sole property of TRW and that such TRW Confidential Information shall be used only in providing consulting services hereunder for TRW; (b) will hold the TRW Confidential Information in confidence and not disclose it in any manner whatsoever, in whole or in part, to any person except to employees of TRW, or to employees, subcontractors or representatives of Consultant who need to know in order to perform their duties and who agree in writing to use the Confidential Information only to assist Consultant in performance of Consultant's duties hereunder; (c) will take or cause to be taken all reasonable precautions to prevent the disclosure or communication of TRW Confidential Information to third parties; Initialed PSH/COM -3- (d) agrees that each reproduction, duplication, or copy of any portion of TRW Confidential Information will be deemed TRW Confidential Information for all purposes hereunder; and (e) will, upon expiration or termination of the Agreement, discontinue all use of TRW Confidential Information and return all documents containing TRW Confidential Information to TRW. In the event that Consultant or its employees, subcontractors, or representatives receives a request to disclose all or any part of the TRW Confidential Information under the terms of a valid and effective subpoena or order issued by a court of competent jurisdiction or by a governmental body, Consultant shall 1. As soon as possible upon receipt, notify TRW of the existence, terms and circumstances surrounding such a request, so that it may seek an appropriate protective order and/or waive Consultant's compliance with the provisions of this Agreement; and 2. If disclosure of such TRW Confidential Information is required in the opinion of Consultant's counsel, cooperate with TRW in obtaining reliable assurances that confidential treatment will be accorded to the disclosed TRW Confidential Information. II. INVENTIONS Consultant shall disclose promptly to TRW all ideas, inventions, discoveries or improvements, whether or not patentable, which were or are conceived or first reduced to practice by Consultant, whether solely or jointly with employees of TRW, its subsidiaries or affiliates, in the course of performing work hereunder or as a result of knowledge acquired while performing services under this Agreement ("TRW Inventions"). Consultant agrees that all TRW Inventions shall be the sole property of TRW. During and subsequent to the term of this Agreement, Consultant will execute and deliver to TRW all documents and take such other action as may be reasonably required by TRW to assist TRW in obtaining patents in the United States and foreign countries and in vesting title thereto in TRW for said TRW Inventions. At TRW's request and expense, Consultant shall cooperate with TRW and do all things reasonably and lawfully appropriate to assist TRW, or its successors, assigns and nominees, to obtain and enforce patents relating to such TRW Inventions. Initialed PSH/COM -4- III. COPYRIGHTS Neither Consultant nor any of Consultant's employees or independent contractors shall knowingly incorporate in any work prepared under this Agreement any copyrighted or proprietary material of TRW or any other person. Further, any work of authorship created under this Agreement shall constitute a "work made for hire", when so defined by the Copyright Act, and as to any work not so defined, Consultant hereby transfers, and shall cause its employees to transfer, to TRW any and all right, title and interest Consultant may have in and to the copyright in such work for the entire term of the copyright. No rights are reserved to Consultant in any work prepared under this Agreement. IV. LICENSE Consultant hereby grants to TRW a fully paid-up, nonexclusive and perpetual right and license to use any and all of Consultant's know-how and trade secrets which are necessary to the implementation of work by TRW pursuant to the reports and recommendations made by Consultant. V. CLASSIFIED MATERIAL TRW shall advise Consultant which information or items provided to Consultant constitute classified material, and Consultant shall comply with all security requirements imposed by the United States Government or TRW. If it becomes necessary for Consultant to store classified material at Consultant's place of work, other than TRW premises, a facility clearance shall be required. In that event, Consultant shall enter into a security agreement with the applicable Government agency and maintain a system of security controls in accordance with such security agreement. All such classified material shall be promptly returned to TRW on request or upon termination of the security agreement or this Agreement, whichever first occurs. VI. NO CONFLICT Except with the prior written approval of TRW after full disclosure of all relevant facts, Consultant shall refrain from accepting work, engagements or appointments from any third party which could conflict with, or impede an unbiased performance of, Consultant's work hereunder or the protection of TRW Confidential Information. VII. COMPLIANCE Consultant warrants that Consultant has the right to enter into this Agreement and that performance of the work specified shall not cause Consultant to be in violation of any federal, state or local law or regulation, or any Intitaled PSH/COM -5- contractual agreement entered into by the Consultant. Consultant shall comply with TRW's policies, directives and standards, including without limitation TRW's standards regarding legal and ethical conduct and government contracting and with all applicable federal, state and local laws and regulations. Consultant shall file all tax returns and reports required to be filed pursuant to law. VIII. TERMINATION This Agreement may be terminated by TRW or Consultant in whole or in part upon 15 days' prior written notice. This Agreement will terminate forthwith upon receipt of written notice from TRW if Consultant is unable to perform Consultant's duties hereunder for a period of thirty consecutive days. Payment shall be made for services and expenses rendered or incurred through the date of termination. Advance payments shall be prorated through the termination date. The covenants set forth in these Terms and Conditions shall survive the termination of this Agreement. IX. FORCE MAJEURE Neither party shall incur liability to the other party on account of any loss or damage resulting from any delay or failure to perform any part of this Agreement where such delay or failure was caused in whole or in part by events, occurrences or causes beyond the reasonable control of such party. X. RECORDS Consultant shall maintain a written record of all work performed and data generated in the course of performance under this Agreement and shall prepare a written summary of all work performed hereunder. Such written material shall be the sole property of TRW and shall be made available on request. TRW shall have the right to request preliminary reports from Consultant which represent the findings and conclusions of Consultant based on the information which exists at that time. Upon completion of each specific project or termination of this Agreement, Consultant shall, if requested by TRW, promptly furnish TRW a complete report, together with all supporting contract data. XI. CHANGES TRW may order changes in the description of services to be performed by Consultant. If Consultant believes that any change requested will require additional compensation to Consultant or will adversely affect the schedule for rendering services, before proceeding with any work on the change, Consultant will so advise TRW and thereafter Consultant will not proceed with any such change until Consultant has received written authorization from TRW to do so. Initialed PSH/COM -6- This Agreement may not be amended, modified or otherwise changed except by an instrument in writing signed by TRW and Consultant. XII. INDEPENDENT CONTRACTOR Consultant agrees that in the performance of this Agreement, Consultant shall act as an independent contractor, and not as an employee of TRW, and all of Consultant's agents and employees shall be subject solely to the control, supervision and authority of Consultant. Consultant understands and agrees that TRW will not cover Consultant or Consultant's employees or agents with Worker's Compensation, Unemployment Insurance, State Disability Insurance, public liability insurance or other benefits that may be available to employees of TRW. Consultant shall refrain from any representation that Consultant is an employee, agent or legal representative of TRW, or from incurring liabilities or obligations of any kind in the name, or on behalf, of TRW. It is agreed that (a) Consultant shall be responsible for Social Security taxes, if any, which may be applicable and for any other applicable fees or taxes (federal, state or local) which may be required; and (b) Consultant and Consultant's employees, agents, heirs, successors and assigns shall not be entitled, by virtue of any work done under this Agreement, to any benefits under any medical or travel accident insurance, pension, sick leave, life insurance, vacation, or disability, or other employees' benefit plan or plans maintained by TRW for its employees. XIII. INDEMNIFICATION TRW agrees to indemnify and hold Consultant harmless from and against any losses, claims, damages, liabilities, or actions related to or arising out of this engagement and Consultant's role in connection therewith, and will reimburse Consultant for all expenses (including reasonable counsel fees) incurred by Consultant in connection with investigating, preparing or defending any such action or claim, whether or not in connection with pending or threatened litigation in which Consultant is a party, if Consultant acted in good faith and in a manner Consultant reasonably believed to be in or not opposed to the best interests of TRW and, with respect to any criminal action or proceeding, had no reasonable cause to believe Consultant's conduct was unlawful. If any action or proceeding is brought against Consultant in respect of which indemnity may be sought against TRW pursuant hereto, Consultant shall promptly notify TRW in writing of the commencement of such action or proceeding, but the omission so to notify TRW shall not relieve TRW from any other obligation or liability which TRW may have to Consultant otherwise than under this Agreement or with respect to any other action or proceeding. In case any such action or proceeding shall be brought against Consultant, TRW shall be entitled to participate in such action or proceeding, and, after a written notice from TRW to Consultant, to assume the defense of such action or proceeding Initialed PSH/COM -7- with counsel of TRW's choice at its expense (in which case TRW shall not thereafter be responsible for the fees and expenses of any separate counsel retained by Consultant); provided, however, that such counsel shall be reasonably satisfactory to Consultant in the exercise of Consultant's reasonable judgment. Notwithstanding TRW's election to assume the defense of such action or proceeding, Consultant shall have the right to employ separate counsel and to participate in the defense of such action or proceeding. TRW shall bear the reasonable fees, costs and expenses of one such separate counsel (and shall pay such fees, costs and expenses at least quarterly) if TRW approves in advance the separate counsel selected by Consultant and if: (i) the use of counsel chosen by TRW to represent Consultant would present such counsel with a conflict of interest; (ii) the defendants in, or targets of, any such action or proceeding include both Consultant and TRW, and, upon advice of counsel, Consultant shall have reasonably concluded that there may be legal defenses available to Consultant which are materially different from those available to TRW (in which case TRW shall not have the right to direct the defense of such action or proceeding on behalf of Consultant); (iii) TRW shall not have employed counsel reasonably satisfactory to Consultant in the exercise of reasonable judgment to represent Consultant within a reasonable time after notice of the institution of such action or proceeding; or (iv) TRW shall authorize Consultant to employ separate counsel at TRW's expense. TRW and Consultant understand that the indemnity provisions contained in this Agreement shall be in addition to any and all other rights and remedies which the parties may have at law or in equity or otherwise, including, but not limited to, any right of contribution. Notwithstanding anything contained herein to the contrary, it is the intention of TRW and Consultant that the indemnification provided herein by TRW to Consultant shall not be more than that provided to a presently serving elected officer of TRW Inc. Consultant hereby agrees to indemnify, defend and save TRW, its officers, directors, employees and agents harmless from and against any expense, claim, action, loss or liability to any third party that results from or is caused by, directly or indirectly, Consultant's bad faith, willful misconduct, recklessness or unlawful conduct or the bad faith, willful misconduct, recklessness or unlawful conduct of Consultant's employees, agents, subcontractors, suppliers or other third parties utilized in connection with Consultant's performance. In agreeing to indemnify TRW under this section, Consultant expressly waives any immunity from liability Consultant may be entitled to under Section 35, Article II of the Ohio Constitution and Ohio Revised Code Section 4123.74 which provides immunity to complying employers from actions for damages by employees injured in the course of or arising out of their employment. Nothing in this indemnification shall limit the protection otherwise available to TRW employees or other persons performing Initialed PSH/COM -8- emergency first-aid services under Ohio Revised Code Sections 2305.23 and 4731.90. XIV. NONDISCRIMINATION Consultant: (a) will not discriminate against any applicant for employment on the basis of race, color, non-job related handicap, veteran status, religion, sex, national origin or age; (b) will take affirmative action to ensure that applicants are employed and employees are treated during employment without regard to their race, color, religion, sex, national origin, veteran status or non-job related handicap; and (c) will otherwise at all times comply with all applicable federal, state and local laws, rules, regulations, orders and ordinances relating to equal employment opportunity. Without limiting the generality of the foregoing, Consultant shall at all times comply fully with the provisions of the following regulations and Executive Orders, as the same may be amended or modified from time to time, and all rules and regulations promulgated thereunder or relating thereto or to such Executive Orders, as so amended or modified, such rules and regulations being herein incorporated by this reference: (i) Executive Order 11246, as amended by Executive Order 11375 (relating to nondiscrimination in employment by Government contracts and trade contractors); (ii) Executive Order 11625 (relating to utilization of minority business enterprises); (iii) Executive Order 11701 and 41 CFR 60-250 (relating to employment of certain veterans); (iv) Executive Order 11758 and 41 CFR 60- 741:4 (relating to employment of handicapped persons); and (v) Executive Order 11141 (relating to nondiscrimination on the basis of age). Consultant shall, upon request of TRW, provide TRW with such certifications and undertake such other actions as TRW may deem appropriate to verify and assure Consultant's compliance with such Executive Orders and regulations. XV. PUBLICITY Notwithstanding any provision to the contrary herein or otherwise, except as TRW grants prior written approval, Consultant shall not publicize the existence or terms of, or work performed under, this Agreement. XVI. ASSIGNMENT This Agreement shall not be assignable by either party without the prior written consent of the other party, except that TRW may assign this Agreement without such consent with respect to any corporate reorganization, merger, transfer of assets or similar transactions pursuant to which all of TRW's rights and obligations hereunder are transferred by operation of law or otherwise. Initialed PSH/COM -9- XVII. ENTIRE AGREEMENT This Agreement, including the engagement letter and these terms and conditions, sets forth the entire understanding between the parties relating to the subject matter contained herein and merges all prior discussions between them. Neither party shall be bound by any condition, warranty, or representation other than as expressly stated in this Agreement or as subsequently set forth in writing signed by the parties. If prior agreements, letters or proposals relating to the subject matter of this Agreement are inconsistent with the terms and conditions of the Agreement, this Agreement shall govern. Initialed PSH/COM -10- EX-10.(M) 6 EXHIBIT 10(M) EXHIBIT 10(m) January 16, 1996 Gordon Williams Dear Gordon: This letter agreement confirms our understanding relating to your engagement by TRW Inc. as a consultant to TRW to provide the services described in paragraph 1 below. The terms and conditions that follow constitute the entire agreement between you and TRW and are not to be modified in any way except by a written document executed by both parties. 1. STATEMENT OF WORK You will act as a Consultant to assist the EAS/EPHS team in the development of the EAS/EPHS business strategy. You will report directly to George Thomas, Vice President and General Manager of Passenger Car Steering Systems. 2. COMPENSATION As sole compensation for your services hereunder, TRW will pay you a fee of U.S.$1,000 per day. Partial days will be compensated on a pro rata basis. You will invoice TRW for such fees on a monthly basis. TRW will reimburse you for all normal travel (first class), food, lodging and other incidental expenses incurred in performing your work hereunder upon receipt by my office of standard TRW expense report forms and other documentation as required by TRW's expense reimbursement policy. All travel, including but not limited to airline travel and car rentals, is to be arranged through TRW's Travel Services Department. You will be required to adhere to TRW's travel policy, a copy of which has been provided to you. Initialed RGW ---- Consultant Agreement January 16, 1996 Page 2 3. TERM AND TERMINATION The term of this agreement will commence as of January 8, 1996, and may be terminated by TRW at any time by written notice to you. This agreement shall also terminate immediately upon your death. Payment shall be made by TRW for services and expenses rendered or incurred through the date of termination. 4. CONFIDENTIAL INFORMATION The term "TRW Confidential Information" refers to all data, reports, drawings, tapes, formulas, interpretations, forecasts, business plans and analyses, records, trade secrets, customer lists, documents, proposals, information regarding products, pricing, terms of sale, processes, research and development, apparatus and application methods and all other information reflecting upon or concerning TRW that are not openly communicated or made accessible by TRW to third parties and that you obtain from TRW, its employees, subsidiaries and affiliates, or that you otherwise acquire while engaged hereunder, including information of a third party as to which TRW has a nondisclosure obligation. Additionally, TRW Confidential Information shall include any and all reports to TRW made by you hereunder or the contents thereof. In view of the sensitive information to which you will have access during your engagement hereunder, any information reflecting upon or concerning TRW and known, communicated or accessible to you will also be deemed to be TRW Confidential Information unless such information has been published by TRW in publicly available documents. You: (a) agree that TRW Confidential Information is the sole property of TRW and that such TRW Confidential Information will be used only in providing consulting services hereunder for TRW; (b) will hold the TRW Confidential Information in confidence and not disclose it in any manner whatsoever, in whole or in part, to any person except to employees of TRW; (c) will take or cause to be taken all reasonable precautions to prevent the disclosure or communication of TRW Confidential Information to third parties; Initialed RGW ---- Consultant Agreement January 16, 1996 Page 3 (d) agree that each reproduction, duplication, or copy of any portion of TRW Confidential Information shall be deemed TRW Confidential Information for all purposes hereunder; and (e) will, upon expiration or termination of this letter agreement, discontinue all use of TRW Confidential Information and return all documents containing TRW Confidential Information to TRW. 5. NO CONFLICT Except with the prior written approval of TRW after full disclosure of all relevant facts, you will refrain from accepting work, engagements or appointments from any third party that could conflict with, or impede an unbiased performance of, your work hereunder or the protection of TRW Confidential Information. 6. COMPLIANCE You warrant that you have the right to enter into this letter agreement and that performance of the work specified herein will not cause you to be in violation of any federal, state or local law or regulation, or any contractual agreement entered into by you. You will comply with TRW's policies, directives and standards and with all applicable federal, state and local laws and regulations. 7. FORCE MAJEURE Neither party will incur liability to the other party on account of any loss or damage resulting from any delay or failure to perform any part of their obligations hereunder where such delay or failure was caused in whole or in part by events, occurrences, or causes beyond the reasonable control of such party. 8. INDEPENDENT CONTRACTOR You agree that in your performance of this letter agreement you will act as an independent contractor, and not as an employee of TRW. You understand and agree that TRW will not cover you with workers' compensation, unemployment insurance, state disability insurance, public liability insurance Initialed RGW ---- Consultant Agreement January 16, 1996 Page 4 or other benefits that may be available to employees of TRW. You will refrain from any representation that you are an employee of TRW, and from incurring liabilities or obligations of any kind in the name, or on behalf, of TRW. It is agreed that (a) you will be responsible for Social Security taxes, if any, which may be applicable and for any other applicable fees or taxes (federal, state or local) which may be required or levied upon any payment made to or on behalf of you hereunder; and (b) you and your heirs shall not be entitled, by virtue of any work done under this letter agreement, to any benefits under any medical or travel accident insurance, pension, sick leave, life insurance, vacation, or disability, or other employees' benefit plan or plans maintained by TRW for its employees. 9. PUBLICITY Except as TRW grants prior written approval, you will not publicize the existence or terms of, or work performed under, this letter agreement. 10. ASSIGNMENT Neither this letter agreement or any of the rights under the agreement is assignable by you or TRW. 11. ENTIRE AGREEMENT This letter agreement states the entire understanding between you and TRW relating to the subject matter of the agreement. Neither you nor TRW shall be bound by any condition, warranty, or representation other than as expressly stated herein or as subsequently stated in a writing signed by the parties. Any prior agreements (whether oral or written), letters or proposals relating to the same subject matter are hereby merged into this letter agreement and the rights and obligations of the parties, wherever and however arising, will be determined solely under the terms of this letter agreement. 12. LIMITATION OF LIABILITY TRW's sole financial obligation under this letter agreement shall be the payment of compensation and expense reimbursements as provided for herein. In no event will TRW be liable to you for any loss of profits or incidental or Initialed RGW ---- Consultant Agreement January 16, 1996 Page 5 consequential damages, however caused, whether by TRW's sole or concurrent negligence or otherwise. 13. SURVIVAL The parties' obligations contained in paragraphs 4, 9, 12 and 13 hereof are permanent and survive the termination of this letter agreement. 14. GOVERNING LAWS All questions concerning the validity and operation of this letter agreement and the performance of the obligations imposed upon the parties hereunder will be governed by the substantive laws of the State of Ohio, U.S.A., applicable to agreements made and to be performed wholly within such jurisdiction. Please confirm your agreement to the terms stated above by signing and dating each duplicate original of this letter agreement and returning a signed copy to me. Sincerely, TRW INC. By: /s/ James S. Remick --------------------- James S. Remick Executive Vice President Confirmed and agreed this 17th day of January, 1996 /s/ Gordon Williams ---------------- Gordon Williams Initialed RGW ---- EX-10.(S) 7 EXHIBIT 10(S) EXHIBIT 10(s) AMENDED AND RESTATED DECEMBER 13, 1995 TRW INC. DEFERRED COMPENSATION PLAN THIS AMENDED AND RESTATED PLAN is established by TRW Inc. ("TRW") effective July 28, 1993, and as amended effective August 1, 1994 and August 1, 1995, for the benefit of certain employees of the Corporation in executive, managerial or professional capacities so as to enhance the Corporation's ability to attract and retain outstanding employees who are expected to contribute to its success. It shall remain in effect, as it may be amended from time to time, until termination as provided in Article VII of the Plan. ARTICLE I DEFINITIONS For the purposes of the Plan, the following words and phrases shall mean: 1.1 ACCOUNT. The bookkeeping or accounting records maintained (having and requiring no segregation or holding of any assets) by TRW pursuant to Article IV with respect to and resulting from a Participant's Deferral Election. 1.2 AFFILIATE. (a) Any corporation incorporated under the laws of one of the United States of America of which TRW owns, directly or indirectly, in excess of fifty percent (50%) of the combined voting power of all classes of stock or in excess of fifty percent (50%) of the total value of the shares of all classes of stock (all within the meaning of Section 1563 of the Code); (b) any partnership or other business entity organized under such laws, in which TRW owns, directly or indirectly, (i) in excess of fifty percent (50%) of the total capital or profits interest of such partnership, or (ii) in excess of fifty percent (50%) or more of the total value of such other business entity (all within the meaning of Section 414(c) of the Code); and -1- (c) any other company designated as an Affiliate by the Committee. 1.3 BENEFICIARY. The person, persons or entity entitled under Article VI to receive any Plan Benefits payable after a Participant's death. 1.4 CODE. The Internal Revenue Code of 1986, as amended. References in the Plan to Sections of the Code are to such Sections as in effect on the Effective Date. 1.5 COMMITTEE. The Compensation and Stock Option Committee of the Directors. 1.6 CORPORATION. TRW or an Affiliate of TRW. 1.7 DATE OF DEPOSIT. The Determination Date immediately preceding the date that, but for the Deferral Election, the Incentive Compensation would be paid. 1.8 DEFERRAL ELECTION. An election pursuant to Article III by an Eligible Employee to defer receipt of all or part of his Incentive Compensation. 1.9 DEFERRED COMPENSATION. The portion of Incentive Compensation which an Eligible Employee elects to defer pursuant to a Participation Agreement. 1.10 DETERMINATION DATE. The last day of each calendar quarter; that is March 31, June 30, September 30 and December 31. 1.11 DIRECTORS. The Directors of TRW. 1.12 EFFECTIVE DATE. July 28, 1993, the effective date of the establishment of the Plan. 1.13 ELIGIBLE EMPLOYEE. A person (who must be a U.S. citizen or a U.S. resident alien) in the full time active salary employ of the Corporation who is employed at Operational Incentive Plan Level III or above at the end of the year for which a Deferral Election applies, or who retires after executing a valid deferral election in the year the retirement is effective. 1.14 EXECUTIVE OFFICER. Any Eligible Employee who is an "executive officer" of TRW for the purposes of Rule 3b-7 under the Securities Exchange Act of 1934. 1.15 FINANCIAL HARDSHIP. A severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or -2- of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstance arising as a result of events beyond the control of the Participant. In case of the Participant's death, the word "Beneficiary or other person or entity entitled to receive a Plan Benefit" shall be substituted for the word "Participant" wherever the latter appears in this Section 1.15. 1.16 HIGHLY PAID EMPLOYEE. A person in the full time active salary employ of the Corporation who (i) will earn, in salary and in bonus (assuming full year employment and no deferral of compensation), at least $150,000 (or such greater sum if the qualified benefit plan limitation is increased by the Internal Revenue Service) in the year of the Deferral Election or (ii) is already a participant in TRW's supplemental nonqualified benefit plans or (iii) is a U.S. citizen or U.S. resident alien who is Operational Incentive Plan Level III or above and is employed by either TRW Overseas Inc. or TRW Systems Overseas Inc. 1.17 INCENTIVE BONUS. A cash award payable to an Eligible Employee under TRW's Operational Incentive Plan (or similar compensation program that replaces the Operational Incentive Plan). 1.18 INCENTIVE COMPENSATION. Any cash award payable to an Eligible Employee as an Incentive Bonus or, if applicable, a Strategic Grant that, but for a Deferral Election under the Plan, would be paid to the Eligible Employee and considered to be "wages" for purposes of United States federal income tax withholding (or other appropriate jurisdiction). 1.19 INTEREST RATE. One-quarter of the annual interest rate, equal to 110% of the applicable long-term federal rate as published by the Internal Revenue Service pursuant to Code Section 1274(d) and in effect on the first business day of each calendar quarter. 1.20 PARTICIPANT. An Eligible Employee who has elected to participate in the Plan and has executed and filed with TRW a Participation Agreement as provided in Article III; provided, however, that such term shall include a person who no longer has an effective Deferral Election so long as he retains, under the Plan, an interest in an Account under the Plan. 1.21 PARTICIPANT AGREEMENT. An agreement between TRW and a Participant setting forth the Participant's Deferral Election. 1.22 PLAN. This Deferred Compensation Plan, as it may be amended from time to time. 1.23 PLAN BENEFIT. The benefit payable to a Participant in accordance with Article V hereof. -3- 1.24 PLAN YEAR. Each of the twelve (12) month periods ending December 31 and occurring while the Plan remains in effect. The term "Plan Year" shall also include the period beginning on the Effective Date and ending December 31, 1993, and any period of less than twelve (12) months beginning January 1 and ending on the date the Plan is terminated. 1.25 PRE-RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's Account, established pursuant to Section 4.3, to which there shall be credited Deferred Compensation under a single Deferral Election, and all interest accrued thereon, as to which the Participant has elected payment of his Plan Benefit in either five years or ten years from the Date of Deposit. 1.26 RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's Account, established pursuant to Section 4.3, to which there shall be credited Deferred Compensation under all Deferral Elections, and all interest accrued thereon, as to which the Plan Benefit is intended to be payable following retirement of the Participant from the Corporation. 1.27 SPECIAL COMMITTEE. The committee composed of the head of Human Resources, the General Counsel and the Chief Financial Officer of TRW, which committee reviews and acts upon the requests of Participants (other than Participants who are Executive Officers, whose requests are acted upon by the Committee) to receive early payout as a result of a Financial Hardship or to change payout upon retirement. 1.28 STRATEGIC GRANT. A cash award payable to an Eligible Employee pursuant to TRW's Strategic Incentive Program (or similar long-term compensation plan that replaces the Strategic Incentive Program). 1.29 SUB-ACCOUNT. A Pre-Retirement Payment Sub-Account or a Retirement Payment Sub-Account. 1.30 TERMINATION OF EMPLOYMENT. Any severance of a Participant from full- time active salaried employment by the Corporation for any reason (other than a transfer of employment from TRW to an Affiliate, from an Affiliate to another Affiliate or from an Affiliate to TRW). 1.31 TRW. TRW Inc., an Ohio corporation. ARTICLE II ADMINISTRATION 2.1 ADMINISTRATORS. The Plan shall be administered by the Committee, the Special Committee and the head of Human Resources, and certain decisions concerning Financial Hardship and change in payment upon -4- retirement may be made by the Special Committee. Except as otherwise provided herein, decisions of the Committee, the head of Human Resources or the Special Committee shall be final and binding on all parties. 2.2 COMMITTEE. The Committee shall have the authority (a) to make, amend, interpret and enforce all rules and regulations for the administration of the Plan and (b) to decide all questions, including interpretation of the Plan as may arise in connection with the Plan insofar as it is applicable to Participants (i) who are Executive Officers or (ii) with respect to whom questions are referred to the Committee by the head of Human Resources. A majority of the members of the Committee shall constitute a quorum. The Committee may act by a vote of a majority of a quorum at a meeting or by a writing signed by a majority of the members of the Committee. 2.3 HUMAN RESOURCES. The head of Human Resources shall administer the Plan in accordance with the terms of the Plan and the rules and regulations of the Plan as established by the Committee. Consistent with the authorized precedents and the rules and regulations authorized by the Committee, the head of Human Resources shall have the authority to decide all questions, including interpretations of the Plan, as may arise in connection with the Plan insofar as it is applicable to Participants other than Executive Officers. 2.4 SPECIAL COMMITTEE. With regard to all Participants, other than Participants who are Executive Officers, the Special Committee shall act upon (i) written requests of Participants concerning early payout of some or all of the Participant's Account balances as a result of Financial Hardship and (ii) written requests of Participants to change the payout of a Participant's Retirement Payment Sub-Account as provided by Section 5.1(b). The Special Committee may act by a vote of the majority at a meeting or by a writing signed by a majority of the members of the Special Committee. 2.5 FINANCIAL HARDSHIP AND RETIREMENT PAYOUT CHANGE REQUESTS. In order for a request to be considered by the Special Committee (or, in the case of a request as set forth in clauses (i) or (ii) of Section 2.4 by an Executive Officer, the Committee), the requests must (i) be in writing and delivered to the head of Human Resources, (ii) set forth whether the Participant is requesting an early payout because of a Financial Hardship or a change of payout upon retirement, (iii) set forth the reasons for such request, including in detail the Financial Hardship or the circumstances that necessitate the change of payout upon retirement, (iv) in the case of a request as a result of a Financial Hardship set forth the amount of such Participant's Account that the Participant wishes to be paid and the Sub-Accounts from which such early payout shall be made and (v) in the case of a change of payout at retirement set forth the manner in which the Participant wishes to receive payout (e.g., single sum or in five annual installments). Compliance with the petition procedures set forth in this Section -5- 2.5 does not insure that the request will be granted by the Special Committee (or the Committee). ARTICLE III PARTICIPATION 3.1 PARTICIPATION. (a) Subject to the limitations set forth in this Article III, any person who is an Eligible Employee in the year for which the Incentive Compensation deferred under a Deferral Elections under this Section 3.1 is payable may participate in the Plan by executing and filing with the head of Human Resources a Participation Agreement; provided, however, the election to defer Incentive Bonus will not be effective unless the Eligible Employee is also a Highly Paid Employee. The head of Human Resources shall determine, in his sole discretion, which Eligible Employees are likely to be Highly Paid Employees during the year in which the Deferral Election is made. The head of Human Resources shall then notify Eligible Employees whether their elections to defer Incentive Bonuses are effective. (b) In each Participation Agreement, the Eligible Employee shall specify the percentage or dollar amount of Incentive Bonus and the percentage or the dollar amount of Strategic Grant in respect of a specified TRW fiscal year to be deferred and the Eligible Employee shall specify, subject to the limitations of Section 5.1, the form of Plan Benefit (i.e., whether such benefits are intended to be paid following retirement or five or ten years from the Date of Deposit). If the Eligible Employee chooses to defer a dollar amount of the Incentive Bonus or the Strategic Grant and to the extent that dollar amount specified exceeds the eligible amount of the Incentive Bonus or the Strategic Grant, as applicable, the amount actually deferred shall be eligible amount of the Incentive Bonus or the Strategic Grant, as applicable. If the Eligible Employee has chosen to have Deferred Compensation paid five or ten years from the Date of Deposit, such payments shall be made as provided in Section 5.1(d) below. (c) Before September 30, 1993 with respect to 1993, and September 30 of each subsequent Plan Year with respect to each Plan Year thereafter, each Eligible Employee who elects to become a Participant shall file with the head of Human Resources a Participation Agreement specifying his Deferral Election for any Incentive Compensation payable in respect of that Plan Year and whether such Deferred Compensation is intended to be payable the year following retirement or five or ten years from the Date of Deposit. -6- 3.2 DEFERRAL ELECTIONS. Subject to the restrictions concerning deferral of Incentive Bonus set forth in Section 3.1(a), any Eligible Employee may elect to defer any percentage or dollar amount (but not both a percentage and dollar amount, but an Eligible Employee can defer a specified dollar amount of one of his Incentive Bonus and Strategic Grant and a percentage of the other) of each of his Strategic Grant and his Incentive Bonus; provided, however, that, to the extent that the Eligible Employee chooses to defer a percentage of his Incentive Bonus and/or Strategic Bonus, each Deferral Election, to be effective, must result in deferral of a minimum of 10% of the Eligible Employee's Incentive Bonus and/or Strategic Grant (provided that an Eligible Employee may elect to defer a portion of his Incentive Bonus and none of his Strategic Grant and vice versa) and the Deferral Elections must be in increments of 5% for each of the Strategic Grant and Incentive Bonus, which election percentages do not need to be identical; further, provided, however, that, to the extent that the Eligible Employee chooses to defer a specified amount of his Incentive Bonus and/or Strategic Bonus, each Deferral Election, to be effective, must result in deferral of a minimum of $10,000 of the Eligible Employee's Incentive Bonus and/or Strategic Grant (provided that an Eligible Employee may elect to defer a portion of his Incentive Bonus and none of his Strategic Grant and vice versa) and the Deferral Elections must be in increments of $1,000 for each of the Strategic Grant and Incentive Bonus, which election amounts do not need to be identical. 3.3 MODIFICATION OF DEFERRAL ELECTION. By written notice to TRW, a Deferral Election filed in any Plan Year may be modified or revoked at any time prior to October 1 of such Plan Year. Thereafter, a Deferral Election specified in a Participation Agreement shall be irrevocable, except that the Committee or the Special Committee, as appropriate under Article II, may permit a Participant at any time prior to the actual deferral of the Incentive Compensation to reduce the designated percentage to be deferred upon a finding, based upon uniform standards established by the Committee, that the Participant has suffered a Financial Hardship. ARTICLE IV DEFERRED COMPENSATION 4.1 DEFERRED COMPENSATION. The amount of Incentive Compensation deferred pursuant to a Deferral Election shall be withheld in a single sum at the time such Incentive Compensation, but for a Deferral Election, would be paid. 4.2 WITHHOLDING OF TAXES AND SSP/BEP CONTRIBUTIONS. Any withholding of taxes or other amounts which is required by any federal, state, or local law shall be withheld from the Participant's remaining undeferred Incentive Compensation, if any. If necessary in order to comply with any federal, state or -7- local law, the amount of Incentive Compensation deferred may be reduced by an amount equal to any required withholding. Otherwise, such withholding may be made from any of the Participant's other compensation payable by the Corporation, or, at the election of the head of Human Resources, a Participant may be permitted to pay to the Corporation the amount of any such required withholding at or prior to the time such withholding would otherwise be required to be made. In addition, the amount of Incentive Compensation deferred shall be reduced by the amount of TRW Stock Savings Plan and Benefits Equalization Plan contributions to be made by the Eligible Employee on account of such Incentive Compensation. 4.3 ACCOUNTS. For recordkeeping purposes only, a separate Account shall be established and maintained by TRW for each Participant to which his Deferred Compensation and interest accrued thereon pursuant to Section 4.4 shall be credited. Each such Account shall be divided into the following Sub-Accounts for purposes of Section 5.1: (i) a Retirement Payment Sub-Account to which there shall be credited all Incentive Compensation deferred (and all interest thereon) pursuant to all Deferral Elections under which a Plan Benefit is payable the year following retirement; and (ii) a separate Pre-Retirement Payment Sub-Account for each Deferral Election under which the Participant has elected that his Plan Benefit be payable five or ten years from the Date of Deposit, to which the Incentive Compensation deferred (and all interest thereon) pursuant to such Deferral Election shall be credited. 4.4 DETERMINATION OF ACCOUNT. The value of each Participant's Account as of each Determination Date shall be the total of the Participant's Retirement Payment and Pre-Retirement Payment Sub-Accounts. The value of each such Sub- Account shall consist of (i) the balance of such Sub-Account as of the last preceding Determination Date plus (ii) any Deferred Compensation credited to such Sub-Account since the last preceding Determination Date, plus (iii) interest in the amount determined by multiplying the average daily balance of such Sub-Account during the three calendar months since the last preceding Determination Date by the Interest Rate applicable to such three-month period, less (iv) the amount of all Plan Benefits, if any, paid during the period since the last preceding Determination Date. Interest, determined as provided in (iii) above, shall be credited to each such Sub-Account as of the Determination Date as of which such Sub-Account is valued. 4.5 STATEMENT OF ACCOUNTS. TRW shall submit to each Participant, within one hundred twenty (120) days after the close of each Plan Year and at such other times as determined by the Committee, a statement setting forth the total balance of the Participant's Account, and the balance of each Sub-Account thereof, as of the last day of such Plan Year and as of the last day of the immediately preceding Plan Year, the Deferred Compensation and interest credited to each Sub-Account during the Plan Year and the payments of the Plan Benefits from each Sub-Account during the Plan Year. -8- ARTICLE V PLAN BENEFITS 5.1 PLAN BENEFITS PAYABLE ON TERMINATION OF EMPLOYMENT, FIVE YEARS FROM DATE OF DEPOSIT OR TEN YEARS FROM DATE OF DEPOSIT. (a) Subject to the provisions of Section 5.1(b) and except as otherwise provided below, upon Termination of Employment a Participant shall receive a Plan Benefit equal to the balance of his Account as of the Determination Date immediately preceding such Termination of Employment, plus the amount of any Deferred Compensation credited his Account after such Determination Date. Such Plan Benefit shall be payable as a single sum within a reasonable time following such Termination of Employment. In addition, the Participant shall receive interest on the balance of his Account for the period from such Determination Date to the date of payment at a daily simple interest rate equivalent to the Interest Rate then in effect. However, in the event that the Termination of Employment is the result of a divestiture of the unit or operations of the Corporation where the Participant worked prior to Termination of Employment and the Participant obtains employment with the entity that acquired such unit or operations, then the balance of such Participant's Retirement Payment Sub- Account shall not be payable until such Participant commences receiving retirement benefits from the Corporation and the balance of such Participant's Pre-Retirement Payment Sub-Account shall not be payable until such time as the Participant would have received payment in accordance with the original Deferral Election had the Participant's employment with the Corporation not been terminated. At such time, the amounts in such Participant's Account shall be paid as set forth in Sections 5.1(b) and 5.1(e). Interest shall continue to be earned on such Participant's Account following such Participant's Termination of Employment through payment in full of the his or her Account. (b) In the event that a Participant's Termination of Employment occurs as a result of his retirement, the Participant shall receive the Plan Benefit payable in respect of his Retirement Payment Sub-Accounts in ten annual installments commencing in the year following the year that Termination of Employment occurred; provided, however, that the Participant can petition the Special Committee (or the Committee in the case of an Executive Officer) at any time at least six months prior to retirement to change such payment into five annual installments or a single sum; further provided, that any such payment change approved by -9- the Special Committee (or the Committee) shall not be effective until the calendar year following the date of the payment change. In the event that payment shall be made in a single sum, such payment shall be in accordance with the procedures set forth in Section 5.1(a) above, but in no event in the same calendar year as the year of any requested change and no earlier than January 1 of the calendar year following the year that Termination of Employment occurred. In the event that the payment shall be made in installments, such payments shall be made in accordance with Section 5.1(e) below. If, at the time of retirement, the Participant has a credit in a Pre-Retirement Payment Sub-Account, such Sub-Account balances shall be paid in a single sum following retirement in accordance with the procedures set forth in Section 5.1(a) above. (c) In the event that a Participant's Termination of Employment occurs because of his death, his Beneficiary or, if no designated Beneficiary shall survive him, his estate shall receive the Plan Benefit in the manner provided in Section 5.1(a); provided, however, that if the Participant's Beneficiary designation shall result in all or any part of his Plan Benefit passing to his surviving spouse or to an entity for the benefit of his surviving spouse in such a way as to qualify for the marital deduction under Section 2056 of the Code, and at the time of his death the Participant was eligible to retire and had elected to receive his Plan Benefits in his Retirement Payment Sub-Account in installments pursuant to Section 5.1(b), payments from his Retirement Payment Sub-Account shall be made to such surviving spouse or to such entity for the benefit of such surviving spouse, as the case may be, in the manner provided in Section 5.1(b). Notwithstanding the foregoing, if such surviving spouse shall die prior to complete distribution of all Plan Benefits, the balance then remaining in such Retirement Payment Sub-Account shall be paid to the estate of such surviving spouse or to such entity for the benefit of such surviving spouse, as the case may be, in a single sum within a reasonable time following such spouse's death. (d) If the Participant has chosen in his Deferral Election to receive payouts either five or ten years from the Date of Deposit (as opposed to upon retirement from the Corporation), payments shall be made in a single sum form from each Pre-Retirement Payment Sub-Account of the Participant on or before February 15 of the year either five or ten years (depending upon the applicable Deferral Election) following the applicable Date of Deposit; provided, however, that if Termination of Employment has occurred prior to payment, payment of the Participant's Plan Benefits shall be made as provided in Section 5.1(a). (e) If the payments from the Participant's Retirement Payment Sub- Account are to be paid in installment form, such installments shall be paid in either five or ten annual installments between February 1 and -10- February 15 of each year in which an installment is to be made; provided, however, that the initial installment payment will be made a reasonable time following Termination of Employment (but no earlier than February 1 of the calendar year following the year that Termination of Employment occurred). Installment payments will commence in the year following the Participant's Termination of Employment. The five year installment payments shall be made as follows: in the first year in which a payment is to be made, an amount equal to one-fifth of the balance of the Sub-Account on December 31 immediately preceding the first payment shall be paid; in the second year in which a payment is to be made, an amount equal to one- fourth of the balance of the Sub-Account on December 31 immediately preceding the second payment shall be paid; in the third year in which a payment is to be made, an amount equal to one-third of the balance of the Sub-Account on December 31 immediately preceding the third payment shall be paid; in the fourth year in which a payment is to be made, an amount equal to one-half of the balance of the Sub-Account on December 31 immediately preceding the fourth payment shall be paid; and in the fifth year in which a payment is to be made, an amount equal to the remaining balance of the Sub-Account on December 31 immediately preceding the fifth payment shall be paid. The ten installment payments shall be made as follows: in the first year in which a payment is to be made, an amount equal to one-tenth of the balance of the Sub-Account on the December 31 immediately preceding the first payment shall be paid; in the second year in which a payment is to be made, an amount equal to one-ninth of the balance of the Sub-Account on the December 31 immediately preceding the second payment shall be paid; in the third year in which a payment is to be made, an amount equal to one-eighth of the balance of the Sub-Account on the December 31 immediately preceding the third payment shall be paid; in the fourth year in which a payment is to be made, an amount equal to one-seventh of the balance of the Sub- Account on the December 31 immediately preceding the fourth payment shall be paid; in the fifth year in which a payment is to be made, an amount equal to one-sixth of the balance of the Sub-Account on the December 31 immediately preceding the fifth payment shall be paid; in the sixth year in which a payment is to be made, an amount equal to one-fifth of the balance of the Sub-Account on the December 31 immediately preceding the sixth payment shall be paid; in the seventh year in which a payment is to be made, an amount equal to one-fourth of the balance of the Sub-Account on the December 31 immediately preceding the seventh payment shall be paid; in the eighth year in which a payment is to be made, an amount equal to one- third of the balance of the Sub-Account on the December 31 immediately preceding the eighth payment shall be paid; in the ninth year in which a payment is to be made, an amount equal to one-half of the balance of the Sub-Account on the December 31 immediately preceding the ninth payment shall be paid; and in the tenth year in which a payment is to be made, the balance of the Sub-Account -11- remaining on the December 31 immediately preceding the tenth payment shall be paid. Interest on Retirement Payment Sub-Account from which installment payments are made shall accrue until the December 31 immediately preceding the payment of the tenth installment. 5.2 WITHDRAWAL OF PLAN BENEFIT. No Plan Benefit shall be payable prior to the Participant's Termination of Employment other than in the form determined pursuant to Section 5.1(d), except that the Committee or the Special Committee, as appropriate under Article II, may permit a Participant or, after a Participant's death, a Participant's Beneficiary or other person or entity entitled to receive such Plan Benefit, to withdraw from the Participant's Account an amount necessary to meet a Financial Hardship. 5.3 WITHHOLDING; PAYROLL TAXES. TRW shall withhold from Plan Benefits payable under the Plan any taxes required to be withheld from an employee's wages for the federal or any state or local governments. 5.4 FULL PAYMENT OF BENEFITS. Notwithstanding any other provision of the Plan, all Plan Benefits shall be paid to the Participant no later than the January 5 next preceding the Participant's eightieth (80th) birthday. ARTICLE VI BENEFICIARY DESIGNATION 6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary (both principal as well as contingent) to whom payment under the Plan shall be made in the event of his death prior to complete distribution of all Plan Benefits due him under the Plan. Any Beneficiary designation shall be made in writing on a form prescribed by the Committee and shall become effective only when filed with the head of Human Resources. 6.2 AMENDMENTS. Subject to the limitations of Section 6.1 of the Plan, any Beneficiary designation may be changed by a Participant only by written notice of such change to the head of Human Resources on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all prior Beneficiary designations. 6.3 ABSENCE OF EFFECTIVE BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided above or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's Plan Benefit, the Participant's remaining Plan Benefit shall be paid to his estate. -12- 6.4 EFFECT OF PAYMENT. Payment to the Beneficiary designated pursuant to Sections 6.1 and 6.2 or to the Participant's estate pursuant to Section 6.3 shall completely discharge TRW's obligations under the Plan. ARTICLE VII AMENDMENT AND TERMINATION OF PLAN 7.1 TERMINATION. The Committee shall have the power in its sole discretion to suspend or terminate the Plan at any time, except that no such action shall adversely affect rights with respect to any Account without the consent of the person affected. 7.2 AMENDMENT. The Committee can amend any part of this Plan (including, without limitation, changing the interest rate to be paid to current and future Participants or changing who can become Participants) in its sole discretion without notice to Participants. ARTICLE VIII MISCELLANEOUS 8.1 UNFUNDED PLAN. The Plan is an unfunded plan maintained by TRW primarily to provide Deferred Compensation benefits for a select group of executive, managerial or professional employees of the Corporation. 8.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, estates, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of TRW. Such assets of TRW shall not be held under any trust or in any other way as collateral security for the fulfillment of the obligations of TRW under the Plan. Any and all of TRW's assets shall be, and remain, the general, unpledged, unrestricted assets of TRW. TRW's sole obligation under the Plan shall be merely that of an unfunded and unsecured promise of TRW to pay money in the future. 8.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey, in advance of actual receipt, any Plan Benefit. Plan Benefits and all rights to Plan Benefits are and shall be nonassignable and nontransferable prior to actual payment as provided by the Plan. Any such attempted assignment or transfer shall be ineffective; TRW's sole obligation shall be to pay Plan Benefits to the Participant, his Beneficiary or his estate as appropriate. No part of any Plan Benefit shall, prior to actual payment as provided by the Plan, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person; nor shall any Plan Benefit be transferable -13- by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency, except as required by law. 8.4 NOT A CONTRACT OF EMPLOYMENT. Neither the terms and conditions of the Plan nor those of any Participation Agreement shall be deemed to constitute a contract of employment between the Corporation and the Participant, and neither the Participant, his Beneficiary nor his estate shall have any rights against TRW under the Plan except as may otherwise be specifically provided in the Plan. Moreover, nothing in the Plan shall be deemed to give a Participant the right to be retained in the service of the Corporation or to interfere with the right of the Corporation to discipline, discharge or change the status of a Participant at any time. Further, nothing in the Plan shall be deemed to give a Participant a right to receive any Incentive Compensation. 8.5 PROTECTIVE PROVISIONS. A Participant will cooperate with TRW by furnishing any and all information requested by TRW in order to facilitate the payment of Plan Benefits under the Plan, and by taking such other action as may be reasonably requested by TRW. 8.6 TERMS. Whenever any words are used in the Plan in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the Plan in the singular or in the plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. 8.7 CAPTIONS. The captions of the articles and sections of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 8.8. GOVERNING LAW. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Ohio. 8.9 VALIDITY. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal or invalid provision were not included in the Plan. 8.10 NOTICE OR FILING. Any notice or filing required or permitted to be given to TRW or a Participant under the Plan shall be sufficient if in writing and hand delivered, or sent by regular mail or by registered or certified mail, to the principal office of TRW or to the last known address of the Participant, as the case may be. Such notice or filing shall be deemed given or made (i) when hand delivered to the residence or offices of the recipient, (ii) as of five (5) days after the date of mailing if delivery is made by regular mail, or, (iii) as of five (5) days after the date shown on the postmark on the receipt for registration or -14- certification provided to the sender at the time of mailing, if by registered or certified mail. 8.11 SUCCESSORS. The provisions of the Plan shall bind and obligate TRW and any successors. The term "successors" as used in this Section 8.11 shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of TRW and successors of any such corporation or other business entity. 8.12 EXPENSES AND COSTS. TRW shall bear all expenses and costs in connection with the operation of the Plan. 8.13 RELIANCE ON CERTIFIED PUBLIC ACCOUNTANTS. TRW, the Directors, the Committee, the Special Committee, the head of Human Resources and any employee of TRW or the Corporation shall be fully protected for actions taken in good faith based on the computations and reports made pursuant to or in connection with the Plan by the independent certified public accountants who audit TRW's accounts. 8.14 PRONOUN REFERENCES. References to "he," "his" or "him" in the Plan are used in the generic sense and shall apply to all Participants without reference to the gender of the Participant. ARTICLE IV CLAIMS PROCEDURE 9.1 CLAIM. Any person claiming a Plan Benefit, requesting an interpretation or ruling under the Plan (other than a ruling under Section 2.5 above or the determination as to whether an Eligible Employee is a Highly Paid Employee), or requesting information under the Plan shall present the request in writing to the head of Human Resources who (a) shall respond in writing within ninety (90) days following his receipt of the request or (b) in the case of a claimant who is an Executive Officer, shall refer the claim with his recommended response to the Committee, which shall respond in writing within one hundred twenty (120) days following the receipt of the request by the head of Human Resources. 9.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of denial shall state (i) the reasons for denial; (ii) a description of any additional material or information required and an explanation of why it is necessary; and (iii) an explanation of the Plan's claim review procedure. -15- 9.3 REVIEW OF CLAIM. Any person whose claim or request is denied may make a second request for review by notice given in writing to the head of Human Resources. The claim or request shall be reviewed further by the head of Human Resources or the Committee, as appropriate, and he or it may, but shall not be required to, grant the claimant a hearing. 9.4 FINAL DECISION. A decision on such second request shall normally be made within sixty (60) days after the date of the second request. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be one hundred twenty (120) days from the date of the second request. The decision shall be in writing and, whether made by the head of Human Resources or the Committee, shall be final and bind all parties concerned. -16- PARTICIPATION AGREEMENT The undersigned hereby agrees to participate in the TRW Inc. Deferred Compensation Plan (the "Plan") for the following Incentive Compensation received by the undersigned on account of the year 19__. The undersigned acknowledges that if in accordance with the Plan the undersigned is not a Highly Paid Employee under the Plan, the undersigned's election to defer the Incentive Compensation will become invalid. The undersigned agrees that he/she has read the Plan and agrees that the following elections are governed by the Plan. Deferral Percentages or Amounts (Percentage elections must be in increments of 5%, with a 10% minimum election, and dollar elections must be in increments of $1,000, with a $10,000 minimum election; elections for OIP bonus and strategic incentive grant need not be the same; you cannot elect both a percentage and a dollar amount for the same payment source): OIP Bonus ______% or $_______ Strategic Incentive Grant (to extent applicable) ______% or $_______ Election Options (Choose only one): ___ Paid in lump sum five years from the Date of Deposit ___ Paid in lump sum ten years from the Date of Deposit ___ Paid following retirement in ten annual installments unless a change has been approved in accordance with Section 2.5 of the Plan In order for the above elections to be effective, this form must be fully completed and returned to the head of Human Resources no later than September 30, 19__. Unless the undersigned has a Beneficiary Designation Form on file for this Plan with Human Resources, this Participation Agreement must be accompanied by an executed Beneficiary Designation Form. ___________________________ _________________________ Signature of Participant Participant's Full Name ___________________________ ___________________________ Date Participant's Social Security # -17- EX-10.(V) 8 EXHIBIT 10(V) EXHIBIT 10(v) TRW INC. KEY EXECUTIVE LIFE INSURANCE PLAN 1. PURPOSE The purpose of the TRW Inc. Key Executive Life Insurance Plan (the "Plan") is to create a plan under which TRW Inc. ("TRW") can assist certain of its Executives and those of its subsidiaries and affiliates in acquiring life insurance coverage. 2. DEFINITIONS For purposes of this Plan, the following terms have the meanings set forth below: 2.01 AGREEMENT means the Agreement executed by a Participant implementing the terms of this Plan. 2.02 ALTERNATIVE DEATH BENEFIT AMOUNT means, with respect to a Participant, an amount which, after subtracting any TRW federal, state, and local income tax savings resulting from the deductibility of the payment for corporate tax purposes, is equal to the Participant's Coverage Amount. The Alternative Death Benefit Amount shall be determined at the time the payment is to be made, based on TRW's federal, state and local income tax rate (calculated at the highest marginal tax rate then applicable to TRW but net of any federal deduction for state and local taxes) at the time of the payment, and shall be determined by TRW. 2.03 ASSIGNEE means that person or entity to whom the Participant has assigned his interest in the Policy by designating such Assignee on forms provided by TRW. If the Participant's Policy is a Survivorship Policy and if the Participant has not specifically designated an Assignee, then, after the Participant's death, if the Co-insured survives, the Assignee shall be that person or entity who succeeds to the Participant's interest in the Participant's Policy after the death of the Participant. 2.04 CHANGE IN CONTROL means a Change in Control of TRW, as such term is defined from time to time in the Amended and Restated Employment Continuation Agreement between TRW and its Chief Executive Officer. -1- 2.05 CO-INSURED means the individual designated by the Participant pursuant to Section 4 as a co-insured under a Survivorship Policy issued pursuant to the Plan. 2.06 COMMITTEE means the Compensation and Stock Option Committee of the Directors of TRW. 2.07 COVERAGE AMOUNT means the insurance death benefit amount indicated in the Participant's Agreement. 2.08 EFFECTIVE DATE means February 7, 1996. 2.09 ELIGIBLE POSITION means a position reporting directly to the Chief Executive Officer or a position designated as an Eligible Position by the Chairman of TRW. 2.10 EXECUTIVE means an employee of TRW (or of any subsidiary or affiliate of TRW which is designated by the Plan Administrator to participate in this Plan) who the Plan Administrator determines is eligible to participate in the Plan. 2.11 INSURER means, with respect to a Participant's Policy, the insurance company issuing the Policy on the Participant's life (or on the lives of the Participant and a Co-insured, if a Survivorship Policy is used) pursuant to the provisions of the Plan. 2.12 PARTICIPANT means an eligible Executive who elects to participate in the Plan. 2.13 PERMANENT POLICY means a Participant's Policy which is projected to have Policy cash values at least equal to the Participant's Coverage Amount when the Participant reaches age 95 or, in the case of a Survivorship policy, the younger insured reaches age 100 (the Maturity Date), and Policy death benefits equal to at least 175% of the Participant's Coverage Amount at all times to the Maturity Date, considering premiums paid prior to the time the determination is made, as well as future projected premiums. The determination shall be made by TRW based on projections provided by the Insurer or its agent. Projections shall be based on then current mortality charges and the lower of: (i) the dividend or interest crediting rate applicable to the Policy at the -2- time the determination is made, or (ii) the monthly average of the applicable Policy dividend or interest crediting rate for the thirty-six (36) months immediately preceding the time of determination (or the monthly average for such shorter period as data is available, if it is not available for the full thirty-six (36) months). 2.14 PLAN ADMINISTRATOR means with respect to a member of the Management Committee of TRW, the Committee. For all other Executives, the Plan Administrator means the Chief Executive Officer of TRW. 2.15 POLICY means the life insurance coverage acquired on the life of the Participant (or on the lives of the Participant and a Co- insured, in the case of a Survivorship Policy) by the owner of the Policy. 2.16 POLICY SURRENDER VALUE means, with respect to a Participant's Policy, the actual cash surrender value of the Policy, net of any applicable surrender charges, which would be available upon a complete surrender of the Policy. 2.17 PREMIUM means, with respect to a Participant's Policy, the amount paid to the Insurer with respect to a Participant's Policy. 2.18 SURVIVORSHIP POLICY means a Policy insuring the lives of the Participant and a Co-insured, with the death benefit payable at the death of the last survivor of the Participant and the Co- insured. 2.19 TERMINATED FOR CAUSE means a determination made by the Directors of TRW, at a hearing which the Participant may attend, that a Participant has been terminated for cause, as that term is defined in any written employment agreement existing between TRW (or any subsidiary or affiliate of TRW) and the Participant; absent any such agreement, or absent a definition of the term in the agreement, the term shall mean the termination of the Participant's employment with TRW (or any subsidiary or affiliate of TRW) due to: (i) fraud, misappropriation or intentional material damage to the property or business of TRW (or any subsidiary or affiliate of TRW); (ii) commission of a felony; or (iii) continuance of either willful and repeated failure or grossly negligent and repeated failure by the Participant to perform his duties. -3- 2.20 VESTED EXECUTIVE means an Executive who is age 55 or older, who has five or more Years of Service and who has been in an Eligible Position for at least three years; provided, that in the sole discretion of, and by written action of, the Plan Administrator, an Executive who is not age 55, who has fewer than five Years of Service and/or who has not been in an Eligible Position for at least three years may be designated a Vested Executive for the limited purpose of this Plan. Notwithstanding the foregoing, an Executive will not be treated as a Vested Executive if the Executive is Terminated for Cause. 2.21 YEAR OF SERVICE shall have the definition specified in the TRW Salaried Pension Plan, but shall in any case include any period of time during which a Participant is receiving benefits under TRW's Long Term Disability Plan or is on an approved medical leave. 3. ELIGIBILITY AND COVERAGE AMOUNT The eligibility of an Executive, as well as the applicable Coverage Amount, will be determined by the Plan Administrator. If, during the insurance application and underwriting process, it is determined that the Executive's health is such that the cost of the insurance would be prohibitive, the Plan Administrator may, in its sole discretion, determine that the Executive will not be eligible to participate in the Plan, provide a reduced Coverage Amount, or take any other action it deems appropriate. 4. TYPE OF COVERAGE A Participant may elect single life coverage on the Participant's life, or survivorship coverage on the joint lives of the Participant and any other person (subject to any requirements imposed by the Insurer with respect to the person(s) who may be designated as a Co- Insured). Once elected by the Participant, the type of coverage and the Co-Insured cannot be changed without the consent of the Plan Administrator. 5. PAYMENT OF PREMIUMS 5.01 TRW PAYMENTS. Subject to Sections 7.01, 7.02, 12.01 and 12.02, TRW shall pay all Policy Premiums necessary to maintain the Policy death benefit at a level at least equal to the Participant's Coverage Amount. -4- 5.02 PARTICIPANT PAYMENTS. Unless otherwise provided in a Participant's Agreement, a Participant shall not be required to pay any portion of the Premium due on the Participant's Policy. 6. POLICY OWNERSHIP 6.01 OWNERSHIP. TRW shall be the owner of a Participant's Policy and shall be entitled to exercise the rights of ownership, except that the following rights shall be exercisable by the Participant (or Assignee): (i) the right to designate the beneficiary or beneficiaries to receive payment of the portion of the death benefit under the Participant's Policy equal to the Coverage Amount; and (ii) the right to assign any part or all of the Participant's rights under the Policy to any person, entity or trust by the execution of a written instrument prescribed by TRW which is delivered to TRW. Also, except as provided in Section 7, TRW shall not borrow from, hypothecate, surrender in whole or in part, cancel, or in any other manner encumber a Participant's Policy without the prior written consent of the Participant's Assignee or, if there is no Assignee, the Participant. 6.02 POSSESSION OF POLICY. TRW shall keep possession of the Policy. TRW agrees to make the Policy available to the Participant (or Assignee) or to the Insurer at such times as, and on such terms as, TRW determines for the sole purposes of endorsing or filing any change of beneficiary or assignment on the Policy. 7. TERMINATION EVENTS 7.01 TERMINATION EVENTS. Except as provided in Section 7.02, TRW's obligation to pay Premiums with respect to a Participant's Policy shall terminate: a. Automatically upon the death of the Participant (or the death of the last survivor of the Participant and the Co-insured, if the Policy is a Survivorship Policy). b. Automatically upon a Participant's Termination for Cause. c. Upon the written action of the Plan Administrator, if the Participant terminates employment with TRW (or any subsidiary or affiliate of TRW) and such termination is not a Termination for Cause. -5- d. Automatically should a Participant provide services above a de minimis level and without TRW's consent to an entity deemed a competitor of TRW's at any time following three years within the Participant's termination of employment. For purposes of this subsection, an entity will be deemed a competitor if that entity and TRW could not have interlocking directors under 15 U.S.C. Section 19, as the same may be amended from time to time. e. Upon the mutual agreement of TRW and the Participant's Assignee (or the Participant, if there is no Assignee). 7.02 IRREVOCABLE OBLIGATION. Notwithstanding any other provision of the Plan, (i) TRW's obligation to pay Policy Premiums for a Participant who meets the requirements for a Vested Executive shall be irrevocable while such person is employed by TRW and shall remain irrevocable thereafter, unless such Participant fails to meet the definition of Vested Executive as a result of his being Terminated for Cause or unless the provisions of Section 7.01 (d) apply; and (ii) TRW's obligation to pay Policy Premiums for a Participant who obtains an irrevocable right pursuant to the provisions of Section 9 hereof relating to Change in Control shall thereafter be irrevocable. 7.03 ALLOCATION OF DEATH BENEFIT. In the event of a termination due to the death of the Participant (or the death of the last survivor of the Participant and the Participant's Co-insured, if the Policy is a Survivorship Policy), the death benefit under the Participant's Policy shall be divided as follows: a. The beneficiary or beneficiaries of the Participant (or Assignee) shall be entitled to receive an amount equal to the Coverage Amount. b. TRW shall be entitled to receive the excess of the death benefit. TRW agrees to execute an endorsement to the Policy issued to it by the Insurer providing for the division of the death benefit in accordance with the provisions of this Section. Notwithstanding the provisions of this Section, if the Policy death benefit becomes payable while there is an Alternative Death Benefit Election in -6- effect for the Participant pursuant to Section 8, then the entire Policy death benefit shall be paid to TRW. 7.04 DISPOSITION OF POLICY. If a Participant's Agreement terminates under Section 7.01(c) or (e), the Participant's Assignee (or the Participant, if there is no Assignee) may acquire the Participant's Policy from TRW by paying TRW an amount equal to the Policy Surrender Value (or any lesser amount determined by the Plan Administrator). In order to exercise this right, the person entitled to exercise the right shall notify TRW, in writing, of the intention to exercise the option to purchase the policy within sixty (60) days following the event of termination. If TRW is so notified, TRW shall, within thirty (30) days after being notified, provide a written notice to the Assignee (or Participant, if there is no Assignee) indicating the payment amount required. Within thirty (30) days after receiving such notice from TRW, the Assignee (or Participant, if there is no Assignee) shall make the required payment to TRW. If the payment is not made within the required time, the right to acquire the Policy shall terminate. If the required payment is received on a timely basis, TRW shall submit to the Insurer, within ten (10) business days after receiving the payment, the forms required to transfer the Policy ownership to the Assignee (or Participant, if there is no Assignee). If the Assignee (or Participant, if there is no Assignee) does not exercise his or her rights to acquire the Participant's Policy, the Assignee's (or Participant's) rights under the Plan shall terminate, and TRW may, thereafter, take any action it deems appropriate with respect to the Participant's Policy, free from any restrictions or limitations imposed by the Plan. 8. ALTERNATIVE DEATH BENEFIT ELECTION A Participant (or the Participant's Assignee, if the Participant has assigned his or her Policy interest) may elect to receive an Alternative Death Benefit in lieu of the insurance benefit provided under the Plan. The Alternative Death Benefit shall be paid by TRW from the general funds of TRW, and shall not constitute an insurance benefit. It shall be paid by TRW to the Participant's (or Assignee's) beneficiary at the time the Participant's insurance benefit would have been paid (at the Participant's death for single life coverage, or at the death of the survivor of the Participant and the Participant's Co- Insured for survivorship coverage). The amount of the payment shall be equal to the Alternative Death Benefit -7- Amount. As long as an Alternative Death Benefit Election is in effect, the beneficiary or beneficiaries of the Participant (or Assignee) shall receive the Alternative Death Benefit only, and shall not be entitled to receive any portion of any death benefits which become payable under the Participant's Policy, and the Participant (or Assignee) shall cooperate with TRW in effecting a change of beneficiary of the Participant's Policy to achieve such result. An election under this Section may be revoked. Any election (or revocation of an election) shall be in writing and shall be effective when received by TRW. A Participant (or Assignee) shall not be limited in the number of times an Alternative Death Benefit Election can be made (or revoked). 9. CHANGE IN CONTROL If there is a Change in Control: a. the Plan and TRW's obligation to pay Policy Premiums hereunder shall become irrevocable for all Participants in the Plan at the time of the Change in Control; b. TRW shall immediately transfer the ownership of all Participants' Policies to an irrevocable trust to: 1) pay any premiums projected to be payable on all Participants' Policies after the Change in Control, in order to qualify each Participant's Policy as a Permanent Policy, and 2) pay any Alternative Death Benefit which becomes payable under Section 8 of this Plan; and c. TRW shall immediately fund such irrevocable trust with an amount sufficient to pay all necessary projected future premiums for all Participants' Policies in order to qualify each Participant's Policy as a Permanent Policy. Notwithstanding the creation and funding of an irrevocable trust in accordance with the provisions of this Section, TRW, or its successor, shall continue to be responsible for the premium costs associated with the Participants' Policies and any Alternative Death Benefits payable under Section 8 if such amounts are not paid by the trust for any reason, or if the trust's assets become insufficient to pay any required amounts. -8- 10. GOVERNING LAWS & NOTICES 10.01 GOVERNING LAW. This Plan shall be governed by and construed in accordance with the substantive law of the State of Ohio without giving effect to the choice of law rules of the State of Ohio. 10.02 NOTICES. All notices hereunder shall be in writing and sent by first class mail with postage prepaid. Any notice to TRW shall be addressed to the Attention of the Secretary at TRW Inc., 1900 Richmond Road, Lyndhurst, Ohio 44124. Any notice to the Participant (or Assignee) shall be addressed to the Participant (or Assignee) at the address following such party's signature on his Agreement. Any party may change the address for such party herein set forth by giving written notice of such change to the other parties pursuant to this Section. 11. MISCELLANEOUS PROVISIONS 11.01 This Plan and any Agreement executed hereunder shall not be deemed to constitute a contract of employment between an Executive and TRW or a Participant and TRW, nor shall any provision restrict the right of TRW to discharge an Executive or Participant, or restrict the right of an Executive or Participant to terminate employment. 11.02 The masculine pronoun includes the feminine and the singular includes the plural where appropriate. 11.03 In order to be eligible to participate in this Plan, the Participant and any person proposed as a Co-Insured shall cooperate with the Insurer by furnishing any and all information requested by the Insurer in order to facilitate the issuance of the Policy, including furnishing such medical information and taking such physical examinations as the Insurer may deem necessary. In the absence of such cooperation, TRW shall have no further obligation to the Participant to allow him to begin participation in the Plan. 11.04 If a Participant (or a Co-insured, if the Participant's Policy is a Survivorship Policy) commits suicide within two years of the Participant Policy's issue, or if the Participant (or Co-insured, if the Participant's Policy is a Survivorship Policy) makes any material misstatement of -9- information or nondisclosure of medical history and dies within two years of the Participant's Policy's issue, then no benefits will be payable to the beneficiary of such Participant (or of the Participant's Assignee, where applicable). 12. AMENDMENT, TERMINATION, ADMINISTRATION, AND SUCCESSORS 12.01 AMENDMENT. This Plan may be modified or amended by TRW at any time, but an amendment which affects the rights, benefits or obligations of a Participant (or his Assignee) for whom TRW's obligation to pay premiums has become irrevocable under Section 7.02 will not apply to such Participant (or his Assignee) unless such Participant (or his Assignee) consents, in writing, to the amendment. 12.02 TERMINATION. The Directors of TRW may terminate the Plan at any time, but no such termination shall affect the rights, benefits or obligations of a Participant (or his Assignee) for whom TRW's obligation to pay premiums has become irrevocable under Section 7.02 unless such Participant (or his Assignee) consents, in writing, to such termination. 12.03 ADMINISTRATION. This is a life insurance plan maintained for the benefit of selected employees of TRW Inc., 1900 Richmond Rd., Lyndhurst, Ohio 44124 and any of its subsidiaries or affiliates as determined by the Plan Administrator. TRW's Employer Identification Number is 34-0575430 and the plan number of this Plan is 552. This Plan shall be administered by the Plan Administrator, whose address is TRW Inc., 1900 Richmond Rd., Lyndhurst, Ohio 44124, Attention: Secretary. The Plan Administrator shall have the authority to make, amend, interpret, and enforce all rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in connection with the Plan in the Plan Administrator's sole discretion. In the administration of this Plan, the Plan Administrator may, from time to time, employ agents and delegate to them or to others (including Executives) such administrative duties as it sees fit. The Plan Administrator may from time to time consult with counsel, who may be counsel to TRW. The decision or action of the Plan Administrator (or its designee) with respect to any question arising out of or in -10- connection with the administration, interpretation and application of this Plan shall be final and conclusive and binding upon all persons having any interest in the Plan. TRW shall indemnify and hold harmless the Plan Administrator and any Executives to whom administrative duties under this Plan are delegated, against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct by the Plan Administrator. 12.04 SUCCESSORS. The terms and conditions of this Plan shall inure to the benefit of and bind TRW and the Participant and their successors, assignees, and representatives. 13. CLAIMS PROCEDURE; PLAN INFORMATION 13.01 NAMED FIDUCIARY. The Plan Administrator is hereby designated as the named fiduciary under this Plan. The named fiduciary shall have authority to control and manage the operation and administration of this Plan. 13.02 CLAIMS PROCEDURES. Any controversy or claim arising out of or relating to this Plan shall be filed with the Plan Administrator, TRW Inc., 1900 Richmond Rd., Lyndhurst, OH. 44124, Attention: Secretary. The Plan Administrator shall make all determinations concerning such claim. Any decision by the Plan Administrator denying such claim shall be in writing and shall be delivered to all parties in interest in accordance with the notice provisions of Section 10.02 hereof. Such decision shall set forth the reasons for denial in plain language. Pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. This notice of denial of benefits will be provided within 90 days of the Plan Administrator's receipt of the claimant's claim for benefits. If the Plan Administrator fails to notify the claimant of its decision regarding the claim, the claim shall be considered denied, and the claimant shall then be permitted to proceed with the appeal as provided in this Section. A claimant who has been completely or partially denied a benefit shall be entitled to appeal this denial of his/her claim by filing a written -11- statement of his/her position with the Plan Administrator no later than sixty (60) days after receipt of the written notification of such claim denial. The Plan Administrator shall schedule an opportunity for a full and fair review of the issue within thirty (30) days of receipt of the appeal. The decision on review shall set forth specific reasons for the decision, and shall cite specific references to the pertinent Plan provisions on which the decision is based. Following the review of any additional information submitted by the claimant, either through the hearing process or otherwise, the Plan Administrator shall render a decision on the review of the denied claim in the following manner: a. The Plan Administrator shall make its decision regarding the merits of the denied claim within 60 days following receipt of the request for review (or within 120 days after such receipt, in a case where there are special circumstances requiring extension of time for reviewing the appealed claim). The Plan Administrator shall deliver the decision to the claimant in writing. If an extension of time for reviewing the appealed claim is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. If the decision on review is not furnished within the prescribed time, the claim shall be deemed denied on review. b. The decision on review shall set forth specific reasons for the decision, and shall cite specific references to the pertinent Plan provisions on which the decision is based. 13.03 AGENT FOR SERVICE OF PROCESS. The agent for service of process on the Plan shall be the Secretary, TRW Inc., 1900 Richmond Rd., Lyndhurst, Ohio 44124. Service of legal process may also be made upon the Plan Administrator at the same address. 13.04 PLAN YEAR. The plan year of the Plan shall be the calendar year. 13.05 ERISA RIGHTS. As a participant in the Plan, you are entitled to examine, without charge at the Plan Administrator's office, all Plan documents filed for the Plan with the U. S. Department of Labor, such -12- as annual reports, and obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. You are entitled to receive a summary of the Plan's annual financial report. The Plan Administrator is required by law to furnish each Participant with a copy of this summary annual report. In addition to creating rights for Plan Participants, ERISA imposes obligations upon the persons who are responsible for the operation of the employee benefit plan. These persons are referred to as "fiduciaries" in the law. Fiduciaries must act in the interest of the Plan Participants and do so prudently. Fiduciaries who violate ERISA may be removed and required to make good any losses they have caused the Plan. Your employer may not fire you or discriminate against you to prevent you from obtaining a benefit or exercising your rights under ERISA. If you are improperly denied a benefit in full or in part, you have a right to file suit in a federal or state court. You may also file suit in federal court if any Plan documents or any other materials you requested are not received within 30 days of your written request, and the court may require the Plan Administrator to pay up to $100 for each day's delay until the materials are received, unless the failure was beyond the control of the Plan Administrator. If Plan fiduciaries are misusing the plan's money, or if you are discriminated against for asserting your rights, you have the right to file suit in federal court or request assistance from the U. S. Department of Labor. The court will decide who should pay court costs and legal fees. If you are successful in your lawsuit, the court may, if it so decides, require the other party to pay your legal costs, including attorney's fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim is frivolous. If you have any questions about this statement or your rights under ERISA, you should contact the Plan Administrator or the nearest Area Office of the U. S. Labor-Management Service Administration, Department of Labor. EX-10.(W) 9 EXHIBIT 10(W) EXHIBIT 10(w) THE TRW FINANCIAL COUNSELING PROGRAM The TRW Financial Counseling Program was introduced because the complexity of the tax laws and investment opportunities indicated a need for a capable specialist to review the personal financial program of executives to assure there is congruence with Company compensation programs. Eligibility to participate in the TRW Financial Counseling Program is limited to OIP I participants. Participation must be approved by a member of the Chief Executive Office (CEO). - --The program is comprehensive in scope and includes the following services: - --Analysis of TRW compensation and benefit programs - --Development of a financial and estate plan - --Cash flow analysis - --Insurance analysis - --Tax strategy - --Annual tax preparation The Ayco Corporation is the financial counseling organization selected by TRW to provide these services. However, participants may elect to use any financial counselor or tax preparer of their choice. TRW will pay 100% of the cost of the Ayco counseling and tax preparation fee up to a maximum amount determined annually. For those who elect to use a financial counselor other than Ayco, an annual maximum fee reimbursement schedule will be determined annually. Expenses up to the annual maximum will be charged to each participant's budget. Participants will be responsible for fees in excess of the annual maximum. Under applicable tax law, the portion of the fee paid by the Company is considered income to the participant and will be included as imputed income on the participant's W-2. The Company Director of Employee Benefits will notify participants of the annual reimbursement maximum. Participation in the Program will end if membership is canceled by the CEO, with termination of employment, or if the Program is canceled. Participation will continue for one year following retirement under the TRW Salaried Pension Plan. Any exceptions must have the approval of the CEO. EX-11 10 EXHIBIT 11 Exhibit 11 TRW INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In Millions Except Per Share Amounts)
Years ended December 31 ----------------------------------- PRIMARY 1995 1994 1993 ---- ---- ---- Net earnings before cumulative effect $446.2 $332.7 $220.1 of accounting change Less preference dividend requirements 0.8 0.7 0.8 ------ ----- ----- 445.4 332.0 219.3 Cumulative effect of accounting change -- -- (24.7) ------ ----- ----- Net earnings applicable to common shares and common share equivalents $445.4 $332.0 $194.6 ------ ----- ----- ------ ----- ----- Average common shares outstanding 65.3 64.6 63.5 Stock options and performance share rights, based on the treasury stock method using average market price 1.3 1.2 1.2 ------ ----- ----- Average common shares and common share equivalents 66.6 65.8 64.7 ------ ----- ----- ------ ----- ----- Primary earnings per share before cumulative effect of accounting change $6.69 $5.05 $3.39 Cumulative effect of accounting change -- -- (0.38) ------ ----- ------ Primary earnings per share $6.69 $5.05 $3.01 ------ ----- ------ ------ ----- ------ FULLY DILUTED Net earnings before cumulative effect of accounting change applicable to common shares and common share equivalents $445.4 $332.0 $219.3 Dividends assuming conversion of other dilutive securities: (A) Dilutive preference dividends 0.8 0.7 0.8 ------ ----- ----- 446.2 332.7 220.1 Cumulative effect of accounting change -- -- (24.7) ------ ----- ----- Net earnings applicable to fully diluted shares $446.2 $332.7 $195.4 ------ ----- ----- ------ ----- ----- Average common shares outstanding 65.3 64.6 63.5 Common shares assuming conversion of other dilutive securities: (A) Dilutive preference shares 0.6 0.6 0.7 Stock options and performance share rights, based on the treasury stock method using closing market price if higher than average market price 1.5 1.2 1.5 ------ ----- ----- Average fully diluted shares 67.4 66.4 65.7 ------ ----- ----- ------ ----- ----- Fully diluted earnings per share before cumulative effect of accounting change $6.62 $5.01 $3.35 Cumulative effect of accounting change -- -- (0.38) ------ ----- ------ Fully diluted earnings per share $6.62 $5.01 $2.97 ------ ----- ------ ------ ----- ------
(A) Assuming the conversion of the Serial Preference Stock II Series 1 and Series 3. EX-12 11 EXHIBIT 12 Exhibit 12 TRW Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges - Unaudited (In millions except ratio data)
Years Ended December 31 --------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Earnings(loss) before income taxes and cumulative effect of accounting changes $708.2 $534.5 $359.1 $347.6 $(129.4)(A) Unconsolidated affiliates 2.3 (0.6) 0.7 (0.9) (1.0) Minority earnings 13.8 5.2 5.7 2.6 (7.8) Fixed charges excluding capitalized interest 155.6 160.9 194.0 227.1 254.3 ----- ----- ----- ----- ----- Earnings $879.9 $700.0 $559.5 $576.4 $116.1 ----- ----- ----- ----- ----- Fixed Charges: Interest expense $ 94.9 $104.8 $137.8 $162.9 $189.6 Capitalized interest 5.1 6.6 7.9 12.7 10.1 Portion of rents representa- tive of interest factor 59.6 54.7 54.0 64.0 64.4 Interest expense of uncon- solidated affiliates 1.1 1.4 2.2 0.2 0.3 ----- ----- ----- ----- ----- Total fixed charges $160.7 $167.5 $201.9 $239.8 $264.4 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges 5.5x 4.2x 2.8x 2.4x 0.4x(A) ----- ----- ----- ----- -----
(A) The 1991 loss before income taxes of $129.4 million includes a charge of $343 million to cover costs associated with divestment and restructuring activities. Excluding this charge, the ratio of earnings to fixed charges would have been 1.7x. EX-13 12 EXHIBIT 13
Ten-Year Summary of Operations TRW Inc. and subsidiaries In millions except per share data 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Earnings data Sales $10,172 $9,087 $7,948 $8,311 $7,913 $8,169 $7,340 $6,982 $6,821 $6,036 Gross profit 1,982 1,817 1,580 1,694 1,606 1,722 1,561 1,417 1,531 1,358 Interest expense 95 105 138 163 190 187 138 130 126 96 Earnings(loss) before income taxes and cumulative effect of accounting changes 708 535 359 348 (129) 343 399 420 415 370 Percent of sales 7% 6% 5% 4% (2%) 4% 5% 6% 6% 6% Income taxes $ 262 $ 202 $ 139 $ 154 $ 11 $ 135 $ 136 $ 159 $ 172 $ 152 Earnings(loss) before cumulative effect of accounting changes 446 333 220 194 (140) 208 263 261 243 218 Percent of sales 4% 4% 3% 2% (2%) 3% 4% 4% 4% 4% Net earnings(loss) (A) $ 446 $ 333 $ 195 $ (156) $ (140) $ 208 $ 263 $ 261 $ 243 $ 218 International sales $3,953 $3,151 $2,463 $2,702 $2,501 $2,574 $2,060 $1,961 $1,792 $1,581 Percent of sales 39% 35% 31% 33% 32% 32% 28% 28% 26% 26% U.S. Government sales $2,899 $2,545 $2,708 $2,851 $2,959 $3,231 $3,080 $3,096 $3,081 $2,697 Percent of sales 28% 28% 34% 34% 37% 40% 42% 44% 45% 45% Per share of common stock Fully diluted earnings (loss) (A) $ 6.62 $ 5.01 $ 2.97 $(2.51) $(2.30) $ 3.36 $ 4.25 $ 4.23 $ 3.95 $ 3.55 Cash dividends paid 2.05 1.94 1.88 1.82 1.80 1.74 1.72 1.63 1.60 1.525 Cash dividends declared 2.10 1.97 1.88 1.84 1.80 1.76 1.72 1.66 1.60 1.55 Book value per share 32.97 27.91 23.77 22.31 27.12 31.11 28.60 25.70 23.41 19.93 Balance sheet data Current assets $2,336 $2,215 $1,994 $2,116 $2,262 $2,237 $2,295 $ 2,105 $1,986 $1,749 Current liabilities 2,012 1,986 1,826 2,012 1,982 1,947 1,794 1,396 1,496 1,352 Working capital 324 229 168 104 280 290 501 709 490 397 Total assets 5,890 5,636 5,336 5,458 5,635 5,555 5,259 4,442 4,378 3,909 Long-term debt 541 694 870 941 1,213 1,042 1,063 863 870 786 Shareholders' investment 2,172 1,822 1,534 1,416 1,685 1,907 1,749 1,566 1,417 1,198 Other data Capital expenditures $ 485 $ 506 $ 482 $ 530 $ 537 $ 587 $ 452 $ 417 $ 452 $ 431 Depreciation and amortization of property, plant and equipment 433 402 388 392 392 381 349 324 306 260 Common stock outstanding at year-end 65.6 64.9 64.1 62.9 61.6 60.8 60.6 60.2 59.7 58.9 Shares used in computing per share amounts Fully diluted 67.4 66.4 65.7 62.3 61.2 61.9 61.9 61.6 61.6 61.3 Primary 66.6 65.8 64.7 62.3 61.2 61.0 60.8 60.5 60.3 59.6 In thousands Number of employees 66.5 64.2 61.2 64.1 71.3 75.6 74.3 73.2 77.9 78.6 Number of common shareholders 27.2 31.3 30.1 32.8 34.1 34.9 37.1 38.2 36.1 37.7
(A) 1993 and 1992 amounts include cumulative effect of accounting changes. 18 TRW INC. Management's Discussion and Analysis of the Results of Operations and Financial Condition Results of Operations Record sales in 1995 resulted in the company reporting the highest net earnings and earnings per share in its history. Underscoring the strength of the year were the record-breaking performances achieved in each of 1995's quarters. Consolidated sales in 1995 of $10.2 billion rose 12 percent over 1994 sales of $9.1 billion and 28 percent over 1993 sales of $7.9 billion. Net earnings in 1995 increased to $446 million from $333 million in 1994 and $195 million in 1993. Fully diluted earnings per share were $6.62 in 1995, $5.01 in 1994 and $2.97 in 1993. This year marked the second consecutive year that we achieved record levels of sales, net earnings and earnings per share. Sales in 1995 surpassed the $10 billion mark for the first time in our 95-year history. Our record results were broadly based, led by record performance in automotive and impressive growth in space and defense. Automotive unit volumes continued to expand at a rate exceeding global automotive growth, as the number of air bag modules sold increased by 29 percent and the number of power rack and pinion steering gears produced increased by 12 percent. Space and defense results reflect our strong market position as evidenced by the level of new contracts awarded during 1995. New contract awards totaled $3.8 billion, with an additional $1.8 billion in options. Increased productivity from all our employees also contributed significantly to the successful year. Operating profit in 1995 was $886 million, a 19 percent increase over 1994 operating profit of $747 million and a 51 percent increase over 1993 operating profit of $587 million, excluding restructuring. A detailed discussion of the operating results of each industry segment is presented below. Interest expense in 1995 was $95 million compared to $105 million in 1994 and $138 million in 1993. The lower interest expense in 1995 was due to lower average debt levels partially offset by higher U.S. interest rates. The decrease in interest expense from 1993 to 1994 was due to the reduction of our Brazilian debt and lower average debt levels as well as lower foreign interest rates. The effective tax rate in 1995 was 37.0 percent, compared to 37.8 percent in 1994, and 38.7 percent in 1993. The lower effective tax rate in 1995 was primarily attributable to prior year U.S. tax adjustments partially offset by increased U.S. state and local income taxes. In 1993, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," and took a one-time noncash charge of $25 million, or $.38 per share, for the prior years' cumulative effect of the accounting change. Earnings before the cumulative effect of the accounting change were $220 million or $3.35 per share. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement No. 121 establishes accounting standards for determining the impairment of long-lived assets to be held and used, certain identifiable intangibles, and goodwill related to those assets and for long-lived assets and certain identifiable intangibles to be disposed of. The company is required to adopt Statement No. 121 during the first quarter of 1996. The financial statement effect of adoption has not yet been determined. Automotive Driven by growth in key product lines worldwide, 1995 was an outstanding year for the automotive segment. Record sales of $6.5 billion in 1995 represented a 14 percent increase over 1994 sales of $5.7 billion. Operating profit in 1995 increased 28 percent to a record $607 million from the $476 million reported in 1994. The increase in sales and operating profit was the result of higher volume in the North American air bag and steering systems businesses and all European automotive businesses, primarily in air bag and steering systems. Favorable exchange rates also contributed to the sales increase. Sales in 1994 rose to $5.7 billion, up 25 percent from 1993 sales of $4.5 billion. Operating profit in 1994 increased 56 percent to $476 million from the $304 million reported in 1993, excluding restructuring. The increase in sales was due to higher volume in the North American and European occupant restraint, steering systems and automotive electronics businesses. The operating profit increase was due to the higher volume in the North American and European occupant restraint and steering systems businesses. TRW INC. 19 Management's Discussion and Analysis of the Results of Operations and Financial Condition Results of Operations (continued) The company has and expects to continue to invest in areas of significant future growth, such as air bag systems, power rack and pinion steering and advanced electronic components. In addition, TRW will continue to take advantage of the increasing opportunities in the emerging markets of the world, including India, the People's Republic of China and others, through internal growth and strategic alliances. TRW provides automotive systems and components with substantial value-added content to the worldwide automotive industry. The company anticipates that 1996 North American automotive and light truck production will approximate 1995 levels. We foresee continued modest production growth in Western Europe, and strong growth in the emerging markets of Eastern Europe and Asia. The diversity of our customers, markets and products, in conjunction with increased application rates in key product lines, will allow for continued growth throughout the world. We are dedicated to technological leadership, continuous improvement, reducing costs and break-even points, and focusing on consistent achievement of high quality in all of our products and services in order to strengthen our competitive position on a worldwide basis. Space and Defense Strong financial performance in space and defense was highlighted by an outstanding year for new program awards. Sales in 1995 increased 10 percent to $3.1 billion from the $2.8 billion reported in 1994. Operating profit of $192 million was 10 percent higher than 1994's operating profit of $175 million. The strong sales growth resulting from new contract awards and existing business more than offset the effect of contracts nearing completion. The increase in operating profit resulted primarily from the absence of investments for new business initiatives partially offset by lower fee accruals during the early period of new programs and the net effect of program reserves. Sales in 1994 of $2.81 billion increased from the 1993 sales of $2.79 billion. Operating profit of $175 million was 14 percent lower than the operating profit of $205 million reported in 1993, excluding restructuring. The sales increase was due to higher volume in space and electronics, tactical reconnaissance systems, and systems engineering programs. Partially offsetting the sales increase was the effect of several contract completions and terminations. The operating profit resulting from the higher volume and the absence of 1993 reserves for certain programs was more than offset by investments for new business opportunities and the establishment of a contract reserve in 1994. Continuing pressure on the Department of Defense, NASA and other U.S. Government agency budgets could affect the level of future revenues and operating profits. However, budgets were considerably more stable in 1995 than in recent years, and we believe that this trend will continue in 1996 and the foreseeable future. We feel strongly that the company is well positioned for growth in our traditional U.S. government markets, state and municipal governments, as well as commercial and international markets. Backlog estimates at the end of 1995 totaled a record $4.87 billion, up 18 percent from the $4.12 billion reported at the end of 1994. Reported backlog at the end of 1995 does not include approximately $2.6 billion of negotiated and priced, but unexercised, options for defense and non-defense programs. Unexercised options at the end of 1994 were valued at $1.0 billion. The exercise of options is at the discretion of the customer, and, as in the case of Government contracts generally, dependent on future government funding. The impressive backlog growth was driven by a number of key program wins in 1995 that are of national importance and reflects a strong and healthy business that is poised to deliver quality products and services for years to come. Information Systems and Services Sales in 1995 were $604 million compared to $596 million in 1994. The sales increase resulted primarily from higher volume in the Information Services business partially offset by lower volume in the Information Systems business. Operating profit of $87 million in 1995 represented a 10 percent decline from the $96 million reported in 1994. The decline in operating profit resulted primarily from the net effect of certain contract reserves in Information Systems. The operating profit of $96 million in 1994 represented a 24 percent increase over 1993 operating profit of $78 million, excluding restructuring. Revenues of $596 million declined 4 percent from the $618 million reported in 1993. The revenue 20 TRW INC. Management's Discussion and Analysis of the Results of Operations and Financial Condition Results of Operations (continued) decline resulted from the absence of sales from a previously divested business. Higher volume in the Information Services business combined with continued cost controls contributed to the increase in operating profit. Operating profit in 1994 also includes a gain on the sale of a product line partially offset by the establishment of certain contract reserves in the Information Systems business. The level of revenue and operating profit will remain sensitive to several key U.S. economic variables including interest rates, consumer spending on durable goods and housing activities. However, we believe revenue and operating profit margins will continue to grow through new product offerings. In February 1996, the company entered into an agreement to sell substantially all of the businesses in the Information Systems and Services segment. Management intends to use the net proceeds from the sale for general corporate purposes, including working capital requirements, capital expenditures, business expansion transactions, and the repurchase of securities of the company. As the impact of the proposed divestiture has not been fully determined, forward looking discussions in this report do not reflect the above-mentioned sale. International operations International sales were $3.9 billion, or 39 percent of TRW sales in 1995; $3.1 billion, or 35 percent of sales in 1994; and $2.5 billion, or 31 percent of sales in 1993. U.S. export sales included in those amounts were $842 million in 1995, $638 million in 1994 and $438 million in 1993. Most of TRW's non-U.S. operations are included in the Automotive segment and are located in Europe, Canada, Brazil and the Pacific Basin. TRW's non-U.S. operations are subject to the usual risks that may affect such operations; however, most of the assets of its non-U.S. operations are in countries where the company believes such risks to be minimal. Liquidity and financial position Cash flow from operations in 1995 of $869 million was used primarily for capital expenditures, the repayment of debt and dividend payments to shareholders. Debt at December 31, 1995 was $754 million compared to $973 million at the end of 1994. The ratio of total debt (short-term debt, current portion of long-term debt and long-term debt) to total capital (total debt, minority interests and shareholders' investment) was 25 percent at December 31, 1995 compared to 34 percent at December 31, 1994. The percentage of fixed-rate debt to total debt, after the effect of interest rate swap agreements, was 77 percent at the end of 1995. TRW's non-U.S. operations are generally financed by borrowings from banks or through intercompany loans in the local currency of the borrower. There are no significant restrictions on the remittance of funds by the company's non-U.S. subsidiaries to the United States. A discussion of TRW's credit facilities is contained in the "Debt and credit agreements" footnote in the Notes to Financial Statements. The company is subject to inherent risks attributed to operating in a global economy. It is the company's policy to utilize derivative financial instruments to manage its interest rate and foreign currency exchange risks. The company uses derivatives to hedge its exposure to short-term interest rate changes as a lower cost substitute for the issuance of fixed-rate debt after taking into consideration account-related counterparty risk. The company manages cash flow transactional foreign exchange risk pursuant to a written corporate policy. Forward contracts and to a lesser extent options are utilized to protect the company's cash flow from adverse movements in exchange rates. The company is exposed to credit loss in the event of nonperformance by the counterparties to the derivative financial instruments. The company diversifies the counterparties used as a means to limit this exposure and anticipates that the counterparties will fully satisfy their obligations under the contracts. Derivative financial instruments are viewed by the company as a risk management tool and are not used for speculative or trading purposes. The effect of derivative transactions on the company's net earnings for each of the three years in the period ended December 31, 1995 is not material. Capital expenditures were $485 million in 1995, $506 million in 1994 and $482 million in 1993. The company will maintain a capital program with estimated capital expenditures for 1996 totaling about $565 million. Approximately 70 percent of these expenditures will be invested in the Automotive segment, 26 percent in the Space and Defense segment and 4 percent in the Information Systems and Services segment. The company will continue to invest in its automotive growth businesses, including air bag systems, power rack and TRW INC. 21 Management's Discussion and Analysis of the Results of Operations and Financial Condition Results of Operations (continued) pinion steering and automotive electronic technologies. The balance of the capital expenditures will be used to acquire equipment to support our existing customer base, develop advanced and next generation technologies, acquire data processing hardware and expand our communications infrastructure. On February 7, 1996, the Board of Directors authorized the company to repurchase up to 10 million shares of TRW common stock on the open market. The repurchase will be funded primarily from the proceeds from the sale of the businesses in the Information Systems and Services segment, cash flow from operations and the issuance of debt. The company plans to purchase the shares from time to time, depending on market conditions. The shares repurchased will be used to satisfy the obligations of the company's various employee benefit plans and other proper corporate purposes. We believe the company's current financing arrangements allow flexibility in worldwide financing activities and permit us to respond to changing conditions in credit markets. The existing arrangements are not indicative of the company's potential borrowing capacity. We believe that funds generated from operations and existing borrowing capacity are adequate to support and finance planned growth, capital expenditures, company-sponsored research and development programs and dividend payments to shareholders. Other matters Federal, state and local requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had and will continue to have an effect on TRW and its operations. The company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the company. A reserve estimate for each matter is established using standard engineering cost estimating techniques. In the determination of such costs, consideration is given to the professional judgment of company environmental engineers in consultation with outside environmental specialists when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1995, the company had reserves for environmental matters of $84 million, including $7 million of additional accruals recorded during the year. The company aggressively pursues reimbursement for environmental costs from its insurance carriers. However, insurance recoveries are not recorded as a reduction of environmental costs until they are fixed and determinable. At December 31, 1995, the "Other assets" caption on the balance sheet includes $30 million of insurance recoveries related to environmental matters. The company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the company's future results of operations and cash flows. However, the company cannot predict the effect on the company's future results of operations and cash flows of expenditures for aspects of certain matters for which there is insufficient information. In addition, the company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the company's future results of operations and cash flows or the possible effect of compliance with environmental requirements imposed in the future. As of December 31, 1995, the company reduced the discount rate used to measure the obligations for its pension and other postretirement benefit plans from 8-1/2 percent to 7 percent, in recognition of lower prevailing long-term interest rates. The effect of the discount rate change on 1996 pension and other postretirement benefit costs is not expected to be material. The determination of pension and other postretirement benefit costs beyond 1996 will depend on various factors, including long-term interest rates, investment returns, health care cost trend rates, other actuarial assumptions, benefit levels, and demographic changes. 22 TRW INC. Financial Statements Statements of Earnings TRW Inc. and subsidiaries
In millions except per share data Years ended December 31 1995 1994 1993 Sales $ 10,172 $ 9,087 $ 7,948 Cost of sales 8,190 7,270 6,368 Gross profit 1,982 1,817 1,580 Administrative and selling expenses 747 756 707 Research and development expenses 422 412 378 Restructuring expense - - 7 Interest expense 95 105 138 Other expense(income)-net 10 9 (9) Earnings before income taxes and cumulative effect of accounting change 708 535 359 Income taxes 262 202 139 Earnings before cumulative effect of accounting change 446 333 220 Cumulative effect as of January 1, 1993 of change in accounting for postemployment benefits (net of income taxes of $16 million) - - (25) Net earnings $ 446 $ 333 $ 195 Per share of common stock Fully diluted Before cumulative effect of accounting change $ 6.62 $ 5.01 $ 3.35 Cumulative effect of change in accounting for postemployment benefits - - (.38) Net earnings per share $ 6.62 $ 5.01 $ 2.97 Primary Before cumulative effect of accounting change $ 6.69 $ 5.05 $ 3.39 Cumulative effect of change in accounting for postemployment benefits - - (.38) Net earnings per share $ 6.69 $ 5.05 $ 3.01
See notes to financial statements. TRW INC. 23 Financial Statements Balance Sheets TRW Inc. and subsidiaries
In millions December 31 1995 1994 Assets Current assets Cash and cash equivalents $ 59 $ 109 Accounts receivable, net of allowances of $21 million and $23 million 1,428 1,338 Inventories Finished products and work in process 298 246 Raw materials and supplies 236 224 Total inventories 534 470 Prepaid expenses 78 59 Deferred income taxes 237 239 Total current assets 2,336 2,215 Property, plant and equipment-on the basis of cost Land 109 104 Buildings 1,573 1,527 Machinery and equipment 4,184 3,925 5,866 5,556 Less accumulated depreciation and amortization 3,303 3,067 Total property, plant and equipment-net 2,563 2,489 Intangible assets Intangibles arising from acquisitions 483 477 Capitalized data files 488 441 Other 92 69 1,063 987 Less accumulated amortization 405 331 Total intangible assets-net 658 656 Other assets 333 276 $ 5,890 $ 5,636
24 TRW INC. Balance Sheets (continued) TRW Inc. and subsidiaries
In millions December 31 1995 1994 Liabilities and shareholders' investment Current liabilities Short-term debt $ 133 $ 122 Accrued compensation 385 346 Trade accounts payable 807 737 Other accruals 545 541 Dividends payable 36 33 Income taxes 26 50 Current portion of long-term debt 80 157 Total current liabilities 2,012 1,986 Long-term liabilities 779 796 Long-term debt 541 694 Deferred income taxes 313 269 Minority interests in subsidiaries 73 69 Shareholders' investment Serial Preference Stock II (involuntary liquidation $9 million and $10 million) 1 1 Common stock (shares outstanding 65.6 million and 64.9 million) 40 40 Other capital 398 354 Retained earnings 1,688 1,383 Cumulative translation adjustments 76 66 Treasury shares -- cost in excess of par value (31) (22) Total shareholders' investment 2,172 1,822 $ 5,890 $ 5,636
See notes to financial statements. TRW INC. 25 Financial Statements Statements of Cash Flows TRW Inc. and subsidiaries
In millions Years ended December 31 1995 1994 1993 Operating activities Net earnings $ 446 $ 333 $ 195 Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of accounting change, net of taxes - - 25 Depreciation and amortization 510 476 458 Restructuring - (23) (61) Deferred income taxes 46 8 49 Other-net 33 26 18 Changes in assets and liabilities, net of effects of businesses acquired or sold: Accounts receivable (75) (112) (46) Inventories and prepaid expenses (71) (33) (5) Accounts payable and other accruals 31 262 (107) Other-net (51) 35 (30) Net cash provided by operating activities 869 972 496 Investing activities Capital expenditures (485) (506) (482) Proceeds from divestitures 9 22 97 Investments in other assets (78) (81) (51) Proceeds from sales of property, plant and equipment 20 16 24 Other-net (12) 7 (11) Net cash used in investing activities (546) (542) (423) Financing activities Increase(decrease) in short-term debt (47) (270) 104 Proceeds from debt in excess of 90 days 36 176 255 Principal payments on debt in excess of 90 days (207) (154) (344) Dividends paid (134) (126) (120) Other-net 9 9 27 Net cash used in financing activities (343) (365) (78) Effect of exchange rate changes on cash (30) (35) 18 Increase(decrease) in cash and cash equivalents (50) 30 13 Cash and cash equivalents at beginning of year 109 79 66 Cash and cash equivalents at end of year $ 59 $ 109 $ 79 Supplemental Cash Flow Information: Interest paid (net of amount capitalized) $ 88 $ 112 $ 174 Income taxes paid (net of refunds) $ 239 $ 93 $ 96
For purposes of the statements of cash flows, the company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. See notes to financial statements. 26 TRW INC. Statements of Changes in Shareholders' Investment TRW Inc. and subsidiaries
In millions Years ended December 31 1995 1994 1993 Shares Dollars Shares Dollars Shares Dollars Serial Preference Stock II Series 1 Balance at January 1 and December 31 .1 $ - .1 $ - .1 $ - Series 3 Balance at January 1 and December 31 .1 1 .1 1 .1 1 Common stock Balance at January 1 64.9 40 64.1 40 62.9 39 Sale of stock and other .7 - .8 - 1.2 1 Balance at December 31 65.6 40 64.9 40 64.1 40 Other capital Balance at January 1 354 293 222 Sale of stock and other 44 61 71 Balance at December 31 398 354 293 Retained earnings Balance at January 1 1,383 1,178 1,105 Net earnings 446 333 195 Other (3) - (1) Dividends declared Preference stock (1) (1) (1) Common stock ($2.10, $1.97 and $1.88 per share) (137) (127) (120) Balance at December 31 1,688 1,383 1,178 Cumulative translation adjustments Balance at January 1 66 36 53 Translation adjustments 10 30 (17) Balance at December 31 76 66 36 Treasury shares-cost in excess of par value Balance at January 1 (22) (14) (4) ESOP funding 17 - - Purchase of shares (26) (8) (10) Balance at December 31 (31) (22) (14) Total shareholders' investment $2,172 $1,822 $1,534
See notes to financial statements. TRW INC. 27 Notes to Financial Statements Summary of significant accounting policies Principles of consolidation -- The financial statements include the accounts of the company and its subsidiaries except for an insurance subsidiary. The wholly- owned insurance subsidiary and the majority of investments in affiliated companies, which are not significant individually or in the aggregate, are accounted for by the equity method. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of December 31, 1995 and 1994, respectively, and reported amounts of revenues and expenses for the years ended December 31, 1995, 1994 and 1993, respectively. Actual results could differ from those estimates. Long-term contracts -- The percentage-of-completion (cost-to-cost) method is used to estimate sales under fixed-price and fixed-price incentive contracts. Sales under cost-reimbursement contracts are recorded as costs are incurred. Fees based on cost, award fees and incentive fees are included in sales at the time such amounts are reasonably estimable. Losses on contracts are recognized when determinable. Accounts receivable -- Accounts receivable at December 31, 1995 and 1994 included $507 million and $492 million, respectively, related to long-term contracts, of which $253 million and $269 million, respectively, were unbilled. Unbilled costs, fees and claims represent revenues earned and billable in the following month as well as revenues earned but not billable under terms of the contracts. A substantial portion of such amounts are expected to be billed during the following year. Retainage receivables and receivables subject to negotiation are not significant. Inventories -- Inventories are stated at the lower of cost, principally the first-in, first-out (FIFO) method, or market. Inventories applicable to long- term contracts are not significant. Depreciation -- Depreciation is computed over the assets estimated useful lives using the straight-line method for the majority of the company's depreciable assets. The remaining assets are depreciated using accelerated methods. Intangible assets -- Intangible assets are stated on the basis of cost. Intangibles arising from acquisitions prior to 1971 ($75 million) are not being amortized because there is no indication of diminished value. Intangibles arising from acquisitions after 1970 are being amortized by the straight-line method principally over 40 years. Capitalized data files are amortized by the straight-line method over periods not exceeding 15 years. The carrying value of intangible assets is assessed for impairment on a quarterly basis. Forward exchange contracts -- The company enters into forward exchange contracts the majority of which hedge firm foreign currency commitments and certain intercompany transactions. At December 31, 1995, the company had contracts outstanding amounting to approximately $219 million denominated in the German mark, the Italian lira, the British pound, the U.S. dollar and the French franc, maturing at various dates through March 1997. Changes in market value of the contracts are included in the basis of the transactions. The company is exposed to credit loss in the event of nonperformance by the counterparties to the foreign exchange contracts. No collateral is held in relation to the contracts and the company anticipates that the counterparties will satisfy their obligations under the contracts.
Fair values of financial instruments In millions 1995 1994 Carrying Value Fair Value Carrying Value Fair Value Cash and cash equivalents $ 59 $ 59 $109 $ 109 Short-term debt 133 133 122 122 Floating rate long-term debt 74 74 171 171 Fixed rate long-term debt 547 632 680 673 Interest rate swaps - (liability) - (2) - (5) Forward currency exchange contracts - asset - 1 - -
28 TRW INC. Summary of significant accounting policies (continued) The fair value of long-term debt was estimated using discounted cash flow analysis, based on the company's current borrowing rates for similar types of borrowing arrangements. The fair value of interest rate and forward currency exchange contracts is estimated based on quoted market prices of offsetting contracts. Environmental costs -- TRW participates in environmental assessments and remedial efforts at operating facilities, previously owned or operated facilities, and Superfund or other waste sites. Costs related to these locations are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts based on experience and assessments, and are regularly evaluated as efforts proceed. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. Earnings per share -- Fully diluted earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each year, including common stock equivalents (stock options) and assuming the conversion of the Serial Preference Stock II - Series 1 and 3. Primary earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each year including common stock equivalents. Accounting change -- Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The company recognized the cumulative effect of this accounting change as of January 1, 1993, resulting in a one-time charge of $25 million (after a reduction for income taxes of $16 million). Research and development
In millions 1995 1994 1993 Customer-funded $ 1,387 $ 1,157 $ 1,223 Company-funded Research and development 422 412 378 Product development 154 140 136 576 552 514 $ 1,963 $ 1,709 $ 1,737
Company-funded research and development programs include research and development for commercial products and independent research and development and bid and proposal work related to government products and services. A portion of the cost incurred for independent research and development and bid and proposal work is recoverable through overhead charged to government contracts. Product development costs include engineering and field support for new customer requirements. Restructuring For balance sheet purposes, other accruals in 1995 and 1994 include $16 million and $33 million, respectively, relating to restructuring reserves. The decline in the reserve during 1995 resulted principally from the downsizing and streamlining of certain businesses in the Automotive segment. Restructuring expense in 1993 consists of restructuring charges of $23 million, principally in the Automotive segment, resulting from additional management decisions reduced by gains of $16 million from the sales of certain businesses in the Automotive segment. TRW INC. 29 Notes to Financial Statements Other expenses (income)-net
In millions 1995 1994 1993 Other income $ (42) $ (66) $ (69) Other expense 47 60 42 Gain on sale of assets (5) (28) (4) Foreign currency translation 10 43 22 $ 10 $ 9 $ (9)
Gain on sale of assets in 1994 includes a gain on the sale of a product line in the Information Systems and Services segment. Income taxes Earnings before income taxes and cumulative effect of accounting change
In millions 1995 1994 1993 U.S. $ 511 $ 387 $ 362 Non-U.S. 197 148 (3) $ 708 $ 535 $ 359 Provision for income taxes In millions 1995 1994 1993 Current U.S. federal $ 119 $ 106 $ 34 Non-U.S. 57 40 24 U.S. state and local 19 24 (1) 195 170 57 Deferred U.S. federal 32 28 78 Non-U.S. 14 5 (10) U.S. state and local 21 (1) 14 67 32 82 $ 262 $ 202 $ 139 Effective income tax rate 1995 1994 1993 U.S. statutory income tax rate 35.0% 35.0% 35.0% Restructuring benefits - - (2.8) Non-deductible expenses 1.3 1.6 .4 U.S. state and local income taxes net of U.S. federal tax benefit 3.7 2.7 2.4 Non-U.S. tax rate variances net of foreign tax credits (.1) (.4) 4.3 Prior year adjustments (2.7) - - Other (.2) (1.1) (.6) Effective income tax rate 37.0% 37.8% 38.7%
30 TRW INC. Income taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1995 and 1994, the company had unused tax benefits of $33 million and $40 million, respectively, related to non-U.S. net operating loss carryforwards for income tax purposes, of which $16 million and $23 million can be carried forward indefinitely and the balance expires at various dates through 2000. A valuation allowance at December 31, 1995 and 1994 of $27 million and $26 million, respectively, has been recognized to offset the related deferred tax assets due to the uncertainty of realizing the benefit of the loss carryforwards. It is the company's intention to reinvest undistributed earnings of certain of its non-U.S. subsidiaries and thereby indefinitely postpone their remittance. Accordingly, deferred income taxes have not been provided for accumulated undistributed earnings of $325 million at December 31, 1995.
Deferred tax assets Deferred tax liabilities In millions 1995 1994 1995 1994 Pensions and postretirement benefits other than pensions $ 263 $ 259 $ 38 $ 43 Completed contract method of accounting for long-term contracts 52 50 425 414 State and local taxes 22 29 9 9 Reserves and accruals 79 107 - - Depreciation and amortization 16 19 153 130 Insurance accruals 26 28 - - Non-U.S. net operating loss carryforwards 33 40 - - Other 133 109 48 49 624 641 673 645 Valuation allowance for deferred tax assets (27) (26) - - Total $ 597 $ 615 $ 673 $ 645
Notes to Financial Statements Pension plans The company has defined benefit pension plans (generally noncontributory except for those in the United Kingdom) for substantially all employees. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat-dollar amounts and years of service. Under the company's funding policy, annual contributions are made to fund the plans during the participants' working lifetimes, except for unfunded plans in Germany and certain non-qualified plans in the U.S. which are funded as benefits are paid to participants. Annual contributions to funded plans have met or exceeded ERISA's minimum funding requirements or amounts required by local law or custom. The company sponsors a contributory stock savings plan for which a majority of its U.S. employees are eligible. The company matches employee contributions up to 3 percent of the participant's qualified compensation. The company contributions are held in an unleveraged employee stock ownership plan. The company also sponsors other defined contribution pension plans covering employees at some of its operations. TRW INC. 31 Notes to Financial Statements Pension plans (continued)
In millions 1995 1994 1993 U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Defined benefit plans Service cost -- benefits earned during the year $ 55 $ 15 $ 60 $ 13 $ 52 $ 12 Interest cost on projected benefit obligation 157 27 149 24 150 23 Actual (return)loss on plan assets (521) (38) 40 11 (319) (51) Net amortization and deferral 314 19 (237) (28) 126 35 Total pension cost of benefit plans 5 23 12 20 9 19 Defined contribution plans 1 5 1 3 1 2 Stock savings plan 38 - 36 - 36 - $ 44 $ 28 $ 49 $ 23 $ 46 $ 21 In millions 1995 1994 U.S. Non-U.S. U.S. Non-U.S. Actuarial present value of benefit obligations Vested benefit obligation $1,961 $ 328 $1,546 $275 Overfunded plans $1,995 $ 208 $1,565 $182 Underfunded plans 128 136 110 100 Total accumulated benefit obligation $2,123 $ 344 $1,675 $282 Projected benefit obligation $2,367 $ 378 $1,810 $311 Overfunded plans $2,508 $ 249 $2,142 $220 Underfunded plans 78 28 65 25 Total plan assets at fair value (primarily listed stocks and bonds) 2,586 277 2,207 245 Plan assets in excess of (less than) projected benefit obligation 219 (101) 397 (66) Unrecognized net gain (35) (18) (218) (26) Unrecognized net assets from January 1, 1986 (January 1, 1989 for non-U.S. plans) (59) (5) (77) (6) Unrecognized prior service cost 30 9 42 9 Additional minimum liability (26) (8) (18) (6) Net pension asset(liability) recognized in the balance sheet $ 129 $(123) $ 126 $(95) Actuarial Assumptions: 1995 1994 U.S. Non-U.S. U.S. Non-U.S. Discount rate 7.0% 7.0 to 8.5% 8.5% 8.0 to 8.75% Rate of increase in compensation levels 3.0% 4.5 to 5.0% 3.0% 5.0 to 5.75% Long-term rate of return on plan assets 9.0% 7.0 to 9.5% 9.0% 6.0 to 9.50%
32 TRW INC. Postretirement benefits other than pensions The company provides health care and life insurance benefits for a majority of its retired employees in the United States and Canada. The health care plans provide for cost sharing, in the form of employee contributions, deductibles, and coinsurance, between the company and its retirees. The postretirement health care plan covering a majority of employees who retired since August 1, 1988 limits the annual increase in the company's contribution toward the plan's cost to a maximum of the lesser of 50 percent of medical inflation or 4 percent. Life insurance benefits are generally noncontributory. The company's policy is to fund the cost of postretirement health care and life insurance benefits in amounts determined at the discretion of management. Retirees in certain other countries are provided similar benefits by plans sponsored by their governments.
In millions 1995 1994 Accumulated postretirement benefit obligation Retirees $ 508 $ 420 Fully eligible active participants 38 37 Other active participants 232 194 778 651 Plan assets at fair value (primarily listed stocks and bonds) 61 32 Accumulated postretirement benefit obligation in excess of plan assets (717) (619) Unrecognized prior service cost (7) (7) Unrecognized net (gain)loss 7 (89) Net liability recognized in the balance sheet $(717) $(715) In millions 1995 1994 1993 Service cost $ 10 $ 13 $ 13 Interest cost 55 53 59 Actual return on plan assets (9) - (1) Net amortization and deferral 4 (3) (1) Net periodic postretirement benefit cost $ 60 $ 63 $ 70
The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1995 and 1994 was 7 percent and 8-1/2 percent, respectively. At December 31, 1995, the 1996 annual rate of increase in the per capita cost of covered health care benefits was assumed to be 10 percent for participants under age 65 and 9 percent for participants age 65 or older. The rates were assumed to decrease gradually to 6 percent and 5 percent, respectively, in the year 2009 and remain at that level thereafter. At December 31, 1994, the 1995 annual rate of increase in the per capita cost of covered health care benefits was assumed to be 10 percent for participants under age 65 and 9 percent for participants age 65 or older. The rates were assumed to decrease gradually to 6 percent and 5 percent, respectively, in the year 2021 and remain at that level thereafter. A one percent annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at December 31, 1995 by approximately 8 percent, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by approximately 9 percent. The weighted average expected long-term rate of return on plan assets was 8 percent for 1995 and 9 percent for 1994. The trust holding the majority of the plan assets is not subject to federal income taxes. TRW INC. 33 Notes to Financial Statements Debt and credit agreements
Short-term debt In millions 1995 1994 U.S. borrowings $ 13 $ - Non-U.S. borrowings 120 122 $133 $122 Long-term debt In millions 1995 1994 U.S. borrowings $ - $ 26 Non-U.S. borrowings 85 148 7.3% ESOP obligations due 1997 60 95 Medium-term notes: 9.35% Notes due 2020 (due 2000 at option of note holder) 100 100 9 3/8% Notes due 2021 100 100 Other medium-term notes 234 309 Other 42 73 Total long-term debt 621 851 Less current portion 80 157 $541 $694
TRW maintains a committed U.S. revolving credit agreement with 17 banks. The agreement allows the company to borrow up to $550 million and extends through February 2000. The interest rate under the agreement is either a negotiated rate, the banks' prime rates, a rate based upon the banks' costs of funds in the secondary certificate of deposit market or a rate based upon an Interbank Offered Rate. TRW's commercial paper borrowings are supported by this agreement. At December 31, 1995, there were no outstanding borrowings under the U.S. revolving credit agreement. The weighted average interest rate on short-term borrowings outstanding at December 31, 1995 and 1994 is 7.6 and 7.2 percent, respectively. The company also maintains a committed multi-currency revolving credit agreement with 13 banks. The agreement allows the company to borrow up to $200 million and extends through February 2000. The interest rate under the agreement is based on various interest rate indices. At December 31, 1995, there were no outstanding borrowings under the multi-currency credit agreement. At December 31, 1995, $41 million of short-term non-U.S. borrowings have been reclassified to long-term non-U.S. borrowings because the company intends to refinance these borrowings on a long-term basis and has the ability to do so under its multi-currency revolving credit agreement. As of December 31, 1995, the company has interest rate swap agreements for notional borrowings of $135 million in which the company pays a fixed rate and receives a floating rate. The weighted average pay rate and receive rate under these agreements is 8.1 percent and 5.4 percent, respectively. These agreements mature at various dates through 1998. The floating rates under the interest rate swap agreements are both based on commercial paper and LIBOR rates and have been calculated using these rates at December 31, 1995. Net payments or receipts under the agreements are recognized as an adjustment to interest expense. The company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements. No collateral is held in relation to the agreements and the company anticipates that the counterparties will satisfy their obligations under the agreements. The other medium-term notes bear interest at rates ranging from 5.98 percent to 9.25 percent and mature at various dates through 2020. Non-U.S. borrowings bear interest, stated in terms of the local currency borrowing, at rates ranging from 2.13 percent to 12.5 percent at December 31, 1995 and mature at various dates through 2004. 34 TRW INC. Debt and credit agreements (continued) The maturities of long-term debt are, in millions: 1996-$80; 1997-$76; 1998-$16; 1999-$16; 2000-$52; and $381 thereafter. The indentures and other debt agreements impose, among other covenants, restrictions on funded debt and maintenance of minimum tangible net worth. Under the most restrictive interpretation of these covenants, the payment of dividends was limited to approximately $1,273 million at December 31, 1995. Compensating balance arrangements and commitment fees were not material. Lease commitments TRW leases certain offices, manufacturing and research buildings, machinery, automobiles and data processing and other equipment. Such leases, some of which are noncancelable and in many cases include renewals, expire at various dates. The company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense for operating leases was $179 million for 1995, $164 million for 1994 and $162 million for 1993. At December 31, 1995, future minimum lease payments for noncancelable operating leases totaled $388 million and are payable as follows: 1996-$98; 1997-$78; 1998-$52; 1999-$35; 2000-$28; and $97 thereafter. Capital stock Serial Preference Stock II -- cumulative - stated at $2.75 a share; 5 million shares authorized. Series 1 -- each share convertible into 4.4 shares of common; redeemable at $104 per share; involuntary liquidation price $104 per share; dividend rate of $4.40 per annum. Series 3 -- each share convertible into 3.724 shares of common; redeemable at $100 per share; involuntary liquidation price $40 per share; dividend rate of $4.50 per annum. Series 4 -- not convertible into common shares; redemption price and involuntary liquidation price of $125 per one one-hundredth of a share; annual dividend rate per one one-hundredth of a share of the lesser of $4.00 or the current dividend on common stock; no shares outstanding at December 31, 1995. Common stock -- $0.625 par value; authorized 250 million shares; shares outstanding were reduced by treasury shares of .6 million in 1995 and .4 million in 1994. TRW has a shareholder purchase rights plan under which each shareholder of record as of January 6, 1989 received one right for each TRW common share held. Each right entitles the holder, upon the occurrence of certain events, to buy one one-hundredth of a share of Cumulative Redeemable Serial Preference Stock II, Series 4, at a price of $125. Should certain additional events occur, each right allows the shareholder to purchase $250 of the surviving entity's common shares at a 50 percent discount. The company may redeem these rights at its option at one cent per right under certain circumstances. At December 31, 1995, 6.8 million shares of common stock were reserved for the exercise and issuance of stock options and conversion of the Serial Preference Stock II, Series 1 and 3. There were .7 million shares of Cumulative Redeemable Serial Preference Stock II, Series 4, reserved for the shareholder purchase rights plan. Stock options TRW has granted incentive and nonqualified stock options to certain employees to purchase the company's common stock at the market price on the date of grant. TRW accounts for stock options in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Subject to certain exceptions, incentive stock options become exercisable to the extent of one-half of the optioned shares for each full year of employment following the date of grant, and TRW INC. 35 Notes to Financial Statements Stock Options (continued) nonqualified stock options granted prior to 1987 become exercisable to the extent of one-fourth of the optioned shares for each full year of employment following the date of grant. Nonqualified stock options granted after 1986 become exercisable to the extent of one-third of the optioned shares for each full year of employment following the date of grant. Generally, both incentive and nonqualified stock options expire 10 years after the date of grant.
1995 1994 Millions Millions of shares Option price of shares Option price Outstanding at beginning of year 4.7 $39.285 to $65.75 4.5 $31.44 to $64.07 Granted .7 64.63 .9 65.75 Became exercisable .3 44.125 to 65.75 .6 39.75 to 64.07 Exercised .7 39.285 to 65.75 .6 31.44 to 56.94 Canceled, expired or terminated .1 39.285 to 65.75 .1 31.44 to 65.75 Outstanding at end of year 4.6 39.75 to 65.75 4.7 39.285 to 65.75 Exercisable 3.3 39.75 to 65.75 3.8 39.285 to 64.07
At December 31, 1995, approximately 800 employees were participants in the plans. As of that date, the average exercise price of options outstanding was $52.89 per share and the expiration dates ranged from July 1996 to February 2005. The Company is currently planning to adopt the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in 1996. TRW grants performance share rights to certain employees under which the employees are entitled to receive shares of the company's common stock based on the achievement of a certain return on assets employed. The rights specify a target number of shares which the employee would receive for each year that goals for returns on assets employed are met. If the goals are exceeded, the employee could receive up to 200 percent of the target shares, with the excess over 100 percent payable in cash (unless the Compensation and Stock Option Committee of the Board of Directors determines to pay the excess in shares). If the goals are not met, the employee would receive fewer than the target shares or no shares. At December 31, 1995 and 1994, the target number of performance share rights granted to employees and still outstanding were .2 million and .4 million, respectively. Contingencies The company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In addition, the company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to the company. The company has established accruals for matters that are probable and reasonably estimable including $84 million for environmental matters at December 31, 1995. The company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on the company's financial position. However, the company cannot predict the effect on the company's financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, the company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters or the possible effect of compliance with environmental requirements imposed in the future. Further, product liability claims may be asserted in the future for events not currently known by management. Although the ultimate liability from these potential claims cannot be ascertained at December 31, 1995, management does not anticipate that any related liability, after consideration of insurance recovery, would have a material adverse effect on the company's financial position. 36 TRW INC. Industry segments TRW Inc. is a global manufacturing and service company based in the United States. It is strategically focused on providing products and services in the automotive, space and defense, and information systems and services markets. The principal markets for the company's automotive products are North American, European and Asian original equipment manufacturers and independent distributors. Space and defense primarily provides products and services to the United States government, agencies of the United States government and commercial customers. Information systems and services provides information and services to businesses, credit-granting organizations, financial institutions, and individual consumers. Automotive -- Occupant restraint systems, including sensors, air bag and seat belt systems; electrical and electronic controls. Steering systems, including power and manual rack and pinion steering for light vehicles, hydraulic steering systems for commercial truck and off-highway vehicles and suspension components. Engine valves and valve train parts, pistons, engineered fasteners, stud welding and control systems. Space & Defense -- Spacecraft, including the design and manufacture of military and civilian spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads, high-energy lasers and laser technology and other high-reliability components. Software and systems engineering support services in the fields of military command and control, earth observation, environmental monitoring and nuclear waste management, air traffic control, telecommunications, security and counterterrorism, undersea surveillance and other high-technology space, defense, and civil government support systems. Electronic systems, equipment and services, including the design and manufacture of space communication systems, airborne reconnaissance systems, unmanned aerial vehicles, avionics systems and other electronic technologies for tactical and strategic space, defense and selected commercial applications. Information Systems & Services -- Information systems and services, including consumer and commercial credit information and related services, direct marketing, real estate information and services and imaging systems engineering and integration.
Information Company Year ended Space & Systems & Staff & In millions December 31 Automotive Defense Services Other Total Sales 1995 $6,468 $3,100 $ 604 $ - $10,172 1994 5,679 2,812 596 - 9,087 1993 4,538 2,792 618 - 7,948 Operating profit by 1995 $ 607 $ 192 $ 87 $(178) $ 708 segment (1) 1994 476 175 96 (212) 535 1993 309 199 74 (223) 359 Identifiable assets by 1995 $3,706 $1,113 $ 661 $ 410 $ 5,890 segment (2) 1994 3,481 1,111 622 422 5,636 1993 3,004 1,253 752 327 5,336 Depreciation and 1995 $ 304 $ 102 $ 18 $ 9 $ 433 amortization of property, 1994 264 111 20 7 402 plant and equipment 1993 238 116 26 8 388 Capital expenditures 1995 $ 314 $ 114 $ 19 $ 38 $ 485 1994 388 98 18 2 506 1993 367 90 23 2 482
(1) The "Company Staff & Other" column includes: (a) Company Staff and other expenses of $84, $111 and $91 million, (b) interest expense of $95, $105 and $138 million and (c) earnings from affiliates of $1, $4 and $6 million for each of the respective years. The total represents consolidated earnings before income taxes and cumulative effect of accounting change. (2) The "Company Staff & Other" column includes: (a) Company Staff assets of $397, $380 and $317 million, (b) investment in affiliates of $49, $70 and $56 million and (c) eliminations of $(36), $(28) and $(46) million for each of the respective years. The total represents the consolidated total assets of the company. TRW INC. 37 Notes to Financial Statements Industry segments (continued) At December 31, 1995 and 1994, accounts receivable in the Automotive segment were $869 million and $774 million, respectively, and accounts receivable in the Space & Defense segment, principally from agencies of the U.S. Government, were $478 million and $491 million, respectively. The company generally does not require collateral from its customers. Company Staff assets consist principally of cash and cash equivalents, current deferred income taxes and administrative facilities. Intersegment sales were not significant. Sales to agencies of the U.S. Government, primarily by the Space & Defense segment, were $2,899 million in 1995, $2,545 million in 1994 and $2,708 million in 1993. Sales to Ford Motor Company by the Automotive segment were $1,474 million in 1995, $1,363 million in 1994 and $1,096 million in 1993. Geographic segments
Year ended United Other Company In millions December 31 States Europe Areas Staff & Other Total Sales 1995 $6,816 $2,525 $ 831 $ - $10,172 1994 6,290 1,965 832 - 9,087 1993 5,643 1,522 783 - 7,948 Operating profit by 1995 $ 601 $ 220 $ 65 $(178) $ 708 segment (1) 1994 528 143 76 (212) 535 1993 461 50 71 (223) 359 Identifiable assets by 1995 $3,529 $1,465 $537 $ 359 $ 5,890 segment (2) 1994 3,444 1,289 531 372 5,636 1993 3,536 1,047 461 292 5,336
TRW's operations are located primarily in the United States and Europe. Interarea sales are not significant to the total revenue of any geographic area. (1) The "Company Staff & Other" column includes: (a) Company Staff and other expenses of $84, $111 and $91 million, (b) interest expense of $95, $105 and $138 million and (c) earnings from affiliates of $1, $4 and $6 million for each of the respective years. The total represents consolidated earnings before income taxes and cumulative effect of accounting change. (2) The "Company Staff & Other" column includes: (a) Company Staff assets of $397, $380 and $317 million (b) investment in affiliates of $49, $70 and $56 million and (c) eliminations of $(87), $(78) $(81) million for each of the respective years. The total represents the consolidated total assets of the company. 38 TRW INC. Events subsequent to date of independent auditors' report (unaudited) In February 1996, the company entered into an agreement to sell substantially all of the businesses in the Information Systems and Services segment. The sale, which is expected to result in a gain, is subject to corporate and regulatory approval and other conditions. On February 7, 1996, the Board of Directors authorized the company to repurchase up to 10 million shares of TRW common stock on the open market. The company plans to purchase the shares from time to time, depending on market conditions. Quarterly financial information (unaudited)
In millions except per share data First Second Third Fourth 1995 1994 1995 1994 1995 1994 1995 1994 (A) Sales $2,596 $2,159 $2,712 $2,317 $2,401 $2,165 $2,463 $2,446 Gross profit 523 439 528 471 459 451 472 456 Earnings before income taxes 190 107 197 139 143 133 178 156 Net earnings 115 64 123 87 93 82 115 100 Net earnings per share Fully diluted 1.72 .97 1.81 1.31 1.41 1.24 1.68 1.49 Primary 1.74 .97 1.84 1.33 1.39 1.26 1.72 1.49
(A) Earnings before income taxes included a $35 million gain ($23 million after taxes, 34 cents per share) related to an insurance claim settlement and a $31 million charge ($20 million after taxes, 30 cents per share) related to certain contract reserves. Stock prices and dividends (unaudited) The book value per common share at December 31, 1995 was $32.97 compared to $27.91 at the end of 1994. Our directors declared the 230th consecutive quarterly dividend during December 1995. Dividends declared per share in 1995 were $2.10, up 7 percent from $1.97 in 1994. The following table highlights the market prices of our common and preference stocks and dividends paid for the quarters of 1995 and 1994.
Price of Price of Dividends traded shares traded shares paid per share Quarter 1995 1994 1995 1994 High Low High Low Common stock 1 $70 $61-3/4 $77-1/2 $65-3/4 $ .50 $ .47 Par value $0.625 per share 2 81-3/4 67 71-1/4 61 .50 .47 3 82-5/8 71-3/8 75-1/8 63-5/8 .50 .50 4 78-5/8 64-1/8 74-3/4 62 .55 .50 Cumulative Serial 1 350 225 326 320 1.10 1.10 Preference Stock II 2 349-1/4 348 350 250 1.10 1.10 $4.40 Convertible 3 336-1/2 336-1/2 325 325 1.10 1.10 Series 1 4 325-5/8 300-5/8 316 275 1.10 1.10 Cumulative Serial 1 236 236 256-1/2 256-1/2 1.125 1.125 Preference Stock II 2 292-1/4 265 244 232 1.125 1.125 $4.50 Convertible 3 288 283 272 272 1.125 1.125 Series 3 4 290 254 238 232 1.125 1.125
The $4.40 Convertible Series 1 was not actively traded during the first quarter of 1995. The prices shown represent the range of asked(high) and bid(low) quotations. TRW INC. 39 Management and Auditors' Report _______________________________________________________________________________ REPORT OF MANAGEMENT _______________________________________________________________________________ Management of TRW is responsible for the preparation of the accompanying consolidated financial statements of the company and its subsidiaries. The financial statements have been prepared in conformity with generally accepted accounting principles and include the estimates and judgments of management. The financial statements have been audited by Ernst & Young LLP, independent auditors, whose report appears below. Management has established and is responsible for maintaining a system of internal accounting controls that it believes provides reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The system is tested and evaluated regularly by the company's internal auditors as well as by the independent auditors in connection with their annual audit. TRW has an audit committee composed of four directors who are not members of management. The committee meets regularly with management, the internal auditors and the independent auditors in connection with its review of matters relating to the company's financial statements, the company's internal audit program, the company's system of internal accounting controls and the services of the independent auditors. The committee also meets with the internal auditors as well as the independent auditors, without management present, to discuss appropriate matters. The committee also recommends to the directors the designation of the independent auditors. /s/ Joseph T. Gorman /s/ Ronald D. Sugar /s/ Carl G. Miller Joseph T. Gorman Ronald D. Sugar Carl G. Miller Chairman and Chief Executive Vice President Vice President and Executive Officer and Chief Financial Officer Corporate Controller January 23, 1996 _______________________________________________________________________________ REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS _______________________________________________________________________________ Shareholders and Directors TRW Inc. We have audited the accompanying consolidated balance sheets of TRW Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, cash flows and changes in shareholders' investment for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TRW Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the notes to financial statements, effective January 1, 1993, the company changed its method of accounting for postemployment benefits. /s/ Ernst & Young, LLP Cleveland, Ohio January 23, 1996 40 TRW Inc. EX-21 13 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT TRW has no parent or parents. As of December 31, 1995, certain of its subsidiaries, some of which also have subsidiaries, were as follows:
PERCENTAGE OF ORGANIZED UNDER VOTING SECURITIES NAME THE LAWS OF OWNED (1) ---- --------------- ----------------- TRW U.K. Limited which owns United Kingdom 100.00% TRW Remanufactured Steering Systems Limited United Kingdom 100.00% TRW Steering Systems Limited United Kingdom 100.00% TRW Ceramics Limited United Kingdom 100.00% TRW Connectors Limited United Kingdom 100.00% TRW Reda Pump Limited United Kingdom 100.00% TRW Occupant Restraints Systems Limited United Kingdom 100.00% TRW Transportation Electronics Limited United Kingdom 100.00% TRW United-Carr Limited United Kingdom 100.00% TRW Automotive Systems Limited United Kingdom 100.00% TRW Vehicle Safety Systems Inc. which owns Delaware 100.00% TRW Technar Inc. California 100.00% TRW Safety Systems Inc. which in turn owns Delaware 100.00% TRW Vehicle Safety Systems de Mexico, Mexico 100.00% S.A. de C.V. TRW Occupant Restraints de Chihuahua S.A. de C.V. Mexico 100.00% TRW Automotive Products Inc. which, together with TRW International Holding Corporation, directly or indirectly owns Delaware 100.00% TRW GmbH fur industrielle Beteiligungen which, in turn (in some cases together with TRW Inc.), directly or indirectly owns Germany 100.00% TRW Autoelektronika s.r.o. Czechoslovakia 100.00% TRW Carr CSRS s.r.o. Czechoslovakia 100.00% TRW-DAS, a.s. Czechoslovakia 92.40% TRW Electro-Automation GmbH & Co. KG Germany 76.00% TRW Fahrwerksysteme GmbH & Co. KG Germany 100.00% TRW Fahrzeugelektrik GmbH & Co. KG Germany 100.00% TRW FahrzeugelektrikVerwaltungs-GmbH Germany 100.00% TRW Motorkomponenten GmbH & Co. KG Germany 100.00% TRW Nelson Bolzenschweiss-Technik GmbH Germany 100.00% TRW Presswerk Krefeld GmbH & Co. KG Germany 100.00% TRW Occupant Restraints Systems GmbH Germany 100.00% TRW United-Carr GmbH & Co. KG Germany 100.00% TRW Steering Systems Japan Co. Ltd. Japan 100.00%
PERCENTAGE OF ORGANIZED UNDER VOTING SECURITIES NAME THE LAWS OF OWNED (1) ---- --------------- ----------------- TRW Canada Limited which owns Canada 100.00% TRW Vehicle Safety Systems Limited Canada 100.00% Quality Safety Systems Company Canada 60.00% TRW do Brasil, S.A. Brazil 98.8% TRW Components International Inc. Virginia 100.00% TRW Italia S.p.A. which owns Italy 100.00% TRW SIPEA S.p.A. Italy 100.00% TRW France S.A. which owns France 100.00% TRW Carr France SNC France 100.00% TRW Koyo Steering Systems Company Tennessee 51.00% TRW Export Sales Corporation U.S. Virgin Islands 100.00% TRW System Services Company Delaware 100.00% TRW Financial Systems, Inc. which owns California 100.00% TRW Financial Systems Nederland B.V. Netherlands 100.00% TRW Financial Systems of Norway AS Norway 100.00% TRW Sabelt S.p.A. Italy 90.00% TRW Air Bag Systems s.r.l. Italy 100.00% TRW Direcciones de Vehiculos, S.A. Spain 100.00% TRW Finance International Ireland 100.00% TRW Module Systems S.A. France 80.00%
_______________ (1) Total percentages held by TRW and/or its subsidiaries, disregarding Directors' qualifying shares, if any. The names of certain subsidiaries, which considered in the aggregate would not constitute a "significant subsidiary" as such term is defined in the regulations under the federal securities laws, have been omitted from the foregoing list. EX-23.(A) 14 EXHIBIT 23(A) EXHIBIT 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements Nos. 33-61711 on Form S-3, 33-42870 on Form S-3, 33-58263 on Form S-8, 33-58257 on Form S-8, 33-53503 on Form S-8, 33-29751 on Form S-8, 2-90748 on Form S-8, 2- 64035 on Form S-8, 2-47665 on Form S-8 and 2-26362 on Form S-8 of our report dated January 23, 1996 with respect to the consolidated financial statements of TRW Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1995. We also consent to the incorporation by reference in TRW Inc.'s Registration Statement No. 33-58263 on Form S-8 pertaining to The TRW Employee Stock Ownership and Stock Savings Plan and the related prospectus of our report dated March 15, 1996 with respect to the financial statements of The TRW Employee Stock Ownership and Stock Savings Plan for the fiscal year ended December 31, 1995 included as Exhibit 99(a) to the TRW Inc. Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio March 20, 1996 EX-23.(B) 15 EXHIBIT 23(B) EXHIBIT 23(b) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in TRW Inc.'s Registration Statement No. 33-58257 on Form S-8 pertaining to The TRW Canada Stock Savings Plan and the related prospectus of our report dated March 8, 1996 with respect to the financial statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1995 included as Exhibit 99(b) to the TRW Inc. Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young ERNST & YOUNG Hamilton, Ontario March 20, 1996 EX-24.(A) 16 EXHIBIT 24(A) EXHIBIT 24(a) POWER OF ATTORNEY Directors and Certain Officers of TRW Inc. THE UNDERSIGNED Directors and Officers of TRW Inc. hereby appoint M. A. Coyle, J. C. Diggs, J. Powers, K. A. Weigand and J. L. Manning, Jr., and each of them, as attorneys for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned in the capacity specified, to prepare or cause to be prepared, to execute and to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual Report on Form 10-K for the year ended December 31, 1995 relating to TRW Inc., such other periodic reports as may be required pursuant to the Act, amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Securities and Exchange Commission or elsewhere pertaining to such reports, with full power and authority to take such other action deemed necessary or appropriate to effect the filing of such documents. EXECUTED the dates set forth below. /s/ J. T. Gorman /s/ P. S. Hellman /s/ C. G. Miller - ----------------------- ----------------------- ------------------------- J. T. Gorman, P. S. Hellman, C. G. Miller, Chairman of the Board, President, Executive Vice President, Chief Executive Officer Chief Operating Officer Chief Financial Officer and Director and Director and Controller February 7, 1996 February 7, 1996 February 7, 1996 /s/ M. H. Armacost /s/ M. Feldstein /s/ R. M. Gates - ------------------------ ---------------------- ------------------------- M. H. Armacost, Director M. Feldstein, Director R. M. Gates, Director February 7, 1996 February 7, 1996 February 7, 1996 /s/ C. H. Hahn /s/ G. H. Heilmeier /s/ K. N. Horn - -------------------- ------------------------- ------------------------- C. H. Hahn, Director G. H. Heilmeier, Director K. N. Horn, Director February 7, 1996 February 7, 1996 February 7, 1996 /s/ E. B. Jones /s/ W. S. Kiser /s/ D. B. Lewis - --------------------- --------------------- --------------------- E. B. Jones, Director W. S. Kiser, Director D. B. Lewis, Director February 7, 1996 February 7, 1996 February 7, 1996 /s/ J. T. Lynn /s/ R. W. Pogue - --------------------- --------------------- J. T. Lynn, Director R. W. Pogue, Director February 7, 1996 February 7, 1996 EX-24.(B) 17 EXHIBIT 24(B) EXHIBIT 24(b) C E R T I F I C A T E I, Jean M. Schmidt, do hereby certify that I am a duly elected, qualified and acting Assistant Secretary of TRW Inc. ("TRW"), an Ohio corporation; that attached hereto and marked as "Exhibit A" is a true and correct copy of resolutions duly adopted by the Directors of TRW at a meeting thereof duly called and held on February 7, 1996, at which meeting a quorum was present and acting throughout; and that said resolutions have not been modified, revoked or rescinded in any manner and are now in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and have caused the seal of TRW to be affixed hereto at Lyndhurst, Ohio this 20th day of March, 1996. /s/ Jean M. Schmidt -------------------------- Assistant Secretary EXHIBIT A RESOLVED that any officer or assistant officer of the Corporation is authorized and empowered, for and on behalf of the Corporation, to prepare or cause to be prepared, to execute and to file with the Securities and Exchange Commission, Washington, D. C. (the "Commission"), the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, such other periodic reports as may be required pursuant to the Securities Exchange Act of 1934, as amended (the "Act"), amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Commission or elsewhere pertaining to such reports, and to take other action deemed necessary and appropriate to effect the filing of all such reports under the Act, including the execution of a power of attorney evidencing the authority set forth herein; and FURTHER RESOLVED that James C. Diggs, Jan Powers, Kathleen A. Weigand and J. Lawrence Manning, Jr. and each of them is appointed an attorney for the Corporation, with full power of substitution and resubstitution, to execute and file, for and on behalf of the Corporation, the Annual Report on Form 10-K, other periodic reports, amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Commission or elsewhere pertaining to such reports, with full power and authority to take or cause to be taken all other actions deemed necessary and appropriate to effect the purposes of the foregoing resolution. EX-27 18 EXHIBIT 27
5 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 59 0 1,449 21 534 2,336 5,866 3,303 5,890 2,012 541 1 0 40 2,131 5,890 10,172 10,172 8,190 8,190 0 0 95 708 262 446 0 0 0 446 6.69 6.62
EX-99.(A) 19 EXHIBIT 99(A) EXHIBIT 99(a) Audited Financial Statements THE TRW EMPLOYEE STOCK OWNERSHIP AND STOCK SAVINGS PLAN December 31, 1995 and 1994 Report of Independent Auditors Board of Administration The TRW Employee Stock Ownership and Stock Savings Plan We have audited the accompanying statements of net assets available for benefits of The TRW Employee Stock Ownership and Stock Savings Plan as of December 31, 1995 and 1994, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The TRW Employee Stock Ownership and Stock Savings Plan as of December 31, 1995 and 1994, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of assets held for investment purposes as of December 31, 1995, and the schedule of reportable transactions for the year then ended are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the basic financial statements. The Fund Information in the statement of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the 1995 financial statements and, in our opinion, are fairly stated in all material respects in relation to the 1995 basic financial statements taken as a whole. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio March 15, 1996 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1995
TRW Stock Fund ------------------------------- Participant Non-Participant Equity Insured Small Company Bond Directed Directed Fund Return Fund Equity Fund Index Fund Totals --------------------------------------------------------------------------------------------------------- ASSETS Investments: TRW Inc. Common Stock $285,150,030 $539,111,372 $ 824,261,402 Guaranteed investment contracts $512,421,483 512,421,483 Bankers Trust Pyramid Equity Index Fund $377,675,716 377,675,716 Bankers Trust Pyramid Russell 2500 Index Fund $64,724,947 64,724,947 Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund $18,567,359 18,567,359 Bankers Trust Pyramid Directed Account Cash Fund 1,081,907 1,940,902 6,525,288 9,548,097 Receivable from TRW Inc. 47,051 84,407 56,359 61,110 24,247 5,970 279,144 Participant loans receivable 15,864,840 15,037,019 21,275,831 4,513,551 952,282 57,643,523 Interest receivable 58,105 2,969,349 3,027,454 Receivable from other funds 452,425 250,602 396,204 1,099,231 --------------------------------------------------------------------------------------------------------- Total assets 302,201,933 541,136,681 393,221,519 543,253,061 69,513,347 19,921,815 1,869,248,356 LIABILITIES Payable to other funds 939,705 159,532 1,099,237 Accrued expenses 86,865 155,832 120,379 269,939 38,316 11,001 682,332 --------------------------------------------------------------------------------------------------------- Total liabilities 1,026,570 155,832 120,379 429,471 38,316 11,001 1,781,569 --------------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $301,175,363 $540,980,849 $393,101,140 $542,823,590 $69,475,031 $19,910,814 $1,867,466,787 --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 2 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Changes in Net Assets Available for Benefits with Fund Information December 31, 1995
TRW Stock Fund ------------------------------- Participant Non-Participant Equity Insured Small Company Bond Directed Directed Fund Return Fund Equity Fund Index Fund Totals --------------------------------------------------------------------------------------------------------- Investment income: Dividends--TRW Inc. Common Stock $ 7,387,251 $ 14,198,849 $ 21,586,100 Interest 168,774 324,394 $ 52,065 $ 35,421,071 $ 60 $ 16 35,966,380 --------------------------------------------------------------------------------------------------------- Investment income 7,556,025 14,523,243 52,065 35,421,071 60 16 57,552,480 Contributions from TRW Inc. 37,648,623 37,648,623 Contributions from participants 20,666,119 24,744,499 30,721,981 9,472,853 2,421,588 88,027,040 Net realized gain on disposition of investments 6,075,541 11,749,565 6,607,651 320,904 88,688 24,842,349 Unrealized appreciation of investments 37,014,004 68,060,707 94,567,420 13,142,214 2,358,192 215,142,537 Transfers from other funds 21,143,038 23,880,726 44,422,822 21,467,113 9,328,697 120,242,396 Interest income on participant loans 1,205,785 1,124,659 1,729,562 293,488 72,605 4,426,099 --------------------------------------------------------------------------------------------------------- 93,660,512 131,982,138 150,977,020 112,295,436 44,696,632 14,269,786 547,881,524 LESS Withdrawals and distributions: Cash 1,767,498 2,128,278 16,450,704 40,077,113 3,038,017 813,435 64,275,045 TRW Inc. Common Stock (177,354 participant directed shares and 386,539 non-participant directed shares) 13,223,504 27,965,611 41,189,115 --------------------------------------------------------------------------------------------------------- 14,991,002 30,093,889 16,450,704 40,077,113 3,038,017 813,435 105,464,160 Distribution of dividends on TRW Inc. Common Stock 13,785,763 13,785,763 Administrative expenses 162,070 314,430 279,200 905,400 104,300 15,100 1,780,500 Transfers to other funds 31,236,818 19,809,959 52,530,743 11,872,824 4,792,052 120,242,396 --------------------------------------------------------------------------------------------------------- 46,389,890 44,194,082 36,539,863 93,513,256 15,015,141 5,620,587 241,272,819 --------------------------------------------------------------------------------------------------------- Increase in net assets for year 47,270,622 87,788,056 114,437,157 18,782,180 29,681,491 8,649,199 306,608,705 Net assets available for benefits at beginning of year 253,904,741 453,192,793 278,663,983 524,041,410 39,793,540 11,261,615 1,560,858,082 --------------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $301,175,363 $540,980,849 $393,101,140 $542,823,590 $69,475,031 $19,910,814 $1,867,466,787 --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 3 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1994
TRW Stock Fund ------------------------------- Participant Non-Participant Equity Insured Small Company Bond Directed Directed Fund Return Fund Equity Fund Index Fund Totals --------------------------------------------------------------------------------------------------------- ASSETS Investments: TRW Inc. Common Stock $236,101,644 $448,510,284 $ 684,611,928 Guaranteed investment contracts $491,100,036 491,100,036 Bankers Trust Pyramid Equity Index Fund $264,983,112 264,983,112 Bankers Trust Pyramid Russell 2500 Index Fund $36,216,916 36,216,916 Bankers Trust Pyramid Directed Account Cash Fund 2,614,228 4,660,729 7,617,449 14,892,406 Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund $10,392,015 10,392,015 Receivable from TRW Inc. 93,727 238,925 152,832 209,102 65,479 16,345 776,410 Participant loans receivable 14,999,193 14,012,797 22,507,748 3,300,945 877,341 55,698,024 Interest receivable 55,109 2,821,391 2,876,500 Receivable from other funds 162,638 222,199 384,837 --------------------------------------------------------------------------------------------------------- Total assets 254,026,539 453,409,938 279,148,741 524,255,726 39,805,539 11,285,701 1,561,932,184 LIABILITIES Payable to other funds 354,256 21,270 9,311 384,837 Accrued expenses 121,798 217,145 130,502 193,046 11,999 14,775 689,265 --------------------------------------------------------------------------------------------------------- Total liabilities 121,798 217,145 484,758 214,316 11,999 24,086 1,074,102 --------------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $253,904,741 $453,192,793 $278,663,983 $524,041,410 $39,793,540 $11,261,615 $1,560,858,082 --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 4 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Changes in Net Assets Available for Benefits with Fund Information December 31, 1994
TRW Stock Fund ------------------------------- Participant Non-Participant Equity Insured Small Company Bond Directed Directed Fund Return Fund Equity Fund Index Fund Totals --------------------------------------------------------------------------------------------------------- Investment income: Dividends--TRW Inc. Common Stock $ 6,623,835 $13,157,190 $ 19,781,025 Interest 143,815 284,454 $ 1,380 $ 33,880,102 $ 46 $ 18 34,309,815 --------------------------------------------------------------------------------------------------------- Investment income 6,767,650 13,441,644 1,380 33,880,102 46 18 54,090,840 Contributions from TRW Inc. 36,366,932 36,366,932 Contributions from participants 18,401,168 23,943,347 31,556,814 7,643,495 2,076,882 83,621,706 Net realized gain on disposition of investments 5,855,567 11,611,587 6,862,404 56,836 3,224 24,389,618 Transfers from other funds 21,550,048 11,710,877 38,048,599 16,257,873 4,330,911 91,898,308 Interest income on participant loans 1,080,012 1,081,952 1,680,507 234,880 63,963 4,141,314 --------------------------------------------------------------------------------------------------------- 53,654,445 61,420,163 43,599,960 105,166,022 24,193,130 6,474,998 294,508,718 LESS Withdrawals and distributions: Cash 2,453,169 2,461,862 14,968,131 36,371,252 2,133,545 609,362 58,997,321 TRW Inc. Common Stock (205,837 participant directed shares and 366,973 non-participant directed shares) 13,703,993 26,094,278 39,798,271 --------------------------------------------------------------------------------------------------------- 16,157,162 28,556,140 14,968,131 36,371,252 2,133,545 609,362 98,795,592 Distribution of dividends on TRW Inc. Common Stock 12,766,959 12,766,959 Unrealized depreciation of investments 16,072,679 33,249,942 3,292,084 1,025,812 375,586 54,016,103 Administrative expenses 266,507 528,993 346,800 897,500 86,500 32,618 2,158,918 Transfers to other funds 17,888,220 20,799,258 36,616,591 11,317,848 5,276,391 91,898,308 --------------------------------------------------------------------------------------------------------- 50,384,568 75,102,034 39,406,273 73,885,343 14,563,705 6,293,957 259,635,880 --------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets for year 3,269,877 (13,681,871) 4,193,687 31,280,679 9,629,425 181,041 34,872,838 Net assets available for benefits at beginning of year 250,634,864 466,874,664 274,470,296 492,760,731 30,164,115 11,080,574 1,525,985,244 --------------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $253,904,741 $453,192,793 $278,663,983 $524,041,410 $39,793,540 $11,261,615 $1,560,858,082 --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 5 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements December 31, 1995 A. SIGNIFICANT ACCOUNTING POLICIES Investments in the TRW Stock Fund consist primarily of TRW Inc. (TRW) common stock which is traded on the New York Stock Exchange and valued at the last reported sales price on the last business day of the fiscal year. Investments in the Equity Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Equity Index Fund assets. This Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the Standard & Poor's Composite Index of 500 stocks. Income is accumulated and reinvested in the Fund and included in the determination of unit values. The Insured Return Fund consists of fully benefit responsive investment contracts with insurance companies, banks and other financial institutions and short term investment funds. Benefit responsive contracts provide contract value payments for participant disbursements, loans and investment transfers as allowed under the plan. There are exceptions for payments to participants who, as a result of a corporate event, cease to be employed by TRW. A corporate event includes a divestiture of an operating unit (for example, a subsidiary or a division), a significant special early retirement program or other corporate action that could be construed as causing increased Plan payments to participants. Investment contracts provide a stated rate of interest on principal for a stated period of time. All investment contracts are accounted for at contract value because they are fully benefit responsive. In accordance with Statement of Position 94-4, which the Plan adopted effective January 1, 1995, contract value equals fair value because no event has occurred that affects the value of any contracts. The investment contracts are of three types: general account, separate account, and synthetic investment contracts. Investment contracts in the general account of an insurance company where assets are not specifically identifiable have fixed rates of interest or an indexed rate of interest for the life of the contract. Investment contracts in separate accounts of an insurance company have underlying assets that are specifically identifiable and held for the benefit of the Plan. Under synthetic investment contracts, the Plan owns assets with an investment contract from an insurance company, bank or other financial institution surrounding the asset. Both separate account and synthetic contracts have periodic interest rate resets (monthly, quarterly, or semi-annually) based on the performance of the underlying assets. All separate account and synthetic contracts have a guaranteed return of principal. As of December 31, 1995 and 1994, approximately $159 and $223 million was invested in general account assets, $124 and $110 million in separate account assets, and $232 and $158 million in assets owned by the Plan, respectively. 6 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued A. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED The weighted average yield (excluding administrative expenses) for all investment contracts was 6.95% in 1995 and 7.07% in 1994. The crediting interest rate for all investment contracts was 7.09% at December 31, 1995 and 7.26% at December 31, 1994. Investments in the Bond Index Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Intermediate Government Corporate Bond Index Fund. The Bankers Trust Pyramid Intermediate Government Corporate Bond Index Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the high quality U.S. government and corporate bonds included in the Lehman Brothers Government/Corporate Index. Income is accumulated and reinvested in the fund and included in the determination of unit values. Investments in the Small Company Equity Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Russell 2500 Index Fund Assets. The Small Company Equity Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the 2,500 common stocks included in the Russell 2500 Equity Index. Income is accumulated and reinvested in the Fund and included in the determination of unit values. The cost of securities sold is determined by the average cost method for purposes of determining realized gains and losses. B. DESCRIPTION OF THE PLAN The Plan is a defined contribution plan, and is comprised of the TRW Stock Fund, Equity Fund, Insured Return Fund, Bond Index Fund and Small Company Equity Fund (the Funds). Participation in the Plan is available to substantially all domestic employees of TRW who have been employed for at least twelve months. Effective April 1, 1996, participants who have been employed for at least three months will be eligible for participation in the Plan. The Plan is governed by the Internal Revenue Code and related legislation. 7 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN--CONTINUED PARTICIPANT CONTRIBUTIONS The Plan allows eligible employees to contribute up to 13% of qualifying compensation on a before-tax basis by way of salary reduction; such contributions are made in increments of one-tenth of one percent of qualifying compensation and could not exceed $9,240 in 1995 and 1994. Participants may also elect to contribute, in increments of one percent, up to 10% of qualifying compensation on an after-tax basis. Participants can make up to two contribution percentage changes per month. Annual contributions to a participant's account (including before-tax, after-tax and TRW matching contributions) and to any other defined contribution plan is limited to the lesser of $30,000 or 25% of the participant's annual compensation reduced by the amount of before-tax contributions. Participants determine the funds in which to invest their contributions. Employee contributions may be invested, in multiples of 10% percent, in one or more of the five investment funds. Fund elections may be changed at any time. TRW CONTRIBUTIONS TRW contributes to the Plan each month, out of current or accumulated earnings, an amount equal to 100% of each participant's before-tax contributions for such month without exceeding three percent of the participant's qualifying compensation. Participants immediately vest in the TRW contributions. All TRW matching contributions are invested in the ESOP portion of the TRW Stock Fund. TRW contributions always remain in the TRW Stock Fund and may not be transferred. TRW contributions may be in the form of cash or treasury or authorized and unissued shares of TRW Common Stock. TRW Common Stock contributed is to be valued by any reasonable method selected by TRW. 8 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN--CONTINUED The amount and type of TRW contributions are summarized as follows:
1995 1994 -------------------------------- TRW Common Stock $ 16,939,149 $ 23,398,464 Cash 20,709,474 12,968,468 -------------------------------- $ 37,648,623 $ 36,366,932 -------------------------------- --------------------------------
WITHDRAWALS AND DISTRIBUTIONS Upon termination of employment, a participant may elect to receive his or her account, less the unpaid balance of any loan outstanding, in a single sum or elect to defer the payment until the year following termination except a participant whose account balance exceeds $3,500 may defer such payments until he or she reaches age 70. Generally, distributions from the TRW Stock Fund will be paid only in whole shares of TRW Common Stock with the balance in cash. Participants who have less than 100 shares of TRW stock receive the value of their shares in cash unless they elect to receive shares. If a participant elects to defer payment of his or her account, the undistributed account balance remains invested in the Plan. The following is the total value of the accounts subject to deferred elections (8,243 as of December 31, 1995 and 8,772 as of December 31, 1994) that are included in the net assets of the funds:
1995 1994 ----------------------------- TRW Stock Fund $ 199,229,528 $ 177,471,974 Equity Fund 87,771,442 64,261,772 Insured Return Fund 166,987,746 168,485,775 Bond Index Fund 3,233,663 2,066,316 Small Company Equity Fund 10,933,711 6,275,367 ----------------------------- $ 468,156,090 $ 418,561,204 ----------------------------- -----------------------------
9 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN--CONTINUED Effective January 1, 1988, participants who have attained age 55 as of the end of the preceding fiscal year-end and commenced participation in the Plan at least ten years prior may elect, within an election period during each of the succeeding five consecutive plan years, to receive a special ESOP distribution. The amount eligible for this special distribution is 50% of the prior fiscal year-end value (including previous withdrawals) of TRW Common Stock acquired for the participant's account by the ESOP since 1986, reduced by any previous withdrawals. PARTICIPANT LOANS Participants can borrow from $1,000 to $50,000 (in increments of $100) of their before-tax contributions, but such borrowings cannot exceed 50% of a participant's total Plan balance. The interest rate is fixed (prime rate at the end of the second to last business day of the quarter plus one percent) and the repayment period cannot be less than one year or more than five years. OTHER Although it has not expressed any intent to do so, TRW reserves the right to suspend or terminate the Plan. In the event of termination, the amount of each participant's account may be retained in trust for the benefit of the participant. The above description of the Plan provides only general information. Participants should refer to the Summary Plan Description, which is available from the Stock Savings Plan's Participant Service Center, and annual prospectus for a more complete description of the Plan's provisions. The preparation of the financial statements in conformity with Generally Accepted Accounting Principles requires the use of management's estimates. Certain amounts in prior year financial statements have been reclassified to conform with current year presentation. 10 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued C. INVESTMENTS The fair value of individual investments that represent 5% or more of the Plan's total assets are as follows:
DECEMBER 31 1995 1994 ------------------------------ TRW Inc. Common Stock $ 824,261,402 $ 684,611,928 Bankers Trust Pyramid Equity Index Fund 377,675,716 264,983,112
The net realized gain on disposition of investments is as follows:
TRW STOCK FUND 1995 1994 ------------------------------ Value realized $ 41,258,096 $ 39,868,378 Average cost 23,432,990 22,401,224 ------------------------------ NET REALIZED GAIN $ 17,825,106 $ 17,467,154 ------------------------------ ------------------------------ EQUITY FUND 1995 1994 ------------------------------ Value realized $ 20,436,097 $ 29,104,446 Average cost 13,828,446 22,242,042 ------------------------------ NET REALIZED GAIN $ 6,607,651 $ 6,862,404 ------------------------------ ------------------------------ SMALL COMPANY EQUITY FUND 1995 1994 ------------------------------ Value realized $ 2,870,027 $ 5,248,954 Average cost 2,549,123 5,192,118 ------------------------------ NET REALIZED GAIN $ 320,904 $ 56,836 ------------------------------ ------------------------------ 11 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued C. Investments--Continued BOND INDEX FUND 1995 1994 ------------------------------ Value realized $ 1,042,611 $ 3,043,048 Average cost 953,923 3,039,824 ------------------------------ NET REALIZED GAIN $ 88,688 $ 3,224 ------------------------------ ------------------------------
The net unrealized appreciation of investments included in net assets is as follows:
TRW Stock Equity Small Company Bond Index Fund Fund Equity Fund Fund ----------------------------------------------------------------- Balance at December 31, 1992 $220,270,572 $ 51,679,152 $ 0 $ 0 Increase for the year 95,060,294 16,834,016 1,547,470 355,749 ----------------------------------------------------------------- Balance at December 31, 1993 315,330,866 68,513,168 1,547,470 355,749 (Decrease) for the year (49,322,621) (3,292,084) (1,025,812) (375,586) ----------------------------------------------------------------- Balance at December 31, 1994 266,008,245 65,221,084 521,658 (19,837) Increase for the year 105,074,711 94,567,420 13,142,214 2,358,192 ----------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 $371,082,956 $159,788,504 $13,663,872 $2,338,355 ----------------------------------------------------------------- -----------------------------------------------------------------
On a revalued basis, which is in accordance with Department of Labor Form 5500 requirements, the realized and unrealized gains (losses) are not available at the date of the Report of Independent Auditors. A separate schedule will be included in the Form 5500 when filed. D. ADMINISTRATIVE EXPENSES Generally, salaries and wages of the administrative staff are paid by TRW. Expenses relating to investment advisor fees, management fees, trustee fees, audit fees, printing and postage are paid from Plan assets. Expenses directly attributable to any one fund are charged to that fund. Expenses not directly attributable to any one fund are allocated to each fund in the proportion that the market value of the assets of each fund bears to the total market value of all Plan assets. Brokerage fees and commissions incident to the purchase or sale of securities are paid by the fund in which they are incurred and are included in the cost of securities purchased or sold. 12 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued E. FEDERAL INCOME TAX STATUS OF THE PLAN The Plan is exempt from federal income taxes as a qualified profit sharing plan. The Plan has received a favorable determination letter from the Internal Revenue Service as to the tax qualified status of the Plan. The Plan's Board of Administration believes that the Plan is in operational compliance with the Internal Revenue Code of 1986 and will remain qualified and exempt from federal income taxes. F. TRANSACTIONS WITH PARTIES-IN-INTEREST Party-in-interest transactions include the purchase and sale of short-term investments managed by the Plan's Trustee, Bankers Trust Company. At December 31, 1995 and 1994, the Bankers Trust Pyramid Equity Index Fund holds 164,386 and 193,086 shares of TRW Inc. Common Stock having a fair value of $12,739,915 and $12,743,676, respectively. Bankers Trust Company managed assets of the Plan of approximately $470,516,119 and $326,484,449 at December 31, 1995 and 1994, respectively, and received trustee fees of $543,230 and $679,021 in 1995 and 1994, respectively. There were no party-in-interest transactions which were prohibited under Department of Labor Regulations. G. NUMBER OF PARTICIPANTS (UNAUDITED) The summary below sets forth the number of contributing participants by their current investment option(s):
DECEMBER 31 1995 1994 -------------------------- TRW Stock Fund 13,131 12,208 Equity Fund 13,779 13,397 Insured Return Fund 15,315 16,020 Bond Index Fund 3,213 2,631 Small Company Equity Fund 6,871 5,121
13 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued G. NUMBER OF PARTICIPANTS (UNAUDITED)--CONTINUED The total number of participants in the Plan is less than the sum of the number of employees shown above because many are participating in more than one fund. H. SUBSEQUENT EVENT In February 1996, TRW entered into an agreement in principle to sell substantially all of the businesses in the Information Systems and Services segment. The sale, which is expected to result in a gain, is subject to the execution of a definitive agreement, corporate and regulatory approval, and other conditions. 14 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes December 31, 1995
Crediting Interest Fair Value Shares Maturity Date Rate Cost (See Note A) - ------------ -------------------------------------------------------------- COMMON STOCK 10,635,631 TRW Inc. $453,178,447 $824,261,402 ----------------------------- TOTAL COMMON STOCK 453,178,447 824,261,402 SHORT-TERM INVESTMENTS Bankers Trust Pyramid Directed Account Cash Fund 9,548,097 9,548,097 ----------------------------- TOTAL SHORT-TERM INVESTMENTS 9,548,097 9,548,097 GUARANTEED INVESTMENT CONTRACTS SECURITY BACKED INVESTMENTS Bankers Trust: Contract 93-515 ALP September 30, 2000 5.41% 46,423,224 46,423,224 People's Security Life: Contract 00212TR-11 December 1, 2000 6.42 10,125,197 10,125,197 Provident Life & Accident: Contract 630-05575 September 1, 2003 5.71 40,112,493 40,112,493 Transamerica Life & Annuity: Contract 76540 November 15, 2004 6.31 20,591,234 20,591,234 ----------------------------- 117,252,148 117,252,148 SEPARATE ACCOUNT CONTRACTS Aetna Life Insurance Co.: Contract 014460 November 15, 2002 7.96 30,052,815 30,052,815 Crown Life Insurance Co.: Contract 9005876 March 3, 1998 8.91 5,169,086 5,169,086 John Hancock Mutual Life: Contract 7441 May 1, 2004 6.87 23,244,665 23,244,665 Contract 7441-2 June 30, 1998 7.14 22,946,556 22,946,556 Metropolitan Life Insurance Co: Contract 12702 January 2, 2001 6.05 31,862,235 31,862,235 Contract 18544-B December 31, 1998 8.45 2,880,913 2,880,913 15 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued Crediting Interest Fair Value Shares Maturity Date Rate Cost (See Note A) - ------------ -------------------------------------------------------------- GUARANTEED INVESTMENT CONTRACTS-- CONTINUED Prudential Insurance Co. of American: Contract 6581-1 July 11, 2001 9.35 1,971,943 1,971,943 Contract 6661-2 May 15, 2001 9.32 4,739,832 4,739,832 Contract 6702-3 November 15, 2000 9.00 846,223 846,223 ----------------------------- 123,714,268 123,714,268 SYNTHETIC INVESTMENT CONTRACTS People Security Life: Contract 00025TR-1 June 25, 1997 4.74 5,989,883 5,989,883 Contract 00025TR-2 April 27, 1998 5.27 4,996,546 4,996,546 Contract 00025TR-3 September 25, 1998 5.63 3,969,148 3,969,148 Contract 00025TR-4 January 15, 1998 5.42 2,462,080 2,462,080 Contract 00025TR-5 May 26, 1998 5.24 2,499,406 2,499,406 Contract 00025TR-6 May 26, 1998 5.30 4,294,261 4,294,261 Contract 00025TR-7 July 15, 1997 5.14 1,033,282 1,033,282 Contract 00025TR-8 November 15, 2000 6.51 4,805,311 4,805,311 Contract 00025TR-9 November 15, 2000 7.20 4,684,272 4,684,272 Contract 00025TR-10 May 17, 1999 7.00 9,545,746 9,545,746 Contract 00025TR-11 February 16, 1999 7.10 956,826 956,826 Contract 00025TR-12 March 25, 1999 7.54 4,814,756 4,814,756 Contract 00025TR-13 July 16, 2001 8.59 3,887,713 3,887,713 Contract 00025TR-14 June 15, 2000 7.89 6,048,767 6,048,767 Contract 00025TR-15 March 10, 2000 6.37 5,014,434 5,014,434 Provident Life & Accident: Contract 630-05751 September 15, 2000 7.35 14,222,825 14,222,825 Rabobank Nederland: Contract TRW 109501 July 2, 2001 6.20 5,025,590 5,025,590 ----------------------------- 84,250,846 84,250,846 16 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued Crediting Interest Fair Value Shares Maturity Date Rate Cost (See Note A) - ------------ -------------------------------------------------------------- GUARANTEED INVESTMENT CONTRACTS-- CONTINUED COLLATERALIZED CDC Investment Management Corp.: Contract 115-01 April 15, 1998 6.45 5,126,164 5,126,164 Contract 115-02 April 30, 1999 7.14 6,036,078 6,036,078 Contract 115-03 August 31, 1998 7.19 6,000,000 6,000,000 Contract 115-04 December 31, 1998 8.08 6,078,422 6,078,422 Contract 115-05 June 30, 2000 7.48 5,971,557 5,971,557 ----------------------------- 29,212,221 29,212,221 FIXED RATE AND FIXED TERM Aetna Life Insurance Company: Contract 13822-001 April 7, 1997 9.69 15,505,679 15,505,679 Contract 13822-002 December 5, 1997 9.77 15,516,871 15,516,871 Canada Life Assurance Company: Contract 45800 June 1, 1998 5.23 5,226,345 5,226,345 Contract 45839 June 16, 1999 7.06 6,191,386 6,191,386 Continental Assurance Company: Contract 12619 July 1, 1996 8.50 9,819,249 9,819,249 Contract 12619-B November 1, 1996 8.42 9,658,286 9,658,286 John Hancock Mutual Life: Contract 5660 August 15, 1997 9.43 8,070,050 8,070,050 Contract 7314 January 14, 1999 5.40 11,074,115 11,074,115 Mass Mutual Life Insurance Company: Contract 10062 November 3, 1997 9.70 16,008,026 16,008,026 New York Life Ins. Company: Contract 6232 August 1, 1996 8.45 10,349,683 10,349,683 Contract GA06216 June 3, 1996 8.45 10,441,705 10,441,705 Peoples Security Life: Contract BDA0243FR January 16, 1996 8.21 1,071,625 1,071,625 Prudential Ins. Co. of America: Contract 6569-501 May 1, 1996 8.41 14,143,535 14,143,535 17 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued Crediting Interest Fair Value Shares Maturity Date Rate Cost (See Note A) - ------------ -------------------------------------------------------------- GUARANTEED INVESTMENT CONTRACTS-- CONTINUED Sun Life Ass. Canada (US): Contract S-0882-G July 31, 1998 5.54 7,911,953 7,911,953 Contract S-0910-G August 2, 1999 7.39 5,509,748 5,509,748 -------------------------------- 146,498,256 146,498,256 VARIABLE RATE AND FIXED TERM John Hancock Mutual Life Contract 7839 March 1, 2000 6.80 5,140,103 5,140,103 -------------------------------- 5,140,103 5,140,103 VARIABLE RATE AND TERM People Security Life: Contract BDA0185ST March 30, 1996 6.23 6,353,641 6,353,641 -------------------------------- TOTAL GUARANTEED INVESTMENT CONTRACTS 512,421,483 512,421,483 COMMON TRUST FUNDS Bankers Trust Pyramid Equity Index Fund 217,887,213 377,675,716 Bankers Trust Pyramid Russell 2,500 Index Fund 51,061,075 64,724,947 Bankers Trust Pyramid Government/ Corporate Fixed Income Index Fund 16,229,004 18,567,359 -------------------------------- TOTAL COMMON TRUST FUNDS 285,177,292 460,968,022 Participant loans 9.50 57,643,523 57,643,523 -------------------------------- TOTAL INVESTMENTS $1,317,968,842 $1,864,842,527 -------------------------------- --------------------------------
18 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Reportable Transactions Year Ended December 31, 1995
Fair Value of Asset on Purchase Selling Cost Transaction Net Gain Identity of Party Involved Description of Assets Price Price of Asset Date (Loss) - ------------------------------------------------------------------------------------------------------------------------------ SINGLE TRANSACTIONS IN EXCESS OF 5% OF THE FAIR VALUE OF PLAN ASSETS There were no single transactions in excess of 5% of the fair value of Plan assets. SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE FAIR VALUE OF PLAN ASSETS Bankers Trust: BT Pyramid Directed Account 319 Purchases Cash Fund $181,610,724 $181,610,724 $181,610,724 $0 79 Sales $186,955,034 186,955,034 186,955,034 0
19 EX-99.B 20 EXHIBIT 99.(B) Exhibit 99(b) FINANCIAL STATEMENTS THE TRW CANADA STOCK SAVINGS PLAN DECEMBER 31, 1995 AND 1994 REPORT OF INDEPENDENT AUDITORS To the Participants and the Board of Administration of THE TRW CANADA STOCK SAVINGS PLAN We have audited the statements of financial condition of the TRW Stock Fund, Pooled Money Market Fund Employees Profit Sharing Plan, Pooled Balanced Fund Registered Retirement Savings Plan and Pooled Money Market Fund Registered Retirement Savings Plan [constituting THE TRW CANADA STOCK SAVINGS PLAN] as at December 31, 1995 and 1994 and the related statements of operations and changes in fund equity for these funds for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the several funds of THE TRW CANADA STOCK SAVINGS PLAN as at December 31, 1995 and 1994 and the results of their operations and the changes in fund equity for the years then ended in accordance with accounting principles generally accepted in Canada. /s/ Ernst & Young ERNST & YOUNG Hamilton, Canada, Chartered Accountants March 8, 1996. THE TRW CANADA STOCK SAVINGS PLAN TRW STOCK FUND STATEMENTS OF FINANCIAL CONDITION As at December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 39,477 56,984 Receivable from TRW Canada Limited 18,483 9,608 Investments at quoted market value TRW Inc. common stock 7,768 shares [cost $760,993] in 1995 and 8,018 shares [cost $736,255] in 1994 821,155 741,825 - ------------------------------------------------------------------------------------------- 879,115 808,417 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short term distributions 720,511 664,220 Fund equity [including net unrealized appreciation of investments] 158,604 144,197 - ------------------------------------------------------------------------------------------- 879,115 808,417 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NUMBER OF SHARES OUTSTANDING AT DECEMBER 31 7,768 8,018 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- FUND EQUITY PER SHARE AT DECEMBER 31 20.4176 17.9842 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN TRW STOCK FUND STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INVESTMENT INCOME Dividends on TRW Inc. common stock 10,474 10,458 Interest 493 159 - ------------------------------------------------------------------------------------------- 10,967 10,617 - ------------------------------------------------------------------------------------------- CONTRIBUTIONS Participants 389,397 387,848 TRW Canada Limited 50% of total participants' contributions to all funds 362,356 370,938 - ------------------------------------------------------------------------------------------- 751,753 758,786 - ------------------------------------------------------------------------------------------- Net realized gain on transfer of investments to participants [NOTE 4] 2,810 116,865 Unrealized appreciation (depreciation) of investments [NOTE 4] 54,592 (121,608) - ------------------------------------------------------------------------------------------- 57,402 (4,743) - ------------------------------------------------------------------------------------------- 820,122 764,660 - ------------------------------------------------------------------------------------------- Less withdrawals and terminations in respect of the current year Paid Cash 2,248 4,025 TRW Inc. common stock 806 shares in 1995; 1,048 shares in 1994 82,956 99,083 - ------------------------------------------------------------------------------------------- 85,204 103,108 - ------------------------------------------------------------------------------------------- Payable Cash 18,913 17,330 TRW Inc. common stock 6,637 shares in 1995; 6,992 shares in 1994 701,598 646,890 - ------------------------------------------------------------------------------------------- 720,511 664,220 - ------------------------------------------------------------------------------------------- 805,715 767,328 - ------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN FUND EQUITY 14,407 (2,668) Fund equity at January 1 144,197 146,865 - ------------------------------------------------------------------------------------------- Fund equity at December 31 158,604 144,197 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 11 13,100 Receivable from TRW Canada Limited 15,581 2,339 Interest receivable 1,351 1,132 Investment at market value Royal Trust Company Classified Money Market Fund 21,846 units [cost $218,457] in 1995 and 19,967 units [cost $199,667] in 1994 218,457 199,667 - ------------------------------------------------------------------------------------------- 235,400 216,238 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short term distributions 201,736 190,553 Fund equity 33,664 25,685 - ------------------------------------------------------------------------------------------- 235,400 216,238 - ------------------------------------------------------------------------------------------- NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 3,366.4 2,568.5 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] Interest income 8,664 7,018 Participants' contributions 203,587 208,002 - ------------------------------------------------------------------------------------------- 212,251 215,020 - ------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 2,536 26,842 Payable 201,736 190,553 - ------------------------------------------------------------------------------------------- 204,272 217,395 - ------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN FUND EQUITY 7,979 (2,375) Fund equity at January 1 25,685 28,060 - ------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 33,664 25,685 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 5 4,258 Receivable from TRW Canada Limited 6,803 1,942 Interest receivable 3,111 10,095 Investments at quoted market value Royal Trust Company Classified Balanced Fund 21,702.0528 units [cost $261,441] in 1995 and 16,966.3907 units [cost $201,864] in 1994 283,493 199,962 - ------------------------------------------------------------------------------------------- 293,412 216,257 - ------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short term distributions 36 17,478 Fund equity [including net unrealized appreciation of investments] 293,376 198,779 - ------------------------------------------------------------------------------------------- 293,412 216,257 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 21,702.0528 16,966.3907 - ------------------------------------------------------------------------------------------- FUND EQUITY PER UNIT AT DECEMBER 31 13.518 11.716 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INCOME 13,305 19,205 - ------------------------------------------------------------------------------------------- CONTRIBUTIONS Participants' contributions 84,084 90,583 - ------------------------------------------------------------------------------------------- Net realized gain (loss) on disposition of investments [NOTE 4] (182) 2,140 Unrealized appreciation (depreciation) of investments [NOTE 4] 23,955 (22,496) - ------------------------------------------------------------------------------------------- 23,773 (20,356) - ------------------------------------------------------------------------------------------- 121,162 89,432 - ------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 26,529 72,594 Payable 36 17,478 - ------------------------------------------------------------------------------------------- 26,565 90,072 - ------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN FUND EQUITY 94,597 (640) Fund equity at January 1 198,779 199,419 - ------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 293,376 198,779 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 4 1,598 Receivable from TRW Canada Limited 3,845 2,470 Interest receivable 1,546 1,192 Investment at market value Royal Trust Company Classified Pooled Money Market Fund 24,192.6 units [cost $241,926] in 1995 and 20,374.5 units [cost $203,745] in 1994 241,926 203,745 - ------------------------------------------------------------------------------------------- 247,321 209,005 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short term distributions 1,942 14,282 Fund equity 245,379 194,723 - ------------------------------------------------------------------------------------------- 247,321 209,005 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 24,537.9 19,472.3 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1995 1994 $ $ - -------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INTEREST INCOME 15,009 10,729 Participants' contributions 47,636 55,440 - ------------------------------------------------------------------------------------------- 62,645 66,169 - ------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 10,047 52,031 Payable 1,942 14,282 - ------------------------------------------------------------------------------------------- 11,989 66,313 - ------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN FUND EQUITY 50,656 (144) Fund equity at January 1 194,723 194,867 - ------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 245,379 194,723 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1994 1. GENERAL PLAN PROVISIONS The investment programs of the TRW Canada Stock Savings Plan [the "Plan"] are as follows: PARTICIPANT CONTRIBUTIONS Upon enrollment or re-enrollment, each participant directs that his contributions [computed in increments of one percent, from two per cent to six per cent of qualifying compensation] are to be invested in accordance with any of the following investment options: [a] 100% in the TRW Stock Fund [the common stock of TRW Inc. in accordance with the trust agreement and the Plan]. [b] 100% in the Pooled Money Market Fund Employees Profit Sharing Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Money Market Fund in accordance with the Trust agreement and the Plan. [c] 100% in the Pooled Balanced Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Balanced Fund amounts in the Royal Trust Company, Classified Balanced Fund, in accordance with the Trust agreement and the Plan. [d] 100% in the Pooled Money Market Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Pooled Money Market Fund in accordance with the Trust agreement and the Plan. [e] A combination of options [a] through [d] in multiples of 25%. Such direction may be revised on 30 days prior notice, effective January 1 of any year. TRW CANADA LIMITED CONTRIBUTIONS TRW Canada Limited shall contribute to the plan for each month, out of current or accumulated earnings, an amount equal to 50% of participant contributions for such month. TRW Canada Limited contributions vest immediately. All TRW Canada Limited contributions are invested in the TRW Stock Fund. TRW Canada Limited does not charge a fee for administering the Plans. 1 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1994 The number of participants in each Fund at December 31 is as follows:
1995 1994 - -------------------------------------------------------------------------------- TRW Stock Fund 267 269 Pooled Money Market Fund Employees Profit Sharing Plan 112 110 Pooled Balanced Fund Registered Retirement Savings Plan 67 66 Pooled Money Market Fund Registered Retirement Savings Plan 49 49
The total number of participants in the Plan is less than the sum of the number of participants shown above because many are participating in more than one Fund. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada, and are within the framework of the accounting policies summarized below. GAIN AND LOSSES ON INVESTMENTS The realized gain or loss on disposition or transfer of an investment is determined from the market value of the investment at the date of disposition or transfer and the average cost base of that specific pool of investments prior to the disposition or transfer. Unrealized gains or losses are determined as the net effect of the change in appreciation/depreciation of the investments from January 1 to December 31, based on market values and the average cost base of each investment at those respective dates. INCOME RECOGNITION Dividends are recognized as earned. Interest income is recognized as it is earned consistent with the accrual basis of accounting. 2 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1994 3. INCOME TAXES The Plan is exempt from Canadian federal income taxes under provisions of the Income Tax Act. Federal income tax consequences to the participants under the Plan are as provided in the Income Tax Act. TRW Canada Limited contributions are taxable to the participants as is the income and all post-1971 capital gains less post-1971 capital losses of the Plan, all of which are allocated to the participants by the Trustee during the year, whether or not such amounts are paid to the participants by the Trustee during the year. In some circumstances, the amounts taxable could exceed the amounts allocated. The amount of foreign non-business income tax paid on foreign source income by the trusts under the Plan for the year is allocated to and deemed to have been paid by the participants for Canadian federal income tax purposes. Participants who are non-resident taxpayers are subject to special rules depending on whether they have performed duties in Canada during the year and are subject to 15% withholding tax on amounts paid or credited to them under the Plan. 4. UNREALIZED AND REALIZED (LOSSES) GAINS Investments are stated at their quoted market value. The net unrealized appreciation (depreciation) of investments included in fund equity is as follows:
TRW POOLED STOCK BALANCED FUND FUND $ $ - ------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993 127,178 20,594 Change for the year Market value (121,608) (22,496) - ------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 5,570 (1,902) Change for the year Market value 54,592 23,955 - ------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 60,162 22,053 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
3 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1994 The net realized gain on the transfer or disposition of investments is summarized as follows:
TRW STOCK FUND ------------------------- 1995 1994 $ $ - ------------------------------------------------------------------------------- AMOUNT REALIZED 720,679 837,779 Cost - average 717,869 720,914 - ------------------------------------------------------------------------------- NET REALIZED GAIN 2,810 116,865 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN ------------------------- 1995 1994 $ $ - ------------------------------------------------------------------------------- AMOUNT REALIZED 17,750 32,470 Cost - average 17,932 30,330 - ------------------------------------------------------------------------------- NET REALIZED GAIN (182) 2,140 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS All expenses related to the TRW Canada Stock Savings Plan are paid by TRW Canada Limited. 4 -----END PRIVACY-ENHANCED MESSAGE-----