-----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, IZjURq1jMv4JQflnJ7T35qh3bzN1T/Np0zYDwmacI1Te9n2WMhv4lSycm4MpLlex oHugDtEwiMv34TO6voS7ww== 0000950152-98-006261.txt : 19980803 0000950152-98-006261.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950152-98-006261 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980729 SROS: CBOE SROS: NYSE SROS: PHLX 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-Q SEC ACT: SEC FILE NUMBER: 001-02384 FILM NUMBER: 98673303 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-Q 1 TRW, INC. 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 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 incorporation or organization) Identification No.) 1900 Richmond Road, Cleveland, Ohio 44124 ----------------------------------------- (Address of principal executive offices) (Zip Code) (216) 291-7000 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- As of July 16, 1998, there were 121,909,592 shares of TRW Common Stock, $0.625 par value, outstanding. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- Statements of Earnings (unaudited) TRW Inc. and subsidiaries
- -------------------------------------------------------------------------------------------------------------- Second quarter ended Six months ended June 30 June 30 In millions except per share data 1998 1997 1998 1997 - -------------------------------------------------------------------------------- ------------------------- Sales $3,028 $2,852 $6,123 $5,512 Cost of sales 2,481 2,318 5,056 4,496 - -------------------------------------------------------------------------------- ------------------------- Gross profit 547 534 1,067 1,016 Administrative and selling expenses 192 177 391 336 Research and development expenses 123 117 244 223 Interest expense 38 17 76 37 Other (income) expense-net (4) 4 (46) 6 - -------------------------------------------------------------------------------- ------------------------- Earnings before income taxes 198 219 402 414 Income taxes 72 84 147 160 - -------------------------------------------------------------------------------- ------------------------- Net earnings $ 126 $ 135 $ 255 $ 254 - -------------------------------------------------------------------------------- ------------------------- - -------------------------------------------------------------------------------- ------------------------- Per share of common stock Diluted earnings per share $ 1.00 $ 1.05 $ 2.03 $ 1.97 Basic earnings per share $ 1.03 $ 1.09 $ 2.08 $ 2.04 Dividends declared $ .31 $ .31 $ .31 $ .31 - -------------------------------------------------------------------------------- ------------------------- - -------------------------------------------------------------------------------- ------------------------- Shares used in computing per share amounts Diluted 125.4 127.7 125.8 128.5 Basic 122.1 123.6 122.3 124.4 - -------------------------------------------------------------------------------- -------------------------
2 3 Balance Sheets (unaudited) TRW Inc. and subsidiaries
- --------------------------------------------------------------------------------------------------------------------------- June 30 December 31 In millions 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 76 $ 70 Accounts receivable 1,708 1,617 Inventories 646 573 Prepaid expenses 102 79 Deferred income taxes 221 96 - --------------------------------------------------------------------------------------------------------------------------- Total current assets 2,753 2,435 Property, plant and equipment-on the basis of cost 6,320 6,074 Less accumulated depreciation and amortization 3,727 3,453 - --------------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment-net 2,593 2,621 Intangible assets Intangibles arising from acquisitions 757 673 Other 323 232 - --------------------------------------------------------------------------------------------------------------------------- 1,080 905 Less accumulated amortization 114 94 - --------------------------------------------------------------------------------------------------------------------------- Total intangible assets-net 966 811 Investments in affiliated companies 191 139 Other assets 435 404 - --------------------------------------------------------------------------------------------------------------------------- $6,938 $6,410 - --------------------------------------------------------------------------------------------------------------------------- Liabilities and shareholders' investment Current liabilities Short-term debt $ 633 $ 411 Accounts payable 800 859 Current portion of long-term debt 22 128 Other current liabilities 1,302 1,321 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 2,757 2,719 Long-term liabilities 825 788 Long-term debt 1,444 1,117 Deferred income taxes 47 57 Minority interests in subsidiaries 88 105 Capital stock 76 79 Other capital 454 450 Retained earnings 1,926 1,778 Accumulated other comprehensive income (133) (120) Treasury shares-cost in excess of par value (546) (563) - --------------------------------------------------------------------------------------------------------------------------- Total shareholders' investment 1,777 1,624 - --------------------------------------------------------------------------------------------------------------------------- $6,938 $6,410 - ---------------------------------------------------------------------------------------------------------------------------
3 4 Statements of Cash Flows (unaudited) TRW Inc. and subsidiaries
- --------------------------------------------------------------------------------------------------------------------------- Six months ended June 30 In millions 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Operating activities Net earnings $ 255 $ 254 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 278 247 Deferred income taxes (123) 17 Other-net 3 12 Changes in assets and liabilities, net of effects of businesses acquired or sold: Accounts receivable (90) (164) Inventories and prepaid expenses (88) 26 Accounts payable and other accruals (6) (19) Other-net (14) (10) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 215 363 - --------------------------------------------------------------------------------------------------------------------------- Investing activities Capital expenditures (237) (228) Acquisitions, net of cash acquired (236) (415) Other-net (30) (7) - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (503) (650) - --------------------------------------------------------------------------------------------------------------------------- Financing activities Increase (decrease) in short-term debt (263) 178 Proceeds from debt in excess of 90 days 871 67 Principal payments on debt in excess of 90 days (179) (24) Reacquisition of common stock (72) (184) Dividends paid (76) (78) Other-net 17 29 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 298 (12) - --------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (4) (4) - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 6 (303) Cash and cash equivalents at beginning of period 70 386 - --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 76 $ 83 - ---------------------------------------------------------------------------------------------------------------------------
4 5 Results by Business Segments (unaudited) TRW Inc. and subsidiaries
- --------------------------------------------------------------------------------------------------------------------------- Second quarter ended Six months ended June 30 June 30 In millions 1998 1997 1998 1997 - -------------------------------------------------------------------------------------- -------------------------------- Sales Automotive $1,813 $1,876 $3,699 $3,669 Space, Defense & Information Systems 1,215 976 2,424 1,843 - -------------------------------------------------------------------------------------- -------------------------------- Sales $3,028 $2,852 $6,123 $5,512 - -------------------------------------------------------------------------------------- -------------------------------- Operating profit Automotive $ 148 $ 181 $ 295 $ 348 Space, Defense & Information Systems 106 82 221 159 - -------------------------------------------------------------------------------------- -------------------------------- Operating profit 254 263 516 507 Company Staff and other (19) (24) (35) (48) Minority interest in earnings of consolidated subsidiaries (1) (5) (6) (11) Interest expense (38) (17) (76) (37) Earnings from affiliates 2 2 3 3 - -------------------------------------------------------------------------------------- -------------------------------- Earnings before income taxes $ 198 $ 219 $ 402 $ 414 - -------------------------------------------------------------------------------------- --------------------------------
5 6 NOTES TO FINANCIAL STATEMENTS (unaudited) Principles of Consolidation - --------------------------- The financial statements include the accounts of the Company and its subsidiaries except for two wholly owned insurance subsidiaries. The insurance subsidiaries and the majority of investments in affiliated companies, which are not significant individually, are accounted for by the equity method. Comprehensive Income - -------------------- Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this Statement requires that unrealized gains or losses on the Company's available-for-sale securities, foreign currency translation and minimum pension liability adjustments be included in other comprehensive income, which prior to adoption were reported separately in shareholders' equity. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. The components of comprehensive income, net of related tax, for the second quarter and first six months of 1998 and 1997 are as follows:
Second quarter ended Six months ended (In millions) June 30 June 30 ------------------------------- ----------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net earnings $126 $135 $255 $254 Unrealized gains(losses) on securities (6) - (4) - Foreign currency translation adjustments 14 (6) (9) (69) --- --- --- --- Comprehensive income $134 $129 $242 $185 --- --- --- ---
The components of accumulated other comprehensive income, net of related tax, at June 30, 1998 and December 31, 1997 are as follows:
June 30 December 31 (In millions) 1998 1997 -------------- ------------- Unrealized gains on securities $ 8 $ 12 Foreign currency translation adjustments (139) (130) Minimum pension liability adjustments (2) (2) ---- ---- Accumulated other comprehensive income $(133) $(120) ---- ----
6 7 Inventories - ----------- Inventories consist of the following:
(In millions) June 30 December 31 1998 1997 -------------------- --------------------- Finished products and work in process $329 $292 Raw materials and supplies 317 281 --- --- $646 $573 --- ---
Long-Term Liabilities - --------------------- Long-term liabilities at June 30, 1998, and December 31, 1997, include $656 million and $653 million, respectively, relating to postretirement benefits other than pensions. Other (Income) Expense-Net - ------------------------- Other (income) expense-net included the following:
(In millions) Second quarter ended Six months ended June 30 June 30 --------------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Other income $(15) $(12) $(81) $(28) Other expense 11 14 33 30 Foreign currency translation - 2 2 4 ---- --- --- --- $ (4) $ 4 $(46) $ 6 --- --- --- ---
First quarter 1998 other income included a $48.5 million benefit from the settlement of certain patent litigation. Supplemental Cash Flow Information - ----------------------------------
Six months ended (In millions) June 30 ---------------------------------- 1998 1997 ---- ---- Interest paid (net of amount capitalized) $ 62 $ 36 Income taxes paid (net of refunds) $149 $(22)
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. 7 8 Earnings Per Share - ------------------
Six months Quarter ended ended In millions except per share data June 30 June 30 ----------------------- ----------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Numerator Net earnings $125.8 $134.4 $255.2 $253.6 Preferred stock dividends .1 .2 .3 .3 ----- ----- ----- ----- Numerator for basic earnings per share--earnings available to common shareholders 125.7 134.2 254.9 253.3 Effect of dilutive securities Preferred stock dividends .1 .2 .3 .3 ----- ----- ----- ----- Numerator for diluted earnings per share-- earnings available to common shareholders after assumed conversions $125.8 $134.4 $255.2 $253.6 ----- ----- ----- ----- Denominator Denominator for basic earnings per share--weighted-average common shares 122.1 123.6 122.3 124.4 Effect of dilutive securities Convertible preferred stock .9 1.0 .9 1.0 Employee stock options 2.4 3.1 2.6 3.1 ----- ----- ----- ----- Dilutive potential common shares 3.3 4.1 3.5 4.1 Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 125.4 127.7 125.8 128.5 ----- ----- ----- ----- Basic earnings per share $ 1.03 $ 1.09 $ 2.08 $ 2.04 ----- ----- ----- ----- Diluted earnings per share $ 1.00 $ 1.05 $ 2.03 $ 1.97 ----- ----- ----- -----
Contingencies - ------------- During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality ("ADEQ") potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. ADEQ is conducting an investigation into these potential violations and the Company is cooperating with the investigation. If ADEQ initiates proceedings against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. The Company has been apprised by state and federal officials that there are ongoing civil and criminal investigations with respect to these potential violations. Management is currently evaluating this matter and is unable to make a meaningful estimate of the amount or range of possible liability, if any, at this time, although management believes that the Company would have meritorious defenses. 8 9 During 1996, the Company was advised by the United States Department of Justice ("DOJ") that it had been named as a defendant in two lawsuits brought by a former employee of the Company's former Space & Technology Group and originally filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuits relate to the classification of costs incurred by the Company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to intervene and take responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, the former employee filed amended complaints in the Central District of California that realleged certain of the claims included in the 1994 and 1995 lawsuits and omitted the remainder. The amended complaints allege that the United States has incurred substantial damages and that the Company should be ordered to cease and desist from violations of the civil False Claims Act and is liable for treble damages, penalties, costs, including attorneys' fees, and such other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its complaint against the Company upon intervention in the 1994 lawsuit, which set forth a limited number of the allegations in the 1994 lawsuit and other allegations not in the 1994 lawsuit. The DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for treble damages, penalties, interest, costs and "other proper relief." On March 18, 1998, the former employee withdrew the first amended complaint in the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to the former employee's first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all substantive allegations against the Company contained therein. At the same time, the Company filed counterclaims against both the former employee and the federal government. On July 20, 1998, both the former employee and the DOJ filed motions seeking to dismiss the Company's counterclaims. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Interim Statements - ------------------ The financial statements are based in part on approximations and are subject to adjustments that may develop, such as unsettled contract and renegotiation matters and matters that arise in connection with the annual audit of the financial statements; however, in the opinion of management, all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented have been included. Results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- RESULTS OF OPERATIONS (In millions except per share data)
Six Months Ended Second Quarter June 30 ------------------------------------ ---------------------------------- Percent Percent 1998 1997 Inc (Dec) 1998 1997 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $3,028 $2,852 6% $6,123 $5,512 11% Operating Profit $ 254 $ 263 (4%) $ 516 $ 507 2% Net Earnings $ 126 $ 135 (6%) $ 255 $ 254 1% Diluted Earnings Per Share $ 1.00 $ 1.05 (5%) $ 2.03 $ 1.97 3% Effective Tax Rate 36.5% 38.75% 36.5% 38.75%
Sales for the second quarter and first six months of 1998 increased due to the acquisition of BDM, new contract awards and higher volume in continuing programs in the space, defense and information systems businesses, and higher volume in the Automotive segment. The higher sales volume in the Automotive segment was offset by lower pricing in most product lines, the effects of a strong U.S. dollar and the General Motors strike. Operating profit for the second quarter decreased as the operating profit increases related to the acquisition of BDM and the strong performance on space, defense and information systems contracts were offset by a litigation settlement of $7 million related to a terminated contract in the Space, Defense & Information Systems segment, the General Motors strike, unfavorable product mix in air bags and seat belts, higher research and development expenditures, start-up costs for new facilities and new product introduction and the effects of a strong U.S. dollar. The higher operating profit for the first six months of 1998 was primarily due to the acquisition of BDM, continued success on space, defense and information systems contracts, the benefit from the settlement of certain patent litigation, cost reductions and higher automotive sales volume. Operating profit was partially offset by lower automotive pricing, higher research and development expenditures, start-up costs for new facilities and new product introduction, the effects of a strong U.S. dollar, the General Motors strike and charges for litigation and contract reserves and severance costs relating to the combination of the Company's systems integration business with BDM. Net earnings for the first six months of 1998 included a $31.5 million benefit from the settlement of certain patent litigation, offset in part by $26.5 million in charges for litigation and contract reserves and severance costs relating to the combination of the Company's systems integration business with BDM. Interest expense was $76 million for the first six months of 1998 compared to $37 million for the first half of 1997. The increase in interest expense was primarily due to financing the acquisition of BDM. 10 11 Automotive
Six Months Ended (In millions) Second Quarter June 30 ----------------------------------------- ---------------------------------------------- Percent Percent 1998 1997 Inc (Dec) 1998 1997 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $1,813 $1,876 (3%) $3,699 $3,669 1% Operating Profit $ 148 $ 181 (18%) $ 295 $ 348 (15%)
The decrease in sales for the second quarter of 1998 resulted primarily from lower pricing in most product lines, particularly air bags and the effects of a strong U.S. dollar and the General Motors strike. The decrease was partially offset by the higher volume in seat belts and electronics and the introduction of the new electric-powered hydraulic steering system. Pricing pressures continued to have a significant effect on the business; however, cost reductions mitigated the effect on operating profit in the second quarter. The lower operating profit resulted primarily from the General Motors strike, unfavorable product mix in air bags and seat belts, higher research and development expenditures, startup costs for new facilities and new product introduction in electric steering and occupant restraints and the effects of a strong U.S. dollar. The increase in sales for the first six months of 1998 resulted as higher volume was partially offset by lower pricing in most product lines, particularly air bags and the effects of a strong U.S. dollar and the General Motors strike. Operating profit decreased for the first six months of 1998 primarily from lower pricing in most product lines, unfavorable product mix, higher research and development expenditures, startup costs for new facilities and new product introduction, the General Motors strike and the effects of a strong U.S. dollar. Space, Defense & Information Systems
Six Months Ended (In millions) Second Quarter June 30 ------------------------------------- ------------------------------------ Percent Percent 1998 1997 Inc (Dec) 1998 1997 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $1,215 $976 25% $2,424 $1,843 32% Operating Profit $ 106 $ 82 29% $ 221 $ 159 39%
The increase in sales for the second quarter and first six months of 1998 was primarily due to the acquisition of BDM, which contributed $222 million in sales for the second quarter and $454 million year-to-date, new contract awards and higher volume in continuing programs. The higher operating profit for the second quarter was due to the acquisition of BDM and outstanding award fees earned on a number of Department of Defense space programs, and continued success in commercial gallium arsenide product lines. Operating profit gains for the second quarter were offset in part by a $7 million litigation settlement relating to a terminated contract with the State of California's Correctional Management Information System. 11 12 The higher operating profit for the first six months of 1998 was due to the acquisition of BDM and outstanding award fees earned on a number of Department of Defense space programs, continued success in commercial gallium arsenide product lines and the benefit from the settlement of certain patent litigation. Operating profit for the first six months of 1998 was partially offset by charges for litigation and contract reserves and severance costs relating to the combination of the Company's systems integration business with BDM. LIQUIDITY AND FINANCIAL POSITION In the first six months of 1998, cash flow provided by operating activities of $215 million and a net increase in debt of $429 million were used to fund business acquisitions of $236 million, capital expenditures of $237 million, reacquisition of common stock of $72 million of which $5 million was for the settlement of shares repurchased in 1997, dividend payments of $76 million and other items of $17 million. As a result, cash and cash equivalents increased by $6 million. Net debt (short-term debt, the current portion of long-term debt and long-term debt less cash and cash equivalents) was $2.0 billion at June 30, 1998, compared to $1.6 billion at December 31, 1997. The ratio of net debt to total capital (net debt, minority interests and shareholders' investment) was 52.0 percent at June 30, 1998, compared to 47.8 percent at December 31, 1997. During the first six months of 1998, the Company refinanced short-term debt by issuing $659 million of notes and debentures which mature at various dates through 2028. As of the end of the second quarter 1998, $141 million of short-term debt was reclassified to long-term debt as the Company intends to refinance the borrowings on a long-term basis and has the ability to do so under its U.S. revolving credit agreements. During the first quarter 1998, the Company established a $1 billion Universal Shelf Registration Statement. Securities that may be issued under this shelf registration statement include debt securities, common stock, warrants to purchase debt securities and warrants to purchase common stock. During the first six months of 1998, 1,288,010 shares of TRW common stock were repurchased for approximately $70 million, of which approximately $3 million was settled in July 1998. Management believes that funds generated from operations and existing borrowing capacity are adequate to fund the current share repurchase program and finance planned growth, capital expenditures, working capital requirements including tax requirements, company-sponsored research and development programs and dividend payments to shareholders. 12 13 OTHER MATTERS During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the Company, reported to ADEQ potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. If ADEQ initiates proceedings against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. Management is currently evaluating this matter and is unable to make a meaningful estimate of the amount or range of possible liability, if any, at this time, although management believes that the Company would have meritorious defenses. During 1996, the Company was advised by the DOJ that it had been named as a defendant in two lawsuits brought by a former employee and filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Refer to the "Contingencies" footnote in the Notes to Financial Statements for further discussion of these matters. Year 2000 compliance is critical to the Company and as such, the Company has a companywide program for Year 2000 ("Y2K") compliance for its products and services, internal systems, customers and suppliers. The Company has assessed its automotive products and determined that there should not be significant Y2K issues. Contracts entered into by the Space, Defense & Information Systems segment under which systems have been developed for government and commercial customers are being evaluated to determine the existence of material Y2K issues. The Company continues to review internal systems and remediation activities are being implemented. The Company is working with the Automotive Industry Action Group (AIAG), which represents several of its largest automotive customers, to ensure electronic interface and material delivery are not interrupted. In addition, the Company is working with the federal government to ensure minimal impact of federal government Y2K issues on contracts with TRW. Finally, the Company is following the AIAG process for automotive supplier management, and is using a similar process for other business units. The Company anticipates that the program plan, including remediation and validation, will be completed in 1999. The total cost of the program is estimated to be $150 million and includes $55 million for capital and $95 million of costs that will be expensed as incurred. To date, the Company has expensed approximately $35 million. The Company does not anticipate that the overall costs will have a material effect on the Company's financial results or financial condition. The date of completion and the costs of the project are based on management's estimates, which were derived utilizing assumptions of future events, including the availability of certain resources, third party modification plans and other factors. There can be no guarantee that these estimates will be achieved, and if the actual timing and costs for the Y2K program differ materially from those anticipated, the Company's financial results and financial condition could be significantly affected. 13 14 SUBSEQUENT EVENT On July 29, 1998, the Company announced actions intended to enhance the operating profit margins in its automotive businesses by 1.5 percentage points over the next two years, which will improve operating cash flow by approximately $100 million a year. To accomplish the improvements, the Company will implement the following actions: close 10 to 15 percent of the 137 manufacturing plants; reduce employment by 7,500; eliminate $75 million, or 20 percent, of selling, general and administrative costs per year; reduce the cost of materials through more effective use of global sourcing and purchasing and by reducing the number of automotive suppliers by 50 percent over the next few years; improve productivity by reducing manufacturing costs by at least 25 percent over the next few years through the use of lean manufacturing practices and improved quality; and reduce aggregate capital expenditures by $300 million over the next five years. To implement these changes, the Company will take pre-tax charges of $125 to $150 million over the next 18 months, of which approximately $25 million will be expensed during the remainder of 1998. FORWARD-LOOKING STATEMENTS Statements in this filing that are not historical facts are forward-looking statements, which involve risks and uncertainties that could affect the Company's actual results. Important factors that could cause the Company's actual results to differ materially from the forward-looking statements contained in this report include the length of the General Motors strike and the ability to achieve cost reductions and mitigate pricing pressure in the automotive business. Additional factors can be found in the Company's Form 8-K filed with the Securities and Exchange Commission on May 29, 1998. The Company undertakes no obligation to update any forward-looking information. Item 3. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- There have been no material changes in market risk exposures during the first six months of 1998 that affect the disclosures presented in the Company's Annual Report to Shareholders for the year ended December 31, 1997. 14 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- During 1996, the Company was advised by the United States Department of Justice ("DOJ") that it had been named as a defendant in two lawsuits brought by Richard D. Bagley, a former employee of the Company's former Space & Technology Group, and originally filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuits relate to the classification of costs incurred by the Company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to intervene and take responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, Bagley filed amended complaints in the Central District of California that realleged certain of the claims included in the 1994 and 1995 lawsuits and omitted the remainder. The amended complaints allege that the United States has incurred substantial damages and that the Company should be ordered to cease and desist from violations of the civil False Claims Act and is liable for treble damages, penalties, costs, including attorneys' fees, and such other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its complaint against the Company upon intervention in the 1994 lawsuit, which set forth a limited number of the allegations in the 1994 lawsuit and other allegations not in the 1994 lawsuit. The DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for treble damages, penalties, interest, costs and "other proper relief." On March 18, 1998, Bagley withdrew the first amended complaint in the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to Bagley's first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all substantive allegations contained therein. At the same time, the Company filed counterclaims against both Bagley and the federal government. On July 20, 1998, both Bagley and the DOJ filed motions seeking to dismiss the Company's counterclaims. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- (a) The Company held its 1998 Annual Meeting of Shareholders on April 29, 1998. (b) Proxies for the Annual Meeting of Shareholders were solicited pursuant to Regulation 14 under the Act; there was no solicitation in opposition to management's nominees as listed in the proxy statement; and all of such nominees were elected. (c) Michael H. Armacost was elected a Director of the Company with 104,460,340 votes for election, 165,047 votes withheld from voting and 18,109,746 shares not voted, including broker non-votes. Carl H. Hahn was elected a Director of the Company with 103,855,472 votes for election, 769,915 votes withheld from voting and 18,109,746 shares not voted, including broker non-votes. George H. Heilmeier was elected a Director of the Company with 104,466,528 votes for election, 158,859 votes withheld from voting and 18,109,746 shares not voted, including broker non-votes. John D. Ong was elected a Director of the Company with 104,426,673 votes for election, 198,714 votes withheld from voting and 18,109,746 shares not voted, including broker non-votes. Richard W. Pogue was elected a Director of the Company with 104,423,004 votes for election, 202,383 votes withheld from voting and 18,109,746 shares not voted, including broker non-votes. 15 16 The shareholders ratified the appointment of Ernst & Young LLP as the Company's independent auditors for the 1998 fiscal year with 104,069,513 votes for, 255,506 votes against, 300,368 votes abstaining and 18,109,746 shares not voted, including broker non-votes. (d) None. Item 5. Other Information. ------------------ In accordance with recent amendments to the shareholder proposal rules set forth in Rules 14a-4 and 14a-8 under the Securities Exchange Act of 1934, as amended, written notice of shareholder proposals submitted outside the processes of Rule 14a-8 for consideration at the 1999 Annual Meeting of Shareholders must be received by the Company on or before January 30, 1999, in order to be considered timely for purposes of Rule 14a-4. The persons designated in the Company's proxy statement shall be granted discretionary authority with respect to any shareholder proposal of which the Company does not receive timely notice. Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits: 1.1 Distribution Agreement, dated April 13, 1998, between TRW Inc. and each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and J.P. Morgan Securities Inc., regarding $1,000,000,000 Medium-Term Notes, Series D, due nine months or more from the date of issuance (filed as Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated April 13, 1998, and incorporated herein by reference). 4.1 Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of May 1, 1986 (filed as Exhibit 2 to TRW Inc.'s Form 8-A Registration Statement dated July 3, 1986, and incorporated herein by reference). 4.2 First Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of August 24, 1989 (filed as Exhibit 4(b) to TRW Inc.'s Form S-3 Registration Statement, File No. 33-30350, and incorporated herein by reference). 4.3 Form of Medium Term Note, Series D (filed as Exhibit 4 to TRW Inc.'s Current Report on Form 8-K dated April 13, 1998, and incorporated herein by reference). 27 Financial Data Schedule. 99 Computation of Ratio of Earnings to Fixed Charges -- Unaudited (Supplement to Exhibit 12 of the following Form S-3 Registration Statements of the Company: No. 333-48443, filed March 23, 1998). (b) Reports on Form 8-K: Current Report on Form 8-K dated April 13, 1998 as to Medium-Term Notes. Current Report on Form 8-K dated May 29, 1998 as to forward-looking statements. 16 17 SIGNATURES Pursuant to the requirements 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: July 29, 1998 By: /s/ William B. Lawrence ----------------------- William B. Lawrence Executive Vice President and Secretary By: /s/ Carl G. Miller ----------------------- Carl G. Miller Executive Vice President and Chief Financial Officer 17 EX-27 2 EXHIBIT 27
5 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 76 0 1,708 0 646 2,753 6,320 3,727 6,938 2,757 1,444 0 0 76 1,701 6,938 6,123 6,123 5,056 5,056 0 0 76 402 147 255 0 0 0 255 2.08 2.03
EX-99 3 EXHIBIT 99 1 Exhibit 99 TRW INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - UNAUDITED (In millions except ratio data)
Six Months Years Ended December 31 ended -------------------------------------------------------------- June 30, 1998 1997 1996 1995 1994 1993 ------------- ------ ------ ------ ------ ------ Earnings from continuing operations before income taxes $402.0 $239.7(A) $302.2(B) $625.5 $435.5 $289.2 Unconsolidated affiliates (0.5) (8.0) 1.4 1.3 (0.6) 0.7 Minority earnings 5.8 20.2 11.5 10.8 7.7 1.4 Fixed charges excluding capitalized interest 106.8 123.9 129.0 137.2 145.3 177.5 ------ ------ ------ ------ ------ ------ Earnings $514.1 $375.8 $444.1 $774.8 $587.9 $468.8 ------ ------ ------ ------ ------ ------ Fixed Charges: Interest expense $ 76.3 $ 75.4 $ 84.2 $ 94.7 $104.7 $137.4 Capitalized interest 1.9 4.5 3.5 5.1 6.6 7.9 Portion of rents representative of interest factor 30.5 48.5 43.2 41.4 39.2 37.9 Interest expense of unconsolidated affiliates 0.0 0.0 1.6 1.1 1.4 2.2 ------ ------ ------ ------ ------ ------ Total fixed charges $108.7 $128.4 $132.5 $142.3 $151.9 $185.4 ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges 4.7x 2.9x 3.4x 5.4x 3.9x 2.5x ------ ------ ------ ------ ------ ------
(A) The 1997 earnings from continuing operations before income taxes of $239.7 million includes a $548 million earnings charge for purchased in-process research and development. See "Acquisitions" footnote in the Notes to Financial Statements of the Company's 1997 Annual Report to Shareholders. (B) The 1996 earnings from continuing operations before income taxes of $302.2 million includes a charge of $384.8 million as a result of actions taken in the automotive and space and defense businesses. See "Divestiture and special charges" footnote in the Notes to Financial Statements of the Company's 1996 Annual Report to Shareholders. -----END PRIVACY-ENHANCED MESSAGE-----