<PAGE>
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, 1996
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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
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TRW Inc.
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(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
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(Address of principal executive offices)
(Zip Code)
(216) 291-7000
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(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 August 2, 1996, there were 64,423,611 shares of
TRW Common Stock, $0.625 par value, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Earnings (unaudited)
TRW Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------
Second quarter ended Six months ended
June 30 June 30
In millions except per share data 1996 1995 1996 1995
- ---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Sales $2,729 $2,712 $5,399 $5,308
Cost of sales 2,186 2,184 4,329 4,257
- ---------------------------------------------------------------------- ---------------------
Gross profit 543 528 1,070 1,051
Administrative and selling expenses 199 184 397 385
Research and development expenses 117 123 225 226
Interest expense 20 24 39 48
Other (income)expense-net (3) - 10 5
- ---------------------------------------------------------------------- ---------------------
Earnings before income taxes 210 197 399 387
Income taxes 80 74 152 149
- ---------------------------------------------------------------------- ---------------------
Net earnings $ 130 $ 123 $ 247 $ 238
- ---------------------------------------------------------------------- ---------------------
- ---------------------------------------------------------------------- ---------------------
PER SHARE OF COMMON STOCK
Fully diluted $ 1.94 $ 1.81 $ 3.67 $ 3.53
Primary $ 1.96 $ 1.84 $ 3.70 $ 3.58
Dividends declared $ .55 $ .50 $ .55 $ .50
- ---------------------------------------------------------------------- ---------------------
- ---------------------------------------------------------------------- ---------------------
Shares used in computing per share amounts
Fully diluted 66.9 68.0 67.4 67.4
Primary 66.5 66.7 66.8 66.3
- ---------------------------------------------------------------------- ---------------------
</TABLE>
<PAGE>
Balance Sheets (unaudited)
TRW Inc. and subsidiaries
- -------------------------------------------------------------------------------
June 30 December 31
In millions 1996 1995
- -------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 64 $ 59
Accounts receivable 1,558 1,428
Inventories 517 534
Prepaid expenses 110 78
Deferred income taxes 113 237
- -------------------------------------------------------------------------------
Total current assets 2,362 2,336
Property, plant and equipment-on the basis of cost 5,867 5,866
Less accumulated depreciation and amortization 3,399 3,303
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Total property, plant and equipment-net 2,468 2,563
Intangible assets
Intangibles arising from acquisitions 476 483
Capitalized data files 509 488
Other 91 92
- -------------------------------------------------------------------------------
1,076 1,063
Less accumulated amortization 431 405
- -------------------------------------------------------------------------------
Total intangible assets-net 645 658
Other assets 448 333
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$5,923 $5,890
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Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 239 $ 133
Accounts payable 717 807
Current portion of long-term debt 68 80
Other current liabilities 1,097 992
- -------------------------------------------------------------------------------
Total current liabilities 2,121 2,012
Long-term liabilities 789 779
Long-term debt 513 541
Deferred income taxes 184 313
Minority interests in subsidiaries 80 73
Capital stock 41 41
Other capital 432 398
Retained earnings 1,898 1,688
Cumulative translation adjustments 48 76
Treasury shares-cost in excess of par value (183) (31)
- -------------------------------------------------------------------------------
Total shareholders' investment 2,236 2,172
- -------------------------------------------------------------------------------
$5,923 $5,890
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<PAGE>
Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
- -------------------------------------------------------------------------------
Six months ended
June 30
In millions 1996 1995
- -------------------------------------------------------------------------------
Operating activities
Net earnings $ 247 $ 238
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 262 260
Deferred income taxes (3) 11
Other-net 4 20
Changes in assets and liabilities, net of
effects of businesses acquired or sold:
Accounts receivable (141) (162)
Inventories and prepaid expenses 2 (28)
Accounts payable and other accruals (30) (4)
Other-net (1) (12)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 340 323
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Investing activities
Capital expenditures (182) (197)
Proceeds from divestitures 1 10
Investments in other assets (36) (28)
Other-net 7 -
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Net cash used in investing activities (210) (215)
- -------------------------------------------------------------------------------
Financing activities
Increase(decrease) in short-term debt 91 (24)
Proceeds from debt in excess of 90 days 21 15
Principal payments on debt in excess of 90 days (44) (65)
Reacquisition of common stock (155) (15)
Dividends paid (73) (65)
Other-net 34 23
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Net cash used in financing activities (126) (131)
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Effect of exchange rate changes on cash 1 (26)
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Increase (decrease) in cash and cash equivalents 5 (49)
Cash and cash equivalents at beginning of period 59 109
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 64 $ 60
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------
Second quarter ended Six months ended
June 30 June 30
In millions 1996 1995 1996 1995
- ----------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Sales
Automotive $1,700 $1,719 $3,381 $3,460
Space & Defense 872 842 1,705 1,548
Information Systems & Services 157 151 313 300
- ----------------------------------------------------------------------- ----------------------
Sales $2,729 $2,712 $5,399 $5,308
- ----------------------------------------------------------------------- ----------------------
Operating profit
Automotive $ 170 $ 172 $ 310 $ 345
Space & Defense 64 54 124 99
Information Systems & Services 24 22 47 43
- ----------------------------------------------------------------------- ----------------------
Operating profit 258 248 481 487
Company Staff and other (30) (27) (43) (52)
Interest expense (20) (24) (39) (48)
Earnings from affiliates 2 - - -
- ----------------------------------------------------------------------- ----------------------
Earnings before income taxes $ 210 $ 197 $ 399 $ 387
- ----------------------------------------------------------------------- ----------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the company and its
subsidiaries except for two insurance subsidiaries. The wholly-owned insurance
subsidiaries and the majority of investments in affiliated companies, which are
not significant individually or in the aggregate, are accounted for by the
equity method.
ACCOUNTING CHANGE
Effective January 1, 1996, the company initially applied the provisions of
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Net earnings for the first six months of 1996 have been decreased by $13 million
($.19 per share) reflecting the initial application of this Statement.
INVENTORIES
Inventories consist of the following:
(In millions)
June 30 December 31
1996 1995
---- ----
Finished products and work in process $298 $298
Raw materials and supplies 219 236
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$517 $534
---- ----
---- ----
CAPITAL STOCK
In April 1996, the company adopted an updated shareholder purchase rights plan
under which each shareholder of record as of May 17, 1996, 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 $300. In certain
other events, each right will entitle the holder (other than the acquiring
party) to purchase $600 of TRW common stock or common stock of another person at
a 50 percent discount. The company may redeem these rights at its option at one
cent per right under certain circumstances. The rights outstanding under the
company's former shareholder purchase rights plan were redeemed at one cent per
right.
<PAGE>
LONG-TERM LIABILITIES
For balance sheet purposes, long-term liabilities at June 30, 1996 and
December 31, 1995, include $693 million and $680 million, respectively,
relating to postretirement benefits other than pensions.
OTHER (INCOME)EXPENSE-NET
Other (income)expense included the following:
(In millions)
Second quarter ended Six months ended
June 30 June 30
1996 1995 1996 1995
---------------- ----------------
Other income $(23) $(13) $(35) $(28)
Other expense 19 10 42 25
Foreign currency translation 1 3 3 8
---- ---- ---- ----
$ (3) $ - $ 10 $ 5
---- ---- ---- ----
---- ---- ---- ----
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 period,
including common stock equivalents 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 period including common stock equivalents.
SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended
(In millions) June 30
----------------------------
1996 1995
---- ----
Interest paid (net of amount capitalized) $ 30 $ 44
Income taxes paid (net of refunds) $136 $136
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.
PROPOSED SALE OF BUSINESS
In February 1996, the company entered into an agreement to sell substantially
all of the businesses in the Information Systems & Services segment. The sale,
which is expected to be completed in the second half of 1996, is subject to
certain conditions to closing.
<PAGE>
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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(In millions except per share data)
Six Months Ended
Second Quarter June 30
-------------------------------- --------------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $2,729 $2,712 1% $5,399 $5,308 2%
Operating Profit $ 258 $ 248 4% $ 481 $ 487 (1)%
Net Earnings $ 130 $ 123 6% $ 247 $ 238 4%
Fully Diluted Earnings
Per Share $ 1.94 $ 1.81 7% $ 3.67 $ 3.53 4%
Effective Tax Rate 38% 37.5% 38% 38.5%
</TABLE>
The increase in sales for the second quarter and first six months of 1996 was
primarily due to higher volume in the Space and Defense segment partially offset
by lower sales in the Automotive segment.
Operating profit increased in the second quarter of 1996 due to the profit
contribution from the higher sales in the Space and Defense segment partially
offset by the profit effect of the lower Automotive segment sales. Operating
profit for the first six months of 1996 includes a $15 million before tax charge
related to the initial application of Statement of Financial Accounting
Standards (SFAS) No. 121.
Net earnings for the first six months of 1996 included a $12 million benefit
from an insurance claim settlement primarily related to previously divested
businesses, offset by a $13 million noncash charge related to the initial
application of SFAS No. 121.
Interest expense was $39 million for the first six months of 1996 compared to
$48 million for the first half of 1995. The decrease in interest expense was
primarily due to lower average debt levels and lower interest rates.
<PAGE>
<TABLE>
<CAPTION>
Automotive
(In millions)
Six Months Ended
Second Quarter June 30
---------------------------------- ----------------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
----- ----- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,700 $1,719 (1)% $3,381 $3,460 (2)%
Operating Profit $ 170 $ 172 (1)% $ 310 $ 345 (10)%
</TABLE>
The decrease in sales and operating profit for the second quarter and first six
months of 1996 resulted from the effect of lower pricing in the worldwide airbag
and North American seatbelt businesses partially offset by higher volume in the
airbag, steering and automotive electronics businesses. Unfavorable exchange
rates also contributed to the sales decline for the first six months of 1996.
Operating profit for the first six months of 1996 includes a $15 million before
tax charge related to the initial adoption of SFAS No. 121.
<TABLE>
<CAPTION>
Space & Defense
(In millions)
Six Months Ended
Second Quarter June 30
------------------------------- ---------------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
---- ---- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $872 $842 4% $1,705 $1,548 10%
Operating Profit $ 64 $ 54 17% $ 124 $ 99 25%
</TABLE>
Sales for the second quarter and first six months of 1996 increased primarily
due to the successful conversion of recent contract awards into revenue growth,
as well as strong ongoing program performance.
The increase in operating profit for the second quarter and first six months of
1996 resulted from the profit contribution from new business, strong ongoing
program performance and the absence of program profit adjustments.
<TABLE>
<CAPTION>
Information Systems & Services
(In millions)
Six Months Ended
Second Quarter June 30
------------------------------ --------------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
---- ---- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $157 $151 4% $313 $300 4%
Operating Profit $ 24 $ 22 11% $ 47 $ 43 9%
</TABLE>
The sales and operating profit increase for the second quarter and first six
months of 1996 resulted from higher volume in the Information Services business,
partially offset by lower revenue in the Information Systems and Real Estate
Information Services businesses. The increase in operating profit for the first
six months of 1996 also resulted from the absence of project reserves recorded
in 1995 in the Information Systems businesses.
<PAGE>
In February 1996, the company entered into an agreement to sell substantially
all of the businesses in the Information Systems & Services segment. The sale,
which is expected to be completed in the second half of 1996, is subject to
certain conditions to closing.
LIQUIDITY AND FINANCIAL POSITION
In the first six months of 1996, cash flow provided by operating activities of
$340 million, a net increase in debt of $68 million, and a net increase of $7
million in other items, were used primarily for capital expenditures of $182
million, reacquisition of common stock of $155 million, and dividend payments of
$73 million. As a result, cash and cash equivalents increased by $5 million.
Total debt (short-term debt, the current portion of long-term debt and long-term
debt) was $820 million at June 30, 1996, compared to $754 million at December
31, 1995. The ratio of total debt to total capital (total debt, minority
interests and shareholders' investment) at June 30, 1996 was 26 percent compared
to 25 percent at December 31, 1995.
During the second quarter of 1996, the company renegotiated the terms of its
multi-year U.S. revolving credit agreement. The credit agreement, which
previously allowed the company to borrow up to $550 million, has been revised to
allow the company to borrow up to $750 million. The revised agreement now
extends through June 2001 and contains lower commitment fees and borrowing
rates.
Also during the second quarter of 1996, the company renegotiated the term of its
multi-currency revolving credit agreement. The credit agreement, which
previously allowed the company to borrow up to $200 million, has been revised to
allow the company to borrow up to $250 million. The revised agreement now
extends through June 2001 and contains lower commitment fees and borrowing
rates.
During the first six months of 1996, 1,793,410 shares of TRW Common Stock were
repurchased for approximately $164 million, of which approximately $9 million
was settled in July.
Management believes that funds generated from operations and existing borrowing
capacity will be adequate to support and finance planned growth, capital
expenditures, company-sponsored research and development programs and dividend
payments to shareholders. These sources of funds, together with proceeds from
the proposed sale of businesses in the Information Systems & Services segment,
are expected to be sufficient to fund the company's current share repurchase
program.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
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. 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. On June 6, 1995, the jury entered
its verdict on Talley's counterclaims 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.
TRW timely filed a notice of appeal on July 12, 1995. TRW also 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. On June 21, 1996, the Ninth Circuit, in a two-to-one panel decision,
affirmed the lower court's decision. TRW filed a petition for rehearing EN BANC
with the Ninth Circuit, which was denied on July 30, 1996. The judgment will
not have a material adverse effect on the Company's financial position.
There remain pending in the suit additional claims by TRW and by Talley. These
claims are currently set for trial on September 24, 1996 in the United States
District Court for the District of Arizona. They are not expected to have a
material adverse effect on the Company's financial position.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its 1996 Annual Meeting of Shareholders on April 24,
1996.
(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) Martin Feldstein was elected a Director of the Company with 59,637,871
votes for election and 573,233 votes withheld from voting.
Robert M. Gates was elected a Director of the Company with 59,613,999 votes
for election and 597,105 votes withheld from voting.
E. Bradley Jones was elected a Director of the Company with 59,614,873
votes for election and 596,231 votes withheld from voting.
David B. Lewis was elected a Director of the Company with 59,617,915 votes
for election and 593,189 votes withheld from voting.
James T. Lynn was elected a Director of the Company with 59,632,656 votes
for election and 578,448 votes withheld from voting.
The shareholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for the 1996 fiscal year with 59,938,191
votes for, 141,349 votes against and 131,564 votes abstaining.
A shareholder proposal concerning a report to shareholders on research and
development of space weapons was defeated, with 5,913,810 votes for,
47,864,697 votes against, 3,350,227 votes abstaining and 3,082,370 broker
non-votes.
(d) None.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10(a) TRW Benefits Equalization Plan (as Amended and Restated effective
August 1, 1996).
10(b) TRW Supplementary Retirement Income Plan (as Amended and Restated
effective August 1, 1996).
11 Computation of Earnings Per Share -- Unaudited.
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. 33-42870, filed September 20,
1991, and No. 33-61711, filed August 10, 1995).
(b) Reports on Form 8-K:
Current Report on Form 8-K dated April 25, 1996.
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: August 7, 1996 By: /S/ James C. Diggs
------------------
James C. Diggs
Assistant Secretary
Date: August 7, 1996 By: /S/ Carl G. Miller
-------------------
Carl G. Miller
Executive Vice President
and Chief Financial Officer
<PAGE>
FORM 10-Q
Quarterly Report for Quarter Ended June 30, 1996
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10(a) TRW Benefits Equalization Plan (as Amended and Restated effective
August 1, 1996).
10(b) TRW Supplementary Retirement Income Plan (as Amended and Restated
effective August 1, 1996).
11 Computation of Earnings Per Share -- Unaudited.
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. 33-42870, filed September 20, 1991, and
No. 33-61711, filed August 10, 1995).
<PAGE>
Exhibit 10 (a)
TRW BENEFITS EQUALIZATION PLAN
Amended and Restated
Effective August 1, 1996
1. PURPOSE. The purpose of the TRW Benefits Equalization Plan ("BEP"),
as amended and restated effective August 1, 1996, is to provide supplemental
retirement and death benefits to those management and highly-compensated
employees of TRW Inc. and its subsidiaries ("TRW") whose benefits under The
TRW Employee Stock Ownership and Stock Savings Plan (the "Stock Savings Plan")
are limited by reason of:
a. the limitations on compensation under Section 401(a)(17) of the
Internal Revenue Code of 1986 ("Code");
b. the dollar limitations on elective deferrals under Code Section
402(g)(1);
c. the limitations on the amount that TRW can contribute as "TRW Matching
Contributions" as defined under the Stock Savings Plan without exceeding the
amount provided by Code Section 415(c)(1)(A); and
d. the exclusion of compensation otherwise included as "Compensation"
under the Stock Savings Plan but for the fact that (i) such compensation was
deferred under the provisions of the TRW Inc. Deferred Compensation Plan ("DC
Plan") rather than received or (ii) a determination was made by TRW that such
inclusion could violate the regulations under Code Section 401(a)(4).
The BEP is unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act ("ERISA") and is designed to provide
benefits which mirror the provisions of the Stock Savings Plan but cannot be
paid from the Stock Savings Plan because of certain Code limitations.
2. ELIGIBILITY. Employees (i) whose base pay and bonus paid in any year (or
deferred pursuant to the DC Plan) exceed the compensation limitations of Code
Section 401(a)(17) for such year will be eligible to participate in the BEP
provided they are otherwise eligible, and have elected, to participate in the
Stock Savings Plan and have timely elected to participate in the BEP. Once such
employees have met the eligibility requirements under this section, they will
continue to be eligible to participate in subsequent years even if their base
pay and bonus paid fall below the compensation limit of Code Section 401(a)(17).
3. ACCOUNTS.
a. An account ("Account") shall be established in the name of each
eligible employee into which shall be credited monthly the following amounts:
<PAGE>
i. that percentage of the participant's current compensation which
the participant elected to contribute to the Stock Savings Plan as
"Before-Tax Contributions" and that percentage of the participant's current
compensation which the Company would have contributed to the Stock Savings
Plan as "TRW Matching Contributions" (both terms as defined under the Stock
Savings Plan) to the extent that such amounts cannot be contributed to the
Stock Savings Plan due to any of the reasons identified in Section 1;
provided, however, that the percentage of the participant's compensation
credited to the Account, when combined with the percentage elected under
the Stock Savings Plan, may not at any time be greater than that amount of
"Before-Tax Contributions" which the participant would be permitted to
contribute, as a highly-compensated participant, to the Stock Savings Plan
without regard to the above-referenced limitations; and further provided,
that the TRW Matching Contributions credited to the Account shall be
reduced by any amounts actually contributed for the participant by the
Company to the Stock Savings Plan as TRW Matching Contributions; plus
ii. earnings on the amounts credited under subparagraph i. above in
accordance with the participant's election as provided in Section 4 below.
b. The participant's annual election to participate in the BEP by having
his Account credited as provided in paragraph a. shall be filed with the
Committee on a prescribed form and shall be filed at such time as the Committee
may specify, but in all cases prior to the time such compensation is to be
earned by the participant. No changes in the percentage of compensation
credited to the Account shall be made during the calendar year following the
election, unless the participant elects 0%.
c. Participants shall have, at all times, a nonforfeitable interest in
the amounts credited to their Account, subject to the provisions of Section 6e.
d. Participants shall receive an annual statement of their Account
established under the BEP within a reasonable period after the end of each
calendar year.
4. EARNINGS.
a. Each participant in the BEP shall be able to elect to have monies
credited to his or her Account based upon the performance of:
(i) prior to January 1, 1997, the Equity Fund or the Insured Return
Fund (also sometimes referred to as the Stable Value Fund) of the Stock
Savings Plan; and
(ii) on and after January 1, 1997, the same investment fund options
offered to participants under the Stock Savings Plan.
-2-
<PAGE>
Such election may be made by allocating the entire Account to one of the
earnings options or by allocating the Account between selected investment fund
options in 25 percent multiples. Each participant may change his or her election
at the middle or end of any month by contacting the Committee or its delegee.
b. All TRW Matching Contributions allocated to a participant's Account
will be credited in the same manner as the participant's election under Section
a.
5. TIME OF PAYMENT.
a. Except as otherwise provided herein, payment of the Account to the
participant (or, in the event of his death, to his beneficiary as designated in
writing to the Committee) shall be made as of the January following the
following events:
i. the participant's becoming disabled as defined by the terms and
conditions of the Stock Savings Plan;
ii. the death of the participant; or
iii. the termination of the participant's employment with TRW through
retirement or otherwise.
b. Notwithstanding Section aiii., if the participant's termination of
employment is the result of the divestiture of TRW Information Systems and
Services, and the participant continues employment with the entity that acquired
such operations ("successor employer"), the BEP benefit shall not be payable
until such participant's termination of employment with the successor employer,
except as provided under Section 6d.
c. Notwithstanding the above, the Directors/Committee, upon determining
that the participant has suffered an emergency event beyond his control which
would impose an immediate and heavy financial hardship if the payment of his
benefits were not made, may pay to the participant that part of his Account
which is needed to satisfy such hardship.
6. PAYMENT OF BENEFITS.
a. Subject to Section b, the automatic form of payment of monies in the
Account shall be ten equal annual installments, payable during the month of
January; provided, however, that the participant can petition the Directors or
the Committee at any time at least two months prior to the participant's
eligibility for payout from the Stock Savings Plan to change such payment to any
lesser number of annual installments or to a single sum. If annual installments
are paid, the balance of the Account shall continue to be credited with earnings
as previously elected by the participant in accordance with Section 4.
-3-
<PAGE>
b. Upon approval by the Directors/Committee, any election of a form of
payment other than the automatic form of payment provided in this Section shall
be irrevocable.
c. Payment of the Account shall be made in the form of cash unless the
Directors/Committee determines in its discretion that it is appropriate to pay
that portion of the participant's Account attributable to TRW Matching
Contributions and earnings thereon in shares of TRW common stock, in which event
such distribution of shares shall occur no earlier than six months following the
date that the participant is last employed by TRW.
d. If the balance in the participant's Account under the BEP, determined
as of any of the events described in Section 5 above, is less than $3,500, said
Account balance shall automatically be paid out in a single sum in the first
January following said event.
e. Payments under the BEP shall be made by TRW, with any appropriate
reimbursement being made by subsidiaries of TRW. The BEP shall be unfunded, and
TRW shall not be required to establish any special or separate fund nor to make
any other segregation of assets in order to assure the payment of any amounts
under the BEP. Participants in the BEP have the status of general unsecured
creditors of TRW and the BEP constitutes a mere promise by TRW to make benefit
payments in the future.
7. NON-ALIENATION OF BENEFITS. Neither a participant or any other person
shall have any right to sell, assign, transfer, pledge, mortgage or otherwise
encumber, in advance of actual receipt, any BEP benefit. Any such attempted
assignment or transfer shall be ineffective; TRW's sole obligation under the BEP
shall be to pay benefits to the participant, his beneficiary or his estate, as
appropriate. No part of any BEP benefit shall, prior to actual payment, be
subject to the payment of any debts, judgments, alimony or separate maintenance
owed by a participant or any other person; nor shall any BEP benefit be
transferable by operation of law in the event of a participant's or any other
person's bankruptcy or insolvency, except as required or permitted by law.
8. DIRECTORS/COMMITTEE. For purposes of the BEP, "Directors" shall mean the
Compensation and Stock Option Committee of the Directors of TRW with respect to
the approval of benefits of any participant who is, or ever was, either a
Director of TRW, a member of the Chief Executive Office, or a member of the
Management Committee. With respect to the approval of benefits of other
participants, "Committee" shall refer to an Administrative Committee consisting
of those three employees of TRW who occupy the most senior positions in the
Company Staff Finance, Human Resources, and Law Departments. The Committee or
its delegate shall interpret the provisions of the BEP, determine the rights and
status of participants and beneficiaries hereunder, and handle the general
administration of the BEP. Such interpretations and determinations shall be
final and conclusive as to all interested persons.
-4-
<PAGE>
9. CLAIMS PROCEDURE. If a claim for a BEP benefit is denied, in whole or in
part, a written notice of denial provided to the participant shall state the
reasons for denial, a description of any additional material or information
required; and an explanation of the claim review procedure. Any person whose
claim, upon his written request for review, is again denied may make a second
request for review. A decision on such second request shall normally be made
within sixty days.
10. AMENDMENT AND TERMINATION. Nothing herein shall be construed to constitute
a contract between TRW and the participants to continue the BEP, and TRW's
Directors in their sole discretion may terminate or discontinue the BEP at any
time and may at any time and from time to time amend any or all of its
provisions; provided, however, that no termination or amendment shall reduce
amounts credited prior to such termination or amendment.
11. MISCELLANEOUS PROVISIONS.
a. As used in this document, the masculine gender shall include the
feminine and the singular shall include the plural. To the extent that any term
is not defined under the BEP, it shall have the same meaning as defined in the
Stock Savings Plan.
b. Employment rights with TRW shall not be enlarged or affected by the
existence of the BEP.
c. In case any provision of the BEP shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining
provisions
d. The BEP shall be governed by the laws of the State of Ohio.
7/96
-5-
<PAGE>
Exhibit 10 (b)
TRW SUPPLEMENTARY
RETIREMENT INCOME PLAN
Amended and Restated
Effective August 1,1996
1. PURPOSE. The purpose of the TRW Supplementary Retirement Income Plan
(SRIP), as amended and restated effective August 1, 1996, is to provide
supplemental retirement and death benefits to those:
(i) employees, including officers, of TRW Inc. and its subsidiaries
("TRW") whose benefits under the qualified defined benefit pension plans
maintained by such entities ("d.b. plans") shall have been limited by
virtue of Section 415 of the Internal Revenue Code of 1986 ("Code");
(ii) management and highly-compensated employees of TRW whose benefits
under the d.b. plans are limited by Code Section 401(a)(17);
(iii) management and highly-compensated employees of TRW whose compensation
otherwise included as pensionable earnings received by such individual
within the meaning of the d.b. plan could not be so included because such
compensation was deferred in accordance with the provisions of the TRW Inc.
Deferred Compensation Plan ("DC Plan"); and
(iv) management and highly-compensated employees of TRW whose compensation
otherwise included as "Earnings" under the d.b. plan and service otherwise
included as Benefit Service under the d.b. plan would not be so included
because of a determination by TRW that such inclusion could violate the
regulations under Code Section 401(a)(4).
The SRIP is unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act ("ERISA") and is designed to provide
benefits which mirror the provisions of the applicable d.b. plan but cannot be
paid from the d.b. plan because of certain Code limitations.
2. ELIGIBILITY. Employees whose base pay and bonus paid in any year (or
deferred pursuant to the DC Plan) exceed the limitations of Code Section
401(a)(17) shall automatically be covered under the SRIP. All d.b. plan
participants who are eligible to receive benefits from a d.b. plan shall
automatically receive a benefit from the SRIP if their benefit cannot be fully
provided under the d.b. plan because of the limits under Code Section 415.
3. BENEFITS. The amount of the benefit payable under the SRIP shall be equal
to the amount which would be payable to or in respect of a participant under the
d.b. plan if the limitations identified in Section 1 above were inapplicable,
less the amount of the benefit payable under the d.b. plan, taking into account
<PAGE>
such limitations. The amount of benefit payable under the SRIP to a participant
shall also be reduced to the extent that any other nonqualified plan established
by TRW pays benefits to the participant that are attributable to limits imposed
upon d.b. plans other than those identified in Section 1 above.
4. PAYMENT OF BENEFITS.
a. No benefit is payable from the SRIP, even if the participant has
terminated his/her employment, unless a participant has five years of vesting
service as defined under the d.b. plan and has attained age fifty-five.
b. If a participant who has five or more years of vesting service dies
before his/her benefit commencement date under the d.b. plan, the SRIP benefit
shall be paid in the same form and shall commence at the same time as a pre-
retirement survivor benefit under the d.b. plan.
c. Except as provided in paragraph g., any participant in the d.b. plan
and the SRIP who is entitled to a vested or deferred vested pension under such
d.b. plan shall have his SRIP benefit (i) commence at the same time as his
benefit commencement date under the d.b. plan and (ii) paid in the same form and
with the same designated joint annuitant, if any, as his form of payment under
the d.b. plan unless otherwise provided under the terms of any Qualified
Domestic Relations Order applicable to said participant or unless otherwise
determined by the Committee in its sole discretion.
d. Except as provided above or in paragraph g., payment of benefits under
the SRIP shall be made commencing with the January following the date the
participant becomes eligible, having terminated his employment with TRW, for
benefits under the d.b. plan; provided, however, that if the participant's
termination of employment is the result of a divestiture of the TRW unit or
operation 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 SRIP benefit shall not be payable until such participant is
eligible for and receives (or commences to receive) his d.b. plan benefit (even
if the SRIP benefit is less than $3,500).
e. Except as provided above and in paragraph g., the automatic form of
benefit payable under the Plan shall be, for an unmarried participant, a single
life annuity, and, for a married participant, a 50% joint and survivor annuity,
with the participant's eligible spouse being the survivor annuitant.
Notwithstanding the above, the participant may petition the Directors or the
Committee at any time at least two months prior to termination of employment to
change such form of payment into a single sum or annual installments from two to
ten years, or any other payment form approved by the Directors or the Committee
in their or its discretion. If annual installment payments are elected,
interest, if any, on such installments shall be determined by the Actuary,
subject to approval by TRW.
-2-
<PAGE>
f. Upon approval by the Directors/Committee, any election of a form of
payment or benefit commencement date other than the automatic form and
commencement date shall be irrevocable.
g. If the present value of a participant's interest in the SRIP,
determined as of the later of the participant's age 55 or termination of
EMPLOYMENT, is less than an amount which, if converted to a single sum equals
$3,500, the benefit shall be paid out in a single sum, either at the same time
as his benefit commencement date under the d.b. plan or at another date as
determined by the Committee in its sole discretion.
h. Payments to be made pursuant to the SRIP shall be made by TRW, with
any appropriate reimbursement being made by subsidiaries of TRW. The SRIP shall
be unfunded, and TRW shall not be required to establish any special or separate
fund nor to make any other segregation of assets in order to assure the payment
of any amounts under the SRIP. Participants of the SRIP shall have the status
of general unsecured creditors of TRW and the SRIP constitutes a mere promise by
TRW to make benefit payments in the future.
5. NON-ALIENATION OF BENEFITS. Neither a participant or any other person
shall have any right to sell, assign, transfer, pledge, mortgage or otherwise
encumber, in advance of actual receipt, any SRIP benefit. Any such attempted
assignment or transfer shall be ineffective; TRW's sole obligation under the
SRIP shall be to pay benefits to the participant, his beneficiary or his estate,
as appropriate. No part of any SRIP benefit shall, prior to actual payment, be
subject to the payment of any debts, judgments, alimony or separate maintenance
owed by a participant or any other person; nor shall any SRIP benefit be
transferable by operation of law in the event of a participant's or any other
person's bankruptcy or insolvency, except as required or permitted by law.
6. DIRECTORS/COMMITTEE. For purposes of the SRIP, the term "Directors"
shall mean the Compensation and Stock Option Committee of the Directors of TRW
with respect to the approval of benefits of any participant who is, or ever was,
either a Director of TRW, a member of the Chief Executive Office, or a member of
the Management Committee. With respect to the approval of benefits of other
participants, the term "Committee" shall refer to an Administrative Committee
consisting of those three employees of TRW who occupy the most senior positions
in the Company Staff Finance, Human Resources, and Law Departments. The
Committee or its delegate shall interpret the provisions of the SRIP and
determine the rights and status of participants and beneficiaries hereunder and
handle the general administration of the SRIP. Such interpretations and
determinations shall be final and conclusive as to all interested persons.
7. CLAIMS PROCEDURE. If a claim for a SRIP benefit is denied, in whole or in
part, a written notice of denial provided to the participant shall state the
reasons for denial, a description of any additional material or information
required; and an explanation of the claim review procedure. Any person whose
-3-
<PAGE>
claim, upon his written request for review, is again denied may make a second
request for review. A decision on such second request shall normally be made
within sixty days.
8. AMENDMENT AND TERMINATION. Nothing herein shall be construed to constitute
a contract between TRW and the participants to continue the SRIP. The Directors
may terminate the SRIP at any time and may at any time and from time to time
amend any or all of its provisions.
9. MISCELLANEOUS.
a. As used herein, the masculine gender shall include the feminine
gender. To the extent that any term is not defined under the SRIP, it shall
have the same meaning as defined in the d.b. plan.
b. Employment rights with TRW shall not be enlarged or affected by the
existence of the SRIP.
c. In case any provision of the SRIP shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining
provisions.
d. The SRIP shall be governed by the laws of the State of Ohio.
7/96
-4-
<PAGE>
Exhibit 11
TRW
COMPUTATION OF EARNINGS PER SHARE - UNAUDITED
(In Millions Except Per Share Amounts)
Six Months Ended June 30
------------------------
PRIMARY 1996 1995
---- ----
Net earnings $ 247.5 $ 237.8
Less preference dividend requirements 0.3 0.4
-------- --------
Net earnings applicable to common shares
and common share equivalents $ 247.2 $ 237.4
-------- --------
-------- --------
Average common shares outstanding 65.3 65.0
Stock options and performance share rights,
based on the treasury stock method using
average market price 1.5 1.3
-------- --------
Average common shares and common share
equivalents 66.8 66.3
-------- --------
-------- --------
Primary earnings per share $3.70 $3.58
-------- --------
-------- --------
FULLY DILUTED
Net earnings applicable to common shares and
common share equivalents $ 247.2 $ 237.4
Dividends assuming conversion of other
dilutive securities: (A)
Dilutive preference dividends 0.3 0.4
-------- --------
Net earnings applicable to fully diluted shares $ 247.5 $ 237.8
-------- --------
-------- --------
Average common shares outstanding 65.3 65.0
Common shares assuming conversion of
other dilutive securities: (A)
Dilutive preference shares 0.6 0.6
Stock options and performance share rights,
based on the treasury stock method using
closing market price if higher than
average market price 1.5 1.8
-------- --------
Average fully diluted shares 67.4 67.4
-------- --------
-------- --------
Fully diluted earnings per share $ 3.67 $ 3.53
-------- --------
-------- --------
(A) Assuming the conversion of the Serial Preference Stock II - Series 1 and
Series 3.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 1,558
<ALLOWANCES> 0
<INVENTORY> 517
<CURRENT-ASSETS> 2,362
<PP&E> 5,867
<DEPRECIATION> 3,399
<TOTAL-ASSETS> 5,923
<CURRENT-LIABILITIES> 2,121
<BONDS> 513
0
0
<COMMON> 41
<OTHER-SE> 2,195
<TOTAL-LIABILITY-AND-EQUITY> 5,923
<SALES> 5,399
<TOTAL-REVENUES> 5,399
<CGS> 4,329
<TOTAL-COSTS> 4,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 399
<INCOME-TAX> 152
<INCOME-CONTINUING> 247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247
<EPS-PRIMARY> 3.70
<EPS-DILUTED> 3.67
</TABLE>
<PAGE>
EXHIBIT 99
TRW INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES - UNAUDITED
(IN MILLIONS EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31
------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
------------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS(LOSS) BEFORE INCOME
TAXES $399.1 $708.2 $534.5 $359.1 $347.6 $(129.4)(A)
UNCONSOLIDATED AFFILIATES (2.5) 2.3 (0.6) 0.7 (0.9) (1.0)
MINORITY EARNINGS 7.6 13.8 5.2 5.7 2.6 (7.8)
FIXED CHARGES EXCLUDING
CAPITALIZED INTEREST 72.0 155.6 160.9 194.0 227.1 254.3
---- ----- ----- ----- ----- -----
EARNINGS $476.2 $879.9 $700.0 $559.5 $576.4 $116.1
------ ------ ------ ------ ------ ------
FIXED CHARGES:
INTEREST EXPENSE $38.8 $94.9 $104.8 $137.8 $162.9 $189.6
CAPITALIZED INTEREST 1.3 5.1 6.6 7.9 12.7 10.1
PORTION OF RENTS REPRESENTA-
TIVE OF INTEREST FACTOR 32.1 59.6 54.7 54.0 64.0 64.4
INTEREST EXPENSE OF UNCON-
SOLIDATED AFFILIATES 1.1 1.1 1.4 2.2 0.2 0.3
--- --- --- --- --- ---
TOTAL FIXED CHARGES $73.3 $160.7 $167.5 $201.9 $239.8 $264.4
----- ------ ------ ------ ------ ------
RATIO OF EARNINGS TO FIXED
CHARGES 6.5X 5.5X 4.2X 2.8X 2.4X 0.4X(A)
--- --- --- --- --- ---
</TABLE>
(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.
