<PAGE> 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 September 30, 1996
------------------
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.
------------------------------------------------------
(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
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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 November 1, 1996, there were 63,497,517 shares
of TRW Common Stock, $0.625 par value, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Statements of Earnings (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Third quarter ended Nine months ended
September 30 September 30
In millions except per share data 1996 1995 1996 1995
- ------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
Sales $ 2,320 $ 2,250 $7,406 $ 7,258
Cost of sales 2,187 1,866 6,331 5,960
- ------------------------------------------------------------------------------- ------------------
Gross profit 133 384 1,075 1,298
Administrative and selling expenses 157 165 487 471
Research and development expenses 100 82 305 295
Interest expense 37 28 76 76
Other (income)expense-net 57 (10) 72 (7)
- ------------------------------------------------------------------------------- ------------------
Earnings(loss) from continuing
operations before income taxes (218) 119 135 463
Income taxes (72) 41 62 173
- ------------------------------------------------------------------------------- ------------------
Earnings(loss) from continuing (146) 78 73 290
operations
Discontinued operations:
Earnings from operations 10 15 38 41
Gain on disposal 242 -- 242 --
- ------------------------------------------------------------------------------- ------------------
Net earnings $ 106 $ 93 $ 353 $ 331
- ------------------------------------------------------------------------------- ------------------
- ------------------------------------------------------------------------------- ------------------
PER SHARE OF COMMON STOCK (*)
Fully diluted
Continuing operations $ (1.11) $ .59 $ .54 $ 2.16
Discontinued operations:
Earnings from operations .07 .12 .28 .31
Gain on disposal 1.83 -- 1.81 --
- ------------------------------------------------------------------------------- ------------------
Net earnings per share $ .79 $ .71 $ 2.63 $ 2.47
- ------------------------------------------------------------------------------- ------------------
Primary
Continuing operations $ (1.13) $ .58 $ .54 $ 2.17
Discontinued operations:
Earnings from operations .08 .12 .29 .32
Gain on disposal 1.86 -- 1.83 --
- ------------------------------------------------------------------------------- ------------------
Net earnings per share $ .81 $ .70 $ 2.66 $ 2.49
- ------------------------------------------------------------------------------- ------------------
- ------------------------------------------------------------------------------- ------------------
Shares used in computing per share
amounts (*)
Fully diluted 132.3 133.5 133.9 134.3
Primary 130.5 134.0 132.5 133.1
- ------------------------------------------------------------------------------- ------------------
- ------------------------------------------------------------------------------- ------------------
Dividends declared (*) $ .275 $ .25 $ .55 $ .50
- ------------------------------------------------------------------------------- ------------------
<FN>
(*) - Amounts have been retroactively restated to reflect a two-for-one stock
split effected in the form of a 100 percent stock dividend. See Notes to
Financial Statements.
</TABLE>
<PAGE> 3
Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Nine months ended
September 30
In millions 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net earnings $ 353 $ 331
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Discontinued operations (280) (41)
Depreciation and amortization 327 319
Deferred income taxes 38 23
Other-net 4 19
Changes in assets and liabilities, net of effects
of businesses acquired or sold:
Accounts receivable (143) (59)
Inventories and prepaid expenses (13) (74)
Accounts payable and other accruals 143 (17)
Other-net (69) 3
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities of
continuing operations 360 504
Net cash used by discontinued operations -- (6)
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 360 498
- ----------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (276) (303)
Proceeds from divestitures 965 9
Investments in other assets (4) (6)
Other-net 37 1
- ----------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 722 (299)
- ----------------------------------------------------------------------------------------
Financing activities:
Increase(decrease) in short-term debt (54) 22
Proceeds from debt in excess of 90 days 31 26
Principal payments on debt in excess of 90 days (76) (161)
Reacquisition of common stock (257) (16)
Dividends paid (109) (98)
Other-net 45 24
- ----------------------------------------------------------------------------------------
Net cash used in financing activities (420) (203)
- ----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1) (24)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 661 (28)
Cash and cash equivalents at beginning of period 59 109
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 720 $ 81
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
Balance Sheets (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
September 30 December 31
In millions 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 720 $ 59
Accounts receivable 1,467 1,327
Inventories 517 530
Prepaid expenses 88 67
Deferred income taxes 51 218
- ---------------------------------------------------------------------------------------
Total current assets 2,843 2,201
Property, plant and equipment-on the basis of cost 5,744 5,710
Less accumulated depreciation and amortization 3,373 3,199
- ---------------------------------------------------------------------------------------
Total property, plant and equipment-net 2,371 2,511
Intangible assets
Intangibles arising from acquisitions 237 245
Other 31 43
- ---------------------------------------------------------------------------------------
268 288
Less accumulated amortization 79 79
- ---------------------------------------------------------------------------------------
Total intangible assets-net 189 209
Other assets 535 311
Net assets of discontinued operations -- 437
- ---------------------------------------------------------------------------------------
$ 5,938 $ 5,669
- ---------------------------------------------------------------------------------------
Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 126 $ 133
Accounts payable 710 776
Current portion of long-term debt 47 79
Other current liabilities 1,385 895
- ---------------------------------------------------------------------------------------
Total current liabilities 2,268 1,883
Long-term liabilities 790 779
Long-term debt 479 539
Deferred income taxes 120 249
Minority interests in subsidiaries 57 47
Capital stock 80 82
Other capital 435 398
Retained earnings 1,928 1,647
Cumulative translation adjustments 58 76
Treasury shares-cost in excess of par value (277) (31)
- ---------------------------------------------------------------------------------------
Total shareholders' investment 2,224 2,172
- ---------------------------------------------------------------------------------------
$ 5,938 $ 5,669
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Third quarter ended Nine months ended
September 30 September 30
In millions 1996 1995 1996 1995
- ------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Sales
Automotive $ 1,500 $ 1,422 $ 4,881 $ 4,882
Space & Defense 820 828 2,525 2,376
- ------------------------------------------------------------------------------- --------------------
Sales $ 2,320 $ 2,250 $ 7,406 $ 7,258
- ------------------------------------------------------------------------------- --------------------
Operating profit(loss)
Automotive $ (105) $ 116 $ 205 $ 461
Space & Defense (48) 54 76 153
- ------------------------------------------------------------------------------- --------------------
Operating profit(loss) (153) 170 281 614
Company Staff and other (26) (23) (68) (76)
Interest expense (37) (28) (76) (76)
Earnings(loss) from affiliates (2) -- (2) 1
- ------------------------------------------------------------------------------- --------------------
Earnings(loss) from continuing
operations before income taxes $ (218) $ 119 $ 135 $ 463
- ------------------------------------------------------------------------------- --------------------
</TABLE>
Note: The Company no longer reports an Information Systems and Services Segment,
a result of the sale during the third quarter of 1996 of substantially all
of the businesses previously included in that segment.
<PAGE> 6
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 nine months of 1996 have been decreased by $13
million ($.09 per share) reflecting the initial application of this Statement.
Discontinued Operations
- -----------------------
On September 19, 1996, the Company sold substantially all of the businesses of
its Information Systems and Services segment to an investor group led by Bain
Capital, Inc. and the Thomas H. Lee Company. The financial statements reflect as
discontinued operations for all periods presented that segment's net assets and
operating results, as well as the related transaction gain. Related footnotes
have been restated to reflect only continuing operations.
Net proceeds of approximately $965 million in cash resulted in a gain of $468
million ($242 million after tax, $1.83 per share). The proceeds will be used to
pay down debt, to fund investment opportunities and to purchase the Company's
Common Stock. Sales of the discontinued operations were $140 million and $152
million for the three months ended September 30, 1996 and 1995, respectively,
and $453 million and $452 million for the nine months ended September 30, 1996
and 1995, respectively.
Net assets of discontinued operations of $437 million at December 31, 1995
consisted primarily of goodwill and capitalized data files.
<PAGE> 7
Special Charges
- ---------------
In the third quarter of 1996, the Company recorded a before-tax charge of $365
million ($233 million after tax or $1.76 per share) for actions taken in the
automotive and space and defense businesses. As a result of these actions,
several manufacturing facilities located throughout the world will be closed or
consolidated, and employment company-wide will be reduced by approximately 2,300
people.
The components of the charge include plant closure and severance costs of $102
million, contract reserves of $99 million, litigation and warranty expenses of
$94 million, asset write-downs of $53 million and other items of $17 million. As
of September 30, 1996, cash expenditures for these actions were insignificant.
Cash expenditures related to the plant closure and severance costs are
anticipated to be completed by the end of 1997.
The charges are included in the Statement of Earnings as follows: $289 million
included in cost of sales; $18 million included in interest expense; and $58
million included in other(income) expense-net.
Inventories
- -----------
Inventories consist of the following:
(In millions)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
---- ----
<S> <C> <C>
Finished products and work in process $287 $294
Raw materials and supplies 230 236
---- ----
$517 $530
==== ====
</TABLE>
Long-Term Liabilities
- ---------------------
For balance sheet purposes, long-term liabilities at September 30, 1996, and
December 31, 1995, included $694 million and $680 million, respectively,
relating to postretirement benefits other than pensions.
<PAGE> 8
Other (Income)Expense-Net
- -------------------------
Other (income)expense included the following:
(In millions)
<TABLE>
<CAPTION>
Third quarter ended Nine months ended
September 30 September 30
1996 1995 1996 1995
------------------- ---------------------
<S> <C> <C> <C> <C>
Other income $(26) $(15) $(53) $(40)
Other expense 82 4 121 24
Foreign currency translation 1 1 4 9
---- ---- ---- ----
$ 57 $(10) $ 72 $ (7)
==== ==== ==== ====
</TABLE>
Other expense for the third quarter and first nine months of 1996 includes
expenses related to the settlement of a lawsuit.
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.
Primary earnings per share for the third quarter of 1995 of $.70 is lower than
the fully diluted earnings per share amount of $.71 due to the use of the
treasury stock method for calculating share repurchase. The September 1995
calculation of fully diluted earnings per share uses the average market price.
Subsequent Events
- -----------------
On October 23, 1996, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100 percent stock dividend to be
distributed on December 9, 1996 to shareholders of record on November 8, 1996.
Shareholders' investment has been restated to give retroactive recognition to
the stock split for all periods presented by reclassifying from retained
earnings to common stock the par value of the additional shares arising from the
split. In addition, all references to the number of shares, per share amounts
and dividends declared in the financial statements and notes thereto have been
restated.
On November 13, 1996, the Company sold its equity interest in Experian
Corporation. The sale resulted in an after-tax gain of approximately $20
million. The Company is considering recording charges for certain actions which
may offset this gain.
<PAGE> 9
Supplemental Cash Flow Information
- ----------------------------------
<TABLE>
<CAPTION>
Nine months ended
(In millions) September 30
-----------------
1996 1995
---- ----
<S> <C> <C>
Interest paid (net of amount capitalized) $ 75 $ 74
Income taxes paid (net of refunds) $214 $191
</TABLE>
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.
Other Contingencies
- -------------------
The Company was advised by the Department of Justice ("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, which permit an individual to bring suit in the
name of the United States and share in any recovery. The allegations in the
lawsuit relate to the classification of certain 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. The actions remain under
seal until the government completes its investigations and determines whether
to intervene. However, permission from the court has been obtained by the
Company to make the disclosures contained herein. The Company is cooperating
with the DOJ's investigation and is engaged in ongoing discussions with them
regarding the allegations. The Company cannot presently predict the outcome of
these matters, although management believes that the Company would have
meritorious defenses if either the government decides to pursue the lawsuits or
the former employee decides to do so without government participation.
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> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(In millions except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Third Quarter September 30
------------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $2,320 $2,250 $7,406 $7,258
Operating profit(loss) $ (153) $ 170 $ 281 $ 614
Earnings(loss) from
continuing operations $ (146) $ 78 $ 73 $ 290
Earnings from
discontinued operations $ 252 $ 15 $ 280 $ 41
Fully diluted earnings
per share $ .79 $ .71 $ 2.63 $ 2.47
Effective tax rate on
continuing operations 33.0% 34.5% 45.9% 37.4%
</TABLE>
The increase in sales for the third quarter of 1996 was primarily due to higher
volume in the Automotive segment partially offset by lower sales in the Space
and Defense segment. For the first nine months of 1996, the increase in sales
was due to higher volume in the Space & Defense segment partially offset by the
effect of unfavorable exchange rates.
Operating profit(loss) for the third quarter and first nine months includes a
before-tax charge of $344 million for actions taken in the automotive and space
and defense businesses. See "Special Charges" note in the Notes to Financial
Statements for further information. Excluding the charge, operating profit
increased due to the profit contribution from new business in the Space &
Defense segment and higher volume in the Automotive segment. Operating profit
for the first nine months of 1996 includes a $15 million before tax charge
related to the initial application of Statement of Financial Accounting
Standards (SFAS) No. 121.
Earnings from discontinued operations includes the earnings from operations and
the gain on the third quarter sale of substantially all of the businesses in the
Information Systems and Services segment. See the "Discontinued Operations" note
in the Notes to Financial Statements for further information.
Interest expense was $37 million for the third quarter of 1996 compared to $28
million in 1995. Third quarter 1996 interest expense includes $18 million
related to the interest component of a litigation settlement. Excluding this
item, interest expense declined due primarily to lower average debt levels and
lower interest rates.
On October 23, 1996, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100 percent stock dividend. Accordingly,
earnings per share data has been restated to give retroactive recognition to the
stock split for all periods presented.
<PAGE> 11
The increase in the effective tax rate for the nine months ended September 30,
1996 was primarily due to the absence of a current tax benefit for certain of
the special charges taken during the third quarter of 1996.
Automotive
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
Third Quarter September 30
--------------------------- -----------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,500 $1,422 6% $4,881 $4,882 --%
Operating
profit (loss) as
reported $ (105) $ 116 $205 $ 461
Special charges 235 -- 235 --
------ ------ ------ ------
Adjusted operating
profit $ 130 $ 116 12% $ 440 $ 461 (5%)
</TABLE>
The increase in sales for the third quarter of 1996 was due to higher volume
across all product lines, offset in part by continued price pressures in air bag
systems and the effect of a strong U.S. dollar. Sales for the first nine months
of 1996 were relatively flat as compared to 1995 with pricing pressure in air
bag systems and unfavorable exchange rates offsetting the increase in sales
derived by higher volume in virtually all automotive businesses.
The increase in adjusted operating profit for the third quarter of 1996 resulted
primarily from higher profit experienced by the air bag and steering systems
businesses. Moderating the improvement in operating profit were continued price
pressures in air bag systems, higher start-up costs for new product
introductions, and increased product development costs. Adjusted operating
profit for the first nine months of 1996 includes a $15 million before-tax
charge related to the initial adoption of SFAS No. 121.
Special charges recorded during the third quarter of 1996 related to
reconfiguration of manufacturing plants, litigation and warranty expenses
and asset write-downs. See "Special Charges" note in the Notes to Financial
Statements for further information.
<PAGE> 12
Space & Defense
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
Third Quarter September 30
----------------------- ---------------------------
Percent Percent
1996 1995 Inc (Dec) 1996 1995 Inc (Dec)
---- ---- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $820 $828 (1)% $2,525 $2,376 6%
Operating
profit(loss) $(48) $ 54 (188)% $ 76 $ 153 (50)%
</TABLE>
The decline in sales for the third quarter of 1996 was due to an increase in
sales from recent contract awards being more than offset by lower funding on
certain contracts and the effects of contracts nearing completion. For the first
nine months of 1996, sales increased primarily due to the successful conversion
of contract awards into revenue growth, as well as strong ongoing program
performance.
Operating profit(loss) for the third quarter and first nine months of 1996
includes charges for certain contract reserves. Excluding these charges,
operating profit was $61 million and $185 million for the third quarter and
first nine months of 1996, respectively. The increase in operating profit
resulted from the profit contribution from new business as well as strong
ongoing program performance. Operating profit for the third quarter of 1995
included a program reserve which was offset by the benefit of a franchise tax
settlement.
LIQUIDITY AND FINANCIAL POSITION
In the first nine months of 1996, cash flow from operating activities of $360
million, proceeds from divestitures of $965 million and $77 million of other
items, were used primarily for capital expenditures of $276 million,
reacquisition of Common Stock of $257 million, dividend payments of $109 million
and repayment of debt of $99 million. As a result, cash and cash equivalents
increased by $661 million.
Total debt (short-term debt, the current portion of long-term debt and long-term
debt) was $652 million at September 30, 1996, compared to $751 million at
December 31, 1995. The ratio of total debt to total capital (total debt,
minority interests and shareholders' investment) at September 30, 1996 was 22
percent compared to 25 percent at December 31, 1995.
During the first nine months of 1996, 2,940,210 shares of TRW Common Stock were
repurchased for approximately $268 million, of which approximately $11 million
was settled in October.
During the first nine months 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 first nine months of 1996, the Company renegotiated the terms of
the 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
<PAGE> 13
$250 million. The revised agreement now extends through June 2001 and contains
lower commitment fees and borrowing rates.
Management believes that the current cash position, funds generated from
operations and existing borrowing capacity will be adequate to fund the
Company's current share repurchase program and support and finance planned
growth, capital expenditures, company-sponsored research and development
programs and dividend payments to shareholders.
Other Matters
- -------------
In the third quarter, 1996, the Company was advised by the Department of
Justice that it had been named as a defendant in two lawsuits brought by a
former employee and filed under seal under the QUI TAM provisions of the civil
False Claims Act. See "Other Contingencies" in the Notes to Financial
Statements for further information.
<PAGE> 14
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 related 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.
In early August, TRW paid Talley $139.9 million in satisfaction of
certain amounts due under the District Court judgment plus post-judgment
interest (as adjusted to reflect certain amounts previously paid to Talley or
otherwise due to TRW). On September 3, 1996, all remaining claims relating to
the litigation or otherwise existing between TRW and Talley were settled.
Pursuant to this settlement, TRW paid Talley an additional $16.6 million.
<PAGE> 15
Item 6. Exhibits And Reports On Form 8-K.
---------------------------------
(a) Exhibits:
2.1 Recapitalization Agreement, dated as of February 9, 1996, among IS&S
Acquisition Corp., and TRW Inc., TRW IS&S International, Inc.,
Information Systems and Services, Inc. (f/k/a TRW Environmental
Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and
IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.)
(Exhibit 2.1 to TRW Form 8-K Current Report dated October 4, 1996 is
incorporated by reference).
2.2 Amendment No. 1, dated June 17, 1996 to Recapitalization Agreement,
dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW
Inc., TRW IS&S International, Inc., Information Systems and Services,
Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company
Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target
Marketing Services, Inc.) (Exhibit 2.2 to TRW Form 8-K Current Report
dated October 4, 1996 is incorporated by reference).
2.3 Amendment No. 2, dated August 13, 1996 to Recapitalization Agreement,
dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW
Inc., TRW IS&S International, Inc., Information Systems and Services,
Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company
Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target
Marketing Services, Inc.) (Exhibit 2.3 to TRW Form 8-K Current Report
dated October 4, 1996 is incorporated by reference).
2.4 Amendment No. 3, dated September 18, 1996 to Recapitalization
Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp.,
and TRW Inc., TRW IS&S International, Inc., Information Systems and
Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel
Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW
Target Marketing Services, Inc.) (Exhibit 2.4 to TRW Form 8-K Current
Report dated October 4, 1996 is incorporated by reference).
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> 16
(b) Reports on Form 8-K for this quarter and filed through November 14, 1996:
Current Report on Form 8-K dated October 4, 1996.
Current Report on Form 8-K dated October 23, 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: November 14, 1996 By: /s/ Martin A. Coyle
----------------------------------------
Martin A. Coyle
Executive Vice President and Secretary
Date: November 14, 1996 By: /s/ Carl G. Miller
----------------------------------------
Carl G. Miller
Executive Vice President
and Chief Financial Officer
<PAGE> 17
FORM 10-Q
Quarterly Report for Quarter Ended September 30, 1996
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
2.1 Recapitalization Agreement, dated as of February 9, 1996, among IS&S
Acquisition Corp., and TRW Inc., TRW IS&S International, Inc.,
Information Systems and Services, Inc. (f/k/a TRW Environmental
Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and
IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.)
(Exhibit 2.1 to TRW Form 8-K Current Report dated October 4, 1996 is
incorporated by reference).
2.2 Amendment No. 1, dated June 17, 1996 to Recapitalization Agreement,
dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW
Inc., TRW IS&S International, Inc., Information Systems and Services,
Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company
Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target
Marketing Services, Inc.) (Exhibit 2.2 to TRW Form 8-K Current Report
dated October 4, 1996 is incorporated by reference).
2.3 Amendment No. 2, dated August 13, 1996 to Recapitalization Agreement,
dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW
Inc., TRW IS&S International, Inc., Information Systems and Services,
Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company
Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target
Marketing Services, Inc.) (Exhibit 2.3 to TRW Form 8-K Current Report
dated October 4, 1996 is incorporated by reference).
<PAGE> 18
2.4 Amendment No. 3, dated September 18, 1996 to Recapitalization
Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp.,
and TRW Inc., TRW IS&S International, Inc., Information Systems and
Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel
Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW
Target Marketing Services, Inc.) (Exhibit 2.4 to TRW Form 8-K Current
Report dated October 4, 1996 is incorporated by reference).
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> 1
Exhibit 11
TRW
COMPUTATION OF EARNINGS PER SHARE-UNAUDITED
(In Millions Except Per Share Amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
PRIMARY (A) 1996 1995
- ----------- --------- ---------
<S> <C> <C>
Earnings from continuing operations $ 72.4 $ 290.0
Less preference dividend requirements 0.5 0.5
--------- ---------
Earnings applicable to common shares
and common share equivalents 71.9 289.5
Earnings from discontinued operations 37.9 41.4
Gain on disposal of discontinued operations 242.4 n/a
--------- ---------
Net earnings applicable to common shares
and common share equivalents $ 352.2 $ 330.9
========= =========
Average common shares outstanding 129.6 130.4
Stock options and performance share rights, based on
the treasury stock method using average market price 2.9 2.7
--------- ---------
Average common shares and common share
equivalents 132.5 133.1
========= =========
Primary earnings per share from continuing operations $ 0.54 $ 2.17
Primary earnings per share from discontinued operations 0.29 0.32
Primary earnings per share from gain on disposal of
discontinued operations 1.83 n/a
--------- ---------
Primary earnings per share $ 2.66 $ 2.49
========= =========
FULLY DILUTED (B)
- -----------------
Earnings from continuing operations applicable
to common shares and common share equivalents $ 71.9 $ 289.5
Dividends assuming conversion of other
dilutive securities: (B)
Dilutive preference dividends 0.5 0.5
--------- ---------
Earnings from continuing operations applicable
to fully diluted shares 72.4 290.0
Earnings from discontinued operations 37.9 41.4
Gain on disposal of discontinued operations 242.4 n/a
--------- ---------
Net earnings applicable to fully diluted shares $ 352.7 $ 331.4
========= =========
Average common shares outstanding 129.6 130.4
Common shares assuming conversion of
other dilutive securities: (B)
Dilutive preference shares 1.1 1.2
Stock options and performance share rights,
based on the treasury stock method using
closing market price if higher than
average market price 3.2 2.7
--------- ---------
Average fully diluted shares 133.9 134.3
========= =========
Fully diluted earnings per share from continuing operations $ 0.54 $ 2.16
Fully diluted earnings per share from discontinued operations 0.28 0.31
Fully diluted earnings per share from gain on disposal
of discontinued operations 1.81 n/a
--------- ---------
Fully diluted earnings per share $ 2.63 $ 2.47
========= =========
<FN>
(A) In accordance with APB#15, the shares and per share amounts reflect a
two-for-one stock split (in the form of a 100% stock dividend) of the
company's common stock which is effective as of November 8, 1996.
(B) Assuming the conversion of the Serial Preference Stock II - Series 1 and
Series 3.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 720
<SECURITIES> 0
<RECEIVABLES> 1,467
<ALLOWANCES> 0
<INVENTORY> 517
<CURRENT-ASSETS> 2,843
<PP&E> 5,744
<DEPRECIATION> 3,373
<TOTAL-ASSETS> 5,938
<CURRENT-LIABILITIES> 2,268
<BONDS> 479
<COMMON> 80
0
0
<OTHER-SE> 2,144
<TOTAL-LIABILITY-AND-EQUITY> 5,938
<SALES> 7,406
<TOTAL-REVENUES> 7,406
<CGS> 6,331
<TOTAL-COSTS> 6,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 135
<INCOME-TAX> 62
<INCOME-CONTINUING> 73
<DISCONTINUED> 280
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 353
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.63
</TABLE>
<PAGE> 1
Exhibit 99
TRW Inc. and Subsidiaries
Computation of Ratio of Earnings
to Fixed Charges -- Unaudited
(In millions except ratio data)
<TABLE>
<CAPTION>
Nine months Years Ended December 31
ended ----------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income taxes $134.7 $625.5 $435.5 $289.2 $276.4 $ 6.4
(A) (B)
Unconsolidated affiliates (3.6) 1.3 (0.6) 0.7 (0.9) (1.0)
Minority earnings 8.5 10.8 7.7 1.4 0.1 (4.9)
Fixed charges excluding
capitalized interest 110.9 138.5 146.7 178.9 209.4 242.4
------ ------ ------ ------ ------ ------
Earnings $250.5 $776.1 $589.3 $470.2 $485.0 $242.9
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest expense $ 75.9 $ 94.7 $104.7 $137.4 $162.1 $188.4
Capitalized interest 2.4 5.1 6.6 7.9 12.7 10.1
Portion of rents representative
of interest factor 33.4 42.7 40.6 39.3 47.1 53.7
Interest expense of
unconsolidated affiliates 1.6 1.1 1.4 2.2 0.2 0.3
------ ------ ------ ------ ------ ------
Total fixed charges $113.3 $143.6 $153.3 $186.8 $222.1 $252.5
------ ------ ------ ------ ------ ------
Ratio of earnings to fixed
charges 2.2x 5.4x 3.8x 2.5x 2.2x 1.0x(A)
------ ------ ------ ------ ------ ------
<FN>
(A) The 1996 earnings from continuing operations before income taxes of $134.7
million includes a charge of $365 million as a result of actions taken in
the automotive and space and defense businesses. See "Special Charges"
note in the Notes to Financial Statements for further information.
(B) The 1991 earnings from continuing operations before income taxes of $6.4
million includes a charge of $164 million to cover costs associated with
divestment and restructuring activities. Excluding this charge, the ratio of
earnings to fixed charges would have been 1.6x.
</TABLE>
