<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): NOVEMBER 12, 1999
-----------------
TRW Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Ohio 1-2384 34-0575430
- ---------------- ------------------------ -------------------
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation)
1900 Richmond Road, Cleveland, Ohio 44124
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(216) 291-7000
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 5. Other Events
In a registration statement filed today with the Securities and
Exchange Commission on Form S-4, TRW Inc. made available unaudited pro
forma financial information related to its acquisition of LucasVarity
plc for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 and its unaudited balance sheet as of September 30,
1999. The financial information is included in Exhibit 99 to this
report, and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(b) Exhibits
99 Unaudited pro forma financial information as follows:
(i) Unaudited Pro Forma Statement of Operations for
the year ended December 31, 1998; and
(ii) Unaudited Pro Forma Statement of Operations for
the nine months ended September 30, 1999.
Unaudited Balance Sheet of TRW as of September 30,
1999.
2
<PAGE> 3
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 hereunto duly authorized.
TRW INC.
Date: November 12, 1999 By: /s/ William B. Lawrence
-----------------------------------
William B. Lawrence
Executive Vice President, General
Counsel and Secretary
3
<PAGE> 4
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
99 Unaudited pro forma financial information as follows:
(i) Unaudited Pro Forma Statement of Operations for
the year ended December 31, 1998; and
(ii) Unaudited Pro Forma Statement of Operations for
the nine months ended September 30, 1999.
Unaudited Balance Sheet of TRW as of September 30,
1999.
4
<PAGE> 1
Exhibit 99
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The unaudited pro forma statements of operations for the year ended
December 31, 1998 and for the nine months ended September 30, 1999 have been
prepared to illustrate the effect of the acquisition of LucasVarity plc as if
the acquisition had occurred on January 1, 1998 and January 1, 1999,
respectively. Synergies and expected cost savings from the integration of
LucasVarity with TRW's previously existing businesses have not been included in
the pro forma statements of operations.
The unaudited pro forma statement of operations presented for the year
ended December 31, 1998 includes the historical financial results for the year
ended December 31, 1998 for TRW and the year ended January 31, 1999 for
LucasVarity. The unaudited pro forma statement of operations for the nine months
ended September 30, 1999 includes the statement of operations for the nine
months ended September 30, 1999 for TRW, which includes LucasVarity operations
from the date of acquisition and the fourth quarter ended January 31, 1999 for
LucasVarity. Unusual and/or one-time items recorded for LucasVarity subsequent
to LucasVarity's year ended January 31, 1999 audited financial statements
through the date of disposition, March 25, 1999, included primarily the
investment banker fees of $21 million relating to TRW's acquisition of
LucasVarity. The historical statements of operations for LucasVarity have been
presented using U.S. Generally Accepted Accounting Principles, GAAP. The
statements were translated from British pounds to U.S. dollars using an average
exchange rate for the applicable period.
The unaudited pro forma statements of operations include the
adjustments, with a continuing impact, to reflect the transaction using purchase
accounting. The pro forma adjustments are described in the notes to the
unaudited pro forma statements of operations. The adjustments are based upon
preliminary information and certain management judgments. Certain
reclassifications have been reflected to conform to TRW's presentation. The
purchase accounting adjustments are subject to revisions which will be reflected
in future periods. Revisions, if any, are not expected to have a material effect
on the statement of operations or financial condition of TRW.
The unaudited pro forma statements of operations are presented for
illustrative purposes only and are not necessarily indicative of the results of
operations which may occur in the future, or that would have occurred if the
acquisition had been consummated on January 1, 1998 and January 1, 1999 for the
statements of operations for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, respectively. The unaudited pro forma
statements of operations should be read in conjunction with the consolidated
financial statements and notes thereto included in TRW's Annual Report on Form
10-K for the year ended December 31, 1998, as amended by Amendment No. 1 to that
report, filed November 10, 1999, the consolidated condensed unaudited financial
statements and the notes thereto included in TRW's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999 and the consolidated financial
statements and notes thereto of LucasVarity for the year ended January 31, 1999
included in TRW's Current Report on Form 8-K dated March 26, 1999, as amended on
May 17, 1999.
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
-------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TRW LUCASVARITY
HISTORICAL AS HISTORICAL AS PRO FORMA ADJUSTED
REPORTED REPORTED ADJUSTMENTS TRW
-------- -------- ----------- ---
<S> <C> <C> <C> <C>
Sales.......................................... $ 11,886 $ 7,088 $ (10)(a) $18,964
Cost of sales.................................. 9,715 5,542 93 (b) 15,350
-------- ------- ------ -------
Gross profit................................... 2,171 1,546 (103) 3,614
Administrative and selling expenses............ 826 495 -- (c) 1,321
Research and development expenses.............. 522 305 (62)(d) 765
Interest expense............................... 114 58 450 (f) 622
Amortization of goodwill and intangible
assets ..................................... 43 -- 88 (g) 131
Other expense (income)--net.................... (80) (180) (93)(h) (353)
-------- ------- ------ -------
Earnings from continuing operations before
income taxes................................ 746 868 (486) 1,128
Income taxes................................... 269 315 (182)(i) 402
-------- ------- ------ -------
Earnings from continuing operations............ $ 477 $ 553 $ (304) $ 726
======== ======= ====== =======
Per share of common stock
Diluted
From continuing operations................ $ 3.83 $ 5.84
Basic
From continuing operations................ $ 3.93 $ 5.98
Shares used in computing per share amounts
Diluted..................................... 124.4 124.4
Basic ...................................... 121.3 121.3
</TABLE>
See Notes to the Unaudited Pro Forma Statement of Operations
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<PAGE> 3
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TRW LUCASVARITY
HISTORICAL AS HISTORICAL AS PRO FORMA ADJUSTED
REPORTED REPORTED ADJUSTMENTS TRW
-------- -------- ----------- ---
<S> <C> <C> <C> <C>
Sales ............................................. $12,344 $ 1,733 $(107)(a) $13,970
Cost of sales...................................... 10,096 1,340 (53)(b) 11,383
------- ------- ----- -------
Gross profit....................................... 2,248 393 (54) 2,587
Administrative and selling expenses................ 824 123 (14)(c) 933
Research and development expenses.................. 502 81 (21)(d) 562
Purchased in-process research and development...... 85 -- (85)(e) --
Interest expense ................................. 334 10 106 (f) 450
Amortization of goodwill and intangible
assets.......................................... 81 -- 22 (g) 103
Other expense (income)--net........................ (13) (152) (53)(h) (218)
------- ------- ----- -------
Earnings from continuing operations before
income taxes.................................... 435 331 (9) 757
Income taxes....................................... 190 117 (35)(i) 272
------- ------- ----- -------
Earnings from continuing operations................ $ 245 $ 214 $ 26 $ 485
======= ======= ===== =======
Per share of common stock
Diluted
From continuing operations................... $ 1.99 $ 3.93
Basic
From continuing operations................... $ 2.03 $ 4.01
Shares used in computing per share amounts
Diluted......................................... 123.4 123.4
Basic .......................................... 120.7 120.7
</TABLE>
See Notes to the Unaudited Pro Forma Statement of Operations
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NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) Sales were adjusted to reflect the elimination of sales between TRW and
LucasVarity of $10 million for the year ended December 31, 1998, and $1
million for the nine months ended September 30, 1999. In addition,
Sales for the nine months ended September 30, 1999, were adjusted to
eliminate $106 million of LucasVarity sales included in the "TRW
Historical as Reported" amount for the period subsequent to the date of
acquisition, March 25, 1999, to March 31, 1999.
(b) Cost of sales is adjusted to reflect the net amount of the following
adjustments:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Elimination of LucasVarity Cost of sales included in the "TRW
Historical as Reported" amount for the period subsequent to the
date of acquisition, March 25, 1999,
to March 31, 1999....................................................... $ -- $(84)
Reclassification of restructuring cost reported in LucasVarity
historical accounts from Other expense (income)--net.................... 73 42
Reclassification of engineering expenses from Research
and development expenses to conform with TRW's presentation............. 62 21
Elimination of goodwill amortization reported in LucasVarity
historical amounts...................................................... (55) (12)
Additional depreciation resulting from the write-up of fixed assets
to fair value. The assets are depreciated over their estimated
useful lives, primarily from 8 to 20 years. The adjustment also
includes the reduction in earnings to reflect the adjustment of
the fair market value of inventory...................................... 32 --
Capitalization of entry fees associated with an investment for
aerospace partnering arrangements....................................... (17) (6)
Elimination of the cost and profit for sales between LucasVarity
and TRW ........................................................... (10) (1)
Adjustment for LucasVarity pension and OPEB expense to reflect
the actuarial valuation as of the acquisition date...................... 8 (13)
---- ----
$ 93 $(53)
==== ====
</TABLE>
(c) Elimination of LucasVarity Administrative and selling expenses of $14
million included in the "TRW Historical as Reported" amount for the
period subsequent to the date of acquisition, March 25, 1999, to March
31, 1999.
(d) Reclassification of $62 million and $21 million of engineering costs to
Cost of sales for the year ended December 31, 1998 and the nine months
ended September 30, 1999, respectively, to conform with TRW's
presentation.
(e) Elimination of the charge for Purchased in-process research and
development of $85 million in the nine months ended September 30, 1999
reported in connection with the acquisition of LucasVarity. Although
the charge is part of the purchase price allocation, it has been
excluded from the pro forma adjusted TRW amounts because it does not
have a continuing impact on the Statement of Operations.
(f) Interest expense is adjusted to reflect the net amount of the following
adjustments:
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<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Increase in interest expense to reflect the cash purchase
price of LucasVarity.................................................. $418 $ 93
Reclassification of LucasVarity's interest income to Other
expense (income)--net................................................. 32 13
---- ----
$450 $106
==== ====
</TABLE>
The interest expense increase to reflect the cash purchase price of
LucasVarity assumes that commercial paper of approximately $3.3 billion
is outstanding at an interest rate of 5.33% and approximately $3.5
billion of long-term debt is outstanding with an average interest rate
of 6.81%. The long-term debt assumes a blend of notes with maturities
of 5, 10, and 30 years. Interest expense also includes incremental
financing fees associated with the increase in leverage.
A 1/4% change in the commercial paper rates changes interest expense by
$8 million per year. The impact on earnings and earnings per share is
$5 million and $0.04, respectively.
(g) Amortization of goodwill and intangible assets is adjusted to reflect
the net amount of the following adjustments:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Amortization over 40 years of goodwill resulting from
the acquisition....................................................... $ 73 $ 17
Amortization of the fair value of identified intangibles over
their estimated useful lives from 5 to 30 years....................... 15 5
---- ----
$ 88 $ 22
==== ====
</TABLE>
(h) Other expense (income)--net is adjusted to reflect the net amount of
the following adjustments:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Reclassification of restructuring costs reported in LucasVarity's
historical accounts to Cost of sales.................................. $(73) $(42)
Reclassification of LucasVarity interest income from Interest
expense ......................................................... (32) (13)
Elimination of the LucasVarity gain on the formation of a joint
venture with TRW...................................................... 12 --
Elimination of LucasVarity Other expense (income)--net included
in the "TRW Historical as reported" amount for the period
subsequent to the date of acquisition, March 25, 1999,
to March 31, 1999..................................................... -- 2
---- ----
$(93) $(53)
==== ====
</TABLE>
(i) Reduction in income taxes of $182 million and $35 million for the
applicable tax effect of the before tax pro forma adjustments to the
statement of operations for the year ended December 31, 1998 and the
nine months ended September 30, 1999, respectively. For the year ended
December 31, 1998, the pro forma adjustments do not reflect a tax cost
of $20 million which would have occurred if TRW had acquired
LucasVarity as of January 1, 1998. The $20 million tax cost represents
unused
A-5
<PAGE> 6
foreign tax credits with the assumption that neither TRW nor
LucasVarity would have paid certain dividends from their respective
foreign subsidiaries.
Unusual and/or one-time special items included in the historical
statements of operations for TRW and LucasVarity for the year ended December 31,
1998 are set forth below.
-- an after-tax gain of $32 million from the settlement of patent
litigation by ICO Global Communications (Holdings) Limited with
TRW
-- an after-tax charge of $28 million for litigation, contract
reserves, and severance costs relating to the combination of
TRW's Systems Integration Businesses with BDM International,
Inc., a company acquired in 1997
-- an after-tax charge of $18 million for restructuring primarily
for plant closings and severance costs for TRW's Automotive
businesses
-- an after-tax benefit of $20 million for TRW's interest accrual
adjustment for tax litigation settlement
-- an after-tax charge for LucasVarity of $21 million for costs
incurred for its proposed change of domicile
-- an after-tax loss of $10 million recognized upon the termination
of LucasVarity's interest rate swap portfolio
-- net after-tax gains of $206 million relating to the sale of
businesses during the year, including LucasVarity's heavy vehicle
braking business
-- after-tax charges of $36 million for restructuring related to
LucasVarity's automotive businesses for the closure of two plants
and severance costs, the loss associated with the termination of
a product line within the aerospace business and fourth quarter
restructuring costs relating to the merger of Lucas Industries
and Varity Corporation.
Unusual and/or one-time special items included in the historical
statements of operations for TRW and LucasVarity for the nine months ended
September 30, 1999 are set forth below.
-- after-tax gains of $19 million from the issuance of stock by RF
Micro Devices, Inc., an affiliate of TRW, and $76 million
primarily from TRW's sale of stock of the affiliate
-- an after-tax charge of $51 million to reserve fully for TRW's
financial exposure to ICO Global Communications (Holdings)
Limited. ICO filed a voluntary reorganization petition during the
third quarter of 1999 and is operating its business under the
regulation of Chapter 11 of the U.S. Bankruptcy Code.
-- an after-tax charge of $28 million for TRW's losses from a
commercial fixed price contract and a capped cost reimbursable
contract for the U.S. Army
-- a non-recurring after-tax loss of $33 million on foreign currency
hedges relating to the acquisition of LucasVarity
-- an after-tax charge of $23 million for the underwriting and
participation fees incurred to secure committed credit facilities
and the cost of the unutilized credit line in anticipation of
TRW's acquisition of LucasVarity
-- an after-tax charge of $47 million for severance and other costs
relating to the restructuring of TRW's automotive businesses
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<PAGE> 7
-- a cost of $85 million, with no income tax benefit, for the
valuation of in-process research and development associated with
TRW's acquisition of LucasVarity. The cost is eliminated as a pro
forma adjustment
-- an after-tax charge of $13 million to reflect the adjustment of
the fair market value of inventory
-- an after-tax gain of $23 million to reflect the effect of
discontinuing the depreciation of assets of businesses held for
sale
-- an after-tax gain of $129 million principally related to the sale
of LucasVarity's heavy vehicle braking system business
-- an after-tax charge of $26 million for restructuring for the
automotive business of LucasVarity including the closure of two
plants and severance costs.
On May 17, 1999, TRW announced that it will divest its engine
businesses, which consist of TRW Engine Components and Lucas Diesel Systems
operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies. The
estimated net proceeds of $1.2 to $1.5 billion from these divestitures and, if
necessary, from sales of other non-revenue-producing assets will be applied to
reduce debt incurred to finance the acquisition of LucasVarity. The unaudited
pro forma statements of operations for the year ended December 31, 1998 and the
nine months ended September 30, 1999 included sales of approximately $2.0
billion and $1.3 billion, respectively, relating to the businesses to be sold.
The results of operations of the businesses to be divested will be reported in
Earnings from continuing operations up to the date of their disposition. TRW
believes that initial proceeds from asset sales will be realized beginning in
the fourth quarter and continuing into early 2000. Pro forma financial
information related to the proposed divestitures is not included as TRW does
not yet have a binding letter of intent or purchase and sale agreement on any
of the businesses being planned for divestiture. Until such definitive
documentation exists, the sale of these businesses is not considered probable.
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UNAUDITED BALANCE SHEET OF TRW AS OF SEPTEMBER 30, 1999
The following unaudited balance sheet of TRW includes the acquisition
of LucasVarity accounted for as a purchase. The September 30, 1999 unaudited
balance sheet of TRW includes the accounts of TRW and LucasVarity. The balance
sheet also reflects a preliminary purchase price allocation based upon the
estimated fair value of assets and liabilities as of the date of acquisition. A
pro forma balance sheet is not included as the unaudited balance sheet of TRW as
of September 30, 1999 includes LucasVarity.
ASSETS
TRW AS
REPORTED
--------
(IN MILLIONS)
Current assets
Cash and cash equivalents ............................... $ 294
Accounts receivable ..................................... 2,487
Inventories ............................................. 1,090
Prepaid expenses ........................................ 288
Net assets of acquired businesses held for sale ......... 822
Deferred income taxes ................................... 218
-------
Total current assets ....................................... 5,199
Property, plant, and equipment--on the basis of cost ....... 8,014
Less accumulated depreciation and amortization .......... 4,115
-------
Total property, plant and equipment--net ................... 3,899
Intangible Assets
Intangibles arising from acquisitions ................... 3,698
Other ................................................... 906
-------
4,604
Less accumulated amortization ........................... 222
-------
Total intangible assets--net ............................... 4,382
Investments in affiliated companies ........................ 288
Other notes and accounts receivable ........................ 283
Prepaid pension cost ....................................... 2,729
Other assets ............................................... 490
-------
$17,270
=======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Short-term debt ......................................... $ 2,828
Accounts payable ........................................ 1,530
Current portion of long-term debt ....................... 733
Other current liabilities ............................... 2,361
-------
Total current liabilities .................................. 7,452
Long-term liabilities ...................................... 1,614
Long-term debt ............................................. 5,530
Long-term deferred income taxes ............................ 581
Minority interests in subsidiaries ......................... 110
Shareholders' investment
Capital stock ........................................... 76
Other capital ........................................... 464
Retained earnings ....................................... 2,174
Treasury shares--cost in excess of par value ............ (567)
Accumulated other comprehensive (loss) .................. (164)
-------
Total shareholders' investment ............................. 1,983
-------
$17,270
=======
On May 17, 1999, TRW announced that it will divest its engine
businesses, which consist of TRW Engine Components and Lucas Diesel Systems
operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies. The
net operating assets of the LucasVarity businesses to be sold of $822 million as
of September 30, 1999 are included in the caption "Net assets of acquired
businesses held for
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<PAGE> 9
sale." The net assets of the TRW businesses to be sold are approximately $335
million and are reported in their respective balance sheet accounts.
PURCHASE PRICE ALLOCATION OF LUCASVARITY
The assets and liabilities of LucasVarity have been consolidated with
TRW based upon the fair value of assets and liabilities. During the second
quarter 1999, the valuation of LucasVarity employee benefit plans was completed
and pre-acquisition contingencies were adjusted along with the deferred tax
impact. A preliminary allocation of the cash purchase price of $6,778 million is
as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Cash and cash equivalents ............................................................... $ 774
Accounts receivable ....................................................................... 887
Inventory ................................................................................. 524
Net assets of businesses held for sale .................................................... 895
Other current assets ...................................................................... 247
-------
Total current assets ...................................................................... 3,327
Property, plant and equipment ............................................................. 1,302
Intangible assets ......................................................................... 506
Prepaid pension costs ..................................................................... 2,470
Other assets .............................................................................. 389
-------
Total assets .............................................................................. $ 7,994
=======
Accounts payable ......................................................................... $ (686)
Other accruals ............................................................................ (786)
Debt ...................................................................................... (938)
Long-term liabilities ..................................................................... (823)
Long-term deferred taxes .................................................................. (753)
-------
Total liabilities ......................................................................... $(3,986)
=======
Minority Interests ........................................................................ $ (39)
=======
Purchased in-process research and development ............................................. $ 85
=======
Excess of purchase price over fair value of net assets acquired ........................... $ 2,724
=======
</TABLE>
The purchase price allocation is preliminary and is subject to
adjustments for the final appraisal and resolution of preacquisition
contingencies, completion of TRW management's assessment of the recognition of
liabilities in connection with the LucasVarity purchase business combination in
accordance with EITF 95-3, and for the valuation of net assets of businesses
held for sale based upon the actual proceeds received from the sale of these
businesses. The adjustments, if any, are not expected to have a material effect
on TRW's results of operations or financial condition.
A-9
