<PAGE> 1
TRW
1998
SEC FORM 10-K
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
<TABLE>
<S> <C>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2384
TRW INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
OHIO 34-0575430
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1900 RICHMOND ROAD, CLEVELAND, OHIO 44124
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(216) 291-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, par value $0.625 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
Philadelphia Stock Exchange
Rights to Purchase Cumulative Redeemable New York Stock Exchange
Serial Preference Stock II, Series 4 Chicago Stock Exchange
Pacific Exchange
Philadelphia Stock Exchange
Cumulative Serial Preference Stock II, New York Stock Exchange
$4.40 Convertible Series 1
Cumulative Serial Preference Stock II, New York Stock Exchange
$4.50 Convertible Series 3
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates was $5,528,014,295 as of March 1, 1999. This
amount was computed on the basis of the closing price of the registrant's voting
securities included in the NYSE-Composite Transactions report for such date, as
published in the Midwest edition of The Wall Street Journal.
As of March 1, 1999 there were 120,070,384 shares of TRW Common Stock, $0.625
par value, outstanding.
The following documents have been incorporated herein by reference to the extent
indicated herein:
<TABLE>
<S> <C>
TRW Proxy Statement dated March 15, 1999 Part III
TRW Annual Report to Security Holders for the year
ended December 31, 1998 Parts I, II and IV
</TABLE>
<PAGE> 3
TRW INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAGE
PART I ----
<S> <C> <C>
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 7
Item 3. Legal Proceedings....................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders..................... 9
Executive Officers of the Registrant.............................................. 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 10
Item 6. Selected Financial Data................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............. 11
Item 8. Financial Statements and Supplementary Data............................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 11
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 12
Item 11. Executive Compensation.................................................. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 12
Item 13. Certain Relationships and Related Transactions.......................... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 12
</TABLE>
<PAGE> 4
PART I
ITEM 1. BUSINESS
INDUSTRY SEGMENTS AND PRODUCT CLASSIFICATIONS
TRW is an international company that provides advanced technology products and
services. The principal businesses of TRW and its subsidiaries are the design,
manufacture and sale of products and the performance of systems engineering,
research and technical services for industry and the United States Government in
two industry segments: Automotive and Space, Defense & Information Systems.
TRW's principal products and services include:
- automotive systems and components;
- spacecraft;
- software and systems engineering support services;
- electronic systems, equipment and services; and
- information technology.
TRW was incorporated under the laws of Ohio on June 17, 1916. When used in this
report, the terms "TRW" and the "Company" refer to TRW Inc., to TRW Inc. and its
subsidiaries or to a subsidiary of TRW Inc.
AUTOMOTIVE
TRW's Automotive segment designs, manufactures and sells a broad range of
steering, suspension, engine, safety, engineered fastening, electronic, and
other components and systems for passenger cars and commercial vehicles. These
products include:
- occupant restraint systems, including sensors, steering wheels,
airbag and seat belt systems;
- steering systems, including hydraulic and electrically assisted
power and manual rack and pinion steering for light vehicles, power
steering systems and suspension components for commercial vehicles;
- electrical and electronic controls, engineered fasteners and stud
welding systems; and
- engine valves and valve train parts.
TRW sells the products included in this industry segment primarily to automotive
original equipment manufacturers. In addition, TRW sells its automotive
components for use as aftermarket and service parts to automotive original
equipment manufacturers and others for resale through their own independent
distribution networks.
On January 28, 1999, TRW and LucasVarity plc announced that they had reached
agreement on the terms of a recommended cash tender offer to be made on behalf
of TRW to acquire the entire issued and to be issued share capital of
LucasVarity. Pursuant to the offer, which was approved by the Boards of
Directors of both companies, TRW will pay 288 pence for each Ordinary Share of
LucasVarity and pound sterling 28.80 for each American Depositary Share of
LucasVarity, each representing ten Ordinary Shares, for an aggregate value of
pound sterling 4.0 billion, or approximately $7.0 billion. The offer commenced
on February 6, 1999, and is currently scheduled to expire on March 25, 1999, at
5:00 p.m. New York City time (10:00 p.m. London time). The acquisition received
U.S. regulatory clearance by the Federal Trade Commission on February 13, 1999,
and was approved by the European Commission on March 11, 1999. The offer remains
contingent on valid acceptances being received with respect to no less than 90
percent of the total share capital outstanding or such lower percentage as TRW
may decide, provided such securities carry in the aggregate more than 50 percent
of the voting rights then normally exercisable at general meetings of
LucasVarity securityholders, and other customary closing conditions.
SPACE, DEFENSE & INFORMATION SYSTEMS
TRW's Space, Defense & Information Systems segment includes spacecraft;
electronic systems, equipment, components and services; systems integration,
systems engineering services and software development; and information
technology systems, products and services.
The Company's spacecraft activities include the design and manufacture of:
- spacecraft equipment;
- propulsion subsystems;
- electro-optical and instrument systems;
- spacecraft payloads;
- high-energy lasers and laser technology; and
- other high-reliability components.
1
<PAGE> 5
The Company's electronic systems, equipment, components and services include the
design and manufacture of:
- space communication systems;
- airborne reconnaissance systems;
- unmanned aerial vehicles;
- avionics systems;
- commercial telecommunications; and
- other electronic technologies for tactical and strategic
applications.
TRW's systems integration, systems engineering services and software development
are in the fields of:
- military command and control;
- strategic missiles;
- intelligence requirements management;
- public safety;
- modeling and simulation;
- training;
- telecommunications;
- image processing;
- earth observation;
- nuclear waste management;
- air traffic control;
- security and counterterrorism; and
- other high-technology systems.
The Company's information technology systems, products and services are focused
on:
- defense;
- health and human safety;
- integrated supply chain;
- warehousing;
- logistics;
- test and evaluation;
- criminal justice;
- tax systems modernization; and
- financial applications.
TRW sells and distributes its products and services in this industry segment
principally to the United States Government, agencies of the United States
Government, state, local and foreign governments and international and
commercial customers.
- TRW's spacecraft business involves the sale to the United States
Government of subsystems and components for space propulsion and
unmanned spacecraft for defense, scientific research and
communications purposes.
- The Company sells its software and systems engineering and
integration support services primarily to the United States
Government defense agencies and to federal, civilian and other state
and local governmental agencies. These services include a wide
variety of computer software systems and analytical services for
space and defense, air traffic control, and advanced communication
and data retrieval applications.
- Sales to the United States Government of electronic systems,
equipment and services consist of systems and subsystems for defense
and space applications, including communications, command and
control, guidance, navigation, electric power, sensing and
electronic display equipment.
- TRW sells its information technology systems, products and services
primarily to the United States Government, agencies of the United
States Government, state, local and foreign governments and
international and commercial customers.
While classified projects are not discussed in this report, the operating
results relating to classified projects are included in the Company's
consolidated financial statements, and the business risks associated with such
projects do not differ materially from those of other projects for the United
States Government.
TRW also performs diverse testing and general research projects in many of the
technical disciplines related to its space, defense and information systems
products and services under both private and United States Government contracts,
including several advanced defense system projects.
2
<PAGE> 6
RESULTS BY INDUSTRY SEGMENT
Reference is made to the information relating to the Company's industry
segments, including sales, segment profit before tax and segment assets
attributable to each segment for each of the years 1996 through 1998, presented
under the note entitled "Operating Segments" in the Notes to Financial
Statements on pages 57 through 59 of the TRW 1998 Annual Report. Such
information is incorporated herein by reference.
FOREIGN AND DOMESTIC OPERATIONS
TRW manufactures products or has facilities in 31 countries throughout the
world. TRW's operations outside the United States are in Australia, Austria,
Belgium, Brazil, Canada, China, the Czech Republic, France, Germany, India,
Italy, Japan, South Korea, Malaysia, the Marshall Islands, Mexico, the
Netherlands, Panama, Poland, Portugal, Saudi Arabia, Singapore, South Africa,
Spain, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela.
TRW also exports products manufactured by it in the United States. Such export
sales accounted for:
- 6 percent of total sales during 1998, or $674 million;
- 7 percent of total sales during 1997, or $732 million; and
- 8 percent of total sales during 1996, or $764 million.
TRW's foreign operations are subject to the usual risks that may affect such
operations, including, among other things:
- customary exchange controls and currency restrictions;
- currency fluctuations;
- changes in local economic conditions;
- exposure to possible expropriation or other government actions;
- unsettled political conditions; and
- foreign government-sponsored boycotts of the Company's products or
services for noncommercial reasons.
Most of the identifiable assets associated with TRW's foreign operations are
located in countries where the Company believes such risks to be minimal. Recent
economic conditions in the Asia Pacific region and Latin America, primarily
Brazil, have had a negative impact on the Company's operations. Future economic
conditions in these regions could have continued unfavorable effects in 1999.
Reference is made to the information relating to the dollar amounts of sales and
property, plant and equipment-net by geographic area for each of the years 1996
through 1998 presented under the note entitled "Operating Segments" in the Notes
to Financial Statements on pages 57 through 59 of the TRW 1998 Annual Report.
Such information is incorporated herein by reference.
GENERAL
COMPETITION
TRW encounters intense competition in substantially all segments of its
business. The Company's competitive position varies for its different products
and services. However, TRW believes that it is a significant supplier of many of
the products it manufactures and of many of the services it provides.
In the Automotive segment, competitors include independent suppliers of parts
and components as well as the Company's original equipment customers, many of
whom are integrated manufacturers who produce or could produce substantial
portions of their requirements for parts and components internally. Some of the
integrated manufacturers are becoming more aggressive in attempting to sell
components to other automotive manufacturers and have or are considering
spinning off all or a portion of their components operations which might also
make such operations more aggressive competitors. Depending on the particular
product, the number of the Company's competitors varies significantly and many
of the products have high capital requirements and require high engineering
content. In the Automotive segment, the principal methods of competition are:
- price;
- engineering excellence;
- product quality;
- customer service;
- delivery time; and
- proprietary position.
3
<PAGE> 7
TRW competes for contracts covering a variety of United States Government
projects and programs, principally in the Space, Defense & Information Systems
segment of its business. Such competition is based primarily on:
- technical ability;
- product quality; and
- price.
TRW's competitors for United States Government contracts typically are large,
technically-competent firms with substantial assets, some of which have become
considerably larger in recent years.
CUSTOMERS
Sales, directly and indirectly, to the United States Government, including the
Department of Defense, the National Aeronautics & Space Administration and other
agencies, represented the following portions of TRW's total sales:
- 35 percent for 1998, or $4,119 million;
- 33 percent for 1997, or $3,523 million; and
- 32 percent for 1996, or $3,121 million.
Sales, directly and indirectly, to the United States Government, including the
Department of Defense, the National Aeronautics & Space Administration and other
agencies, represented the following portions of the sales of the Space, Defense
& Information Systems segment:
- 88 percent in 1998, or $4,118 million;
- 93 percent in 1997, or $3,523 million; and
- 93 percent in 1996, or $3,120 million.
As with all companies engaged in United States Government contracting, TRW is
subject to certain unique business risks, including:
- dependence on Congressional appropriations and administrative
allotment of funds;
- changes in United States Government policies that may reflect
military and political developments;
- time required for design and development;
- significant changes in contract scheduling;
- complexity of designs and the rapidity with which they become
obsolete;
- necessity of design improvements;
- difficulty in forecasting costs and schedules when bidding on
developmental and highly sophisticated technical work; and
- other factors characteristic of the industry.
United States Government contracting laws also provide that the United States
Government is to do business only with responsible contractors. In this regard,
the United States Department of Defense and other federal agencies have the
authority, under certain circumstances, to suspend or debar a contractor or
organizational parts of a contractor from further United States Government
contracting for a certain period "to protect the Government's interest." Such
action may be taken for, among other reasons, commission of fraud or a criminal
offense in connection with a United States Government contract. A suspension may
also be imposed if a contractor is indicted for such matters. In the event of
any suspension or debarment, the Company's existing contracts would continue
unless terminated or canceled by the United States Government under applicable
contract provisions.
Other than the United States Government, TRW's largest customers (determined by
including sales to their affiliates throughout the world but excluding sales to
such customers or their affiliates that ultimately result in sales to the United
States Government) are Ford Motor Company, Volkswagen AG and General Motors
Corporation. Such sales by TRW's Automotive segment to Ford, Volkswagen and
General Motors, and their respective subsidiaries, accounted for the following
portions of sales of the Automotive segment:
- 20 percent, 13 percent and 9 percent, respectively, during 1998;
- 21 percent, 12 percent and 7 percent, respectively, during 1997; and
- 23 percent, 10 percent and 9 percent, respectively, during 1996.
Had Chrysler Corporation and Daimler Benz AG been combined as of January 1,
1998, sales by TRW's Automotive segment to the combined entity and its
subsidiaries would have accounted for 13 percent of the sales of the Automotive
segment in 1998.
4
<PAGE> 8
Such sales by TRW's Automotive segment to Ford and its subsidiaries accounted
for the following portions of TRW's total sales:
- 12 percent for 1998, or $1,423 million;
- 14 percent for 1997, or $1,469 million; and
- 15 percent for 1996, or $1,470 million.
BACKLOG
The backlog of orders for TRW's domestic operations, without options, is
estimated to have been approximately $6,010 million at December 31, 1998 and
$6,025 million at December 31, 1997. Of those amounts, United States Government
business, directly or indirectly, is estimated to have accounted for
approximately $5,119 million at December 31, 1998 and $5,469 million at December
31, 1997. Reported backlog at the end of 1998 does not include approximately
$6.6 billion of negotiated and priced, but unexercised, options for defense and
non-defense programs. Unexercised options at the end of 1997 were valued at $3.6
billion. The exercise of options is at the discretion of the customer and, in
the case of United States Government contracts, is dependent on future
government funding. Of the total domestic backlog, 96 percent at December 31,
1998 and 1997 was attributable to the Space, Defense & Information Systems
segment. Substantially all of the backlog attributable to United States
Government business is related to that segment.
The determination of TRW's backlog involves substantial estimating, particularly
with respect to customer requirements contracts and long-term contracts of a
cost-reimbursement or incentive nature. A substantial portion of the variations
in TRW's estimated backlog in recent years is attributable to the timing of the
award and performance of United States Government and certain other contracts.
Subject to various qualifications, including those set forth herein, and
assuming no terminations, cancellations or changes and completion of orders in
the normal course, TRW has estimated that approximately 49 percent of the
December 31, 1998 backlog will be delivered in 1999, 31 percent in 2000 and 20
percent thereafter.
United States Government contracts and related customer orders generally may be
terminated in whole or in part at the convenience of the United States
Government whenever the United States Government believes that such termination
would be in its best interest. Multi-year United States Government contracts and
related orders may be canceled if funds for contract performance for any
subsequent contract year become unavailable. If any of its United States
Government contracts were terminated or canceled under these circumstances, TRW
generally would be entitled to receive payment for work completed and allowable
termination or cancellation costs. Whether the occurrence of any such
termination or cancellation would have an adverse effect on TRW would depend
upon the particular contract and the circumstances of the termination or
cancellation.
Backlog data and comparisons as of different dates may not be reliable
indicators of either future sales or the ratio of future direct and indirect
United States Government sales to other sales.
INTELLECTUAL PROPERTY
TRW owns significant intellectual property, including a large number of patents,
copyrights and trade secrets, and is involved in numerous licensing
arrangements. Although TRW's intellectual property plays an important role in
maintaining TRW's competitive position in a number of the markets that it
serves, no single patent, copyright, trade secret or license, or group of
related patents, copyrights, trade secrets or licenses, is, in the opinion of
management, of such value to TRW that the business of TRW or of any industry
segment of TRW would be materially affected by the expiration or termination
thereof. TRW's general policy is to apply for patents on an ongoing basis in the
United States and appropriate other countries on its significant patentable
developments.
TRW also views its name and mark as significant to its business as a whole. In
addition, TRW owns a number of other trade names and marks applicable to certain
of its businesses and products that it views as important to such businesses and
products.
RESEARCH AND DEVELOPMENT
Research and development costs totaled:
- $2,143 million in 1998;
- $2,146 million in 1997; and
- $1,997 million in 1996.
5
<PAGE> 9
Of these amounts, customer-funded research and development was:
- $1,425 million in 1998;
- $1,501 million in 1997; and
- $1,425 million in 1996.
Company-funded research and development costs, which included research and
development for commercial products, independent research and development and
bid and proposal work related to government products and services, totaled:
- $522 million in 1998;
- $461 million in 1997; and
- $412 million in 1996.
A portion of the cost incurred for independent research and development and bid
and proposal work is recoverable through overhead charged to government
contracts. Company-funded product development costs, including engineering and
field support for new customer requirements, were:
- $196 million in 1998;
- $184 million in 1997; and
- $160 million in 1996.
The 1997 amounts exclude the $548 million charge for purchased in-process
research and development associated with the acquisition of BDM International,
Inc. Reference is made to the information concerning this charge in
"Management's Discussion and Analysis of the Results of Operations and Financial
Condition" under the caption "Acquisitions" on pages 31 and 32 of the TRW 1998
Annual Report. Such information is incorporated herein by reference.
EMPLOYEES
At December 31, 1998, TRW had approximately 78,000 employees, of whom
approximately 37,800 were employed in the United States.
RAW MATERIALS AND SUPPLIES
Materials used by TRW include or contain:
<TABLE>
<S> <C>
- steel - special alloys
- stainless steel - sodium azide
- pig iron - glass
- ferro-chrome - ceramics
- aluminum - plastic powders and laminations
- brass - carbon and plastic materials
- copper - synthetic rubber
- tin - paper
- platinum - gold, silver, nickel, zinc and copper plating materials
</TABLE>
TRW also purchases from suppliers various types of equipment and component parts
that may include such materials. TRW's operations depend upon the ability of its
suppliers of materials, equipment and component parts to meet performance and
quality specifications and delivery schedules. In some cases, there is only a
limited number of suppliers for a material or product due to the specialized
nature of the item. Shortages of certain raw materials, equipment and component
parts have existed in the past and may exist again in the future. TRW has taken
a number of steps to protect against and to minimize the effect of such
shortages. However, any future inability of TRW to obtain raw materials,
equipment or component parts could have a material adverse effect on the
Company. TRW's operations also depend on adequate supplies of energy. TRW has
continued its programs to conserve energy used in its operations and has made
available alternative sources of energy.
ENVIRONMENTAL REGULATIONS
Federal, state and local requirements relating to the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, have had and will continue to have an effect on TRW and its
operations. The Company has made and continues to make expenditures for projects
relating to the environment, including pollution control devices for new and
existing facilities. The Company is conducting a number of environmental
investigations and remedial actions at current and former Company locations to
comply with various federal, state and local laws and, along with other
6
<PAGE> 10
companies, has been named a potentially responsible party for certain waste
management sites. Each of these matters is subject to various uncertainties, and
some of these matters may be resolved unfavorably to the Company.
A reserve estimate reflecting cost ranges is established using standard
engineering cost estimating techniques for each matter for which sufficient
information is available. In the determination of cost ranges, the professional
judgment of the Company's environmental engineers, in consultation with outside
environmental specialists, when necessary, is considered. At multi-party sites,
the reserve estimate also reflects the expected allocation of total project
costs among the various potentially responsible parties. At December 31, 1998,
the Company had reserves for environmental matters of $64 million, including $7
million of additional accruals recorded during the year. The Company
aggressively pursues reimbursement for environmental costs from its insurance
carriers. Insurance recoveries are recorded as a reduction of environmental
costs when fixed and determinable.
The Company does not believe that compliance with environmental protection laws
and regulations will have a material effect upon its capital expenditures or
competitive position, and TRW's capital expenditures for environmental control
facilities during 1999 and 2000 are not expected to be material to the Company.
The Company believes that any liability that may result from the resolution of
environmental matters for which sufficient information is available to support
cost estimates will not have a material adverse effect on the Company's
earnings. However, the Company cannot predict the effect on the Company's
earnings of expenditures for aspects of certain matters for which there is
insufficient information. See also "Legal Proceedings" on the following page. In
addition, the Company cannot predict the effect on the Company's earnings of
compliance with environmental laws and regulations with respect to currently
unknown environmental matters or the possible effect on the Company's earnings
of compliance with environmental requirements imposed in the future.
CAPITAL EXPENDITURES -- PROPERTY, PLANT AND EQUIPMENT
During the five years ended December 31, 1998, TRW's capital expenditures and
the net book value of its assets retired or sold were:
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------------------
CAPITAL EXPENDITURES
-----------------------------------
LAND, NET BOOK
BUILDINGS MACHINERY VALUE OF
YEAR ENDED AND LEASEHOLD AND ASSETS RETIRED
DECEMBER 31, IMPROVEMENTS EQUIPMENT TOTAL OR SOLD
------------ ------------- --------- ----- --------------
<S> <C> <C> <C> <C>
1998................................... $92 $452 $544 $40
1997................................... 86 463 549 54
1996................................... 76 424 500 29
1995................................... 74 392 466 21
1994................................... 92 396 488 19
</TABLE>
On an industry segment basis, capital expenditures during 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------------
CAPITAL EXPENDITURES
YEAR ENDED ---------------------
DECEMBER 31, AUTOMOTIVE SD&IS
------------ ----------- ------
<S> <C> <C>
1998................................................... $390 $147
1997................................................... 390 156
</TABLE>
Of total capital expenditures, 52 percent in 1998 and 56 percent in 1997 were
invested in the United States.
ITEM 2. PROPERTIES
TRW's operations include numerous manufacturing, research and development and
warehousing facilities. TRW owns or leases principal facilities located in 21
states plus the District of Columbia in the United States and in 30 other
countries. Approximately 48 percent of the principal domestic facilities are
used by the Automotive segment and 52 percent are used by the Space, Defense &
Information Systems segment. The Automotive segment uses a substantial majority
of the foreign facilities.
The Company also owns or leases certain smaller research and development
properties and administrative, marketing, sales and office facilities throughout
the United States and in various parts of the world. In addition, TRW operates
7
<PAGE> 11
facilities on property owned directly or indirectly by the United States
Government. The Company owns its world headquarters in Lyndhurst, Ohio and the
headquarters for its Space & Electronics Group in Redondo Beach, California.
In the opinion of management, the Company's facilities are generally well
maintained and are suitable and adequate for their intended use.
Reference is made to the information concerning long-term rental obligations
under operating leases presented under the note entitled "Lease Commitments" in
the Notes to Financial Statements on page 54 of the TRW 1998 Annual Report. This
information is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
During 1996, the United States Department of Justice, or the DOJ, advised the
Company that it had been named as a defendant in two lawsuits brought by Richard
D. Bagley, a former employee of the Company's former Space & Technology Group,
and originally filed under seal in 1994 and 1995, respectively, in the United
States District Court for the Central District of California under the qui tam
provisions of the civil False Claims Act. The Act permits an individual to bring
suit in the name of the United States and share in any recovery. The allegations
in the lawsuits relate to the classification of costs incurred by the Company
that were charged to certain of its federal contracts. Under the law, the
government must investigate the allegations and determine whether it wishes to
intervene and take responsibility for the lawsuits. On February 13, 1998, the
DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, Bagley
filed amended complaints in the Central District of California that realleged
certain of the claims included in the 1994 and 1995 lawsuits and omitted the
remainder. The amended complaints allege that the United States has incurred
substantial damages and that the Company should be ordered to cease and desist
from violations of the civil False Claims Act and is liable for treble damages,
penalties, costs, including attorneys' fees, and such other relief as deemed
proper by the court. On March 17, 1998, the DOJ filed its complaint against the
Company upon intervention in the 1994 lawsuit, which set forth a limited number
of the allegations in the 1994 lawsuit and certain additional allegations. The
DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in
the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for
treble damages, penalties, interest, costs and "other proper relief." On March
18, 1998, Bagley withdrew the first amended complaint in the 1994 lawsuit at the
request of the DOJ. On May 18, 1998, the Company filed answers to Bagley's first
amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all
substantive allegations contained therein. At the same time, the Company filed
counterclaims against both Bagley and the federal government. On July 20, 1998,
both Bagley and the DOJ filed motions seeking to dismiss the Company's
counterclaims. On November 23, 1998 (entered as an Order on January 21, 1999),
the court dismissed certain counterclaims asserted against Bagley and the
federal government and took under advisement Bagley's motion to dismiss certain
other counterclaims. The Company cannot presently predict the outcome of these
lawsuits, although management believes that their ultimate resolution will not
have a material effect on the Company's financial condition or results of
operations.
On December 15, 1987, the Commissioner of the Indiana Department of
Environmental Management issued an Order to TRW and several other respondents
relating to alleged contamination of the public water supply in Shelbyville,
Indiana by, among other sources, two closed facilities that were formerly
operated by TRW's Connectors Division. The Order requires the respondents to
fund the relocation of the main well field for Shelbyville to a location that
can provide a safe source of potable water and to perform a remedial
investigation of the source and extent of contamination within a one-mile radius
of the well field. The Order also requires the respondents to pay civil
penalties of $25,000 per day for violations of law that allegedly occurred prior
to issuance of the Order. TRW has filed a petition for review of the Order. The
Order is not expected to have a material effect on the Company's financial
position.
TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company, has
reported to the Arizona Department of Environmental Quality, or ADEQ, potential
violations of the Arizona hazardous waste law at its Queen Creek, Arizona
facility for the possible failure to properly label and dispose of wastewater
that might be classified as hazardous waste. ADEQ is conducting an investigation
into these potential violations and the Company is cooperating with the
investigation. If ADEQ initiates proceedings against the Company with respect to
such matters, the Company could be liable for penalties and fines and other
relief. The Arizona State Attorney General also is investigating matters, and
federal, civil and criminal governmental investigations with respect to these
potential violations are ongoing. Management is currently evaluating this matter
and is unable to make a meaningful estimate of the amount or range of possible
liability, if any, at this time, although management believes that the Company
would have meritorious defenses.
On July 21, 1997, the United States Environmental Protection Agency, or EPA,
issued a notice of violation to the Company under the Clean Air Act with respect
to air emissions at the former Izumi Industries, Corporation, Inc. facility in
Yaphank, New York. TRW acquired this facility in November 1996. The EPA informed
TRW that the New York State Department of Environmental Conservation, or DEC,
would be the lead agency in this action. On August 15, 1997, the DEC commenced
an administrative enforcement action against the Company under the New York
Environmental
8
<PAGE> 12
Conservation Law with respect to such emissions. On September 11, 1997, the
Company agreed to an Order of Consent with the DEC, pursuant to which the
Company has paid a $300,000 civil penalty to the DEC and has initiated certain
specified actions to bring the facility into compliance with applicable
regulatory standards relating to air emissions. These matters are not expected
to have a material effect on TRW's financial position. TRW is seeking
reimbursement from Izumi Industries, Corporation, Inc. for the costs arising
from the Order of Consent.
In 1992, Vinnell Mining & Minerals Corporation and Atlas Corporation, an
unrelated third party, entered into a Consent Decree with the United States
Environmental Protection Agency with respect to an operable unit of the Atlas
Asbestos Mine Superfund site in Fresno County, California. Vinnell Mining &
Minerals Corporation is a wholly-owned indirect subsidiary of BDM International,
Inc. that was acquired by the Company in December 1997. The Consent Decree
provides, among other things, for the remediation of the site and reimbursement
of oversight costs upon submission of appropriate documentation to Vinnell and
Atlas. On March 31, 1998, Vinnell and Atlas filed a Motion to Enforce the
Consent Decree in the U.S. District Court for the Eastern District of California
to obtain judicial review of the oversight cost documentation requirements. On
April 6, 1998, the EPA issued a Statement of Decision stating that Vinnell and
Atlas must pay the contested oversight costs, plus interest. The EPA has also
taken the position that Vinnell and Atlas are subject to stipulated daily
penalties under the Consent Decree as of March 20, 1998. The Consent Decree
provides for maximum daily penalties of up to $6,250. Management believes that
the ultimate resolution of this matter will not have a material effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages of and the positions and offices held by, each person designated
an executive officer of the Company as of March 1, 1999, together with the
offices held by each such person during the last five years, are listed below.
Each executive officer is elected annually and, unless the executive officer
resigns or terminates employment with the Company or is removed from office by
action of the Company's Directors, will hold office for the ensuing year or
until a successor is elected in accordance with the Company's Regulations.
<TABLE>
<CAPTION>
POSITIONS AND BUSINESS EXPERIENCE
NAME AGE DURING THE PAST FIVE YEARS
---- --- ---------------------------------
<S> <C> <C>
B. Blankenstein 60 Executive Vice President and General Manager, TRW
Automotive, Europe and General Manager, TRW's Engine
Components product line (1999 to the present)
Executive Vice President and General Manager, TRW
Steering, Suspension & Engine Group (1996 - 1998)
Managing Director, TRW Deutschland GmbH (1995 - 1996)
Vice President and General Manager, TRW's Global Engine
Components business (1994 - 1996)
Managing Director, TRW Motorkomponenten GmbH & Co. KG
(1991 - 1995)
J. T. Gorman 61 Chairman of the Board and Chief Executive Officer (1988
to the present) and Director (1984 to the present)
T. W. Hannemann 56 Executive Vice President and General Manager, TRW Space
& Electronics Group (1993 to the present)
H. V. Knicely 62 Executive Vice President, Human Resources and
Communications (1995 to the present)
Executive Vice President, Human Resources,
Communications & Information Resources (1989 - 1994)
W. B. Lawrence 54 Executive Vice President, General Counsel and Secretary
(1997 to the present)
Executive Vice President, Planning, Development &
Government Affairs
(1989 - 1997)
C. G. Miller 56 Executive Vice President and Chief Financial Officer
(1996 to the present)
Executive Vice President, Chief Financial Officer and
Controller (1996)
Vice President and Controller (1990 - 1996)
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
POSITIONS AND BUSINESS EXPERIENCE
NAME AGE DURING THE PAST FIVE YEARS
---- --- ---------------------------------
<S> <C> <C>
P. A. Odeen 63 Executive Vice President and General Manager, TRW
Systems & Information Technology Group (1998 to the
present)
President, Chief Executive Officer and Director, BDM
International, Inc.
(1992 - 1997)
J. S. Remick 60 Executive Vice President and General Manager, TRW
Automotive (1999 to the present)
Executive Vice President and General Manager, TRW
Occupant Restraint Systems Group (1996 - 1998)
Executive Vice President and General Manager, TRW
Steering, Suspension & Engine Group (1995 - 1996)
Vice President and Deputy General Manager, Automotive
(1995)
Vice President and General Manager, TRW Steering &
Suspension Systems, North and South America
(1991 - 1995)
P. Staudhammer 65 Vice President, Science & Technology (1993 to the
present)
J. P. Stenbit 58 Executive Vice President, TRW Telecommunications (1998
to the present)
Executive Vice President and General Manager, TRW
Systems Integration Group (1994 - 1997)
R. D. Sugar 50 Executive Vice President (1999 to the present)
Executive Vice President and General Manager, TRW
Automotive Electronics Group (1996 to 1998)
Executive Vice President and Chief Financial Officer
(1994 - 1996)
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reference is made to the information set forth in the table presented under
"Stock Prices and Dividends (Unaudited)" on page 61 of the TRW 1998 Annual
Report and to the information presented under the note entitled "Debt and Credit
Agreements" in the Notes to Financial Statements on pages 52 and 53 of the TRW
1998 Annual Report. The information contained in such table and the information
contained in the second-to-last paragraph of text in such note to financial
statements are incorporated herein by reference.
The Company's Common Stock is traded principally on the New York Stock Exchange
and is also traded on the Chicago, Pacific, Philadelphia, London and Frankfurt
exchanges.
On March 1, 1999, there were 24,317 shareholders of record of the Company's
Common Stock.
10
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales................................................. $11,886 $10,831 $9,857 $9,568 $8,491
Earnings (loss) from continuing operations before
cumulative effect of accounting changes............. 477 (49) 182 395 277
Per share of Common Stock:
Diluted earnings-- continuing operations............ 3.83 (.40) 1.37 2.94 2.09
Basic earnings--continuing operations................. 3.93 (.40) 1.41 3.02 2.14
Cash dividends declared............................... 1.28 1.24 1.17 1.05 .985
Total assets.......................................... 7,169 6,410 5,899 5,670 5,435
Long-term debt........................................ 1,353 1,117 458 539 693
Shares used in computing per share amounts:
Diluted............................................. 124.4 123.7 132.8 134.4 132.9
Basic............................................... 121.3 123.7 128.7 130.6 129.2
</TABLE>
In 1997, earnings (loss) from continuing operations include a $548 million,
$4.43 per share, one-time noncash charge related to in-process research and
development associated with the acquisition of BDM.
In 1996, the Company recorded special charges of $202 million after tax, $1.52
per share, primarily for actions taken, in part, to enhance the Company's
competitiveness. Also during 1996, the Company 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,"
resulting in the recognition of $50 million after tax, $0.38 per share, of
impairment losses which were primarily a result of technological changes and the
decision to close certain facilities in the Automotive segment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information presented under the heading "Management's
Discussion and Analysis of the Results of Operations and Financial Condition" on
pages 28 through 37 of the TRW 1998 Annual Report. Such information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information presented under the heading "Management's
Discussion and Analysis of the Results of Operations and Financial Condition" on
pages 28 through 37 of the TRW 1998 Annual Report. Reference is also made to the
information presented under the heading "Summary of Significant Accounting
Policies" in the Notes to Financial Statements on pages 43 through 45 of the TRW
1998 Annual Report. Such information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements headed "Statements of Earnings,"
"Balance Sheets," "Statements of Cash Flows" and "Statements of Changes in
Shareholders' Investment," and the accompanying notes thereto, on pages 39
through 59 of the TRW 1998 Annual Report. Reference is also made to the
information included in the table presented under the heading "Quarterly
Financial Information (Unaudited)" on page 60 of such report. Such statements,
the accompanying notes and such table are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information relating to TRW's Directors which is
presented under the heading "Board of Directors" on pages 4 through 7 of the TRW
Proxy Statement dated March 15, 1999, as filed with the Securities and Exchange
Commission. Reference is made to the information relating to Section 16(a)
compliance which is presented under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 27 of the TRW Proxy Statement. Such
information is incorporated herein by reference.
See the information presented in Part I of this Report under the heading
"Executive Officers of the Registrant" for information relating to TRW's
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information presented under the heading "Compensation
of Executive Officers" on pages 12 through 22 of the TRW Proxy Statement.
Reference is also made to the information presented under the heading "Director
Compensation" on pages 10 and 11 of the TRW Proxy Statement. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information presented under the heading "Management
Ownership of Shares" on pages 11 and 12 of the TRW Proxy Statement. Reference is
also made to the information presented under the caption "Outstanding
Securities" on pages 26 and 27 of the TRW Proxy Statement. Such information is
incorporated herein by reference.
There are no agreements or arrangements known to TRW that might, at a subsequent
date, result in a change in control of TRW.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information presented under the heading "Director
Compensation" on pages 10 and 11 of the TRW Proxy Statement. Such information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
(1) FINANCIAL STATEMENTS
The following financial statements of the registrant and its
subsidiaries included in the TRW 1998 Annual Report are incorporated
herein by reference:
Statements of Earnings -- Years ended December 31, 1998, 1997 and
1996 (page 39)
Balance Sheets -- December 31, 1998 and 1997 (page 40)
Statements of Cash Flows -- Years ended December 31, 1998, 1997 and
1996 (page 41)
Statements of Changes in Shareholders' Investment -- Years ended
December 31, 1998, 1997 and 1996 (page 42)
Notes to Financial Statements -- (pages 43 -- 59)
(2) FINANCIAL STATEMENT SCHEDULES
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are not applicable and, therefore,
have been omitted.
Financial statements and summarized financial information of
unconsolidated subsidiaries and 50% or less owned persons accounted for
by the equity method have been omitted because such subsidiaries and
persons, considered individually or in the aggregate, do not constitute
a significant subsidiary.
12
<PAGE> 16
(3) EXHIBITS
<TABLE>
<C> <S>
2(a) Offer to Purchase dated February 6, 1999 (Exhibit (a)(1) to TRW's
Schedule 14D-1 dated February 5, 1999, is incorporated herein by
reference).
2(b) Form of Irrevocable Undertakings executed by each director of
LucasVarity plc (Exhibit (c)(1) to TRW's Schedule 14D-1 dated February
5, 1999, is incorporated herein by reference).
2(c) Break-up Fee Agreement, dated January 28, 1999 between TRW and
LucasVarity plc (Exhibit (c)(2) to TRW's Schedule 14D-1 dated February
5, 1999, is incorporated herein by reference).
3(a) Amended Articles of Incorporation as amended May 5, 1997 (Exhibit 3(a)
to TRW Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, is incorporated herein by reference).
3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual
Report on Form 10-K for the year ended December 31, 1980, is
incorporated herein by reference).
4(a) Rights Agreement dated as of April 24, 1996 between TRW Inc. and
National City Bank, as Rights Agent (Exhibit 1 to TRW Form 8-A
Registration Statement dated April 25, 1996, is incorporated herein by
reference).
4(b) Indenture between TRW Inc. and The Chase Manhattan Bank (National
Association), as successor Trustee, dated as of May 1, 1986 (Exhibit 2
to TRW Form 8-A Registration Statement dated July 3, 1986, is
incorporated herein by reference).
4(c) First Supplemental Indenture between TRW Inc. and The Chase Manhattan
Bank (National Association), as successor Trustee, dated as of July
26, 1989 (Exhibit 4(b) to TRW Form S-3 Registration Statement, File
No. 33-30350, is incorporated herein by reference).
4(d) Distribution Agreement, dated April 13, 1998, between TRW Inc. and
each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and
J.P. Morgan Securities Inc., regarding $1,000,000,000 Medium-Term
Notes, Series D, due nine months or more from the date of issuance
(Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated April 13,
1998, is incorporated herein by reference).
4(e) Form of Medium Term Note, Series D (Exhibit 4 to TRW Inc.'s Current
Report on Form 8-K dated April 13, 1998, is incorporated herein by
reference).
*10(a) 1979 Stock Option Plan as amended April 28, 1982 (Exhibit A to TRW
Proxy Statement dated March 18, 1982, is incorporated herein by
reference).
*10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report on
Form 10-K for the year ended December 31, 1989, is incorporated herein
by reference).
*10(c) TRW Executive Health Care Plan as amended and restated effective
August 1,1995 (Exhibit 10(c) to TRW Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference).
*10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated March
19, 1984, is incorporated herein by reference).
*10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement
dated March 17, 1989, is incorporated herein by reference).
*10(f) 1994 TRW Long-Term Incentive Plan as amended and restated effective
February 4, 1997 (Exhibit 10(f) to TRW Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by
reference).
*10(g) 1997 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement
dated March 12, 1997, is incorporated herein by reference).
*10(h) Amendment dated as of December 9, 1998 to 1997 TRW Long-Term Incentive
Plan.
*10(i) Form of Strategic Incentive Grant (Exhibit 10(h) to TRW Annual Report
on Form 10-K for the year ended December 31, 1996, is incorporated
herein by reference).
*10(j) Form of U.S. Nonqualified Stock Option Agreement (Exhibit 10(i) to TRW
Annual Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference).
*10(k) Form of U.S. Transferable Nonqualified Stock Option Agreement (Exhibit
10(j) to TRW Annual Report on Form 10-K for the year ended December
31, 1997, is incorporated herein by reference).
*10(l) Form of Director Transferable Nonqualified Stock Option Agreement
(Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference).
*10(m) Form of Stock Option Agreement Qualified under the laws of France.
</TABLE>
13
<PAGE> 17
<TABLE>
<C> <S>
*10(n) Deferred Compensation Plan for Non-Employee Directors of TRW Inc.
dated July 1, 1997 (Exhibit 10(d) to TRW Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, is incorporated herein by
reference).
*10(o) TRW Directors' Pension Plan as amended and restated effective August
1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for the year
ended December 31, 1990, is incorporated herein by reference).
*10(p) Amendment to the TRW Directors' Pension Plan (as Amended and Restated
Effective August 1, 1990) effective June 30, 1997 (Exhibit 10(n) to
TRW Annual Report on Form 10-K for the year ended December 31, 1997,
is incorporated herein by reference).
*10(q) Form of Amended and Restated Employment Continuation Agreements with
executive officers (Exhibit 10(k) to TRW Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated herein by
reference).
*10(r) TRW Inc. Deferred Compensation Plan (as Amended and Restated Effective
January 1, 1999).
*10(s) TRW Benefits Equalization Plan (as Amended and Restated Effective
January 1, 1999).
*10(t) TRW Supplementary Retirement Income Plan (as Amended and Restated
Effective January 1, 1999).
*10(u) TRW Inc. Key Executive Life Insurance Plan dated as of February 7,
1996 (Exhibit 10(v) to TRW Annual Report on Form 10-K for the year
ended December 31, 1995, is incorporated herein by reference).
*10(v) TRW Inc. Financial Counseling Program (Exhibit 10(w) to TRW Annual
Report on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference).
10(w) Three Year Revolving Credit Agreement dated July 1, 1992 among TRW
Inc. and various financial institutions (Exhibit 19.1 to TRW Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992, is
incorporated herein by reference).
10(x) Amendment dated June 30, 1993 to Three Year Revolving Credit Agreement
dated July 1, 1992 among TRW Inc. and various financial institutions
(Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, is incorporated herein by reference).
10(y) Amendment dated as of March 1, 1994 to Three Year Revolving Credit
Agreement dated July 1, 1992 among TRW Inc. and various financial
institutions (Exhibit 10(cc) to TRW Annual Report on Form 10-K for the
year ended December 31, 1993, is incorporated herein by reference).
10(z) Amendment dated February 28, 1995 to Multi-Year Revolving Credit
Agreement (formerly entitled Three Year Revolving Credit Agreement)
dated July 1, 1992 among TRW Inc. and various financial institutions
(Exhibit 10(u) to TRW Annual Report on Form 10-K for the year ended
December 31, 1994, is incorporated herein by reference).
10(aa) Amendment dated May 8, 1996 to Multi-Year Revolving Credit Agreement
(formerly entitled Three Year Revolving Credit Agreement) dated July
1, 1992 among TRW Inc. and various financial institutions (Exhibit
10(y) to TRW Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference).
10(bb) Amendment to Multi-Year Revolving Credit Agreement (as Amended and
Restated as of May 8, 1996), dated as of August 7, 1997 among TRW Inc.
and various financial institutions (Exhibit 10(a) to TRW Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, is
incorporated herein by reference).
*10(cc) Consulting Agreement dated September 18, 1997 between TRW Inc. and
G.H. Heilmeier (Exhibit 10(b) to TRW Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, is incorporated herein by
reference).
*10(dd) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and
Restated Effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference).
10(ee) Revolving Credit Agreement dated as of December 10, 1997 among TRW
Inc. and various financial institutions (Exhibit 10(ee) to TRW Annual
Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference).
10(ff) Amendment dated as of December 8, 1998 to Revolving Credit Agreement
dated as of December 10, 1997 among TRW Inc. and various financial
institutions.
</TABLE>
14
<PAGE> 18
<TABLE>
<C> <S>
*10(gg) Employment Agreement dated as of November 20, 1997 between TRW Inc.
and Philip A. Odeen (Exhibit 10(ff) to TRW Annual Report on Form 10-K
for the year ended December 31, 1997, is incorporated herein by
reference).
*10(hh) Form of 1998-2000 Strategic Incentive Program Grant (Exhibit 10(gg) to
TRW Annual Report on Form 10-K for the year ended December 31, 1997,
is incorporated herein by reference).
10(ii) Amended and Restated Credit Agreement dated as of January 27, 1999,
and amended and restated as of February 26, 1999, among TRW and
various financial institutions (Exhibit (b)(2) to TRW's Schedule
14D-1/A dated March 2, 1999, is incorporated herein by reference).
12 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. 33-32870, filed September 20, 1991, No.
33-61711, filed August 10, 1995, No. 333-43931, filed January 8, 1998
and No. 333-48443, filed March 23, 1998).
13 Portions of the TRW Annual Report to Security Holders for the year
ended December 31, 1998 incorporated herein by reference.
21 Subsidiaries of the Registrant.
23(a) Consent of Independent Auditors.
23(b) Consent of Independent Auditors (with respect to financial statements
of The TRW Canada Stock Savings Plan).
24(a) Power of Attorney.
24(b) Certified Resolutions.
27 Financial Data Schedule.
99(a) Financial Statements of The TRW Canada Stock Savings Plan for the year
ended December 31, 1998.
Certain instruments with respect to long-term debt have not been filed
as exhibits as the total amount of securities authorized under any one
of such instruments does not exceed 10 percent of the total assets of
the registrant and its subsidiaries on a consolidated basis. The
registrant agrees to furnish to the Commission a copy of each such
instrument upon request.
* Management contract, compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this report.
</TABLE>
(b) REPORTS ON FORM 8-K
None.
15
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRW Inc.
Date: March 19, 1999
By /s/ WILLIAM B. LAWRENCE
----------------------------------
William B. Lawrence,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
J. T. GORMAN* Chairman of the Board, March 19, 1999
Chief Executive Officer
and Director
C. G. MILLER* Executive Vice President and March 19, 1999
Chief Financial Officer
T. A. CONNELL* Vice President and Controller March 19, 1999
M. H. ARMACOST* Director March 19, 1999
M. FELDSTEIN* Director March 19, 1999
R. M. GATES* Director March 19, 1999
C. H. HAHN* Director March 19, 1999
G. H. HEILMEIER* Director March 19, 1999
K. N. HORN* Director March 19, 1999
E. B. JONES* Director March 19, 1999
W. S. KISER* Director March 19, 1999
D. B. LEWIS* Director March 19, 1999
J. T. LYNN* Director March 19, 1999
L. M. MARTIN* Director March 19, 1999
R. W. POGUE* Director March 19, 1999
</TABLE>
William B. Lawrence, by signing his name hereto, does hereby sign and execute
this report on behalf of each of the above-named officers and Directors of TRW
Inc., pursuant to a power of attorney executed by each of such officers and
Directors and filed with the Securities and Exchange Commission as an exhibit to
this report.
March 19, 1999
*By /s/ WILLIAM B. LAWRENCE
-------------------------------
William B. Lawrence,
Attorney-in-fact
16
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
Shareholders and Directors
TRW Inc.
We have audited the consolidated financial statements of TRW Inc. and
subsidiaries listed in Item 14(a)(1) of the annual report on Form 10-K of TRW
Inc. for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TRW Inc. and
subsidiaries at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 19, 1999
F-1
<PAGE> 1
Exhibit 10(h)
AMENDMENT TO THE
1997 TRW LONG-TERM INCENTIVE PLAN
The 1997 TRW Long-Term Incentive Plan is hereby amended, effective December 9,
1998, by adopting the Rules of the TRW Stock Option Plan for French Employees
set forth below as a sub-plan to the 1997 TRW Long-Term Incentive Plan:
RULES OF THE TRW STOCK OPTION PLAN FOR FRENCH EMPLOYEES
1. INTRODUCTION
The shareholders of TRW Inc. (the "Company") have established the 1997
Long-Term Incentive Plan (the "Plan") for the benefit of certain
employees of the Company and its subsidiaries, including its
subsidiaries organized under the laws of France of which the Company
holds directly or indirectly at least 10% of the capital stock (the
"Subsidiaries"). Section 3 of the Plan specifically authorizes the
Committee to establish such rules for the proper administration of the
Plan, as the Committee deems advisable. The Committee has determined
that it is advisable to, and it intends to, establish a sub-plan for
the purposes of permitting Options granted under the Plan to employees
of the Subsidiaries residing in France to qualify for favorable local
tax and social treatment in France applicable to Options granted under
the Law 70-1322 of December 31, 1970, as subsequently amended. The
terms of the Plan, as adopted on April 30, 1997, and the Stock Option
Agreement pursuant to which Options are granted to Participants, each
of which is incorporated by reference herein, shall, together with the
following rules, constitute the TRW Stock Option Plan for employees of
the Subsidiaries residing in France (the "French Plan").
2. DEFINITIONS
Terms used in the French Plan shall have the same meanings as set forth
in the Plan. The term "Option" shall include both:
a. purchase options, or rights to acquire Shares repurchased by the
Company prior to the grant of said options; and
b. subscription options, or rights to subscribe newly issued Shares.
<PAGE> 2
3. ENTITLEMENT TO PARTICIPATE
Any individual who is an employee of a Subsidiary shall be eligible to
receive Options under the French Plan, provided that he or she also
satisfies the eligibility requirements of the Plan. Options may not be
issued under the French Plan to employees or executives owning more
than ten percent of the Company's capital shares at the time the Option
is granted or to individuals other than employees and corporate
executives of the Subsidiary.
4. GRANT OF OPTIONS UNDER THE FRENCH PLAN
Subscription options may be granted pursuant to the French Plan for the
lesser of (a) five years from the date the French Plan is adopted by
the Committee and (b) so long as shares remain available for the grant
of Options under the Plan.
5. TRANSFERABILITY
Options granted pursuant to the French Plan are not transferable other
than by will or the laws of descent and distribution and shall be
exercised during the Participant's lifetime only by the Participant or
his or her guardian or legal representative.
6. OPTION PRICE
The Committee shall fix the exercise price per Share payable pursuant
to Options issued hereunder on the date the Option is granted. In no
event shall the exercise price per Share be less than the greater of:
a. with respect to purchase options over the Shares, the higher
of either ninety-five percent of the average quotation price
of such Shares on the New York Stock Exchange, Inc. during the
twenty days of trading immediately preceding the grant date or
ninety-five percent of the average purchase price of the
Shares held by the Company to implement the Plan;
b. with respect to subscription options over the Shares,
ninety-five percent of the average quotation price of such
Shares on the New York Stock Exchange, Inc. during the twenty
days of trading immediately preceding the grant date; and
c. the Fair Market Value of the Shares covered by the Option on
the grant date.
2
<PAGE> 3
7. EXERCISE OF AN OPTION
Upon exercise of an Option, the full exercise price must be paid in the
manner permitted by the terms of the Plan or the Stock Option Agreement
pursuant to which such Options were granted.
The Shares acquired upon exercise of an Option will be recorded in an
account in the name of the shareholder.
8. CHANGES IN CAPITALIZATION
In compliance with French law, the exercise price shall not be modified
during the term of the Option. Adjustments to the Option exercise price
or number of Shares subject to an Option issued hereunder shall be made
to preclude the dilution or enlargement of benefits under such Option
only in the case of one of more of the following transactions by the
Company:
a. an increase of corporate capital by cash contribution;
b. an issuance of convertible or exchangeable bonds;
c. an increase of corporate capital giving rise to the
allocation of additional Shares;
d. a capitalization of retained earnings, profits or issuance
premiums;
e. a distribution of retained earnings by payment in cash or by
allocation of Shares; and
f. a reduction of corporate capital by set off against losses
completed by the reduction of the number of Shares.
9. DEATH
In the event of the death of a Participant in the French Plan at any
time during the term of an Option, his or her heirs may exercise any
vested but unexercised Options until the expiration of the earlier of
(a) six months following the Participant's death and (b) ten years
following the date of grant of the Option.
10. INTERPRETATION
It is intended that Options granted under the French Plan qualify for
the favorable tax and social treatment applicable to stock options
granted under the Law 70-1322 of December 31, 1970, as subsequently
amended, and in accordance with the relevant provisions set forth by
French tax law and the French tax administration. The terms of the
French Plan shall be interpreted accordingly.
3
<PAGE> 4
11. AMENDMENTS
Subject to the terms of the Plan, the Committee reserves the right to
amend or terminate the French Plan at any time; provided, however, that
neither the number of Options nor the exercise price shall be modified
except in accordance with the provisions of the French Plan.
12. ADOPTION
The French Plan was adopted by resolution of the Committee appointed by
the Directors of the Company to administer the Plan, at a meeting held
on December 9, 1998.
4
<PAGE> 1
Exhibit 10(m)
TRW
STOCK OPTION AGREEMENT QUALIFIED
UNDER THE LAWS OF FRANCE
TERMS AND CONDITIONS
1. PURCHASE RIGHTS
This option cannot be exercised before the fifth anniversary of the date of
grant. After that you will be entitled to purchase all of the shares covered by
this option, provided that you have been continuously employed with TRW Inc.
("TRW") since the date of grant. If the laws in France requiring that options be
held for five years from the date of grant in order to qualify for favorable tax
and social treatment applicable to stock options granted under the Law 70-1322
of December 31, 1970, as subsequently amended, are amended to require a holding
period of less than five years, this option shall become exercisable upon the
expiration of such shorter holding period, provided that you have been
continuously employed with TRW since the date of grant; provided, however, that
if such holding period shall be less than three years, this option shall become
exercisable in accordance with whichever of the following schedules shall be
applicable:
One-year Holding Period:
- ------------------------
<TABLE>
<CAPTION>
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Optioned Shares That May Be
Date of Grant Purchased
- -----------------------------------------------------------------
<S> <C>
1 33-1/3%
2 66-2/3%
3 100%
</TABLE>
Two-year Holding Period:
- ------------------------
<TABLE>
<CAPTION>
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Optioned Shares That May Be
Date of Grant Purchased
- -----------------------------------------------------------------
<S> <C>
2 66-2/3%
3 100%
</TABLE>
The number of shares that may be purchased in accordance with the foregoing
schedules shall be rounded down to the nearest whole share for each of the first
two years. Notwithstanding the foregoing, in the event of the termination of
your employment due to your death or to your permanent disability, or in the
event of a change in control of TRW, this option will immediately become
exercisable in respect of all of the shares covered by this grant. For purposes
of this agreement, a change in control is defined in resolutions adopted by the
Compensation and Stock Option Committee of the Directors of TRW on July 26,
1989, which, in summary, provide that a change in control is a change occurring
(a) by virtue of TRW's merger, consolidation or reorganization into or with, or
transfer of assets to, another corporation or (b) by virtue of a change in the
majority of the Directors of TRW during any two-year period unless the election
of each new Director was approved by a two-thirds vote of the Directors in
office at the beginning of such period or (c) through the acquisition of shares
representing 20% or more of the voting power of TRW or (d) through any other
change in control reported in any filing with the Securities and Exchange
Commission; provided, however, that no change in control is deemed to have
occurred by the acquisition of shares, or any report of such acquisition, by
TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language
of the resolutions controls over this summary language.
2. EXERCISE IN WHOLE OR PART
To the extent this option has become exercisable, you may purchase on any date
or dates all or any part of the shares which you are then entitled to purchase.
However, no fractional shares may be purchased.
3. TERM OF OPTION
To the extent this option has become exercisable in accordance with paragraph 1
above, it may be exercised by you at any time during the 10-year period
beginning on the date of grant. To the extent this option remains unexercised at
the end of the 10-year period, your unexercised purchase rights will terminate.
To the extent unexercised, this stock option will terminate before the end of
such 10-year period in the following cases:
(a) If your employment with TRW terminates before you reach age 55, your
unexercised purchase rights will terminate three months after the date your
employment terminates.
(b) If the Directors of TRW shall find that you intentionally committed an act
materially inimical to the interests of TRW or a subsidiary, your unexercised
purchase rights will terminate as of the time you committed such act, as
determined by the Directors.
(c) In the event of your death at any time during the term of this option, your
unexercised purchase rights will terminate upon the earlier of (i) six months
after the date of your death and (ii) ten years after the date of grant.
If your employment is terminated by your permanent disability, your purchase
rights will not be subject to termination under clause (a) above and will
continue for the entire 10-year period. In the event of a change in control of
TRW (as defined herein), your purchase rights will not under any circumstances
be subject to termination before the end of the 10-year period beginning on the
date of grant. Nothing contained in this option shall extend this option beyond
a 10-year period beginning on the date of grant or shall limit whatever right
TRW or a subsidiary might otherwise have to terminate your employment at any
time.
4. PAYMENT OF OPTION PRICE
The option price shall be payable at the time of exercise. The option price
shall be paid at the Office of Secretary at TRW's corporate headquarters or at
any other place designated by the Secretary. The option price may be paid in
cash, by delivery of full shares of TRW Common, by a cashless exercise, or in
any combination of the foregoing, in accordance with such procedures and subject
to such further conditions as the Secretary of TRW may establish from time to
time. Notwithstanding the foregoing, the Compensation and Stock Option Committee
of TRW at any time may suspend or terminate your right to pay any or all of the
option price in shares of TRW Common.
Cash payments shall be made in United States dollars.
<PAGE> 2
Shares delivered in payment of the option price shall be valued at their fair
market value on the date of exercise. For purposes of this option, "fair market
value" is the average of the high and low sales prices of a share of TRW Common
on the date of exercise on the New York Stock Exchange Composite Transactions
Listing as reported in the Midwest edition of The Wall Street Journal (or if
there are no sales on such date, then the closing sale price on such Listing on
the nearest date before the date of exercise) or such other method or procedure
for determining fair market value as the Compensation and Stock Option Committee
of TRW in its sole discretion may determine. For purposes of this option, the
"date of exercise" is the date on which written notice, accompanied by the
option price, is received by the Secretary of TRW or his designee that you have
elected to exercise all or part of this option.
5. TAXES
Upon any exercise of this option, TRW may withhold delivery of certificates for
the purchased shares until you make arrangements satisfactory to TRW to pay any
withholding, transfer or other taxes due as a result of such exercise. You may
elect, in accordance with applicable regulations of the Compensation and Stock
Option Committee of TRW, to pay a portion or all of the amount of required
withholding taxes in cash, through a cashless exercise or in shares of TRW
Common, either by delivering to TRW previously held shares of TRW Common or by
having shares of TRW Common withheld from the shares purchased hereunder.
6. SECURITIES LAWS
This option shall not be exercisable if such exercise would violate any federal
or state securities law. TRW will use its best efforts to make such filings and
initiate such proceedings as may be necessary to prevent such violations unless
the Directors of TRW determine, in their sole discretion, that such filings or
proceedings would result in undue expense or hardship for TRW. TRW may place
appropriate legends on the certificates for the optioned shares, give
stop-transfer instructions to its transfer agents or take any other action to
achieve compliance with those laws in connection with any exercise of this
option or your resale of the optioned shares.
7. TRANSFERABILITY
This option is not transferable other than by will or the laws of descent and
distribution and shall be exercisable during your lifetime only by you or your
guardian or legal representative.
8. LEAVES OF ABSENCE
If you take a leave of absence for illness, military or governmental service or
other reasons, and such leave has been specifically approved by the Chairman of
the Board or the President of TRW for purposes of this option, then such leave
will not be treated as an interruption of your employment.
9. ADJUSTMENTS
The Compensation and Stock Option Committee of TRW shall make adjustments in the
option price and the number or kind of shares of TRW Common or other securities
covered by this option only in accordance with the terms of the TRW plan and the
French sub-plan thereunder, pursuant to which this stock option is granted.
10. CERTAIN DEFINITIONS
For purposes of this option, employment with a subsidiary will be treated as
equivalent to employment with TRW itself, and your continuous employment will
not be deemed to be interrupted by reason of your transfer among TRW and its
subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken
chain of entities beginning with TRW if each of the entities other than the last
entity in the unbroken chain owns stock or other ownership interests possessing
50% or more of the total outstanding combined voting power of all classes of
stock or other interests in the next entity in the chain. "Subsidiary" also
means, if not covered by the definition of subsidiary in the preceding sentence
and if specifically approved by the Chairman of the Board of TRW with respect to
this option, a corporation or other entity in which TRW has a direct or indirect
ownership interest.
11. MISCELLANEOUS
By participating in the TRW stock option program, you understand and agree to
the following conditions:
(a) This stock option is subject to all the terms and conditions of the TRW
plan, including the French sub-plan thereunder, pursuant to which it is granted.
The Compensation and Stock Option Committee of TRW has authority to interpret
and construe any provision of this instrument and the TRW plan and the French
sub-plan thereunder pursuant to which this stock option is granted, and any such
interpretation and construction shall be binding and conclusive. Any reference
in this option to the Directors of TRW includes the Executive Committee of the
Directors.
(b) The program is discretionary and TRW can cancel or terminate it at any time.
As such, the program does not create any contractual or other right to receive
options or benefits in lieu of options in the future. Any future option grants,
including but not limited to the timing of any grant, number of options, vesting
provisions, and the exercise price, will be within TRW's sole discretion.
(c) Your participation in the TRW stock option program is completely voluntary
and is not a condition or right of your employment.
(d) The value of your TRW stock option is an extraordinary item of compensation
outside the scope of your employment contract, if any. As such, your option is
not part of normal or expected compensation for purposes of calculating any
severance, resignation, redundancy, end of service payments, bonuses,
long-service awards, social insurance contributions (except where local law
specifically provides otherwise), pension or retirement benefits, or similar
payments.
(e) Your vesting progress will end if your employment terminates before five
years after the grant date, or such shorter period prescribed in Section 1
hereof, for reasons other than death, permanent disability or a change in
control.
(f) The future value of the TRW stock is unknown and cannot be predicted with
any certainty. If the TRW stock does not increase in value, the option will have
no value.
(g) You authorize your manager to furnish TRW (and any agent of TRW
administering the program or providing program recordkeeping services) with such
information and data as it shall request in order to facilitate the grant of
options and administration of the program. You also waive any data privacy
rights you might have with respect to such information about you, which is
needed to issue your TRW stock option grant.
(h) Your TRW stock option may not be assigned, sold, encumbered, or in any way
transferred or alienated, except as otherwise explicitly provided in the Stock
Option Agreement.
(i) The TRW stock option program is governed by and subject to U.S. law.
Interpretation of the program and your rights thereunder will be governed by
provisions of U. S. law.
<PAGE> 1
Exhibit 10(r)
TRW INC.
DEFERRED COMPENSATION PLAN
THIS AMENDED AND RESTATED PLAN, established by TRW Inc. ("TRW")
effective July 28, 1993, and as amended from time to time, including this
amendment and restatement effective January 1, 1999, is for the benefit of
certain employees of the Corporation in executive, managerial or professional
capacities so as to enhance the Corporation's ability to attract and retain
outstanding employees who are expected to contribute to its success. It shall
remain in effect, as it may be amended from time to time, until termination as
provided in Article VII of the Plan.
ARTICLE I
DEFINITIONS
For the purposes of the Plan, the following words and phrases shall mean:
1.1 ACCOUNT. The bookkeeping or accounting records maintained (having and
requiring no segregation or holding of any assets) by TRW pursuant to Article IV
with respect to and resulting from a Participant's Deferral Election.
1.2 AFFILIATE.
(a) Any corporation incorporated under the laws of one of the
United States of America of which TRW owns, directly or indirectly, in
excess of 50% of the combined voting power of all classes of stock or
in excess of 50% of the total value of the shares of all classes of
stock (all within the meaning of Section 1563 of the Code);
(b) any partnership or other business entity organized under
such laws, in which TRW owns, directly or indirectly, (i) in excess of
50% of the total capital or profits interest of such partnership, or
(ii) in excess of 50% or more of the total value of such other business
entity (all within the meaning of Section 414(c) of the Code); and
(c) any other company designated as an Affiliate by the
Committee.
-1-
<PAGE> 2
1.3 BENEFICIARY. The person, persons or entity entitled under Article VI to
receive any Plan Benefits payable after a Participant's death.
1.4 CODE. The Internal Revenue Code of 1986, as amended. References in the Plan
to Sections of the Code are to such Sections as in effect on the Effective Date
or any successor provision.
1.5 COMMITTEE. The Compensation and Stock Option Committee of the Directors.
1.6 CORPORATION. TRW or an Affiliate of TRW.
1.7 DATE OF DEPOSIT. The Determination Date immediately preceding the date that,
but for the Deferral Election, the Incentive Compensation would be paid.
1.8 DEFERRAL ELECTION. An election pursuant to Article III by an Eligible
Employee to defer receipt of all or part of his Incentive Compensation.
1.9 DEFERRED COMPENSATION. The portion of Incentive Compensation which an
Eligible Employee elects to defer pursuant to a Participation Agreement.
1.10 DETERMINATION DATE. The last day of each calendar month.
1.11 DIRECTORS. The Directors of TRW.
1.12 EFFECTIVE DATE. July 28, 1993, the effective date of the establishment of
the Plan.
1.13 ELIGIBLE EMPLOYEE. A person (who must be a U.S. citizen or a U.S. resident
alien) in the full-time active salary employ of the Corporation who is employed
at Operational Incentive Plan Level III or above at the end of the year for
which a Deferral , or who retires or is terminated due to a divestiture after
executing a valid Deferral Election in the year the retirement is effective.
1.14 EXECUTIVE OFFICER. Any Eligible Employee who is an "executive officer" of
TRW for the purposes of Rule 3b-7 under the Securities Exchange Act of 1934.
1.15 FINANCIAL HARDSHIP. A severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Section 152(a) of the Code) of the Participant,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstance arising as a result of events
beyond the control of the Participant. In case of the Participant's death, the
word "Beneficiary or other
-2-
<PAGE> 3
person or entity entitled to receive a Plan Benefit" shall be substituted for
the word "Participant" wherever the latter appears in this Section 1.15.
1.16 HIGHLY-PAID EMPLOYEE. A person in the full-time active salary employ of the
Corporation who (i) will earn, in salary and in bonus (assuming full year
employment and no deferral of compensation), at least $150,000 (or such greater
sum (effective January 1, 1997, $160,000) if the qualified benefit plan
limitation is increased by the Internal Revenue Service) in the year of or (iii)
is a U.S. citizen or U.S. resident alien who is Operational Incentive Plan Level
III or above and is employed by either TRW Overseas Inc. or TRW Systems Overseas
Inc.
1.17 INCENTIVE BONUS. A cash award payable to an Eligible Employee under TRW's
Operational Incentive Plan (or similar compensation program that replaces the
Operational Incentive Plan).
1.18 INCENTIVE COMPENSATION. Any cash award payable to an Eligible Employee as
an Incentive Bonus or, if applicable, a Strategic Grant that, but for a Deferral
Election under the Plan, would be paid to the Eligible Employee and considered
to be "wages" for purposes of United States federal income tax withholding (or
other appropriate jurisdiction).
1.19 INTEREST RATE OR INTEREST. One-twelfth of the annual interest rate, equal
to 110% of the applicable long-term federal rate as published by the Internal
Revenue Service pursuant to Code Section 1274(d) or any successor provision and
in effect on the first business day of each calendar month.
1.20 INVESTMENT FUND RETURNS. The gains or losses in one or more of the
investment funds offered to participants under the TRW Employee Stock Ownership
and Savings Plan, any of which shall be available to any Participant for
purposes of having such investment fund results credited to his Account under
this Plan.
1.21 PARTICIPANT. An Eligible Employee who has elected to participate in the
Plan and has executed and filed with TRW a Participation Agreement as provided
in Article III; provided, however, that such term shall include a person who no
longer has an effective Deferral Election so long as he retains, under the Plan,
an interest in an Account under the Plan.
1.22 PARTICIPANT AGREEMENT. An agreement between TRW and a Participant setting
forth the Participant's Deferral Election.
1.23 PLAN. This Deferred Compensation Plan, as it may be amended from time to
time.
-3-
<PAGE> 4
1.24 PLAN BENEFIT. The benefit payable to a Participant in accordance with
Article V hereof.
1.25 PLAN YEAR. Each of the twelve month periods ending December 31 and
occurring while the Plan remains in effect. The term "Plan Year" shall also
include the period beginning on the Effective Date and ending December 31, 1993,
and any period of less than twelve months beginning January 1 and ending on the
date the Plan is terminated.
1.26 PRE-RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's
Account, established pursuant to Section 4.3, to which there shall be credited
Deferred Compensation under a single Deferral Election, and all interest accrued
thereon, as to which the Participant has elected payment of his Plan Benefit in
either five years or ten years from the Date of Deposit.
1.27 RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's Account,
established pursuant to Section 4.3, to which there shall be credited Deferred
Compensation under all Deferral Elections, and all interest accrued thereon, as
to which the Plan Benefit is intended to be payable following retirement of the
Participant from the Corporation.
1.28 SPECIAL COMMITTEE. The committee composed of the head of Human Resources,
the General Counsel and the Chief Financial Officer of TRW, which committee
reviews and acts upon the requests of Participants (other than Participants who
are Executive Officers, whose requests are acted upon by the Committee) to
receive early payout as a result of a Financial Hardship or to change payout
upon retirement.
1.29 STRATEGIC GRANT. A cash award and/or performance unit payable to an
Eligible Employee pursuant to TRW's Strategic Incentive Program (or similar
long-term compensation plan that replaces or augments the Strategic Incentive
Program).
1.30 SUB-ACCOUNT. A Pre-Retirement Payment Sub-Account or a Retirement Payment
Sub-Account.
1.31 TERMINATION OF EMPLOYMENT. Any severance of a Participant from full-time
active salaried employment by the Corporation for any reason (other than a
transfer of employment from TRW to an Affiliate, from an Affiliate to another
Affiliate or from an Affiliate to TRW).
1.32 TRW. TRW Inc., an Ohio corporation.
-4-
<PAGE> 5
ARTICLE II
ADMINISTRATION
2.1 ADMINISTRATORS. The Plan shall be administered by the Committee and the
Special Committee, and certain decisions concerning Financial Hardship and
change in payment upon retirement may be made by the Special Committee. Except
as otherwise provided herein, decisions of the Committee or the Special
Committee shall be final and binding on all parties.
2.2 COMMITTEE. The Committee shall have the authority (a) to make, amend,
interpret and enforce all rules and regulations for the administration of the
Plan and (b) to decide all questions, including interpretation of the Plan as
may arise in connection with the Plan insofar as it is applicable to
Participants (i) who are Executive Officers or (ii) with respect to whom
questions are referred to the Committee by the head of Human Resources. A
majority of the members of the Committee shall constitute a quorum. The
Committee may act by a vote of a majority of a quorum at a meeting or by a
writing signed by a majority of the members of the Committee.
2.3 HUMAN RESOURCES. The head of Human Resources shall administer the Plan in
accordance with the terms of the Plan and the rules and regulations of the Plan
as established by the Committee. Consistent with the authorized precedents and
the rules and regulations authorized by the Committee, the head of Human
Resources shall have the authority to decide all questions, including
interpretations of the Plan, as may arise in connection with the Plan insofar as
it is applicable to Participants other than Executive Officers.
2.4 SPECIAL COMMITTEE. With regard to all Participants, other than Participants
who are Executive Officers, the Special Committee shall act upon (i) written
requests of Participants concerning early payout of some or all of the
Participant's Account balances as a result of Financial Hardship and (ii)
written requests of Participants to change the payout of a Participant's
Retirement Payment Sub-Account as provided by Section 5.1(b). The Special
Committee may act by a vote of the majority at a meeting or by a writing signed
by a majority of the members of the Special Committee.
2.5 FINANCIAL HARDSHIP AND RETIREMENT PAYOUT CHANGE REQUESTS. In order for a
request to be considered by the Special Committee (or, in the case of a request
as set forth in clauses (i) or (ii) of Section 2.4 by an Executive Officer, the
Committee), the requests must (i) be in writing and delivered to the head of
Human Resources, (ii) set forth whether the Participant is requesting an early
payout because of a Financial Hardship or a change of payout upon retirement,
(iii) set forth the reasons for such request, including in detail the Financial
Hardship or the circumstances that necessitate the change of payout upon
retirement, (iv) in the case of a request as a result of a Financial Hardship
set
-5-
<PAGE> 6
forth the amount of such Participant's Account that the Participant wishes to be
paid and the Sub-Accounts from which such early payout shall be made and (v) in
the case of a change of payout at retirement set forth the manner in which the
Participant wishes to receive payout (e.g., single sum or in five annual
installments). Compliance with the petition procedures set forth in this Section
2.5 does not insure that the request will be granted by the Special Committee
(or the Committee).
ARTICLE III
PARTICIPATION
3.1 PARTICIPATION.
(a) Subject to the limitations set forth in this Article III,
any person who is an Eligible Employee in the year for which the
Incentive Compensation deferred under a Deferral Election under this
Section 3.1 is payable may participate in the Plan by executing and
filing with the head of Human Resources a Participation Agreement;
provided, however, the election to defer Incentive Bonus will not be
effective unless the Eligible Employee is also a Highly-Paid Employee.
The head of Human Resources shall determine, in his sole discretion,
which Eligible Employees are likely to be Highly-Paid Employees during
the year in which the Deferral Election is made. The head of Human
Resources shall then notify Eligible Employees whether their elections
to defer Incentive Bonuses are effective.
(b) In each Participation Agreement, the Eligible Employee
shall specify:
(i) the percentage or dollar amount of Incentive
Bonus and the percentage or the dollar amount of Strategic
Grant in respect of a specified TRW fiscal year to be
deferred;
(ii) the Investment Fund Returns and/or Interest Rate
to be credited to the Participant's entire Account;
(iii) subject to the limitations of Section 5.1, the
form of Plan Benefit (i.e., whether such benefits are intended
to be paid following retirement or five or ten years from the
Date of Deposit).
If the Eligible Employee chooses to defer a dollar amount of the
Incentive Bonus or the Strategic Grant and to the extent that dollar
amount specified exceeds the eligible amount of the Incentive Bonus or
the Strategic Grant, as applicable, the amount actually deferred shall
be the eligible amount of the Incentive Bonus or the Strategic Grant,
as
-6-
<PAGE> 7
applicable. If the Eligible Employee has chosen to have Deferred
Compensation paid five or ten years from the Date of Deposit, such
payments shall be made as provided in Section 5.1(e) below.
(c) Before September 30 of each Plan Year, each Eligible
Employee who elects to become a Participant shall file with the head of
Human Resources a Participation Agreement specifying the items
identified in paragraph (b) above.
3.2 DEFERRAL ELECTIONS. Subject to the restrictions concerning deferral of
Incentive Bonus set forth in Section 3.1(a), any Eligible Employee may elect to
defer any percentage or dollar amount (but not both a percentage and dollar
amount, but an Eligible Employee can defer a specified dollar amount of one of
his Incentive Bonus and Strategic Grant and a percentage of the other) of each
of his Strategic Grant and his Incentive Bonus; provided, however, that, to the
extent that the Eligible Employee chooses to defer a percentage of his Incentive
Bonus and/or Strategic Bonus, each Deferral Election, to be effective, must
result in deferral of a minimum of 10% of the Eligible Employee's Incentive
Bonus and/or Strategic Grant (provided that an Eligible Employee may elect to
defer a portion of his Incentive Bonus and none of his Strategic Grant and vice
versa) and the Deferral Elections must be in increments of 5% for each of the
Strategic Grant and Incentive Bonus, which election percentages do not need to
be identical; further, provided, however, that, to the extent that the Eligible
Employee chooses to defer a specified amount of his Incentive Bonus and/or
Strategic Bonus, each Deferral Election, to be effective, must result in
deferral of a minimum of $10,000 of the Eligible Employee's Incentive Bonus
and/or Strategic Grant (provided that an Eligible Employee may elect to defer a
portion of his Incentive Bonus and none of his Strategic Grant and vice versa)
and the Deferral Elections must be in increments of $1,000 for each of the
Strategic Grant and Incentive Bonus, which election amounts do not need to be
identical.
3.3 MODIFICATION OF DEFERRAL ELECTION. By written notice to TRW, a Deferral
Election filed in any Plan Year may be modified or revoked at any time prior to
October 1 of such Plan Year. Thereafter, a Deferral Election specified in a
Participation Agreement shall be irrevocable, except that the Committee or the
Special Committee, as appropriate under Article II, may permit a Participant at
any time prior to the actual deferral of the Incentive Compensation to reduce
the designated percentage to be deferred upon a finding, based upon uniform
standards established by the Committee, that the Participant has suffered a
Financial Hardship.
-7-
<PAGE> 8
ARTICLE IV
DEFERRED COMPENSATION
4.1 DEFERRED COMPENSATION. The amount of Incentive Compensation deferred
pursuant to a Deferral Election shall be withheld in a single sum at the time
such Incentive Compensation, but for a Deferral Election, would be paid.
4.2 WITHHOLDING OF TAXES AND SSP/BEP CONTRIBUTIONS. Any withholding of taxes or
other amounts which is required by any federal, state, or local law shall be
withheld from the Participant's remaining undeferred Incentive Compensation, if
any. If necessary in order to comply with any federal, state or local law, the
amount of Incentive Compensation deferred may be reduced by an amount equal to
any required withholding. Otherwise, such withholding may be made from any of
the Participant's other compensation payable by the Corporation, or, at the
election of the head of Human Resources, a Participant may be permitted to pay
to the Corporation the amount of any such required withholding at or prior to
the time such withholding would otherwise be required to be made. In addition,
the amount of Incentive Compensation deferred shall be reduced by the amount of
TRW Stock Savings Plan and Benefits Equalization Plan contributions to be made
by the Eligible Employee on account of such Incentive Compensation.
4.3 ACCOUNTS. For recordkeeping purposes only, a separate Account shall be
established and maintained by TRW for each Participant to which his Deferred
Compensation and Investment Fund Returns or Interest accrued thereon pursuant to
Section 4.4 shall be credited (or charged). Each such Account shall be divided
into the following Sub-Accounts for purposes of Section 5.1: (i) a Retirement
Payment Sub-Account to which there shall be credited all Incentive Compensation
deferred (and all Investment Fund Returns or Interest thereon) pursuant to all
Deferral Elections under which a Plan Benefit is payable the year following
retirement; and (ii) a separate Pre-Retirement Payment Sub-Account for each
Deferral Election under which the Participant has elected that his Plan Benefit
be payable five or ten years from the Date of Deposit, to which the Incentive
Compensation deferred (and all Investment Fund Returns or Interest thereon)
pursuant to such Deferral Election shall be credited.
4.4 DETERMINATION OF ACCOUNT. The value of each Participant's Account as of each
Determination Date shall be the total of the Participant's Retirement Payment
and Pre-Retirement Payment Sub-Accounts. The value of each such Sub-Account
shall consist of (i) the balance of such Sub-Account as of the last preceding
Determination Date plus (ii) any Deferred Compensation credited to such
Sub-Account since the last preceding Determination Date, (iii) adjusted for
Investment Fund Returns or Interest since the last preceding Determination Date
based upon the Investment Fund Returns or Interest Rate selected by the
-8-
<PAGE> 9
Participant under this Plan, less (iv) the amount of all Plan Benefits, if any,
paid during the period since the last preceding Determination Date.
4.5 STATEMENT OF ACCOUNTS. TRW shall submit to each Participant, within 120 days
after the close of each Plan Year and at such other times as determined by the
Committee, a statement setting forth the total balance of the Participant's
Account, and the balance of each Sub-Account thereof, as of the last day of such
Plan Year and as of the last day of the immediately preceding Plan Year, the
Deferred Compensation and Investment Fund Returns credited or charged, or
Interest accrued thereon, to each Sub-Account during the Plan Year and the
payments of the Plan Benefits from each Sub-Account during the Plan Year.
ARTICLE V
PLAN BENEFITS
5.1 PLAN BENEFITS PAYABLE ON TERMINATION OF EMPLOYMENT, FIVE YEARS FROM DATE OF
DEPOSIT OR TEN YEARS FROM DATE OF DEPOSIT.
(a) Subject to the provisions of Section 5.1(b) and except as
otherwise provided below, upon Termination of Employment a Participant
shall receive a Plan Benefit equal to the balance of his Account as of
the Determination Date immediately preceding such Termination of
Employment, plus the amount of any Deferred Compensation credited his
Account after such Determination Date. Such Plan Benefit shall be
payable as a single sum during the January following such Termination
of Employment. In addition, the Participant's Account shall be credited
with gains or losses on the balance of his Account for the period from
such Determination Date to the date of payment based upon the
applicable Investment Fund Returns or Interest Rate. However, in the
event that the Termination of Employment is the result of a divestiture
of the unit or operations of the Corporation where the Participant
worked prior to Termination of Employment and the Participant obtains
employment with the entity that acquired such unit or operations, then
the balance of such Participant's Account shall be payable in
accordance with such Participant's original Deferral Election or in one
lump sum the January following such Participant's termination of
employment from such entity (or its successor), whichever occurs first.
Such Participant's Account shall continue to be credited or charged
with Investment Fund Returns or accrued Interest following such
Participant's Termination of Employment through payment in full of his
or her Account.
(b) In the event that a Participant's Termination of
Employment occurs as a result of his retirement, the Participant shall
receive the Plan
-9-
<PAGE> 10
Benefit payable in respect of his Retirement Payment Sub-Account in ten
annual installments commencing in the year following the year that
Termination of Employment occurred; provided, however, that the
Participant can petition the Special Committee (or the Committee in the
case of an Executive Officer) at any time at least six months prior to
retirement to change such payment into five annual installments or a
single sum; further provided, that any such payment change approved by
the Special Committee (or the Committee) shall not be effective until
the calendar year following the date of the payment change. In the
event that payment shall be made in a single sum, such payment shall be
in accordance with the procedures set forth in Section 5.1(a) above,
but in no event in the same calendar year as the year of any requested
change and no earlier than January 1 of the calendar year following the
year that Termination of Employment occurred. In the event that the
payment shall be made in installments, such payments shall be made in
accordance with Section 5.1(f) below. If, at the time of retirement,
the Participant has a credit in a Pre-Retirement Payment Sub-Account,
such Sub-Account balances shall be paid in accordance with the
Participant's original Deferral Election.
(c) In the event that a Participant's Termination of
Employment occurs as a result of a layoff, the Participant shall
receive a Plan Benefit equal to the balance of his Account as of the
Determination Date immediately preceding such Termination of
Employment, plus the amount of any Deferred Compensation credited his
Account after such Determination Date, payable in one lump sum during
the January following the date that is 12 months following
Participant's Termination of Employment. The Participant's Account
shall be credited with gains or losses on the balance of his Account
for the period from such Determination Date to the date of payment
based upon the applicable Investment Fund Returns or Interest Rate. If
the Participant retires during the 12-month period following his
Termination of Employment, the Plan Benefit to which he is entitled
shall be calculated and paid in accordance with Section 5.1(b).
(d) In the event that a Participant's Termination of
Employment occurs because of his death, his Beneficiary or, if no
designated Beneficiary shall survive him, his estate shall receive the
Plan Benefit in the manner provided in Section 5.1(a); provided,
however, that if the Participant's Beneficiary designation shall result
in all or any part of his Plan Benefit passing to his surviving spouse
or to an entity for the benefit of his surviving spouse in such a way
as to qualify for the marital deduction under Section 2056 of the Code,
and at the time of his death the Participant was eligible to retire and
had elected to receive his Plan Benefits in his Retirement Payment
Sub-Account in installments pursuant to Section 5.1(b), payments from
his Retirement Payment Sub-Account
-10-
<PAGE> 11
shall be made to such surviving spouse or to such entity for the
benefit of such surviving spouse, as the case may be, in the manner
provided in Section 5.1(b). Notwithstanding the foregoing, if such
surviving spouse shall die prior to complete distribution of all Plan
Benefits, the balance then remaining in such Retirement Payment
Sub-Account shall be paid to the estate of such surviving spouse or to
such entity for the benefit of such surviving spouse, as the case may
be, in a single sum the January following such spouse's death.
(e) If the Participant has chosen in his Deferral Election to
receive payouts either five or ten years from the Date of Deposit (as
opposed to upon retirement from the Corporation), payments shall be
made in a single sum form from each Pre-Retirement Payment Sub-Account
of the Participant on or before February 15 of the year either five or
ten years (depending upon the applicable Deferral Election) following
the applicable Date of Deposit; provided, however, that if Termination
of Employment has occurred prior to payment, payment of the
Participant's Plan Benefits shall be made as provided in Section
5.1(a).
(f) If the payments from the Participant's Retirement Payment
Sub-Account are to be paid in installment form, such installments shall
be paid in either five or ten annual installments between February 1
and February 15 of each year in which an installment is to be made;
provided, however, that the initial installment payment will be made a
reasonable time following Termination of Employment (but no earlier
than February 1 of the calendar year following the year that
Termination of Employment occurred). Installment payments will commence
in the year following the Participant's Termination of Employment. If
annual installments are paid, the balance of the Account shall continue
to be credited or charged with Investment Fund Returns or Interest as
previously elected by the Participant in accordance with Section
3.1(b).
5.2 WITHDRAWAL OF PLAN BENEFIT. No Plan Benefit shall be payable prior to the
Participant's Termination of Employment other than in the form determined
pursuant to Section 5.1(e), except that the Committee or the Special Committee,
as appropriate under Article II, may permit a Participant or, after a
Participant's death, a Participant's Beneficiary or other person or entity
entitled to receive such Plan Benefit, to withdraw from the Participant's
Account an amount necessary to meet a Financial Hardship.
5.3 WITHHOLDING; PAYROLL TAXES. TRW shall withhold from Plan Benefits payable
under the Plan any taxes required to be withheld from an employee's wages for
the federal or any state or local governments.
-11-
<PAGE> 12
5.4 FULL PAYMENT OF BENEFITS. Notwithstanding any other provision of the Plan,
all Plan Benefits shall be paid to the Participant no later than the January 5
next preceding the Participant's 80th birthday.
ARTICLE VI
BENEFICIARY DESIGNATION
6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time,
to designate any person or persons as his Beneficiary (both principal as well as
contingent) to whom payment under the Plan shall be made in the event of his
death prior to complete distribution of all Plan Benefits due him under the
Plan. Any Beneficiary designation shall be made in writing on a form prescribed
by the Committee and shall become effective only when filed with the head of
Human Resources.
6.2 AMENDMENTS. Subject to the limitations of Section 6.1 of the Plan, any
Beneficiary designation may be changed by a Participant only by written notice
of such change to the head of Human Resources on a form prescribed by the
Committee. The filing of a new Beneficiary designation form will cancel all
prior Beneficiary designations.
6.3 ABSENCE OF EFFECTIVE BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided above or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant's Plan Benefit, the Participant's remaining Plan Benefit shall be
paid to his estate.
6.4 EFFECT OF PAYMENT. Payment to the Beneficiary designated pursuant to
Sections 6.1 and 6.2 or to the Participant's estate pursuant to Section 6.3
shall completely discharge TRW's obligations under the Plan.
ARTICLE VII
AMENDMENT AND TERMINATION OF PLAN
7.1 TERMINATION. The Committee shall have the power in its sole discretion to
suspend or terminate the Plan at any time, except that no such action shall
adversely affect rights with respect to any Account without the consent of the
person affected.
7.2 AMENDMENT. The Committee can amend any part of this Plan (including, without
limitation, changing the Interest Rate or Investment Fund Returns to be
-12-
<PAGE> 13
paid to current and future Participants or changing who can become Participants)
in its sole discretion without notice to Participants.
ARTICLE VIII
MISCELLANEOUS
8.1 UNFUNDED PLAN. The Plan is an unfunded plan maintained by TRW primarily to
provide Deferred Compensation benefits for a select group of executive,
managerial or professional employees of the Corporation.
8.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, estates,
heirs, successors and assigns shall have no legal or equitable rights, interest
or claims in any property or assets of TRW. Such assets of TRW shall not be held
under any trust or in any other way as collateral security for the fulfillment
of the obligations of TRW under the Plan. Any and all of TRW's assets shall be,
and remain, the general, unpledged, unrestricted assets of TRW. TRW's sole
obligation under the Plan shall be merely that of an unfunded and unsecured
promise of TRW to pay money in the future.
8.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey, in advance of actual
receipt, any Plan Benefit. Plan Benefits and all rights to Plan Benefits are and
shall be nonassignable and nontransferable prior to actual payment as provided
by the Plan. Any such attempted assignment or transfer shall be ineffective;
TRW's sole obligation shall be to pay Plan Benefits to the Participant, his
Beneficiary or his estate as appropriate. No part of any Plan Benefit shall,
prior to actual payment as provided by the Plan, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person; nor shall any Plan
Benefit be transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency, except as required by law.
8.4 NOT A CONTRACT OF EMPLOYMENT. Neither the terms and conditions of the Plan
nor those of any Participation Agreement shall be deemed to constitute a
contract of employment between the Corporation and the Participant, and neither
the Participant, his Beneficiary nor his estate shall have any rights against
TRW under the Plan except as may otherwise be specifically provided in the Plan.
Moreover, nothing in the Plan shall be deemed to give a Participant the right to
be retained in the service of the Corporation or to interfere with the right of
the Corporation to discipline, discharge or change the status of a Participant
at any time. Further, nothing in the Plan shall be deemed to give a Participant
a right to receive any Incentive Compensation.
-13-
<PAGE> 14
8.5 PROTECTIVE PROVISIONS. A Participant will cooperate with TRW by furnishing
any and all information requested by TRW in order to facilitate the payment of
Plan Benefits under the Plan, and by taking such other action as may be
reasonably requested by TRW.
8.6 TERMS. Whenever any words are used in the Plan in the masculine, they shall
be construed as though they were used in the feminine in all cases where they
would so apply; and wherever any words are used in the Plan in the singular or
in the plural, they shall be construed as though they were used in the plural or
singular, as the case may be, in all cases where they would so apply.
8.7 CAPTIONS. The captions of the articles and sections of the Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
8.8. GOVERNING LAW. The provisions of the Plan shall be construed and
interpreted according to the laws of the State of Ohio.
8.9 VALIDITY. In case any provision of the Plan shall be held illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if such
illegal or invalid provision were not included in the Plan.
8.10 NOTICE OR FILING. Any notice or filing required or permitted to be given to
TRW or a Participant under the Plan shall be sufficient if in writing and hand
delivered, or sent by regular mail or by registered or certified mail, to the
principal office of TRW or to the last known address of the Participant, as the
case may be. Such notice or filing shall be deemed given or made (i) when hand
delivered to the residence or offices of the recipient, (ii) as of five days
after the date of mailing if delivery is made by regular mail, or, (iii) as of
five days after the date shown on the postmark on the receipt for registration
or certification provided to the sender at the time of mailing, if by registered
or certified mail.
8.11 SUCCESSORS. The provisions of the Plan shall bind and obligate TRW and any
successors. The term "successors" as used in this Section 8.11 shall include any
corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise acquire all or substantially all of the
business and assets of TRW and successors of any such corporation or other
business entity.
8.12 EXPENSES AND COSTS. TRW shall bear all expenses and costs in connection
with the operation of the Plan.
8.13 RELIANCE ON CERTIFIED PUBLIC ACCOUNTANTS. TRW, the Directors, the
Committee, the Special Committee, the head of Human Resources and any employee
of TRW or the Corporation shall be fully protected for actions taken in
-14-
<PAGE> 15
good faith based on the computations and reports made pursuant to or in
connection with the Plan by the independent certified public accountants who
audit TRW's accounts.
ARTICLE IX
CLAIMS PROCEDURE
9.1 CLAIM. Any person claiming a Plan Benefit, requesting an interpretation or
ruling under the Plan (other than a ruling under Section 2.5 above or the
determination as to whether an Eligible Employee is a Highly Paid Employee), or
requesting information under the Plan shall present the request in writing to
the head of Human Resources who (a) shall respond in writing within 90 days
following his receipt of the request or (b) in the case of a claimant who is an
Executive Officer, shall refer the claim with his recommended response to the
Committee, which shall respond in writing within 120 days following the receipt
of the request by the head of Human Resources.
9.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of
denial shall state (i) the reasons for denial; (ii) a description of any
additional material or information required and an explanation of why it is
necessary; and (iii) an explanation of the Plan's claim review procedure.
9.3 REVIEW OF CLAIM. Any person whose claim or request is denied may make a
second request for review by notice given in writing to the head of Human
Resources. The claim or request shall be reviewed further by the head of Human
Resources or the Committee, as appropriate, and he or it may, but shall not be
required to, grant the claimant a hearing.
9.4 FINAL DECISION. A decision on such second request shall normally be made
within 60 days after the date of the second request. If an extension of time is
required for a hearing or other special circumstances, the claimant shall be
notified and the time limit shall be 120 days from the date of the second
request. The decision shall be in writing and, whether made by the head of Human
Resources or the Committee, shall be final and bind all parties concerned.
-15-
<PAGE> 1
Exhibit 10(s)
TRW BENEFITS EQUALIZATION PLAN
Amended and Restated
Effective January 1, 1999
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 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. An employee (i) whose base pay and other compensation paid or
deferred in a calendar year exceeds the compensation limitations of Code Section
401(a)(17) for such year will be eligible to participate in the BEP for the
immediately following calendar year provided he or she is otherwise eligible,
and has elected, to participate in the Stock Savings Plan and has timely elected
to participate in the BEP. Once an employee has timely elected to participate in
the BEP, he or she will continue to be eligible to participate in subsequent
years even if his or her base pay and other compensation paid (or deferred)
falls below the compensation limit of Code Section 401(a)(17). However, if an
employee fails to timely elect to participate in the BEP upon becoming eligible,
such employee will cease to be eligible to participate in the BEP if his or her
base pay and bonus paid (or deferred) falls 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 who has timely elected to participate (a "Participant") into
which shall be credited monthly the following amounts:
<PAGE> 2
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 Section 3.a.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 Section 3.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 zero percent.
c. Participants shall have, at all times, a nonforfeitable interest in
the amounts credited to their Accounts, subject to the provisions of Section
6.e.
d. Participants shall receive, no less frequently than annually, a
statement of their Account within a reasonable period after the end of each
calendar year.
4. EARNINGS.
a. Each Participant in the BEP may elect to have monies credited to his
or her Account based upon the performance of the same investment fund options
offered to Participants under the Stock Savings Plan. 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 one percent multiples.
Each Participant may change his or her election as of the end of any month by
completing a Fund Transaction Form.
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
4.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:
-2-
<PAGE> 3
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 5.a.iii., 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 6.d.
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. Further, for purposes of Section
5.a.iii, a Participant's employment with TRW will not be deemed to have occurred
following the Participant's layoff until the earlier of the end of the
twelve-month period following layoff (without a return to TRW employment) or the
date on which the Participant retires under any TRW-sponsored pension plan.
6. PAYMENT OF BENEFITS.
a. Subject to Section 6.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.
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.a. above, is less than
$5,000, 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
-3-
<PAGE> 4
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 nor 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 Inc. 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 Inc. 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.
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 Inc.'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, to the
extent not preempted by ERISA.
-4-
<PAGE> 1
Exhibit 10(t)
TRW SUPPLEMENTARY
RETIREMENT INCOME PLAN
Amended and Restated
Effective January 1, 1999
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 of TRW covered by a d.b. plan and not otherwise
covered by the BDM International, Inc. Defined Contribution Supplemental
Executive Retirement Plan (the "BDM DC SERP") 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 not otherwise covered by the BDM DC SERP 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.
<PAGE> 2
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
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. The benefit
payable under the SRIP for those participants who were participants in The BDM
Corporation Supplemental Executive Retirement Plan which was merged into the
SRIP (the "BDM SERP") on the close of business on December 31, 1998 (the "Merger
Effective Date") will not be less than the benefit which had accrued under the
BDM SERP as of the Merger Effective Date for such participants. Schedule A
attached hereto sets forth the relevant provisions of the BDM SERP necessary to
calculate such accrued benefits.
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,
provided, however, a benefit will be payable from the SRIP prior to a
participant's attainment of age fifty-five if the participant terminates his or
her employment in connection with a special voluntary early retirement program
offered under the d.b. plan, the terms of which provide for eligibility prior to
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 $5,000).
-2-
<PAGE> 3
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.
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
$5,000, 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 Directors of the Committee in their or 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 nor 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 Inc.
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 Inc. 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.
-3-
<PAGE> 4
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
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 to the
extent not preempted by ERISA.
-4-
<PAGE> 1
Exhibit 10(ff)
AMENDMENT NO. 1 TO CREDIT AGREEMENT
-----------------------------------
AMENDMENT dated as of December 8, 1998 among TRW Inc., an Ohio
corporation (the "Company"), and the BANKS listed on the signature page hereof
(the "Banks").
W I T N E S S E T H:
--------------------
WHEREAS, the parties hereto have heretofore entered into a Revolving Credit
Agreement dated as of December 10, 1997 (the "Agreement"); and
WHEREAS, the Bank parties hereto have previously confirmed agreement to
provide the respective Commitments listed on the signature pages hereof to the
Company until December 6, 1999, subject to earlier termination as provided in
the Agreement; and
WHEREAS, the parties hereto desire to amend the Agreement to restate and
reaffirm the respective Commitments of the Banks and the definition of Revolving
Period Termination Date;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
SECTION 1 RESTATEMENT OF COMMITMENTS. With effect from and including the date
this Amendment becomes effective in accordance with Section 3.4 hereof, the
Commitment of each Bank shall be the amount set forth opposite the name of such
Bank on the signature pages hereof, as such amount may be reduced from time to
time pursuant to Section 5.2 of the Agreement.
SECTION 2 AMENDMENT TO SECTION 13. The definition of "Revolving Period
Termination Date" set forth in Section 13 of the Agreement is amended by
changing the date therein from "December 8, 1998" to "December 6, 1999".
SECTION 3 GENERAL
3.1 DEFINITIONS. All terms used in this Agreement with an initial
capital letter and not defined herein shall have the meanings ascribed to them
in the Credit Agreement.
3.2 OTHER TERMS AND CONDITIONS. The terms and conditions of the Credit
Agreement remain in full force and effect and are unchanged by this Agreement.
3.3 GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of Ohio. Wherever possible each
provision of this Amendment shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Amendment
shall be prohibited by or invalid
<PAGE> 2
under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Amendment. All obligations of the Company
and rights of the Bank and any other holders of the Notes expressed herein or in
the Notes shall be in addition to and not in limitation of those provided by
applicable law.
3.4 COUNTERPARTS. This Amendment may be executed in any number of counterparts
and by the different parties on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument. When counterparts executed by all
the parties shall have been lodged with the Company (or, in the case of the Bank
as to which an executed counterpart shall not have been so lodged, the Company
shall have received telegraphic, telex, or other written confirmation from the
Bank of execution of a counterpart hereof by the Bank), this Agreement shall
become effective as of the date hereof.
(This space intentionally left blank)
-2-
<PAGE> 3
Delivered at Cleveland, Ohio, as of the date hereof.
TRW INC.
By: /s/ Jeanne R. Sydenstricker
---------------------------------------
Jeanne R. Sydenstricker
Vice President and Treasurer
1900 Richmond Road
Cleveland, Ohio 44124
Telephone: 216/291-7566
Facsimile: 216/291-7831
(This space intentionally left blank)
-3-
<PAGE> 4
BANKS:
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% Bank of America National Trust
and Savings Association
By: /s/ Raju N. Patel
--------------------------------------------
Name: Raju N. Patel
Title: Vice President
DOMESTIC OFFICE
Bank of America NT & ST
1850 Gateway Boulevard
Concord, California 94520
Telephone: (510) 675-7178
Facsimile: (510) 675-7531
Attention: Mandy Sneary
EUROCURRENCY OFFICE
Bank of America NT & ST
1850 Gateway Boulevard
Concord, California 94520
Telephone: (510) 675-7178
Facsimile: (510) 675-7531
Attention: Mandy Sneary
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Bank of America
ABA Routing No. 121000358
Account No.: 12331-83980
Account Name: Incoming Money
Transfer
Reference No.: TRW Commitment Fee
-4-
<PAGE> 5
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% Barclays Bank PLC
By: /s/ Keith Mackie
--------------------------------------------
Name: Keith Mackie
Title: Director
DOMESTIC OFFICE
Barclays Bank PLC
222 Broadway
New York, New York 10038
Telephone: (212) 412-3728
Facsimile: (212) 412-5306
EUROCURRENCY OFFICE
Barclays Nassau, Bahamas Branch
c/o Barclays Bank PLC
222 Broadway
New York, New York 10038
Telephone: (212) 412-3728
Facsimile: (212) 412-5306
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Barclays Bank PLC-
New York
ABA Routing No. 026-002-574
Account No.: 050-019-104
Account Name: TRW
Reference No.: TRW Commitment Fee;
C. Tenn Sing Que
-5-
<PAGE> 6
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% The Chase Manhattan Bank
By: /s/ Andris G. Kalnins
--------------------------------------------
Name: Andris G. Kalnins
Title: Vice President
DOMESTIC OFFICE
The Chase Manhattan Bank
270 Park Avenue
47th Floor
New York, New York 10017-2070
Telephone: (212) 270-5732
Facsimile: (212) 270-5127
EUROCURRENCY OFFICE
The Chase Manhattan Bank
One Chase Manhattan Plaza
Eighth Floor
New York, New York 10081
Telephone: (212) 552-7472
Facsimile: (212) 552-5662
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Chase Manhattan Bank
ABA Routing No. 021-000021
Account No.:
Account Name: Commercial Loan Opns.
Reference No.: TRW Commitment Fee
-6-
<PAGE> 7
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% Citibank, N.A.
By: /s/ Marjorie Futornick
--------------------------------------------
Name: Marjorie Futornick
Title: Vice President
DOMESTIC OFFICE
Citibank, N.A.
c/o Citicorp Securities, Inc.
500 West Madison - 35th Floor
Chicago, IL 60661
Telephone: 312-627-3973
Facsimile: 312-627-3990
EUROCURRENCY OFFICE
Citibank, N.A.
c/o Citicorp Securities, Inc.
500 West Madison - 35th Floor
Chicago, IL 60661
Telephone: 312-627-3973
Facsimile: 312-627-3990
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Citibank, N.A., New York
ABA Routing No. 021000089
Account No.: 38483095
Account Name: Chicago NEO Loan Acct.
Reference No.: TRW Commitment Fee
-7-
<PAGE> 8
Amount of Percentage of
Commitment Commitments
$65,000,000 8.725% Dresdner Bank AG
By: /s/ Deborah Slusarczyk By: /s/ Ken Hamilton
--------------------------- ----------------------------
Name: Deborah Slusarczyk Name: Ken Hamilton
Title: Vice President Title: Senior Vice President
DOMESTIC OFFICE
Dresdner Bank AG New York Branch
75 Wall Street
New York, New York 10005
Telephone: (212) 429-2244
Facsimile: (212) 429-2524
EUROCURRENCY OFFICE
Dresdner Bank AG Grand Cayman Branch
c/o Dresdner Bank AG New York Branch
75 Wall Street
New York, New York 10005
Telephone: (212) 429-2244
Facsimile: (212) 429-2524
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Dresdner Bank AG,
New York Branch
ABA Routing No. 026008303
Account No.: 101-679/15
Account Name: TRW Inc.
Reference No.: Interest / Fees
-8-
<PAGE> 9
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% Morgan Guaranty Trust Company
of New York
By: /s/ Diana H. Imhof
--------------------------------------------
Name: Diana H. Imhof
Title: Vice President
DOMESTIC OFFICE
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260-0060
Telephone: 212-648-1291
Facsimile: 212-648-5014
EUROCURRENCY OFFICE
Morgan Guaranty Trust Company
of New York
Nassau, Bahamas Office
c/o J.P. Morgan Services Inc.
Euro-Loan Servicing Unit
902 Market Street
Wilmington, Delaware 19801
Telephone: 302-634-4163
Facsimile: 302-634-1091
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Morgan Guaranty Trust
ABA Routing No. 021000238
Account No.: 999-99-090
Account Name: Loan Dept
Reference No.: TRW Com. Fee
Corp. Proc. Module 30
-9-
<PAGE> 10
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% National City Bank
By: /s/ Davis R. Bonner
--------------------------------------------
Name: Davis R. Bonner
Title: Senior Vice President
DOMESTIC OFFICE
National City Bank
National City Center
P. O. Box 5756
Cleveland, Ohio 44101-0756
Telephone: (216) 575-3285
Facsimile: (216) 222-0003
EUROCURRENCY OFFICE
National City Bank
National City Center
P. O. Box 5756
Cleveland, Ohio 44101-0756
Telephone: (216) 575-3285
Facsimile: (216) 222-0003
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: National City Bank
ABA Routing No. 041000124
Account No.: 2537557
Account Name: ________________
Reference No.: TRW Commitment Fee
-10-
<PAGE> 11
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$65,000,000 8.725% NBD Bank
By: /s/ William J. McCaffrey
------------------------------
Name: William J. McCaffrey
Title: Vice President
DOMESTIC OFFICE
NBD Bank
Attention: Mid-Corporate Banking
611 Woodward
Detroit, Michigan 48226
Telephone: (313) 225-3444
Facsimile: (313) 225-3269
EUROCURRENCY OFFICE
NBD Bank
Attention: Mid-Corporate Banking
611 Woodward
Detroit, Michigan 48226
Telephone: (313) 225-3444
Facsimile: (313) 225-3269
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: NBD Bank
ABA Routing No. 072000326
Account No.: 1424183
Account Name: Commercial Loans
Reference No.: TRW Commitment Fee
-11-
<PAGE> 12
Amount of Percentage of
Commitment Commitments
- ---------- -------------
$45,000,000 6.040% Banque Nationale de Paris
By: /s/ Arnaud Collin du Bocage
---------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President
and General Manager
DOMESTIC OFFICE
Banque Nationale de Paris
Chicago Branch
Rookery Building
209 South LaSalle, 5th Floor
Chicago, Illinois 60604
Telephone: (312) 977-2211
Facsimile: (312) 977-1380
EUROCURRENCY OFFICE
Banque Nationale de Paris
Chicago Branch
Rookery Building
209 South LaSalle, 5th Floor
Chicago, Illinois 60604
Telephone: (312) 977-2211
Facsimile: (312) 977-1380
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Banque Nationale de Paris,
New York Branch
ABA Routing No. 026007689
Account No.: 14119400189
Account Name: BNP, Chicago Branch
Reference No.: TRW Commitment Fee
-12-
<PAGE> 13
Amount of Percentage of
Commitment Commitments
- ---------- -------------
$45,000,000 6.040% KeyBank National Association
By: /s/ Marianne T. Meil
--------------------------------------------
Name: Marianne T. Meil
Title: Vice President
DOMESTIC OFFICE
KeyBank National Association
127 Public Square
Cleveland, Ohio 44114
Telephone: (216) 689-4450
Facsimile: (216) 689-4981
EUROCURRENCY OFFICE
KeyBank National Association
127 Public Square
Cleveland, Ohio 44114
Telephone: (216) 689-4450
Facsimile: (216) 689-4981
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: KeyBank National
Association
ABA Routing No. 041001039
Account No.: 00100-39140
Account Name: Commercial Loan Opns
Reference No.: TRW Commitment Fee
-13-
<PAGE> 14
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$45,000,000 6.040% Royal Bank of Canada
By: /s/ P. K. Shields
--------------------------------------------
Name: P. K. Shields
Title: Senior Manager
DOMESTIC OFFICE
Royal Bank of Canada
Grand Cayman (North America No. 1) Branch
c/o New York Branch
One Liberty Plaza, 4th Floor
New York, New York 10006-1404
Telephone: (212) 428-6332
Facsimile: (212) 428-2372
EUROCURRENCY OFFICE
Royal Bank of Canada
Grand Cayman (North America No. 1) Branch
c/o New York Branch
One Liberty Plaza, 4th Floor
New York, New York 10006-1404
Telephone: (212) 428-6332
Facsimile: (212) 428-2373
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Chase Manhattan, NY
ABA Routing No. 021000021
Account No.: 9201033363
Account Name: Royal Bank
Reference No.: TRW Commitment Fee
-14-
<PAGE> 15
Amount of Percentage of
Commitment Commitments
- ---------- -------------
$30,000,000 4.027% Deutsche Bank AG, New York Branch
and/or Cayman Islands Branch
By: /s/ Hans-Josef Thiele By: /s/ Stephan A. Wiedermann
--------------------------- --------------------------------------------
Name: Hans-Josef Thiele Name: Stephan A. Wiedermann
Title: Director Title: Director
DOMESTIC OFFICE
Deutsche Bank AG
New York Branch and/or
Cayman Islands Branch
31 West 52nd Street
New York, NY 10019
Telephone: 212.469.4113
Facsimile: 212.469.4138
EUROCURRENCY OFFICE
Deutsche Bank AG
New York Branch and/or
Cayman Islands Branch
31 West 52nd Street
New York, NY 10019
Telephone: 212.469.4113
Facsimile: 212.469.4138
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Deutsche Bank AG
New York Branch
ABA Routing No. 026003780
Account No.: N/A
Account Name: N/A
Reference No.: TRW
-15-
<PAGE> 16
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,000,000 4.027% Istituto Bancario San Paolo di Torino
Istituto Mobilare Italiano S.p.A.
By: /s/ Luca Sacchi
--------------------------------------------
Name: Luca Sacchi
Title: Vice President
By: /s/ Carlo Persico
--------------------------------------------
Name: Carlo Persico
Title: First Vice President
DOMESTIC OFFICE
SAN PAOLO - IMI BANK
New York Branch
245 Park Avenue
New York, NY 10167
Telephone: 212.692.3130
Facsimile: 212.692.3178
EUROCURRENCY OFFICE
SAN PAOLO - IMI BANK
New York Branch
245 Park Avenue
New York, NY 10167
Telephone: 212.692.3130
Facsimile: 212.692.3178
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: First Chicago International
of New York
ABA Routing No. 026009797
Account No.: 1002209
Account Name: San Paolo-IMI, NY Branch
Reference No.: TRW Inc.
-16-
<PAGE> 17
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,000,000 4.027% Mellon Bank, N.A.
By: /s/ Ryan F. Busch
--------------------------------------------
Name: Ryan F. Busch
Title: Assistant Vice President
DOMESTIC OFFICE
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15259-0003
Telephone: 412.236.4817
Facsimile: 412.209.6124
EUROCURRENCY OFFICE
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15259-0003
Telephone: 412.236.4817
Facsimile: 412.209.6124
ELECTRONIC PAYMENT INSTRUCTIONS
Receiving Bank: Mellon Bank, N.A.
ABA Routing No. 043000261
Account No.: 990873800
Account Name: TRW Inc.
Reference No.:
- ----------- -------
$745,000,000 100.00% Total
-17-
<PAGE> 1
Exhibit 12
TRW Inc. and Subsidiaries
Computation of Ratio of Earnings
to Fixed Charges - Unaudited
(In millions except ratio data)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes $746.1 $239.7(A) $302.2(B) $625.5 $435.5
Unconsolidated affiliates 1.0 (8.0) 1.4 1.3 (0.6)
Minority earnings 10.5 20.2 11.5 10.8 7.7
Fixed charges excluding
capitalized interest 174.3 123.9 129.0 137.2 145.3
------ ------ ------ ------ ------
Earnings $931.9 $375.8 $444.1 $774.8 $587.9
------ ------ ------ ------ ------
Fixed Charges:
Interest expense $114.4 $75.4 $84.2 $94.7 $104.7
Capitalized interest 4.7 4.5 3.5 5.1 6.6
Portion of rents representa-
tive of interest factor 59.9 48.5 43.2 41.4 39.2
Interest expense of uncon-
solidated affiliates 0.0 0.0 1.6 1.1 1.4
------ ------ ------ ------ ------
Total fixed charges $179.0 $128.4 $132.5 $142.3 $151.9
------ ------ ------ ------ ------
Ratio of earnings to fixed
charges 5.2x 2.9x 3.4x 5.4x 3.9x
</TABLE>
(A) The 1997 earnings from continuing operations before income taxes of
$239.7 million includes a $548 million earnings charge for purchased
in-process research and development. See "Acquisitions" footnote in the
Notes to Financial Statements.
(B) The 1996 earnings from continuing operations before income taxes of
$302.2 million includes a charge of $384.8 million as a result of actions
taken in the automotive and space and defense businesses. See "Special
Charges and Divestiture" footnote in the Notes to Financial Statements.
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
RESULTS OF OPERATIONS
In 1998, the Company was successful in many areas - improving performance on
government contracts, growing the commercial wireless telecommunications product
lines and maintaining our market leadership position in the highly competitive
automotive supplier industry by introducing new products and by taking actions
to improve the profitability of the Company's automotive business.
Total 1998 sales grew 10 percent to $11.9 billion, compared with $10.8 billion
in 1997. Compared to 1996 sales of $9.9 billion, 1998 sales increased 21
percent. Net earnings and diluted earnings per share for the year were $477
million, or $3.83 per share, compared with a net loss of $49 million, or a net
loss per share of $.40 in 1997. Net earnings and diluted earnings per share for
1996 were $480 million, or $3.62 per share.
The above comparative results include the following items. The 1998 results
include a $20 million after tax, or $.16 per share, benefit from an interest
accrual adjustment relating to a tax litigation settlement and a $32 million
after tax, or $.25 per share, benefit from the settlement of certain patent
litigation, offset in part by $22 million after tax, or $.18 per share, in
charges for litigation and contract reserves and an $18 million after tax, or
$.15 per share, charge for the 1998 automotive restructuring. The 1997 results
include a $548 million, or $4.43 per share, one-time noncash charge with no
income tax benefit related to in-process research and development associated
with the acquisition of BDM International, Inc. (BDM) and a $9.7 million after
tax, or $.08 per share, gain from the sale of a property. The 1996 results
include three special items: a gain of $260 million after tax, or $1.96 per
share, related to the sale of the Company's information services business;
special charges of $202 million after tax, or $1.52 per share, for actions
taken, in part, to enhance the Company's competitiveness; and $50 million after
tax, or $.38 per share, of impairment losses that were primarily a result of
technological changes and the decision to close certain facilities in the
Automotive segment.
At December 31, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. At December 31, 1998, the
Company also adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." This statement revises employers' disclosures
about pensions and other postretirement benefit plans. The measurement and
recognition requirements for pension or other postretirement benefit plans have
not changed. During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement requires that unrealized gains
or losses on the Company's available-for-sale securities, foreign currency
translation and minimum pension liability adjustments be included in other
comprehensive income and that the accumulated balance of other comprehensive
income be separately displayed. Prior year information has been restated to
conform to the requirements of these new standards.
[LINE GRAPH]
96 9.9
97 10.8
98 11.9
SALES
($ in Billions)
[LINE GRAPH]
96 434
97 499
98 477
EARNINGS FROM CONTINUING OPERATIONS
Excluding 1997 charge for purchased in-process R&D, with no income tax benefit,
and 1996 special charges ($ in millions)
[LINE GRAPH]
96 3.27
97 4.03
98 3.83
DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Excluding 1997 charge for purchased in-process R&D, with no income tax benefit,
and 1996 special charges
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for years beginning after June 15, 1999, and is expected to be
adopted by the Company in 2000. This statement is not expected to have a
material effect on the Company's results of operations or financial condition.
28
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
SUBSEQUENT EVENT
On January 28, 1999, the Company announced its intention to acquire the entire
issued and to be issued share capital of LucasVarity plc in a cash tender offer
totaling approximately $7 billion. LucasVarity plc is a U.K. company with
ordinary shares traded on the London Stock Exchange and American Depository
Shares (ADSs) on the New York Stock Exchange. For the year ended January 31,
1998, LucasVarity had sales of $6.8 billion, $5.6 billion of which were derived
from the automotive industry and $1.2 billion from aerospace.
The Company has received fully underwritten financing from J.P. Morgan
Securities Inc., NationsBanc Montgomery Securities LLC, Salomon Smith Barney
Inc. and Barclays Capital. The boards of directors of both companies have
approved the transaction, and LucasVarity's directors have entered into
irrevocable agreements to tender their shares and ADSs in response to the offer.
The transaction, which is subject to normal closing conditions, may be completed
as early as the first quarter of 1999 and will be accounted for under purchase
accounting.
AUTOMOTIVE SEGMENT
Sales for 1998 increased 2 percent to $7.2 billion from $7.0 billion reported in
1997. Sales for 1998 increased primarily due to higher volume in nearly all
product lines. The increase was partially offset by lower pricing, primarily in
occupant restraint products, the effect of a strong U.S. dollar and weakening
economic conditions in Brazil and Asia.
Excluding the 1998 restructuring charge of $24 million, segment profit before
tax in 1998 decreased 11 percent to $567 million from $637 million in 1997.
Segment profit before tax for 1998 decreased due to lower pricing across all
product lines, higher research and development costs, unfavorable economic
conditions in Brazil and Asia and start-up costs associated with new product
launches. The decrease was partially offset by cost reductions.
Sales of $7.0 billion in 1997 represented an 8 percent increase over 1996 sales
of $6.5 billion. The higher sales resulted primarily from acquisitions and
higher volume in most product lines, partially offset by the effect of a strong
U.S. dollar and lower pricing. Segment profit before tax increased 2 percent to
$637 million in 1997 from $623 million reported in 1996, excluding $293 million
of special charges relating to asset impairments and writedowns, consolidation
of manufacturing plants, severance, litigation and warranty expenses. The
increase in segment profit before tax was due to acquisitions and cost reduction
efforts, partially offset by the effect of lower pricing, higher new product
research and development costs, the strong U.S. dollar and the economic weakness
in the Asia Pacific region.
[LINE GRAPH]
96 6.5
97 7.0
98 7.2
AUTOMOTIVE SALES
($ in billions)
[LINE GRAPH]
96 623
97 637
98 567
AUTOMOTIVE SEGMENT PROFIT BEFORE TAX
Excluding 1998 restructuring charge and 1996 special charges ($ in millions)
The Company anticipates that 1999 North American and Western European automotive
and light truck production will be relatively stable at 1998 levels. The Company
foresees growth in the emerging markets of Central and Eastern Europe. Recent
economic conditions in the Asia Pacific region and Latin America, primarily
Brazil, have had a negative impact on the Company's operations in these regions.
Future economic conditions in these regions could have continued unfavorable
effects in 1999. Strong price pressure, characteristic of the automotive supply
industry as a whole, is expected to continue across all product lines. The
Company's goal is to mitigate this pressure with the automotive restructuring
program in addition to the continuing cost reduction efforts.
On July 29, 1998, the Company announced actions intended to enhance the
automotive segment profit margins by 1.5 percentage points over two years, which
should improve operating cash flow by approximately $100 million a year. To
accomplish the improvements, the Company is taking the following
29
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
actions: closing 10 to 15 percent of the Company's 137 manufacturing plants;
reducing employment by 7,500; eliminating $75 million, or 20 percent, of
selling, general and administrative costs per year; reducing the cost of
materials through more effective use of global sourcing and purchasing, and by
reducing the number of automotive suppliers by 50 percent over the next few
years; improving productivity by reducing manufacturing costs by at least 25
percent over the next few years through the use of lean manufacturing practices
and improved quality; and reducing aggregate capital expenditures by $300
million over the next five years. To implement these changes, the Company will
record pre-tax charges of $125 million to $150 million by the end of 2000, of
which $24 million was expensed in 1998.
In 1998, three manufacturing facilities have been closed, reducing excess
manufacturing capacity, and two noncore businesses have been divested. A
management layer has been eliminated and the business has been reorganized into
eight global product lines. These actions resulted in a reduction in employees
of 2,750. The reorganization is aimed at enhancing customer focus, increasing
capacity utilization by managing capacity on a global basis and by implementing
lean manufacturing techniques, improving the effectiveness of product
development and manufacturing process engineering and leveraging global
purchasing power. Also, progress has been made in supplier consolidation and
improvement in supplier quality.
In addition to restructuring actions, the Company has invested and expects to
continue to invest in products with significant potential for growth or
technological advantage, such as electrically assisted steering, advanced
restraint systems, side-impact air bags, power rack and pinion steering,
advanced electronic components and new air bag inflator technologies. In 1998,
the Company introduced new automotive products including an innovative
multistage inflator that was part of a complete advanced restraint system and
successfully launched electrically powered hydraulic steering. The Company will
continue to take advantage of opportunities to enhance its global
competitiveness through internal growth and strategic alliances. During 1998,
the Company consummated 13 alliances, joint ventures and acquisitions in seven
countries. These strategic actions have served to enhance the Company's
capabilities as a global systems supplier. The Company is well positioned to
meet its customers' global requirements with quality products and services and
anticipates being awarded significant new business.
[LINE GRAPH]
96 3.4
97 3.8
98 4.7
SPACE, DEFENSE & INFORMATION SYSTEMS SALES
($ in billions)
[LINE GRAPH]
96 269
97 348
98 458
SPACE, DEFENSE & INFORMATION SYSTEMS SEGMENT PROFIT BEFORE TAX
Excluding 1996 special charges
($ in millions)
SPACE, DEFENSE & INFORMATION SYSTEMS SEGMENT
Sales for 1998 increased 23 percent to $4.7 billion from $3.8 billion reported
in 1997 due to the acquisition of BDM, which contributed $885 million in sales.
An increase in sales from new contract awards was offset by lower volume on
existing programs and a $60 million contract modification. The increase marks
this segment's fifth consecutive year of sales growth.
Segment profit before tax in 1998 increased 31 percent to $458 million from $348
million in 1997. The increase was due to the acquisition of BDM, new contract
awards, improved program performance, excellent award and orbital incentive
fees, continued success in commercial gallium arsenide products and the benefit
from the settlement of certain patent litigation. The increase was partially
offset by charges for litigation and contract reserves.
Sales in 1997 increased 13 percent to $3.8 billion compared with $3.4 billion
reported in 1996. Segment profit before tax in 1997 increased 29 percent to $348
million from $269 million, excluding $89 million of special charges in 1996
related primarily to contract reserves. The increase in sales and segment profit
before tax was due to strong program performance.
Government funding for most of the Company's contracts is expected to remain
stable while certain contracts remain fiscally constrained. However, increased
defense, intelligence and information technology spending is expected to
favorably impact many of the Company's major contracts and core businesses.
30
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
The Company does not anticipate any significant unfavorable operational effects
related to program terminations or budget reallocations. In addition, the
Company's products and services offer solutions for the continuing trends to
outsource services, lower the cost of doing business, improve quality and
decrease the time to market. The continuing focus on diversification of the
segment's sales mix has led to contracts in the civil, state, commercial and
international arenas, which further positions the segment for growth. The
Company believes the diversity of its programs insulates the Company from both
funding fluctuations and the economic uncertainty of global markets. The segment
remains focused on investing in new technologies, bidding and winning new
contracts and continuing to provide outstanding products and services to
customers.
Total backlog, primarily in the Space, Defense & Information Systems (SD&IS)
segment, at the end of 1998 totaled $6.0 billion, unchanged from 1997. The award
of several key programs in both defense and nondefense related markets
maintained the backlog while the segment targeted awards in new and emerging
markets. Reported backlog at the end of 1998 and 1997 does not include $6.6
billion and $3.6 billion, respectively, of negotiated and priced, but not
exercised, options for defense and nondefense programs. The exercise of the
options is at the discretion of the customer and, in the case of government
contracts, is dependent on future government funding.
ACQUISITIONS
During 1997, the Company acquired an 80 percent equity interest in the air bag
and steering wheel businesses of Magna International for cash of $415 million
plus assumed net debt of $50 million. The remaining 20 percent of Magna
International was acquired in 1998 for cash of $102 million.
On December 24, 1997, the Company acquired the stock of BDM for cash of $880
million plus assumed net debt of $85 million. With the acquisition of BDM, the
Company gained significantly greater capability to serve the fast-growing market
for government information technology as well as the very large, high-growth
commercial information technology market. The purchase price allocation resulted
in a $548 million charge to earnings, with no income tax benefit, for the fair
value of acquired in-process research and development that had not reached
technological feasibility and had no future alternative use and $152 million of
identified intangible assets, including core and developed technology, workforce
and trade name.
The fair values of in-process research and development and identified intangible
assets were determined by an independent valuation using the income approach.
Eight commercial projects were included in the valuation. The major projects
included: a commercial market adaptation of core network security to achieve the
highest level of network security of $201 million; a Web-enabled and
substantially enhanced warehouse and distribution management project of $199
million; and a module to enhance certain applications to become compliant with
the single European currency for a particular software of $69 million.
Due to the high level of risk associated with the successful development of the
projects arising from competition, shift in the market, technological
feasibility or timeliness to market, discount rates between 25 percent and 30
percent were used to discount the projects' cash flows. Operating margins were
assumed to be similar to historical margins of similar products. The market size
was verified for reasonableness with outside research sources. The projects were
in various stages of completion ranging from approximately one-third to
two-thirds complete as of the valuation date. The stage of completion for each
project was estimated by evaluating the complexity of the technology, time to
market and the cost. Substantially all of the projects were expected to be
complete by the end of 1999.
To date, several commercial projects, including the Web-enabled warehouse and
distribution project, have been delayed about one year due to the following
circumstances: competitive pressures in the information technology markets
requiring different or added functionality; delay in industry standards to be
enacted by third parties; change in internal project staffing; and increased
focus on Year 2000 compliance by customers. The costs to complete the projects
are substantially unchanged from the assumptions used in the valuation. The
delays of the projects are not expected to affect materially the Company's
expected investment returns. The Company currently anticipates that these
projects will be successfully developed; however, there can be no assurances
that the products will be viable in the rapidly changing commercial marketplace.
31
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
In addition, the development of two projects has changed in scope. The expected
revenue from the network security project will be reduced due to a change in the
market for the product. Four key factors reduced the Company's addressable
market for this product: the constraints due to hardware adaptability; the lack
of current interest in the commercial market for a high-end capability which
would command a premium price; the fact that a number of competitive products
have become available; and the increase in Internet traffic resulting in former
smaller sites growing to larger sites that require different technology. As a
result of the change in the market, the Company will focus on the completion and
release of the project in 2000 for core customers. Also, the research and
development of the European currency project was divested; however, the Company
will generate future revenues as a global systems integrator for all of the
acquirer's products and for two Company-developed software packages the acquirer
will distribute.
The Company has reevaluated the carrying values of the identified intangible
assets recorded as part of the purchase price for impairment and has concluded
that the carrying values of the intangible assets will be recovered.
As of December 31, 1998, the integration of BDM with the Company's previously
existing information technology business has been completed successfully. The
financial effect of BDM was relatively neutral to the Company's 1998 earnings
and is expected to be accretive beginning in 1999.
See the "Acquisitions" footnote in the Notes to Financial Statements for further
discussion of these acquisitions.
DISCONTINUED OPERATIONS
During 1996, the Company sold its information services business for $1.1
billion. The sale resulted in a gain of $484 million ($260 million after tax, or
$1.96 per share). The proceeds from the sale were used to repay debt, fund
investment opportunities and acquire the Company's common stock. The operating
results of the information services business and the related transaction gain
are reflected as discontinued operations for all periods presented in the
financial statements.
INTEREST EXPENSE
Interest expense in 1998 was $114 million compared with $75 million in 1997 and
$84 million in 1996. The increase in interest expense in 1998 from 1997 was
primarily due to higher average debt levels, partially offset by the benefit
from an interest accrual adjustment of $30 million relating to a tax litigation
settlement. The decrease in interest expense in 1997 from 1996 was primarily due
to the absence of a 1996 special charge, partially offset by higher average debt
levels.
INCOME TAXES
The effective tax rate for continuing operations was 36.1 percent in 1998
compared with 120.3 percent in 1997 and 39.6 percent in 1996. Excluding the
in-process research and development charge, the 1997 effective tax rate would
have been 36.6 percent. The effective tax rate for 1998 was lower than the
adjusted effective tax rate in 1997 by .5 percentage points primarily due to
U.S. export tax incentives and the recognition of tax benefits from divested
operations. These items were partially offset by unutilized tax losses. The
decrease in the 1997 adjusted effective tax rate from 1996 was attributable to
various federal and state tax incentives and the tax benefit from the
realignment of certain foreign operations.
INTERNATIONAL OPERATIONS
International sales were $4.5 billion, or 38 percent of the Company's sales in
1998; $4.4 billion, or 40 percent of sales in 1997; and $3.9 billion, or 40
percent of sales in 1996. U.S. export sales included in those amounts were $674
million in 1998, $732 million in 1997 and $764 million in 1996. Most of the
Company's non-U.S. operations are included in the Automotive segment and are
located in Europe, Mexico, Canada, Brazil and the Asia Pacific region. The
Company's non-U.S. operations are subject to the usual risks that may affect
such operations; however, most of the assets of its non-U.S. operations are in
countries where the Company believes such risks to be minimal.
32
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
LIQUIDITY AND FINANCIAL POSITION
Cash flow from operations in 1998 of $661 million and additional borrowings of
$522 million were used primarily for capital expenditures for property, plant
and equipment and other intangible assets of $625 million, acquisitions of $249
million, purchases of the Company's common stock of $184 million, of which $5
million was for the settlement of shares purchased in 1997, and dividend
payments of $154 million. Net debt at December 31, 1998, was $2,139 million
compared with $1,586 million at the end of 1997. The ratio of net debt
(short-term debt, current portion of long-term debt and long-term debt less cash
and cash equivalents) to total capital (net debt, minority interests and
shareholders' investment) was 52 percent at December 31, 1998, compared with 48
percent at December 31, 1997. The percentage of fixed-rate debt to total debt
was 52 percent at the end of 1998.
During 1998, 3.6 million shares of the Company's common stock were purchased for
$179 million. The Company purchased 4.6 million and 8.0 million shares in 1997
and 1996, respectively. The Company's share repurchase program was discontinued
in 1999.
Capital expenditures for property, plant and equipment and other intangible
assets were $625 million in 1998, $571 million in 1997 and $501 million in 1996.
The Company will maintain a capital program with estimated capital expenditures
for 1999 totaling about $600 million. Approximately two-thirds of these
expenditures will be invested in the Automotive segment and one-third in the
SD&IS segment. The Company will continue to invest in its automotive growth
businesses, including electrically assisted steering, advanced restraint
systems, side-impact air bags, power rack and pinion steering and advanced
electronic components. SD&IS expenditures will be used to support major new
contract awards and the existing business base, as well as research and
development of next-generation technologies.
During the third quarter of 1998, approximately $225 million of deferred tax
liabilities related to the closure of certain long-term contracts were paid.
During January 1998, the Company acquired 13.5 million shares (as adjusted for a
stock split), or approximately 7 percent of the outstanding shares, of ICO
Global Communications (Holdings) Limited for approximately $50 million in cash.
The Company and ICO dismissed legal proceedings pertaining to certain patent
rights related to their proposed global telecommunications systems. As part of
the patent litigation settlement, ICO paid the Company $25 million in January
1998 and will pay an additional $25 million by mid-1999. The Company has
discontinued efforts related to its Odyssey project, a satellite-based personal
communications system.
The Company's non-U.S. operations generally are financed by borrowings from
banks or through intercompany loans in the local currency of the borrower and by
equity capital invested by the Company and minority shareholders. There are no
significant restrictions on the remittance of funds by the Company's non-U.S.
subsidiaries to the United States. A discussion of the Company's credit
facilities is contained in the "Debt and Credit Agreements" footnote in the
Notes to Financial Statements.
During 1998, the Company established a $1 billion Universal Shelf Registration
Statement. Securities that may be issued under this shelf registration statement
include debt securities, common stock, warrants to purchase debt securities and
warrants to purchase common stock.
The Company is subject to inherent risks attributed to operating in a global
economy. It is the Company's policy to utilize derivative financial instruments
to manage its interest rate and foreign currency exchange rate risks. When
appropriate, the Company uses derivatives to hedge its exposure to short-term
interest rate changes as a lower cost substitute for the issuance of fixed-rate
debt. The Company manages cash flow transactional foreign exchange risk pursuant
to a written corporate policy. Forward contracts and, to a lesser extent,
options are utilized to protect the Company's cash flow from adverse movements
in exchange rates. The Company is exposed to credit loss in the event of
nonperformance by the other party to the derivative financial instruments. The
Company limits this exposure by entering into agreements with a number of major
financial institutions that meet credit standards established by the Company and
that are expected to satisfy fully their obligations under the contracts.
Derivative financial instruments are viewed by the Company as a risk management
tool and are not used for speculative or trading purposes.
33
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
Based on the Company's overall interest rate exposure at December 31, 1998, a
one-percentage-point increase in the average interest rate on the Company's
variable rate borrowings would not materially affect the results of operations
of the Company. Based on the Company's exposure to foreign currency exchange
rate risk resulting from derivative foreign currency instruments outstanding at
December 31, 1998, a 10 percent uniform weakening in the value of the U.S.
dollar relative to the currencies in which those derivative foreign currency
instruments are denominated would not materially affect the results of
operations of the Company. The Company's sensitivity analyses of the effects of
changes in foreign currency exchange rates do not reflect the effect of such
changes on the related hedged transactions or on other operating transactions.
The Company's sensitivity analyses of the effects of changes in interest rates
and foreign currency exchange rates do not factor in a potential change in the
level of variable rate borrowings or derivative instruments outstanding that
could take place if these hypothetical conditions prevailed.
Management believes the Company's current financial position and financing
arrangements, including financing for the acquisition of LucasVarity, allow
flexibility in worldwide financing activities and permit the Company to respond
to changing conditions in credit markets. Management believes that funds
generated from operations and existing borrowing capacity are adequate to fund
capital expenditures, working capital including tax requirements,
company-sponsored research and development programs, dividend payments to
shareholders and the acquisition of LucasVarity. The Company remains committed
to maintaining strong investment grade debt ratings.
CONTINGENCIES
During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the
Company, reported to the Arizona Department of Environmental Quality (ADEQ)
potential violations of the Arizona hazardous waste law at its Queen Creek,
Arizona facility for the possible failure to properly label and dispose of
wastewater that might be classified as hazardous waste. If ADEQ initiates
proceedings against the Company with respect to such matters, the Company could
be liable for penalties and fines and other relief. Management is currently
evaluating this matter and is unable to make a meaningful estimate of the amount
or range of possible liability, if any, at this time, although management
believes that the Company would have meritorious defenses.
During 1996, the Company was advised by the United States Department of Justice
that it had been named as a defendant in two lawsuits brought by a former
employee and filed under seal in 1994 and 1995, respectively, in the United
States District Court for the Central District of California under the qui tam
provisions of the civil False Claims Act. The Company cannot presently predict
the outcome of these lawsuits, although management believes that their ultimate
resolution will not have a material effect on the Company's financial condition
or results of operations.
Refer to the "Contingencies" footnote in the Notes to Financial Statements for
further discussion of these matters.
YEAR 2000
A company-wide Year 2000 (Y2K) compliance program has been implemented to
determine Y2K issues and define a strategy to assure Y2K compliance. The
compliance program has four major areas: internal computer systems, factory
floor systems, supplier and service management and products and contracts.
The general phases common to all areas of the compliance program are: Project
Start-up; Inventory and Assessment; Conversion, Upgrade and Renovation;
Validation, including testing; and Implementation. The Project Start-up and the
Inventory and Assessment phases are essentially complete. The remainder of the
Y2K compliance program is scheduled to be complete by year-end 1999 except for
certain Y2K upgrades for nonmaterial and low priority items.
The Company's internal computer systems are comprised of engineering and
research and development facilities, business computer systems, end user systems
and technical infrastructure. The Company estimates that 82 percent of internal
computer systems have been renovated to date. In addition, the Company estimates
that approximately 56 percent of internal computer
34
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
systems are complete with regard to validation and implementation. The remaining
renovation, validation and implementation of internal computer systems are
expected to be complete by the end of the second quarter 1999. The Company also
expects critical contingency plans to be developed by the end of the second
quarter 1999.
The factory floor systems are comprised of manufacturing and warehousing
equipment. The Company estimates that the conversion, upgrade and renovation of
these systems are 85 percent complete. In addition, the Company estimates that
58 percent of the factory floor systems have been validated. Validation,
implementation and critical contingency planning for the systems renovated in
1998 are expected to be complete by the end of the first quarter 1999. The
renovation of the remaining factory floor systems is expected to be complete by
the end of the first quarter of 1999. Validation, implementation and contingency
planning related to the systems being renovated during the first quarter of 1999
are expected to be complete by the end of the second quarter 1999.
The Company is continuing to evaluate Y2K issues associated with suppliers to
the Automotive segment by working with the Automotive Industries Action Group
(AIAG), which represents several of the Company's largest automotive customers
and major tier one suppliers. The AIAG sent self-assessment surveys to
approximately 10,000 automotive suppliers on the Company's behalf. An assessment
of each supplier's criticality and potential business risk to the Company has
been performed. The assessment includes factors such as the amount purchased
from the supplier and the availability of alternate sources of the items
purchased. Based on the assessment, the Company determined that approximately
2,400 of the 10,000 suppliers surveyed are critical to the automotive business.
The Company is validating the critical suppliers' state of Y2K readiness and
evaluating the risk to the Company by reviewing the self-assessment surveys and
by conducting telephone surveys, workshops or on-site visits for selected
critical suppliers. Approximately 22 percent of the critical suppliers have been
validated to date. The Company is contacting critical suppliers that have not
responded to the survey to ensure that the surveys are returned. Service
providers are also being surveyed to determine Y2K readiness. The Company
expects the validation of remaining critical automotive suppliers' and service
providers' Y2K readiness to be complete by the end of the second quarter 1999.
The Company is currently developing critical contingency plans for suppliers and
service providers and will continue this activity throughout 1999. Such plans
consider alternate sourcing, stockpiling of inventory and supplies and disaster
recovery scenarios.
For SD&IS suppliers and service providers, a similar process of evaluation and
validation is under way. During 1998, Y2K certification requests were sent to
approximately 5,700 suppliers, of which about 1,280 are critical to SD&IS. To
date, approximately 79 percent of those critical suppliers have responded and
have certified Y2K compliance. The Company is contacting suppliers that have not
provided certification to ensure that timely responses are received. The Company
expects the validation of SD&IS critical suppliers and service providers to be
complete by the end of the first quarter 1999. The Company also expects the
majority of critical contingency plans to be developed by the end of the second
quarter 1999. The Company will continue to validate any remaining critical
suppliers and service providers, as well as develop necessary contingency plans,
throughout 1999.
The Company has assessed its automotive products and determined that there
should be no Y2K issues.
Contracts entered into by the Company's SD&IS segment after January 1, 1996,
under which systems have been developed for government and commercial customers,
and contract modifications entered into after January 1, 1996 that add major
scope to earlier contracts are being evaluated to determine the existence of
material Y2K issues. These contracts have been assessed and validated, and the
Company has identified approximately 400 contracts having potential Y2K issues.
The Company is continuing to work with the applicable customers to determine
which party is responsible for renovating the systems with potential Y2K issues.
As the determination of the responsible party and development of any necessary
renovation timetables must be done in cooperation with the applicable customers,
the Company is currently unable to determine the extent or timing of the
renovations that will be required to be performed. To date, certain contracts
requiring renovation by the Company have been identified, and plans for
achieving Y2K compliance are being developed in cooperation with the applicable
customers. The Company expects renovations and critical contingency planning to
be performed throughout 1999.
35
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
As part of a continuing process, Y2K issues are being assessed as they are
identified, using formal program reviews to assess progress and initiate
required actions. As the Y2K compliance program proceeds, contingency plans are
being prepared, updated and implemented as necessary to address the risks
identified.
The Company has identified the most likely risks of Y2K noncompliance as the
risk that suppliers to the Automotive segment will not be Y2K compliant and the
risk that contracts on which SD&IS is performing work will have Y2K-related
performance issues. Due to the general uncertainty inherent in the Y2K problem,
the Company is unable to determine at this time whether the consequences of Y2K
compliance failures will have a material effect on the Company's results of
operations or financial condition. In addition, the Company does not have
control over service providers and as a result cannot currently estimate to what
extent future operating results may be adversely affected by the failure of
these service providers to address their Y2K issues successfully.
The total cost of the Company's Y2K compliance program is estimated to be $160
million and includes $79 million for capitalizable costs and $81 million of
costs that will be expensed as incurred. The Company has expensed approximately
$43 million to date and expects to expense $30 million in 1999. The Company does
not anticipate that the overall costs of the Company's Y2K compliance program
will have a material effect on the Company's financial results or financial
condition.
The dates of completion and the costs of the project are based on management's
estimates, which were derived utilizing assumptions of future events, including
the availability of certain resources, third-party modification plans and other
factors. There can be no guarantee that these estimates will be achieved, and if
the actual timing and costs for the Y2K program differ materially from those
anticipated, the Company's financial results and financial condition could be
materially adversely affected.
EURO CONVERSION
On December 31, 1998, certain member countries of the European Union irrevocably
fixed the conversion rates between their national currencies and a common
currency, the "Euro," which became their legal currency on January 1, 1999. The
participating countries' former national currencies will continue to exist as
denominations of the Euro between January 1, 1999 and January 1, 2002.
The Company has evaluated the business implications of conversion to the Euro,
including the need to adapt internal systems to accommodate Euro-denominated
transactions, including receipts and payments, the competitive implications of
cross-border price transparency and other strategic implications. The Company's
primary customers in the automotive industry in Europe are expected to require
Euro invoicing during 1999. Invoicing and other business functions will be
Euro-capable by the end of the transition period but may be converted earlier
where operationally efficient or cost-effective or to meet customer
requirements. The Company's exposure to foreign currency risk and the related
use of derivative contracts to mitigate that risk is expected to be reduced as a
result of conversion to the Euro.
The Company does not expect the conversion to the Euro to have a material effect
on its financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
Statements in this filing that are not statements of historical fact are
forward-looking statements. In addition, from time to time, the Company and its
representatives make statements that are forward-looking. All forward-looking
statements involve risks and uncertainties. This section provides readers with
cautionary statements identifying, for purposes of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, important factors that
could cause the Company's actual results to differ materially from those
contained in forward-looking statements made in this report or otherwise made
by, or on behalf of, the Company.
36
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION | TRW INC.
The following are some of the factors that could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements:
The Company's consolidated results could be affected by: the continued
development of and demand for new products; the ability to continue technical
innovation; availability of funding for research and development; the ability to
successfully identify and integrate acquisitions; pricing pressures from
customers; pricing pressures resulting from the European Economic Union's
conversion to a single currency; the ability to effectively implement the
company-wide Y2K compliance program in accordance with the estimated timetable
and costs described herein; the introduction of competing products or technology
by competitors; the ability to meet performance and delivery requirements on
systems for customers; the economic, regulatory and political instability of
certain emerging countries; economic conditions in Brazil and Asia; the effects
of changes in laws and regulations as they relate to the Company's businesses;
foreign exchange rates; the cost and availability of funds; interest rate risk;
the impact of legal proceedings; and the ability to attract and retain skilled
employees with high-level technical competencies.
The Company's automotive business also could be affected by: the ability to
effectively implement the Company's automotive restructuring program; changes in
consumer debt levels and interest rates; the cyclical nature of the automotive
industry; moderation or decline in the automobile build rate; successful new
product launches; successful implementation of the Company's Project ELITE
(Earning Leadership in Tomorrow's Environment) and the ability to achieve cost
reductions; work stoppages; customer warranty claims; changes to the regulatory
environment regarding automotive safety; and the Company's ability to increase
the vehicle content of its products per vehicle.
The Company's space, defense and information systems business also could be
affected by: the level of defense funding by the government; the Company's
ability to receive contract awards; the termination of existing government
contracts; and the ability to develop and market products and services for
customers outside of the traditional space, defense and information systems
markets.
Certain statements contained in this report or otherwise made by or on behalf of
the Company regarding the purchase of LucasVarity, particularly those regarding
synergies, future performance and costs, depend on certain events, risks and
uncertainties that may be outside of the Company's control. Factors which could
cause actual operating results to differ materially from those described in such
forward-looking statements include: unanticipated events and circumstances may
occur rendering the transaction less beneficial to the Company than anticipated;
the Company and LucasVarity face intense competition in their markets and there
is, accordingly, no guarantee that after consummation of the transaction the
Company will achieve the expected financial and operating results and synergies;
and the ability of the Company and LucasVarity to integrate successfully their
operations and thereby achieve the anticipated cost savings and be in a position
to take advantage of potential opportunities for growth.
The foregoing list of important factors is not exclusive.
The Company cautions that any forward-looking statement reflects only the
beliefs of the Company or its management at the time the statement is made. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement was made.
37
<PAGE> 11
MANAGEMENT & AUDITORS' REPORT | TRW INC.
REPORT OF MANAGEMENT
Management of TRW is responsible for the preparation of the accompanying
consolidated financial statements of the Company and its subsidiaries. The
financial statements have been prepared in conformity with generally accepted
accounting principles and include the estimates and judgments of management. The
financial statements have been audited by Ernst & Young LLP, independent
auditors, whose report appears below.
Management has established and is responsible for maintaining a system of
internal accounting controls that it believes provides reasonable assurance that
assets are safeguarded and transactions are executed and recorded in accordance
with management's authorization. The system is tested and evaluated regularly by
the Company's internal auditors as well as by the independent auditors in
connection with their annual audit.
TRW has an audit committee composed of four directors who are not members of
management. The committee meets regularly with management, the internal auditors
and the independent auditors in connection with its review of matters relating
to the Company's financial statements, the Company's internal audit program, the
Company's system of internal accounting controls and the services of the
independent auditors. The committee also meets with the internal auditors as
well as the independent auditors, without management present, to discuss
appropriate matters. The committee also recommends to the directors the
designation of the independent auditors.
/s/ Joseph T. Gorman /s/ Carl G. Miller /s/ Thomas A. Connell
Joseph T. Gorman Carl G. Miller Thomas A. Connell
Chairman and Executive Vice President and Vice President and
Chief Executive Officer Chief Financial Officer Corporate Controller
January 19, 1999
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Directors, TRW Inc.
We have audited the accompanying consolidated balance sheets of TRW Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of earnings, cash flows and changes in shareholders' investment for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TRW Inc. and
subsidiaries at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 19, 1999
38
<PAGE> 12
FINANCIAL STATEMENTS | TRW INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
TRW Inc. and subsidiaries
(In millions except per share data)
Years ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 11,886 $ 10,831 $ 9,857
Cost of sales 9,715 8,826 8,376
- ------------------------------------------------------------------------------------------
Gross profit 2,171 2,005 1,481
Administrative and selling expenses 826 684 613
Research and development expenses 522 461 412
Purchased in-process research and development -- 548 --
Interest expense 114 75 84
Other expense(income)-net (37) (3) 70
- ------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 746 240 302
Income taxes 269 289 120
- ------------------------------------------------------------------------------------------
Earnings(loss) from continuing operations 477 (49) 182
Discontinued operations
Earnings from operations -- -- 38
Gain on disposal -- -- 260
- ------------------------------------------------------------------------------------------
Net earnings(loss) $ 477 $ (49) $ 480
- ------------------------------------------------------------------------------------------
Per share of common stock
Diluted
Continuing operations $ 3.83 $ (.40) $ 1.37
Discontinued operations
Earnings from operations -- -- .29
Gain on disposal -- -- 1.96
- ------------------------------------------------------------------------------------------
Net earnings(loss) per share $ 3.83 $ (.40) $ 3.62
- ------------------------------------------------------------------------------------------
Basic
Continuing operations $ 3.93 $ (.40) $ 1.41
Discontinued operations
Earnings from operations -- -- .29
Gain on disposal -- -- 2.02
- ------------------------------------------------------------------------------------------
Net earnings(loss) per share $ 3.93 $ (.40) $ 3.72
- ------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
39
<PAGE> 13
FINANCIAL STATEMENTS | TRW INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
TRW Inc. and subsidiaries
(In millions)
December 31 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 83 $ 70
Accounts receivable (net of allowances of $33 million in 1998 and $23 million in 1997) 1,721 1,617
Inventories
Finished products and work in-process 316 292
Raw materials and supplies 300 281
- ---------------------------------------------------------------------------------------------------------------------
Total inventories 616 573
Prepaid expenses 104 79
Deferred income taxes 179 96
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 2,703 2,435
Property, plant and equipment-on the basis of cost
Land 119 111
Buildings 1,706 1,599
Machinery and equipment 4,779 4,364
- ---------------------------------------------------------------------------------------------------------------------
6,604 6,074
Less accumulated depreciation and amortization 3,921 3,453
- ---------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment-net 2,683 2,621
Intangible assets
Intangibles arising from acquisitions 850 673
Other 360 232
- ---------------------------------------------------------------------------------------------------------------------
1,210 905
Less accumulated amortization 143 94
- ---------------------------------------------------------------------------------------------------------------------
Total intangible assets-net 1,067 811
Investments in affiliated companies 243 139
Long-term deferred income taxes 33 --
Other notes and accounts receivable 227 194
Other assets 213 210
- ---------------------------------------------------------------------------------------------------------------------
$ 7,169 $ 6,410
------------------
Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 839 $ 411
Accrued compensation 377 338
Trade accounts payable 964 859
Other accruals 631 846
Dividends payable 40 38
Income taxes 137 99
Current portion of long-term debt 30 128
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,018 2,719
Long-term liabilities 826 788
Long-term debt 1,353 1,117
Deferred income taxes -- 57
Minority interests in subsidiaries 94 105
Shareholders' investment
Serial Preference Stock II (involuntary liquidation $7 million in 1998 and $8 million in 1997) -- 1
Common stock (shares outstanding 119.9 million in 1998 and 122.5 million in 1997) 75 78
Other capital 457 450
Retained earnings 2,021 1,778
Treasury shares-cost in excess of par value (637) (563)
Accumulated other comprehensive income(loss) (38) (120)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 1,878 1,624
- ---------------------------------------------------------------------------------------------------------------------
$ 7,169 $ 6,410
------------------
</TABLE>
See notes to financial statements
40
<PAGE> 14
FINANCIAL STATEMENTS | TRW INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TRW Inc. and subsidiaries
(In millions)
Years ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings(loss) $ 477 $ (49) $ 480
Adjustments to reconcile net earnings(loss) to
net cash provided by continuing operations
Purchased in-process research and development -- 548 --
Depreciation and amortization 566 490 452
Deferred income taxes (223) 116 (182)
Discontinued operations -- -- (298)
Other-net 8 10 23
Changes in assets and liabilities, net of effects of businesses acquired or sold
Accounts receivable (27) 32 (46)
Inventories and prepaid expenses (73) (26) 8
Accounts payable and other accruals (73) (166) 298
Other-net 6 (1) (24)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of continuing operations 661 954 711
Investing activities
Capital expenditures (625) (571) (501)
Acquisitions, net of cash acquired (249) (1,270) (76)
Net proceeds from divestitures -- -- 789
Other-net 17 24 35
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by(used in) investing activities (857) (1,817) 247
Financing activities
Increase(decrease) in short-term debt (167) 912 (127)
Proceeds from debt in excess of 90 days 1,086 113 51
Principal payments on debt in excess of 90 days (397) (89) (91)
Dividends paid (154) (154) (148)
Acquisition of common stock (184) (247) (361)
Other-net 26 41 51
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by(used in) financing activities 210 576 (625)
Effect of exchange rate changes on cash (1) (29) (6)
- ---------------------------------------------------------------------------------------------------------------------
Increase(decrease) in cash and cash equivalents 13 (316) 327
Cash and cash equivalents at beginning of year 70 386 59
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 83 $ 70 $ 386
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest paid (net of amount capitalized) $ 133 $ 76 $ 89
Income taxes paid (net of refunds) 391 78 615
- ---------------------------------------------------------------------------------------------------------------------
</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.
See notes to financial statements.
41
<PAGE> 15
FINANCIAL STATEMENTS | TRW INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Serial Accumulated
Preference Other Total
TRW Inc. and subsidiaries Stock II Common Other Retained Treasury Comprehensive Shareholders'
(In millions) Series 1&3 Stock Capital Earnings Shares Income (Loss) Investment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1 $ 40 $ 398 $ 1,693 $ (31) $ 71 $ 2,172
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings - 1996 480 480
Other comprehensive income
Translation loss,
net of tax of $2 million (29) (29)
Minimum pension liability,
net of tax of $2 million 3 3
-------------
Total comprehensive income 454
Stock dividend 42 (42) -
Dividends declared
Preference (1) (1)
Common ($1.17 per share) (150) (150)
ESOP funding 17 17
Purchase and sale of
shares and other (2) 39 (372) (335)
Shares sold under stock options 32 32
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1 80 437 1,980 (354) 45 2,189
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings(loss) - 1997 (49) (49)
Other comprehensive income
Translation loss,
net of tax of $7 million (177) (177)
Unrealized gain on securities,
net of tax of $6 million 12 12
-------------
Total comprehensive income(loss) (214)
Dividends declared
Preference (1) (1)
Common ($1.24 per share) (152) (152)
ESOP funding 2 2
Purchase and sale of
shares and other (2) 13 (262) (251)
Shares sold under stock options 51 51
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1 78 450 1,778 (563) (120) 1,624
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings - 1998 477 477
Other comprehensive income
Translation gain,
net of tax of $3 million 75 75
Unrealized gain on securities,
net of tax of $10 million 18 18
Minimum pension liability,
net of tax of $5 million (11) (11)
-------------
Total comprehensive income 559
Dividends declared
Preference (1) (1)
Common ($1.28 per share) (154) (154)
Purchase and sale of
shares and other (1) (3) 7 3 (181) (175)
Credits(charges) from issuance
of treasury shares (82) 82 -
Shares sold under stock options 25 25
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ - $ 75 $ 457 $ 2,021 $ (637) $ (38) $ 1,878
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
42
<PAGE> 16
FINANCIAL STATEMENTS | TRW INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
the Company and its subsidiaries except for two wholly owned insurance
subsidiaries. The insurance subsidiaries and the investments in affiliated
companies are accounted for by the equity or cost method as appropriate. Use of
estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of December 31, 1998 and
1997, and reported amounts of sales and expenses for the years ended December
31, 1998, 1997 and 1996. Actual results could differ from those estimates.
LONG-TERM CONTRACTS - The percentage-of-completion (cost-to-cost) method is used
to estimate sales under fixed-price and fixed-price incentive contracts. Sales
under cost-reimbursement contracts are recorded as costs are incurred. Fees
based on cost, award fees and incentive fees are included in sales at the time
such amounts are reasonably estimable. Losses on contracts are recognized when
determinable.
ACCOUNTS RECEIVABLE - Accounts receivable at December 31, 1998 and 1997,
included $692 million and $640 million, respectively, related to long-term
contracts, of which $339 million and $209 million, respectively, were unbilled.
Unbilled costs, fees and claims represent revenues earned and billable in the
following month as well as revenues earned but not billable under terms of the
contracts. A substantial portion of such amounts is expected to be billed during
the following year. Retainage receivables and receivables subject to negotiation
are not significant.
INVENTORIES - Inventories are stated at the lower of cost, principally the
first-in, first-out (FIFO) method, or market. Inventories applicable to
long-term contracts are not significant.
DEPRECIATION - Depreciation is computed over the assets' estimated useful lives
using the straight-line method for the majority of the Company's depreciable
assets. The remaining assets are depreciated using accelerated methods. The
estimated useful lives of buildings, machinery and equipment, and computers and
other equipment are between 30-40 years, 8-12 years and 3-5 years, respectively.
ASSET IMPAIRMENT - The Company records impairment losses on long-lived and
intangible assets used in operations when events and circumstances indicate that
the assets may be impaired and the undiscounted net cash flows estimated to be
generated by those assets are less than their carrying amounts.
INTANGIBLE ASSETS - Intangible assets are stated on the basis of cost and are
being amortized by the straight-line method over the estimated future periods to
be benefited, except for intangibles arising from acquisitions prior to 1971
($49 million) which are not being amortized because there is no indication of
diminished value. Intangibles arising from acquisitions after 1970 are being
amortized over periods primarily ranging from 15 to 40 years. Other intangible
assets primarily include capitalized software and other intangible assets
acquired through acquisitions including core and developed technology, workforce
and trade name. Capitalized software is being amortized over periods not to
exceed 10 years. Other intangible assets acquired through acquisitions are being
amortized primarily over 15 years. The carrying value of intangible assets is
assessed for impairment on a quarterly basis.
FORWARD EXCHANGE CONTRACTS - The Company enters into forward exchange contracts
the majority of which hedge firm foreign currency commitments and certain
intercompany transactions. At December 31, 1998, the Company had contracts
outstanding amounting to $162 million denominated principally in the British
pound, the U.S. dollar, the Spanish peseta, the European currency unit and the
Canadian dollar, maturing at various dates through December 1999. Changes in
market value of the contracts are generally included in the basis of the
transactions. Foreign exchange contracts are placed with a number of major
financial institutions to minimize credit risk. No collateral is held in
relation to the contracts, and the Company anticipates that these financial
institutions will satisfy their obligations under the contracts.
43
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS | TRW INC.
FAIR VALUES OF FINANCIAL INSTRUMENTS -
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------------
Carrying Fair Carrying Fair
(In millions) value value value value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 83 $ 83 $ 70 $ 70
Short-term debt 839 839 411 411
Floating rate long-term debt 227 227 736 736
Fixed rate long-term debt 1,156 1,249 509 584
Interest rate hedges - (liability) - - - (5)
Forward currency exchange contracts - asset(liability) - 1 - (2)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of long-term debt was estimated using a discounted cash flow
analysis, based on the Company's current borrowing rates for similar types of
borrowing arrangements. The fair value of interest rate hedges and forward
currency exchange contracts is estimated based on quoted market prices of
offsetting contracts.
ENVIRONMENTAL COSTS - The Company participates in environmental assessments and
remedial efforts at operating facilities, previously owned or operated
facilities, and Superfund or other waste sites. Costs related to these locations
are accrued when it is probable that a liability has been incurred and the
amount of that liability can be reasonably estimated. Estimated costs are
recorded at undiscounted amounts based on experience and assessments and are
regularly evaluated as efforts proceed. Insurance recoveries are recorded as a
reduction of environmental costs when fixed and determinable.
COMPREHENSIVE INCOME - The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" during the first
quarter of 1998. This statement requires that foreign currency translation,
unrealized gains or losses on the Company's available-for-sale securities and
minimum pension liability adjustments be included in other comprehensive income
and that the accumulated balance of other comprehensive income be separately
displayed. Prior year information has been restated to conform to the
requirements of Statement 130.
The components of accumulated other comprehensive income at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation loss
(net of tax of $1 million in 1998 and $4 million in 1997) $ (55) $ (130)
Unrealized gain on securities
(net of tax of $16 million in 1998 and $6 million in 1997) 30 12
Minimum pension liability adjustments
(net of tax of $7 million in 1998 and $2 million in 1997) (13) (2)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income(loss) $ (38) $ (120)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
TREASURY STOCK - In February 1996, the Company's Directors authorized the
acquisition of up to 20 million shares of the Company's common stock. The
Company's purchases of shares of TRW common stock are recorded as treasury stock
and result in a reduction of shareholders' investment. When treasury shares are
issued, the Company uses a first-in, first-out method and the excess of the
purchase price over the issuance price is treated as a reduction of retained
earnings.
44
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS | TRW INC.
EARNINGS PER SHARE - The effects of preferred stock dividends, convertible
preferred stock and employee stock options were excluded from the calculation of
1997 diluted earnings per share as they would have been antidilutive.
<TABLE>
<CAPTION>
(In millions except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator
Earnings(loss) from continuing operations $ 476.8 $ (48.5) $ 182.4
Preferred stock dividends (.6) (.7) (.7)
- ---------------------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share - earnings(loss)
available to common shareholders 476.2 (49.2) 181.7
Effect of dilutive securities
Preferred stock dividends .6 - .7
- ---------------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share - earnings(loss)
available to common shareholders after assumed conversions $ 476.8 $ (49.2) $ 182.4
- ---------------------------------------------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per share -
weighted-average common shares 121.3 123.7 128.7
Effect of dilutive securities
Convertible preferred stock .9 - 1.1
Employee stock options 2.2 - 3.0
- ---------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 3.1 - 4.1
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 124.4 123.7 132.8
- ---------------------------------------------------------------------------------------------------------------------------
Basic earnings(loss) per share from continuing operations $ 3.93 $ (.40) $ 1.41
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings(loss) per share from continuing operations 3.83 (.40) 1.37
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer-funded $ 1,425 $ 1,501 $ 1,425
Company-funded
Research and development 522 461 412
Product development 196 184 160
- ---------------------------------------------------------------------------------------------------------------------------
718 645 572
--------------------------------------
$ 2,143 $ 2,146 $ 1,997
--------------------------------------
</TABLE>
Company-funded research and development programs include research and
development for commercial products and independent research and development and
bid and proposal work related to government products and services. A portion of
the cost incurred for independent research and development and bid and proposal
work is recoverable through overhead charged to government contracts. Product
development costs include engineering and field support for new customer
requirements.
The 1997 amounts exclude the $548 million charge for purchased in-process
research and development.
45
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS | TRW INC.
ACQUISITIONS
On February 5, 1997, the Company acquired an 80 percent equity interest in the
air bag and steering wheel businesses of Magna International for cash of $415
million plus assumed net debt of $50 million. On January 30, 1998, the Company
acquired the remaining 20 percent for cash of $102 million. These businesses
supply air bag modules, inflators, propellants, steering wheels and other
related automotive components. The results of operations have been included in
the financial statements from the dates of acquisition. The acquisitions were
accounted for by the purchase method; accordingly, the combined purchase price
has been allocated to the net assets acquired based on their estimated fair
values and to costs for certain restructuring actions, primarily plant closing
and severance costs of $40 million. As of December 31, 1998, the balance of the
restructuring reserve, included in other accruals, was $18 million and will be
used primarily for severance costs in 1999 and 2000. The combined purchase price
in excess of the net assets was $336 million and it is being amortized over 40
years.
On December 24, 1997, the Company acquired the shares of BDM International, Inc.
(BDM) for cash of $880 million plus assumed net debt of $85 million. BDM is an
information technology company operating in the systems and software
integration, computer and technical services and enterprise management and
operations markets. The acquisition was accounted for by the purchase method
with the purchase price allocated to the net assets acquired based on their fair
values. An independent valuation was performed, primarily using the income
approach for valuing the intangible assets. As a result of the valuation, $548
million was allocated to in-process research and development projects that had
not reached technological feasibility and had no alternative future use. This
amount was recognized as an expense with no income tax benefit at the date of
acquisition. The intangible assets of $371 million are being amortized over an
average period of 15 years.
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company as if the 1997 acquisitions
had taken place at the beginning of the respective periods. The pro forma
information includes adjustments for interest expense that would have been
incurred to finance the acquisitions, additional depreciation based on the fair
market value of the property, plant and equipment acquired, write-off of
purchased in-process research and development and the amortization of intangible
assets arising from the transactions. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been had
the transactions been affected on the assumed dates.
<TABLE>
<CAPTION>
(In millions except per share data)
Year ended (unaudited) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 11,758 $ 11,231
Loss from continuing operations (85) (392)
Loss per share (.69) (3.05)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS | TRW INC.
SPECIAL CHARGES AND DIVESTITURE
On July 29, 1998, the Company announced actions intended to enhance the
automotive segment profit margins. The Company will record pre-tax charges of
$125 million to $150 million by the end of 2000, of which $24 million was
expensed in 1998 primarily for plant closing and severance costs. Other accruals
at December 31, 1998 includes $18 million relating to these charges and will be
used in 1999.
During 1996, the Company recorded before-tax charges of $385 million ($252
million after tax, or $1.90 per share) primarily for actions taken in the
automotive and space, defense and information systems businesses. The components
of the charge included severance costs of $40 million, contract reserves of $99
million, litigation and warranty expenses of $127 million, asset writedowns of
$96 million and other items of $23 million. The charges are included in the
Statements of Earnings for 1996 as follows: $321 million included in cost of
sales, $18 million included in interest expense, $65 million included in other
expense(income)-net and a reduction of $19 million included in other captions.
Other accruals at December 31, 1998 and 1997 included $7 million and $21
million, respectively, relating to severance costs. The balance will be expended
in 1999 and 2000.
During 1996, the Company sold substantially all of the businesses in its
Information Systems & Services segment. 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. Net proceeds of $1.1
billion in cash resulted in a gain of $484 million ($260 million after tax, or
$1.96 per share). Sales of the discontinued operations were $453 million in
1996.
OTHER EXPENSE (INCOME)-NET
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other income $ (123) $ (66) $ (67)
Other expense 73 48 119
Minority interests 11 20 12
Earnings of affiliates (5) (12) (1)
Foreign currency translation 7 7 7
- ---------------------------------------------------------------------------------------------------------------------------
$ (37) $ (3) $ 70
------------------------------------
</TABLE>
Other income in 1998 includes a $49 million benefit from the settlement of
certain patent litigation. Other income in 1997 includes a $15 million gain on
the sale of a property. Other expense in 1996 includes $65 million of special
charges. Refer to the "Special Charges and Divestiture" footnote.
47
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS | TRW INC.
INCOME TAXES
<TABLE>
<CAPTION>
Earnings from continuing operations before income taxes
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 534 $ 95 $ 133
Non-U.S. 212 145 169
- ---------------------------------------------------------------------------------------------------------------------------
$ 746 $ 240 $ 302
------------------------------------
Provision for income taxes
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Current
U.S. federal $ 359 $ 136 $ 176
Non-U.S. 86 84 73
U.S. state and local 28 23 20
- ---------------------------------------------------------------------------------------------------------------------------
473 243 269
Deferred
U.S. federal (196) 46 (130)
Non-U.S. (10) (4) (6)
U.S. state and local 2 4 (13)
- ---------------------------------------------------------------------------------------------------------------------------
(204) 46 (149)
------------------------------------
$ 269 $ 289 $ 120
------------------------------------
Effective income tax rate
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Nondeductible expenses .9 2.7 2.4
U.S. state and local income taxes net of U.S. federal tax benefit 2.6 7.6 3.0
Non-U.S. tax rate variances net of foreign tax credits 2.1 (2.2) 3.4
Prior years' adjustments (.3) (3.5) (1.9)
Purchased in-process research and development - 80.0 -
Other (4.2) .7 (2.3)
- ---------------------------------------------------------------------------------------------------------------------------
36.1% 120.3% 39.6%
------------------------------------
</TABLE>
The effective tax rate in 1998 was 36.1 percent compared with 120.3 percent in
1997. Excluding the write-off of purchased in-process research and development,
the 1997 effective tax rate would have been 36.6 percent.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1998 and
1997, the Company had unused tax benefits of $39 million and $30 million,
respectively, related to non-U.S. net operating loss carryforwards for income
tax purposes, of which $25 million and $13 million can be carried forward
indefinitely and the balance expires at various dates through 2005. A valuation
allowance at December 31, 1998 and 1997, of $29 million and $25 million,
respectively, has been recognized to offset the related deferred tax assets due
to the uncertainty of realizing the benefit of the loss carryforwards.
It is the Company's intention to reinvest undistributed earnings of certain of
its non-U.S. subsidiaries and thereby indefinitely postpone their remittance.
Accordingly, deferred income taxes have not been provided for accumulated
undistributed earnings of $544 million at December 31, 1998.
48
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS | TRW INC.
<TABLE>
<CAPTION>
Deferred tax Deferred tax
assets liabilities
----------------- --------------------
(In millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pensions and postretirement benefits other than pensions $ 259 $ 260 $ - $ 6
Completed contract method of accounting for long-term contracts - 49 165 457
Service contracts - - 24 -
State and local taxes 12 23 1 -
Reserves and accruals 161 142 - -
Depreciation and amortization - 10 128 91
Insurance accruals 32 22 - -
Non-U.S. net operating loss carryforwards 39 30 - -
Other 106 123 50 41
- ---------------------------------------------------------------------------------------------------------------------------
609 659 368 595
Valuation allowance for deferred tax assets (29) (25) - -
- ---------------------------------------------------------------------------------------------------------------------------
$ 580 $ 634 $ 368 $ 595
-------------------------------------------
</TABLE>
PENSION PLANS
At December 31, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement revises
employers' disclosures about pensions and other postretirement benefit plans.
The measurement and recognition requirements for pension or other postretirement
benefit plans have not changed. Prior year information has been restated to
conform to the requirements of the new standard.
The Company has defined benefit pension plans for substantially all employees.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1998, and a statement of the funded status as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------- ---------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $ 2,872 $ 429 $ 2,381 $ 412
Service cost 94 16 72 16
Interest cost 200 29 179 29
Amendments 3 1 5 5
Actuarial loss 127 64 320 17
Foreign currency exchange rate changes - 7 - (31)
Acquisitions - - 114 -
Benefits paid (254) (29) (199) (19)
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligations at December 31 3,042 517 2,872 429
Change in plan assets
Fair value of plan assets at January 1 3,139 322 2,787 314
Actual return on plan assets 392 22 438 24
Foreign currency exchange rate changes - (4) - (13)
Acquisitions - - 104 -
Company contributions 27 21 9 13
Plan participant contributions - 3 - 3
Benefits paid (254) (29) (199) (19)
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 3,304 335 3,139 322
Funded status of the plan 262 (182) 267 (107)
Unrecognized actuarial (gain)loss (172) 28 (162) (39)
Unrecognized prior service cost 29 10 33 11
Unrecognized net transition asset (4) (10) (23) (11)
- ---------------------------------------------------------------------------------------------------------------------------
Total recognized $ 115 $ (154) $ 115 $ (146)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS | TRW INC.
The following table provides the amounts recognized in the balance sheet as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ --------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 169 $ 2 $ 157 $ (115)
Accrued benefit liability (54) (156) (42) (31)
Additional minimum liability (13) (20) (16) (7)
Intangible asset and other 9 4 13 6
Accumulated other comprehensive income 4 16 3 1
- ---------------------------------------------------------------------------------------------------------------------------
Total recognized $ 115 $ (154) $ 115 $ (146)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the U.S. pension plans with accumulated benefit obligations
in excess of plan assets were $72 million, $62 million and zero, respectively,
as of December 31, 1998, and $189 million, $167 million and $105 million,
respectively, as of December 31, 1997.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the non-U.S. pension plans with accumulated benefit
obligations in excess of plan assets were $187 million, $169 million and $22
million, respectively, as of December 31, 1998, and $150 million, $138 million
and $21 million, respectively, as of December 31, 1997.
The defined benefit pension plans held approximately 4.8 million and 4.4 million
shares of the Company's common stock with a fair value of approximately $267
million and $232 million at December 31, 1998 and 1997, respectively. The plans
received approximately $6 million and $5 million in dividends on these shares in
1998 and 1997, respectively.
The following table provides the components of net pension cost for the plans
for years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------- --------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Defined benefit plans
Service cost-benefits earned during the year $ 94 $ 16 $ 72 $ 16 $ 73 $ 14
Interest cost on projected benefit obligations 200 29 179 29 165 28
Expected return on plan assets (260) (28) (223) (26) (205) (24)
Amortization of recognized loss 1 1 - - 10 4
Amortization of prior service cost 7 2 7 3 6 6
Amortization of transition asset (18) (1) (18) (1) (18) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Defined benefit plans 24 19 17 21 31 27
Defined contribution plans 1 5 1 5 1 5
Employee stock ownership and savings plan 47 - 44 - 40 -
- ---------------------------------------------------------------------------------------------------------------------------
Total pension cost $ 72 $ 24 $ 62 $ 26 $ 72 $ 32
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amount included within other comprehensive income arising from a change in
the minimum pension liability was a loss of $11 million, net of tax of $5
million, in 1998, zero in 1997 and a gain of $3 million, net of tax of $2
million, in 1996.
The assumptions used in the measurement of the Company's benefit obligations are
shown in the following table:
<TABLE>
<CAPTION>
1998 1997
-------------------- ------------------
U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial assumptions
Discount rate 6.75% 5.5-6.0% 7.00% 6.0-7.0%
Rate of increase in compensation levels 4.00% 2.0-3.5% 4.40% 3.5-4.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS | TRW INC.
The expected long-term rate of return on plan assets for U.S. plans was 9.5
percent for 1998 and 9 percent for 1997. For non-U.S. plans the expected
long-term rate of return ranged from 8.5 to 8.75 percent in 1998 and 9 to 9.5
percent in 1997.
The Company sponsors a contributory stock ownership and savings plan for which a
majority of its U.S. employees are eligible. The Company matches employee
contributions up to 3 percent of the participant's qualified compensation. The
Company contributions are held in an unleveraged employee stock ownership plan.
The Company also sponsors other defined contribution pension plans covering
employees at some of its operations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
At December 31, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement revises
employers' disclosures about pensions and other postretirement benefit plans.
The measurement and recognition requirements for pension or other postretirement
benefit plans have not changed. Prior year information has been restated to
conform to the requirements of the new standard.
The Company provides health care and life insurance benefits for a majority of
its retired employees in the United States and Canada. The health care plans
provide for cost sharing, in the form of employee contributions, deductibles and
coinsurance, between the Company and its retirees. The postretirement health
care plan covering a majority of employees who retired since August 1, 1988,
limits the annual increase in the Company's contribution toward the plan's cost
to a maximum of the lesser of 50 percent of medical inflation or 4 percent. Life
insurance benefits are generally noncontributory. The Company's policy is to
fund the cost of postretirement health care and life insurance benefits in
amounts determined at the discretion of management. Retirees in certain other
countries are provided similar benefits by plans sponsored by their governments.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1998, and a statement of the funded status as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $ 794 $ 760
Service cost 19 13
Interest cost 54 54
Actuarial (gain)loss 8 (1)
Acquisitions -- 4
Foreign currency exchange rate changes (3) (3)
Plan amendments 1 --
Plan participant contributions 5 5
Benefits paid (44) (38)
- ---------------------------------------------------------------
Benefit obligations at December 31 834 794
Change in plan assets
Fair value of plan assets at January 1 129 83
Actual return on plan assets 12 12
Company contributions 49 67
Plan participant contributions 5 5
Benefits paid (44) (38)
- ---------------------------------------------------------------
Fair value of plan assets at December 31 151 129
Funded status of the plan (683) (665)
Unrecognized actuarial gain (14) (30)
Unrecognized prior service cost (5) (6)
- ---------------------------------------------------------------
Total accrued benefit cost recognized $ (702) $ (701)
- ---------------------------------------------------------------
</TABLE>
51
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS | TRW INC.
The following table provides the components of net postretirement benefit cost
for the plans for years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of net postretirement benefit cost
Service cost $ 19 $ 13 $ 13
Interest cost 54 54 54
Expected return on plan assets (13) (9) (5)
- ---------------------------------------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 60 $ 58 $ 62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligations as of December 31, 1998 and 1997, was 6.75
percent and 7 percent, respectively. The weighted average rate of compensation
increase was 4 percent and 4.4 percent for 1998 and 1997, respectively. The
weighted average expected long-term rate of return on plan assets was 9.5
percent for 1998 and 8 percent for 1997. A 7.5 percent annual rate of increase
in the per capita cost of covered health care benefits was assumed for 1999. The
rate was assumed to decrease gradually to 5 percent in the year 2009 and remain
at that level thereafter.
A one-percentage-point change in the assumed health care cost trend rate would
have the following effects:
<TABLE>
<CAPTION>
One-percentage-point
-------------------------
(In millions) Increase Decrease
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 10 $ (7)
Effect on postretirement benefit obligations 100 (83)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
Short-term debt
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. borrowings $ 589 $ 318
Non-U.S. borrowings 250 93
- ---------------------------------------------------------------------------------------------------------------------------
$ 839 $ 411
-----------------------
</TABLE>
<TABLE>
<CAPTION>
Long-term debt
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. borrowings $ 141 $ 691
Non-U.S. borrowings 91 54
Medium-term notes
6.05% Notes due 2005 200 -
6.25% Notes due 2010 150 -
6.65% Notes due 2028 150 -
6.30% Notes due 2008 100 -
9.35% Notes due 2020 (due 2000 at option of note holder) 100 100
9.375% Notes due 2021 100 100
Other medium-term notes 326 278
Other 25 22
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt 1,383 1,245
Less current portion 30 128
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,353 $ 1,117
------------------------
</TABLE>
52
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS | TRW INC.
The Company maintains two committed U.S. dollar revolving credit agreements. The
first agreement allows the Company to borrow up to $750 million with 17 banks
and extends through June 2002. The second agreement allows the Company to borrow
up to $745 million with 14 banks and extends to December 6, 1999. The interest
rate under the agreements is either a negotiated rate, the banks' prime rates, a
rate based on the banks' costs of funds in the secondary certificate of deposit
market or a rate based on an Interbank Offered Rate. The Company's commercial
paper borrowings are supported by these agreements. At December 31, 1998, there
were no outstanding borrowings under the U.S. revolving credit agreements.
The Company also maintains a committed U.S. dollar denominated revolving credit
agreement with five banks for use by the Company's Brazilian operations. The
agreement allows the Company to borrow up to $50 million and extends through
July 2003. The interest rate under the agreement is a rate based on an Interbank
Offered Rate. At December 31, 1998, there were $20 million in outstanding
borrowings under this agreement.
The Company also maintains a committed multi-currency revolving credit agreement
with 17 banks. The agreement allows the Company to borrow up to $250 million and
extends through June 2002. The interest rate under the agreement is based on
various interest rate indices. At December 31, 1998, there were no outstanding
borrowings under the multi-currency credit agreement.
At December 31, 1998, $191 million of short-term debt was reclassified to
long-term debt as the Company intends to refinance the borrowings on a long-term
basis and has the ability to do so under its U.S. and multi-currency revolving
credit agreements.
During 1998, the Company refinanced short-term debt by issuing $659 million of
notes and debentures that mature at various dates through 2028.
The Company established a $1 billion Universal Shelf Registration Statement
during 1998 of which approximately $841 million remains available at December
31, 1998. Securities that may be issued under this shelf registration statement
include debt securities, common stock, warrants to purchase debt securities and
warrants to purchase common stock.
The weighted average interest rate on short-term borrowings outstanding,
including amounts reclassified to long-term debt, at December 31, 1998 and 1997,
is 5.9 percent and 6.4 percent, respectively.
The other medium-term notes bear interest at rates ranging from 5.98 percent to
9.25 percent and mature at various dates through 2020.
Long-term non-U.S. borrowings bear interest, stated in terms of the local
currency borrowing, at rates ranging from 3.3 percent to 9.5 percent at December
31, 1998, and mature at various dates through 2006.
The maturities of long-term debt are, in millions: 1999-$30; 2000-$35; 2001-$29;
2002-$194; 2003-$85; and $1,010 thereafter.
The indentures and other debt agreements impose, among other covenants,
maintenance of minimum net worth. Under the most restrictive interpretation of
these covenants, the payment of dividends was limited to approximately $972
million at December 31, 1998.
Compensating balance arrangements and commitment fees were not material.
53
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS | TRW INC.
LEASE COMMITMENTS
The Company leases certain offices, manufacturing and research buildings,
machinery, automobiles and computer and other equipment. Such leases, some of
which are noncancelable and in many cases include renewals, expire at various
dates. The Company pays most maintenance, insurance and tax expenses relating to
leased assets. Rental expense for operating leases was $180 million for 1998,
$146 million for 1997 and $130 million for 1996.
At December 31, 1998, the future minimum lease payments for noncancelable
operating leases totaled $390 million and are payable as follows: 1999-$108;
2000-$82; 2001-$57; 2002-$42; 2003-$30; and $71 thereafter.
CAPITAL STOCK
SERIAL PREFERENCE STOCK II - cumulative - stated at $2.75 a share; 5 million
shares authorized.
Series 1 - each share convertible into 8.8 shares of common; redeemable at $104
per share; involuntary liquidation price of $104 per share; dividend rate of
$4.40 per annum.
Series 3 - each share convertible into 7.448 shares of common; redeemable at
$100 per share; involuntary liquidation price of $40 per share; dividend rate of
$4.50 per annum.
Series 4 - not convertible into common shares; redemption price and involuntary
liquidation price of $125 per one one-hundredth of a share; annual dividend rate
per one one-hundredth of a share of the lesser of $4.00 or the current dividend
on common stock; no shares outstanding at December 31, 1998.
COMMON STOCK - $0.625 par value; authorized 500 million shares; shares
outstanding were reduced by treasury shares of 13.6 million in 1998 and 10.9
million in 1997.
The Company has a shareholder purchase rights plan under which each shareholder
of record as of May 17, 1996, received one-half of 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 other events, each right
entitles 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.
At December 31, 1998, 14.8 million shares of common stock were reserved for the
exercise and issuance of stock options and conversion of the Serial Preference
Stock II, Series 1 and 3. There were 1.2 million shares of Cumulative Redeemable
Serial Preference Stock II, Series 4, reserved for the shareholder purchase
rights plan.
54
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS | TRW INC.
STOCK OPTIONS
The Company has granted nonqualified stock options to certain employees to
purchase the Company's common stock at the market price on the date of grant.
Stock options granted become exercisable to the extent of one-third of the
optioned shares for each full year of employment following the date of grant and
expire 10 years after the date of grant. The Company applies the provisions of
Accounting Principles Board Opinion No. 25 in accounting for its employee stock
options and, as such, no compensation expense is recognized as the exercise
price equals the market price of the stock on the date of grant.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
Weighted- Weighted- Weighted-
average average average
Millions exercise Millions exercise Millions exercise
of shares price of shares price of shares price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 8.5 $ 35.02 8.5 $ 29.72 9.2 $ 26.45
Granted 2.4 53.31 2.0 50.19 1.7 43.98
Exercised .9 25.68 1.6 25.96 1.9 25.28
Canceled, expired or terminated .2 46.54 .4 38.63 .5 35.51
Outstanding at end of year 9.8 40.11 8.5 35.02 8.5 29.72
Exercisable 5.8 32.31 5.3 27.81 5.6 25.18
Weighted-average fair value of options granted 12.86 11.92 9.45
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, approximately 2,000 employees were participants in the
plan. As of that date, the per share exercise prices of options outstanding
ranged from $19.88 to $58.88. The following table provides certain information
with respect to stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------
Weighted-
average Weighted- Weighted-
Millions of remaining average Millions of average
shares contractual exercise shares exercise
Range of exercise prices outstanding life in years price exercisable price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$19.88 - $39.99 4.3 3.8 $ 27.16 4.3 $ 27.16
40.00 - 58.88 5.5 8.3 50.21 1.5 46.88
- ----------------------------------------------------------------------------------------------------------------------------
9.8 6.3 $ 40.11 5.8 $ 32.31
-----------------------------------------------------------------
</TABLE>
Had the compensation cost for the stock options granted in 1998, 1997 and 1996
been determined based on the fair value at the grant date consistent with the
fair value method of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced by $13 million ($.10 per share) in 1998, $9
million ($.08 per share) in 1997 and $5 million ($.04 per share) in 1996. The
effect on 1996 net earnings is not representative of the effect on future years'
net earnings amounts as the compensation cost reflects expense for only two
years' vesting in 1996.
Fair value was estimated at the date of grant using the Black-Scholes option
pricing model and the following weighted-average assumptions for 1998, 1997 and
1996, respectively: risk-free interest rate of 4.59%, 5.83% and 5.43%; dividend
yield of 2.28%, 2.54% and 2.84%; expected volatility of 23%, 20% and 20%; and an
expected option life of six years for 1998, 1997 and 1996.
55
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS | TRW INC.
CONTINGENCIES
The Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. In addition, the Company is conducting a number of
environmental investigations and remedial actions at current and former Company
locations and, along with other companies, has been named a potentially
responsible party for certain waste management sites. Each of these matters is
subject to various uncertainties, and some of these matters may be resolved
unfavorably to the Company. A reserve estimate for each matter is established
using standard engineering cost estimating techniques. In the determination of
such costs, consideration is given to professional judgment of Company
environmental engineers in consultation with outside environmental specialists
when necessary. At multi-party sites, the reserve estimate also reflects the
expected allocation of total project costs among the various potentially
responsible parties. At December 31, 1998, the Company had reserves for
environmental matters of $64 million, including $7 million of additional
accruals recorded during the year. The Company aggressively pursues
reimbursement for environmental costs from its insurance carriers. However,
insurance recoveries are not recorded as a reduction of environmental costs
until they are fixed and determinable. At December 31, 1998, the "Other notes
and accounts receivable" caption on the balance sheet includes $22 million of
insurance recoveries related to environmental matters. The Company believes that
any liability that may result from the resolution of environmental matters for
which sufficient information is available to support these cost estimates will
not have a material adverse effect on the Company's financial position. However,
the Company cannot predict the effect on the Company's financial position of
expenditures for aspects of certain matters for which there is insufficient
information. In addition, the Company cannot predict the effect of compliance
with environmental laws and regulations with respect to unknown environmental
matters on the Company's financial position or the possible effect of compliance
with environmental requirements imposed in the future.
Further, product liability claims may be asserted in the future for events not
currently known by management. Although the ultimate liability from these
potential claims cannot be ascertained at December 31, 1998, management does not
anticipate that any related liability, after consideration of insurance
recovery, would have a material adverse effect on the Company's financial
position.
During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the
Company, reported to the Arizona Department of Environmental Quality (ADEQ)
potential violations of the Arizona hazardous waste law at its Queen Creek,
Arizona facility for the possible failure to properly label and dispose of
wastewater that might be classified as hazardous waste. ADEQ is conducting an
investigation into these potential violations and the Company is cooperating
with the investigation. If ADEQ initiates proceedings against the Company with
respect to such matters, the Company could be liable for penalties and fines and
other relief. The Arizona State Attorney General also is investigating matters,
and federal, civil and criminal governmental investigations with respect to
these potential violations are ongoing. Management is currently evaluating this
matter and is unable to make a meaningful estimate of the amount or range of
possible liability, if any, at this time, although management believes that the
Company would have meritorious defenses.
During 1996, the Company was advised by the United States Department of Justice
(DOJ) that it had been named as a defendant in two lawsuits brought by a former
employee of the Company's former Space & Technology Group and originally filed
under seal in 1994 and 1995, respectively, in the United States District Court
for the Central District of California under the qui tam provisions of the civil
False Claims Act. The Act permits an individual to bring suit in the name of the
United States and share in any recovery. The allegations in the lawsuits relate
to the classification of costs incurred by the Company that were charged to
certain of its federal contracts. Under the law, the government must investigate
the allegations and determine whether it wishes to intervene and take
responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the
litigation. On February 19, 1998 and March 4, 1998, the former employee filed
amended complaints in the Central District of California that realleged certain
of the claims included in the 1994 and 1995 lawsuits and omitted the remainder.
The amended complaints allege that the United States has incurred substantial
damages and that the Company should be ordered to cease and desist from
violations of the civil False Claims Act and is liable for treble damages,
penalties, costs, including
56
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS | TRW INC.
attorneys' fees, and such other relief as deemed proper by the court. On March
17, 1998, the DOJ filed its complaint against the Company upon intervention in
the 1994 lawsuit, which set forth a limited number of the allegations in the
1994 lawsuit and other allegations not in the 1994 lawsuit. The DOJ elected not
to pursue the other claims in the 1994 lawsuit or the claims in the 1995
lawsuit. The DOJ's complaint alleges that the Company is liable for treble
damages, penalties, interest, costs and "other proper relief." On March 18,
1998, the former employee withdrew the first amended complaint in the 1994
lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to
the former employee's first amended complaint in the 1995 lawsuit and to the
DOJ's complaint, denying all substantive allegations against the Company
contained therein. At the same time, the Company filed counterclaims against
both the former employee and the federal government. On July 20, 1998, both the
former employee and the DOJ filed motions seeking to dismiss the Company's
counterclaims. On November 23, 1998 (entered as an Order on January 21, 1999),
the court dismissed certain counterclaims asserted against the former employee
and the federal government and took under advisement the former employee's
motion to dismiss certain other counterclaims. The Company cannot presently
predict the outcome of these lawsuits, although management believes that their
ultimate resolution will not have a material effect on the Company's financial
condition or results of operations.
OPERATING SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" during the fourth quarter of 1998. Statement 131
establishes standards for reporting information about operating segments in
annual financial statements and requires that select information about operating
segments be disclosed in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segment and geographic area information for all
periods presented has been restated to conform to Statement 131.
The Company's reportable operating segments are Automotive and Space, Defense &
Information Systems. The operating segments are managed separately as they each
represent a strategic business component that offers different advanced
technology products and serves different markets. Separate financial results are
available for each operating segment and are regularly reviewed by the chief
operating officer for purposes of assessing performance and allocating
resources. The Company's space, defense and information systems businesses have
been aggregated into one operating segment as they exhibit similar economic
characteristics, operate in substantially the same regulatory environment, offer
similar products and services to the same customer base, perform jointly on a
significant number of contracts and exhibit similar methods of developing and
delivering products and services.
The Company is a United States-based company providing advanced technology
products and services for the automotive and space, defense and information
systems markets. The principal markets for the Company's automotive products are
North American, European and Asian original equipment manufacturers and
independent distributors. Space, Defense & Information Systems primarily offers
products and services to the United States Government, agencies of the United
States Government, state and local governments and international and commercial
customers.
AUTOMOTIVE - Occupant restraint systems, including sensors, steering wheels, air
bag and seat belt systems. Steering systems, including hydraulic and
electrically assisted power and manual rack and pinion steering for light
vehicles, power steering systems and suspension components for commercial
vehicles. Electrical and electronic controls, engineered fasteners and stud
welding and control systems. Engine valves and valve train parts.
SPACE, DEFENSE & INFORMATION SYSTEMS - Spacecraft, including the design and
manufacture of spacecraft equipment, propulsion subsystems, electro-optical and
instrument systems, spacecraft payloads, high-energy lasers and laser technology
and other high-reliability components. Electronic systems, equipment, components
and services, including the design and manufacture of space communication
systems, airborne reconnaissance systems, unmanned aerial vehicles, avionics
systems, commercial telecommunications and other electronic technologies for
tactical and strategic applications. Systems integration,
57
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS | TRW INC.
systems engineering services and software development in the fields of military
command and control, strategic missiles, intelligence requirements management,
public safety, modeling and simulation, training, telecommunications, image
processing, earth observation, nuclear waste management, air traffic control,
security and counterterrorism and other high-technology systems. Information
technology systems, products and services focused on defense, health and human
safety, integrated supply chain, warehousing, logistics, test and evaluation,
criminal justice, tax systems modernization and financial applications.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates operating performance based on each segment's profit before income
taxes and total assets net of segment current operating liabilities. Debt and
related interest expense, interest related to the other postretirement benefit
liability, currently payable income taxes, current deferred income taxes,
long-term deferred income taxes in 1998 and corporate staff expenses are
maintained at the corporate level and are not a component of the operating
segment results.
Information concerning operating segments as of and for each of the three years
ended December 31 is as follows:
<TABLE>
<CAPTION>
Space,
Defense &
Information
(In millions) Automotive Systems Total
- ---------------------------------------------------------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue from external customers $ 7,201 $ 4,685 $ 11,886
Segment profit before income taxes 543 458 1,001
Restructuring charges included in segment profit 24 - 24
Segment assets 3,316 1,240 4,556
Depreciation and amortization 396 156 552
Capital expenditures 456 163 619
- ---------------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------------
Revenue from external customers $ 7,032 $ 3,799 $ 10,831
Segment profit before income taxes 637 348 985
Segment assets 2,926 1,083 4,009
Depreciation and amortization 362 115 477
Capital expenditures 398 156 554
- ---------------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------------
Revenue from external customers $ 6,493 $ 3,364 $ 9,857
Segment profit before income taxes 330 180 510
Special charges included in segment profit 293 89 382
Segment assets 2,334 657 2,991
Depreciation and amortization 327 112 439
Capital expenditures 343 157 500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS | TRW INC.
The Company accounts for intersegment sales or transfers at current market
prices. Intersegment sales and transfers were not significant. Sales to agencies
of the U.S. Government, primarily by the Space, Defense & Information Systems
segment, were $4,119 million in 1998, $3,523 million in 1997 and $3,121 million
in 1996. Sales to Ford Motor Company by the Automotive segment were $1,423
million in 1998, $1,469 million in 1997 and $1,470 million in 1996.
Reconciliations of the items reported for the operating segments to the
applicable amounts reported in the consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment profit before income taxes $ 1,001 $ 985 $ 510
Purchased in-process research and development - (548) -
Interest expense (119) (80) (88)
Corporate expense and other (136) (117) (120)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes $ 746 $ 240 $ 302
- ---------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Segment assets $ 4,556 $ 4,009 $ 2,991
Segment current operating liabilities 1,843 1,828 1,620
Current deferred taxes 179 96 424
Long-term deferred taxes 33 - -
Segment eliminations and adjustments 122 114 106
Corporate and other 436 363 758
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,169 $ 6,410 $ 5,899
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Information concerning principal geographic areas for and as of the three years
ended December 31 is as follows:
<TABLE>
<CAPTION>
United All
(In millions) States Germany Other Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers
1998 $ 7,658 $ 1,562 $ 2,666 $ 11,886
1997 6,919 1,442 2,470 10,831
1996 6,469 1,038 2,350 9,857
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment-net
1998 $ 1,491 $ 497 $ 695 $ 2,683
1997 1,560 451 610 2,621
1996 1,576 264 640 2,480
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues are attributable to geographic areas based on the location of the
assets producing the revenues. Inter-area sales are not significant to the total
revenue of any geographic area.
59
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS | TRW INC.
EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITOR (UNAUDITED)
On January 28, 1999, the Company announced its intention to acquire the entire
issued and to be issued share capital of LucasVarity plc in a cash tender offer
totaling approximately $7 billion. TRW has received fully underwritten financing
from J.P. Morgan Securities Inc., NationsBanc Montgomery Securities LLC, Salomon
Smith Barney Inc. and Barclays Capital. The boards of directors of both
companies have approved the transaction and LucasVarity's directors have entered
into irrevocable agreements to tender their shares and ADSs in response to the
offer. The transaction, which is subject to normal closing conditions, may be
completed as early as the first quarter of 1999 and will be accounted for under
purchase accounting.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
-------------------- --------------------- --------------------- ----------------------
(In millions except per share data) 1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D)(E)
Sales $ 3,095 $ 2,660 $ 3,028 $ 2,852 $ 2,836 $ 2,521 $ 2,927 $ 2,798
Gross profit 520 482 547 534 522 466 582 523
Earnings(loss) before income taxes 204 195 198 219 164 166 180 (340)
Net earnings(loss) 129 119 126 135 104 108 118 (411)
Net earnings(loss) per share
Diluted 1.03 .92 1.00 1.05 .85 .85 .96 (3.34)
Basic 1.05 .95 1.03 1.09 .86 .88 .98 (3.34)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Earnings(loss) before income taxes includes a $49 million gain ($32 million
after tax, 25 cents per share) from the settlement of certain patent
litigation and a $34 million charge ($22 million after tax, 17 cents per
share) for litigation and contract reserves and severance costs relating to
the combination of the Company's systems integration business with BDM
International, Inc.
(B) Earnings(loss) before income taxes includes a charge of $13 million ($8
million after tax, 7 cents per share) related to the automotive
restructuring.
(C) Earnings(loss) before income taxes includes a benefit of $25 million ($16
million after tax, 13 cents per share) from an interest accrual adjustment
relating to a tax litigation settlement and an $11 million charge ($10
million after tax, 8 cents per share) related to the automotive
restructuring.
(D) Earnings(loss) before income taxes includes a $548 million ($4.46 per
share) one time noncash charge related to in-process research and
development with no income tax benefit.
(E) Earnings(loss) before income taxes includes a $15 million gain ($10 million
after tax, 8 cents per share) related to the sale of a property.
60
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS | TRW INC.
STOCK PRICES AND DIVIDENDS (UNAUDITED)
The book value per common share at December 31, 1998, was $15.61 compared to
$13.19 at the end of 1997. The Company's Directors declared the 242nd
consecutive quarterly dividend during December 1998. Dividends declared per
share in 1998 were $1.28, up 3 percent from $1.24 in 1997. The following table
highlights the market prices of the Company's common and preference stocks and
dividends paid for the quarters of 1998 and 1997.
<TABLE>
<CAPTION>
Price of Dividends paid
traded shares per share
---------------------------------------------------- ----------------
Quarter 1998 1997 1998 1997
------- ---------------------------------------------------- ----------------
High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock 1 $ 56 1/4 $ 50 9/16 $ 55 7/8 $ 48 1/8 $ .31 $ .31
Par value $0.625 per share 2 57 3/8 50 1/16 58 3/8 47 3/8 .31 .31
3 56 15/16 42 11/16 61 5/16 51 1/4 .31 .31
4 58 43 61 3/16 50 1/2 .33 .31
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 400 200 500 300 1.10 1.10
Preference Stock II 2 468 468 457 1/2 442 1.10 1.10
$4.40 Convertible 3 495 420 600 300 1.10 1.10
Series 1 4 480 480 495 495 1.10 1.10
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 390 379 400 364 1.125 1.125
Preference Stock II 2 400 400 402 396 1.125 1.125
$4.50 Convertible 3 405 405 423 1/4 423 1/4 1.125 1.125
Series 3 4 350 250 420 400 1.125 1.125
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $4.40 Convertible Series 1 was not actively traded during the first quarter
of 1998 and the first and third quarters of 1997. The $4.50 Convertible Series 3
was not actively traded during the fourth quarter of 1998. The prices shown for
these quarters represent the range of asked(high) and bid(low) quotations.
61
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
TRW has no parent or parents. As of December 31, 1998, certain of its
subsidiaries, some of which also have subsidiaries, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
ORGANIZED UNDER VOTING SECURITIES
NAME THE LAWS OF OWNED (1)
---- --------------- -----------------
<S> <C> <C>
BDM International, Inc. which owns Delaware 100.00%
Vinnell Corporation Delaware 100.00%
TRW Automotive Espana, S.A. Spain 100.00%
TRW Automotive Products Inc. which, together
with TRW International Holding Corporation,
directly or indirectly owns Delaware 100.00%
TRW Deutschland GmbH
which, in turn (in some cases together with
TRW Inc.), directly or indirectly owns Germany 100.00%
TRW Automotive Electronics &
Components GmbH & Co. KG Germany 100.00%
TRW Fahrwerksysteme GmbH & Co. KG Germany 100.00%
TRW Occupant Restraints Systems GmbH & Co. KG Germany 100.00%
TRW Automotive Safety Systems Inc. which owns Delaware 100.00%
TRW Airbag Systems Holding GmbH which owns Germany 100.00%
TRW Automotive Safety Systems Holding
GmbH which owns Germany 100.00%
TRW Airbag Systems GmbH & Co. KG Germany 80.00%
TRW Automotive Safety Systems GmbH & Co. KG Germany 80.00%
which owns
TRW Automotive Safety Systems
Liegenschaftsverwaltung GmbH & Co. KG Germany 100.00%
TRW Beteiligungsgesellschaft m.b.H. which owns Austria 100.00%
TRW Occupant Restraints Systems Ges.m.b.H. Austria 100.00%
TRW Canada Limited which owns Canada 100.00%
Quality Safety Systems Company Canada 60.00%
TRW Automotive Brasil Ltda. Brazil 100.00%
TRW Components International Inc. Virginia 100.00%
TRW Composants Moteurs Inc. Ohio 100.00%
TRW Direcciones de Vehiculos, S.A. Spain 100.00%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OF
ORGANIZED UNDER VOTING SECURITIES
NAME THE LAWS OF OWNED (1)
---- --------------- -----------------
<S> <C> <C>
TRW Export Trading Corporation which owns Delaware 100.00%
TRW Export Sales Corporation Virgin Islands 100.00%
TRW France S.A. France 100.00%
TRW Italia S.p.A. which owns Italy 100.00%
TRW SIPEA S.p.A. Italy 100.00%
TRW Koyo Steering Systems Company Tennessee 51.00%
TRW Microwave Inc. California 100.00%
TRW Sabelt S.p.A. which owns Italy 90.00%
TRW Air Bag Systems s.r.l. Italy 100.00%
TRW Steering Co. Ltd. Korea 51.00%
TRW Steering Systems Japan Co. Ltd. Japan 100.00%
TRW System Services Company Delaware 100.00%
TRW U.K. Limited which owns United Kingdom 100.00%
TRW Automotive Systems Limited which owns United Kingdom 100.00%
TRW LucasVarity Electric Steering Limited United Kingdom 51.00%
TRW Steering Systems Limited United Kingdom 100.00%
TRW Vehicle Safety Systems Inc. which owns Delaware 100.00%
TRW Technar Inc. California 100.00%
</TABLE>
- ---------------
(1) Total percentages held by TRW and/or its subsidiaries, disregarding
Directors' qualifying shares, if any.
The names of certain subsidiaries, which considered in the aggregate
would not constitute a "significant subsidiary" as such term is defined in the
regulations under the federal securities laws, have been omitted from the
foregoing list.
<PAGE> 1
EXHIBIT 23(a)
-------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated
January 19, 1999, with respect to the consolidated financial statements of TRW
Inc. included in the Annual Report on Form 10-K for the year ended December 31,
1998, in the following Registration Statement Nos.: 333-48443 on Form S-3,
333-43931 on Form S-3, 33-61711 on Form S-3, 33-42870 on Form S-3, 333-27003 on
Form S-8, 333-27001 on Form S-8, 333-20351 on Form S-8, 333-06633 on Form S-8,
333-03973 on Form S-8, 33-53503 on Form S-8, 33-29751 on Form S-8, 2-90748 on
Form S-8 and 2-64035 on Form S-8.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 19, 1999
<PAGE> 1
EXHIBIT 23(b)
-------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated March
15, 1999, with respect to the financial statements of The TRW Canada Stock
Savings Plan for the year ended December 31, 1998, included as Exhibit 99(a) to
the TRW Inc. Annual Report on Form 10-K for the year ended December 31, 1998, in
TRW Inc.'s Registration Statement No. 333-06633 on Form S-8 pertaining to The
TRW Canada Stock Savings Plan and the related prospectus.
/s/ Ernst & Young LLP
Chartered Accountants
Hamilton, Ontario
March 19, 1999
<PAGE> 1
Exhibit 24a
POWER OF ATTORNEY
Directors and Certain Officers of
TRW Inc.
THE UNDERSIGNED Directors and Officers of TRW Inc. hereby appoint D. B.
Goldston, W. B. Lawrence, K. C. Syrvalin, K. A. Weigand and J. L. Manning, Jr.,
and each of them, as attorneys for the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned in the capacity specified, to prepare or cause to be prepared, to
execute and to file with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Act"), an annual report on
Form 10-K for the year ended December 31, 1998 relating to TRW Inc., such other
periodic reports as may be required pursuant to the Act, amendments and exhibits
to any of the foregoing and any and all other documents to be filed with the
Securities and Exchange Commission or elsewhere pertaining to such reports, with
full power and authority to take such other action which in the judgment of such
person may be necessary or appropriate to effect the filing of such documents.
EXECUTED the dates set forth below.
<TABLE>
<S> <C> <C>
/s/ J. T. Gorman /s/ P. S. Hellman /s/ C. G. Miller
- -------------------------------------- ---------------------------------------- ----------------
J. T. Gorman, P. S. Hellman, C. G. Miller,
Chairman of the Board, President, Executive Vice President
Chief Executive Officer Chief Operating Officer and Chief Financial Officer
and Director and Director February 10, 1999
February 10, 1999 February 10, 1999
/s/ T. A. Connell /s/ M. H. Armacost /s/ M. Feldstein
- -------------------------------------- ---------------------------------------- ----------------
T. A. Connell, Vice President M. H. Armacost, Director M. Feldstein, Director
and Controller February 10, 1999 February 10, 1999
February 10, 1999
/s/ R. M. Gates /s/ C. H. Hahn /s/ G. H. Heilmeier
- -------------------------------------- ---------------------------------------- ----------------
R. M. Gates, Director C. H. Hahn, Director G. H. Heilmeier, Director
February 10, 1999 February 10, 1999 February 10, 1999
/s/ K. N. Horn /s/ E. B. Jones /s/ W. S. Kiser
- -------------------------------------- ---------------------------------------- ----------------
K. N. Horn, Director E. B. Jones, Director W. S. Kiser, Director
February 10, 1999 February 10, 1999 February 10, 1999
/s/ D. B. Lewis /s/ J. T. Lynn /s/ L. M. Martin
- -------------------------------------- ---------------------------------------- ----------------
D. B. Lewis, Director J. T. Lynn, Director L. M. Martin, Director
February 10, 1999 February 10, 1999 February 10, 1999
/s/ R. W. Pogue
- --------------------------------------
R. W. Pogue, Director
February 10, 1999
</TABLE>
<PAGE> 1
EXHIBIT 24(b)
C E R T I F I C A T E
I, Kathleen A. Weigand, do hereby certify that I am a duly
elected, qualified and acting Assistant Secretary of TRW Inc. ("TRW"), an Ohio
corporation; that attached hereto and marked as "Exhibit A" is a true and
correct copy of resolutions duly adopted by the Directors of TRW at a meeting
thereof duly called and held on February 10, 1999, at which meeting a quorum was
present and acting throughout; and that said resolutions have not been modified,
revoked or rescinded in any manner and are now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and have
caused the seal of TRW to be affixed hereto at Lyndhurst, Ohio this 19th day of
March, 1999.
/s/ Kathleen A. Weigand
Assistant Secretary
<PAGE> 2
Exhibit A
RESOLVED that any officer or assistant officer of the Corporation is authorized
and empowered, for and on behalf of the Corporation, to prepare or cause to be
prepared, to execute and to file with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), the Corporation's Annual Report on Form
10-K for the year ended December 31, 1998, such other periodic reports as may be
required pursuant to the Securities Exchange Act of 1934, as amended (the
"Act"), amendments and exhibits to any of the foregoing and any and all other
documents to be filed with the Commission or elsewhere pertaining to such
reports, and to take other action deemed necessary and appropriate to effect the
filing of all such reports under the Act, including the execution of a power of
attorney evidencing the authority set forth herein; and
FURTHER RESOLVED that David B. Goldston, William B. Lawrence, Kristine C.
Syrvalin, Kathleen A. Weigand and J. Lawrence Manning, Jr. and each of them is
appointed an attorney for the Corporation, with full power of substitution and
resubstitution, to execute and file, for and on behalf of the Corporation, the
Annual Report on Form 10-K, other periodic reports, amendments and exhibits to
any of the foregoing and any and all other documents to be filed with the
Commission or elsewhere pertaining to such reports, with full power and
authority to take or cause to be taken all other actions deemed necessary and
appropriate to effect the purposes of the foregoing resolution.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 83
<SECURITIES> 0
<RECEIVABLES> 1,754
<ALLOWANCES> 33
<INVENTORY> 616
<CURRENT-ASSETS> 2,703
<PP&E> 6,604
<DEPRECIATION> 3,921
<TOTAL-ASSETS> 7,169
<CURRENT-LIABILITIES> 3,018
<BONDS> 1,353
0
0
<COMMON> 75
<OTHER-SE> 1,803
<TOTAL-LIABILITY-AND-EQUITY> 7,169
<SALES> 11,886
<TOTAL-REVENUES> 11,886
<CGS> 9,715
<TOTAL-COSTS> 9,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 746
<INCOME-TAX> 269
<INCOME-CONTINUING> 477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 477
<EPS-PRIMARY> 3.93
<EPS-DILUTED> 3.83
</TABLE>
<PAGE> 1
Exhibit 99a
FINANCIAL STATEMENTS
THE TRW CANADA
STOCK SAVINGS PLAN
DECEMBER 31, 1998 AND 1997
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
To the Participants and the Board of Administration of
THE TRW CANADA STOCK SAVINGS PLAN
We have audited the statements of financial condition of the TRW Stock Fund,
Pooled Money Market Fund Employees Profit Sharing Plan, Pooled Balanced Fund
Registered Retirement Savings Plan and Pooled Money Market Fund Registered
Retirement Savings Plan [constituting THE TRW CANADA STOCK SAVINGS PLAN] as at
December 31, 1998 and 1997 and the related statements of operations and changes
in fund equity for these funds for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the several funds of THE TRW CANADA STOCK
SAVINGS PLAN as at December 31, 1998 and 1997 and the results of their
operations and the changes in fund equity for the years then ended in accordance
with accounting principles generally accepted in Canada.
/s/ Ernst & Young LLP
Hamilton, Canada,
March 15, 1999. Chartered Accountants
<PAGE> 3
THE TRW CANADA STOCK SAVINGS PLAN
TRW STOCK FUND
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 5,149 1,058
Receivable from TRW Canada Limited 82,681 58,074
Investments at quoted market value
TRW Inc. common stock
12,225 shares [cost $943,274] in 1998 and
11,922 shares [cost $870,734] in 1997 1,048,903 910,280
- ---------------------------------------------------------------------------------------------------
1,136,733 969,412
====================================================================================================
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 921,630 731,640
Fund equity [including net unrealized appreciation of investments] 215,103 237,772
- ---------------------------------------------------------------------------------------------------
1,136,733 969,412
- ---------------------------------------------------------------------------------------------------
NUMBER OF SHARES OUTSTANDING AT DECEMBER 31 12,225 11,922
====================================================================================================
FUND EQUITY PER SHARE AT DECEMBER 31 17.5953 19.9440
====================================================================================================
</TABLE>
See accompanying notes
<PAGE> 4
THE TRW CANADA STOCK SAVINGS PLAN
TRW STOCK FUND
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
INVESTMENT INCOME
Dividends on TRW Inc. common stock 12,196 10,709
Interest 219 54
- ---------------------------------------------------------------------------------------------------
12,415 10,763
- ---------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participants 451,113 424,717
TRW Canada Limited
50% of total participants' contributions to all funds 428,733 400,602
- ---------------------------------------------------------------------------------------------------
879,846 825,319
- ---------------------------------------------------------------------------------------------------
Net realized gain on transfer
of investments to participants [note 4] 28,984 94,473
Unrealized appreciation (depreciation) of investments [note 4] 66,083 (67,921)
- ---------------------------------------------------------------------------------------------------
95,067 26,552
- ---------------------------------------------------------------------------------------------------
987,328 862,634
- ---------------------------------------------------------------------------------------------------
Less withdrawals and terminations
Paid
Cash 910 4,462
TRW Inc. common stock
1,352 shares in 1998; 1,192 shares in 1997 87,457 91,246
- ---------------------------------------------------------------------------------------------------
88,367 95,708
- ---------------------------------------------------------------------------------------------------
Payable
Cash 15,841 13,464
TRW Inc. common stock
10,557 shares in 1998; 9,406 shares in 1997 905,789 718,176
- ---------------------------------------------------------------------------------------------------
921,630 731,640
- ---------------------------------------------------------------------------------------------------
1,009,997 827,348
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND EQUITY (22,669) 35,286
Fund equity at January 1 237,772 202,486
- ---------------------------------------------------------------------------------------------------
FUND EQUITY AT DECEMBER 31 215,103 237,772
===================================================================================================
</TABLE>
See accompanying notes
<PAGE> 5
THE TRW CANADA STOCK SAVINGS PLAN
POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 5,571 14,657
Receivable from TRW Canada Limited 21,253 15,145
Investments at market value
Royal Trust Company Classified Money Market Fund
22,591 units [cost $225,908] in 1998 and
20,334 units [cost $203,338] in 1997 225,908 203,338
- ---------------------------------------------------------------------------------------------------
252,732 233,140
===================================================================================================
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 217,815 201,377
Fund equity 34,917 31,763
- ---------------------------------------------------------------------------------------------------
252,732 233,140
===================================================================================================
NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 3,491.7 3,176.3
===================================================================================================
FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0
===================================================================================================
</TABLE>
See accompanying notes
<PAGE> 6
THE TRW CANADA STOCK SAVINGS PLAN
POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
INTEREST INCOME 6,622 4,546
Participants' contributions 221,027 212,269
- ---------------------------------------------------------------------------------------------------
227,649 216,815
- ---------------------------------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 6,680 18,981
Payable 217,815 201,377
- ---------------------------------------------------------------------------------------------------
224,495 220,358
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND EQUITY 3,154 (3,543)
Fund equity at January 1 31,763 35,306
- ---------------------------------------------------------------------------------------------------
FUND EQUITY AT DECEMBER 31 34,917 31,763
====================================================================================================
</TABLE>
See accompanying notes
<PAGE> 7
THE TRW CANADA STOCK SAVINGS PLAN
POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 1,737 11,701
Receivable from TRW Canada Limited 13,068 8,635
Dividends receivable 14,194 16,127
Investments at quoted market value
Royal Trust Company Classified Balanced Fund
36,235.7677 units [cost $484,708] in 1998 and
29,406.9403 units [cost $377,446] in 1997 562,577 451,362
- ---------------------------------------------------------------------------------------------------
591,576 487,825
===================================================================================================
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 5,106 --
Fund equity [including net unrealized appreciation of investments] 586,470 487,825
- ---------------------------------------------------------------------------------------------------
591,576 487,825
===================================================================================================
NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 36,235.7677 29,406.9403
===================================================================================================
FUND EQUITY PER UNIT AT DECEMBER 31 16.184 16.589
===================================================================================================
</TABLE>
See accompanying notes
<PAGE> 8
THE TRW CANADA STOCK SAVINGS PLAN
POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ----------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
INCOME 33,732 32,205
- ----------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participants' contributions 130,483 111,048
Transfer from Pooled Money Market Fund RRSP 1,442 1,362
- ----------------------------------------------------------------------------------------------------
131,925 112,410
- ----------------------------------------------------------------------------------------------------
Net realized gain on disposition of investments [note 4] 5,982 7,862
Unrealized appreciation of investments [note 4] 3,953 10,506
- ----------------------------------------------------------------------------------------------------
9,935 18,368
- ----------------------------------------------------------------------------------------------------
175,592 162,983
- ----------------------------------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 76,947 59,092
- ----------------------------------------------------------------------------------------------------
INCREASE IN FUND EQUITY 98,645 103,891
Fund equity at January 1 487,825 383,934
- ----------------------------------------------------------------------------------------------------
FUND EQUITY AT DECEMBER 31 586,470 487,825
====================================================================================================
</TABLE>
See accompanying notes
<PAGE> 9
THE TRW CANADA STOCK SAVINGS PLAN
POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 1,432 4,243
Receivable from TRW Canada Limited 5,013 4,301
Investments at market value
Royal Trust Company Classified Pooled Money Market Fund
26,331 units [cost $263,312] in 1998 and
23,078 units [cost $230,780] in 1997 263,312 230,780
- ---------------------------------------------------------------------------------------------------
269,757 239,324
====================================================================================================
FUND EQUITY
Fund equity 269,757 239,324
- ---------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 26,975.7 23,932.4
====================================================================================================
FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0
====================================================================================================
</TABLE>
See accompanying notes
<PAGE> 10
THE TRW CANADA STOCK SAVINGS PLAN
POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
INTEREST INCOME 11,782 8,693
Participants' contributions 55,108 53,152
- ---------------------------------------------------------------------------------------------------
66,890 61,845
- ---------------------------------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 35,015 71,834
Transfer to Pooled Balanced Fund RRSP 1,442 1,362
- ---------------------------------------------------------------------------------------------------
36,457 73,196
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND EQUITY 30,433 (11,351)
Fund equity at January 1 239,324 250,675
- ---------------------------------------------------------------------------------------------------
FUND EQUITY AT DECEMBER 31 269,757 239,324
====================================================================================================
</TABLE>
See accompanying notes
<PAGE> 11
THE TRW CANADA STOCK SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. GENERAL PLAN PROVISIONS
The investment programs of The TRW Canada Stock Savings Plan [the "Plan"] are as
follows:
PARTICIPANT CONTRIBUTIONS
Upon enrollment or re-enrollment, each participant directs that his
contributions [computed in increments of one percent, from two percent to six
percent of qualifying compensation] are to be invested in accordance with any of
the following investment options:
[a] 100% in the TRW Stock Fund [the common stock of TRW Inc. in accordance
with the Trust agreement and the Plan].
[b] 100% in the Pooled Money Market Fund Employees Profit Sharing Plan. At
present, the Trustee invests all of the Pooled Money Market Fund
amounts in the Royal Trust Company, Classified Money Market Fund in
accordance with the Trust agreement and the Plan.
[c] 100% in the Pooled Balanced Fund Registered Retirement Savings Plan. At
present, the Trustee invests all of the Pooled Balanced Fund amounts in
the Royal Trust Company, Classified Balanced Fund, in accordance with
the Trust agreement and the Plan.
[d] 100% in the Pooled Money Market Fund Registered Retirement Savings
Plan. At present, the Trustee invests all of the Pooled Money Market
Fund amounts in the Royal Trust Company, Classified Pooled Money Market
Fund in accordance with the Trust agreement and the Plan.
[e] A combination of options [a] through [d] in multiples of 25%.
Such direction may be revised on 30 days prior notice, effective January 1 of
any year.
TRW CANADA LIMITED CONTRIBUTIONS
TRW Canada Limited shall contribute to the Plan for each month, out of current
or accumulated earnings, an amount equal to 50% of participant contributions for
such month. TRW Canada Limited contributions vest immediately.
All TRW Canada Limited contributions are invested in the TRW Stock Fund.
TRW Canada Limited does not charge a fee for administering the Plans.
1
<PAGE> 12
THE TRW CANADA STOCK SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
The number of participants in each Fund at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
TRW Stock Fund 293 280
Pooled Money Market Fund Employees Profit Sharing Plan 115 72
Pooled Balanced Fund Registered Retirement Savings Plan 81 77
Pooled Money Market Fund Registered Retirement Savings Plan 49 52
</TABLE>
The total number of participants in the Plan is less than the sum of the number
of participants shown above because many are participating in more than one
Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, and are within the framework of the
accounting policies summarized below.
GAINS AND LOSSES ON INVESTMENTS
The realized gains or losses on disposition or transfer of an investment is
determined from the market value of the investment at the date of disposition or
transfer and the average cost base of that specific pool of investments prior to
the disposition or transfer.
Unrealized gains or losses are determined as the net effect of the change in
appreciation (depreciation) of investments from January 1 to December 31, based
on market value and the average cost base of each investment at those respective
dates.
INCOME RECOGNITION
Dividends are recognized as earned.
Interest income is recognized as it is earned consistent with the accrual basis
of accounting.
2
<PAGE> 13
THE TRW CANADA STOCK SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
3. INCOME TAXES
The Plan is exempt from Canadian federal income taxes under provisions of the
Income Tax Act. Federal income tax consequences to the participants under the
Plan are as provided in the Income Tax Act. TRW Canada Limited contributions are
taxable to the participants as is the income and all post-1971 capital gains
less post-1971 capital losses of the Plan, all of which are allocated to the
participants by the Trustee during the year, whether or not such amounts are
paid to the participants by the Trustee during the year. In some circumstances,
the amounts taxable could exceed the amounts allocated. The amount of foreign
non-business income tax paid on foreign source income by the trusts under the
Plan for the year is allocated to and deemed to have been paid by the
participants for Canadian federal income tax purposes. Participants who are
non-resident taxpayers are subject to special rules depending on whether they
have performed duties in Canada during the year and are subject to 15%
withholding tax on amounts paid or credited to them under the Plan.
4. UNREALIZED AND REALIZED (LOSSES) GAINS
Investments are stated at their quoted market value. The net unrealized
appreciation (depreciation) of investments included in fund equity is as
follows:
<TABLE>
<CAPTION>
TRW POOLED
STOCK BALANCED
FUND FUND
$ $
- ---------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996 107,467 63,410
Change for the year
Market value (67,921) 10,506
- ---------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 39,546 73,916
Change for the year
Market value 66,083 3,953
- ---------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 105,629 77,869
===================================================================================================
</TABLE>
3
<PAGE> 14
THE TRW CANADA STOCK SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
The net realized gains on the transfer or disposition of investments are
summarized as follows:
<TABLE>
<CAPTION>
TRW STOCK FUND
-----------------------
1998 1997
$ $
- ----------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
Amount realized 784,783 845,411
Cost - average 755,799 750,938
- ----------------------------------------------------------------------------------------------------
NET REALIZED GAIN 28,984 94,473
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
POOLED BALANCED FUND
REGISTERED RETIREMENT
SAVINGS PLAN
------------------------
1998 1997
$ $
- ----------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
Amount realized 33,999 60,279
Cost - average 28,017 52,417
- ----------------------------------------------------------------------------------------------------
NET REALIZED GAIN 5,982 7,862
====================================================================================================
</TABLE>
5. RELATED PARTY TRANSACTIONS
All expenses related to The TRW Canada Stock Savings Plan are paid by TRW Canada
Limited.
6. YEAR 2000 ISSUE (UNAUDITED)
The Plan Sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Plan Sponsor currently expects the project to be substantially complete by
early 1999. The Plan Sponsor does not expect this project to have a significant
effect on plan operations.
4
