<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to______
Commission file number 1-2384
---------
TRW Inc.
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(Exact name of registrant as specified in its charter)
Ohio 34-0575430
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Richmond Road, Cleveland, Ohio 44124
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(Address of principal executive offices)
(Zip Code)
(216) 291-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of May 7, 1999, there were 120,365,445 shares of
TRW Common Stock, $0.625 par value, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Statements of Earnings (unaudited)
TRW Inc. and subsidiaries
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Quarter ended
March 31
In millions except per share data 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $3,097 $3,095
Cost of sales 2,618 2,575
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 479 520
Administrative and selling expenses 184 199
Research and development expenses 144 121
Purchased in-process research and development 85 -
Interest expense 43 38
Other (income)expense-net 16 (42)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 7 204
Income taxes 35 75
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Net earnings(loss) $ (28) $ 129
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PER SHARE OF COMMON STOCK
Diluted earnings(loss) per share $ (.24) $ 1.03
Basic earnings(loss) per share $ (.24) $ 1.05
Dividends declared $ .00 $ .00
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- ----------------------------------------------------------------------------------------------------------------------------
Shares used in computing per share amounts
Diluted 120.1 126.2
Basic 120.1 122.6
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</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
Balance Sheets (unaudited)
TRW Inc. and subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
March 31 December 31
In millions 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,058 $ 83
Accounts receivable 2,826 1,721
Inventories 1,123 616
Prepaid expenses 275 104
Net assets of acquired businesses held for sale 739 -
Deferred income taxes 326 179
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 6,347 2,703
Property, plant and equipment-on the basis of cost 7,986 6,604
Less accumulated depreciation and amortization 3,890 3,921
- -------------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment-net 4,096 2,683
Intangible assets
Intangibles arising from acquisitions 3,759 850
Other 780 360
- -------------------------------------------------------------------------------------------------------------------------------
4,539 1,210
Less accumulated amortization 150 143
- -------------------------------------------------------------------------------------------------------------------------------
Total intangible assets-net 4,389 1,067
Investments in affiliated companies 335 243
Long-term deferred income taxes - 33
Other notes and accounts receivable 349 227
Prepaid pension cost 2,198 -
Other assets 437 213
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$18,151 $ 7,169
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Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 1,837 $ 839
Short-term payable for LucasVarity plc 2,899 -
Accounts payable 1,614 964
Current portion of long-term debt 677 30
Other current liabilities 1,890 1,185
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,917 3,018
Long-term liabilities 1,764 826
Long-term payable for LucasVarity plc 3,359 -
Long-term debt 1,663 1,353
Long-term deferred income taxes 590 -
Minority interests in subsidiaries 131 94
Capital stock 75 75
Other capital 459 457
Retained earnings 1,991 2,021
Treasury shares-cost in excess of par value (625) (637)
Accumulated other comprehensive income(loss) (173) (38)
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Total shareholders' investment 1,727 1,878
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$18,151 $ 7,169
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</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------
Quarter ended
March 31
In millions 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net earnings(loss) $ (28) $ 129
Adjustments to reconcile net earnings(loss) to net cash
provided by operating activities:
Purchased in-process research and development 85 -
Depreciation and amortization 142 135
Deferred income taxes 2 (68)
Other-net (43) 5
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable (255) (162)
Inventories and prepaid expenses 32 (23)
Accounts payable and other accruals (49) (29)
Other-net (20) (33)
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Net cash used in operating activities (134) (46)
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Investing activities
Capital expenditures (111) (140)
Purchase of LucasVarity plc shares (519) -
Acquisitions, net of cash acquired (36) (228)
Other-net - 13
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (666) (355)
- ----------------------------------------------------------------------------------------------------------------------------
Financing activities
Increase (decrease) in short-term debt 705 (40)
Proceeds from debt in excess of 90 days 524 620
Principal payments on debt in excess of 90 days (180) (110)
Reacquisition of common stock - (24)
Dividends paid (40) (38)
Other-net 1 14
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Net cash provided by financing activities 1,010 422
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Effect of exchange rate changes on cash (9) 1
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Increase in cash and cash equivalents 201 22
Acquired cash and cash equivalents of LucasVarity 774 -
Cash and cash equivalents at beginning of quarter 83 70
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Cash and cash equivalents at end of quarter $1,058 $ 92
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</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
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Quarter ended
March 31
In millions 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales
Automotive $1,965 $1,886
Aerospace & Information Systems 1,132 1,209
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Sales $3,097 $3,095
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Segment profit before income taxes
Automotive $ 136 $ 149
Aerospace & Information Systems 99 126
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Segment profit before income taxes 235 275
Purchased in-process research and development 85 -
Corporate expense and other 89 31
Financing costs 54 40
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Earnings before income taxes $ 7 $ 204
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</TABLE>
4
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of the Company and its
subsidiaries except for four wholly owned insurance subsidiaries. The insurance
subsidiaries and the investments in affiliated companies are accounted for by
the equity or cost method as appropriate. The consolidated financial statements
reflect the preliminary allocation of the purchase price for LucasVarity plc
(LucasVarity), which may be adjusted as further information becomes available,
and the consolidated results of LucasVarity's operations and cash flows
subsequent to the date of acquisition, March 25, 1999.
Acquisition
- -----------
On February 6, 1999, TRW commenced an offer for the entire issued share capital
of LucasVarity. The offer was declared unconditional in all respects on March
25, 1999. On March 29, 1999, TRW issued notices to those LucasVarity
shareholders who had not already accepted the offer, informing them that it
intended to exercise its rights under section 429 of the Companies Act of 1985
to acquire compulsorily all LucasVarity shares that had not been acquired in the
offer. At midnight on May 10, 1999, TRW compulsorily acquired all shares that
had not been acquired in the offer, thereby closing the acquisition of
LucasVarity.
LucasVarity manufactures and supplies advanced technology systems, products and
services in the automotive and aerospace industries. It is a major producer of
braking systems, fuel injection systems, electrical and electronic systems and
has a significant position in aftermarket operations and services.
LucasVarity provides the aerospace industry with high integrity systems in
engine controls, electrical power generation and management, flight controls and
cargo handling, all backed by a worldwide customer support operation.
LucasVarity is headquartered in the U.K. and employs approximately 51,000
employees worldwide. LucasVarity maintains the majority of its operating
facilities in Europe and the United States.
The aggregate cash purchase price for LucasVarity was approximately $6.8 billion
and the transaction was accounted for as a purchase business combination.
Assets and liabilities have been recorded based on their respective fair values.
The preliminary purchase price allocation resulted in an $85 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.
The fair values of acquired in-process research and development and identified
intangible assets were determined using the income approach under the
proportional method. A risk adjusted discount rate of 18 percent representing
the cost of capital and a premium for the risk was used to discount the
projects' cash flows. Operating margins were assumed to be similar to historical
margins of similar products. The size of the applicable market was verified for
reasonableness with outside research sources. The projects were in various
stages of completion ranging from approximately 40 to 80 percent complete as of
the valuation date. The stage of completion for each project was estimated by
evaluating the cost to complete, complexity of the technology and time to
market. The projects are anticipated to be completed from late 1999 through
2002. The estimated cost to complete the projects is $65 million.
5
<PAGE> 7
The estimated goodwill and the preliminary allocation of the purchase price are
summarized as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Cash purchase price $6,778
Cash and cash equivalents 774
Accounts receivable 888
Inventory 552
Net assets of businesses held for sale 739
Prepaid expenses 136
Current deferred income taxes 149
Property, plant and equipment 1,531
Intangible assets 413
Prepaid pension costs 2,198
Other assets 414
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Total assets 7,794
Accounts payable (686)
Other accruals (798)
Debt (938)
Long-term liabilities (932)
Long-term deferred income taxes (631)
------
Total liabilities (3,985)
Minority interest (39)
Purchased in-process research and development 85
------
Excess of purchase price over fair value of net assets acquired $2,923
======
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years and
identifiable intangible assets are being amortized on a straight-line basis over
useful lives ranging from 16 to 30 years.
Pro forma financial statements are not included in this filing as the first
quarter 1999 and the first quarter 1998 are comparable, except that the first
quarter 1999 reflects approximately $5 million of LucasVarity's net earnings
subsequent to March 25, the date of acquisition, as well as the $85 million
charge to earnings, with no income tax benefit, for in-process research and
development. Pro forma financial information can be found in TRW's Current
Report on Form 8-K, originally filed with the Securities and Exchange
Commission on March 26, 1999, as amended on May 17, 1999.
Foreign Exchange Contracts
- --------------------------
The Company enters into forward exchange contracts which hedge firm foreign
currency commitments, anticipated transactions and certain intercompany
transactions. At March 31, 1999, the Company had contracts outstanding amounting
to $1.2 billion denominated principally in the British pound, the U.S. dollar,
the Spanish peseta, the French franc, the German deutsche mark, the Euro and the
Canadian dollar, maturing at various dates through January 2007. Contracts
outstanding increased from $162 million at December 31, 1998 primarily due to
the acquisition of LucasVarity.
A foreign currency option transaction for a notional amount of approximately $42
million was outstanding at March 31, 1999. The option was settled during
6
<PAGE> 8
April 1999, and the Company will recognize a before tax gain of approximately $1
million in the second quarter.
The combined fair market value of the forward exchange contracts and the foreign
currency option was approximately $85 million at March 31, 1999, primarily all
of which related to LucasVarity. The fair market value of forward contracts at
December 31, 1998 was $1 million. Changes in market value of the contracts which
hedge firm foreign currency commitments and intercompany transactions are
generally included in the basis of the transactions. Changes in market value of
the contracts which hedge anticipated transactions are generally recognized in
earnings.
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.
Interest Rate Swap Agreements
- -----------------------------
In anticipation of offering debt securities to finance the acquisition of
LucasVarity, the Company entered into forward starting interest rate swaps
during the first quarter of 1999 with a mandatory cash settlement in the second
quarter. These agreements effectively fixed the base rate of interest on an
aggregate notional principal amount of $900 million of debt that the Company
plans to issue. The fair market value of the forward starting interest rate
swaps is approximately $5 million at March 31, 1999. Net payments or receipts
under the agreements will be recognized as an adjustment to interest expense.
The agreements were entered into with major financial institutions, and the
Company anticipates that the financial institutions will satisfy their
obligations under the agreements. No collateral is held in relation to the
agreements.
Issuance of a Subsidiary's Stock
- --------------------------------
The Company includes gains or losses arising from the issuance of a
subsidiary's or equity affiliate's stock in non-operating income.
Comprehensive Income
- --------------------
The components of comprehensive income, net of related tax, for the first
quarter of 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Quarter ended
(In millions) March 31
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net earnings(loss) $ (28) $ 129
Foreign currency translation adjustments (124) (23)
Unrealized gain(loss) on securities (11) 2
----- -----
Comprehensive income(loss) $(163) $ 108
----- -----
</TABLE>
7
<PAGE> 9
The components of accumulated other comprehensive income, net of related tax, at
March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31 December 31
(In millions) 1999 1998
------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $(179) $ (55)
Unrealized gain on securities 19 30
Minimum pension liability adjustments (13) (13)
----- ----
Accumulated other comprehensive income(loss) $(173) $(38)
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</TABLE>
New Accounting Pronouncement
- ----------------------------
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. However, the Company is
considering earlier adoption. The effect this statement will have on the
Company's results of operations and financial condition has not yet been
determined.
Divestitures
- ------------
On May 17, 1999, the Company announced it will divest its engine
businesses, which consist of TRW Engine Components and Lucas Diesel System
operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies.
Sales included in the Company's first quarter of 1999 and 1998 statements of
earnings for the businesses to be sold were $174 million and $153 million,
respectively. The first quarter of 1999 included sales of $25 million for
LucasVarity Wiring companies and Lucas Diesel Systems operations.
The Company's investment in the LucasVarity Wiring companies and Lucas Diesel
Systems operations is included in the balance sheet caption "Net assets of
acquired businesses held for sale".
The Company expects to complete the divestitures of these businesses by year end
1999.
Operating Segments
- ------------------
On April 28, 1999, TRW announced a reorganization of its business into two
segments: Automotive and Aerospace & Information Systems. TRW's and
LucasVarity's automotive businesses were combined into TRW's Automotive Segment
and TRW's space, defense and information systems businesses were combined with
LucasVarity's aerospace business to form the Aerospace & Information Systems
Segment.
As a result of the acquisition of LucasVarity, segment assets increased
significantly. However, as the valuation to determine the value of the assets
applicable to each segment has not been finalized, the Company cannot currently
provide the value of the segment assets for the Automotive Segment and the
Aerospace & Information Systems Segment.
The caption "Financing costs" displayed in the reconciliation of segment profit
before income taxes to consolidated earnings before income taxes includes
interest expense as well as the underwriting and participation fees associated
with the acquisition of LucasVarity.
8
<PAGE> 10
Inventories
- -----------
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
(In millions) 1999 1998
------------------------------------------
<S> <C> <C>
Finished products and work in process $ 642 $ 316
Raw materials and supplies 481 300
----- -----
$1,123 $ 616
----- -----
</TABLE>
The increase in inventory is due to the acquisition of LucasVarity.
Long-Term Liabilities
- ---------------------
Long-term liabilities at March 31, 1999 and December 31, 1998, include $1,169
million and $651 million, respectively, relating to postretirement benefits
other than pensions. The increase is due to the acquisition of LucasVarity.
Other (Income)Expense-Net
- -------------------------
Other (income)expense-net included the following:
<TABLE>
<CAPTION>
Quarter ended
(In millions) March 31
------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Other income $(40) $(66)
Other expense 36 22
Gain from issuance of equity affiliate's stock (29) -
Foreign currency exchange 49 2
---- ----
$ 16 $(42)
---- ----
</TABLE>
During the first quarter 1999, RF Micro Devices, Inc. (RFMD), an equity
affiliate which designs, develops, manufactures and markets priority radio
frequency integrated circuits for wireless communications applications, issued
2,012,500 shares of stock at $61.44 per share in a registered public offering.
First quarter 1999 "Other(income)expense-net" included a gain of $29 million
from the issuance of stock by RFMD. The Company's ownership decreased from 32
percent to 27 percent primarily due to the issuance of these shares. Deferred
taxes have been appropriately provided on the gain.
In addition, first quarter 1999 other income included $15 million from the
Company's sale of 287,500 shares of RFMD common stock in the registered public
offering. First quarter 1999 other expense included a $10 million before tax
charge for underwriting and participation fees incurred to secure committed
credit facilities related to the acquisition of LucasVarity. First quarter 1999
foreign currency exchange included a $50 million nonrecurring before tax loss on
foreign currency hedges related to the acquisition of LucasVarity. First quarter
1998 other income included a $49 million benefit from the settlement of certain
patent litigation.
Supplemental Cash Flow Information
- ----------------------------------
<TABLE>
<CAPTION>
Quarter ended
(In millions) March 31
------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Interest paid (net of amount capitalized) $47 $30
Income taxes paid (net of refunds) $33 $41
</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.
9
<PAGE> 11
During the first quarter of 1999, the Company incurred short-term borrowings of
approximately $519 million to finance the purchase of LucasVarity's Ordinary
Shares on the open market. In addition, a $6.3 billion payable was incurred for
LucasVarity shares tendered into the offer. During April 1999, the Company
settled a significant portion of the payable for LucasVarity shares by issuance
of commercial paper.
Earnings Per Share
- ------------------
The effects of convertible preferred stock and employee stock options were
excluded from the calculation of 1999 diluted earnings per share as they would
have been antidilutive.
<TABLE>
<CAPTION>
Quarter ended
(In millions except per share data) March 31
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
NUMERATOR
Net earnings(loss) $(28.4) $129.4
Preferred stock dividends .3 .2
-- --
Numerator for basic earnings per share--
earnings(loss) available to common
shareholders (28.7) 129.2
Effect of dilutive securities
Preferred stock dividends - .2
---- -----
Numerator for diluted earnings per
share--earnings(loss) available to common
shareholders after assumed conversions $ (28.7) $129.4
---- -----
DENOMINATOR
Denominator for basic earnings per share--
weighted-average common shares 120.1 122.6
Effect of dilutive securities
Convertible preferred stock - .9
Employee stock options - 2.7
----- -----
Dilutive potential common shares - 3.6
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 120.1 126.2
----- -----
Basic earnings(loss) per share $(0.24) $ 1.05
---- -----
Diluted earnings(loss) per share $(0.24) $ 1.03
---- -----
</TABLE>
Contingencies
- -------------
During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the
Company, reported to the Arizona Department of Environmental Quality (ADEQ)
potential violations of the Arizona hazardous waste law at its Queen Creek,
Arizona facility for the possible failure to properly label and dispose of
wastewater that might be classified as hazardous waste. ADEQ is conducting an
investigation into these potential violations and the Company is cooperating
with the investigation. If ADEQ initiates proceedings against the Company with
respect to such matters, the Company could be liable for penalties and fines and
other relief. The 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.
10
<PAGE> 12
During 1996, the Company was advised by the United States Department of Justice
(DOJ) that it had been named as a defendant in two lawsuits brought by a former
employee of the Company's former Space & Technology Group and originally filed
under seal in 1994 and 1995, respectively, in the United States District Court
for the Central District of California under the qui tam provisions of the civil
False Claims Act. The Act permits an individual to bring suit in the name of the
United States and share in any recovery. The allegations in the lawsuits relate
to the classification of costs incurred by the Company that were charged to
certain of its federal contracts. Under the law, the government must investigate
the allegations and determine whether it wishes to intervene and take
responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the
litigation. On February 19, 1998 and March 4, 1998, the former employee filed
amended complaints in the Central District of California that realleged certain
of the claims included in the 1994 and 1995 lawsuits and omitted the remainder.
The amended complaints allege that the United States has incurred substantial
damages and that the Company should be ordered to cease and desist from
violations of the civil False Claims Act and is liable for treble damages,
penalties, costs, including attorneys' fees, and such other relief as deemed
proper by the court. On March 17, 1998, the DOJ filed its complaint against the
Company upon intervention in the 1994 lawsuit, which set forth a limited number
of the allegations in the 1994 lawsuit and other allegations not in the 1994
lawsuit. The DOJ elected not to pursue the other claims in the 1994 lawsuit or
the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is
liable for treble damages, penalties, interest, costs and "other proper relief."
On March 18, 1998, the former employee withdrew the first amended complaint in
the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed
answers to the former employee's first amended complaint in the 1995 lawsuit and
to the DOJ's complaint, denying all substantive allegations against the Company
contained therein. At the same time, the Company filed counterclaims against
both the former employee and the federal government. On July 20, 1998, both the
former employee and the DOJ filed motions seeking to dismiss the Company's
counterclaims. 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. On March 15, 1999, the DOJ was
granted leave to file a First Amended Complaint, which adds certain allegations
concerning the Company's subcontracts. The Company cannot presently predict the
outcome of these lawsuits, although management believes that their ultimate
resolution will not have a material effect on the Company's financial condition
or results of operations.
Interim Statements
- ------------------
The financial statements are based in part on approximations and are subject to
adjustments that may develop, such as unsettled contract and renegotiation
matters and matters that arise in connection with the annual audit of the
financial statements; however, in the opinion of management, all adjustments
(which consist of normal recurring accruals) necessary for a fair presentation
of the results of operations for the periods presented have been included.
Results of operations for any interim period are not necessarily indicative of
the results to be expected for the full year.
11
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
(In millions except per share data)
<TABLE>
<CAPTION>
First Quarter
----------------------------------------------------
Percent
1999 1998 Inc(Dec)
--------------- ---------------- -------------
<S> <C> <C>
Sales $3,097 $3,095 -
Segment profit before income taxes 235 275 (15)%
Net earnings(loss) (28) 129 (122)%
Diluted earnings(loss) per share (0.24) 1.03 (123)%
Effective tax rate 504.6% 36.50%
</TABLE>
Sales of $3.1 billion were essentially unchanged compared with the first quarter
of 1998. An increase in sales as a result of the inclusion of $106 million from
LucasVarity, subsequent to March 25, 1999, the date of acquisition, was offset
by a decrease in the aerospace and information systems business.
A net loss of $28 million, or a net loss of $.24 per share, was reported in the
first quarter 1999 compared with net earnings of $129 million, or $1.03 per
share, reported in the first quarter 1998.
First quarter 1999 net loss included the following: an $85 million charge, 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; a $28 million after tax charge for a commercial fixed-price
contract and a capped cost reimbursable contract for the U.S. Army; a
non-recurring after tax loss of $33 million relating to forward contracts and
currency options to purchase British pounds in connection with the LucasVarity
acquisition; and $52 million of up front underwriting and participation fees to
secure committed credit facilities and fees for unutilized credit facilities of
which $12 million, or $8 million after tax, was charged to expense in the first
quarter of 1999.
First quarter 1999 net loss also included after tax gains of $19 million from
the public offering of stock by RFMD and $10 million from the Company's sale of
287,500 shares of RFMD stock in the public offering. The Company may, from time
to time, sell a portion of the remaining RFMD stock it owns. In addition,
approximately $5 million of LucasVarity's net earnings subsequent to March 25,
the date of acquisition, were included in the first quarter of 1999.
First quarter 1998 net earnings included a $32 million benefit from the
settlement of certain patent litigation, offset in part by $22 million in
charges for litigation, contract reserves, and severance costs relating to the
combination of the Company's systems integration business with BDM
International, Inc., acquired in 1997.
Interest expense was $43 million for the first quarter of 1999, compared to $38
million for the first quarter 1998, primarily due to financing higher working
capital requirements and the purchase of LucasVarity shares in the open market.
The effective tax rate for continuing operations was 504.6 percent for the first
quarter 1999 compared to 36.5 percent in 1998. Excluding the write-off of
purchased in-process research and development, which has no tax benefit, the
effective tax rate would have been 38.4 percent. The
12
<PAGE> 14
higher effective tax rate for the first quarter 1999 was primarily attributable
to the tax impact of nondeductible intangibles associated with the LucasVarity
acquisition and the mix of non-U.S. earnings.
<TABLE>
<CAPTION>
Automotive
(In millions)
First Quarter
----------------------------------------------------
Percent
1999 1998 Inc(Dec)
--------------- ---------------- -------------
<S> <C> <C> <C>
Sales $1,965 $1,886 4%
Segment profit before income taxes 136 149 (9)%
</TABLE>
In the automotive segment, first quarter 1999 sales increased to $2.0 billion
from $1.9 billion in the first quarter of 1998 due to the inclusion of
LucasVarity automotive operations. Higher volume, primarily in Europe in the
occupant restraints and electronics businesses, was offset by lower pricing
across all product lines.
Automotive segment profit before tax decreased to $136 million, compared with
$149 million in the first quarter of 1998. First quarter 1999 segment profit
before tax included $9.7 million in charges relating to the previously announced
restructuring program and the results of LucasVarity's automotive business
subsequent to the date of acquisition. The decline in segment profits resulted
primarily from delays in anticipated savings associated with the automotive
restructuring program and start-up costs related to new facilities and products.
Lower pricing and production inefficiencies, offset in part by higher volume and
cost reductions, also contributed to the decline in segment profits.
The automotive restructuring program is currently behind plan and delays in
achieving cost savings have negatively impacted automotive margins. However, the
Company remains committed to implementing the cost-reduction steps and improving
segment margins to achieve its goals. In the first quarter of 1999, the Company
eliminated approximately 500 of the 4,500 suppliers targeted for reduction,
while achieving a 20 percent improvement in supplier quality parts per million.
<TABLE>
<CAPTION>
Aerospace & Information Systems
(In millions)
First Quarter
----------------------------------------------------
Percent
1999 1998 Inc(Dec)
--------------- ---------------- -------------
<S> <C> <C> <C>
Sales $1,132 $1,209 (6)%
Segment profit before income taxes 99 126 (21)%
</TABLE>
In the Aerospace & Information Systems segment, first quarter 1999 sales
decreased to $1.1 billion from $1.2 billion in 1998. The decline in sales in the
quarter resulted from delays in the start-up of commercial space programs,
reduced funding on current programs, including a contract modification announced
in 1998, the termination of the SBIRS-Low contract, contracts nearing
completion, and lower than expected growth in commercial information technology,
offset in part by new contract awards.
Segment profit before tax decreased to $99 million in 1999, compared with $126
million in the first quarter of 1998. The decline in segment profit before tax
resulted from the lower sales volume and increased product development costs
associated with commercial programs.
13
<PAGE> 15
Included in the 1999 segment results was a before tax gain of approximately $44
million from the public offering of stock by RFMD and the Company's sale of
287,500 shares of RFMD stock in the public offering. This gain was offset by a
$43 million before tax charge for a commercial fixed-price contract and a capped
cost reimbursable contract for the U.S. Army.
First quarter 1998 segment profit included a benefit from the settlement of
certain patent litigation, offset in part by charges for litigation and contract
reserves and severance costs relating to the combination of the Company's
systems integration business with BDM.
ACQUISITIONS
LucasVarity
On March 25, 1999, TRW acquired LucasVarity for approximately $6.8 billion in
cash. The acquisition was accounted for as a purchase. The preliminary purchase
price allocation resulted in an $85 million charge to earnings, with no income
tax benefit, for the fair value of acquired in-process research and development
(IPR&D) that had not reached technological feasibility and had no future
alternative use, $412 million of identified intangible assets including
intellectual property and workforce, $177 million of fixed assets and $30
million of inventory.
The fair value of IPR&D was determined using the income approach under the
proportional method. The following projects were included in the valuation: next
generation caliper of $26 million, next generation ABS brakes of $23 million,
electro hydraulic braking of $12 million, aerospace engine controls of $18
million, and electrical parking brake of $6 million.
A risk adjusted discount rate of 18 percent representing the cost of capital and
a premium for the risk was used to discount the projects' cash flows. Operating
margins were assumed to be similar to historical margins of similar products.
The size of the applicable market was verified for reasonableness with outside
research sources. The projects were in various stages of completion ranging from
approximately 40 to 80 percent complete as of the valuation date. The stage of
completion for each project was estimated by evaluating the cost to complete,
complexity of the technology, and time to market. The projects are anticipated
to be completed from late 1999 through 2002. The estimated cost to complete the
projects is $65 million.
The Company currently anticipates that these projects will be successfully
developed as budgeted for both the estimated cost and time of completion. Any
delay or cancellation of the projects would not have a material adverse impact
on the results of operations or the financial condition of the Company.
See the "Acquisitions" footnote in the Notes to Financial Statements for further
discussion of the LucasVarity acquisition.
Astrolink LLC
On May 6, 1999, TRW announced that it will make a $250 million investment in
Astrolink LLC, a strategic venture initiated by Lockheed Martin. In addition to
TRW's investment, Lockheed Martin Global Telecommunications will invest $400
million, and Telespazio, a Telecom Italia Group Company, will invest $250
million. With this funding, Astrolink will commence construction of a system
that will make it the world's first global, on-demand, wireless broadband
service provider, scheduled to offer service in 2003.
Astrolink will focus on the high-growth area of broadband data services,
carrying traffic for Internet, intranet, multimedia and corporate data networks.
TRW will build the digital, packet-switched communications payloads for
Astrolink's satellites, and will have the opportunity to be an Astrolink
14
<PAGE> 16
service provider. TRW's $250 million investment will be made in five
installments over the next eighteen months.
BDM International, Inc.
During 1997, the Company acquired BDM International, Inc., resulting in a charge
for in-process research & development of $548 million. 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 Company anticipates that these projects will be successfully developed;
however, there can be no assurance that the products will be viable in the
rapidly changing commercial marketplace.
LIQUIDITY AND FINANCIAL POSITION
In the first quarter of 1999, a net increase in debt of $1,049 million was used
to fund open market purchases of LucasVarity's Ordinary Shares of $519 million,
operating activities of $134 million, capital expenditures of $111 million,
dividend payments of $40 million, acquisitions of $36 million and other items of
$8 million. As a result, cash and cash equivalents increased by $201 million. In
addition, the Company received $774 million of cash and cash equivalents as part
of the LucasVarity acquisition.
Net debt (short-term debt, the current portion of long-term debt, long-term debt
and the payables for LucasVarity less cash and cash equivalents) was $9.4
billion at March 31, 1999, compared to $2.1 billion at December 31, 1998. The
ratio of net debt to total capital (net debt, minority interests and
shareholders' investment) was 83 percent at March 31, 1999, compared to 52
percent at December 31, 1998.
During the first quarter of 1999, the Company incurred short-term borrowings of
approximately $519 million to finance the purchase of LucasVarity's Ordinary
Shares on the open market. In addition, a $6.3 billion payable was incurred for
LucasVarity shares tendered into the offer. During April 1999, the Company
settled a significant portion of the payable for LucasVarity shares by issuance
of commercial paper.
At March 31, 1999, $3.6 billion of short-term obligations, primarily payable for
LucasVarity tendered shares, were reclassified to long-term obligations as the
Company intends to refinance the obligations on a long-term basis and has the
ability to do so under its existing credit agreements.
The Company received fully underwritten financing for the acquisition of
LucasVarity in the form of a $7.4 billion two-tranche credit agreement with 59
banks. Tranche one of $3.7 billion expires December 31, 1999 and the second
tranche expires January 26, 2000 with an option to extend the maturity of up to
$2 billion of borrowings to January 26, 2001. The interest rates under the
agreement are the prime rate and a rate based on a London Interbank Offered
Rate. At March 31, 1999, there were no outstanding borrowings under this
agreement. Issuance of long-term debt securities in the public or private
capital markets and the net proceeds from divestitures, among other things,
reduce the amount of the commitments by 100 percent under tranche one until it
is zero and then by 50 percent under tranche two, with a maximum reduction under
tranche two of $1.7 billion.
During the first quarter of 1999, the Company amended the terms of its $750
million and $745 million U.S. revolving credit agreements and its $250 million
multicurrency revolving credit agreement to change commitment fees, borrowing
margins and other key terms and conditions to conform to the terms of the $7.4
15
<PAGE> 17
billion agreement. In addition, the expiration date of the $745 million
agreement was extended from December 6, 1999 to January 26, 2000, with the
provision that the Company may extend the date to January 26, 2001.
No securities were issued under the Universal Shelf Registration Statement
during the first quarter of 1999.
As a result of the debt incurred for the LucasVarity acquisition, ratings on
TRW's short and long-term debt were lowered. Moody's Investors Service has rated
the Company's commercial paper at P-2 and senior unsecured debt at Baa1.
Standard & Poor's has rated the Company's commercial paper at A-2 and senior
unsecured debt at BBB. These rating changes are not expected to have a material
impact on the Company's financial position.
On May 17, 1999, the Company announced that it will divest its engine
businesses, which consist of TRW Engine Components and Lucas Diesel System
operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies. The
estimated net proceeds from these divestitures of $1.2 to $1.5 billion will be
applied to reduce debt incurred to finance the acquisition of LucasVarity. The
Company has established a goal of reducing its net debt by approximately $2.5
billion, including the effects of these divestitures, during the next 18 months.
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, the divestiture program 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.
OTHER MATTERS
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.
16
<PAGE> 18
Year 2000
A company-wide Year 2000 (Y2K) compliance program has been implemented to
determine Y2K issues and assure Y2K compliance. The Company's Y2K compliance
program now encompasses the Y2K program of LucasVarity, which was recently
acquired by TRW. The compliance program has four major areas: internal computer
systems, factory floor systems, supplier and service management and products and
contracts.
The general phases 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 complete. Conversion, Upgrade and Renovation are essentially complete with
the remainder of the Y2K compliance program scheduled to be complete by year-end
1999, except for certain Y2K upgrades for nonmaterial and low priority items.
The 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 80 percent of TRW's
internal computer systems are Y2K compliant and expects the remaining systems to
be Y2K compliant by the end of the second quarter 1999. The Company estimates
that 95 percent of LucasVarity's internal computer systems are Y2K compliant and
expects the remaining systems to be Y2K compliant by the end of July 1999. The
Company expects to develop the majority of critical contingency plans for these
systems during the second quarter 1999 and the remainder during the third
quarter 1999.
The factory floor systems are comprised of manufacturing and warehousing
equipment. The Company estimates that 90 percent of TRW's factory floor systems
are Y2K compliant and expects the remaining systems to be Y2K compliant by the
end of the second quarter of 1999. The Company estimates that 95 percent of
LucasVarity's factory floor systems are Y2K compliant and expects the remaining
systems to be Y2K compliant by the end of July 1999. The Company expects to
develop the majority of critical contingency plans for these systems during the
second quarter 1999 and the remainder during the third quarter 1999.
The Company is continuing to evaluate Y2K issues associated with suppliers to
TRW's Automotive business by working with the Automotive Industries Action Group
(AIAG), which consists of several of TRW's largest automotive customers and
suppliers. The AIAG sent self-assessment surveys to approximately 15,000 TRW
suppliers, of which about 3,900 are critical to TRW's 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. The Company estimates that 65 percent of the critical
automotive suppliers' Y2K readiness has been validated and expects the
validation of the remaining critical suppliers to be completed during the second
quarter 1999. Service providers' Y2K readiness is also being validated. 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.
Y2K certification requests were sent to approximately 8,200 suppliers and
service providers to TRW's space, defense and information systems businesses, of
which about 1,200 are considered critical. Approximately 85 percent of those
critical suppliers have certified Y2K compliance and the Company expects the
remaining critical suppliers to respond during the second quarter 1999. The
Company also expects the majority of critical contingency plans to be developed
by the end of the second quarter 1999.
Approximately 5,500 of LucasVarity's 20,000 automotive and aerospace suppliers
and service providers are critical to its business. Each critical supplier and
17
<PAGE> 19
service provider is being contacted and their state of Y2K readiness is being
validated. LucasVarity has received responses from approximately 98 percent of
its critical suppliers and service providers, and these responses have been
reviewed to determine what, if any, follow up actions may be necessary.
Suppliers and service providers assessed as being high risk, or of particular
significance to the business, have been reviewed further to evaluate the risks
to LucasVarity. As a result, LucasVarity has provided support to certain
suppliers and service providers for their compliance efforts and has re-sourced
a number of critical material and component suppliers. The validation and
contingency planning related to LucasVarity's suppliers and service providers
will be essentially complete by the end of July 1999.
The Company has assessed the products of the existing TRW automotive business
and determined that there should be no Y2K issues. Also, LucasVarity has
assessed its automotive and aerospace products and determined that there should
be no Y2K issues.
Contracts entered into by TRW's space, defense and information systems
businesses after January 1, 1996 and contract modifications entered into after
January 1, 1996 that add major scope to earlier contracts have been assessed.
Approximately 440 contracts were identified to have a potential Y2K impact. The
Company has determined that 410 of these contracts have Y2K impacts; however,
the customer and TRW have agreed that renovation, if any, will be funded by the
customer. For the remaining 30 contracts, communications continue with the
customers to determine whether there is a Y2K impact and to develop mutually
acceptable renovation plans, if necessary. The Company expects renovations and
critical contingency planning to be performed throughout 1999.
As part of a continuing process under the Y2K program, issues are being assessed
as they are identified, using formal program reviews to assess progress and
initiate required actions. As the Company's 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 key suppliers will not be Y2K compliant and the risk that space,
defense and information systems' contracts will have unanticipated Y2K-related
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 including LucasVarity is
estimated to be $202 million and includes $99 million for capitalizable costs
and $103 million of costs that are being expensed as incurred. The increase in
the total cost of the Y2K compliance program is due to the acquisition of
LucasVarity. TRW and LucasVarity have expensed approximately $70 million to
date, of which approximately $19 million was expensed by LucasVarity prior to
the acquisition. The Company expects to expense an additional $26 million
throughout the remainder of 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 Company's Y2K 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 Company's
Y2K program differ materially from those anticipated, the Company's
18
<PAGE> 20
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, TRW and its
representatives may 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 TRW's actual results to differ materially
from those contained in forward-looking statements made in this filing or
otherwise made by, or on behalf of, TRW.
The following are some of the factors that could cause actual results to differ
materially from estimates contained in TRW's forward-looking statements:
Our 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 reduce the level of outstanding
debt; the ability to achieve targeted proceeds from the dispositions planned in
our automotive business; the ability to generate targeted cash flow from
operations; 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.
19
<PAGE> 21
Our automotive business also could be affected by: the ability to effectively
implement our automotive restructuring program and improve automotive margins;
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; the ability to achieve cost reductions; work
stoppages; customer warranty claims; changes to the regulatory environment
regarding automotive safety; and our ability to increase the vehicle content of
our products per vehicle.
Our aerospace and information systems business also could be affected by: the
level of defense funding by the government; our 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 aerospace and information systems markets.
Certain statements contained in this filing or otherwise made by or on behalf of
TRW 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 TRW's control. Factors that could cause
actual operating results to differ materially from those described in such
forward-looking statements include: unanticipated events and circumstances that
may occur and render the transaction less beneficial to TRW than anticipated;
intense competition in our markets that make it impossible to guarantee that we
will achieve the expected financial and operating results and synergies; and the
ability of TRW to integrate LucasVarity into its operations and thereby achieve
the anticipated cost savings and be in a position to take advantage of potential
growth opportunities.
The foregoing list of important factors is not exclusive.
We caution you that any forward-looking statement reflects only the beliefs of
TRW 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.
20
<PAGE> 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
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. Also, at certain times, the Company may use interest rate
agreements in the management of interest rate exposure on debt issuances.
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.
Based on the Company's interest rate exposure on variable rate borrowings at
March 31, 1999, a one-percentage-point increase in the average interest rate on
the Company's variable rate borrowings would increase future interest expense by
approximately $2 million per month.
Based on the Company's exposure to foreign currency exchange rate risk resulting
from derivative foreign currency instruments outstanding at March 31, 1999, a 10
percent uniform strengthening in the value of the U.S. dollar relative to the
currencies in which those derivative foreign currency instruments are
denominated would result in a loss of $91 million.
Based on the Company's interest rate exposure with regard to the issuance of
debt at March 31, 1999, a 10 percent decrease in the market rate at March 31,
1999 on the Company's forward starting interest rate swaps would result in a
loss of $37 million.
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.
Refer to the "Foreign Exchange Contracts" and the "Interest Rate Swap
Agreements" footnotes in the Notes to Financial Statements for further
discussion of derivative instruments as of March 31, 1999.
21
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. 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. On March 15, 1999, the DOJ was granted leave to file a
First Amended Complaint, which adds certain allegations concerning the Company's
subcontracts. The Company cannot presently predict the outcome of these
lawsuits, although management believes that their ultimate resolution will not
have a material effect on the Company's financial condition or results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
10.1 Amendment dated as of March 25, 1999 to the Revolving Credit
Agreement dated as of December 10, 1997 and amended as of
December 8, 1998 among TRW Inc. and various financial
institutions
10.2 Amendment dated as of March 25, 1999 to the Multi-Year
Revolving Credit Agreement dated as of July 1, 1992 and
amended and restated as of May 8, 1996 and amended as of
August 7, 1997 among TRW Inc. and various financial
institutions
10.3 Letter Agreement between TRW Inc. and Peter S. Hellman
27 Financial Data Schedule
22
<PAGE> 24
99 Computation of Ratio of Earnings to Fixed Charges --
Unaudited (Supplement to Exhibit 12 of the following Form
S-3 Registration Statement of the Company: No. 333-48443,
filed March 23, 1998)
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated January 28, 1999, announcing that TRW
Inc. and LucasVarity plc had reached agreement on the terms of a
recommended cash offer to be made on behalf of TRW Inc. to acquire the
entire issued share capital of LucasVarity plc.
Current Report on Form 8-K, dated February 5, 1999, disclosing the
audited financial statements of TRW Inc. for the fiscal year ended
December 31, 1998.
Current Report on Form 8-K, dated March 26, 1999, reporting that the
offer to acquire the entire issued share capital of LucasVarity plc was
declared unconditional in all respects on March 25, 1999.
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRW Inc.
Date: May 17, 1999 By: /s/ William B. Lawrence
-----------------------
William B. Lawrence
Executive Vice President and Secretary
By: /s/ Carl G. Miller
-----------------------
Carl G. Miller
Executive Vice President
and Chief Financial Officer
<PAGE> 1
Exhibit 10.1
EXECUTION COPY
AMENDMENT TO CREDIT AGREEMENT
AMENDMENT dated as of March 25, 1999 to the Revolving Credit Agreement
dated as of December 10, 1997 and amended as of December 8, 1998 (as heretofore
amended, the "EXISTING CREDIT AGREEMENT") among TRW Inc., an Ohio corporation
(the "COMPANY"), and the BANKS party thereto (the "BANKS").
W I T N E S S E T H :
WHEREAS, the parties hereto are parties to the Existing Credit
Agreement;
WHEREAS, the Company has entered into a $7,400,000,000 Amended and
Restated Credit Agreement dated as of January 27, 1999 and amended and restated
as of February 26, 1999 among the Company, the eligible subsidiaries referred to
therein, the lenders party thereto, Bank of America National Trust and Savings
Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication Agents and
Morgan Guaranty Trust Company of New York, as administrative agent (as in effect
on the date hereof, the "ACQUISITION CREDIT AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Existing Credit Agreement
so that (i) the covenants and the events of default applicable thereunder shall
be the same as the covenants and the events of default applicable under the
Acquisition Credit Agreement, (ii) the interest rate margin applicable to any
loans of any type outstanding under the Existing Credit Agreement shall be the
same as the interest rate margin applicable to loans of such type under the
Acquisition Credit Agreement, (iii) the commitment fee rate payable under the
Existing Credit Agreement shall be the same as the commitment fee rate payable
under the Acquisition Credit Agreement and (iv) the Revolving Period Termination
Date is extended from December 6, 1999 to January 26, 2000;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Existing Credit
Agreement has the meaning assigned to such term in the Existing Credit
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Existing Credit Agreement shall, after
this Amendment becomes effective in accordance with Section 9, refer to the
Existing Credit Agreement as amended hereby.
<PAGE> 2
SECTION 2. Addition of Definition of Acquisition Credit Agreement. (a)
A new definition of "ACQUISITION CREDIT AGREEMENT" is added in alphabetical
order to Section 13 of the Existing Credit Agreement, to read in its entirety as
follows:
"ACQUISITION CREDIT AGREEMENT" means the $7,400,000,000 Amended and
Restated Credit Agreement dated as of January 27, 1999 and amended and restated
as of February 26, 1999 among the Company, the eligible subsidiaries referred to
therein, the lenders party thereto, Bank of America National Trust and Savings
Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication Agents and
Morgan Guaranty Trust Company of New York, as administrative agent, as amended,
waived or modified from time to time; provided that for purposes of the
incorporation by reference into this Agreement of any provision of the
Acquisition Credit Agreement, no amendment, waiver or modification of any
provision of the Acquisition Credit Agreement shall be effective unless
consented to in writing by the Majority Banks.
(b) The following paragraph is added at the end of Section 13 of the
Existing Credit Agreement:
"Certain provisions herein are incorporated by reference from or
defined with reference to the Acquisition Credit Agreement (the "INCORPORATED
PROVISIONS") solely for the convenience of the parties hereto in documenting
this Agreement and the transactions referred to herein. If this Agreement
remains in effect after the date (the "ACQUISITION PAYOUT DATE") on which the
commitments under the Acquisition Credit Agreement have been terminated and the
loans thereunder have been paid in full, then subject to the provisos that
follow the Incorporated Provisions shall continue to be incorporated herein by
reference as such provisions were in effect on the Acquisition Payout Date;
provided that (i) on and after the first date on which Minimum Short-Term Debt
Ratings (as defined in the Pricing Schedule) are in effect, other than for
purposes of the incorporation of Section 6.01(b) of the Acquisition Credit
Agreement, the Reset Date shall be deemed to have occurred and (ii) for purposes
of incorporation by reference of Section 6.01(b) of the Acquisition Credit
Agreement, the Reset Date will be deemed to have occurred on the first date the
Minimum Long-Term Debt Ratings are in effect (and subject to any further
amendment, waiver or other modification thereof consented to in writing by the
Majority Banks hereunder). For purposes hereof, "Minimum Long-Term Debt Ratings"
are in effect on any day on which the Company's long-term unsecured debt is
rated at least BBB+ by S&P (as defined in the Pricing Schedule) and Baa1 by
Moody's (as defined in the Pricing Schedule)."
2
<PAGE> 3
SECTION 3. Incorporation By Reference of Covenants Contained in the
Acquisition Credit Agreement. (a) Section 9.1 of the Existing Credit Agreement
is hereby amended to read in its entirety as follows:
"9.1 Incorporation By Reference of Covenants Contained in the
Acquisition Credit Agreement. Sections 5.01, 5.02 and 5.04 through 5.08,
inclusive, of the Acquisition Credit Agreement are hereby incorporated herein by
reference. Defined terms used in Sections 5.01, 5.02 and 5.04 through 5.08,
inclusive, of the Acquisition Credit Agreement have the meanings assigned to
such terms in the Acquisition Credit Agreement, except that for purposes of this
Section 9.1 (i) the terms "Lenders" and "Administrative Agent" means the Banks
and (ii) the terms "Event of Default" and "Unmatured Event of Default" shall
mean an Event of Default and Unmatured Event of Default, respectively, under
this Agreement."
(b) Sections 9.2 through 9.5, inclusive, of the Existing Credit
Agreement are hereby deleted in their entirety.
(c) The definitions of "Compliance Certificate", "Consolidated Funded
Debt, "Consolidated Net Tangible Assets", "Consolidated Net Worth", "Debt",
"Domestic Subsidiary", "Exempted Indebtedness", "Funded Debt", "lien or
mortgage", "Principal Property", "Sale and Leaseback Transaction" and "Wholly
Owned Domestic Subsidiary" set forth in Section 13 of the Existing Credit
Agreement are hereby deleted in their entirety.
SECTION 4. Incorporation By Reference of Events of Default Contained in
the Acquisition Credit Agreement. (a) Sections 11.1.2 of the Existing Credit
Agreement is hereby amended to read in its entirety as follows:
"11.1.2 Incorporation By Reference of Events of Default Contained in
the Acquisition Credit Agreement. Sections 6.01(b) through 6.01(d), inclusive,
and Sections 6.01(f) through 6.01(i), inclusive, of the Acquisition Credit
Agreement are hereby incorporated herein by reference. Defined terms used in
Sections 6.01(b) through 6.01(d), inclusive, and Sections 6.01(f) through
6.01(i), inclusive, of the Acquisition Credit Agreement have the meanings
assigned to such terms in the Acquisition Credit Agreement, except that for
purposes of this Section 11.1.2, the term (i) "Commitments" means the
Commitments under this Agreement, (ii) "Loans" means the Loans under this
Agreement, and (iii) "Other Debt" means Debt (as defined in the Acquisition
Credit Agreement) of the Company (other than the Loans under this Agreement ) in
an aggregate principal amount in excess of $100,000,000."
(b) Sections 11.1.2 through 11.1.4, inclusive, and Section 11.1.6 of
the Existing Credit Agreement are hereby deleted in their entirety.
3
<PAGE> 4
(c) Section 11.1.5 of the Existing Credit Agreement is redesignated as
Section 11.1.3, and the following new Section 11.1.4 is added to the Existing
Credit Agreement immediately after Section 11.1.3 thereof:
"11.1.4. Guaranty Unenforceable. The Guaranty of the Company set forth
in Section 12 shall cease at any time to be in full force and effect, or any
party hereto (other than a Bank) shall so assert in writing."
(d) Sections 11.2 of the Existing Credit Agreement is hereby amended to
read in its entirety as follows:
"11.2 Effect of Event of Default. If any Event of Default described in
Section 11.1.2 and constituting an "Event of Default" under Section 6.01(c) of
the Acquisition Credit Agreement (a "BANKRUPTCY DEFAULT") shall occur, the
Commitments (if they have not theretofore terminated) shall immediately
terminate and all Loans and Notes shall automatically become immediately due and
payable, all without notice of any kind; and, in the case of any other Event of
Default, the Majority Banks may declare the Commitments (if they have not
theretofore terminated) to be terminated and the Outstanding Majority Banks may
declare that all Loans and Notes shall become immediately due and payable. The
Majority Banks and the Outstanding Majority Banks shall promptly advise the
Company in writing of any such declaration. Following the declaration that all
Loans and Notes are immediately due and payable, all payments made by the
Company on account of the Loans and Notes shall be made to the Administrator,
which shall distribute such payments on a pro rata basis (in relation to the
amounts of outstanding Loans) to Banks with outstanding Loans. Following such
declaration, if any Bank receives a payment that is not on a pro rata basis,
such Bank will remit to the Administrator any amount in excess of its pro rata
portion. Upon receipt of any such remittance, the Administrator will distribute
such amount to the Banks with outstanding Loans in order that all distributions
will be pro rata. The effect as an Event of Default of any event described in
Section 11.1.1 or a Bankruptcy Default may be waived only by the written
concurrence of the holders of 100% of the aggregate unpaid principal amount of
the Notes and the Majority Banks, and the effect as an Event of Default of any
other event described in this Section 11 may be waived by the written
concurrence of the Majority Banks and the Outstanding Majority Banks."
SECTION 5. Changes in Pricing. (a) Clause (a) of Section 3.1 is
hereby amended to read in its entirety as follows:
"(a) At all times while such Loan is a Base Rate Loan, at a rate per
annum equal to the Base Rate from time to time in effect, plus for any day the
Applicable Margin on such day;"
4
<PAGE> 5
(b) The definitions of "Applicable Commitment Fee" and "Applicable
Margin" set forth in Section 13 of the Existing Credit Agreement are hereby
amended to read in their entirety as follows:
"APPLICABLE COMMITMENT FEE" has the meaning set forth in the Pricing
Schedule.
"APPLICABLE MARGIN" has the meaning set forth in the Pricing Schedule.
(c) A new definition of "Pricing Schedule" is added in alphabetical
order to Section 13 of the Existing Credit Agreement, to read in its entirety as
follows:
"PRICING SCHEDULE" means the Schedule attached hereto denominated as
such.
(d) A Pricing Schedule is hereby added to the Existing Credit
Agreement, to read in its entirety as set forth on the Pricing Schedule attached
hereto.
SECTION 6. Extension of Revolving Period Termination Date. The
definition of "Revolving Period Termination Date" set forth in Section 13 of the
Existing Credit Agreement is amended by changing the date therein from "December
6, 1999" to "January 26, 2000".
SECTION 7. Other Terms and Conditions. Unless amended hereby, all other
terms and conditions of the Existing Agreement shall remain in full force and
effect without change.
SECTION 8. Governing Law. This Amendment and each Note issued pursuant
hereto 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 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 Banks 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.
SECTION 9. Counterparts; Effectiveness. 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 Amendment.
When counterparts executed by all the parties hereto shall have been lodged with
the Company (or, in the case of any party as to which an executed counterpart
shall not have been so lodged, the Company shall have received telegraphic,
telex,
5
<PAGE> 6
or other written confirmation from such party of execution of a counterpart
hereof by such party), this Amendment shall become effective as of January 27,
1999.
SECTION 10. Captions. Section captions used in this Amendment are
for convenience only, and shall not affect the construction of this Amendment.
<PAGE> 7
Delivered at Cleveland, Ohio, as of the day and year first above
written.
TRW INC.
By: /s/ Ronald P. Vargo
--------------------------------------
Title: Vice President & Treasurer
BANK OF AMERICA NT & SA
By: /s/ Lynn W. Stetson
--------------------------------------
Title: Managing Director
BARCLAYS BANK PLC
By: /s/ Keith Mackie
--------------------------------------
Title: Director
THE CHASE MANHATTAN BANK
By: /s/ Andris G. Kalnins
--------------------------------------
Title: Vice President
<PAGE> 8
CITIBANK, N.A.
By: /s/ Robert D. Wetrus
--------------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Christopher C. Kunhardt
--------------------------------------
Title: Vice President
NATIONAL CITY BANK
By: /s/ Davis R. Bonner
--------------------------------------
Title: Senior Vice President
NBD BANK
By: /s/ Glenn A. Currin
--------------------------------------
Title: Vice President
<PAGE> 9
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
--------------------------------------
Title: Executive Vice President
and General Manager
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By: /s/ Deborah Slusarczyk
--------------------------------------
Title: Vice President
By: /s/ Ken Hamilton
--------------------------------------
Title: Senior Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Marianne T. Meil
--------------------------------------
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Charles S. Romano, Jr.
--------------------------------------
Title: Manager
<PAGE> 10
MELLON BANK, N.A.
By: /s/ Richard J. Schaich
--------------------------------------
Title: Assistant Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO ISTITUTO MOBILARE
ITALIANO S.P.A
By: /s/ Carlo Persico
--------------------------------------
Title: DGM
By: /s/ Luca Sacchi
--------------------------------------
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN
ISLANDS BRANCH
By: /s/ Stephan A. Wiedemann
--------------------------------------
Title: Director
By: /s/ Alexander Karow
--------------------------------------
Title: Associate
10
<PAGE> 11
PRICING SCHEDULE
"APPLICABLE COMMITMENT FEE" means, for any day, the rate per annum
(expressed in basis points) set forth below in the column corresponding to the
Pricing Level that applies on such day:
<TABLE>
<CAPTION>
- ----------------------- ------- -------- --------- -------- ------- --------
PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
<S> <C> <C> <C> <C> <C> <C>
Applicable 7.0 8.0 10.0 12.5 17.5 30.0
Commitment Fee
</TABLE>
"APPLICABLE MARGIN" means, for any day, with respect to any Loan, the
rate per annum (expressed in basis points) set forth below in the column
corresponding to such type of Loan and the Pricing Level that applies on such
day:
<TABLE>
<CAPTION>
- ----------------------- ------- -------- --------- -------- ------- --------
PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
<S> <C> <C> <C> <C> <C> <C>
Applicable Margin for
Eurocurrency Loans
Usage less than 1/4 40.0 50.0 62.5 75.0 100.0 125.0
Usage greater than or equal to 1/4 50.0 60.0 75.0 87.5 125.0 175.0
Applicable Margin for
Domestic CD Loans
Usage less than 1/4 52.5 62.5 75 87.5 112.5 137.5
Usage greater than or equal to 1/4 62.5 72.5 87.5 100 137.5 187.5
Applicable Margin for
Base Rate Loans
Usage less than 1/4 0 0 0 0 100 100
Usage greater than or equal to 1/4 0 0 0 0 100 100
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the last paragraph of this Pricing Schedule:
"MOODY'S" means Moody's Investors Service, Inc.
"LEVEL I PRICING" applies on any day on which (i) the Company's
long-term debt is rated A or higher by S&P and no lower than A3 by Moody's or A2
or higher by Moody's and no lower than A- by S&P and (ii) Minimum Short-Term
11
<PAGE> 12
Debt Ratings are in effect; provided that Level I Pricing shall not apply on any
day prior to the Step Down Date.
"LEVEL II PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated A- or higher by S&P and no lower than Baa1 by Moody's or
A3 or higher by Moody's and no lower than BBB+ by S&P and (y) Minimum Short-Term
Debt Ratings are in effect and (ii) Level I Pricing does not apply; provided
that Level II Pricing shall not apply on any day prior to the Step Down Date.
"LEVEL III PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated BBB+ or higher by S&P and Baa1 or higher by Moody's and
(y) Minimum Short-Term Debt Ratings are in effect and (ii) neither Level I
Pricing nor Level II Pricing applies; provided that Level III Pricing shall not
apply on any day prior to the Step Down Date.
"LEVEL IV PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and
(y) Minimum Short-Term Debt Ratings are in effect and (ii) none of Level I
Pricing, Level II Pricing and Level III Pricing applies.
"LEVEL V PRICING" applies on any day on which (i) the Company's
long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's and
(ii) none of Level I Pricing, Level II Pricing, Level III Pricing and Level IV
Pricing applies.
"LEVEL VI PRICING" applies on any day if no other Pricing Level applies
on such day.
"MINIMUM SHORT-TERM DEBT RATINGS" are in effect on any day on which the
Company's short-term debt is rated A-2 or higher by S&P and P-2 or higher by
Moody's.
"PRICING LEVEL" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V or Level VI Pricing applies on any day.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"STEP DOWN DATE" means the first date on which the aggregate amount of
the "Commitments" under the Acquisition Credit Agreement has been reduced by an
amount equal to at least 25% of the aggregate amount of the "Commitments" on
February 26, 1999 thereunder.
12
<PAGE> 13
"USAGE" means at any day a fraction (i) the numerator of which is the
aggregate outstanding principal amount of the Loans at such date, after giving
effect to any borrowing or payment on such date, and (ii) the denominator of
which is the aggregate amount of the Commitments at such date, after giving
effect to any reduction of the Commitments on such date. For purposes of this
Pricing Schedule, if for any reason any Loans remain outstanding after
termination of the Commitments, the Usage for each day on or after the day of
such termination shall be deemed to be greater than 1/4.
The credit ratings with respect to long-term debt to be utilized for
purposes of this Pricing Schedule are those assigned to the senior unsecured
long-term debt securities of the Company without third-party credit enhancement,
and any rating assigned to any other long-term debt security of the Company
shall be disregarded for such purpose. The credit ratings with respect to
short-term debt to be utilized for purposes of determining whether Minimum
Short-Term Debt Ratings are in effect on any day are those assigned to the
commercial paper issued by the Company, and any rating assigned to any other
short-term debt security of the Company shall be disregarded for such purpose.
The ratings in effect for any day are those in effect at the close of business
on such day.
13
<PAGE> 1
Exhibit 10.2
EXECUTION COPY
AMENDMENT TO CREDIT AGREEMENT
AMENDMENT dated as of March 25, 1999 to the Multi-Year Revolving Credit
Agreement dated as of July 1, 1992 and amended and restated as of May 8, 1996
(as heretofore amended, the "EXISTING CREDIT AGREEMENT") among TRW Inc., an Ohio
corporation (the "COMPANY"), and the BANKS party thereto (the "BANKS").
W I T N E S S E T H :
WHEREAS, the parties hereto are parties to the Existing Credit
Agreement;
WHEREAS, the Company has entered into a $7,400,000,000 Amended and
Restated Credit Agreement dated as of January 27, 1999 and amended and restated
as of February 26, 1999 among the Company, the eligible subsidiaries referred to
therein, the lenders party thereto, Bank of America National Trust and Savings
Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication Agents and
Morgan Guaranty Trust Company of New York, as administrative agent (as in effect
on the date hereof, the "ACQUISITION CREDIT AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Existing Credit Agreement
so that (i) the covenants and the events of default applicable thereunder shall
be the same as the covenants and the events of default applicable under the
Acquisition Credit Agreement, (ii) the interest rate margin applicable to any
loans of any type outstanding under the Existing Credit Agreement shall be the
same as the interest rate margin applicable to loans of such type under the
Acquisition Credit Agreement and (iii) the commitment fee rate payable under the
Existing Credit Agreement shall be the same as the commitment fee rate payable
under the Acquisition Credit Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Existing Credit
Agreement has the meaning assigned to such term in the Existing Credit
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Existing Credit Agreement shall, after
this Amendment becomes effective in accordance with Section 8, refer to the
Existing Credit Agreement as amended hereby.
<PAGE> 2
SECTION 2. Addition of Definition of Acquisition Credit Agreement. (a)
A new definition of "ACQUISITION CREDIT AGREEMENT" is added in alphabetical
order to Section 13 of the Existing Credit Agreement, to read in its entirety as
follows:
"ACQUISITION CREDIT AGREEMENT" means the $7,400,000,000 Amended and
Restated Credit Agreement dated as of January 27, 1999 and amended and restated
as of February 26, 1999 among the Company, the eligible subsidiaries referred to
therein, the lenders party thereto, Bank of America National Trust and Savings
Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication Agents and
Morgan Guaranty Trust Company of New York, as administrative agent, as amended,
waived or modified from time to time; provided that for purposes of the
incorporation by reference into this Agreement of any provision of the
Acquisition Credit Agreement, no amendment, waiver or modification of any
provision of the Acquisition Credit Agreement shall be effective unless
consented to in writing by the Majority Banks.
(b) The following paragraph is added at the end of Section 13 of the
Existing Credit Agreement:
"Certain provisions herein are incorporated by reference from or
defined with reference to the Acquisition Credit Agreement (the "INCORPORATED
PROVISIONS") solely for the convenience of the parties hereto in documenting
this Agreement and the transactions referred to herein. If this Agreement
remains in effect after the date (the "ACQUISITION PAYOUT DATE") on which the
commitments under the Acquisition Credit Agreement have been terminated and the
loans thereunder have been paid in full, then subject to the provisos that
follow the Incorporated Provisions shall continue to be incorporated herein by
reference as such provisions were in effect on the Acquisition Payout Date;
provided that (i) on and after the first date on which Minimum Short-Term Debt
Ratings (as defined in the Pricing Schedule) are in effect, other than for
purposes of the incorporation of Section 6.01(b) of the Acquisition Credit
Agreement, the Reset Date shall be deemed to have occurred and (ii) for purposes
of incorporation by reference of Section 6.01(b) of the Acquisition Credit
Agreement, the Reset Date will be deemed to have occurred on the first date the
Minimum Long-Term Debt Ratings are in effect (and subject to any further
amendment, waiver or other modification thereof consented to in writing by the
Majority Banks hereunder). For purposes hereof, "Minimum Long-Term Debt Ratings"
are in effect on any day on which the Company's long-term unsecured debt is
rated at least BBB+ by S&P (as defined in the Pricing Schedule) and Baa1 by
Moody's (as defined in the Pricing Schedule)."
2
<PAGE> 3
SECTION 3. Incorporation By Reference of Covenants Contained in the
Acquisition Credit Agreement. (a) Section 9.1 of the Existing Credit
Agreement is hereby amended to read in its entirety as follows:
"9.1 Incorporation By Reference of Covenants Contained in the
Acquisition Credit Agreement. Sections 5.01, 5.02 and 5.04 through 5.08,
inclusive, of the Acquisition Credit Agreement are hereby incorporated herein by
reference. Defined terms used in Sections 5.01, 5.02 and 5.04 through 5.08,
inclusive, of the Acquisition Credit Agreement have the meanings assigned to
such terms in the Acquisition Credit Agreement, except that for purposes of this
Section 9.1 (i) the terms "Lenders" and "Administrative Agent" means the Banks
and (ii) the terms "Event of Default" and "Unmatured Event of Default" shall
mean an Event of Default and Unmatured Event of Default, respectively, under
this Agreement."
(b) Sections 9.2 through 9.5, inclusive, of the Existing Credit
Agreement are hereby deleted in their entirety.
(c) The definitions of "Compliance Certificate", "Consolidated Funded
Debt, "Consolidated Net Tangible Assets", "Consolidated Net Worth", "Debt",
"Domestic Subsidiary", "Exempted Indebtedness", "Funded Debt", "lien or
mortgage", "Principal Property", "Sale and Leaseback Transaction" and "Wholly
Owned Domestic Subsidiary" set forth in Section 13 of the Existing Credit
Agreement are hereby deleted in their entirety.
SECTION 4. Incorporation By Reference of Events of Default Contained
in the Acquisition Credit Agreement. (a) Sections 11.1.2 of the Existing
Credit Agreement is hereby amended to read in its entirety as follows:
A11.1.2 Incorporation By Reference of Events of Default Contained in
the Acquisition Credit Agreement. Sections 6.01(b) through 6.01(d), inclusive,
and Sections 6.01(f) through 6.01(i), inclusive, of the Acquisition Credit
Agreement are hereby incorporated herein by reference. Defined terms used in
Sections 6.01(b) through 6.01(d), inclusive, and Sections 6.01(f) through
6.01(i), inclusive, of the Acquisition Credit Agreement have the meanings
assigned to such terms in the Acquisition Credit Agreement, except that for
purposes of this Section 11.1.2, the term (i) "Commitments" means the
Commitments under this Agreement, (ii) "Loans" means the Loans under this
Agreement, and (iii) "Other Debt" means Debt (as defined in the Acquisition
Credit Agreement) of the Company (other than the Loans under this Agreement ) in
an aggregate principal amount in excess of $100,000,000."
3
<PAGE> 4
(b) Sections 11.1.2 through 11.1.4, inclusive, and Section 11.1.6 of
the Existing Credit Agreement are hereby deleted in their entirety.
(c) Section 11.1.5 of the Existing Credit Agreement is redesignated as
Section 11.1.3, and the following new Section 11.1.4 is added to the Existing
Credit Agreement immediately after Section 11.1.3 thereof:
"11.1.4. Guaranty Unenforceable. The Guaranty of the Company set
forth in Section 12 shall cease at any time to be in full force and effect, or
any party hereto (other than a Bank) shall so assert in writing."
(d) Sections 11.2 of the Existing Credit Agreement is hereby amended to
read in its entirety as follows:
"11.2 Effect of Event of Default. If any Event of Default described in
Section 11.1.2 and constituting an "Event of Default" under Section 6.01(c) of
the Acquisition Credit Agreement (a "BANKRUPTCY DEFAULT") shall occur, the
Commitments (if they have not theretofore terminated) shall immediately
terminate and all Loans and Notes shall automatically become immediately due and
payable, all without notice of any kind; and, in the case of any other Event of
Default, the Majority Banks may declare the Commitments (if they have not
theretofore terminated) to be terminated and the Outstanding Majority Banks may
declare that all Loans and Notes shall become immediately due and payable. The
Majority Banks and the Outstanding Majority Banks shall promptly advise the
Company in writing of any such declaration. Following the declaration that all
Loans and Notes are immediately due and payable, all payments made by the
Company on account of the Loans and Notes shall be made to the Administrator,
which shall distribute such payments on a pro rata basis (in relation to the
amounts of outstanding Loans) to Banks with outstanding Loans. Following such
declaration, if any Bank receives a payment that is not on a pro rata basis,
such Bank will remit to the Administrator any amount in excess of its pro rata
portion. Upon receipt of any such remittance, the Administrator will distribute
such amount to the Banks with outstanding Loans in order that all distributions
will be pro rata. The effect as an Event of Default of any event described in
Section 11.1.1 or a Bankruptcy Default may be waived only by the written
concurrence of the holders of 100% of the aggregate unpaid principal amount of
the Notes and the Majority Banks, and the effect as an Event of Default of any
other event described in this Section 11 may be waived by the written
concurrence of the Majority Banks and the Outstanding Majority Banks."
SECTION 5. Changes in Pricing. (a) Clause (a) of Section 3.1 is
hereby amended to read in its entirety as follows:
"(a) At all times while such Loan is a Base Rate Loan, at a rate per
annum equal to the Base Rate from time to time in effect, plus for any day the
Applicable Margin on such day;"
4
<PAGE> 5
(b) The definitions of "Applicable Commitment Fee" and "Applicable
Margin" set forth in Section 13 of the Existing Credit Agreement are hereby
amended to read in their entirety as follows:
"APPLICABLE COMMITMENT FEE" has the meaning set forth in the Pricing
Schedule.
"APPLICABLE MARGIN" has the meaning set forth in the Pricing Schedule.
(c) A new definition of "Pricing Schedule" is added in alphabetical
order to Section 13 of the Existing Credit Agreement, to read in its entirety as
follows:
"PRICING SCHEDULE" means the Schedule attached hereto denominated as
such.
(d) A Pricing Schedule is hereby added to the Existing Credit
Agreement, to read in its entirety as set forth on the Pricing Schedule attached
hereto.
SECTION 6. Other Terms and Conditions. Unless amended hereby, all other
terms and conditions of the Existing Agreement shall remain in full force and
effect without change.
SECTION 7. Governing Law. This Amendment and each Note issued pursuant
hereto 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 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 Banks 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.
SECTION 8. Counterparts; Effectiveness. 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 Amendment.
When counterparts executed by the Company and the Majority Banks shall have been
lodged with the Company (or, in the case of any party as to which an executed
counterpart shall not have been so lodged, the Company shall have received
telegraphic, telex, or other written confirmation from such party of execution
of a counterpart hereof by such party), this Amendment shall become effective as
of January 27, 1999.
5
<PAGE> 6
SECTION 9. Captions. Section captions used in this Amendment are for
convenience only, and shall not affect the construction of this Amendment.
6
<PAGE> 7
Delivered at Cleveland, Ohio, as of the day and year first above
written.
TRW INC.
By: /s/ Ronald P. Vargo
--------------------------------------
Title: Vice President & Treasurer
BANK OF AMERICA NT & SA
By: /s/ Lynn W. Stetson
--------------------------------------
Title: Managing Director
BARCLAYS BANK PLC
By: /s/ Keith Mackie
--------------------------------------
Title: Director
THE CHASE MANHATTAN BANK
By: /s/ Andris G. Kalnins
--------------------------------------
Title: Vice President
<PAGE> 8
CITIBANK, N.A.
By: /s/ Robert D. Wetrus
--------------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Christopher C. Kunhardt
--------------------------------------
Title: Vice President
NATIONAL CITY BANK
By: /s/ Davis R. Bonner
--------------------------------------
Title: Senior Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ John H. Kemper
--------------------------------------
Title: Senior Vice President
<PAGE> 9
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
--------------------------------------
Title: Executive Vice President
and General Manager
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By: /s/ Deborah Slusarczyk
--------------------------------------
Title: Vice President
By: /s/ Ken Hamilton
--------------------------------------
Title: Senior Vice President
NBD BANK
By: /s/ Glenn A. Currin
--------------------------------------
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Charles S. Romano, Jr.
--------------------------------------
Title: Manager
<PAGE> 10
THE SAKURA BANK, LIMITED
By: /s/
--------------------------------------
Title:
THE TOKAI BANK, LIMITED
By: /s/
--------------------------------------
Title:
UBS AG, STAMFORD BRANCH (f/k/a/
UNION BANK OF SWITZERLAND)
By: /s/ Philippe R. Sandmeier
--------------------------------------
Title: Director
By: /s/ Richard W. Fortney
--------------------------------------
Title: Executive Director
WELLS FARGO BANK, N.A.
By: /s/ Judy A. Vodhanel
--------------------------------------
Title: Vice President
By: /s/ Steven A. Newell
--------------------------------------
Title: Assistant Vice President
<PAGE> 11
KEYBANK NATIONAL ASSOCIATION
By: /s/ Marianne T. Meil
--------------------------------------
Title: Vice President
BANK OF CHINA
By: /s/ Li Chuanjie
--------------------------------------
Title: General Manager
11
<PAGE> 12
PRICING SCHEDULE
"APPLICABLE COMMITMENT FEE" means, for any day, the rate per annum
(expressed in basis points) set forth below in the column corresponding to the
Pricing Level that applies on such day:
<TABLE>
<CAPTION>
- --------------- ------- -------- --------- -------- ------- --------
PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
<S> <C> <C> <C> <C> <C> <C>
Applicable 9.0 10.0 12.5 15 22.5 37.5
Commitment Fee
</TABLE>
"APPLICABLE MARGIN" means, for any day, with respect to any Loan, the
rate per annum (expressed in basis points) set forth below in the column
corresponding to such type of Loan and the Pricing Level that applies on such
day:
<TABLE>
<CAPTION>
- --------------- ------- -------- --------- -------- ------- --------
PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
<S> <C> <C> <C> <C> <C> <C>
Applicable Margin for
Eurocurrency Loans
Usage less than 1/4 40.0 50.0 62.5 75.0 100.0 125.0
Usage greater than or equal to 1/4 50.0 60.0 75.0 87.5 125.0 175.0
Applicable Margin for
Domestic CD Loans
Usage less than 1/4 52.5 62.5 75 87.5 112.5 137.5
Usage greater than or equal to 1/4 62.5 72.5 87.5 100 137.5 187.5
Applicable Margin for
Base Rate Loans
Usage less than 1/4 0 0 0 0 100 100
Usage greater than or equal to 1/4 0 0 0 0 100 100
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the last paragraph of this Pricing Schedule:
"MOODY'S" means Moody's Investors Service, Inc.
"LEVEL I PRICING" applies on any day on which (i) the Company's
long-term debt is rated A or higher by S&P and no lower than A3 by Moody's or A2
or higher by Moody's and no lower than A- by S&P and (ii) Minimum Short-Term
12
<PAGE> 13
Debt Ratings are in effect; provided that Level I Pricing shall not apply on any
day prior to the Step Down Date.
"LEVEL II PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated A- or higher by S&P and no lower than Baa1 by Moody's or
A3 or higher by Moody's and no lower than BBB+ by S&P and (y) Minimum Short-Term
Debt Ratings are in effect and (ii) Level I Pricing does not apply; provided
that Level II Pricing shall not apply on any day prior to the Step Down Date.
"LEVEL III PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated BBB+ or higher by S&P and Baa1 or higher by Moody's and
(y) Minimum Short-Term Debt Ratings are in effect and (ii) neither Level I
Pricing nor Level II Pricing applies; provided that Level III Pricing shall not
apply on any day prior to the Step Down Date.
"LEVEL IV PRICING" applies on any day on which (i)(x) the Company's
long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and
(y) Minimum Short-Term Debt Ratings are in effect and (ii) none of Level I
Pricing, Level II Pricing and Level III Pricing applies.
"LEVEL V PRICING" applies on any day on which (i) the Company's
long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's and
(ii) none of Level I Pricing, Level II Pricing, Level III Pricing and Level IV
Pricing applies.
"LEVEL VI PRICING" applies on any day if no other Pricing Level applies
on such day.
"MINIMUM SHORT-TERM DEBT RATINGS" are in effect on any day on which the
Company's short-term debt is rated A-2 or higher by S&P and P-2 or higher by
Moody's.
"PRICING LEVEL" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V or Level VI Pricing applies on any day.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"STEP DOWN DATE" means the first date on which the aggregate amount of
the "Commitments" under the Acquisition Credit Agreement has been reduced by an
amount equal to at least 25% of the aggregate amount of the "Commitments" on
February 26, 1999 thereunder.
13
<PAGE> 14
"USAGE" means at any day a fraction (i) the numerator of which is the
aggregate outstanding principal amount of the Loans at such date, after giving
effect to any borrowing or payment on such date, and (ii) the denominator of
which is the aggregate amount of the Commitments at such date, after giving
effect to any reduction of the Commitments on such date. For purposes of this
Pricing Schedule, if for any reason any Loans remain outstanding after
termination of the Commitments, the Usage for each day on or after the day of
such termination shall be deemed to be greater than 1/4.
The credit ratings with respect to long-term debt to be utilized for
purposes of this Pricing Schedule are those assigned to the senior unsecured
long-term debt securities of the Company without third-party credit enhancement,
and any rating assigned to any other long-term debt security of the Company
shall be disregarded for such purpose. The credit ratings with respect to
short-term debt to be utilized for purposes of determining whether Minimum
Short-Term Debt Ratings are in effect on any day are those assigned to the
commercial paper issued by the Company, and any rating assigned to any other
short-term debt security of the Company shall be disregarded for such purpose.
The ratings in effect for any day are those in effect at the close of business
on such day.
14
<PAGE> 1
Exhibit 10.3
Executive Offices HOWARD V. KNICELY
1900 Richmond Road Executive Vice President
Cleveland, OH 44124 Human Resources & Communications
216.291.7400
Personal and Confidential
March 9, 1999
Peter S. Hellman
1614 Berkshire Road
Gates Mills, OH 44040
Dear Peter:
This letter agreement details the understanding we have reached regarding your
employment with TRW Inc. ("TRW"), and the benefits TRW is willing to provide to
you as consideration for the execution of this Agreement. Please review it
carefully to make sure you are in complete agreement.
EMPLOYMENT
Your President and Chief Operating Officer status and full-time service with TRW
will cease on February 28, 1999. Except as provided in subparagraph (d) of the
paragraph captioned "Confidentiality; Cooperation" below, you will not be
required to perform any services for or on behalf of TRW after February 28,
1999. As consideration for the execution of this Agreement, TRW will continue
your employment relationship through the first to occur of February 28, 2001,
the date you begin full-time employment with another company, or the date of
your death (this first to occur date is hereinafter referred to as the
"Termination Date"). If you begin full-time employment elsewhere earlier then
February 28, 2001, you will immediately notify TRW and all remaining benefits
described below as continuing through the Termination Date (other than cash
compensation and those provided by law) will, except as otherwise provided
below, terminate at that time, and your benefit service under the TRW Salaried
Pension Plan (the "SPP") and the TRW Supplementary Retirement Income Plan
("SRIP") will be as provided under "Pensions" below.
<PAGE> 2
Page 2
Peter S. Hellman
March 9, 1999
OFFICER/DIRECTOR STATUS
Effective February 28, 1999, you will resign as an officer and Director of TRW
and of any of its direct or indirect subsidiaries. After February 28, 1999, you
will not have, nor will you hold yourself out as having, authority to bind TRW
in any manner and you will cease to be a member of the Management Committee and
an executive officer of TRW Inc. within the definition of Rule 16a-1 (f) under
the Securities Exchange Act of 1934.
Our records indicate that your last transaction in TRW stock occurred in July
1998; accordingly, you will not have any further Section 16 reporting
obligations after February 28, 1999. Please call Kathleen Weigand if you have
any questions concerning Section 16.
EMPLOYMENT CONTINUATION AGREEMENT
Your February 7, 1996 employment continuation agreement will terminate effective
February 28, 1999.
SALARY AND INCENTIVE
As consideration for the execution of this Agreement, TRW will continue to pay
to you an amount equivalent to your salary at the current rate of $670,000 per
year in bi-weekly payments through February 28, 2001. With respect to 1999 and
2000, you will receive a full OIP incentive at 60% target (i.e. $402,000 for
1999 and $402,000 for 2000), to be paid in each case in February of the
following year. If you begin full-time employment elsewhere or you die before
February 28, 2001, all salary and OIP incentives that would otherwise be paid
over time through February 28, 2001 will be accelerated and paid in a single
lump sum within 10 days of the date on which you begin that other full-time
employment or the date of your death, as the case may be.
STOCK OPTIONS
Your outstanding stock options will continue to earn out until the Termination
Date. You will not receive a stock option grant in 1999 and will no longer be
eligible to receive future grants. Your rights to exercise your earned out stock
options are controlled by the terms of the option agreements. Accordingly, in
addition to being able to exercise earned stock options at any time before the
Termination Date, you will have three months to exercise any earned stock
options after the Termination Date.
<PAGE> 3
Page 3
Peter S. Hellman
March 9, 1999
STRATEGIC INCENTIVE PROGRAM
You will continue to participate in the 1998-2000 Strategic Incentive Program
through December 31, 2000 and will be eligible to receive payouts for the years
1999 and 2000, if any, based on TRW's SIP goal performance for each of those
years and in accordance with your grant agreement, as amended from time to time,
and as if you had continued in the employ of TRW as Chief Operating Officer
through February 28, 2001; with payments to be made in February 2000 (for the
year 1999) and February 2001 (for the year 2000). In the case that the 1998-2000
Strategic Incentive Program is terminated after 1999, your payout for the year
2000 will be the same payout amount that you receive for the year 1999. In the
case that the 1998-2000 Strategic Incentive Program is terminated during 1999,
your payout for each of the years 1999 and 2000 will be the same payout amount
that you received for the year 1998. If you begin full-time employment elsewhere
or you die before February 28, 2001, payments under this paragraph will not be
accelerated but will be made at the times indicated above in this paragraph.
BENEFITS
Your benefits coverage will be as follows:
A. VACATION
Your vacation accrual will cease on February 28, 1999. Your accrued but
unused vacation will be paid to you in a lump sum of $34,376.15 not
later than March 15, 1999.
B. GROUP HEALTH PLAN COVERAGE
As further consideration, TRW will continue to provide medical coverage
under the TRW Executive Health Care Plan through the Termination Date,
provided you continue to make contributions in accordance with the
Plan. You may elect within 60 days of the Termination Date to continue
group health coverage under the provisions of the Consolidated Omnibus
Budget Reconciliation Act (COBRA) for a period of up to 18 months after
termination (which may be extended for an additional 11 months, if,
prior to the end of the initial 18-month period, you provide evidence
that you or a dependent qualify for Social Security disability benefits
under Title II or XVI of the Social Security Act) based on either the
TRW Executive Health Care Plan or any TRW ChoicePlus medical plan
option. You will be responsible for the COBRA costs of the plan, which
will be 102% for the first 18 months and 150% for the additional 11
months.
<PAGE> 4
Page 4
Peter S. Hellman
March 9, 1999
C. LIFE INSURANCE
As further consideration for the execution of this Agreement, you will
continue to be covered by the company-paid life insurance program
through the Termination Date. When your life insurance coverage ends,
you will have 31 days from that date to convert your TRW-paid life
insurance to an individual policy (currently through Prudential). Your
participation in the employee-paid accidental death insurance plan will
continue until the time you cease to make payments or through the end
of the day on the Termination Date, whichever is earlier.
If you are participating in the optional group universal life insurance
program (currently administered by Aetna), at the time your employment
terminates, you should automatically receive notification regarding the
requirements for continuation of your policy once payroll deductions
cease.
D. KEY EXECUTIVE LIFE INSURANCE
You will immediately vest in Policy #2722328 of the Key Executive Life
Insurance Plan and TRW will pay all policy premiums necessary to
maintain the policy death benefit at a level of at least $7,075,000
through the date of the death of the last to die of you and your wife
subject to the terms of that plan. For purposes of that plan, your
employment with TRW will be deemed to have terminated on February 28,
1999. TRW will continue Policy #659032272 with a face value of
$5,700,000 in force through at least May 30, 1999 to provide you an
opportunity to decide whether you want to continue that policy in
effect after that date. Thereafter you may continue that policy in
effect at your own cost. Let me know if you wish to pursue this and we
will get the details from Ayco.
E. LONG-TERM DISABILITY
As further consideration for the execution of this Agreement, you will
continue to be covered by TRW's long-term disability plan until the
Termination Date.
<PAGE> 5
Page 5
Peter S. Hellman
March 9, 1999
F. PENSION
Under the provisions of the TRW Salaried Pension Plan (SPP), you will
be placed in deferred vested status, until you request the start of an
annuity sometime between the ages of 55 and 65. You will receive a
deferred vested right statement showing the amount of the annuity.
For purposes of determining the benefit to be paid from the TRW SPP in
accordance with the plan provisions, you will be credited with benefit
service through the earlier of February 29, 2000 or your death, and
your pensionable earnings (subject to Internal Revenue Code
Sec. 401(a)(17) limits) through February 28, 1999 will be included.
For purposes of determining the benefit to be paid from the TRW SRIP,
you will be credited with benefit service through the Termination Date
and amounts paid to you pursuant to this letter agreement that would
have been treated as pensionable earnings if earned by you while a
full-time employee of TRW will be treated as pensionable earnings.
Please refer to your Salaried Pension Plan summary plan description for
details of that plan.
G. STOCK SAVINGS PLAN AND BENEFITS EQUALIZATION PLAN
You may continue to make contributions to the Stock Savings Plan (SSP)
and the nonqualified Benefits Equalization Plan (BEP) in accordance
with the provisions of the plans, and to be credited under the SSP or
BEP with TRW matching contributions, through the Termination Date.
Thereafter, the following options are available to you regarding the
distribution of your SSP/BEP accounts.
(i) You may take a total distribution of your SSP. If you
elect a total distribution, any funds in the TRW
Stock Fund will be paid in shares of TRW Common
Stock.
(ii) You may defer the payout of the balance of your SSP
account to a later date, which could be as late as
age 70, in which case you will become an inactive
participant in the Plan. Inactive participants
continue to have the same options as active
employees, except that they are no longer eligible to
make contributions to or to apply for a loan from the
SSP.
<PAGE> 6
Page 6
Peter S. Hellman
March 9, 1999
(iii) Unless you elect otherwise under the terms of the
BEP, you will receive your BEP account balance in ten
annual installments beginning with the January
following the Termination Date. Alternatively, you
may elect to receive your payment in a single sum or
in annual installments for less than 10 years,
provided you so elect at least 60 days before the
Termination Date.
We suggest that you seek the advice of your tax counsel regarding the
advisability and effect of deferring the receipt of any payments under
the SSP and BEP and the timing of any elections to defer.
H. DEFERRED COMPENSATION PLAN
Your participation in the TRW Inc. Nonqualified Deferred Compensation
Plan will end on the Termination Date. Until that date, you will be
invited to participate and eligible to defer your 1999 OIP and SIP
payments and your 2000 OIP and SIP payments in accordance with the
provisions of the plan. Your account balances will be paid out in
accordance with the provisions of the Plan and your elections, but in
no case will the balances be paid out later than January 2002.
I. FINANCIAL COUNSELING
You will continue to participate in the Financial Counseling Program
administered by Ayco until April 15th of the year subsequent to your
Termination Date.
J. COMPANY CAR
As further consideration for the execution of this Agreement, your
current company car, including the insurance and maintenance thereof,
will continue to be available to you until the Termination Date. At
that time, you may purchase that car in accordance with our standard
lease buyout practices.
OUTPLACEMENT
As further consideration for the execution of this Agreement, TRW will pay to
one of the established outplacement firms selected from TRW's list of approved
firms (Right Management Consultants, Career Partners/Patrick-Douglas, Interim
Career Consulting, or any other such firm that may be approved in advance by
TRW), reasonable and customary fees and expenses, for services rendered to you
pursuant to a fee and expense agreement to be reached with the selected firm at
the outset of the relationship, and approved at that time by TRW.
<PAGE> 7
Page 7
Peter S. Hellman
March 9, 1999
OFFICE/SECRETARIAL SUPPORT
Through at least the first to occur of February 29, 2000 and the Termination
Date, TRW will provide you with telephone answering service and secretarial
support at TRW headquarters and office space at a different site to be selected
by you with prior approval by TRW.
CREDIT CARDS
You agree to return your telephone credit card, American Express card, and other
corporate credit cards to TRW on or about February 26, 1999.
TRW EQUIPMENT AND PROPERTY
You agree to return any and all company equipment and property that you may have
in your possession (other than the portable computer you have heretofore used),
including but not limited to any pager and/or cell phone to TRW no later than
February 26, 1999. You may retain the portable computer through February 28,
2001.
CONFIDENTIALITY; COOPERATION
In consideration of TRW's agreement to provide the compensation, benefits, and
payments, set forth in this letter agreement:
(a) You acknowledge that as an employee of TRW you possess confidential and
proprietary information owned by TRW and you agree not to use this
information or reveal it to any other person or corporation. You will
not remove from TRW facilities any materials which contain TRW
confidential or proprietary information.
(b) You agree you will not disparage, attempt to discredit, or otherwise
call into disrepute TRW, its affiliates, successors, assigns, officers,
directors, employees, agents, or any of their products or services in
any manner that would damage the business or reputation of TRW or its
affiliates, successors, assigns, officers, directors, employees, or
agents.
(c) You agree not to assist any party other than TRW in any litigation or
investigation against TRW or its affiliates, successors, assigns,
officers, directors, employees or agents with respect to any facts or
circumstances existing at any time before the Termination Date or using
information (whether or not confidential) obtained by you during or
before your active employment by TRW, except as required by law. You
further agree that if you believe any such action is required by law,
you
<PAGE> 8
Page 8
Peter S. Hellman
March 9, 1999
will first afford TRW the opportunity to raise and obtain a ruling on
any claim of attorney-client, work product, or other privilege or any
other contractual or other defense that may be applicable.
(d) You agree to provide your reasonable cooperation to TRW in any future
lawsuit, administrative proceeding or other judicial, administrative or
legislative matter in which your assistance may be desired by TRW.
(e) Until February 28, 2001, you agree that you (i) shall refrain from
accepting work, engagements, or appointments from any third party which
would conflict with the protection of TRW confidential or proprietary
information and (ii) shall not, directly or indirectly, as owner,
manager, officer, director, employee, consultant or in any other
capacity, become financially interested in or otherwise connected with
a third party which engages in business activity which is competitive
with the then current business activities of TRW; provided, however,
this limitation shall not preclude you from being otherwise employed or
making an equity investment in a firm whose stock is listed on a
national securities exchange or NASDAQ.
NONDISPARAGEMENT
In consideration of your execution of this letter agreement, TRW agrees that
neither TRW nor any of its affiliates, successors, assigns, officers, directors,
employees, or agents will disparage you, attempt to discredit you, or otherwise
call you into disrepute in any manner that would damage your reputation.
RELEASE
In consideration for TRW's agreement to provide the compensation, benefits and
payments set forth in this letter agreement:
(a) You agree for yourself, your heirs, executors, administrators,
successors and assigns to release and discharge forever TRW, its
affiliates and insurers, their successors and assigns, officers,
directors, employees and agents from any and all claims, demands,
causes of action, losses and expenses of every nature whatsoever,
whether known or unknown, arising out of or in connection with your
employment by TRW or, including, but not limited to, breach of contract
(express or implied), wrongful discharge, intentional infliction of
emotional
<PAGE> 9
Page 9
Peter S. Hellman
March 9, 1999
harm, defamation, libel, slander, or other tort, or violation of any
federal, state, or municipal statute or ordinance relating to
discrimination in employment, including but not limited to Title VII of
the Civil Rights Act of 1964 (42 U.S.C. Sec. 2000(e) ET SEQ.), Ohio
Revised Code Section 412 ET SEQ., Americans with Disabilities Act of
1990, 42 U.S.C. Sec. 12101, and all applicable state laws.
(b) YOU AGREE THAT BY SIGNING THIS LETTER, YOU ARE ALSO KNOWINGLY AND
VOLUNTARILY WAIVING ANY AND ALL CLAIMS OR CAUSES OF ACTION YOU MAY HAVE
UNDER THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
(29 U.S.C. SEC. 621 ET SEQ.) ("ADEA") AND APPLICABLE STATE LAWS.
(c) In signing this Agreement, you agree to waive any rights you would have
to pursue any of the claims described herein against TRW through the
company's Alternative Dispute Resolution (ADR) process, or through any
court or administrative agency; and further agree not to bring any suit
or action in any court or administrative agency against any of the
beneficiaries of this release arising out of or relating to the subject
matter of this release.
TRW agrees to release you, your successors and assigns from any and all claims,
demands, causes of action, losses and expenses of every nature whatsoever,
whether known or unknown, arising out of or in connection with your employment
by TRW, or the termination thereof.
MISCELLANEOUS
(a) It is important that you understand that the continued availability,
after the date of this letter, of the benefits specified above that are
to be provided pursuant to any particular TRW benefit plan is subject
to (i) the continued existence of the applicable TRW benefit plans,
(ii) the retention of IRS-qualified status for those plans which are
currently so qualified, (iii) the terms of all applicable TRW benefit
plans as such terms and conditions are in effect from time to time in
the future, and (iv) changes in governing laws and regulations
applicable to the benefit plans. However, if any of the factors listed
in (i) through (iv) above changes the benefits under any particular TRW
benefit plan from those available under that plan as in effect on
February 26, 1999, TRW will cause you to receive benefits
<PAGE> 10
Page 10
Peter S. Hellman
March 9, 1999
under that plan that are at least as favorable to you as the benefits
provided under that plan are to the members of TRW's Management
Committee.
(b) You and TRW acknowledge and agree that:
(i) material breach by you of your obligations under this letter
agreement, including but not limited to those specified under
"Confidentiality; Cooperation" above, following receipt by you
of reasonably detailed written notice from TRW of the actions
considered by TRW to be a breach and a reasonable opportunity
for you to effect a cure, will relieve TRW from its obligation
to make any further payments to you of salary, OIP incentive
amounts or SIP incentive amounts or to continue to provide any
benefit provided by reason of this letter agreement.
(ii) TRW's obligations to pay money pursuant to this letter
agreement are merely those of an unfunded and unsecured
promise to pay money in the future, and any and all of TRW's
assets will be and remain the general, unpledged and
unrestricted assets of TRW; and
(iii) you may not borrow against TRW's obligations to pay money to
you pursuant to this Agreement, nor may you assign or
otherwise transfer TRW's obligations hereunder, or any
interest in them, and any attempt to do so will be
ineffective.
(c) It is understood that the terms of this letter agreement will be
governed by the laws of the State of Ohio regardless of where either
party may be domiciled.
(d) Any payments made by TRW hereunder are subject to applicable federal,
state, and local tax withholding.
(e) In the event that any provision of this letter agreement are held to be
void, voidable, or unenforceable, the remaining portions hereof will
remain in full force and effect.
<PAGE> 11
Page 11
Peter S. Hellman
March 9, 1999
(f) You may wish to consult with your financial or tax advisor with regard
to the tax implication of any benefits, including nonqualified benefit
payments and deferrals, described in this Agreement. You acknowledge
and agree that no representations or warranties have been made to you
with regard to the tax consequences of any payment provided for under
this letter agreement.
(g) The release set forth under "Release" above does not constitute a
release as to any liability for a breach or default of any of the
obligations referred to in this letter agreement.
(h) This Agreement has been approved by the Compensation and Stock Option
Committee of the Directors of TRW Inc.
ENTIRE AGREEMENT
You and TRW agree that this letter agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, whether oral or written,
between you and TRW with respect to the subject matter of this Agreement. You
agree that the obligations of the paragraphs relating to Confidentiality;
Cooperation and Release shall survive the expiration or termination of this
letter agreement.
ATTORNEY
You understand and acknowledge that you have the right to consult an attorney
(at your personal expense) regarding the terms of this Agreement prior to your
signing this letter, that you have been given ample time to do so, and that
whether or not you have done so is totally your choice.
In the event either you or TRW breaches this Agreement and the other party
brings an action to enforce the Agreement in a court of competent jurisdiction,
the party who is finally adjudged to be prevailing shall be entitled to
reasonable attorneys' fees.
OPPORTUNITY TO REVOKE
You acknowledge that you were given this letter on March 9, 1999 that you
reviewed it, and, that if you so choose, you have 21 days to consider it prior
to executing it. If, after thoughtful consideration, you are in full agreement
with and understand the terms and conditions contained in this letter (including
the release of all claims contained in this section of the letter entitled
"Release"), if you agree that you
<PAGE> 12
Page 12
Peter S. Hellman
March 9, 1999
will be bound by it, and if you agree that it represents your free will and
choice, please indicate such agreement by signing this letter, dating it, and
returning it to me. Please keep a copy of the signed letter for your files.
The Company will hold the executed Agreement for seven (7) calendar days
following your execution thereof during which time you may revoke it by
notifying the undersigned in writing by the seventh (7th) day. In the absence of
receipt of your written revocation within the 7 day period, this Agreement will
become effective on the eighth (8th) day after your execution of this Agreement
(referred to herein as the "Effective Date").
IMPLEMENTATION
Unless I direct otherwise, you should address any question about the
implementation of this Agreement to me.
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of you and your
legal representatives, heirs, and beneficiaries and the Company and its
successors and assigns.
Sincerely,
/s/ Howard V. Knicely
Howard V. Knicely
ACCEPTED AND AGREED TO
this 25th day of March, 1999
/s/ Peter S. Hellman
- -----------------------------
Peter S. Hellman
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<CIK> 0000100030
<NAME> TRW INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,058
<SECURITIES> 0
<RECEIVABLES> 2,826
<ALLOWANCES> 0
<INVENTORY> 1,123
<CURRENT-ASSETS> 6,347
<PP&E> 7,986
<DEPRECIATION> 3,890
<TOTAL-ASSETS> 18,151
<CURRENT-LIABILITIES> 8,917
<BONDS> 5,022
0
0
<COMMON> 75
<OTHER-SE> 1,652
<TOTAL-LIABILITY-AND-EQUITY> 18,151
<SALES> 3,097
<TOTAL-REVENUES> 3,097
<CGS> 2,618
<TOTAL-COSTS> 2,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 7
<INCOME-TAX> 35
<INCOME-CONTINUING> (28)
<DISCONTINUED> 0
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<NET-INCOME> (28)
<EPS-PRIMARY> (.24)
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</TABLE>
<PAGE> 1
Exhibit 99
TRW Inc. and Subsidiaries
Computation of Ratio of Earnings
to Fixed Charges - Unaudited
(In millions except ratio data)
<TABLE>
<CAPTION>
Years Ended December 31
Three Months Ended -------------------------------------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
------------------ ------------ -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes $7.0(A) $746.1 $239.7(B) $302.2(C) $625.5 $435.5
Unconsolidated affiliates (29.8) 1.0 (8.0) 1.4 1.3 (0.6)
Minority earnings 3.7 10.5 20.2 11.5 10.8 7.7
Fixed charges excluding
capitalized interest 57.6 174.3 123.9 129.0 137.2 145.3
---- ----- ----- ----- ----- -----
Earnings $38.5 $931.9 $375.8 $444.1 $774.8 $587.9
----- ------ ------ ------ ------ ------
Fixed Charges:
Interest expense $42.6 $114.4 $75.4 $84.2 $94.7 $104.7
Capitalized interest 0.8 4.7 4.5 3.5 5.1 6.6
Portion of rents representa-
tive of interest factor 15.0 59.9 48.5 43.2 41.4 39.2
Interest expense of uncon-
solidated affiliates 0.0 0.0 0.0 1.6 1.1 1.4
--- --- --- --- --- ---
Total fixed charges $58.4 $179.0 $128.4 $132.5 $142.3 $151.9
----- ------ ----- ----- ------ ------
Ratio of earnings to fixed
charges 0.7x 5.2x 2.9x 3.4x 5.4x 3.9x
---- ---- ---- ---- ---- ----
</TABLE>
(A) Earnings from continuing operations before income taxes for the three
months ended March 31, 1999 of $7.0 million includes an $85.3 million
earnings charge for purchased in-process research and development. See
"Acquisitions" footnote in the Notes to Financial Statements.
(B) The 1997 earnings from continuing operations before income taxes of
$239.7 million includes a $548 million earnings charge for purchased
in-process research and development. See "Acquisitions" footnote in the
Notes to Financial Statements of the Company's 1997 Annual Report to
Shareholders.
(C) 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 of
the Company's 1996 Annual Report to Shareholders.
