1
18 Exhibit 13
Ten-Year Summary of Operations TRW Inc.
TRW Inc. and subsidiaries
----------------------------------------------------------------------------------------------------------------------------------
In millions except per share data 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------------------------------------------------
EARNINGS DATA
Sales $9,087 $7,948 $8,311 $7,913 $8,169 $7,340 $6,982 $6,821 $6,036 $5,917
Gross profit 1,817 1,580 1,694 1,606 1,722 1,561 1,417 1,531 1,358 1,331
Interest expense 105 138 163 190 187 138 130 126 96 77
Earnings(loss) from continuing
operations before income
taxes and cumulative effect
of accounting changes 535 359 348 (129) 343 399 420 415 370 235
Percent of sales 6% 5% 4% (2%) 4% 5% 6% 6% 6% 4%
----------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 202 $ 139 $ 154 $ 11 $ 135 $ 136 $ 159 $ 172 $ 152 $ 101
Earnings(loss) from continuing
operations before cumulative
effect of accounting changes 333 220 194 (140) 208 263 261 243 218 134
Percent of sales 4% 3% 2% (2%) 3% 4% 4% 4% 4% 2%
Net earnings(loss) (A) $ 333 $ 195 $ (156) $ (140) $208 $ 263 $ 261 $ 243 $ 218 $ (7)
----------------------------------------------------------------------------------------------------------------------------------
International sales $3,151 $2,463 $2,702 $2,501 $2,574 $2,060 $1,961 $1,792 $1,581 $1,497
Percent of sales 35% 31% 33% 32% 32% 28% 28% 26% 26% 25%
----------------------------------------------------------------------------------------------------------------------------------
U.S. Government sales $2,545 $2,708 $2,851 $2,959 $3,231 $3,080 $3,096 $3,081 $2,697 $2,550
Percent of sales 28% 34% 34% 37% 40% 42% 44% 45% 45% 43%
----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK
Fully diluted earnings(loss)
from continuing operations (A) $ 5.01 $ 2.97 $(2.51) $(2.30) $ 3.36 $ 4.25 $ 4.23 $ 3.95 $ 3.55 $ 1.90
Cash dividends paid 1.94 1.88 1.82 1.80 1.74 1.72 1.63 1.60 1.525 1.50
Cash dividends declared 1.97 1.88 1.84 1.80 1.76 1.72 1.66 1.60 1.55 1.50
Book value per share 27.91 23.77 22.31 27.12 31.11 28.60 25.70 23.41 19.93 16.98
----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Current assets $2,215 $1,994 $2,116 $2,262 $2,237 $2,295 $2,105 $1,986 $1,749 $1,684
Current liabilities 1,986 1,826 2,012 1,982 1,947 1,794 1,396 1,496 1,352 1,429
Working capital 229 168 104 280 290 501 709 490 397 255
Total assets 5,636 5,336 5,458 5,635 5,555 5,259 4,442 4,378 3,909 3,735
Long-term debt 694 870 941 1,213 1,042 1,063 863 870 786 698
Shareholders' investment 1,822 1,534 1,416 1,685 1,907 1,749 1,566 1,417 1,198 1,015
----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Capital expenditures $ 506 $ 482 $ 530 $ 537 $ 587 $ 452 $ 417 $ 452 $ 431 $ 412
Depreciation and amortization
of property, plant and equipment 402 388 392 392 381 349 324 306 260 227
----------------------------------------------------------------------------------------------------------------------------------
Common stock outstanding
at year-end 64.9 64.1 62.9 61.6 60.8 60.6 60.2 59.7 58.9 58.1
Shares used in computing
per share amounts
Fully diluted 66.4 65.7 62.3 61.2 61.9 61.9 61.6 61.6 61.3 69.3
Primary 65.8 64.7 62.3 61.2 61.0 60.8 60.5 60.3 59.6 69.3
----------------------------------------------------------------------------------------------------------------------------------
In thousands
Number of employees 64.2 61.2 64.1 71.3 75.6 74.3 73.2 77.9 78.6 93.2
----------------------------------------------------------------------------------------------------------------------------------
Number of common
shareholders 31.3 30.1 32.8 34.1 34.9 37.1 38.2 36.1 37.7 34.7
----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) 1993 and 1992 amounts include cumulative effect of accounting changes.
2
19
Management's Discussion and Analysis of the Results of Operations and Financial
Condition TRW Inc.
RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
92 93 94
-------------------------------------
Sales in Billions $8.31 $7.95 $9.09
Net Earnings in Millions ($156) $195 $333
Net Earnings per Share ($2.51) $2.97 $5.01
Consolidated sales in 1994 rose 14 percent to $9.09 billion from $7.95 billion
reported in 1993. Compared to 1992 sales of $8.31 billion, 1994 sales increased
9 percent. Net earnings of $333 million in 1994 exceeded the reported earnings
of $195 million in 1993 and net loss of $156 million in 1992. Fully diluted
earnings(loss) per share were $5.01 in 1994, $2.97 in 1993 and ($2.51) in 1992.
Sales, net earnings and earnings per share recorded during 1994 were the
highest in our 94-year history. This achievement reflects the realization of
the strategic decisions we made regarding our core products and services. All
three of our industry segments made positive contributions during 1994.
Increased volume and profitability in our worldwide automotive business was a
significant factor in achieving the record results. Sales in our Space and
Defense segment increased for the first time since 1990 and our Information
Systems and Services segment posted record operating profit for the year.
Higher productivity from all our TRW employees contributed to the record year.
In 1993, the company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits," and took a one-time
noncash charge of $25 million, or $.38 per share, for the prior years'
cumulative effect of the accounting change. Earnings before the cumulative
effect of the accounting change were $220 million, or $3.35 per share.
In 1992, the company adopted Statements of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and No. 109, "Accounting for Income Taxes," and took a
one-time noncash charge of $350 million, or $5.60 per share, for the prior
years' cumulative effect of the accounting changes. Earnings before the
cumulative effect of these accounting changes were $194 million or $3.09 per
share.
Excluding the effects of restructuring, operating profit from our three
industry segments in 1994 was $747 million, a 27 percent increase over 1993
operating profit of $587 million, and a 33 percent increase over 1992 operating
profit of $562 million. A detailed discussion of the operating results of each
industry segment is presented below.
Interest expense in 1994 was $105 million compared to $138 million in 1993 and
$163 million in 1992. The lower interest expense in 1994 was due to the
restructuring of our Brazilian debt, lower average debt levels as well as lower
foreign interest rates. The decrease in interest expense from 1992 to 1993 was
due to lower average debt balances as well as lower interest rates partially
offset by higher Brazilian interest expense.
The effective tax rate in 1994 was 37.8 percent, compared to 38.7 percent in
1993 and 44.3 percent in 1992. The lower effective tax rate in 1994 was
primarily attributable to tax benefits derived from the utilization of non-U.S.
tax loss carryforwards, partially offset by the combination of higher foreign
earnings subject to tax rates in excess of the U.S. rate, higher non-deductible
expenses in the United States, and the absence of a restructuring benefit
recognized in 1993.
AUTOMOTIVE
Sales in 1994 rose to a record $5.68 billion, up 25 percent from 1993 sales of
$4.54 billion. Operating profit in 1994 increased 54 percent to $476 million
from the $304 million reported in 1993, excluding restructuring. The increase
in sales was due to higher volume in the North American and European occupant
restraint, steering systems and automotive electronics businesses. The
operating profit increase was due to the higher volume in the North American
and European occupant restraint and steering systems businesses.
Sales of $4.54 billion in 1993 were 2 percent lower than 1992 sales of $4.62
billion. Excluding restructuring, operating profit in 1993 increased 15 percent
to $304 million from the $264 million reported in 1992. An increase in sales
resulting from higher volume in North America primarily in the occupant
restraint and steering systems businesses was more than offset by lower volume
in Europe, the absence of sales from divested businesses and the effect of
unfavorable exchange rates. The increase in operating profit was
3
20
Management's Discussion and Analysis of the Results of Operations and Financial
Condition TRW Inc.
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------
92 93 94
-------------------------------------
Sales in Billions $4.62 $4.54 $5.68
Operating Profit in Millions $264 $304 $476
due to the higher North American volume and the absence of certain warranty
reserves taken in 1992. Partially offsetting the operating profit improvement
was the effect of the lower volume in Europe and the absence of operating
profit from businesses divested in 1992.
TRW provides automotive systems and components with substantial value-added
content to the worldwide automotive industry. The company will continue to
invest in areas of significant future growth, such as air bag systems, power
rack and pinion steering and advanced electronic and electrical components. In
addition, TRW is poised to take advantage of the increasing opportunities in
the emerging markets of the world through internal growth and strategic
alliances in these regions.
The company anticipates that the North American automotive industry will remain
strong throughout 1995, with the current trend of vehicle builds continuing
into 1996. Any significant increase in 1995 short-term interest rates could
affect U.S. vehicle builds and therefore affect TRW's revenue forecast. The
European recovery which began during mid-1994 is expected to gain strength
throughout 1995. Although economic uncertainty is expected to continue in both
Brazil and Mexico, the diversity of our customers, markets and products in
conjunction with increased application rates and automotive platform awards in
key product lines will allow for continued growth throughout the world. We are
dedicated to technological leadership, continuous improvement, reducing costs
and break-even points, and focusing on a consistent achievement of high
quality in all of our products and services in order to increase our
competitive position on a worldwide basis.
SPACE & DEFENSE
Sales in 1994 of $2.81 billion increased from the 1993 sales of $2.79 billion.
Operating profit of $175 million was 14 percent lower than the operating profit
of $205 million reported in 1993, excluding restructuring. The sales increase
was due to higher volume in space and electronics and tactical reconnaissance
systems as well as in systems engineering resulting from both existing and new
contract awards. Partially offsetting the sales increase was the effect of
several contract completions and terminations. The operating profit resulting
from the higher volume and the absence of 1993 reserves for certain programs
was more than offset by investments for new business opportunities and the
establishment of a contract reserve in 1994.
Sales in 1993 declined 5 percent to $2.79 billion from 1992's sales of $2.93
billion. Excluding restructuring, operating profit of $205 million in 1993 was
11 percent lower than the operating profit of $230 million reported in 1992.
Reflecting the continuing decline in the level of U.S. Government spending and
the competitiveness of the business, operating profit margin, excluding
restructuring, was 7.3 percent in 1993 compared to 7.9 percent in 1992. Sales
declined due to lower volume in space and electronics systems and in systems
engineering and the effects of several contract completions. Partially
offsetting the sales decline were sales from new contract awards. The decline
in operating profit was attributed to the sales decline and the establishment
of reserves for certain programs.
Continuing pressure on the Department of Defense, NASA, and other U.S.
Government agency budgets could affect the level of future revenues and
operating profits. However, the company believes it is well positioned in key
space and defense businesses of continuing high national priority. In addition
to aggressive efforts to maintain or increase the company's position in these
businesses, the company continues to successfully pursue opportunities with
other U.S. Government agencies, state and municipal governments and commercial
and international markets.
92 93 94
-------------------------------------
Sales in Billions $2.93 $2.79 $2.81
Operating Profit in Millions $230 $205 $175
4
21
Management's Discussion and Analysis of the Results of Operations and Financial
Condition TRW Inc.
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------------
Backlog estimates at the end of 1994 totaled $4.12 billion compared to the
$4.52 billion reported at the end of 1993. The maintenance of this high backlog
level reflects continuing restricted program contract awards and our
successful penetration into non-defense related areas.
INFORMATION SYSTEMS & SERVICES
The record operating profit of $96 million in 1994 represented a 24 percent
increase over 1993 operating profit of $78 million, excluding restructuring.
Revenues of $596 million declined 4 percent from the $618 million reported in
1993. The revenue decline resulted from the absence of sales from a previously
divested business.
92 93 94
------------------------------------
Sales in Millions $754 $618 $596
Operating Profit in Millions $67 $78 $96
Higher volume in the Information Services business combined with continued
cost controls contributed to the increase in operating profit. Operating
profit in 1994 also includes a gain on the sale of a product line partially
offset by the establishment of certain contract reserves in the Information
Systems business.
Revenues of $618 million in 1993 declined 18 percent from the $754 million
reported in 1992. The decline was due to the absence of revenue from divested
nonstrategic businesses partially offset by higher volume in the Information
Services business. Excluding restructuring, operating profit of $78 million in
1993 increased 16 percent from the 1992 amount of $67 million. The operating
profit increase resulted from continued cost-control actions and the effect of
higher volume in the Information Services business.
We expect to improve operating profit margins and maintain revenue growth in
this segment during 1995. However, the level of revenue and operating profit
will remain sensitive to several key U.S. economic variables including interest
rates, consumer spending on durable goods and housing activities.
INTERNATIONAL OPERATIONS
International sales were $3.15 billion, or 35 percent of TRW sales in 1994;
$2.46 billion, or 31 percent of sales in 1993; and $2.70 billion, or 33 percent
of sales in 1992. U.S. export sales included in those amounts were $638 million
in 1994, $438 million in 1993 and $352 million in 1992. Most of TRW's non-U.S.
operations are included in the Automotive segment and are located in Europe,
Canada, Brazil and the Pacific basin. TRW's non-U.S. operations are subject to
the usual risks that may affect such operations; however, most of the assets of
its non-U.S. operations are in countries where the company believes such risks
to be minimal.
LIQUIDITY AND FINANCIAL POSITION
Cash flow from operations in 1994 of $972 million was used primarily for
capital expenditures, the repayment of debt and dividend payments to
shareholders. Debt at December 31, 1994 was $973 million compared to debt of
$1.21 billion at the end of 1993. The ratio of total debt (short-term debt,
current portion of long-term debt and long-term debt) to total capital
(total debt, minority interests, total deferred income taxes and shareholders'
investment) was 34 percent at December 31, 1994 compared to 43 percent
at December 31, 1993. The percentage of fixed-rate debt to total debt was
78 percent at the end of 1994.
At year-end, the company had two committed U.S. revolving credit agreements
with a group of 18 banks. The first agreement allows the company to borrow up
to $400 million and extends to July 1998. The second agreement allows the
company to borrow up to $150 million and extends through February 1995 with an
option to extend the term to a final maturity no later than July 1998.
In addition to providing liquidity, these agreements support the company's
commercial paper borrowings. At December 31, 1994, there were no outstanding
borrowings under these agreements.
TRW's non-U.S. operations are generally financed by borrowings from banks or
through intercompany loans in the local currency of the borrower. There are no
significant restrictions on the remittance of funds by the company's non-U.S.
subsidiaries to the United States. During 1994, the company entered into a
committed multi-currency revolving credit agreement consisting of two tranches
with 13 banks. The first tranche allows the company to borrow up to $100
million and extends through February 1995. The second tranche allows the
company to borrow up to $100 million and extends through July 1997. The
interest rate under the agreement is based on various interest rate indices.
At December 31, 1994, there were no outstanding borrowings under the
multi-currency credit agreement.
5
22
Management's Discussion and Analysis of the Results of Operations and Financial
Condition TRW Inc.
RESULTS OF OPERATIONS (CONTINUED)
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 risks. 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 after taking into
consideration account-related counterparty risk. The company manages cash flow
transactional foreign exchange risk pursuant to a written company policy.
Forward contracts and to a lesser extent options are utilized to protect the
company's cash flow from adverse movements in exchange rates. The company is
exposed to credit loss in the event of nonperformance by the counterparties to
the derivative financial instruments. The company diversifies the
counterparties used as a means to limit this exposure and anticipates that the
counterparties will fully satisfy 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.
Capital expenditures were $506 million in 1994, $482 million in 1993 and $530
million in 1992. The company will maintain a capital program with estimated
expenditures for 1995 totaling about $590 million. Approximately 72 percent
of these expenditures will be invested in the Automotive segment, 23 percent
in the Space & Defense segment and 5 percent in the Information Systems &
Services segment. The company will continue to invest in its automotive growth
businesses, including air bag systems, power rack and pinion steering and
automotive electronic technologies. The balance of the capital expenditures
will be used to acquire equipment to support and develop advanced and next
generation technologies, data processing hardware and telecommunications
equipment for product development enhancement, and support for new products.
We believe that the company's current financing arrangements allow flexibility
in worldwide financing activities and permit us to respond to changing
conditions in credit markets. The existing arrangements are not indicative of
the company's potential borrowing capacity. We believe that funds generated
from operations and existing borrowing capacity are adequate to support and
finance planned growth, capital expenditures, company-sponsored research and
development programs and dividend payments to shareholders.
OTHER MATTERS
Federal, state and local requirements relating to the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, have had and will continue to have an effect on TRW and its
operations. The company is conducting a number of environmental investigations
and remedial actions at current and former company locations and, along with
other companies, has been named a potentially responsible party for certain
waste management sites. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the company. A reserve estimate for each matter is established
using standard engineering cost estimating techniques. In the determination of
such costs, consideration is given to the professional judgment of company
environmental engineers in consultation with outside environmental specialists
when necessary. At multi-party sites, the reserve estimate also reflects the
expected allocation of total project costs among the various potentially
responsible parties. At December 31, 1994, the company had reserves for
environmental matters of $98 million, including $17 million of additional
accruals recorded during the year. The company aggressively pursues
reimbursement for environmental costs from its insurance carriers. However,
insurance recoveries are not recorded as a reduction of environmental costs
until they are fixed and determinable. The company believes that any liability
that may result from the resolution of environmental matters for which
sufficient information is available to support these cost estimates will not
have a material adverse effect on the company's future results of operations
and cash flows. However, the company cannot predict the effect on the company's
future results of operations and cash flows of expenditures for aspects of
certain matters for which there is insufficient information. In addition, the
company cannot predict the effect of compliance with environmental laws and
regulations with respect to unknown environmental matters or the possible
effect of compliance with environmental requirements imposed in the future.
As of December 31, 1994, the company increased the discount rate used to
measure the obligations for its pension and other postretirement benefit plans
from 7-1/2 percent to 8-1/2 percent, in recognition of higher prevailing
long-term interest rates. The effect of the discount rate change on 1995
pension and other postretirement benefit costs is not expected to be material.
The determination of pension and other postretirement benefit costs beyond 1995
will depend on various factors, including long-term interest rates, investment
returns, health care cost trend rates, other actuarial assumptions, benefit
levels, and demographic changes.
6
23
Financial Statements TRW Inc.
STATEMENTS OF EARNINGS
--------------------------------------------------------------------------------------
TRW Inc. and subsidiaries
--------------------------------------------------------------------------------------
In millions except per share data
--------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
--------------------------------------------------------------------------------------
Sales $9,087 $7,948 $8,311
Cost of sales 7,270 6,368 6,617
--------------------------------------------------------------------------------------
Gross profit 1,817 1,580 1,694
Administrative and selling expenses 756 707 826
Research and development expenses 412 378 393
Restructuring expense(income) - 7 (29)
Interest expense 105 138 163
Other expense(income)-net 9 (9) (7)
--------------------------------------------------------------------------------------
Earnings before income taxes and
cumulative effect of accounting changes 535 359 348
Income taxes 202 139 154
--------------------------------------------------------------------------------------
Earnings before cumulative effect
of accounting changes 333 220 194
Cumulative effect at beginning of the year
of accounting changes, net of income taxes - (25) (350)
--------------------------------------------------------------------------------------
Net earnings(loss) $ 333 $ 195 $ (156)
======================================================================================
PER SHARE OF COMMON STOCK
Fully diluted
Before cumulative effect of accounting
changes $ 5.01 $ 3.35 $ 3.09
Cumulative effect of accounting changes - (.38) (5.60)
--------------------------------------------------------------------------------------
Net earnings(loss) per share $ 5.01 $ 2.97 $(2.51)
--------------------------------------------------------------------------------------
Primary
Before cumulative effect of accounting
changes $ 5.05 $ 3.39 $ 3.09
Cumulative effect of accounting changes - (.38) (5.60)
--------------------------------------------------------------------------------------
Net earnings(loss) per share $ 5.05 $ 3.01 $(2.51)
======================================================================================
<FN>
See notes to financial statements.
7
24
Financial Statements TRW Inc.
BALANCE SHEETS
--------------------------------------------------------------------------------------
TRW Inc. and subsidiaries
--------------------------------------------------------------------------------------
In millions
--------------------------------------------------------------------------------------
December 31 1994 1993
--------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 109 $ 79
Accounts receivable 1,338 1,219
Inventories
Finished products and work in process 246 237
Raw materials and supplies 224 173
--------------------------------------------------------------------------------------
Total inventories 470 410
Prepaid expenses 59 69
Deferred income taxes 239 217
--------------------------------------------------------------------------------------
Total current assets 2,215 1,994
Property, plant and equipment-on the basis of cost
Land 104 104
Buildings 1,527 1,461
Machinery and equipment 3,925 3,555
--------------------------------------------------------------------------------------
5,556 5,120
Less accumulated depreciation and amortization 3,067 2,793
--------------------------------------------------------------------------------------
Total property, plant and equipment-net 2,489 2,327
Intangible assets
Intangibles arising from acquisitions 477 499
Capitalized data files 441 421
Other 69 36
--------------------------------------------------------------------------------------
987 956
Less accumulated amortization 331 279
--------------------------------------------------------------------------------------
Total intangible assets-net 656 677
Other assets 276 338
--------------------------------------------------------------------------------------
$5,636 $5,336
======================================================================================
8
25
Financial Statements TRW Inc.
BALANCE SHEETS (CONTINUED)
--------------------------------------------------------------------------------------
TRW Inc. and subsidiaries
--------------------------------------------------------------------------------------
In millions
--------------------------------------------------------------------------------------
December 31 1994 1993
--------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Short-term debt $ 122 $ 295
Accrued compensation 346 281
Trade accounts payable 737 563
Other accruals 541 599
Dividends payable 33 30
Income taxes 50 10
Current portion of long-term debt 157 48
--------------------------------------------------------------------------------------
Total current liabilities 1,986 1,826
Long-term liabilities 796 803
Long-term debt 694 870
Deferred income taxes 269 235
Minority interests in subsidiaries 69 68
Shareholders' investment
Serial Preference Stock II
(involuntary liquidation $10 million and $11 million) 1 1
Common stock (shares outstanding 64.9 million and
64.1 million) 40 40
Other capital 354 293
Retained earnings 1,383 1,178
Cumulative translation adjustments 66 36
Treasury shares -- cost in excess of par value (22) (14)
--------------------------------------------------------------------------------------
Total shareholders' investment 1,822 1,534
--------------------------------------------------------------------------------------
$5,636 $5,336
======================================================================================
<FN>
See notes to financial statements.
9
26
Financial Statements TRW Inc.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------
TRW Inc. and subsidiaries
--------------------------------------------------------------------------------------
In millions
--------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
--------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings(loss) $ 333 $ 195 $(156)
Adjustments to reconcile net
earnings(loss) to net cash
provided by operating activities:
Cumulative effect of accounting
changes, net of taxes - 25 350
Depreciation and amortization 476 458 481
Restructuring (23) (61) (96)
Deferred income taxes 8 49 5
Other-net 26 18 25
Changes in assets and liabilities,
net of effects of businesses
acquired or sold:
Accounts receivable (112) (46) (104)
Inventories and prepaid expenses (33) (5) (46)
Accounts payable and other accruals 262 (107) 227
Other-net 35 (30) (42)
--------------------------------------------------------------------------------------
Net cash provided by operating activities 972 496 644
INVESTING ACTIVITIES
Capital expenditures (506) (482) (530)
Proceeds from divestitures 22 97 371
Investments in other assets (81) (51) (62)
Proceeds from sales of property,
plant and equipment 16 24 11
Other-net 7 (11) 11
--------------------------------------------------------------------------------------
Net cash used in investing activities (542) (423) (199)
FINANCING ACTIVITIES
Increase(decrease) in short-term debt (270) 104 (229)
Proceeds from debt in excess of 90 days 176 255 198
Principal payments on debt in excess
of 90 days (154) (344) (351)
Dividends paid (126) (120) (114)
Other-net 9 27 18
--------------------------------------------------------------------------------------
Net cash used in financing activities (365) (78) (478)
Effect of exchange rate changes on cash (35) 18 24
--------------------------------------------------------------------------------------
Increase(decrease) in cash and cash equivalents 30 13 (9)
Cash and cash equivalents at beginning of year 79 66 75
--------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 109 $ 79 $ 66
======================================================================================
<FN>
See notes to financial statements.
10
27
Financial Statements TRW Inc.
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
------------------------------------------------------------------------------------------------------------------------------------
TRW Inc. and subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
In millions
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------------------------------------
SERIAL PREFERENCE STOCK II
Series 1
Balance at January 1 and December 31 .1 $ - .1 $ - .1 $ -
------------------------------------------------------------------------------------------------------------------------------------
Series 3
Balance at January 1 .1 1 .1 1 .1 1
Converted into common stock - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 .1 1 .1 1 .1 1
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance at January 1 64.1 40 62.9 39 61.6 38
Sale of stock and other .8 - 1.2 1 1.3 1
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 64.9 40 64.1 40 62.9 39
------------------------------------------------------------------------------------------------------------------------------------
OTHER CAPITAL
Balance at January 1 293 222 184
Sale of stock and other 61 71 38
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 354 293 222
------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at January 1 1,178 1,105 1,377
Net earnings(loss) 333 195 (156)
Other - (1) -
Dividends declared
Preference stock (1) (1) (1)
Common stock ($1.97, $1.88 and $1.84 per share) (127) (120) (115)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 1,383 1,178 1,105
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance at January 1 36 53 98
Translation adjustments 30 (17) (45)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 66 36 53
------------------------------------------------------------------------------------------------------------------------------------
TREASURY SHARES-COST IN EXCESS OF PAR VALUE
Balance at January 1 (14) (4) (13)
ESOP funding - - 12
Purchase of shares (8) (10) (6)
Sold under stock options - - 3
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 (22) (14) (4)
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' investment $1,822 $1,534 $1,416
====================================================================================================================================
<FN>
See notes to financial statements.
11
28
Notes to Financial Statements TRW Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------------
Principles of consolidation -- The financial statements include the accounts
of the company and its subsidiaries except for an insurance subsidiary. The
wholly-owned insurance subsidiary and the majority of investments in affiliated
companies, which are not significant individually or in the aggregate, are
accounted for by the equity method.
Long-term contracts -- The percentage-of-completion (cost-to-cost) method is
used to estimate sales under fixed-price and fixed-price incentive contracts.
Sales under cost-reimbursement contracts are recorded as costs are incurred.
Fees based on cost, award fees and incentive fees are included in sales at the
time such amounts are reasonably estimable. Losses on contracts are recognized
when determinable. For contracts entered into after December 31, 1990, changes
in fee estimates are recognized based on costs incurred to date whereas for
contracts entered into prior to such date, changes in fee estimates are
recognized prospectively based on costs to be incurred.
Accounts receivable -- Accounts receivable at December 31, 1994 and 1993
included $492 million and $595 million, respectively, related to long-term
contracts, of which $269 million and $370 million, respectively, were unbilled.
Unbilled costs, fees and claims represent revenues earned and billable in the
following month as well as revenues earned but not billable under terms of the
contracts. A substantial portion of such amounts are expected to be billed
during the following year. Retainage receivables and receivables subject to
negotiation are not significant.
Inventories -- Inventories are stated at the lower of cost or market. At
December 31, 1994 and 1993, inventories valued using the last-in, first-out
(LIFO) method were $25 million and $26 million, respectively. Inventories not
valued by the LIFO method are principally on the first-in, first-out (FIFO)
method. Had the cost of all inventories been determined by the FIFO method,
which approximates current cost, inventories would have been greater by $30
million at December 31, 1994 and 1993. Inventories applicable to long-term
contracts are not significant.
Depreciation -- Depreciation is computed using the straight-line method for the
majority of the company's depreciable assets. The remaining assets are
depreciated using accelerated methods.
Intangible assets -- Intangible assets are stated on the basis of cost.
Intangibles arising from acquisitions prior to 1971 ($75 million) are not being
amortized because there is no indication of diminished value. Intangibles
arising from acquisitions after 1970 are being amortized by the straight-line
method principally over 40 years. Capitalized data files are amortized by the
straight-line method over periods not exceeding 15 years. The carrying value of
intangible assets is assessed for impairment on a quarterly basis.
Forward exchange contracts -- The company enters into forward exchange
contracts the majority of which hedge firm foreign currency commitments and
certain intercompany transactions. At December 31, 1994, the company had
contracts outstanding amounting to approximately $162 million denominated in
the German mark, the Swiss franc, the British pound, the Canadian dollar, the
U.S. dollar and the European currency unit, maturing at various dates through
December 1995. Changes in market value of the contracts are included in the
basis of the transactions. The company is exposed to credit loss in the event
of nonperformance by the counterparties to the foreign exchange contracts. No
collateral is held in relation to the contracts and the company anticipates
that the counterparties will satisfy their obligations under the contracts.
Concentrations of credit risk -- At December 31, 1994 and 1993, accounts
receivable in the Automotive segment were $774 million and $556 million,
respectively, and accounts receivable in the Space & Defense segment,
principally from agencies of the U.S. Government, were $491 million and $583
million, respectively. The company generally does not require collateral from
its customers. The company has established receivable reserves of $23 million
and $20 million at December 31, 1994 and 1993, respectively.
Fair values of financial instruments -- The carrying amount reported in the
balance sheets for cash and cash equivalents approximates their fair value.
Short and long-term debt -- The carrying amounts of the company's short-term and
floating rate long-term borrowings approximate their fair values. The fair
values of the company's fixed rate long-term debt was $7 million less than
their carrying value at December 31, 1994 and exceeded their carrying value by
$84 million at December 31, 1993, and are estimated using discounted cash flow
analyses, based on the company's current borrowing rates for similar types of
borrowing arrangements.
Interest rate swap agreements -- The fair value of the company's interest rate
swap agreements was a net liability of $5 million and $18 million at December
31, 1994 and 1993, respectively, and are based on quoted market prices of
offsetting contracts. The fair value of the swap agreements is not recognized
in the financial statements.
Foreign currency exchange contracts -- The fair values of the company's foreign
currency exchange contracts are estimated based on quoted market prices of
offsetting contracts and were not material at December 31, 1994 and 1993.
12
29
Notes to Financial Statements TRW, Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
Accounting change -- Effective January 1, 1993, the company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which requires accruals of the cost of benefits
provided to former or inactive employees after employment but before
retirement. The company's previous practice was to record the cost of certain
of these benefits as incurred. The company recognized the cumulative effect of
this accounting change as of January 1, 1993, resulting in a one-time charge of
$25 million (after a reduction for income taxes of $16 million). The effect of
this accounting change on both 1994 and 1993 operating results, after recording
the cumulative effect for years prior to 1993, was immaterial.
Income taxes -- Deferred income taxes arise from temporary differences between
income tax and financial reporting and principally relate to income recognition
on long-term contracts, depreciation, postretirement benefits other than
pensions and certain accruals. It is the company's intention to reinvest
undistributed earnings of certain of its non-U.S. subsidiaries and thereby
indefinitely postpone their remittance. Accordingly, deferred income taxes have
not been provided for accumulated undistributed earnings of
$237 million at December 31, 1994.
Environmental costs -- TRW participates in environmental assessments and
remedial efforts at operating facilities, previously owned or operated
facilities, and Superfund or other waste sites. Costs related to these
locations are accrued when it is probable that a liability has been incurred
and the amount of that liability can be reasonably estimated. Estimated costs
are recorded at undiscounted amounts based on experience and assessments, and
are regularly evaluated as efforts proceed. Insurance recoveries are recorded
as a reduction of environmental costs when fixed and determinable.
Earnings(loss) per share -- Fully diluted earnings(loss) per share have been
computed based on the weighted average number of shares of common stock
outstanding during each year, and in 1994 and 1993 including common stock
equivalents (stock options) and assuming the conversion of the Serial
Preference Stock II - Series 1 and 3.
Primary earnings(loss) per share have been computed based on the weighted
average number of shares of common stock outstanding during each year,
including common stock equivalents in 1994 and 1993.
Fully diluted and primary earnings(loss) per share for 1992 are the same
because the effect of including common stock equivalents and assuming the
conversion of the Serial Preferred Stock is anti-dilutive.
RESEARCH AND DEVELOPMENT
----------------------------------------------------------------------
-------------------------------------------------------------------------------
In millions 1994 1993 1992
-------------------------------------------------------------------------------
Customer-funded $ 963 $1,223 $1,261
Company-funded
Research and development 412 378 393
Product development 140 136 133
-------------------------------------------------------------------------------
552 514 526
-------------------------------------------------------------------------------
$1,515 1,737 $1,787
-------------------------------------------------------------------------------
Company-funded research and development programs include research and
development for commercial products and independent research and development
and bid and proposal work related to government products and services. A
portion of the cost incurred for independent research and development and bid
and proposal work is recoverable through overhead charged to government
contracts. Product development costs include engineering and field support for
new customer requirements.
RESTRUCTURING
-----------------------------------------------------------------------
For balance sheet purposes, other accruals in 1994 and 1993 include $33
million and $115 million, respectively, relating to restructuring
reserves. The $82 million decrease in the reserve during 1994 resulted
from the divestiture of a nonstrategic business in the Information
Systems & Services segment and the downsizing and streamlining of certain
businesses in the Automotive segment.
The restructuring reserve balance at December 31, 1993 declined by $46 million
from December 31, 1992. The decline in the reserve resulted principally from
the divestiture of a nonstrategic business in the Information
13
30
Notes to Financial Statements TRW, Inc.
RESTRUCTURING (CONTINUED)
---------------------------------------------------------------------
Systems & Services segment and the downsizing and streamlining of certain
businesses in the Automotive and Space & Defense segments.
Restructuring expense(income) in 1993 consists of restructuring charges of $23
million, principally in the Automotive segment, resulting from additional
management decisions reduced by gains of $16 million from the sales of certain
businesses in the Automotive segment.
Restructuring expense(income) in 1992 includes gains from the sales of certain
of the company's automotive businesses totaling $116 million ($67 million after
tax, $1.08 per share), and net restructuring charges of $87 million ($63
million after tax, $1.01 per share) resulting from additional management
decisions in 1992 related to the company's restructuring program. In addition,
a charge of $5 million ($4 million after tax, 7 cents per share) for other
matters is included in different captions in the statements of earnings.
OTHER EXPENSE(INCOME)-NET
----------------------------------------------------------------------
-------------------------------------------------------------------------------
In millions 1994 1993 1992
-------------------------------------------------------------------------------
Other income $ (66) $ (69) $ (71)
Other expense 60 42 53
Gain on sale of assets (28) (4) -
Gain on sale of investments in affiliates - - (7)
Foreign currency translation 43 22 18
-------------------------------------------------------------------------------
$ 9 $ (9) $ (7)
-------------------------------------------------------------------------------
Gain on sale of assets in 1994 includes a gain on the sale of a product line in
the Information Systems and Services segment.
Income Taxes
-----------------------------------------------------------------------
Effective January 1, 1992, the company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of adopting this Statement as of January 1, 1992
was immaterial to net earnings.
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES
-------------------------------------------------------------------------------
In millions 1994 1993 1992
-------------------------------------------------------------------------------
U.S. $ 387 $ 362 $ 213
Non-U.S. 148 (3) 135
-------------------------------------------------------------------------------
$ 535 $ 359 $ 348
-------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
-------------------------------------------------------------------------------
In millions 1994 1993 1992
-------------------------------------------------------------------------------
Current
U.S. federal $ 106 $ 34 $ 60
Non-U.S. 40 24 59
U.S. state and local 24 (1) 21
-------------------------------------------------------------------------------
170 57 140
Deferred
U.S. federal 28 78 13
Non-U.S. 5 (10) 3
U.S. state and local (1) 14 (2)
-------------------------------------------------------------------------------
32 82 14
-------------------------------------------------------------------------------
$ 202 $ 139 $ 154
-------------------------------------------------------------------------------
14
31
Notes to Financial Statements TRW Inc.
INCOME TAXES (CONTINUED)
--------------------------------------------------------------------------
PROVISION FOR DEFERRED INCOME TAXES
------------------------------------------------------------------------------------------
In millions 1994 1993 1992
------------------------------------------------------------------------------------------
Income recognition on long-term contracts $ 11 $ 32 $ 40
Difference between tax and book depreciation
and amortization 15 (35) (1)
Reserves and accruals 9 42 17
Alternative minimum tax 23 9 (10)
State and local taxes (1) 14 (2)
Interest expense (14) 12 (4)
Vacation accrual not currently deductible (1) (2) -
Insurance accruals 10 (11) (7)
Pensions and postretirement benefits other than pensions (7) 1 (12)
Other (13) 20 (7)
------------------------------------------------------------------------------------------
$ 32 $ 82 $ 14
------------------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATE
------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------
U.S. statutory income tax rate 35.0% 35.0% 34.0%
Restructuring (benefits)losses - (2.8) 3.6
Non-deductible expenses 1.6 .4 .5
U.S. state and local income taxes net of U.S. federal tax benefit 2.7 2.4 3.6
Non-U.S. tax rate variances net of foreign tax credits (.4) 4.1 4.2
Translation adjustments net of monetary correction - .2 .6
Other (1.1) (.6) (2.2)
------------------------------------------------------------------------------------------
Effective income tax rate 37.8% 38.7% 44.3%
------------------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1994 and
1993, the company had unused tax benefits of $40 million and $50 million,
respectively, related to non-U.S. net operating loss carryforwards for income
tax purposes, of which $23 million and $29 million can be carried forward
indefinitely and the balance expires at various dates through 1999.
A valuation allowance at December 31, 1994 and 1993 of $26 million and $42
million, respectively, has been recognized to offset the related deferred tax
assets due to the uncertainty of realizing the benefit of the loss
carryforwards. Certain prior year deferred tax assets have been reclassified to
conform to the 1994 presentation. The following is a summary of the significant
components of the company's deferred tax assets and liabilities as of December
31, 1994 and 1993.
Deferred tax Deferred tax
assets liabilities
--------------------------------------------------------------------------------------------------------------------
In millions 1994 1993 1994 1993
--------------------------------------------------------------------------------------------------------------------
Pensions and postretirement benefits other than pensions $ 259 $ 259 $ 43 $ 32
Completed contract method of accounting for long-term contracts 43 27 407 379
State and local taxes 29 34 9 15
Reserves and accruals 107 107 - -
Depreciation and amortization 19 20 130 129
Insurance accruals 28 38 - -
Alternative minimum tax - 23 - -
Non-U.S. net operating loss carryforwards 40 50 - -
Other 109 70 49 49
--------------------------------------------------------------------------------------------------------------------
634 628 638 604
Valuation allowance for deferred tax assets (26) (42) - -
--------------------------------------------------------------------------------------------------------------------
Total $ 608 $ 586 $ 638 $ 604
--------------------------------------------------------------------------------------------------------------------
15
32
Notes to Financial Statements TRW Inc.
PENSION PLANS
-------------------------------------------------------------------------
The company has defined benefit pension plans (generally noncontributory except
for those in the United Kingdom) for substantially all employees. Plans for
most salaried employees provide pay-related benefits based on years of service.
Plans for hourly employees generally provide benefits based on flat-dollar
amounts and years of service.
Under the company's funding policy, annual contributions are made to fund the
plans during the participants' working lifetimes, except for unfunded plans in
Germany and certain non-qualified plans in the U.S. which are funded as
benefits are paid to participants. Annual contributions to funded plans have
met or exceeded ERISA's minimum funding requirements or amounts required by
local law or custom.
The company sponsors a contributory stock savings plan for which a majority of
its U.S. employees are eligible. The company matches employee contributions up
to 3 percent of the participant's qualified compensation. The company
contributions are held in an unleveraged employee stock ownership plan. The
company also sponsors other defined contribution pension plans covering
employees at some of its operations.
The following is a summary of the components of net periodic pension cost and
the total cost for the defined contribution and stock savings plans.
---------------------------------------------------------------------------------------------------------------------------
In millions 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
---------------------------------------------------------------------------------------------------------------------------
Defined benefit plans
Service cost--benefits earned during the year $ 60 $ 13 $ 52 $ 12 $ 78 $ 14
Interest cost on projected benefit obligation 149 24 150 23 175 27
Actual (return)loss on plan assets 40 11 (319) (51) (191) (33)
Deferred gain(loss) on plan assets (230) (31) 138 34 (20) 9
Net amortization and other (7) 3 (12) 1 52 2
---------------------------------------------------------------------------------------------------------------------------
Total pension cost of defined benefit plans 12 20 9 19 94 19
Defined contribution plans 1 3 1 2 - 1
Stock savings plan 36 - 36 - 42 -
---------------------------------------------------------------------------------------------------------------------------
$ 49 $ 23 $ 46 $ 21 $ 136 $ 20
---------------------------------------------------------------------------------------------------------------------------
Special early retirement incentive benefits provided to U.S. employees are
reflected in pension expense in the amount of $5 million for 1994 and $66
million for 1992.
The following table sets forth the funded status and amounts recognized in the
company's balance sheets at December 31, 1994 and 1993, for its defined benefit
pension plans.
-------------------------------------------------------------------------------------------------------------------
In millions 1994 1993
-------------------------------------------------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S.
-------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefit obligation $1,546 $ 275 $1,717 $ 266
-------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $1,675 $ 282 $1,866 $ 276
-------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $1,810 $ 311 $2,050 $ 319
Plan assets at fair value (primarily listed stocks and bonds) 2,207 245 2,352 256
-------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 397 (66) 302 (63)
Unrecognized net gain (218) (26) (155) (5)
Unrecognized net assets from January 1, 1986
(January 1, 1989 for non-U.S. plans) (77) (6) (95) (8)
Unrecognized prior service cost 42 9 40 9
Additional minimum liability (18) (6) (10) (2)
-------------------------------------------------------------------------------------------------------------------
Net pension asset(liability) recognized in the balance sheet $ 126 $ (95) $ 82 $ (69)
-------------------------------------------------------------------------------------------------------------------
16
33
Notes to Financial Statements TRW Inc.
PENSION PLANS (CONTINUED)
--------------------------------------------------------------------------
At December 31, 1994, the accumulated benefit obligation and plan assets at
fair value for non-U.S. overfunded plans totaled $182 million and $220 million,
respectively, and for non-U.S. underfunded plans totaled $100 million and $25
million, respectively. At December 31, 1993, the accumulated benefit obligation
and plan assets at fair value for non-U.S. overfunded plans totaled $174
million and $234 million, respectively, and for non-U.S. underfunded plans
totaled $102 million and $22 million, respectively.
For U.S. plans, as of December 31, 1994 and 1993, the discount rate used in
determining the actuarial present value of benefit obligations was 8-1/2
percent and 7-1/2 percent, respectively, and the projected rate of increase in
future compensation levels was 3 percent in both years. The expected long-term
rate of return on assets was 9 percent for 1994 and 1993 and 10 percent for
1992.
For non-U.S. plans, as of December 31, 1994 and 1993, the discount rate used in
determining the actuarial present value of benefit obligations ranged from 8
percent to 8-3/4 percent and from 6-1/2 percent to 8-1/2 percent, respectively,
and the projected rate of increase in future compensation levels ranged from 5
percent to 5-3/4 percent and from 4 percent to 6 percent, respectively. The
expected long-term rate of return on assets ranged from 6 percent to 9-1/2
percent for 1994, and 8 percent to 11-1/2 percent for 1993 and 8 percent to 13
percent for 1992.
The change in discount rate at December 31, 1994, reflects higher prevailing
interest rates.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------------------------------------
The company provides health care and life insurance benefits for a majority of
its retired employees in the United States and Canada. The health care plans
provide for cost sharing, in the form of employee contributions, deductibles,
and coinsurance, between the company and its retirees. The postretirement
health care plan covering a majority of employees who retired since August 1,
1988 limits the annual increase in the company's contribution toward the plan's
cost to a maximum of the lesser of 50 percent of medical inflation or 4
percent. Life insurance benefits are generally noncontributory. The company's
policy is to fund the cost of postretirement health care and life insurance
benefits in amounts determined at the discretion of management. Retirees in
certain other countries are provided similar benefits by plans sponsored by
their governments.
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," for its U.S. and Canadian plans. This Statement
requires accrual of the expected cost of providing postretirement benefits
during employees' active service lives. The company's previous practice was to
record the cost of these benefits on a claims-incurred basis. The company
elected to recognize immediately the transition obligation, measured as of
January 1, 1992, as the cumulative effect of an accounting change. This
resulted in a one-time charge of $350 million (after a reduction for income
taxes of $225 million), which does not include amounts accrued in prior years
for previously divested businesses.
The following table sets forth the funded status and amounts recognized in the
company's balance sheets at December 31, 1994 and 1993 for its postretirement
benefit plans.
--------------------------------------------------------------
In millions 1994 1993
--------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees $ 420 $ 440
Fully eligible active participants 37 43
Other active participants 194 226
--------------------------------------------------------------
651 709
Plan assets at fair value
(primarily listed stocks and bonds) 32 17
--------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets (619) (692)
Unrecognized prior service cost (7) (7)
Unrecognized net gain (89) (16)
--------------------------------------------------------------
Net liability recognized in the
balance sheet $(715) $(715)
--------------------------------------------------------------
Net periodic postretirement benefit cost included the following components:
------------------------------------------------------
In millions 1994 1993 1992
------------------------------------------------------
Service cost $ 13 $ 13 $ 15
Interest cost 53 59 57
Actual return on plan assets - (1) -
Net amortization and deferral (3) (1) 4
------------------------------------------------------
$ 63 $ 70 $ 76
------------------------------------------------------
17
34
Notes to Financial Statements TRW Inc.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
-----------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation as of December 31, 1994 and 1993 was 8-1/2 percent and 7-1/2
percent, respectively. At December 31, 1994, the 1995 annual rate of increase
in the per capita cost of covered health care benefits was assumed to be 10
percent for participants under age 65 and 9 percent for participants age 65 or
older. The rates were assumed to decrease gradually to 6 percent and 5 percent,
respectively, in the year 2021 and remain at that level thereafter. At December
31, 1993, the 1994 annual rate of increase in the per capita cost of covered
health care benefits was assumed to be 11 percent for participants under age 65
and 10 percent for participants age 65 or older. The rates were assumed to
decrease gradually to 6 percent and 5 percent, respectively, in the year 2021
and remain at that level thereafter. A one percent annual increase in these
assumed cost trend rates would increase the accumulated postretirement benefit
obligation at December 31, 1994 by approximately 8 percent, and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for 1994 by approximately 9 percent. The expected long-term rate
of return on plan assets was 9 percent for 1994 and 1993. The trust holding the
plan assets is not subject to federal income taxes.
The change in discount rate at December 31, 1994, reflects higher prevailing
interest rates.
DEBT AND CREDIT AGREEMENTS
-----------------------------------------------------------------------
SHORT-TERM DEBT
-------------------------------------------------------
In millions 1994 1993
-------------------------------------------------------
U.S. borrowings $ - $ 35
Non-U.S. borrowings 122 260
-------------------------------------------------------
$122 $295
-------------------------------------------------------
LONG-TERM DEBT
-------------------------------------------------------
In millions 1994 1993
-------------------------------------------------------
U.S. borrowings $ 26 $175
Non-U.S. borrowings 148 50
7.3% ESOP obligations due 1997 95 95
Medium-term notes:
9.35% Notes due 2020 (due 2000 at
option of note holder) 100 100
9 3/8% Notes due 2021 100 100
Other medium-term notes 309 284
Other 73 114
-------------------------------------------------------
Total long-term debt 851 918
Less current portion 157 48
-------------------------------------------------------
$694 $870
-------------------------------------------------------
TRW maintains two committed U.S. revolving credit agreements with 18 banks. The
first agreement allows the company to borrow up to $400 million and extends to
July 1998. The second agreement allows the company to borrow up to $150 million
and extends through February 1995 with an option to extend the term to a final
maturity no later than July 1998. The interest rate under the agreements is
either a negotiated rate, the banks' prime rates, a rate based upon the banks'
costs of funds in the secondary certificate of deposit market or a rate based
upon an Interbank Offered Rate. TRW's commercial paper borrowings are supported
by these agreements. At December 31, 1994, there were no outstanding
borrowings under the U.S. revolving credit agreements. At December 31, 1994,
$26 million of short-term U.S. borrowings have been reclassified as long-term
debt because the company intends to refinance these borrowings on a long-term
basis and has the ability to do so under its U.S. revolving credit agreements.
The weighted average interest rate on short-term borrowings outstanding at
December 31, 1994 and 1993 is 7.2 percent and 6.5 percent, respectively.
During 1994, the company entered into a committed multi-currency revolving
credit agreement consisting of two tranches with 13 banks. The first tranche
allows the company to borrow up to $100 million and extends through February
1995. The second tranche allows the company to borrow up to $100 million and
extends to July 1997. The interest rate under the agreement is based on various
interest rate indices. At December 31, 1994, there were no outstanding
borrowings under the multi-currency credit agreement. At December 31, 1994, $98
million of short-term non-U.S. borrowings have been reclassified to long-term
non-U.S. borrowings because the company intends to refinance these borrowings
on a long-term basis and has the ability to do so under its multi-currency
revolving credit agreement.
As of December 31, 1994, the company has interest rate swap agreements for
notional borrowings of $208 million in which the company pays a fixed rate and
receives a floating rate. The weighted average pay rate and receive rate under
these agreements is 7.9 percent and 5.8 percent, respectively. These agreements
mature at various dates through 1998. The company also has interest rate swap
agreements for notional borrowings of $100 million in which the company pays a
floating rate and receives a fixed rate. The weighted average pay rate and
receive rate under these agreements is 5.9 percent
18
35
Notes to Financial Statements TRW Inc.
DEBT AND CREDIT AGREEMENTS (CONTINUED)
-----------------------------------------------------------------------
and 4.4 percent, respectively. These agreements mature at various dates through
1995. The floating rates under the interest rate swap agreements are based on
both commercial paper and LIBOR rates and have been calculated using these
rates at December 31, 1994. Net payments or receipts under the agreements are
recognized as an adjustment to interest expense. The company is exposed to
credit loss in the event of nonperformance by the counterparties to the
interest rate swap agreements. No collateral is held in relation to the
agreements and the company anticipates that the counterparties will satisfy
their obligations under the agreements.
The other medium-term notes bear interest at rates ranging from 4.33 percent to
9.25 percent and mature at various dates through 2020.
Non-U.S. borrowings bear interest, stated in terms of the local currency
borrowing, at rates ranging from 3.0 percent to 10.325 percent at December 31,
1994, and mature at various dates through 2004.
The maturities of long-term debt are, in millions: 1995-$157; 1996-$80;
1997-$167; 1998-$41; 1999-$16 and $390 thereafter.
The indentures and other debt agreements impose, among other covenants,
restrictions on funded debt and maintenance of minimum tangible net worth.
Under the most restrictive interpretation of these covenants, the payment of
dividends was limited to approximately $900 million at December 31, 1994.
Compensating balance arrangements and commitment fees were not material.
LEASE COMMITMENTS
-----------------------------------------------------------------------
TRW leases certain offices, manufacturing and research buildings, machinery,
automobiles and data processing and other equipment. Such leases, some of which
are noncancelable and in many cases include renewals, expire at various dates.
The company pays most maintenance, insurance and tax expenses relating to
leased assets. Rental expense for operating leases was $164 million for 1994,
$162 million for 1993 and $192 million for 1992.
At December 31, 1994, future minimum lease payments for noncancelable operating
leases totaled $419 million and are payable as follows: 1995-$110; 1996-$88;
1997-$60; 1998-$41; 1999-$29; and $91 thereafter.
CAPITAL STOCK
----------------------------------------------------------------------
Serial Preference Stock II -- cumulative - stated at $2.75 a share; 5 million
shares authorized.
Series 1 -- each share convertible into 4.4 shares of common; redeemable at $104
per share; involuntary liquidation price $104 per share; dividend rate of $4.40
per annum.
Series 3 -- each share convertible into 3.724 shares of common; redeemable at
$100 per share; involuntary liquidation price $40 per share; dividend rate of
$4.50 per annum.
Series 4 -- not convertible into common shares; redemption price and involuntary
liquidation price of $125 per one one-hundredth of a share; annual dividend
rate per one one-hundredth of a share of the lesser of $4.00 or the current
dividend on common stock; no shares outstanding at December 31, 1994.
Common stock -- $0.625 par value; authorized 250 million shares; shares
outstanding were reduced by treasury shares of .4 million in 1994 and .3
million in 1993.
TRW has a shareholder purchase rights plan under which each shareholder of
record as of January 6, 1989 received one right for each TRW common share held.
Each right entitles the holder, upon the occurrence of certain events, to buy
one one-hundredth of a share of Cumulative Redeemable Serial Preference Stock
II, Series 4, at a price of $125. Should certain additional events occur, each
right allows the shareholder to purchase $250 of the surviving entity's common
shares at a 50 percent discount. The company may redeem these rights at its
option at one cent per right under certain circumstances.
At December 31, 1994, 7.7 million shares of common stock were reserved for the
exercise and issuance of stock options and conversion of the Serial Preference
Stock II, Series 1 and 3. There were .6 million shares of Cumulative Redeemable
Serial Preference Stock II, Series 4, reserved for the shareholder purchase
rights plan.
19
36
Notes to Financial Statements TRW Inc.
STOCK OPTIONS
-----------------------------------------------------------------------
TRW has granted incentive and nonqualified stock options to certain employees
to purchase the company's common stock at the market price on the date of
grant. Subject to certain exceptions, incentive stock options become
exercisable to the extent of one-half of the optioned shares for each full year
of employment following the date of grant, and nonqualified stock options
granted prior to 1987 become exercisable to the extent of one-fourth of the
optioned shares for each full year of employment following the date of grant.
Nonqualified stock options granted after 1986 become exercisable to the extent
of one-third of the optioned shares for each full year of employment following
the date of grant. Generally, both incentive and nonqualified stock options
expire 10 years after the date of grant.
--------------------------------------------------------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------------------------------------------------------
Millions Millions
of shares Option price of shares Option price
--------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 4.5 $ 31.44 to $ 64.07 5.5 $ 31.44 to $ 56.94
Granted .9 65.75 - 64.07
Became exercisable .6 39.75 to 64.07 .8 39.75 to 55.69
Exercised .6 31.44 to 56.94 .8 31.44 to 56.94
Canceled, expired or terminated .1 31.44 to 65.75 .2 31.44 to 56.94
Outstanding at end of year 4.7 39.285 to 65.75 4.5 31.44 to 64.07
Exercisable 3.8 39.285 to 64.07 3.8 31.44 to 56.94
--------------------------------------------------------------------------------------------------------------------
At December 31, 1994, approximately 800 employees were participants in the
plans. As of that date, the average exercise price of options outstanding was
$50.17 per share and the expiration dates ranged from July 1995 to April 2004.
TRW grants performance share rights to certain employees under which the
employees are entitled to receive shares of the company's common stock based on
the achievement of a certain return on assets employed. The rights specify a
target number of shares which the employee would receive for each year that
goals for returns on assets employed are met. If the goals are exceeded, the
employee could receive up to 200 percent of the target shares, with the excess
over 100 percent payable in cash (unless the Compensation and Stock Option
Committee of the Board of Directors determines to pay the excess in shares). If
the goals are not met, the employee would receive fewer than the target shares
or no shares. At December 31, 1994 and 1993, the target number of performance
share rights granted to employees and still outstanding were .4 million and .1
million, respectively.
SUPPLEMENTAL CASH FLOW INFORMATION
-----------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
In millions 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
Interest paid (net of amount capitalized) $ 112 $ 174 $ 153
Income taxes paid (net of refunds) $ 93 $ 96 $ 85
----------------------------------------------------------------------------------------------------------------
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.
Interest capitalized as part of the construction of assets was $7 million in
1994, $8 million in 1993 and $13 million in 1992.
20
37
Notes to Financial Statements TRW Inc.
CONTINGENCIES
-----------------------------------------------------------------------
The company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. In addition, the company is conducting a number of
environmental investigations and remedial actions at current and former company
locations and, along with other companies, has been named a potentially
responsible party for certain waste management sites. Each of these matters is
subject to various uncertainties, and some of these matters may be resolved
unfavorably to the company. The company has established accruals for matters
that are probable and reasonably estimable including $98 million for
environmental matters at December 31, 1994. The company believes that any
liability that may result from the resolution of environmental matters for
which sufficient information is available to support cost estimates will not
have a material adverse effect on the company's financial position. However,
the company cannot predict the effect on the company's financial position of
expenditures for aspects of certain matters for which there is insufficient
information. In addition, the company cannot predict the effect of compliance
with environmental laws and regulations with respect to unknown environmental
matters or the possible effect of compliance with environmental requirements
imposed in the future.
Further, product liability claims may be asserted in the future for events not
currently known by management. Although the ultimate liability from these
potential claims cannot be ascertained at December 31, 1994, management does
not anticipate that any related liability, after consideration of insurance
recovery, would have a material adverse effect on the company's financial
position.
INDUSTRY SEGMENTS
-----------------------------------------------------------------------
The company operates in the following industry segments:
Automotive -- Steering systems, including power and manual rack and pinion
steering for light vehicles, hydraulic steering systems for commercial truck
and off-highway vehicles and suspension systems. Occupant restraint systems,
including air bag and seat belt systems; electrical and electronic controls;
and engineered fasteners. Engine valves and valve train parts, pistons and stud
welding and control systems. Products are used in cars, trucks, buses, farm
machinery and off-highway vehicles and are distributed directly to original
equipment manufacturers and through independent distributors.
Space & Defense -- Spacecraft, including the design and manufacture of military
and civilian spacecraft equipment, propulsion subsystems, electro-optical and
instrument systems, spacecraft payloads, high-energy lasers and laser
technology and other high-reliability components. Software and systems
engineering support services in the fields of military command and control,
earth observation, environmental monitoring and nuclear waste management,
antisubmarine warfare, security and counterterrorism, undersea surveillance and
other high-technology space, defense, and civil government support systems.
Electronic systems, equipment and services, including the design and
manufacture of space communication systems, airborne reconnaissance systems,
unmanned aerial vehicles, avionics systems and other electronic technologies
for tactical and strategic space, defense and selected commercial applications.
Products and services are provided directly to defense, other government and
commercial customers.
Information Systems & Services -- Information systems and services, including
consumer and commercial credit information and related services, direct
marketing, real estate information and services and imaging systems engineering
and integration. Information and services are provided to businesses,
credit-granting organizations, financial institutions and individual consumers.
Other -- Beginning in 1994, all activity previously reported in the "Other"
segment is reflected in the respective "Company Staff" lines. Prior year
amounts have been restated to conform to the current year's presentation.
21
38
Notes to Financial Statements TRW Inc.
INDUSTRY SEGMENTS (CONTINUED)
-----------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
In millions
----------------------------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
SALES
Automotive $5,679 62% $4,538 57% $4,616 56%
Space & Defense 2,812 31 2,792 35 2,941 35
Information Systems & Services 596 7 618 8 754 9
----------------------------------------------------------------------------------------------------------------
Sales $9,087 100% $7,948 100% $8,311 100%
----------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
Automotive $ 476 64% $ 309 53% $ 314 52%
Space & Defense 175 23 199 34 213 36
Information Systems & Services 96 13 74 13 74 12
----------------------------------------------------------------------------------------------------------------
Operating profit 747 100% 582 100% 601 100%
Company Staff and other (111) (91) (94)
Interest expense (105) (138) (163)
Earnings from affiliates 4 6 4
----------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative
effect of accounting changes $ 535 $ 359 $ 348
----------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Automotive $3,481 67% $3,004 60% $2,919 58%
Space & Defense 1,111 21 1,253 25 1,337 26
Information Systems & Services 622 12 752 15 812 16
----------------------------------------------------------------------------------------------------------------
Identifiable assets 5,214 100% 5,009 100% 5,068 100%
Eliminations (28) (46) (32)
Company Staff assets 380 317 353
Investments in affiliates 70 56 69
----------------------------------------------------------------------------------------------------------------
Total assets $5,636 $5,336 $5,458
----------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT
AND EQUIPMENT
Automotive $ 264 $ 238 $ 216
Space & Defense 111 116 132
Information Systems & Services 20 26 33
Company Staff 7 8 11
----------------------------------------------------------------------------------------------------------------
$ 402 $ 388 $ 392
----------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Automotive $ 388 $ 367 $ 404
Space & Defense 98 90 104
Information Systems & Services 18 23 17
Company Staff 2 2 5
----------------------------------------------------------------------------------------------------------------
$ 506 $ 482 $ 530
----------------------------------------------------------------------------------------------------------------
22
39
Notes to Financial Statements TRW Inc.
INDUSTRY SEGMENTS (CONTINUED)
-----------------------------------------------------------------------
Restructuring gains(losses) included in operating profit were: $5 million in
1993 and $50 million in 1992 for Automotive; $(6) million in 1993 and $(17)
million in 1992 for Space & Defense; and $(4) million in 1993 and $7 million in
1992 for Information Systems & Services.
Company Staff assets consist principally of cash and cash equivalents, current
deferred income taxes and administrative facilities. Intersegment sales were
not significant. Sales to agencies of the U.S. Government, primarily by the
Space & Defense segment, were $2,545 million in 1994, $2,708 million in 1993
and $2,851 million in 1992. Sales to Ford Motor Company by the Automotive
segment were $1,363 million in 1994, $1,096 million in 1993 and $972 million in
1992.
GEOGRAPHIC SEGMENTS
-----------------------------------------------------------------------
TRW's operations are located primarily in the United States and Europe.
Interarea sales are not significant to the total revenue of any
geographic area. Restructuring gains(losses) included in operating profit were:
$4 million in 1993 and $45 million in 1992 for United States operations; $(7)
million in 1993 and $23 million in 1992 for Europe; and $(2) million in 1993
and $(28) million in 1992 for Other.
------------------------------------------------------------------------------------
In millions 1994 1993 1992
------------------------------------------------------------------------------------
SALES
United States $6,290 $5,643 $5,676
Europe 1,965 1,522 1,917
Other 832 783 718
------------------------------------------------------------------------------------
$9,087 $7,948 $8,311
------------------------------------------------------------------------------------
OPERATING PROFIT
United States $ 528 $ 461 $ 382
Europe 143 50 176
Other 76 71 43
------------------------------------------------------------------------------------
$ 747 $ 582 $ 601
------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $3,444 $3,536 $3,540
Europe 1,289 1,047 1,113
Other 531 461 459
------------------------------------------------------------------------------------
Identifiable assets 5,264 5,044 5,112
Eliminations (78) (81) (76)
Company Staff assets 380 317 353
Investments in affiliates 70 56 69
------------------------------------------------------------------------------------
Total assets $5,636 $5,336 $5,458
------------------------------------------------------------------------------------
23
40
Notes to Financial Statements TRW Inc.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-----------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
-------------------------------------------------------------------------------------------------------------------
In millions except per share data 1994 1993 1994 1993 1994 1993 1994 1993
-------------------------------------------------------------------------------------------------------------------
(A)
Sales $2,159 2,029 $2,317 2,011 $2,165 $1,903 2,446 $2,005
Gross profit 439 411 471 408 451 377 456 384
Earnings before income taxes and
cumulative effect of accounting
change 107 87 139 93 133 85 156 94
Net earnings 64 26 87 55 82 51 100 63
Net earnings per share
Fully diluted .97 .40 1.31 .85 1.24 .76 1.49 .96
Primary .97 .41 1.33 .85 1.26 .77 1.49 .98
-------------------------------------------------------------------------------------------------------------------
<FN>
(A) The first quarter of 1993 includes a decrease in net earnings of $25 million ($.38 per share) for the cumulative effect on prior
years for a change in accounting principle effective January 1, 1993. The first three quarters of 1993 have not been restated
to reflect the change in accounting principle as the effect on each quarter is immaterial.
STOCK PRICES AND DIVIDENDS (UNAUDITED)
-----------------------------------------------------------------------
The book value per common share at December 31, 1994 was $27.91 compared to
$23.77 at the end of 1993. Our directors declared the 226th consecutive
quarterly dividend during December 1994. Dividends declared per share in 1994
were $1.97, up 5 percent from $1.88 in 1993. The following table highlights the
market prices of our common and preference stocks and dividends paid for the
quarters of 1994 and 1993.
Price of Price of Dividends
traded shares traded shares paid per share
-----------------------------------------------------------------------------------------------------------------------
Quarter 1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------------------
High Low High Low
-----------------------------------------------------------------------------------------------------------------------
Common stock 1 $ 77-1/2 $ 65-3/4 $ 63-7/8 $ 52-1/2 $ .47 $ .47
Par value $0.625 per share 2 71-1/4 61 69-5/8 61-5/8 .47 .47
3 75-1/8 63-5/8 67-1/2 60-5/8 .50 .47
4 74-3/4 62 70-1/4 61-5/8 .50 .47
-----------------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 326 320 253 244 1.10 1.10
Preference Stock II 2 350 250 283 277-3/4 1.10 1.10
$4.40 Convertible 3 325 325 282 271 1.10 1.10
Series 1 4 316 275 294 279 1.10 1.10
-----------------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 256-1/2 256-1/2 220 197 1.125 1.125
Preference Stock II 2 244 232 242 233 1.125 1.125
$4.50 Convertible 3 272 272 244-1/2 222 1.125 1.125
Series 3 4 238 232 248 236 1.125 1.125
-----------------------------------------------------------------------------------------------------------------------
24
41
Management and Auditors' Reports TRW Inc.
REPORT OF MANAGEMENT
-----------------------------------------------------------------------
Management of TRW is responsible for the preparation of the accompanying
consolidated financial statements of the company and its subsidiaries. The
financial statements have been prepared in conformity with generally accepted
accounting principles and include the estimates and judgments of management.
The financial statements have been audited by Ernst & Young LLP, independent
auditors, whose report appears below.
Management has established and is responsible for maintaining a system of
internal accounting controls that it believes provides reasonable assurance
that assets are safeguarded and transactions are executed and recorded in
accordance with management's authorization. The system is tested and evaluated
regularly by the company's internal auditors as well as by the independent
auditors in connection with their annual audit.
TRW has an audit committee composed of five directors who are not members of
management. The committee meets regularly with management, the internal
auditors and the independent auditors in connection with its review of matters
relating to the company's financial statements, the company's internal audit
program, the company's system of internal accounting controls and the services
of the independent auditors. The committee also meets with the internal
auditors as well as the independent auditors, without management present, to
discuss appropriate matters. The committee also recommends to the directors the
designation of the independent auditors.
/s/ Joseph T. Gorman
Joseph T. Gorman
Chairman and Chief Executive Officer
/s/ Ronald D. Sugar
Ronald D. Sugar
Executive Vice President and
Chief Financial Officer
/s/ Carl G. Miller
Carl G. Miller
Vice President and Corporate Controller
January 23, 1995
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
-----------------------------------------------------------------------
Shareholders and Directors
TRW Inc.
We have audited the accompanying consolidated balance sheets of TRW Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, cash flows and changes in shareholders' investment for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (appearing on pages
23 through 39 of this annual report) present fairly, in all material respects,
the consolidated financial position of TRW Inc. and subsidiaries at December
31, 1994 and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in the notes to financial statements, effective January 1, 1993,
the company changed its method of accounting for postemployment benefits and,
effective January 1, 1992, its methods of accounting for postretirement
benefits other than pensions and income taxes.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 23, 1995
25
42
Corporate Data and Directors TRW Inc.
CORPORATE DATA
-----------------------------------------------------------------------
Annual meeting -- The annual meeting of TRW Inc. shareholders will be held at
8:30 a.m. Wednesday, April 26, 1995, at the company's headquarters, 1900
Richmond Road, Cleveland, Ohio. Proxy materials and a formal notice of the
meeting will be sent to shareholders beforehand.
Stock listings -- TRW's common stock (ticker symbol: TRW) and Serial Preference
Stock II, Series 1 (ticker symbol: TRWB), and Serial Preference Stock II,
Series 3 (ticker symbol: TRWD), are traded principally on the New York Stock
Exchange. TRW common shares also are traded on the Midwest, Pacific,
Philadelphia, London and Frankfurt exchanges.
Form 10-K report-- The company files an annual report with the Securities and
Exchange Commission on Form 10-K. Shareholders may obtain a copy of this report
without charge after April 15, 1995, by writing Joseph E. Durk, Director,
Financial Services, TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124-3760.
Dividend reinvestment -- TRW offers an automatic dividend reinvestment service
for individual shareholders. The service provides for the reinvestment of
quarterly cash dividends in the company's common stock. Shareholders may also
buy additional shares each quarter. A discounted brokerage commission is
charged. For more information, write to Joseph E. Durk, Director, Financial
Services, TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124-3760.
Investor Questions -- Questions concerning dividend payments, certificates,
stock transfers and other administrative subjects should be addressed to
Financial Services, TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124-3760.
Investment questions from security analysts, portfolio managers and
shareholders about TRW should be directed to Thomas A. Myers, Director,
Investor Relations, TRW Inc., telephone 216.291.7506.
Auditors -- Ernst & Young LLP, Cleveland, Ohio
Registrars -- National City Bank, Cleveland, and First Chicago Trust Company
of New York
Transfer agents -- TRW Inc. and First Chicago Trust Company of New York
Rights agent -- National City Bank, Cleveland
DIRECTORS
-----------------------------------------------------------------------
Michael H. Armacost 2,6 -- Distinguished fellow and visiting professor at the
Asia/Pacific Research Center, Stanford University; age 57; director since 1993
Charles T. Duncan 2,5 -- Member, Iran-United States Claims Tribunal; age 70;
director since 1983
Martin Feldstein 3,6 -- Professor of economics, Harvard University; age 55;
served as a director in 1981 and 1982 and has been a director since 1984
Robert M. Gates 2,5 -- Consultant, author and lecturer; former director, U.S.
Central Intelligence Agency; age 51; director since 1994
Joseph T. Gorman 1 -- Chairman and chief executive officer, TRW Inc.; age 57;
director since 1984
Carl H. Hahn 3,4,5 -- Retired chairman of the board, Volkswagen AG; age 68;
director since 1993
George H. Heilmeier 4,5 -- President and chief executive officer, Bell
Communications Research Inc.; age 58; director since 1992
Peter S. Hellman 1 -- President and chief operating officer, TRW Inc.; age 45;
director since January 1995
Karen N. Horn 2,3,4 -- Chairman and chief executive officer, Bank One,
Cleveland; age 51; director since 1990
E. Bradley Jones 1,2,4 -- Retired chairman, Republic Steel Corporation; age 67;
director since 1982
William S. Kiser 1,3,6 -- Vice chairman and chief medical officer, Primary
Health Systems, L.P.; retired chairman of the board of governors and chief
executive officer, The Cleveland Clinic Foundation; age 67; director since 1985
James T. Lynn 4,6 -- Retired chairman of the board and chief executive officer,
Aetna Life and Casualty Company; senior advisor, Lazard Freres & Co.; age 67;
director since 1993
Richard W. Pogue 4,5 -- Senior advisor, Dix & Eaton;
age 66; director since 1994
1 Executive Committee
2 Audit Committee
3 Compensation and Stock Option Committee
4 Nominating Committee
5 Public Policy Committee
6 Retirement Funding Committee
Recycled Paper Symbol Printed on recycled paper.