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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission file number 1-2384
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TRW Inc.
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(Exact name of registrant as specified in its charter)
Ohio 34-0575430
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1900 Richmond Road, Cleveland, Ohio 44124
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(Address of principal executive offices)
(Zip Code)
(216) 291-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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As of August 4, 1995, there were 66,070,037 shares of
TRW Common Stock, $0.625 par value, outstanding.
This is page one of a total of 51 pages.
The Exhibit Index is on page 15 of this filing.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Statements of Earnings (unaudited)
TRW Inc. and subsidiaries
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Second quarter ended Six months ended
June 30 June 30
In millions except per share data 1995 1994 1995 1994
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Sales $2,712 $2,317 $5,308 $4,476
Cost of sales 2,184 1,846 4,257 3,566
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Gross profit 528 471 1,051 910
Administrative and selling expenses 184 176 385 352
Research and development expenses 123 112 226 218
Interest expense 24 27 48 56
Other (income)expense-net - 17 5 38
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Earnings before income taxes 197 139 387 246
Income taxes 74 52 149 95
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Net earnings $ 123 $ 87 $ 238 $ 151
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PER SHARE OF COMMON STOCK
Fully diluted $ 1.81 $ 1.31 $ 3.53 $ 2.28
Primary 1.84 1.33 3.58 2.30
Dividends declared .50 .47 .50 .47
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Shares used in computing per share
amounts
Fully diluted 68.0 65.6 67.4 66.0
Primary 66.7 65.0 66.3 65.4
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Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
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Six months ended
June 30
In millions 1995 1994
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Operating activities
Net earnings $ 238 $ 151
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 260 240
Restructuring - (13)
Deferred income taxes 11 27
Other-net 7 33
Changes in assets and liabilities, net of effects of
businesses acquired or sold:
Accounts receivable (162) (260)
Inventories and prepaid expenses (28) (19)
Accounts payable and other accruals (4) 59
Other-net (12) 34
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Net cash provided by operating activities 310 252
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Investing activities
Capital expenditures (197) (187)
Proceeds from divestitures 10 10
Investments in other assets (28) (31)
Other-net - (19)
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Net cash used in investing activities (215) (227)
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Financing activities
Increase (decrease) in short-term debt (24) (54)
Proceeds from debt in excess of 90 days 15 158
Principal payments on debt in excess of 90 days (65) (49)
Dividends paid (65) (61)
Other-net 8 9
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Net cash provided by (used in) financing activities (131) 3
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Effect of exchange rate changes on cash (13) (33)
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Decrease in cash and cash equivalents (49) (5)
Cash and cash equivalents at beginning of period 109 79
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Cash and cash equivalents at end of period $ 60 $ 74
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Balance Sheets (unaudited)
TRW Inc. and subsidiaries
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June 30 December 31
In millions 1995 1994
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Assets
Current assets
Cash and cash equivalents $ 60 $ 109
Accounts receivable 1,524 1,338
Inventories 511 470
Prepaid expenses 65 59
Deferred income taxes 239 239
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Total current assets 2,399 2,215
Property, plant and equipment-on the basis of cost 5,791 5,556
Less accumulated depreciation and amortization 3,263 3,067
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Total property, plant and equipment-net 2,528 2,489
Intangible assets
Intangibles arising from acquisitions 479 477
Capitalized data files 463 441
Other 74 69
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1,016 987
Less accumulated amortization 370 331
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Total intangible assets-net 646 656
Other assets 289 276
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$ 5,862 $ 5,636
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Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 125 $ 122
Accounts payable 725 737
Current portion of long-term debt 165 157
Other current liabilities 1,002 970
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Total current liabilities 2,017 1,986
Long-term liabilities 793 796
Long-term debt 612 694
Deferred income taxes 281 269
Minority interests in subsidiaries 67 69
Capital stock 41 41
Other capital 391 354
Retained earnings 1,588 1,383
Cumulative translation adjustments 105 66
Treasury shares-cost in excess of par value (33) (22)
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Total shareholders' investment 2,092 1,822
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$ 5,862 $ 5,636
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Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
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Second quarter ended Six months ended
June 30 June 30
In millions 1995 1994 1995 1994
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Sales
Automotive $ 1,719 $ 1,452 $ 3,460 $ 2,783
Space & Defense 842 709 1,548 1,389
Information Systems & Services 151 156 300 304
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Sales $ 2,712 $ 2,317 $ 5,308 $ 4,476
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Operating profit
Automotive $ 172 $ 119 $ 345 $ 214
Space & Defense 54 45 99 91
Information Systems & Services 22 28 43 48
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Operating profit 248 192 487 353
Company Staff and other (27) (27) (52) (53)
Interest expense (24) (27) (48) (56)
Earnings from affiliates -- 1 -- 2
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Earnings before income taxes $ 197 $ 139 $ 387 $ 246
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NOTES TO FINANCIAL STATEMENTS
(unaudited)
PRINCIPLES OF CONSOLIDATION
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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.
INVENTORIES
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Inventories consist of the following:
(In millions)
June 30 December 31
1995 1994
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Finished products and work in process $278 $246
Raw materials and supplies 233 224
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$511 $470
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LONG-TERM LIABILITIES
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For balance sheet purposes, long-term liabilities at
June 30, 1995, and December 31, 1994, include $683 million
and $682 million, respectively, relating to postretirement benefits other than
pensions.
OTHER (INCOME) EXPENSE-NET
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Other (income) expense included the following:
(In millions)
Second quarter ended Six months ended
June 30 June 30
1995 1994 1995 1994
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Other income $(13) $(20) $(28) $(30)
Other expense 10 18 25 32
Foreign currency translation 3 19 8 36
--- --- --- ---
$ - $ 17 $ 5 $ 38
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EARNINGS PER SHARE
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Fully diluted earnings per share have been computed based on the weighted
average number of shares of Common Stock outstanding during each period,
including common stock equivalents and assuming the conversion of the Serial
Preference Stock II--Series 1 and 3. Primary earnings per share have been
computed based on the weighted average number of shares of Common Stock
outstanding during each period including common stock equivalents.
SUPPLEMENTAL CASH FLOW INFORMATION
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(In millions)
Six months ended
June 30
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1995 1994
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Interest paid (net of amount capitalized) $ 44 $57
Income taxes paid (net of refunds) $136 $10
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.
INTERIM STATEMENTS
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The financial statements are based in part on approximations and are subject to
adjustments that may develop, such as unsettled contract and renegotiation
matters and matters that arise in connection with the annual audit of the
financial statements; however, in the opinion of management, all adjustments
(which consist of normal recurring accruals) necessary for a fair presentation
of the results of operations for the periods presented have been included.
Results of operations for any interim period are not necessarily indicative of
the results to be expected for the full year.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(In millions except per share data)
Six Months Ended
Second Quarter June 30
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Percent Percent
1995 1994 Inc (Dec) 1995 1994 Inc (Dec)
---- ---- --------- ---- ---- ---------
Sales $2,712 $2,317 17% $5,308 $4,476 19%
Operating Profit $ 248 $ 192 30% $ 487 $ 353 38%
Net Earnings $ 123 $ 87 42% $ 238 $ 151 58%
Fully Diluted Earnings
Per Share $ 1.81 $ 1.31 38% $ 3.53 $ 2.28 55%
Effective Tax Rate 37.5% 37.5% 38.5% 38.7%
The increase in sales for the second quarter and first six months of 1995
resulted from higher volume in the Automotive segment, primarily in the North
American airbag business and all European businesses, as well as increased
volume in the Space & Defense segment.
Operating profit for the second quarter and first six months of 1995 increased
primarily from the increased sales noted above.
The increase in net earnings for the second quarter and first six months of
1995 resulted from the higher operating profit noted above. Net earnings for
the first six months of 1995 also benefited from lower interest expense.
Interest expense was $48 million for the first six months of 1995 compared to
$56 million for the first half of 1994. The decrease in interest expense was
due primarily to lower average debt levels.
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AUTOMOTIVE
(In millions)
Six Months Ended
Second Quarter June 30
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Percent Percent
1995 1994 Inc (Dec) 1995 1994 Inc (Dec)
---- ---- --------- ---- ---- ---------
Sales $1,719 $1,452 18% $3,460 $2,783 24%
Operating Profit $ 172 $ 119 44% $ 345 $ 214 61%
The increase in sales for the second quarter and first six months of 1995
resulted from higher volume in the North American airbag business and increased
volume in all European businesses. Favorable exchange rates also contributed
to the sales increase.
Operating profit increased for the second quarter and first six months of 1995
as a result of the increase in sales from the North American airbag business as
well as the increased volume in all European businesses.
SPACE & DEFENSE
(In millions)
Six Months Ended
Second Quarter June 30
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Percent Percent
1995 1994 Inc (Dec) 1995 1994 Inc (Dec)
---- ---- --------- ---- ---- ---------
Sales $842 $709 19% $1,548 $1,389 11%
Operating Profit $ 54 $ 45 20% $ 99 $ 91 9%
Sales for the second quarter and first six months of 1995 increased due to new
business volume and improvements in ongoing program performance, partially
offset by the effect of contracts nearing completion.
The increase in operating profit for the second quarter and first six months
of 1995 resulted from the increased sales volume and the absence of investments
related to diversification into commercial markets, partially offset by program
profit adjustments.
INFORMATION SYSTEMS & SERVICES
(In millions)
Six Months Ended
Second Quarter June 30
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Percent Percent
1995 1994 Inc (Dec) 1995 1994 Inc (Dec)
---- ---- --------- ---- ---- ---------
Sales $151 $156 ( 4)% $300 $304 (1)%
Operating Profit $ 22 $ 28 (19)% $ 43 $ 48 (9)%
The decrease in sales and operating profit for the second quarter and
first six months of 1995 was primarily due to lower volume in the
Information Systems and Real Estate Information Services businesses,
partially offset by higher revenue in the Information Services
business.
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LIQUIDITY AND FINANCIAL POSITION
In the first six months of 1995, cash flow provided by operating activities of
$310 million was used primarily for capital expenditures of $197 million,
dividend payments of $65 million, a net decrease in debt of $74 million and
$23 million in other items. As a result, cash and cash equivalents decreased
by $49 million.
Total debt (short-term debt, the current portion of long-term debt and
long-term debt) was $902 million at June 30, 1995, compared to $973 million at
December 31, 1994. The ratio of total debt to total capital (total debt, total
deferred income taxes, minority interests and shareholders' investment) at
June 30, 1995 was 29 percent compared to 34 percent at December 31, 1994.
During the first six months of 1995, the Company's committed U.S. 364-day
revolving credit agreement, which allowed the Company to borrow up to $150
million, expired. Also during the first six months, the Company renegotiated
the terms of its multi-year U.S. revolving credit agreement. The credit
agreement, which previously allowed the Company to borrow up to $400 million,
has been revised to allow the Company to borrow up to $550 million. The revised
agreement now extends through February 2000 and contains lower commitment fees
and borrowing rates.
Also during the first six months of 1995, the Company renegotiated the terms of
its committed multi-currency revolving credit agreement. The agreement, which
previously consisted of two tranches with 13 banks and allowed the Company to
borrow up to $200 million, now consists of one tranche and allows the Company to
borrow up to $200 million. The revised agreement now extends through February
2000 and contains lower commitment fees and borrowing rates.
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 effect of
these derivative transactions on the Company's net earnings is not material.
Management believes that funds generated from operations and existing borrowing
capacity will be adequate to support and finance planned growth, capital
expenditures, company-sponsored research and development programs and dividend
payments to shareholders.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On February 15, 1994, TRW filed suit in the United States District Court
for the District of Arizona against Talley Industries, Inc. and certain
Talley subsidiary companies. The suit relates to TRW's 1989 purchase of
Talley's air bag business. In the complaint, TRW claimed that, among
other violations of TRW's rights, Talley breached the non-compete
provision contained in the purchase agreement by providing products and
services to competitors of TRW. As a result of the breach, TRW
exercised its rights under the agreement and the license from Talley to
TRW to make a one-time payment of $26.5 million to Talley for a paid-up
royalty-free license to use Talley's air bag patents and technology. On
March 1, 1994, Talley filed an answer and counterclaims against TRW
alleging that TRW had acted improperly in making the $26.5 million
payment and requesting that TRW be ordered to pay immediately to Talley
the value of all anticipated royalties, claimed by Talley to be not less
than $250 million. On May 19, 1994, the court granted Talley's motion
for an injunction requiring TRW to continue to make quarterly royalty
payments pursuant to the 1989 asset purchase agreement and ancillary
agreements pending trial of TRW's claims. On April 5, 1995, trial began
before a jury on TRW's claims and Talley's counterclaims. On May 30,
1995, at the close of all the evidence, the trial judge directed a
verdict against TRW on TRW's claims against Talley, ruling that there
was not sufficient evidence to send TRW's claims to the jury. However,
the judge allowed Talley's counterclaims to go to the jury. On June 6,
1995, the jury entered its verdict that Talley was entitled to the present
value of the future royalty stream in the sum of $138 million on the contract
claim, but that TRW had not acted in bad faith and that the technology on which
royalties were due was limited to that in existence when TRW purchased
Talley's air bag business.
Judgment was entered against TRW on June 27, 1995 and TRW timely filed a
notice of appeal on July 12, 1995. On July 26, 1995, the trial judge
entered an order requiring that TRW continue to pay quarterly royalty
payments to Talley as they become due, notwithstanding the fact it filed
an appropriate bond in connection with its notice of appeal. TRW will
immediately appeal the judge's decision requiring continued royalty
payments and will also appeal the judge's decision directing a verdict
against TRW on its claims against Talley. The judgment against TRW is
not expected to have a material financial effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its 1995 Annual Meeting of Shareholders
on April 26, 1995.
(b) Proxies for the Annual Meeting of Shareholders were
solicited pursuant to Regulation 14 under the Act; there
was no solicitation in opposition to
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management's nominees as listed in the proxy statement; and all
of such nominees were elected.
(c) Michael H. Armacost was elected a Director of the Company
with 56,257,390 votes for election, 369,679 votes withheld
from voting and 8,354,791 shares not voted, including
broker non-votes.
Carl H. Hahn was elected a Director of the Company with
56,254,033 votes for election, 373,036 votes withheld from
voting and 8,354,791 shares not voted, including broker
non-votes.
George H. Heilmeier was elected a Director of the Company
with 56,274,950 votes for election, 352,119 votes withheld
from voting and 8,354,791 shares not voted, including
broker non-votes.
Richard W. Pogue was elected a Director of the Company with
55,854,456 votes for election, 772,613 votes withheld from
voting and 8,354,791 shares not voted, including broker non-
votes.
The shareholders ratified the appointment of Ernst & Young
as the Company's independent auditors for the 1995 fiscal
year with 56,287,105 votes for, 158,605 votes against,
181,359 votes abstaining and 8,354,791 shares not voted,
including broker non-votes.
A shareholder proposal concerning a report to shareholders
on research and development of space weapons was defeated,
with 5,445,138 votes for, 46,082,129 votes against,
2,153,861 votes abstaining and 11,300,732 shares not voted,
including broker non-votes.
(d) None.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 TRW Inc. Stock Plan for Non-Employee Directors (as
Amended and Restated, effective August 1, 1995)
10.2 TRW Inc. Deferred Compensation Plan (as Amended and
Restated, effective August 1, 1995)
10.3 TRW Benefits Equalization Plan (as Amended and
Restated, effective August 1, 1995)
10.4 TRW Supplementary Retirement Income Plan (as Amended
and Restated, effective August 1, 1995)
11 Computation of Earnings Per Share -- Unaudited.
27 Financial Data Schedule.
99 Computation of Ratio of Earnings to Fixed Charges --
Unaudited (Supplement to Exhibit 12 of the following
Form S-3 Registration Statements of the Company:
No. 33-30350, filed August 4, 1989, and No. 33-42870
filed September 20, 1991).
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter for which this report
is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TRW Inc.
Date: August 9, 1995 By: /s/ Martin A. Coyle
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Martin A. Coyle
Executive Vice President
and Secretary
Date: August 9, 1995 By: /s/ Carl G. Miller
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Carl G. Miller
Vice President
and Corporate Controller
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FORM 10-Q
Quarterly Report for Quarter Ended June 30, 1995
EXHIBIT INDEX
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Exhibit No. Description Page No.
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10.1 TRW Inc. Stock Plan for Non-Employee Directors
(as Amended and Restated, effective August 1, 1995) 16
10.2 TRW Inc. Deferred Compensation Plan (as Amended
and Restated, effective August 1, 1995) 19
10.3 TRW Benefits Equalization Plan (as Amended and
Restated, effective August 1, 1995) 35
10.4 TRW Supplementary Retirement Income Plan (as
Amended and Restated, effective August 1, 1995) 42
11 Computation of Earnings Per Share -- Unaudited. 46
27 Financial Data Schedule. 47
99 Computation of Ratio of Earnings to Fixed Charges --
Unaudited (Supplement to Exhibit 12 of the following
Form S-3 Registration Statements of the Company:
No. 33-30350, filed August 4, 1989, and No. 33-42870
filed September 20, 1991). 51
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