1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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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
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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 May 2, 1997, there were 124,495,918 shares of
TRW Common Stock, $0.625 par value, outstanding.
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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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Quarter ended
March 31
In millions except per share data 1997 1996
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Sales $2,660 $2,514
Cost of sales 2,178 2,051
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Gross profit 482 463
Administrative and selling expenses 159 163
Research and development expenses 106 100
Interest expense 20 19
Other (income) expense-net 2 16
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Earnings from continuing operations before income taxes 195 165
Income taxes 76 62
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Earnings from continuing operations 119 103
Discontinued operations -- 14
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Net earnings $ 119 $ 117
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PER SHARE OF COMMON STOCK
Fully diluted
Continuing operations $ .92 $ .76
Discontinued operations -- .10
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Net earnings per share $ .92 $ .86
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Primary
Continuing operations $ .93 $ .76
Discontinued operations -- .11
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Net earnings per share $ .93 $ .87
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Shares used in computing per share amounts
Fully diluted 129.4 135.6
Primary 128.4 134.2
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Dividends declared $ .00 $ .00
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Balance Sheets (unaudited)
TRW Inc. and subsidiaries
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March 31 December 31
In millions 1997 1996
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Assets
Current assets
Cash and cash equivalents $ 59 $ 386
Accounts receivable 1,567 1,378
Inventories 542 524
Prepaid expenses 77 69
Deferred income taxes 354 424
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Total current assets 2,599 2,781
Property, plant and equipment-on the basis of cost 6,051 5,880
Less accumulated depreciation and amortization 3,425 3,400
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Total property, plant and equipment-net 2,626 2,480
Intangible assets
Intangibles arising from acquisitions 499 258
Other 39 31
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538 289
Less accumulated amortization 85 78
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Total intangible assets-net 453 211
Other assets 472 427
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$ 6,150 $ 5,899
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Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 303 $ 52
Accounts payable 799 781
Current portion of long-term debt 73 72
Other current liabilities 1,225 1,252
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Total current liabilities 2,400 2,157
Long-term liabilities 775 767
Long-term debt 472 458
Deferred income taxes 213 272
Minority interests in subsidiaries 100 56
Capital stock 78 81
Other capital 444 437
Retained earnings 2,098 1,978
Cumulative translation adjustments (16) 47
Treasury shares-cost in excess of par value (414) (354)
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Total shareholders' investment 2,190 2,189
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$ 6,150 $ 5,899
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Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
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Quarter ended
March 31
In millions 1997 1996
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Operating activities
Net earnings $ 119 $ 117
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Discontinued operations -- (14)
Depreciation and amortization 127 112
Deferred income taxes 5 (1)
Other-net 5 (5)
Changes in assets and liabilities, net of effects of
businesses acquired or sold:
Accounts receivable (156) (150)
Inventories and prepaid expenses 7 (20)
Accounts payable and other accruals (43) 122
Other-net (13) (15)
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Net cash provided by operating activities 51 146
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Investing activities
Capital expenditures (99) (83)
Acquisitions, net of cash acquired (415) --
Other-net 16 2
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Net cash used in investing activities (498) (81)
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Financing activities
Increase in short-term debt 223 8
Proceeds from debt in excess of 90 days 10 17
Principal payments on debt in excess of 90 days (11) (25)
Reacquisition of common stock (72) (50)
Dividends paid (39) (36)
Other-net 13 20
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Net cash provided by(used in) financing activities 124 (66)
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Effect of exchange rate changes on cash (4) 2
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Increase(decrease) in cash and cash equivalents (327) 1
Cash and cash equivalents at beginning of quarter 386 59
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Cash and cash equivalents at end of quarter $ 59 $ 60
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5
Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
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Quarter ended
March 31
In millions 1997 1996
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Sales
Automotive $ 1,793 $ 1,681
Space & Defense 867 833
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Sales $ 2,660 $ 2,514
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Operating profit
Automotive $ 167 $ 140
Space & Defense 77 60
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Operating profit 244 200
Company Staff and other (24) (11)
Minority interest in earnings of consolidated subsidiaries (6) (3)
Interest expense (20) (19)
Earnings(loss) from affiliates 1 (2)
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Earnings from continuing operations before income taxes $ 195 $ 165
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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 two insurance subsidiaries. The wholly-owned insurance
subsidiaries and the majority of investments in affiliated companies, which are
not significant individually or in the aggregate, are accounted for by the
equity method.
Environmental Costs
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During the first quarter of 1997, the Company adopted the provisions of AICPA
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities". There
was no financial statement effect of the adoption as the Company's previous
method of accounting for environmental costs was in accordance with SOP 96-1.
Discontinued Operations
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In September 1996, the Company sold substantially all of the businesses of its
Information Systems and Services segment. The financial statements for the first
quarter of 1996 reflect as discontinued operations that segment's operating
results of $14 million. Sales of the discontinued operations were $156 million
for the first quarter of 1996.
Acquisition
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In February 1997, the Company completed its purchase of an eighty percent equity
interest in the air bag and steering wheel business of Magna International. The
purchase price of approximately $450 million has been tentatively allocated to
the net assets acquired based on their fair values.
Inventories
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Inventories consist of the following:
(In millions)
March 31 December 31
1997 1996
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Finished products and work in process $289 $295
Raw materials and supplies 253 229
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$542 $524
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Long-Term Liabilities
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For balance sheet purposes, long-term liabilities at March 31, 1997 and
December 31, 1996, include $690 million and $681 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)
Quarter ended
March 31
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1997 1996
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Other income $(16) $ (6)
Other expense 16 20
Foreign currency translation 2 2
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$ 2 $ 16
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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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in a $.02 per
share increase in primary earnings per share for the first quarter ended March
31, 1997 and March 31, 1996. There is no impact of Statement 128 on the
calculation of fully diluted earnings per share for these quarters.
In April, 1997, the number of authorized shares of TRW Common Stock was
increased from 250,000,000 to 500,000,000 shares.
Supplemental Cash Flow Information
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Quarter ended
(In millions) March 31
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1997 1996
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Interest paid (net of amount capitalized) $ 20 $ 15
Income taxes paid (net of refunds) $(37) $ 8
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Supplemental Cash Flow Information (continued)
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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.
Other Contingencies
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During 1996, the Company was advised by the Department of Justice ("DOJ") that
it had been named as a defendant in two lawsuits brought by a former employee
and filed under seal in 1994 and 1995, respectively, in the United States
District Court for the Central District of California under the QUI TAM
provisions of the civil False Claims Act. The Act permits an individual to bring
suit in the name of the United States and share in any recovery. The allegations
in the lawsuit relate to the classification of costs incurred by the Company
that were charged to certain of its federal contracts. Under the law, the
government must investigate the allegations and determine whether it wishes to
intervene and take responsibility for the lawsuits. The actions remain under
seal until the government completes its investigations and determines whether to
intervene. However, permission from the court has been obtained by the Company
to make the disclosures contained herein. The Company is cooperating with the
DOJ's investigation and is engaged in ongoing discussions with them regarding
the allegations. The Company cannot presently predict the outcome of these
matters, although management believes that the Company would have meritorious
defenses if either the government decides to pursue the lawsuits or the former
employee decides to do so without government participation.
The Environmental Protection Agency has informed TRW that it may issue one or
more notices of violation to the Company under the Clean Air Act with respect to
operations at the former Izumi Industries, Corporation, Inc. facility in
Yaphank, New York, which operations TRW acquired in November, 1996. TRW could,
upon such issuance, be liable for civil penalties and fines which, if imposed,
are not expected to have a material effect on TRW's financial position.
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
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of Operations
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RESULTS OF OPERATIONS
(In millions except per share data)
First Quarter
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Percent
1997 1996 Inc(Dec)
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Sales $2,660 $2,514 6%
Operating Profit 244 200 22%
Earnings from Continuing Operations 119 103 16%
Fully Diluted Earnings Per Share -
Continuing Operations .92 .76 21%
Effective Tax Rate 38.7% 37.8%
The increase in sales resulted primarily from the acquisitions of the air bag
and steering wheel operations of Magna International and Izumi Corporation, and
from higher volume in the Automotive and Space and Defense segments. The higher
operating profit was due to the acquisitions, continued cost-reduction efforts
and higher sales volume in the Space and Defense segment partially offset by the
effect of a strong U.S. dollar and lower pricing in the Automotive Segment.
First quarter 1996 earnings from continuing operations included a $12 million
benefit from an insurance claim settlement primarily relating to previously
divested businesses, offset by a $13 million noncash charge related to the
initial application of Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
Interest expense was $20 million for the first quarter of 1997, compared to $19
million for the first quarter of 1996.
Automotive
(In millions)
First Quarter
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Percent
1997 1996 Inc(Dec)
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Sales $1,793 $1,681 7%
Operating Profit $ 167 $ 140 19%
The increase in sales and operating profit resulted primarily from the
acquisitions of the air bag and steering wheel operations of Magna
International and Izumi Corporation, and from higher volume in the air bag,
seat belt, steering, and engine businesses. Partially offsetting the increase
was the effect of a strong U.S. dollar and lower pricing, principally in the
occupant restraint business. Operating profit in 1996 included a $15 million
before tax charge related to the initial application of SFAS No. 121.
10
Space & Defense
(In millions)
First Quarter
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Percent
1997 1996 Inc(Dec)
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Sales $867 $833 4%
Operating Profit $ 77 $ 60 27%
The sales and operating profit improvement was due primarily to strong program
performance and the successful conversion of recent contract awards into revenue
growth.
LIQUIDITY AND FINANCIAL POSITION
In the first quarter of 1997, cash flow provided by operating activities of $51
million, a net increase in debt of $222 million and a net increase of $25
million in other items, were used to fund business acquisitions of $415 million,
capital expenditures of $99 million, reacquisition of common stock of $72
million and dividend payments of $39 million. As a result, cash and cash
equivalents decreased by $327 million.
Net debt (short-term debt, the current portion of long-term debt and long-term
debt less cash and cash equivalents) was $789 million at March 31, 1997,
compared to $196 million at December 31, 1996. The ratio of net debt to total
capital (net debt, minority interests and shareholders' investment) was 26
percent at March 31, 1997, compared to 8 percent at December 31, 1996.
During April, 1997, the Company issued $50 million in medium-term notes under
its shelf registration statements. The notes were used to refinance short-term
debt. After this issuance, $450 million remains available for borrowing under
the Company's shelf registration statements.
During the first quarter of 1997, 1,470,200 shares of TRW Common Stock were
repurchased for approximately $77 million, of which approximately $5 million was
settled in April.
Management believes that funds generated from operations and existing borrowing
capacity will be adequate to fund the Company's current share repurchase
program and to support and finance planned growth, capital expenditures,
company-sponsored research and development programs and dividend payments to
shareholders.
OTHER MATTERS
During 1996, the Company was advised by the Department of Justice that it had
been named as a defendant in two lawsuits brought by a former employee and filed
under seal under the QUI TAM provisions of the civil False Claims Act. See
"Other Contingencies" note in the Notes to Financial Statements for further
information.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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The United States Environmental Protection Agency and the New York State
Department of Environmental Conservation have informed TRW that either or both
may issue one or more notices of violation to the Company or initiate
administrative or judicial proceedings against the Company under the Clean Air
Act with respect to operations at the former Izumi Industries, Corporation,
Inc. facility in Yaphank, New York, which operations TRW acquired in November,
1996. TRW could, upon such issuance, be liable for civil penalties and fines
and other relief which, if imposed, are not expected to have a material effect
on TRW's financial position.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
3(a) Amended Articles of Incorporation as amended May 5, 1997.
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. 33-61711, filed
August 10, 1995, and No. 33-42870, filed September 20, 1991).
(b) Reports on Form 8-K:
Current Report on Form 8-K dated February 5, 1997 as to a resolution
adopted by the Directors of TRW regarding the Rights Agreement.
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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: May 13, 1997 By: /s/ Martin A. Coyle
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Martin A. Coyle
Executive Vice President
and Secretary
Date: May 13, 1997 By: /s/ Carl G. Miller
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Carl G. Miller
Executive Vice President and
Chief Financial Officer
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FORM 10-Q
Quarterly Report for Quarter Ended March 31, 1997
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
3(a) Amended Articles of Incorporation as amended May 5, 1997.
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. 33-61711, filed August 10, 1995, and
No. 33-42870, filed September 20, 1991).