TRW Inc. History

Address:

1900 Richmond Road
Cleveland, Ohio 44124-3760
U.S.A.

Telephone: (216) 291-7000
Fax: (216) 291-7629

Public Company
Incorporated: 1901 as Thompson Products Co.
Employees: 64,200
Sales: $9.09 billion
Stock Exchanges: New York Midwest Pacific Philadelphia London Frankfurt
SICs: 3714 Motor Vehicle Parts & Accessories; 3812 Search & Navigation Equipment; 7374 Data Processing & Preparation; 7323 Credit Reporting Services

Company History:

Long a conglomerate, TRW Inc. is now primarily one of the world's leading automotive parts makers, with smaller operations in space and defense technology and information systems and services. TRW's automotive sector is led by its air bag systems, with power-steering systems and engine valves of secondary importance. The space sector has lately concentrated on satellites and satellite systems, including those for satellite phones. Its information services sector is best known for its credit-rating service.

TRW's conglomerate structure is deeply rooted in the company's history. In the early 1950s the Cleveland-based Thompson Products was looking for an acquisition. J. David Wright, the company's general manager, and Horace Shepard, a vice president, thought the auto valve and steering component maker needed more technical sophistication. Thompson, founded in 1901, had made a name for itself in automotive and aircraft engine parts and had become well known by sponsoring the famed Thompson Trophy Race, the aeronautical equivalent of auto racing's Indianapolis 500. However, in recent years the company was facing a decline in manned aircraft and saw opportunities in aerospace and electronics.

To break into the young high-tech industry, Wright and Shepard tried to buy Hughes Aircraft Co. Hughes was willing to listen to bids but scoffed at the Thompson offer, which was thought to be ten times too low. Just a few months later, two of Hughes Aircraft's top scientist-executives, Simon Ramo and Dean Woolridge, decided to leave Hughes to form a new electronic systems company, and Thompson put up $500,000 to bankroll the venture. Not long afterward, Ramo-Woolridge Corporation was established in Los Angeles and quickly gained solid standing in the advanced technology business, being awarded the systems engineering and technical direction contracts for such important missile programs as Atlas, Minuteman, Titan, and Thor.

By 1958 Thompson Products had invested $20 million--20 percent of its net worth at the time--for a 49 percent interest in Ramo-Woolridge, and the two operations were merged as Thompson-Ramo-Woolridge. Though united on paper, the company maintained separate corporate headquarters, with Woolridge president in Los Angeles and Wright chairman in Cleveland. Ramo and Shepard, a former chief of production procurement for the Air Force, also had an active role in management.

The merger could hardly have started less auspiciously. In the midst of a recession, the Cleveland-based group was hit with a 14 percent drop in automotive business and a 34 percent drop in manned aircraft business. When business improved for the Cleveland division, the Los Angeles division got into trouble. Its venture into semiconductors collapsed in 1961, and the McNamara era was beginning at the Pentagon. The West Coast scientists, who had only known cost-plus-fixed-fee contracts, needed help. They had to learn how to go from spending money to making it. This education was hampered by hard feelings between the two groups. The electronics end was not living up to its promise of being the business of the future. In the first four years following the merger, profit margins, which had been at the 4 percent-plus level in the mid-1950s, dropped to an average of barely 2 percent.

With the company facing such mundane tasks as cost-cutting, Woolridge, who reportedly never really wanted to be a businessman anyway, resigned in 1962. As Woolridge was getting settled in at his new job as a professor at Caltech, Shepard was promoted to president and Ramo named vice-chairman. With Cleveland now in control of the company, the Los Angeles scientists were quickly reassured when the new management team instituted a number of reforms to get the company back on its feet, including writing off $3 million in inventory.

In 1963, Shepard and Wright began pruning unprofitable divisions. They sold most of the unprofitable Bumkor-Ramo computer division to Martin Marietta. The company retained partial ownership in Bumkor-Ramo but no longer played a large role in the company's plans. Shepard and Wright continued hammering out the company's plans for long-term growth, seeking specifically to raise profit margins. To this end, in 1964 they sold the microwave division and the division that made hi-fidelity components, intercoms, and language laboratories.

To shore up the company's auto parts division, they bought Ross Gear & Tool, a maker of mechanical and power steering units, and Marlin-Rockwell, a ball bearings manufacturer. The 7 percent profit margin of the new acquisitions, which had a combined profit of $5.7 million on sales of $76.5 million, helped boost TRW's overall margin to 4 percent in 1964, up a percentage point from the year earlier.

In 1965, in another look toward the future, Thompson-Ramo-Woolridge adopted a shorter, less cumbersome name, the now household initials TRW. Also in that year, the company's investment in aerospace and electronics became increasingly clear. In the previous decade, sales in space and electronics shot up from $14 million to $200 million. Despite that dramatic growth, the company's earnings still came mostly from its oldest business, auto parts. New and replacement parts accounted for 34 percent of TRW's $553 million in sales and 40 percent of its earnings. Chief among those products were its steering linkages, valves, and braking devices that it sold to General Motors, Ford, and Chrysler.

TRW's prospects improved in 1966. An auto parts boom helped the company's profitability. The Cleveland-based automotive group had a return of 6 percent on sales of $350 million. The equipment group, also in Cleveland, had an increase of sales to $200 million in aerospace and ordinance technology but lower profit margins because of start-up costs for unexpected demand in commercial aircraft. The Los Angeles-based TRW Systems had $250 million in sales and a 3 percent profit margin building and designing spacecraft and doing research. Totals were up to $870 million in sales for TRW, producing $36 million in profit for a 4.2 percent return. Even with the upturn in sales, the company was relying less on government contracts, down to about 44 percent from 70 percent ten years earlier.

With the company's finances on the upturn, the wrangling between Los Angeles and Cleveland declined. As Business Week reported, the discord was "under control, if not cured." The company continued tightening its operations in 1966. It bought United Car with $122 million in sales and sold its one consumer business, a hi-fi manufacturer.

TRW had grown into a conglomerate, a term disliked by company management. In 1969 TRW operated six groups that, in turn, administered 55 divisions. The company derived 32 percent of its revenues from aerospace products and systems and computer software, 28 percent from vehicle components for autos and trucks, 23 percent from electronic components and communication, and 17 percent from industrial products ranging from mechanical fasteners to automated controls.

To manage the increasingly far-flung company, TRW maintained strict management control over all operations. By encouraging communication between all levels of management and holding monthly manager meetings, TRW avoided the problems that had plagued other conglomerates. Another of TRW's successful management styles caught Fortune's eye in 1966. The magazine covered in depth the happenings of a TRW management meeting in Vermont, where 49 of the company's top executives had gathered annually since 1952 at an old farmhouse to think about the company's future.

TRW continued beefing up its auto parts business, acquiring Globe Industries, a Dayton-based maker of miniature AC and DC electric motors. At the same time, TRW's electronics group had grown to more than 20 plants in the United States, Canada, and Mexico. The company continued to evade problems that had plagued other conglomerates, posting a slight pretax gain of 16.4 percent, above the industry average of 13.3 percent.

In 1969 TRW named a new president, Ruben F. Mettler. One of his first big projects was a contract for a laboratory that NASA would send on the Viking probe to Mars. TRW won the challenge to provide one black box weighing 33 pounds with complex instruments capable of making biological and chemical tests to detect the most primitive forms of life. The NASA contract was worth only $50 million, not a big financial risk for a multibillion dollar company like TRW, but the job was important for the company's prestige.

The auto parts business, in the meantime, was once again proving to be immune to cyclical trends in car output. The market for new parts was in a slump, but it was made up for by the accompanying increase in demand for replacement cars as consumers kept their cars on the roads longer. TRW also announced a move into business credit reporting, challenging Dun & Bradstreet.

The company's sound financial condition was unmistakable. For the five years preceding 1970, the company had average earning jumps of 27 percent annually and an average 23 percent increase annually in sales. But company officials conceded that the company could not keep growing at that rate forever. It had acquired 38 companies through 1968, a pace it would not be able to maintain indefinitely. The company looked for future growth to run about 10 percent.

The company's skillful management again became apparent in 1971, when TRW was forced to make cuts because of an aerospace recession. Its TRW Systems division had to cut the number of employees by 15 percent. Managers were not spared cuts either; 18 percent of the professional staff was laid off. The company's open management style enabled TRW to build a strong enough relationship with its employees that two-thirds of them were nonunion, perhaps preventing the labor squabbles that had appeared in other companies.

TRW made a risky venture in 1976, entering the tricky market of electronic point-of-sale machines. Those machines had boosted profits for retailers, but not for manufacturers. Its proposed 2001 system targeted the general market and cost $4,000 per unit, similar to competitors. TRW's move into POS was largely a defensive tactic. The electronic credit authorization business it had pioneered in the 1960s was coming under increasing competition. Then NCR, the overall leader in POS machines, launched a POS system incorporating credit checking in 1975. TRW attempted to enter the market with an established customer base by acquiring the service contracts for the 65,000 customers Singer had built up during its short, ill-fated move into the POS market. TRW remained cautious, however, only delivering 200 to 300 machines in 1976, mostly to the May Co. Altogether that year nonfood retailers ordered 24,500 POS terminals worth $94 million, and the market was picking up.

In 1976 TRW achieved the moment of glory it had long awaited with Viking's historic landing on Mars. The company took out full-page newspaper ads proclaiming "That lab is our baby." Appropriately, Mettler, 52, who had pushed for TRW to compete for the Viking contract, was named to succeed Horace A. Shepard as chairman and chief executive officer when Shepard retired the next year.

Aerospace ventures continued to play an important role in the company's finances. In 1977 TRW was still the chief engineer for U.S. intercontinental ballistic missiles. Aerospace and government electronic revenues were providing a cool $60 million in profits on revenue of $440 million. The electronics division had $300 million in sales. The data communications unit was also doing well with over $150 million in sales. It had established a retail credit bureau, a business credit system, and was an international maker of data communications equipment. However, auto and commercial parts were still accounting for twice as much in sales and five times as much in earnings.

In 1980 TRW and Fujitsu Ltd., Japan's largest computer maker, formed a joint venture. TRW had a 3,000-person service organization, reportedly the largest independent network in the United States for data process maintenance, with a special team to develop software. Each company invested $100 million, with Fujitsu keeping a 51 percent share and TRW 45 percent. TRW initiated the venture, seeking a foreign partner to perform maintenance work for its POSs. Fujitsu, which earned 68 percent of its revenue from data processing, was eager to expand overseas to increase its economy of scale to compete with IBM back home. Fujitsu named a majority of the directors of the new company so it could qualify for Japanese export and financing tax breaks, but TRW took charge of running it. One of new company's first moves was to buy TRW's ailing POS and ATM maker division. The company, hoping in the beginning to capture a large segment of the small and medium-sized computer market, predicted sales of $500 million to $1 billion by the decade's end.

Despite TRW's careful planning, the POS and Fujitsu deals both proved unsuccessful. The competition from established POS makers, particularly IBM and NCR, was too great. Nonetheless, TRW remained a strong, highly visible company. Forbes in 1983 called it "a paragon" for other conglomerates. It had by then grown to $5 billion in sales spread across 47 different businesses and had 300 locations in 25 countries. It had also grown to be the number one producer of valves for automobiles and aircraft plus a wide range of other products. With a 16 percent return on stockholders' equity as proof, Forbes called TRW one of the best-managed, most successful American companies. However, this outward success belied the company's growing inefficiency.

By the time Joseph T. Gorman was named president and chief operating officer of TRW in 1985 (he became chairman, president, and chief executive officer in 1988 when chairman Ruben Mettler retired), the company had grown bloated, inefficient, and overdiversified. It hit a low in 1985 when it lost $7 million on sales of $5.92 billion. Mettler and Gorman instituted a three-year restructuring plan that aimed to focus resources on core businesses, to slash staff, and to increase efficiency. The new TRW would focus on three main areas: automotive products, space and defense projects, and information systems and services. Among the noncore businesses divested were the firm's energy division. Staff was reduced from 93,200 in 1985 to 73,200 in 1988.

From 1986 to 1990, TRW's financial outlook improved somewhat with the new corporate structure. Although sales rose each year to a high of $8.17 billion in 1990, profits were stagnant and actually fell from 3.7 percent in 1988 to 3.6 percent in 1989 to 2.6 percent in 1990.

In 1989 TRW made a huge and risky commitment to what at the time was an unprofitable business: air bags. That year it purchased Talley Industries Inc.'s driver-side air bag unit for $85 million, plus royalties on any air bag sold in North America through the year 2001. TRW also began to invest in the development of passenger-side air bags. In total, the company invested more than half a billion dollars in its air-bag business by 1992. Until the fourth quarter of 1991, TRW lost money on air bags. Although Ford had chosen TRW as its sole supplier of the safety devices in 1989, TRW's fortunes suffered in 1990 because of a Ford recall of 55,000 vehicles with defective air bags and a massive fire at TRW's passenger-side air-bag plant (TRW air bags used sodium azide as its propellant, a chemical prone to explode in the manufacturing process). TRW's automotive business also suffered from a recession in the automotive industry in 1989 and 1990.

The space and defense sectors of TRW were also suffering from the end of the Cold War and the resultant leveling off in defense spending. With its two main sectors down, overall TRW sales for 1991 fell 3.1 percent to $7.91 billion. Gorman embarked on another restructuring late that year, incurring a $365 million charge that resulted in a $140 million loss for the year. This restructuring aimed to remake TRW into primarily an automotive products company, with reduced operations and investments in the space and defense and information sectors. With air bags now profitable and generating $600 million in annual revenue, the company aimed to take advantage of their increasing popularity with consumers and the mandatory inclusion of dual air bags in vehicles by the year 1998. Gorman also set his sights on overseas markets not only for air bags but also for TRW's power-steering systems and engine valves.

By 1994, TRW's automotive operations accounted for 63 percent of total sales, compared to 56 percent in 1992 (and 40 percent in the early 1980s), whereas space and defense accounted for only 31 percent, compared to 35 percent in 1992 (and 50 percent in the early 1980s). The defense operations were also reduced, with sales to the U.S. government falling to 28 percent of total sales, compared to the 45 percent figure of the late 1980s. Meanwhile, international sales accounted for 35 percent of total sales in 1994 (compared to 25 percent in 1985), led by sales to Japanese automakers of $800 million.

Although TRW appeared to have turned the corner with 1994 sales totaling $9.09 billion, an increase of 14.3 percent over 1993, the company's future was clouded. With a full 20 percent of revenue coming from air bags, TRW seemed particularly vulnerable to increasing air-bag competition, including advanced air-bag designs that do not use the dangerous sodium azide propellant. Further dampening the TRW outlook was a lawsuit brought by Talley Industries against TRW in 1994, which resulted in a $138 million judgment against them in 1995. Although its space and defense operations had been boosted by contracts to build satellites for the People's Republic of China and Korea, TRW's proposed $2 billion Odyssey satellite system (a joint venture with Montreal-based Teleglobe Inc. to be used for satellite phone service) was slowed when its patent application was stalled by the U.S. Patent Office in May 1995.

Principal Subsidiaries: ESL Inc.; TRW Automotive Products Inc.; TRW Components International Inc.; TRW Export Trading Corp.; TRW Financial Systems, Inc.; TRW International Holding Corp.; TRW System Services Co.; TRW Vehicle Safety Systems Inc.; TRW Canada Ltd.; TRW France S.A.; TRW GmbH fur Industrielle Beteilgungen (Germany); TRW Italia S.p.A.; TRW Steering Systems Japan Co. Ltd.; TRW U.K. Ltd.

TRW Inc. History

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