TRW Announces First Quarter 2001 Results
CLEVELAND--April 18, 2001--TRW Inc.
First Quarter
--------------------------------
Financial Highlights 2001 2000
- Sales $4.2 billion $4.6 billion
- Earnings Per Share,
Excluding Unusual Items $0.41 per share $1.22 per share
- Earnings Per Share,
Including Unusual Items $0.44 per share $1.68 per share
- Net Debt $6.6 billion $7.2 billion
TRW Inc. today reported that for the first quarter ended March 31, 2001, net earnings excluding unusual items were $51 million, or $0.41 per share, compared with $152 million, or $1.22 per share, in the prior year. First quarter 2001 sales were $4.2 billion, compared with $4.6 billion in the prior year.
First quarter results were negatively impacted by lower vehicle production volumes, primarily in North America; the strength of the U.S. dollar; business divestitures; and automotive price reductions, which were partially offset by productivity. Additional factors affecting profitability were a change in mix of major space-related programs and increased investments relating to commercializing defense technologies, including indium phosphide and extreme ultraviolet lasers.
Including unusual items, which totaled $4 million of earnings, or $0.03 per share, first quarter earnings were $55 million, or $0.44 per share. This compares with net earnings of $209 million, or $1.68 per share, in the prior year quarter.
TRW President and Chief Executive Officer David M. Cote said, "The ongoing downturn of the automotive industry, compounded by currency and demands for continuing price reductions, placed significant pressure on TRW's first quarter financial performance. We are responding to this difficult environment with aggressive cost reductions, including workforce adjustments. This has had minimal impact on production while positioning the company to benefit when a more favorable automotive climate returns.
"In our aerospace and information systems businesses, TRW continued to support and invest in advanced-technology growth ventures. These early-stage investments in technology-oriented products and services should become increasingly important to the corporation's growth. During the quarter, operational performance excluding incremental investments was consistent with the level achieved last year.
"Despite the challenging business climate, I continue to be pleased with the company's cash flow generation, where performance of our operations in the quarter exceeded our expectations."
Systems and Information Technology
First quarter sales of $789 million were 2 percent higher than the level reported last year, despite the reduction in sales of approximately $40 million relating to the successful completion of the U.S. Census Bureau and the TRW Environmental Safety Systems (TESS) programs. The underlying sales improvement was driven by increased revenue relating to solid growth in the company's core businesses, including missile and battlefield digitization programs. Profit from operations for the quarter increased 3 percent to $48 million, compared with the prior year, resulting in a margin of 6.1 percent, which is the same level reported a year ago.
Supporting its role as a premier end-to-end solutions provider in the high-growth public safety communications sector, TRW recently was selected to construct its eighth consolidated emergency dispatch and operations facility for a major metropolitan center. The contract has a potential value of $75 million and adds to TRW's list of previous public safety communications awards, including Ohio's Multi-Agency Radio Communications System (MARCS) program and the Airwave service in Great Britain. Continuing its four decades of support to the United States' ICBM program, including its role as prime integrator, TRW was awarded a $79 million rocket systems launch program contract.
Space and Electronics
First quarter sales of $484 million were consistent with the prior year level of $486 million while profit from operations was $34 million, a decline from $53 million in the prior year, resulting in a margin of 7.1 percent, compared with 10.9 percent reported a year ago. The decline in profitability and margin resulted from a change in the mix of major space-related programs from maturing to early phase. Also contributing to the decline were increased investments relating to initiatives focused on commercializing defense technologies, including losses from partially owned technology companies. TRW's share of losses from companies partially owned, primarily Endwave Corporation and Astrolink, were $11 million this quarter, compared with $1 million last year.
In the prior year first quarter, gains of $174 million ($113 million after-tax) were recognized from the sale of 4.4 million shares of RF Micro Devices stock, which was not included in profit from operations.
Demonstrating its leadership in advanced technologies, TRW announced the first-of-a-kind development of a highly efficient microwave power amplifier chip made of indium phosphide. This chip, operating at more than 20 gigahertz, delivers world-record power efficiency for integrated circuits operating at high frequencies, providing a performance advantage that will be key for future wireless communications systems. Another achievement was the launch of the latest Milstar spacecraft with TRW's high-speed, on-board digital switching and antennas that counter signal jamming. These new technologies, which performed flawlessly in early orbit checks, will make Milstar Flight 4 the first satellite to deliver secure, on-demand mobile broadband communications to military aircraft. Also in the quarter, TRW began flight production of the Astrolink satellite payload, a highly complex commercial payload designed for a space-based communications system.
Aeronautical Systems
First quarter sales of $265 million were slightly below last year's level of $270 million. The loss of revenues relating to a customer's decision to in-source certain aerostructure work, which took effect in late 2000, and the translation effect due to the strength of the U.S. dollar, together totaled approximately $25 million. This decline was partially offset by increased volume. Profit from operations for the quarter was $25 million, compared with $27 million in the prior year, resulting in a margin of 9.2 percent, compared with 10.2 percent reported a year ago. The decline in margin resulted primarily from a different mix of components sold in the quarter and an increased level of investment in new programs, which was largely offset by the benefits of lean manufacturing initiatives.
During the first quarter of 2001, a $4 million gain ($3 million after-tax) was recognized on the sale of property, which was not included in profit from operations.
Further demonstrating its ability to create service-oriented solutions for airlines, TRW signed a 10-year, $80 million flight hour maintenance and asset management agreement during the quarter with the regional airline Continental Express Inc. The contract is the single largest equipment supplier asset management deal in the regional aircraft market in terms of product volume. Leveraging its e-business expertise, the company added to its award-winning spares web page service, TRWAerospares.com, by launching a new repair and overhaul e-business service called TRWAeroservices, which will be offered for all aircraft parts, regardless of the original manufacturer.
Automotive operations
First quarter sales in TRW's automotive businesses declined 13 percent to $2.6 billion, compared with $3.0 billion in the first quarter of 2000. Excluding the effects of business dispositions and the strong U.S. dollar, sales declined 8 percent, compared with the prior year, as lower industry volumes, primarily in North America, and the effect of price reductions were partially offset by increased sales from product introductions.
Total automotive profit from operations for the first quarter of 2001 declined to $103 million, from $242 million in the prior year. Operating margins were 3.9 percent in the 2001 quarter, compared with 8.0 percent last year. The primary reason for the decline in profit and margins was the severe and erratic reduction in North American vehicle production schedules, which in the short-term resulted in production systems inefficiencies. Other factors negatively affecting profits and margins included the effect of price reductions, the strong U.S. dollar, and divestitures, which were partially offset by cost reductions. Increased sales of lower margin products also contributed to the decline in margin.
In the first quarter of 2001, unusual items resulted in net charges of $5 million ($5 million of earnings after-tax), which are not included in profit from operations. Charges of $31 million for restructuring actions, primarily headcount reductions, were partially offset by $26 million, primarily from business and asset sales. In the prior year first quarter, unusual items resulted in net charges totaling $58 million ($47 million after-tax). This total included charges for restructuring actions and reserves for warranty, claims, and litigation issues, which were partially offset by gains on sales of businesses.
During the first quarter of 2001, North American light vehicle production declined approximately 16 percent, compared with last year. Responding to this significant decline, the company is taking aggressive steps to reduce costs and restructure its automotive operations. Part of that effort was the permanent elimination during the first quarter of approximately 1,000 automotive salaried positions.
Growth is continuing in side-impact air bags, particularly for head and rollover protection, as well as in production of dual stage inflators and seat belt pretensioners. While the Western European vehicle production outlook calls for a slight decline, the company continues to seek opportunities to expand there. In one such action, TRW signed a memorandum of understanding with SKF, Tenneco Automotive, and Valeo to develop a strategic alliance for enhanced customer services for the European automotive aftermarket. In the European parts and service business, significant restructuring has been undertaken to reduce the cost base, and a new e-business service, Electronic Online Services, provides aftermarket customers with online ordering, order tracking, invoice management, and marketing information. The company also received Ford Motor Company's Recognition of Achievement World Excellence Award, recognizing TRW as one of its top suppliers in the world for 2000 performance.
Non-Operational Items
In the first quarter of 2001, unusual charges of $6 million ($4 million after-tax) were incurred at the company's corporate headquarters primarily relating to headcount reductions. In the prior year, unusual charges of $13 million ($8 million after-tax) were incurred primarily relating to unrealized losses on foreign currency hedges.
During the first quarter of 2001, TRW's operating cash flow was better than expected, resulting in an increase of only $173 million in net debt to $6.6 billion. Generally, the first quarter is the lowest generator of cash due to seasonal factors. Although this effect was accentuated in 2001 by the rapid decline in vehicle production schedules, asset productivity initiatives resulted in a lower than anticipated cash usage. During March 2001 the company issued $500 million of five-year notes with a coupon rate of 7.625 percent. The proceeds were used to reduce short-term borrowings.
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
FIRST QUARTER 2001
-------------------------------------------------------
Margin Unusual Margin
Operations % Items Total %
----------------------------------------------------------------------
Sales
Systems &
Information
Technology $ 789 $ 789
Space &
Electronics 484 484
Aeronautical
Systems 265 265
Chassis Systems 1,554 1,554
Occupant Safety
Systems 708 708
Automotive
Electronics 367 367
----------------------------------------------------------------------
Total
Automotive 2,629 2,629
Sales $ 4,167 $ 4,167
----------------------------------------------------------------------
Profit
Before Taxes
Systems &
Information
Technology $ 48 6.1% $ - $ 48 6.1%
Space &
Electronics 34 7.1% - 34 7.1%
Aeronautical
Systems 25 9.2% 4 29 10.9%
Chassis Systems 58 3.7% (2) 56 3.6%
Occupant Safety
Systems 32 4.5% (8) 24 3.4%
Automotive
Electronics 13 3.7% 5 18 4.9%
----------------------------------------------------------------------
Total
Automotive 103 3.9% (5) 98 3.7%
Profit
Before Taxes 210 5.0% (1) 209 5.0%
Corporate
Expense and
Other (53) (6) (59)
Financing Costs (130) - (130)
Pension Income 53 - 53
----------------------------------------------------------------------
Earnings(Loss)
Before Income
Taxes $ 80 1.9% $ (7) $ 73 1.8%
Income Taxes 29 (11) 18
----------------------------------------------------------------------
Net Earnings $ 51 1.2% $ 4 $ 55 1.3%
----------------------------------------------------------------------
Diluted
earnings
per share $ 0.41 $ 0.03 $ 0.44
Basic
earnings
per share $ 0.42 $ 0.03 $ 0.45
Dividends
paid per
common share $ 0.35
Common stock
outstanding 125.0
Shares used
in computing
per share
amounts
Diluted 124.9
Basic 123.8
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
FIRST QUARTER 2000
-------------------------------------------------------
Margin Unusual Margin
Operations % Items Total %
----------------------------------------------------------------------
Sales
Systems &
Information
Technology $ 774 $ 774
Space &
Electronics 486 486
Aeronautical
Systems 270 270
Chassis Systems 1,803 1,803
Occupant Safety
Systems 760 760
Automotive
Electronics 472 472
----------------------------------------------------------------------
Total
Automotive 3,035 3,035
Sales $ 4,565 $ 4,565
----------------------------------------------------------------------
Profit Before
Taxes
Systems &
Information
Technology $ 47 6.1% $ - $ 47 6.1%
Space &
Electronics 53 10.9% 174 227 46.6%
Aeronautical
Systems 27 10.2% - 27 10.2%
Chassis Systems 151 8.3% (13) 138 7.6%
Occupant Safety
Systems 55 7.2% (41) 14 1.8%
Automotive
Electronics 36 7.8% (4) 32 6.9%
----------------------------------------------------------------------
Total
Automotive 242 8.0% (58) 184 6.1%
Profit Before
Taxes 369 8.1% 116 485 10.6%
Corporate
Expense and
Other (52) (12) (64)
Financing Costs (136) (1) (137)
Pension Income 57 - 57
----------------------------------------------------------------------
Earnings(Loss)
Before Income
Taxes $ 238 5.2% $ 103 $ 341 7.5%
Income Taxes 86 46 132
----------------------------------------------------------------------
Net Earnings $ 152 3.3% $ 57 $ 209 4.6%
----------------------------------------------------------------------
Diluted
earnings per
share $ 1.22 $ 0.46 $ 1.68
Basic
earnings per
share $ 1.24 $ 0.47 $ 1.71
Dividends
paid per
common share $ 0.33
Common stock
outstanding 122.9
Shares used
in computing
per share
amounts
Diluted 124.7
Basic 122.3
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Net earnings $ 55 $ 209
Net gain on sale of nonoperating
assets (30) (174)
Depreciation and amortization 200 212
Pension income (61) (66)
Deferred income taxes 12 42
Operating working capital (130) (233)
Capital expenditures including
other intangibles (169) (153)
Net proceeds from divestitures 19 1,351
Net increase(decrease) in debt 202 (1,145)
Dividends paid (43) (41)
SUMMARY BALANCE SHEETS
March 31, 2001 December 31, 2000
-------------- -----------------
ASSETS
Cash and cash equivalents $ 268 $ 267
Accounts receivable 2,427 2,328
Inventories 835 870
Other current assets 483 502
------- -------
Total current assets 4,013 3,967
Property, plant & equipment-net 3,472 3,587
Intangible assets-net 3,890 4,012
Investments in affiliated
companies 725 1,040
Other notes and accounts
receivable 240 283
Prepaid pension cost 2,835 2,902
Other assets 627 676
------- -------
Total assets $15,802 $16,467
======= =======
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
Short-term debt $ 776 $ 1,450
Trade accounts payable 1,768 1,795
Current portion of long-term
debt 758 489
Other current liabilities 1,920 2,126
------- -------
Total current liabilities 5,222 5,860
Long-term liabilities 2,022 2,038
Long-term debt 5,344 4,765
Deferred income taxes 757 1,030
Minority interests in
subsidiaries 126 123
Total shareholders' investment 2,331 2,651
------- -------
Total liabilities and
shareholders' investment $15,802 $16,467
======= =======