TRW Announces Second Quarter 2001 Results
CLEVELAND--July 19, 2001--TRW Inc.
Second Quarter
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Financial Highlights 2001 2000
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-- Sales $4.3 billion $4.5 billion
-- Earnings Per Share,
Excluding Unusual Items $0.65 per share $1.33 per share
-- Earnings Per Share,
Including Unusual Items $0.02 per share $1.59 per share
-- Net Debt $6.4 billion $6.8 billion
TRW Inc. today reported that for the second quarter ended June 30, 2001, net earnings excluding unusual items were $82 million, or $0.65 per share. In the prior year, TRW earned $167 million, or $1.33 per share, before unusual items. Second quarter 2001 sales were $4.3 billion, compared with $4.5 billion in the prior year. As a result of better than anticipated cash flow from operations, net debt was reduced by $179 million during the quarter.
Compared with the prior year, second quarter results were negatively impacted by lower vehicle production volumes in North America, the strength of the U.S. dollar, automotive price reductions, and a charge relating to a seat belt buckle recall. The effect of these issues was partially mitigated by the company's productivity and cost reduction initiatives. Additionally, profitability was adversely affected by an increase in the level of investments relating to the commercialization of defense technologies, a strategy that will position TRW in growing markets where the company has technology differentiators.
Including unusual items, which totaled $79 million of charges, or $0.63 per share, primarily relating to TRW's investment in Endwave Corporation and for automotive restructuring actions, second quarter net earnings were $3 million, or $0.02 per share. This compares with net earnings of $200 million, or $1.59 per share, in the prior year quarter, which included unusual gains of $33 million, or $0.26 per share.
TRW President and Chief Executive Officer David M. Cote said, "The prolonged weakness of the economy continued to adversely affect the automotive industry, again placing pressure on TRW's quarterly financial performance. North American light vehicle production was down about 10 percent, compared with last year. More stable production schedules in the quarter, together with our productivity initiatives, positioned TRW to achieve better than expected underlying results. Nevertheless, the prospect of further contraction in vehicle production schedules, pressure on price, and the strength of the U.S. dollar remain areas of concern. In this uncertain environment, our automotive businesses will continue to focus on productivity initiatives, including the reduction of our fixed cost base.
"The environment for our high-technology businesses--systems, space and electronics, and aeronautical systems--is decidedly more upbeat," Mr. Cote said. "Capping the company's successes in its core defense markets, the TRW Systems' battlefield management command, control and communications products fulfilled their critical mission during last week's test of the nation's missile defense system. We have also strengthened our position in indium phosphide (InP) chip technology with a new business, Velocium, and important joint development agreements with Hitachi and OpNext. Meanwhile, our aeronautical systems business announced multimillion dollar contracts for the supply of equipment on key commercial aircraft and helicopter platforms."
Net earnings before unusual items for the six-month period ended June 30, 2001, were $133 million, or $1.07 per share, compared with $319 million, or $2.55 per share, in the prior year. Including unusual items, the company earned $58 million, or $0.47 per share through June 30, 2001, compared with $409 million, or $3.27 per share, in the prior year.
TRW Systems
Second quarter sales of $799 million declined only 5 percent, compared with the prior year, despite the reduction in sales of approximately $100 million relating to the successful completion of the U.S. Census Bureau and the TRW Environmental Safety Systems (TESS) programs in early 2001. The underlying sales improvement of 9 percent 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 was $53 million, resulting in a margin of 6.6 percent, which is consistent with the level reported a year ago.
In the prior year's second quarter, a gain of $23 million ($15 million after tax) was recognized on the sale of a minority interest position in a technology company. This gain was not included in profit from operations.
As part of the company's strategy to leverage its domain expertise in emerging markets, TRW announced its agreement to acquire Network Six, Inc., a company specializing in human services for state and local governments. The acquisition will augment TRW's overall presence in the health and human services market and provide the company an important foothold in the U.S.'s large Northeast marketplace. In our core market, TRW's FBCB2 (Force XXI Battle Command Brigade and Below) system was deemed an overwhelming success by the U.S. Army during the Division Capstone Exercise (DCX), the Army's largest exercise to date testing the battlefield of the future using information technology. After showcasing its digital technology and battlefield management at DCX in April, TRW won contracts to provide electronic systems technical services for the Army's Paladin howitzer and its ammunition vehicle and to develop a Web-based e-business solution for the Army's tactical logistics system.
TRW Space and Electronics
Second quarter sales of $529 million increased 13 percent, compared with the prior year level of $467 million. The improvement in sales was driven primarily by increased activity on several core government and commercial satellite programs. Profit from operations was $30 million, a decline from $49 million in the prior year, resulting in a margin of 5.7 percent, compared with 10.4 percent reported a year ago. The decline in profitability and margin resulted primarily from increased investments relating to initiatives focused on commercializing defense technologies, which approximated $7 million in the quarter. In addition, TRW's share of losses from companies partially owned, primarily Endwave Corporation and Astrolink, were $10 million this quarter, compared with $1 million last year.
During the second quarter of 2001, unusual charges of $70 million ($58 million after tax) were recorded relating to the company's ownership position in Endwave Corporation, an independent publicly traded company. In response to deteriorating market conditions, Endwave recorded charges for impairment of goodwill and other restructuring actions. In addition to TRW recording its share of these charges, an asset impairment charge relating to TRW's investment in Endwave also was recognized. These non-cash charges broadly offset non-cash gains of $75 million ($50 million after tax) relating to Endwave, which were recorded over several quarters in 2000.
In the prior year second quarter, gains totaling $94 million ($62 million after tax) were recognized and not included in profit from operations. The sale of 845,000 split-adjusted shares of RF Micro Devices stock resulted in gains of $43 million ($28 million after tax), while the formation of Endwave resulted in a non-cash gain of $51 million ($34 million after tax).
Advancing TRW's strategy to leverage its advanced indium phosphide technologies into commercial markets, Velocium signed a joint development agreement with Hitachi to design and develop very high- efficiency power amplifier modules for 3G wireless handsets and other wireless devices. Velocium also entered into an agreement with OpNext Inc., a leading producer of fiber optic communication network transceivers, to develop and produce components using Velocium's InP and gallium arsenide technology for OpNext's transceivers.
TRW Aeronautical Systems
Second quarter sales of $270 million were largely consistent with last year's level of $279 million despite the loss of revenues relating to a customer's decision to in-source certain aerostructure work, which took effect in late 2000. Excluding this effect and the effect of currency translation due to the strength of the U.S. dollar, the underlying sales growth was 7 percent, driven by increased volumes in original equipment sales. Profit from operations for the quarter was $35 million, compared with $39 million in the prior year, resulting in a margin of 12.9 percent, compared with 13.9 percent reported a year ago. The decline in margin resulted primarily from a change in mix of sales and an increased level of investment in new programs during the most recent quarter, which was largely offset by the benefits of lean manufacturing initiatives.
Following the successful introduction of its e-business site, TRWAeroservices, earlier this quarter, TRW launched AeroVantix, the industry's first fully functional aerospace portal, designed to improve customer responsiveness with round-the-clock accessibility. TRW's presence on key commercial aircraft and helicopter platforms increased with the award of multimillion dollar contracts for cargo systems and winch equipment.
TRW Automotive
Second quarter sales in TRW's automotive businesses declined 7 percent, to $2.7 billion, compared with $2.9 billion in the second quarter of 2000. Excluding the effects of the strong U.S. dollar and business dispositions, sales declined 3 percent, compared with the prior year, as lower industry volumes 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 second quarter of 2001 declined to $131 million from $241 million in the prior year. Operating margins were 4.9 percent in the 2001 quarter, compared with 8.3 percent last year, due primarily to the decline in North American vehicle production schedules, the effect of price reductions, the strong U.S. dollar, divestitures, increased sales of lower margin products, and a charge relating to a July 2001 seat belt buckle recall. Partially offsetting these issues were benefits from the company's productivity initiatives, including its cost reduction programs.
In the second quarter of 2001, charges of $23 million ($21 million after tax) were incurred, primarily for restructuring actions relating to headcount reductions, which are not included in profit from operations. In the prior year second quarter, charges of $14 million ($9 million after tax) were recorded for restructuring actions.
Responding to the decline in North American light vehicle production, the company continues to take aggressive steps to reduce costs and restructure its automotive operations. As a result of actions taken during the first half of the year, the company has reduced its fixed cost base and will continue to do so during the second half of 2001.
Entering a potential new market, TRW will use its automotive technology to enhance commercial aviation under an agreement with AMSAFE Aviation. TRW will be the exclusive supplier of advanced cold-gas inflators for an aircraft inflatable restraint system, the first such product to meet U.S. and European regulatory requirements. The initial customer for the system will be a European aircraft manufacturer.
Non-Operational Items
In the second quarter of 2000, corporate and other unusual charges totaling $47 million ($35 million after tax) were incurred, $35 million of which related to unrealized losses on foreign currency hedges, and $12 million was a charge for acquired in-process research and development.
During the second quarter of 2001, TRW reduced its net debt position by $179 million to $6.4 billion. This reduction was driven by cash flow from operations, which included $129 million cash inflow from a reduction in working capital levels during the quarter. For the six months ended June 30, 2001, the company's cash flow was essentially breakeven.
TRW provides advanced-technology products and services for the aerospace, information systems, and automotive markets. The company's news releases are available through TRW's corporate Web site, www.trw.com. Investors and the general public are invited to listen to an Internet Webcast of the company's quarterly conference call, beginning at 11 a.m. EDT today, July 19, 2001. This Webcast can be accessed through www.trw.com/investorpresentation.
Statements that are not statements of historical fact may be forward-looking statements. Important factors that could cause TRW's actual results to differ materially from the forward-looking statements contained in this release can be found in Part 1, Item 2, "Management's Discussion and Analysis--Forward-Looking Statements," in the company's most recent Form 10-Q. TRW undertakes no obligation to update any forward-looking statement.
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SECOND QUARTER 2001
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Margin Unusual Margin
Operations % Items Total %
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Sales
Systems $ 799 $ 799
Space & Electronics 529 529
Aeronautical Systems 270 270
Chassis Systems 1,602 1,602
Occupant Safety Systems 704 704
Automotive Electronics 372 372
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Total Automotive 2,678 2,678
Sales $4,276 $4,276
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Profit Before Taxes
Systems $ 53 6.6% $ - $ 53 6.6%
Space & Electronics 30 5.7% (70) (40) -7.6%
Aeronautical Systems 35 12.9% - 35 12.9%
Chassis Systems 95 6.0% (15) 80 5.0%
Occupant Safety Systems 11 1.6% (3) 8 1.1%
Automotive Electronics 25 6.6% (5) 20 5.4%
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Total Automotive 131 4.9% (23) 108 4.0%
Profit Before Taxes 249 5.8% (93) 156 3.6%
Corporate Expense
and Other (50) - (50)
Financing Costs (123) - (123)
Pension Income 52 - 52
In-process Research
and Development - - -
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Earnings(Loss) Before
Income Taxes $ 128 3.0% $ (93) $ 35 0.8%
Income Taxes 46 (14) 32
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Net Earnings $ 82 1.9% $ (79) $ 3 0.1%
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Diluted earnings
per share $ 0.65 $(0.63) $ 0.02
Basic earnings
per share $ 0.65 $(0.63) $ 0.02
Dividends paid per
common share $ 0.35
Common stock
outstanding 125.7
Shares used in
computing per
share amounts
Diluted 125.6
Basic 124.5
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SECOND QUARTER 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Systems $ 837 $ 837
Space & Electronics 467 467
Aeronautical Systems 279 279
Chassis Systems 1,728 1,728
Occupant Safety Systems 728 728
Automotive Electronics 437 437
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Total Automotive 2,893 2,893
Sales $ 4,476 $4,476
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Profit Before Taxes
Systems $ 54 6.5% $ 23 $ 77 9.2%
Space & Electronics 49 10.4% 94 143 30.6%
Aeronautical Systems 39 13.9% - 39 13.9%
Chassis Systems 145 8.4% (10) 135 7.8%
Occupant Safety Systems 59 8.3% - 59 8.2%
Automotive Electronics 37 8.2% (4) 33 7.5%
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Total Automotive 241 8.3% (14) 227 7.8%
Profit Before Taxes 383 8.6% 103 486 10.9%
Corporate Expense
and Other (50) (35) (85)
Financing Costs (128) - (128)
Pension Income 54 - 54
In-process Research
and Development - (12) (12)
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Earnings(Loss) Before
Income Taxes $ 259 5.8% $ 56 $ 315 7.0%
Income Taxes 92 23 115
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Net Earnings $ 167 3.7% $ 33 $ 200 4.5%
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Diluted earnings
per share $ 1.33 $ 0.26 $ 1.59
Basic earnings
per share $ 1.36 $ 0.26 $ 1.62
Dividends paid
per common share $ 0.33
Common stock
outstanding 123.9
Shares used in
computing per
share amounts
Diluted 125.6
Basic 123.2
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SIX MONTHS ENDED 2001
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Margin Unusual Margin
Operations % Items Total %
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Sales
Systems $ 1,588 $1,588
Space & Electronics 1,013 1,013
Aeronautical Systems 535 535
Chassis Systems 3,156 3,156
Occupant Safety Systems 1,412 1,412
Automotive Electronics 739 739
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Total Automotive 5,307 5,307
Sales $ 8,443 $8,443
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Profit Before Taxes
Systems $ 101 6.3% $ - $ 101 6.3%
Space & Electronics 64 6.4% (70) (6) -0.5%
Aeronautical Systems 60 11.0% 4 64 11.9%
Chassis Systems 153 4.9% (17) 136 4.3%
Occupant Safety Systems 43 3.0% (11) 32 2.2%
Automotive Electronics 38 5.1% - 38 5.2%
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Total Automotive 234 4.4% (28) 206 3.9%
Profit Before Taxes 459 5.4% (94) 365 4.3%
Corporate Expense
and Other (103) (6) (109)
Financing Costs (253) - (253)
Pension Income 105 - 105
In-process Research
and Development - - -
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Earnings(Loss) Before
Income Taxes $ 208 2.5% $ (100) $ 108 1.3%
Income Taxes 75 (25) 50
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Net Earnings $ 133 1.6% $ (75) $ 58 0.7%
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Diluted earnings
per share $ 1.07 $(0.60) $ 0.47
Basic earnings
per share $ 1.07 $(0.60) $ 0.47
Dividends paid
per common share $ 0.70
Common stock
outstanding 125.7
Shares used in
computing per share
amounts
Diluted 125.2
Basic 124.1
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SIX MONTHS ENDED 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Systems $ 1,611 $1,611
Space & Electronics 953 953
Aeronautical Systems 549 549
Chassis Systems 3,531 3,531
Occupant Safety Systems 1,488 1,488
Automotive Electronics 909 909
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Total Automotive 5,928 5,928
Sales $ 9,041 $9,041
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Profit Before Taxes
Systems $ 101 6.3% $ 23 $ 124 7.7%
Space & Electronics 102 10.7% 268 370 38.8%
Aeronautical Systems 66 12.0% - 66 12.0%
Chassis Systems 296 8.4% (23) 273 7.7%
Occupant Safety Systems 114 7.7% (41) 73 4.9%
Automotive Electronics 73 8.0% (8) 65 7.2%
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Total Automotive 483 8.1% (72) 411 6.9%
Profit Before Taxes 752 8.3% 219 971 10.7%
Corporate Expense
and Other (102) (47) (149)
Financing Costs (264) (1) (265)
Pension Income 111 - 111
In-process Research
and Development - (12) (12)
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Earnings(Loss) Before
Income Taxes $ 497 5.5% $ 159 $ 656 7.3%
Income Taxes 178 69 247
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Net Earnings $ 319 3.5% $ 90 $ 409 4.5%
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Diluted earnings
per share $ 2.55 $ 0.72 $ 3.27
Basic earnings
per share $ 2.60 $ 0.73 $ 3.33
Dividends paid
per common share $ 0.66
Common stock
outstanding 123.9
Shares used in
computing per
share amounts
Diluted 125.1
Basic 122.8
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Six Months Ended
June 30, June 30,
2001 2000
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Net earnings $ 58 $ 409
Net gain on sale of assets (30) (317)
Depreciation and amortization 382 427
Pension income (120) (128)
Asset impairment charge 70 --
Deferred income taxes 24 57
Operating working capital (1) (66)
Purchased in-process research and development -- 12
Capital expenditures including other intangibles (335) (312)
Net proceeds from divestitures 6 1,396
Dividends paid (88) (82)
Acquisitions, net of cash acquired -- 21
SUMMARY BALANCE SHEETS
June 30, Dec. 31,
2001 2000
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ASSETS
Cash and cash equivalents $ 261 $ 267
Accounts receivable 2,331 2,328
Inventories 810 870
Other current assets 397 502
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Total current assets 3,799 3,967
Property, plant & equipment-net 3,420 3,587
Intangible assets-net 3,824 4,012
Investments in affiliated companies 1,054 1,040
Other notes and accounts receivable 241 283
Prepaid pension cost 2,830 2,902
Other assets 627 676
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Total assets $15,795 $16,467
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 1,031 $ 1,450
Trade accounts payable 1,818 1,795
Current portion of long-term debt 731 489
Other current liabilities 1,941 2,126
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Total current liabilities 5,521 5,860
Long-term liabilities 2,044 2,038
Long-term debt 4,930 4,765
Deferred income taxes 768 1,030
Minority interests in subsidiaries 76 123
Total shareholders' investment 2,456 2,651
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Total liabilities and shareholders' investment $15,795 $16,467
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