TRW Reports Second Quarter Results
16 July 1998
TRW Reports Second Quarter Results
CLEVELAND--July 16, 1998--Due to the General Motors strike and the litigation settlement of a terminated contract, TRW Inc. today reported a decrease in earnings of 6 percent to $125.8 million, compared with $134.4 million in the previous year.Second quarter 1998 sales increased 6 percent to $3.03 billion from $2.85 billion in the second quarter of 1997. Diluted earnings per share decreased nearly 5 percent to $1.00, compared with $1.05 in 1997. The impact of the General Motors strike and the litigation settlement reduced earnings by 7 cents per share.
"TRW continues to benefit from the very strong performance of its space, defense and information systems business, as demonstrated this quarter by its substantial increase in operating profit," said Joseph T. Gorman, chairman and chief executive officer. "The benefit of the recently acquired BDM operation is evident with awards such as the $100 million contract to modernize and operate the Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval system--known as EDGAR. We are continuing to expand our commercial skill base and capabilities, leading to two important high-volume production contracts for gallium arsenide-based wireless telecommunications products.
"Although automotive operating margins have stabilized, we're still not pleased with the profitability of this business," Gorman said. "We have identified new cost-reduction opportunities and are encouraged with the pricing discussions held with our customers to date. These actions should benefit our results in the second half of the year."
Sales for the first half of 1998 increased 11 percent to a record $6.12 billion. Operating profit for the first six months of 1998 was a record $515.5 million, a 2 percent increase from the previous six-month period. TRW's six-month earnings increased 1 percent to a record $255.2 million from $253.6 million in 1997. Earnings per share increased 3 percent to a record $2.03.
Space, defense and information systems results
In the space, defense and information systems business, second quarter sales were $1.21 billion, a 25 percent increase over the $975.8 million reported in 1997. Sales increased due to the effect of the acquisition of BDM, which contributed $222 million in sales; new contract awards; and higher volume in continuing programs. Space, defense and information systems operating profit increased 29 percent to $105.9 million. The higher operating profit was due to the acquisition of BDM, outstanding award fees earned on a number of Department of Defense space programs, and continued success in the commercial gallium arsenide product lines. Operating profit gains were offset in part by a before-tax litigation settlement of $7 million related to a terminated contract with the State of California's Correctional Management Information System.
"Integration of the BDM acquisition is now substantially complete. As previously announced, the acquisition is expected to have a neutral impact on earnings for the year," Gorman said.
TRW's space and electronics group continues to be at the forefront of technology. Gorman noted the following accomplishments for the group:
- The award of a $78 million contract from the National
Reconnaissance Office to build a Geosynchronous Lightweight
Technology Experiment satellite positions TRW to take advantage
of the expanding demand for smaller, less costly satellites.
- TRW recently made history for the U.S. Air Force by operating,
for the first time, a high-energy laser module for the Airborne
Laser Program, a key element of the nation's future protection
against theater ballistic missiles.
- TRW was selected as the communications, navigation, and
identification avionics lead for Boeing's Joint Strike Fighter
(JSF) team, placing TRW on both the Boeing and Lockheed Martin
JSF teams.
- TRW was awarded the "best of the decade" prize by the
International Conference on Indium Phosphide for producing a
low-noise amplifier operating at 155 GHz, the highest operating
frequency ever reported for such a device.
Automotive results
In the automotive business, second quarter sales decreased 3 percent to $1.81 billion from $1.88 billion in the year-ago quarter. The decrease in sales was attributed primarily to the General Motors strike, lower pricing, and the effect of a strong U.S. dollar. The decrease was partially offset by higher volume in seat belts and electronics and the introduction of a new electric-powered hydraulic steering system.
Automotive operating profit for the quarter decreased 18 percent to $148.1 million. Pricing pressures continued to have a significant effect on the business; however, cost reductions have offset the effect on operating profit. The lower operating profit resulted primarily from the General Motors strike, unfavorable product mix in air bags and seat belts, higher research and development expenditures, startup costs for new facilities and new product introduction in electric steering and occupant restraints, and the effects of a strong U.S. dollar.
"Notwithstanding the dip in quarterly results, I am pleased that we have been able to match the effect of lower prices with dollar-for-dollar cost reductions," Gorman said.
"The company announced several actions to take advantage of future growth opportunities in the Asian automotive industry, including plans for construction of an engineering center in Japan and a joint venture with a Japanese company to manufacture automotive electronic parts," Gorman said. "In addition, to continue our expansion in China, a joint venture was formed with Shanghai Anting Industrial General Co. to produce engine valves for passenger cars--the company's fourth joint venture in that country. We also teamed with a European stamping company to assemble chassis modules for a new Chrysler platform that contain our steering and suspension systems and components."
TRW provides advanced technology products and services for the automotive, space and defense, and information technology markets. The company's news releases are available through TRW's corporate Web site (http://www.trw.com.).
Important factors that could cause TRW's actual results to differ materially from the forward-looking statements contained in this release include the length of the General Motors strike and the ability to achieve cost reductions and mitigate pricing pressure in our automotive business. Additional factors can be found in TRW's Form 8-K filed with the Securities and Exchange Commission on May 29, 1998. 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 1998 Operating 1997 Operating
Margin Margin
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Sales
Automotive $1,813.4 $1,876.3
Space, Defense & Information
Systems 1,214.5 975.8
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Sales $3,027.9 $2,852.1
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Operating Profit
Automotive $ 148.1 8.2% $ 180.9 9.6%
Space, Defense & Information
Systems 105.9 8.7% 82.2 8.4%
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Operating profit 254.0 8.4% 263.1 9.2%
Company Staff and other (18.0) (23.0)
Interest expense (37.8) (17.7)
Minority interest (1.2) (5.0)
Earnings from affiliates 1.2 2.0
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Earnings before income taxes 198.2 6.5% 219.4 7.7%
Income taxes 72.4 85.0
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Net earnings $ 125.8 4.2% $ 134.4 4.7%
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Diluted earnings per share $ 1.00 $ 1.05
Basic earnings per share $ 1.03 $ 1.09
Dividends paid per common share $ .31 $ .31
Common stock outstanding 121.8 123.2
Shares used in computing per
share amounts
Diluted 125.4 127.7
Basic 122.1 123.6
SIX MONTHS ENDED 1998 Operating 1997 Operating
Margin Margin
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Sales
Automotive $3,698.9 $3,668.8
Space, Defense & Information
Systems 2,423.6 1,842.9
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Sales $6,122.5 $5,511.7
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Operating Profit
Automotive $ 294.9 8.0% $ 348.2 9.5%
Space, Defense & Information
Systems 220.6 9.1% 158.8 8.6%
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Operating profit 515.5 8.4% 507.0 9.2%
Company Staff and other (34.0) (47.7)
Interest expense (76.3) (37.4)
Minority interest (5.8) (10.9)
Earnings from affiliates 2.6 3.0
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Earnings before income taxes 402.0 6.6% 414.0 7.5%
Income taxes 146.8 160.4
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Net earnings $ 255.2 4.2% $ 253.6 4.6%
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Diluted earnings per share $ 2.03 $ 1.97
Basic earnings per share $ 2.08 $ 2.04
Dividends paid per common share $ .62 $ .62
Common stock outstanding 121.8 123.2
Shares used in computing per
share amounts
Diluted 125.8 128.5
Basic 122.3 124.4
SELECTED CASH FLOW ITEMS Six Months Ended
June 30, 1998 June 30, 1997
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Net earnings $ 255 $ 254
Depreciation and amortization 278 247
Acquisitions, net of cash acquired 236 415
Net increase (decrease) in debt 430 221
Capital expenditures 237 228
Dividend payments 76 78
Purchase of TRW common stock 72 184
Net change in deferred taxes (125) 17
SUMMARY BALANCE SHEETS
June 30, 1998 December 31, 1997
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ASSETS
Cash and cash equivalents $ 76 $ 70
Accounts receivable 1,708 1,617
Inventories 646 573
Other current assets 323 175
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Total current assets 2,753 2,435
Property, plant & equipment, net 2,593 2,621
Total intangible assets, net 966 811
Investments in affiliated companies 191 139
Other assets 435 404
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Total assets $6,938 $6,410
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 633 $ 411
Trade accounts payable 800 859
Current portion of long-term debt 22 128
Other current liabilities 1,302 1,321
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Total current liabilities 2,757 2,719
Long-term liabilities 825 788
Long-term debt 1,444 1,117
Deferred income taxes 47 57
Minority interests in subsidiaries 88 105
Total shareholders' investment 1,777 1,624
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Total liabilities and shareholders'
investment $6,938 $6,410
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