LucasVarity Reports Q2 Results
9 September 1998
LucasVarity Reports Second Quarter And Six-Month Results
LONDON, Sept. 9 -- LucasVarity plc (London: LVA; NYSE: LVA)
today reports its results for the three month (second quarter) and six month
(half year) periods ended 31 July 1998.
SECOND QUARTER AND HALF YEAR HIGHLIGHTS
-- Earnings per ordinary share from continuing operations (before
exceptional items) increased sharply in both periods:
1998 1997
Second Quarter 3.8p 2.8p
Half Year 7.7p 5.5p
-- Work stoppages at General Motors reduced 1998 second quarter operating
profit by approximately 11 million pounds (0.5p per ordinary share).
Despite the adverse effect of the General Motors strike:
-- Second quarter sales from continuing operations up 8.6% - up
9.3% excluding currency translation effects.
-- Second quarter operating profit from continuing operations (before
exceptional items) up 14.5% - up 17.1% excluding currency translation
effects.
-- Half year sales from continuing operations up 8.1% - up 10.4% excluding
currency translation effects.
-- Half year operating profit from continuing operations (before
exceptional items) up 19.9% - up 23.8% excluding currency translation
effects.
-- In a separate release today, the Board of LucasVarity announced that it
has approved a proposal to change the Group's domicile to the United
States.
Victor A Rice, Chief Executive, commented:
"LucasVarity's second quarter performance continues to demonstrate the
success of our operational initiatives and strategic plans implemented over
the past eighteen months. These actions should continue to bear fruit as the
year progresses. We are very pleased with these solid results which provide a
strong basis for the full year".
SUMMARY AND OUTLOOK
Summary
Second Quarter
Group turnover from continuing operations for the second quarter increased
by 8.6% to 1,066 million pounds and operating profit from continuing
operations before exceptional items increased 14.5% to 87 million pounds as
compared to the prior year. Second quarter operating margins have improved
from 7.7% in 1997 to 8.2% in 1998.
These results were achieved despite the adverse effect of work stoppages
at General Motors, LucasVarity's largest North American customer, which
reduced second quarter operating profit by approximately 11 million pounds.
In addition, currency translation reduced sales by 7 million pounds and
operating profit by 2 million pounds compared to the prior year. Excluding
the effects of currency translation, sales from continuing operations
increased 9.3% and operating profit 17.1%.
The underlying sales growth from continuing operations was 7.8% after
considering the net effect of business acquisitions and disposals (not
considered discontinued operations). These increased second quarter sales by
14 million pounds compared to the prior year second quarter. A strong
European car market, a favourable mix of sales in the North American
light-vehicle market and improved Aerospace turnover were the main drivers
behind the underlying sales growth. The improvement in operating profit and
margin was due to the continuing implementation of cost improvement programmes
and increased turnover levels.
Profit before tax and exceptional items from continuing operations of
81 million pounds increased 30.6% compared to the prior year. Contributing to
the improvement was an 8 million pounds decrease in net interest expense as a
result of cash proceeds received in the first quarter of 1998 from the sale of
VarityPerkins. After recognising a net 13 million pounds exceptional loss
relating to the second quarter sale of Deeco Systems, a business within the
Other Automotive segment, the sale of a minority shareholding in Min-Cer, a
Mexican heavy-duty brake business and the costs associated with the
termination of a product line within the Aerospace segment, profit before tax
was 68 million pounds.
Second quarter profit attributable to shareholders from continuing
operations (before exceptional items) was 53 million pounds, or 3.8p per
ordinary share compared to 40 million pounds, or 2.8p per ordinary share in
the prior year. After exceptional items and discontinued operations, 1998
second quarter earnings per ordinary share were 2.8p compared to 4.8p in the
second quarter of 1997. The effect of the GM strike reduced earnings per
ordinary share in the current quarter by approximately 0.5p
Under US GAAP, second quarter earnings per American Depository Share (ADS)
from continuing operations before exceptional items was $0.53 compared to
$0.46 in the prior year. The effect of the GM strike reduced the 1998 second
quarter earnings per ADS by approximately $0.08. In addition, non-cash
exchange losses relating to long-term forward exchange contracts reduced
second quarter earnings per ADS under US GAAP by $0.17 in 1998 and $0.15 in
1997. After exceptional items and discontinued operations, 1998 second
quarter earnings per ADS were $0.58 compared to $0.71 in the second quarter of
1997.
1998 Half Year
Group turnover from continuing operations for the half year increased by
8.1% to 2,193 million pounds and operating profit from continuing operations
before exceptional items, increased 19.9% to 181 million pounds as compared to
the first half of 1997.
These half year results were adversely affected by the work stoppages at
General Motors and currency translation. For the half year, currency
translation reduced sales by 47 million pounds and operating profit by
6 million pounds. Excluding the adverse effects of currency translation,
sales from continuing operations increased 10.4% and operating profit 23.8%.
The half year operating margin was 8.3% compared to the prior year's 7.4%.
The underlying sales growth from continuing operations was 9.2% after
considering the net effect of business acquisitions and disposals (not
considered discontinued operations) which increased half year sales by
25 million pounds compared to the prior year. A strong European car market,
the strong North American light-vehicle sales resulting from incentive
programmes and improved Aerospace turnover were the main drivers behind the
sales growth. The improvement in operating profit and margin was due to the
continuing implementation of cost improvement programmes and increased
turnover levels.
Profit before tax and exceptional items from continuing operations of
165 million pounds increased 34.1% compared to the prior year. Contributing
to the improvement was a 12 million pounds decrease in net interest expense
primarily as a result of cash proceeds received in the first quarter of
1998 from the sale of VarityPerkins. After recording 122 million pounds of
net exceptional gains relating to business and asset sales, principally the
first quarter sale of VarityPerkins, and operating losses of 2 million pounds
from discontinued operations through the date of disposal, profit before tax
was 285 million pounds in the half year.
Tax expense was 173 million pounds which, after excluding 124 million
pounds of taxes associated with business and asset disposals, primarily tax on
the sale of VarityPerkins, resulted in an effective tax rate of 30%.
Half year profit attributable to shareholders from continuing operations
before exceptional items was 108 million pounds, or 7.7p per ordinary share
compared to 78 million pounds, or 5.5p per ordinary share in the prior year.
After exceptional items and discontinued operations, 1998 half year earnings
per ordinary share were 7.5p compared to 8.0p in the first half of 1997. The
effect of the GM strike reduced 1998 half year earnings per ordinary share by
approximately 0.5p.
Under US GAAP, half year earnings per ADS from continuing operations
before exceptional items were $1.53 compared to $1.21 in the prior year. The
effect of the GM strike reduced earnings per ADS by approximately $0.08.
After exceptional items and discontinued operations, 1998 half year earnings
per ADS were $2.12 compared to $1.44 in the first half of 1997.
Key Events
During the second quarter, the following key events occurred:
-- LucasVarity won General Motors' highest award available to its
worldwide supplier network, the GM "Corporation of the Year".
-- Announcement made regarding the intention to sell the Heavy Vehicle
Braking Systems business.
-- Reorganisation of the Company's businesses into two units: LucasVarity
Automotive and LucasVarity Aerospace. This reorganisation will enable
an improved response to the demands of its customers for systems
solutions on a global basis.
Outlook
For the first half of 1998, light vehicle sales in North America were
strong, fuelled by incentive programmes that were removed at the end of June.
This action will likely result in a moderately lower level of light vehicle
sales in the second half. However, as a result of the GM strike, vehicle
inventories have been depleted which should lead to a favourable production
environment in the second half of 1998. In Europe, the strong levels of light
vehicle sales are expected to ease in the second half. The Aerospace markets
continue their strong pace of growth.
These market conditions provide a favourable environment for LucasVarity
to achieve satisfactory overall revenue growth for 1998 while continued
progress on cost and quality programmes will benefit the Group's performance.
OPERATING AND FINANCIAL REVIEW
Review of continuing operations (million pounds except margin %):
GBP (pounds) millions
Second Quarter Half Year
ended 31 July ended 31 July
SALES 1998 1997 1998 1997
Braking Systems 421 356 911 765
Other Automotive 460 467 929 948
Aerospace 185 157 353 308
Corporate / Other -- 2 -- 8
Totals 1,066 982 2,193 2,029
OPERATING PROFIT
Braking Systems 29 30 74 63
Other Automotive 44 40 85 77
Aerospace 24 17 42 33
Corporate / Other(10) (11) (20) (22)
Totals 87 76 181 151
OPERATING MARGIN
Braking Systems 6.9% 8.4% 8.1% 8.2%
Other Automotive 9.6% 8.6% 9.1% 8.1%
Aerospace 13.0% 10.8% 11.9% 10.7%
Total 8.2% 7.7% 8.3% 7.4%
The following is a review of LucasVarity's operations for the second
quarter of 1998, compared with the second quarter of 1997:
BRAKING SYSTEMS
The Braking Systems' segment comprises the Light Vehicle Braking Systems
(LVBS) and Heavy Vehicle Braking Systems (HVBS) businesses. As previously
announced, the HVBS business which had fiscal 1997 sales of approximately
170 million pounds, is expected to be sold prior to the end of the current
fiscal year.
The segment's second quarter results were impacted by the work stoppages
at General Motors (GM) in North America, which began on 4 June 1998 and ended
on 30 July 1998. The strike reduced second quarter operating profit by
approximately 11 million pounds. Possible sales and profit recoveries may
occur in future periods through production increases General Motors is likely
to pursue at various facilities. The prior year second quarter was also
adversely affected by strikes at both General Motors and Chrysler Corporation,
which reduced that quarter's sales by approximately 5 million pounds.
Despite the adverse impact of the strike, second quarter turnover in the
Braking Systems' segment increased 18.3% to 421 million pounds. The January
1998 acquisition of Freios Varga, South America's largest brake company,
contributed 42 million pounds to the second quarter sales. The remaining
increase resulted primarily from a strong European car market and a favourable
mix of sales in the robust North American light-truck market. Car
registrations in Europe rose approximately 7% in the second quarter as
compared to last year. Production of light vehicles in North America for the
second fiscal quarter declined 9.1% from last year, mainly as a result of the
GM strike. Light trucks decreased 5.1% and passenger car production declined
12.6%.
Operating profit declined 3.3% to 29 million pounds, resulting in an
operating margin of 6.9% compared to 8.4% in the prior year. The decline in
profits and margins resulted primarily from the effect of the GM strike. In
addition, second quarter sales and profits from the acquisition of Freios
Varga had a dilutive effect on the operating margin. Excluding the GM strike
effect and the acquisition of Freios Varga, the 1998 second quarter margin
would have comfortably exceeded the prior year margin percentage.
During the quarter, LVBS won General Motors' highest award available to
its worldwide supplier network, the GM "Corporation of the Year". The award
recognised LVBS performance relative to quality, service and price. In
addition, LVBS's South American subsidiary, Freios Varga, won a General Motors
"Supplier of the Year" award. LVBS also announced a contract to design and
develop complete base braking and actuation systems for the model year
2000 Lincoln LS6 and LS8 models.
HVBS sold its 35% ownership stake in Min-Cer, a Mexican heavy-duty brake
business for 2 million pounds during the quarter.
OTHER AUTOMOTIVE
The Other Automotive segment comprises the Diesel Systems, Electrical and
Electronic Systems (E&ES) and Aftermarket businesses. Excluding the effects
of currency translation, which reduced second quarter 1998 reported sales by
#11 million, and the revenues of businesses disposed of subsequent to the
prior year second quarter totalling 29 million pounds, underlying sales
improved 33 million pounds, or 7.1%. Each of the three businesses contributed
to the sales increase. The Diesel Systems business was the strongest
contributor, reflecting increased diesel car and van sales in Europe. The GM
strike had a minor adverse effect on the sales of the Electrical and
Electronic Systems business during the quarter.
Excluding the effects of currency translation, which reduced reported
operating profit by 2 million pounds compared to the prior year quarter, the
underlying profit increased by 6 million pounds, or 15.0%. Operating margin
was 9.6% for the quarter compared to 8.6% last year. The improvement in
margin resulted primarily from cost reduction and manufacturing improvement
programmes and the sale of lower margin businesses over the past year.
During the second quarter, E&ES completed the sale of Deeco Systems, its
flat panel factory automation products business, which had annual sales of
9 million pounds in fiscal 1997 for cash of $5.5 million and contingent
consideration of $2 million. After the write-back of 9 million pounds of
goodwill relating to this business, a non-cash exceptional loss of 9 million
pounds was recognised in the quarter.
AEROSPACE
Turnover in the Aerospace segment for the second quarter increased
17.8% to 185 million pounds. Both the original equipment (OE) and Aftermarket
segments showed strong growth over the prior year quarter. The OE growth was
driven by a number of factors including strong volumes in the cargo systems
business and component sales relating to the Airbus 320 platform. The growth
in sales was partially offset by the run-off of certain military programmes
during 1997. Operating profit improved 41.2% to 24 million pounds reflecting
an operating margin of 13.0% as compared to 10.8% in 1997. The improved
profitability resulted from the higher level of sales and benefits of cost
reduction activities.
During the second quarter, the Aerospace division terminated its non-core
gas cylinder bottle business at its Burnley facility. An exceptional loss of
6 million pounds was recognised on the termination, of which 5 million pounds
was non-cash.
OTHER FINANCIAL HIGHLIGHTS
Discontinued Operations
In March 1998, LucasVarity completed the sale of VarityPerkins, which
constituted 100% of the Diesel Engines Segment, to Caterpillar Inc. for gross
proceeds of 803 million pounds. After deducting 156 million pounds of tax and
transaction costs relating to the disposal, net cash received amounted to
647 million pounds. A net accounting loss of 3 million pounds was recorded on
the sale after considering net assets disposed and the write-back of
453 million pounds of goodwill. This goodwill resulted from the purchase
accounting treatment of the acquisition of Varity Corporation by Lucas
Industries in September 1996. In the 1998 first quarter, prior to completion
of the transaction, VarityPerkins had sales of 42 million pounds and an
operating loss of 2 million pounds.
Exceptional items
Since the start of fiscal 1997, in addition to the sale of VarityPerkins,
LucasVarity has sold several businesses, most of which were part of the
divestment programme announced in December 1996. This programme has now been
completed.
In the 1998 second quarter, 8 million pounds of net exceptional after-tax
losses were recognised on the sale of Deeco Systems, an Electrical and
Electronic Systems business and the Company's 35% interest in Min-Cer, a
Mexican heavy-duty brake business. The loss on the sale of Deeco Systems
included the write-back of 9 million pounds of goodwill. In addition, a
6 million pounds loss was recognised on the termination of a product line
within the Aerospace division.
In the 1998 first quarter, 12 million pounds of net exceptional after tax
gains were realised. In addition to the net loss of 3 million pounds on the
sale of VarityPerkins, gains of 10 million pounds were recognised on
the sale of Lucas Services UK, Aftermarket's starters and alternators
remanufacturing business and the wiper motor and emergency lighting business.
The remaining exceptional gain related to Electrical and Electronic Systems'
joint venture agreement with TRW, Inc. to develop and manufacture EPAS. Net
proceeds of 18 million pounds were received which, after subtracting related
assets, taxes and provisions, resulted in a net gain of 5 million pounds.
In the 1997 second quarter, 17 million pounds of exceptional gains were
recognised on the sale of five businesses and the remaining interest in Hayes
Wheels International, Inc. One other business was sold in the 1997 first
quarter resulting in an exceptional gain of 1 million pounds.
Cash flow and debt
Net cash flow from operating activities in the 1998 half year after
interest, tax and dividends paid to minority shareholders was 94 million
pounds. This amount included cash outflows for restructuring activities of
34 million pounds and working capital of 56 million pounds. Investments of
126 million pounds were made for capital expenditures and 23 million pounds on
acquisitions while proceeds from disposals including the sale of
VarityPerkins, amounted to 688 million pounds. Dividends of 31 million pounds
were paid to shareholders. As a result of these cash flows, the Company has
moved from a net borrowings position of 574 million pounds at the beginning of
the fiscal year to a net cash position of 44 million pounds at 31 July 1998.
Dividend
The Board of Directors announced an interim dividend of 2.5p in respect of
the first half results to 31 July 1998, an increase of 11.1% over the prior
year. The dividend will be paid on 30 November 1998 to shareholders of record
on 16 October 1998.
LucasVarity plc
Consolidated Profit and Loss Accounts
For the three and six month periods ended 31 July 1998 and 1997
(million pounds except per share amounts)
Second Quarter Half Year
1998 1997 1998 1997
Turnover:
Continuing operations 1,066 982 2,193 2,029
Discontinued operations -- 164 42 323
Total turnover 1,066 1,146 2,235 2,352
Cost of sales (980) (1,057) (2,058) (2,179)
Surplus on trading 86 89 177 173
Share of profits less losses of
associated undertakings 1 1 2 3
Total operating profit before
exceptional items:
Continuing operations 87 76 181 151
Discontinued operations -- 14 (2) 25
Total operating profit
before exceptional items 87 90 179 176
Profit on the sale of current
asset investment -- 13 -- 13
Total operating profit 87 103 179 189
(Loss) / profit on business and
asset disposals (13) 4 122 5
Profit on ordinary activities before
interest and taxation 74 107 301 194
Interest payable less receivable(6) (14) (16) (28)
Profit on ordinary activities
before taxation 68 93 285 166
Taxation - ordinary activities(24) (23) (49) (46)
- exceptional items (1) -- (124) --
Profit on ordinary activities
after taxation 43 70 112 120
Minority interests and other (4) (3) (7) (7)
Profit attributable to
shareholders 39 67 105 113
Earnings per ordinary share 2.8p 4.8p 7.5p 8.0p
Average shares outstanding
(millions) 1,409 1,419 1,407 1,425
LucasVarity plc
Consolidated Balance Sheets
At 31 July 1998 and 31 January 1998
(million pounds)
31 July 31 Jan
Fixed assets:
Tangible assets 1,218 1,362
Intangible assets 30 27
Investments 31 47
1,279 1,436
Current assets:
Stocks 423 489
Debtors 785 869
Cash 467 155
1,675 1,513
Creditors:
Amounts falling due within one year:
Borrowings (93) (414)
Other creditors (946) (1,097)
(1,039) (1,511)
Net current assets 636 2
Total assets less current
liabilities 1,915 1,438
Creditors:
Amounts falling due after one year:
Borrowings (330) (315)
Accruals and deferred income (33) (52)
(363) (367)
Provisions for liabilities
and charges (479) (545)
Net Assets 1,073 526
Capital & Reserves:
Total shareholders' funds 1,001 458
Minority interests 72 68
1,073 526
LucasVarity plc
Consolidated Cash Flow Statements
For the three and six month periods ended 31 July 1998 and 1997
(million pounds)
Second Quarter Half Year
1998 1997 1998 1997
Cash flow from operating activities:
Group operating profit 87 103 179 189
Share of profit less dividends
of associated undertakings 3 (1) 2 (3)
Depreciation / amortisation 42 40 81 81
Profit on sale of current
asset investment -- (13) -- (13)
Utilisation of provision
for restructuring (18) (29) (34) (59)
Decrease in other provisions (5) (9) (13) (24)
(Increase) / decrease in
working capital (12) (2) (56) 12
Net cash inflow from
operating activities 97 89 159 183
Interest paid and dividends paid to
minority shareholders (12) (17) (22) (33)
Tax paid (28) (11) (43) (21)
Capital expenditure and
financial investment:
Purchase of tangible
fixed assets (72) (80) (126) (140)
Disposal of tangible
fixed assets 5 9 9 14
Investment in intangible
fixed assets (1) -- (3) --
Net cash outflow for capital
expenditure and
financial investment (68) (71) (120) (126)
Net cash (outflow) / inflow for
acquisitions and disposals (18) 24 665 31
Equity dividends paid (31) (32) (31) (32)
Net cash (outflow) / inflow before
management of liquid resources
and financing (60) (18) 608 2
Management of liquid resources
and financing:
Proceeds from sale of current
asset investment -- 29 -- 29
Issue of ordinary share capital 3 9 8 10
Purchase of ordinary
share capital -- (28) -- (58)
(Decrease) / increase in
bank loans 9 12 (292) 57
(Increase) / decrease in
short-term deposits 105 (3) (253) 1
Capital element of finance lease
rental payments (8) (9) (10) (12)
Net cash inflow / (outflow) from
management of liquid resources
and financing 109 10 (547) 27
Increase / (decrease) in cash
in the period 49 (8) 61 29
LucasVarity plc
Reconciliation of net cash flow
to movement in net debt
For the six month period ended 31 July 1998
m pounds
Increase in cash in the period 61
Cash outflow from decrease in debt and lease financing 302
Cash outflow from increase in short-term deposits 253
Change in net debt resulting from cash flows 616
Exchange movements 2
Movement in net debt in the period 618
Net debt at 31 January 1998 (574)
Net cash at 31 July 1998 44
LucasVarity plc
Reconciliation of movements in shareholders' funds
For the six month period ended 31 July 1998
m pounds
Profit attributable to shareholders 105
Dividend in respect of current period (35)
Currency translation differences 3
New share capital subscribed 8
Goodwill on disposals transferred to profit and loss account462
Net increase in shareholders' funds 543
Opening shareholders' funds 458
Closing shareholders' funds 1,001
LucasVarity plc
UK to US GAAP Reconciliation
For the three and six month periods ended 31 July 1998 and 1997
Second Quarter
1998 1997
m pounds $m m pounds $m
Net Income - UK GAAP 39 63 67 111
Adjustments to conform with US GAAP:
Goodwill amortisation (9) (15) (10) (17)
Goodwill written off on
divestments 9 14 1 2
Property revaluation 10 16 -- --
Pension credit 33 54 30 49
Provisions for restructuring (2) (3) (10) (17)
Exchange losses relating to
forward exchange contracts (23) (39) (20) (32)
Deferred tax (3) (4) 1 3
Other (2) (4) 1 1
Net Income - US GAAP 52 82 60 100
Earnings per ADS (US GAAP) -- $0.58 -- $0.71
Half Year
1998 1997
m pounds $m m pounds $m
Net Income - UK GAAP 105 173 113 185
Adjustments to conform with US GAAP:
Goodwill amortisation (17) (28) (21) (34)
Goodwill written off
on divestments 48 79 1 2
Property revaluation 10 16 -- --
Pension credit 66 109 59 96
Provisions for restructuring (7) (11) (23) (38)
Exchange gains / (losses)
relating to forward
exchange contracts 2 3 (5) (8)
Deferred tax (22) (36) (1) (1)
Other (4) (7) 2 3
Net Income - US GAAP 181 298 125 205
Earnings per ADS (US GAAP) -- $2.12 -- $1.44
LucasVarity plc
UK to US GAAP Reconciliation
As at 31 July 1998
m pounds $m
Shareholders' funds (UK GAAP) 1,001 1,642
Adjustments to conform with US GAAP:
Goodwill 805 1,320
Revaluation of tangible
fixed assets (103) (169)
Entry fees (18) (30)
Prepaid pension cost 515 845
Exchange gains relating to forward
exchange contracts 48 79
Proposed final dividend 35 57
Restructuring provision 29 48
Deferred taxation (28) (46)
Other (16) (26)
Shareholders' equity (US GAAP) 2,268 3,720
LucasVarity plc
Condensed US GAAP Information
31 July 1998
Basis of Presentation
The condensed consolidated financial information on the following pages
has been prepared without audit to provide an indication of how the Company's
financial position and results would be presented under United States (US)
generally accepted accounting principles (GAAP). The financial information
does not represent the Company's results as if it had been registered as a US
company throughout the periods presented.
The Group prepares its financial statements in accordance with UK GAAP,
which are different from those in the US and require different presentation.
An explanation and reconciliation of the major differences between US and UK
GAAP, which affect LucasVarity, is provided in the Company's annual report and
annual report on Form 20-F for the fiscal year ended 31 January 1998. In
addition, reconciliations, on a quarterly, basis are included within the
Company's quarterly results announcements. The summary financial information,
presented herein, is based on these reconciliations. No additional
adjustments have been included to reflect any impact that might have resulted
had the Group been a US domiciled company during the periods presented. In
the opinion of management, it reflects all adjustments necessary for a fair
presentation of the Company's financial position, results of operations, and
cash flows for the periods presented.
This information should be read in conjunction with the audited financial
statements and notes thereto for the year ended 31 January 1998 and the
Company's annual report on Form 20-F for the same period, which was filed with
the US Securities and Exchange Commission (SEC) on X August 1998. The results
for the three and six months ended 31 July 1998, are not necessarily
indicative of the results which may be expected for the Group's 1998 fiscal
year because of seasonal and other factors.
The results and cash flows have been translated from sterling to US
dollars at the average rate for the relevant periods and the balance sheets at
the period-end rates. These rates range from 1.62 to 1.67 dollars to
sterling.
LucasVarity plc
Consolidated Statement of Operations
For the three and six month periods ended 31 July 1998
($ millions, except per share amounts)
Second Quarter Half Year
1998 1997 1998 1997
Sales: 1,736 1,630 3,618 3,326
Expenses:
Cost of goods sold 1,365 1,276 2,843 2,616
Marketing, general and
administration 128 125 264 255
Engineering and product
development 73 71 150 146
Interest, net 9 23 26 46
Exchange (gains) losses 39 32 (3) 8
Other (income) expense, net (5) (3) (7) (6)
Sale of businesses, investments
and fixed assets (14) (32) (46) (34)
Restructuring charges, net 10 15 18 34
1,605 1,507 3,245 3,065
Income before income taxes, earnings
of associated companies, minorities'
interests and discontinued
operations 131 123 373 261
Income taxes 44 31 124 70
Income before earnings of associated
companies, minorities' interests
and discontinued operations 87 92 249 191
Equity in earnings of associated
companies, net of tax 1 2 3 5
Minorities' interests in earnings of
subsidiaries, net of tax (6) (7) (11) (12)
Income before discontinued
operations 82 87 241 184
Discontinued operations -- 13 57 21
Net income 82 100 298 205
Earnings per American Depository Share:
Before restructuring charges, foreign
exchange, sale of businesses, fixed
assets and discontinued
operations $0.70 $0.61 $1.52 $1.25
Foreign exchange on forward
contracts (0.17) (0.15) 0.01 (0.04)
Restructuring charges and sale of
businesses and fixed assets 0.05 0.16 0.18 0.09
Discontinued operations -- 0.09 0.41 0.14
Net income $0.58 $0.71 $2.12 $1.44
LucasVarity plc
Consolidated Balance Sheets
At 31 July and 31 January 1998
($ millions)
31 July 31 Jan
Assets:
Current Assets:
Cash and cash equivalents 699 190
Marketable securities 67 64
Receivables 1,147 1,125
Inventories 694 712
Prepaid expenses and other 341 328
Net assets of discontinued operations-- 933
Total current assets 2,948 3,352
Investments in associated companies 51 61
Fixed assets, net 1,829 1,778
Goodwill 1,320 1,346
Prepaid pension and other 1,014 858
7,162 7,395
Liabilities:
Current liabilities:
Short-term debt 169 676
Current portion of long-term debt 38 52
Accounts payable and accrued
liabilities 1,659 1,651
Total current liabilities 1,866 2,379
Long-term debt 541 517
Other long-term liabilities 917 945
Minority interests 118 112
Total shareholders' equity 3,720 3,442
7,162 7,395
LucasVarity plc
Consolidated Statement of Cash Flows
For the three and six month periods ended 31 July 1998
($ millions)
Second Quarter Half Year
1998 1997 1998 1997
Cash flows from operating
activities:
Net income from continuing
operations 82 87 241 184
Adjustments to reconcile
net income to cash provided
by operating activities:
Depreciation and
amortisation 82 73 157 141
Gain on sales of businesses,
investments and fixed assets(14) (32) (46) (34)
Decrease in restructuring
accrual (20) (29) (38) (50)
(Increase) / decrease in:
Working capital 14 (47) (59) (58)
Tax liabilities (1) 14 54 38
Prepaid pension (54) (49) (109) (96)
Other long-term liabilities(2) (3) (10) (14)
Foreign exchange 39 32 (3) 8
Other 4 (1) 10 2
Cash provided by operating
activities from continuing
operations 130 45 197 121
Cash flows from investing
activities:
(Increase) / decrease in
marketable securities (1) 50 (3) 40
Additions to fixed assets(116) (103) (205) (172)
Sales of fixed assets
and businesses 11 66 107 83
Acquisitions, net of
cash acquired (10) (13) (38) (10)
Cash used by investing
activities from continuing
operations (116) -- (139) (59)
Cash flows from financing
activities:
Bank borrowings and
overdrafts, net (15) (58) (474) 9
Repurchases of share
capital -- (46) -- (95)
Equity dividends paid (51) (53) (51) (53)
Other (9) -- (6) (3)
Cash used by financing
activities from continuing
operations (75) (157) (531) (142)
Effect of foreign currency
translation on cash and
cash equivalents (22) (13) (22) (23)
Decrease in cash and cash
equivalents from continuing
operations (83) (125) (495) (103)
Cash used by discontinued
operations (25) 27 1,004 38
Cash and cash equivalents at
beginning of period 807 344 190 311
Cash and cash equivalents
at end of period 699 246 699 246
LucasVarity plc
Segmental Results
For the three and six month periods ended 31 July 1998
($ millions)
To follow is an analysis of sales, operating profits and margins from
continuing operations by the Company's reporting segments. Excluded from this
analysis are results of discontinued operations, net gains on the sale of
businesses and fixed assets, restructuring charges and losses (gains) on
forward exchange contracts.
Second Quarter Half Year
1998 1997 1998 1997
Sales:
Braking Systems 685 591 1,503 1,254
Other Automotive 750 776 1,533 1,555
Aerospace 301 260 582 504
Corporate and other -- 3 -- 13
Total Sales 1,736 1,630 3,618 3,326
Operating profit:
Braking Systems 46 50 121 102
Other Automotive 98 91 197 175
Aerospace 45 38 84 74
Corporate and other (13) (16) (31) (31)
Total Operating Profit 176 163 371 320
Operating margins:
Braking Systems 6.7% 8.5% 8.1% 8.1%
Other Automotive 13.1% 11.7% 12.9% 11.3%
Aerospace 15.0% 14.6% 14.4% 14.7%
Total 10.1% 10.0% 10.3% 9.6%
LucasVarity plc
Segmental Results by Quarter
For the year ended 31 January 1998
($ millions)
1997
Q1 Q2 Q3 Q4 Full Year
Sales:
Braking Systems 663 591 653 635 2,542
Other Automotive 779 776 695 722 2,972
Aerospace 244 260 268 291 1,063
Corporate and
other 10 3 -- -- 13
Total 1,696 1,630 1,616 1,648 6,590
Operating Profit:
Braking Systems 52 50 62 57 221
Other Automotive 84 91 90 100 365
Aerospace 36 38 39 24 137
Corporate and other(15) (16) (13) (19) (63)
Total 157 163 178 162 660
Interest (23) (23) (23) (26) (95)
Sale of businesses
and assets, net of
taxes 2 32 (2) (42) (10)
Restructuring
charges (19) (15) (51) (61) (146)
Taxes (39) (31) (40) (33) (143)
Minority interests(5) (7) (3) (3) (18)
Foreign exchange 24 (32) 36 (33) (5)
Discontinued
operations 8 13 10 21 52
Net income 105 100 105 (15) 295
Earnings per American
Depositary Share:
Before restructuring
charges, foreign exchange,
sale of businesses and fixed
assets and discontinued
operations $0.64 $0.61 $0.73 $0.48 $2.46
Foreign exchange0.11 (0.15) 0.17 (0.15) (0.02)
Restructuring and sale of
businesses and
fixed assets (0.07) 0.16 (0.24) (0.58) (0.73)
Discontinued
operations 0.05 0.09 0.08 0.15 0.37
Net income $0.73 $0.71 $0.74 $(0.10) $2.08
Operating margins:
Braking Systems 7.8% 8.5% 9.5% 9.0% 8.7%
Other Automotive10.8% 11.7% 12.9% 13.9% 12.3%
Aerospace 14.8% 14.6% 14.6% 8.2% 12.9%
Total 9.3% 10.0% 11.0% 9.8% 10.0%