TRW Q3 1998 Results Lower Due to Restructuring Charge
15 October 1998
TRW Third Quarter 1998 Results Lower Due to Restructuring Charge
CLEVELAND--Oct. 15, 1998--TRW Inc. today reported that third quarter earnings increased by 3 percent excluding restructuring charges. The restructuring charges were taken to strengthen the performance of its automotive business. These charges, when combined with the adverse impact of the General Motors strike and weakening economic conditions in Brazil and Asia, resulted in a decline in third quarter earnings of 4 percent.Third quarter 1998 sales increased 13 percent to $2.84 billion from $2.52 billion in the previous year. Earnings for the third quarter 1998 were $104.2 million, compared with $108.7 million in the previous year. Operating profit for the third quarter was $211.7 million, compared with $212.8 million in 1997. Operating profit in the third quarter reflects $12.6 million of the previously announced $25 million 1998 charge anticipated for the automotive restructuring. Diluted earnings per share for the quarter, including a $.07 charge for restructuring, were $0.85, unchanged from 1997.
Sales for the first nine months of 1998 increased 12 percent to $8.96 billion, compared with $8.03 billion in 1997. TRW's nine-month 1998 earnings were $359.4 million, compared with $362.3 million in the prior year's period. Diluted earnings per share increased to $2.88, compared with $2.83 in the first nine months of 1997. Operating profit for the first nine months of 1998 was $727.2 million, compared with $719.8 million in the previous nine-month period.
"During the third quarter, TRW's space, defense and information technology business again demonstrated its ability to generate strong margins and operating profit," said Joseph T. Gorman, chairman and chief executive officer.
"In the automotive segment, a clear management priority is to reengineer the cost structure. Automotive restructuring activities were undertaken earlier than previously anticipated and resulted in the third quarter charge. Our goal is to increase automotive operating margins by 1.5 percentage points over the next two years," Gorman said.
The chairman said actions are under way to enhance competitiveness and profitability by reorganizing the automotive organization, trimming costs, and eliminating excess manufacturing capacity. These actions have begun to lower TRW's ongoing operating costs and will enhance future results.
Space, defense and information systems results
In the space, defense and information systems business, third quarter sales were $1.15 billion, a 21 percent increase over the $951.1 million reported in 1997. Operating profit in the quarter increased 39 percent to $106.7 million, compared with $76.6 million in 1997.
Sales increased due to the effect of the acquisition of BDM, which contributed $230 million in sales, and new contract awards, offset by the reduction of $57 million due to a contract modification. Higher operating profit was due to the acquisition of BDM, excellent award fees earned on a number of Department of Defense space programs, and the continued success in commercial gallium arsenide product lines. The contract modification had no impact on operating profit or net earnings.
"The technological capabilities of our space and electronics business are evident in both the governmental and commercial arenas. In a demonstration of the laser technology being developed for the U.S. Air Force's Airborne Laser program, Team ABL -- TRW, Boeing and Lockheed Martin -- produced a flight-configured laser module that achieved 110 percent of its required design output power," Gorman said.
"In commercial telecommunications, TRW received a contract from Nortel Networks for the design, development and manufacture of transceiver modules for Nortel's broadband wireless systems. This follows on the heels of a similar contract with Nokia Telecommunications, continuing to increase TRW's volume in the market for wireless components.
"New awards in the information systems business, such as the $272 million Ohio Multi-Agency Radio Communications System project, demonstrate this unit's growth potential," Gorman said. "The benefits of the BDM acquisition were again evident as work commenced for the Department of Defense on a $264 million contract for its new Defense Travel System, and with TRW's selection by the U.S. Navy for a $300 million program to manage delivery and maintenance for its ships and weapons systems."
Automotive results
In the automotive segment, third quarter sales increased 7 percent to $1.69 billion from $1.57 billion in the same period in 1997. The increase in sales resulted primarily from higher volume in most product lines -- particularly occupant restraint systems and electrically assisted steering. The increase was partially offset by the General Motors strike, economic conditions in Brazil and Asia and lower pricing across all product lines, primarily occupant restraint systems. The General Motors strike and weakening markets in Brazil and Asia reduced sales by $60 million.
Automotive operating profit for the quarter was $105.0 million compared, with $136.2 million in 1997. The lower operating profit resulted primarily from a $12.6 million restructuring charge for severance costs, adverse effects of the General Motors strike, higher research and development expenditures, the effects of launching new products, and the weakening economic conditions in Asia and Brazil. Without the effect of the restructuring, the General Motors strike and the impact of the economic slowdown in Asia and Brazil, the operating margin would have been 7.3 percent. Pricing pressure continued to have a significant effect on the business; however, cost reductions offset the effect on operating profit.
"TRW automotive continues to be recognized for product leadership, as demonstrated by the company's receipt of top honors for chassis/suspension systems and best-of-the-best honors for electrical/electronic systems and systems integration from Automotive Industries Magazine's annual Quest for Excellence," Gorman said. "New product development efforts have resulted in the recent launch of the new electrically powered hydraulic steering system for the Opel Astra in Europe, which marks TRW's first mass production of this product for passenger cars."
TRW provides advanced technology products and services for the automotive, space and defense, and information technology markets. Sales in 1997 were approximately $12 billion (including the BDM acquisition). TRW 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 ability to achieve cost reductions, mitigate pricing pressure, and effectively implement the restructuring program in the company's 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)
Operating Operating
THIRD QUARTER 1998 Margin 1997 Margin
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Sales
Automotive $1,685.6 $1,570.0
Space, Defense & Information
Systems 1,151.1 951.1
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Sales $2,836.7 $2,521.1
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Operating Profit
Automotive $ 105.0 6.2% $ 136.2 8.7%
Space, Defense &
Information Systems 106.7 9.3% 76.6 8.1%
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Operating profit 211.7 7.5% 212.8 8.4%
Company Staff and other (20.8) (29.6)
Interest expense (24.2) (19.4)
Minority interest (3.5) (3.2)
Earnings from affiliates 0.8 5.1
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Earnings before income taxes 164.0 5.8% 165.7 6.6%
Income taxes 59.8 57.0
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Net earnings $ 104.2 3.7% $ 108.7 4.3%
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Diluted earnings per share $ .85 $ .85
Basic earnings per share $ .86 $ .88
Dividends paid per
common share $ .31 $ .31
Common stock outstanding 119.7 123.2
Shares used in computing per
share amounts
Diluted 123.2 127.4
Basic 120.5 123.1
TRW STATISTICAL SUMMARY (UNAUDITED), CONTINUED
(Dollar Amounts in Millions Except for Per Share Data)
Operating Operating
NINE MONTHS ENDED 1998 Margin 1997 Margin
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Sales
Automotive $5,384.5 $5,238.8
Space, Defense &
Information Systems 3,574.7 2,794.0
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Sales $8,959.2 $8,032.8
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Operating Profit
Automotive $ 399.9 7.4% $ 484.4 9.2%
Space, Defense &
Information Systems 327.3 9.2% 235.4 8.4%
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Operating profit 727.2 8.1% 719.8 9.0%
Company Staff and other (54.8) (77.3)
Interest expense (100.5) (56.8)
Minority interest (9.3) (14.1)
Earnings from affiliates 3.4 8.1
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Earnings before income taxes 566.0 6.3% 579.7 7.2%
Income taxes 206.6 217.4
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Net earnings $ 359.4 4.0% $ 362.3 4.5%
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Diluted earnings per share $ 2.88 $ 2.83
Basic earnings per share $ 2.95 $ 2.92
Dividends paid per
common share $ .93 $ .93
Common stock outstanding 119.7 123.2
Shares used in computing per
share amounts
Diluted 124.9 128.1
Basic 121.7 124.0
TRW STATISTICAL SUMMARY (UNAUDITED), CONTINUED
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Nine Months Ended
September 30, 1998 September 30, 1997
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Net earnings $ 359 $ 362
Depreciation and amortization 414 366
Acquisitions, net of cash acquired 247 415
Net increase (decrease) in debt 661 328
Capital expenditures 361 361
Dividend payments 114 116
Purchase of TRW common stock 179 207
Net change in deferred taxes (217) 21
SUMMARY BALANCE SHEETS
September 30, 1998 December 31, 1997
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ASSETS
Cash and cash equivalents $ 79 $ 70
Accounts receivable 1,635 1,617
Inventories 685 573
Other current assets 425 175
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Total current assets 2,824 2,435
Property, plant & equipment, net 2,639 2,621
Total intangible assets, net 1,008 811
Investments in affiliated companies 276 139
Other assets 455 404
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Total asset $7,202 $6,410
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 875 $ 411
Trade accounts payable 856 859
Current portion of long-term debt 19 128
Other current liabilities 1,195 1,321
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Total current liabilities 2,945 2,719
Long-term liabilities 817 788
Long-term debt 1,443 1,117
Deferred income taxes 41 57
Minority interests in subsidiaries 92 105
Total shareholders' investment 1,864 1,624
Total liabilities and ----- -----
shareholders' investment $7,202 $6,410
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