LucasVarity Reports Q3 and Nine Month Results
8 December 1998
LucasVarity Reports Third Quarter and Nine Month Results
LONDON, Dec. 8 -- LucasVarity plc (London: LVA; NYSE: LVA)
today reports its results for the three month (third quarter) and nine month
periods ended October 31, 1998.
THIRD QUARTER AND YEAR TO DATE HIGHLIGHTS
-- Earnings per ordinary share from continuing operations (before
exceptional items) increased sharply in both periods:
1998 1997
Third Quarter 4.3p 3.5p
Nine Months 12.0p 8.9p
-- Third quarter sales from continuing operations up 2.9% -- up
5.3% excluding currency translation effects.
-- Third quarter operating profit from continuing operations (before
exceptional items) up 12.8% -- up 16.3% excluding currency translation
effects.
Despite the adverse effect of the General Motors strike in 1998:
-- Year to date sales from continuing operations up 6.4% -- up 8.7%
excluding currency translation effects.
-- Year to date operating profit from continuing operations (before
exceptional items) up 17.3% -- up 21.1% excluding currency
translation effects.
-- Sale of Heavy Vehicle Braking Systems for 235 million pounds sterling
announced in November.
Victor A Rice, Chief Executive, commented:
"Given the mixed trading conditions in certain parts of our businesses,
the Group's third quarter results are satisfactory. Our progression in terms
of margin improvement and favourable comparisons to last year's results
demonstrates that we are successfully driving the Group's performance towards
continuous improvement.
Following the change of domicile proposal, it is strictly 'business as
usual.' We have a clearly articulated strategy and we will be working hard to
put our strong balance sheet to work."
SUMMARY AND OUTLOOK
Summary
Third Quarter
Group turnover from continuing operations for the third quarter increased
by 2.9% to 1,033 million pounds and operating profit from continuing
operations before exceptional items increased 12.8% to 97 million pounds as
compared to the prior year third quarter. Excluding the effects of currency
translation, which reduced sales by 24 million pounds and operating profit by
3 million pounds, sales from continuing operations increased 5.3% and
operating profit 16.3%. Third quarter operating margins improved from 8.6% in
1997 to 9.4% in 1998.
A strong European diesel car and van market, growth in the North American
light-vehicle market, and improved Aerospace turnover were the main drivers
behind the underlying sales increase. The improvements in operating profit
and margins were due to the continuing implementation of cost improvement
programmes and increased turnover levels.
Profit before tax and exceptional items from continuing operations of
91 million pounds increased 26.4% compared to the prior year. Contributing to
the improvement was an 8 million pound decrease in net interest expense as a
result of cash proceeds received in the first quarter of 1998 from the sale of
VarityPerkins. After 13 million pounds of expenses relating to the proposed
change of domicile and 7 million pounds of costs pertaining to the termination
of interest rate swaps, profit before tax was 71 million pounds.
Third quarter profit attributable to shareholders from continuing
operations (before exceptional items) was 61 million pounds, or 4.3p per
ordinary share compared to 49 million pounds, or 3.5p per ordinary share in
the prior year. After exceptional items and discontinued operations, 1998
third quarter earnings per ordinary share were 3.0p compared to 4.0p in the
third quarter of 1997.
Under US GAAP, third quarter earnings per American Depository Share (ADS)
from continuing operations before exceptional items and non-cash exchange
gains relating to long-term forward exchange contracts were $0.81 compared to
$0.73 in the prior year. After exceptional items, foreign exchange gains and
discontinued operations, 1998 third quarter earnings per ADS were
$0.68 compared to $0.74 in the third quarter of 1997.
1998 Nine Months
Group turnover from continuing operations for the nine months to
October 31, 1998 increased by 6.4% to 3,226 million pounds and operating
profit from continuing operations before exceptional items, increased 17.3% to
278 million pounds as compared to the prior year nine months.
Currency translation reduced sales for the nine months by 71 million
pounds and operating profit by 9 million pounds. Excluding the adverse
effects of currency translation, sales from continuing operations increased
8.7% and operating profit 21.1%. The nine month operating margin was
8.6% compared to the prior year's 7.8%.
The underlying sales growth from continuing operations was 8.0% after
considering the net effect of business acquisitions and disposals which
increased nine month sales by 20 million pounds compared to the prior year.
Strong North American and European car markets, and improved Aerospace
turnover were the main drivers behind the sales growth. The improvements in
operating profit and margin were due to the continuing implementation of cost
improvement programmes and increased turnover levels. A strike at General
Motors in the second quarter reduced operating profit by 11 million pounds.
Profit before tax and exceptional items from continuing operations of
256 million pounds increased 31.3% compared to the prior year. Contributing
to the improvement was a 20 million pound 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, operating losses of 2 million pounds from
discontinued operations through the date of disposal, expenses of 13 million
pounds relating to the proposed change of domicile and the cost of terminating
interest rate swaps of 7 million pounds, profit before tax was 356 million
pounds in the nine months to October 31, 1998.
Tax expense was 199 million pounds which, after excluding 123 million
pounds of taxes associated with exceptional items, primarily tax on the sale
of VarityPerkins, resulted in an effective tax rate of 30%.
Nine month profit attributable to shareholders from continuing operations
before exceptional items was 169 million pounds, or 12.0p per ordinary share
compared to 126 million pounds, or 8.9p per ordinary share in the prior year.
After exceptional items and discontinued operations, nine month earnings per
ordinary share were 10.4p compared to 12.0p in the prior year nine months.
Under US GAAP, nine month earnings per ADS from continuing operations
before exceptional items and non-cash exchange gains relating to long-term
forward exchange contracts were $2.33 compared to $1.98 in the prior year.
After exceptional items, foreign exchange gains and discontinued operations,
1998 nine month earnings per ADS were $2.80 compared to $2.18 in the prior
year nine months.
Key Events
During the third quarter, the following key events occurred:
-- A joint venture was formed with Thomson-CSF to design, develop and
manufacture automotive radar sensors for adaptive cruise control and
future collision avoidance systems for passenger cars and light trucks
on a global basis.
-- Significant contract awards were achieved in both the Automotive and
Aerospace sectors.
-- The sale of the controlling interest in Lucas Kienzle Instruments
Limited, a business within the Electrical and Electronic Systems
division, was agreed with Mannesmann VDO AG.
-- The proposal to change the Group's domicile to the United States put to
shareholders on November 6, 1998 was not approved by the requisite
75% majority of shareholders. In total, 82% of shareholders voted,
with approximately 74% voting in favour versus 26% against.
-- In November 1998, an announcement was made regarding the sale of the
Heavy Vehicle Braking Systems division to Meritor Automotive Inc. for
cash of approximately 235 million pounds.
Outlook
Heading into the fourth quarter, economic conditions in Asia and South
America remain difficult and other regions are now showing signs that the
trading environment is becoming tougher.
In the automotive industry, production cutbacks at certain European car
manufacturers, together with lower demand from the aftermarket, will constrain
sales growth in the fourth quarter and in the next fiscal year. In both
Europe and North America, light vehicle production and car and van
registrations have demonstrated strong growth in the first nine months of the
current year, but this growth rate is expected to moderate in the fourth
quarter. In 1999, in line with most industry participants, we expect both
markets on average to decline by approximately 3 to 4% from their 1998 levels.
However, the Group is well placed with a significant presence in the North
American light truck and the European diesel car and van sectors -- both of
which have shown, and continue to demonstrate, above average growth rates.
The aerospace markets we serve continue to expand, and our recent contract
successes leave us confident that we can share in this growth over the medium
term.
The Group continues to implement its restructuring programme and has
already generated substantial cost reductions. We expect to see further
benefits from management effort in this area over the next year.
OPERATING AND FINANCIAL REVIEW
Review of continuing operations before exceptional items
(pounds million except margin %):
Third Quarter Nine Months
ended October 31 ended October 31
1998 1997 1998 1997
SALES
Braking Systems 461 406 1,372 1,171
Other Automotive 402 432 1,331 1,380
Aerospace 170 166 523 474
Corporate / Other -- -- -- 8
Total 1,033 1,004 3,226 3,033
OPERATING PROFIT
Braking Systems 44 38 118 101
Other Automotive 41 39 126 116
Aerospace 21 19 63 52
Corporate / Other (9) (10) (29) (32)
Total 97 86 278 237
OPERATING MARGIN
Braking Systems 9.5% 9.4% 8.6% 8.6%
Other Automotive 10.2% 9.0% 9.5% 8.4%
Aerospace 12.4% 11.4% 12.0% 11.0%
Total 9.4% 8.6% 8.6% 7.8%
The following is a review of LucasVarity's operations for the third
quarter of 1998, compared with the third quarter of 1997:
BRAKING SYSTEMS
The Braking Systems' segment comprises the Light Vehicle Braking Systems
(LVBS) and Heavy Vehicle Braking Systems (HVBS) businesses. The HVBS
business, which had fiscal 1997 sales of approximately 175 million pounds, is
to be sold to Meritor Automotive Inc. Completion is expected prior to the end
of the current fiscal year.
Third quarter turnover in the Braking Systems segment increased
55 million pounds, or 13.5%, to 461 million pounds. The January 1998
acquisition of Freios Varga, South America's largest brake company,
contributed 39 million pounds to the third quarter sales whilst the effects of
currency translation reduced sales by 9 million pounds. The remaining
increase of 25 million pounds, or 6.2%, resulted primarily from a strong North
American passenger car market. Production of light vehicles in North America
for the third fiscal quarter increased 4.8% from last year. Light trucks
increased 0.3% and passenger car production increased 9.1%. General Motors'
strike negatively affected LVBS's second quarter results. Recovery of lost
sales in the third quarter has not occurred to the extent expected. Car
registrations in Europe rose approximately 3% in the third quarter as compared
to last year. However, LVBS' sales were negatively affected by production
cutbacks at three European customers, Ford, Rover and Fiat, which will also
have an effect on the fourth quarter.
Operating profit increased 15.8% to 44 million pounds, resulting in an
operating margin of 9.5% compared to 9.4% in the prior year. Operating
margins increased despite the dilutive effect of the acquisition of Freios
Varga. The weak trading conditions in South America have exacerbated the
depressive effect on overall Braking Systems' margins.
During the quarter, LVBS announced that it is producing a brake actuation
system for drum brakes and front callipers for Honda's 1999 minivan, the
Odyssey. This represents the first North American contract with Honda. In
addition, the division secured a brake systems award for a light commercial
van to be produced by a co-operative venture between GM's Opel division and
Renault. This is LVBS' first total brake systems award in Europe.
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 third quarter 1998 reported sales by
9 million, and the revenues of businesses disposed of subsequent to the prior
year third quarter totaling 39 million pounds, underlying sales improved
18 million pounds, or 4.2%. The Diesel Systems business was the main
contributor to this growth, reflecting continued increases in diesel car and
van sales in Europe. Production cutbacks at some customers constrained growth
at E&ES. The European automotive aftermarket showed signs of slowdown with
automotive manufacturers adjusting order schedules to manage their own
inventory levels.
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 4 million pounds, or 10.3%. Operating margin
was 10.2% for the quarter compared to 9.0% 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 quarter, E&ES announced the formation of a joint venture with
Thomson-CSF to design, develop and manufacture automotive radar sensors for
adaptive cruise control and future collision avoidance systems for passenger
cars and light trucks on a global basis. The joint venture is well placed to
capture a significant part of the emerging demand for high performance
adaptive cruise control systems.
AEROSPACE
Turnover in the Aerospace segment for the third quarter increased 2.4% to
170 million pounds. Operating profit improved 10.5% to 21 million pounds
reflecting an operating margin of 12.4% as compared to 11.4% in 1997.
Both the original equipment and higher margin aftermarket sectors
demonstrated growth, primarily from existing contracts. However, sales were
affected by strikes at two sites at Macon and Utica in the United States.
Both strikes were resolved prior to the end of the third quarter.
The improved operating margin reflected the benefits of cost reduction
activities. In the quarter, two one-off items affected profits. The strikes
at Macon and Utica led to higher costs being incurred in an effort to minimise
disruption to customer deliveries. Separately, a favourable re-assessment of
warranty provisions, relating to the cargo systems business, resulted in the
recognition of income.
During the quarter the Aerospace division made two announcements regarding
major contract awards. The first was from Fairchild Aerospace to supply the
complete fly-by-wire flight control system for its new 728JET. The contract
is worth more than 600 million pounds over the life of the programme. The
division was also awarded several contracts to supply a major portion of the
primary and secondary flight controls and thrust reverser and actuation on the
Airbus A340-500/600. The combined value of these contracts is approximately
320 million pounds.
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 pounds million of goodwill. This goodwill resulted from the 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
During the 1998 third quarter, 19 million pounds of one-off expenses after
tax were recognised. The costs associated with the proposed change of
domicile amounted to 13 million pounds and an after-tax loss of 6 million
pounds was recognised in the quarter on the termination of an interest rate
swap portfolio. These swaps dated back to 1993 and no longer served the
purpose of hedging the underlying exposure for which they were originally
established.
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 pound 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 in-flow from operating activities in the nine months to
October 31, 1998 after interest, tax and dividends paid to minority
shareholders was 132 million pounds. This amount included cash outflows for
restructuring activities of 38 million pounds and working capital of
84 million pounds. Investments of 189 million pounds were made for capital
expenditure and 25 million pounds on acquisitions, while proceeds from
disposals, including the sale of VarityPerkins, amounted to 685 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 14 pounds million at October 31, 1998.
LucasVarity plc
Consolidated Profit and Loss Accounts
For the three and nine month periods ended 31 October 1998 and 1997
(pounds million)
Third Quarter Nine Months
1998 1997 1998 1997
Turnover:
Continuing operations 1,033 1,004 3,226 3,033
Discontinued operations -- 157 42 480
Total turnover 1,033 1,161 3,268 3,513
Cost of sales (937) (1,063) (2,995) (3,242)
Surplus on trading 96 98 273 271
Share of profits less
losses of associated
undertakings 1 1 3 4
Total operating profit before
exceptional items:
Continuing operations 97 86 278 237
Discontinued operations -- 13 (2) 38
Total operating profit
before exceptional items 97 99 276 275
Profit on the sale of
current asset investment -- -- -- 13
Costs of proposed change
of domicile (13) -- (13) --
Total operating profit 84 99 263 288
Profit on business and
asset disposals -- -- 122 5
Profit on ordinary
activities before
interest and taxation 84 99 385 293
Interest - ordinary
activities (6) (14) (22) (42)
- costs relating to
termination of interest
rate swaps (7) -- (7) --
Profit on ordinary activities
before taxation 71 85 356 251
Taxation - ordinary
activities (27) (26) (76) (72)
- exceptional items 1 -- (123) --
Profit on ordinary
activities after taxation 45 59 157 179
Minority interests and other(3) (2) (10) (9)
Profit attributable to
shareholders 42 57 147 170
LucasVarity plc
Per share amounts
For the three and nine month periods ended October 31, 1998 and 1997
Third Quarter Nine Months
1998 1997 1998 1997
Earnings per share:
Before costs of proposed
change of domicile,
termination of interest
rate swaps, sale of
businesses and fixed
assets, and discontinued
operations 4.3p 3.5p 12.0p 8.9p
Costs of proposed change
of domicile, termination
of interest rate swaps, and
sale of businesses and
fixed assets (1.3)p (0.1)p (1.3)p 1.3p
Discontinued operations -- 0.6p (0.3)p 1.8p
Earnings per ordinary
share 3.0p 4.0p 10.4p 12.0p
Average shares
outstanding (millions) 1,410 1,411 1,409 1,421
LucasVarity plc
Consolidated Balance Sheets
At October 31, 1998 and January 31, 1998
(pounds million)
Oct. 31 Jan. 31
Fixed assets:
Tangible assets 1,239 1,362
Intangible assets 33 27
Investments 30 47
1,302 1,436
Current assets:
Stocks 425 489
Debtors 821 869
Cash 432 155
1,678 1,513
Creditors:
Amounts falling due within one year:
Borrowings (92) (414)
Other creditors (954) (1,097)
(1,046) (1,511)
Net current assets 632 2
Total assets less current
liabilities 1,934 1,438
Creditors:
Amounts falling due after one year:
Borrowings (326) (315)
Accruals and deferred income (34) (52)
(360) (367)
Provisions for liabilities
and charges (453) (545)
Net Assets 1,121 526
Capital & Reserves:
Total shareholders' funds 1,048 458
Minority interests 73 68
1,121 526
LucasVarity plc
Consolidated Cash Flow Statements
For the three and nine month periods ended October 31, 1998 and 1997
(pounds million)
Third Quarter Nine Months
1998 1997 1998 1997
Cash flow from
operating activities:
Group operating profit 84 99 263 288
Share of profit less
dividends of associated
undertakings (1) (1) 1 (4)
Depreciation / amortisation 41 40 122 121
Profit on sale of current
asset investment -- -- -- (13)
Utilisation of provision
for restructuring (4) (19) (38) (78)
Decrease in other
provisions (16) (6) (29) (30)
Increase in working capital(28) (26) (84) (14)
Net cash inflow from
operating activities 76 87 235 270
Interest paid and dividends
paid to minority
shareholders (13) (6) (35) (39)
Tax paid (25) (19) (68) (40)
Capital expenditure and
financial investment:
Purchase of tangible fixed
assets (63) (47) (189) (187)
Disposal of tangible fixed
assets 4 2 13 16
Investment in intangible
fixed assets (4) -- (7) --
Net cash outflow for capital
expenditure and financial
investment (63) (45) (183) (171)
Net cash (outflow) / inflow
for acquisitions and
disposals (5) (9) 660 22
Equity dividends paid -- -- (31) (32)
Net cash (outflow) / inflow
before management of liquid
resources and financing (30) 8 578 10
Management of liquid
resources and financing:
Proceeds from sale of current
asset investment -- -- -- 29
Issue of ordinary share
capital -- 4 8 14
Purchase of ordinary share
capital -- (21) -- (79)
Decrease in bank loans (7) (68) (299) (11)
(Increase) / decrease in
short-term deposits (13) 46 (266) 47
Capital element of finance
lease rental payments (1) (1) (11) (13)
Net cash outflow from
management of liquid
resources and financing (21) (40) (568) (13)
(Decrease) / increase in
cash in the period (51) (32) 10 (3)
LucasVarity plc
Reconciliation of net cash flow
To movement in net debt
For the nine month period ended October 31, 1998
pounds million
Increase in cash in the period 10
Cash outflow from decrease in debt and lease financing 310
Cash outflow from increase in short-term deposits 266
Change in net debt resulting from cash flows 586
Exchange movements 2
Movement in net debt in the period 588
Net debt at January 31, 1998 (574)
Net cash at October 31, 1998 14
LucasVarity plc
Reconciliation of movements in shareholders' funds
For the nine month period ended 31 October 1998
pounds million
Profit attributable to shareholders 147
Dividend in respect of current period (35)
Currency translation differences 8
New share capital subscribed 8
Goodwill on disposals transferred to profit and loss account462
Net increase in shareholders' funds 590
Opening shareholders' funds 458
Closing shareholders' funds 1,048
LucasVarity plc
UK to US GAAP Reconciliation
For the three and nine month periods ended October 31, 1998 and 1997
Third Quarter
1998 1997
pounds dollars pounds dollars
million million million million
Net Income -- UK GAAP 42 71 57 93
Adjustments to conform with US GAAP:
Goodwill amortisation (9) (15) (11) (17)
Goodwill written off
on divestments -- -- -- --
Property revaluation -- -- -- --
Pension credit 33 56 29 47
Provisions for
restructuring (8) (14) (33) (53)
Exchange gains relating
to forward exchange
contracts 21 35 22 36
Deferred tax (18) (31) (1) (2)
Other (4) (6) 1 1
Net Income -- US GAAP 57 96 64 105
Earnings per ADS
(US GAAP) $0.68 $0.74
Nine Months
1998 1997
pounds dollars pounds dollars
million million million million
Net Income -- UK GAAP 147 244 170 278
Adjustments to conform with US GAAP:
Goodwill amortisation (26) (43) (32) (51)
Goodwill written off
on divestments 48 79 1 2
Property revaluation 10 16 - -
Pension credit 99 165 88 143
Provisions for
restructuring (15) (25) (56) (91)
Exchange gains relating
to forward exchange
contracts 23 38 17 28
Deferred tax (40) (67) (2) (3)
Other (8) (13) 3 4
Net Income -- US GAAP 238 394 189 310
Earnings per ADS
(US GAAP) -- $2.80 -- $2.18
LucasVarity plc
UK to US GAAP Reconciliation
At October 31, 1998
pounds million pounds million
Shareholders' funds (UK GAAP) 1,048 1,750
Adjustments to conform with US GAAP:
Goodwill 787 1,314
Revaluation of tangible
fixed assets (103) (172)
Entry fees (21) (35)
Prepaid pension cost 548 915
Exchange gains relating to
forward exchange contracts 69 115
Restructuring provision 21 35
Deferred taxation (46) (77)
Other (17) (28)
Shareholders' equity (US GAAP) 2,286 3,817
LucasVarity plc
Condensed US GAAP Information
October 31, 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
accounts, 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 January 31, 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) in August 1998. The results
for the three and nine months ended 31 October 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 1.68 dollars to
sterling.
LucasVarity plc
Segmental results
For the three and nine month periods ended 31 October 1998 and 1997
($ millions, except per share amounts)
Third Quarter Nine Months
1998 1997 1998 1997
Sales:
Braking Systems 775 653 2,278 1,907
Other Automotive 676 695 2,209 2,250
Aerospace 286 268 868 772
Corporate and other -- -- -- 13
Total 1,737 1,616 5,355 4,942
Operating profit:
Braking Systems 75 62 196 164
Other Automotive 100 90 297 265
Aerospace 41 39 125 113
Corporate and other (16) (13) (47) (44)
Total 200 178 571 498
Interest - ordinary
activities (11) (23) (37) (69)
- termination of swaps (12) -- (12) --
Sale of businesses and
assets, net of taxes -- (2) 38 32
Cost of proposed change
of domicile (22) -- (22) --
Restructuring charges (14) (51) (32) (85)
Taxes (74) (40) (190) (110)
Minority interests (6) (3) (17) (15)
Foreign exchange 35 36 38 28
Discontinued operations -- 10 57 31
Net Income 96 105 394 310
Earnings per American Depository Share:
Before restructuring charges,
foreign exchange, costs of
proposed redomicile,
termination of interest rate
swaps, sale of businesses,
fixed assets and discontinued
operations $0.81 $0.73 $2.33 $1.98
Foreign exchange on
forward contracts 0.16 0.17 0.17 0.13
Restructuring charges,
costs of proposed
redomicile, termination
of interest rate swaps,
and sale of businesses
and fixed assets (0.29) (0.24) (0.10) (0.15)
Discontinued operations -- 0.08 0.40 0.22
Net income $0.68 $0.74 $2.80 $2.18
Operating margins:
Braking Systems 9.7% 9.5% 8.6% 8.6%
Other Automotive 14.8% 12.9% 13.4% 11.8%
Aerospace 14.3% 14.6% 14.4% 14.6%
Total 11.5% 11.0% 10.7% 10.1%
LucasVarity plc
Consolidated Balance Sheets
At October 31, and January 31, 1998
($ million)
Oct. 31 Jan. 31
Assets:
Current Assets:
Cash and cash equivalents 651 190
Marketable securities 70 64
Receivables 1,224 1,125
Inventories 710 712
Prepaid expenses and other 347 328
Net assets of discontinued
operations -- 933
Total current assets 3,002 3,352
Investments in associated companies50 61
Fixed assets, net 1,897 1,778
Goodwill 1,314 1,346
Prepaid pension and other 1,082 858
7,345 7,395
Liabilities:
Current liabilities:
Short-term debt 162 676
Current portion of long-term debt 37 52
Accounts payable and accrued
liabilities 1,747 1,651
Total current liabilities 1,946 2,379
Long-term debt 544 517
Other long-term liabilities 916 945
Minority interests 122 112
Total shareholders' equity 3,817 3,442
7,345 7,395
LucasVarity plc
Consolidated Statement of Cash Flows
For the three and nine month periods ended October 31, 1998 and 1997
($ million)
Third Quarter Nine Months
1998 1997 1998 1997
Cash flows from operating activities:
Net income from continuing
operations 96 95 337 279
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and
amortisation 82 67 239 208
Gain on sales of businesses,
investments and
fixed assets -- 2 (46) (32)
Increase / (decrease) in
restructuring accrual 6 24 (32) (26)
(Increase) / decrease in:
Working capital (48) (24) (107) (82)
Tax liabilities 32 9 86 47
Prepaid pension (56) (47) (165) (143)
Other long-term
liabilities (13) 7 (23) (7)
Foreign exchange (35) (36) (38) (28)
Other 4 14 14 16
Cash provided by operating
activities from continuing
operations 68 111 265 232
Cash flows from investing activities:
(Increase) / decrease in
marketable securities (2) 2 (5) 42
Additions to fixed assets(107) (63) (312) (235)
Sales of fixed assets
and businesses 3 8 110 91
Acquisitions, net of
cash acquired (4) - (42) (10)
Cash used by investing
activities from continuing
operations (110) (53) (249) (112)
Cash flows from financing activities:
Bank borrowings and
overdrafts, net (27) (64) (501) (55)
Repurchases of share capital-- (34) -- (129)
Equity dividends paid -- -- (51) (53)
Other (2) 4 (8) 1
Cash used by financing
activities from continuing
operations (29) (94) (560) (236)
Effect of foreign currency
translation on cash and
cash equivalents 25 7 3 (16)
Decrease in cash and cash
equivalents from continuing
operations (46) (29) (541) (132)
Cash used by discontinued
operations (2) (27) 1,002 11
Cash and cash equivalents
at beginning of period 699 246 190 311
Cash and cash equivalents
at end of period 651 190 651 190