TRW Reports First Quarter 1999 Results
20 April 1999
TRW Reports First Quarter 1999 Results
CLEVELAND--April 20, 1999--TRW Inc. today reported first quarter 1999 net earnings and earnings per share, before automotive restructuring charges and the impact of the LucasVarity acquisition, of $101.1 million, or $.83 per share. This compares with net earnings before unusual items of $119.7 million or $.95 per share in the first quarter of 1998.First quarter 1999 sales of $3.1 billion were unchanged compared with the first quarter of 1998. An increase in sales as a result of the inclusion of $106 million from LucasVarity was offset by a decrease in the space, defense and information systems business.
"Entering 1999, we anticipated that first quarter results would benefit from efficiencies being implemented in our automotive business," said Joseph T. Gorman, chairman and chief executive officer. "Delays in achieving those savings and higher start-up costs relating to new facilities and products negatively impacted automotive margins.
"Clearly, we are not satisfied with our overall operating performance, and it is being addressed with the utmost urgency," Gorman said. "Our performance objectives have been modified to increase focus on cash flow and margins across the company, and we've changed our compensation programs to align them directly with the modifications to our 1999 objectives.
"Steps to integrate LucasVarity's worldwide automotive and aerospace operations are strongly under way," Gorman said. "We are finalizing the organization structure, filling key leadership positions, and completing our deleveraging blueprint. We remain confident that LucasVarity will be accretive to earnings and that it will add strategic synergies and capabilities that position us better to serve and expand our customer base."
Including unusual items, net earnings and earnings per share in the first quarter 1999 were $58.6 million, or $.48 per share, compared with $129.4 million, or $1.03 per share, reported in the first quarter 1998. First quarter 1999 results do not yet reflect the impact, if any, of the purchase price allocation of LucasVarity.
Unusual items in the first quarter 1999 net earnings included the following items related to LucasVarity: $32.6 million nonrecurring after tax loss on foreign currency hedges; $7.9 million after tax charge for underwriting and participation fees incurred to secure committed credit facilities; and $5.2 million of LucasVarity's net earnings subsequent to March 25, the date of acquisition.
The unusual items in the first quarter 1998 net earnings included a $31.5 million benefit from the settlement of certain patent litigation, offset in part by $21.8 million in charges for litigation, contract reserves, and severance costs relating to the combination of the company's systems integration business with BDM International, Inc., acquired in 1997.
Automotive
In the automotive segment, first quarter 1999 sales increased to $2.0 billion from $1.9 billion in the first quarter of 1998 due to the inclusion of LucasVarity automotive operations. Higher volume, primarily in Europe in our occupant restraints and electronics businesses, was offset by lower pricing across all product lines.
Automotive segment profit before tax decreased to $137.6 million, compared with $149.2 million in the first quarter of 1998. The decrease excludes $9.7 million in restructuring charges and the results of LucasVarity's automotive business. The restructuring charges related primarily to severance costs. The decline in segment profits resulted primarily from delays in anticipated savings associated with the automotive restructuring and start-up costs related to new facilities and products. Lower pricing and production inefficiencies, offset in part by higher volume and cost reductions, also contributed.
"The automotive restructuring program announced in July 1998 is designed to reengineer the cost structure and increase automotive segment margins," Gorman said. "While currently behind plan, we remain committed to implementing the cost-reduction steps and improving segment margins to achieve our goals. On a quarter-to-quarter basis, 1999 first quarter selling, general and administrative costs as a percent of sales were reduced eight-tenths of a percent. On an annual basis, this will equate to savings of approximately $60 million in 1999, well on our way to achieving our target of $75 million. In the quarter we also eliminated approximately 500 of the approximately 4500 suppliers targeted for reduction in 1999, while achieving a 20 percent improvement in supplier quality parts per million.
"The company's recently announced new Ohio manufacturing facility will enable us to assemble various chassis modules to support a new DaimlerChrysler Jeep(R) platform. A program with Motorola to develop an advanced network interface standard will simplify development and installation of next-generation occupant safety systems. Building on a number of industry firsts, TRW recently secured a dozen production contracts for advanced and integrated safety systems with six automakers worldwide.
"Through an earlier joint venture with LucasVarity we have obtained orders for over one million column drive electric steering systems. Obviously, we look forward to the addition of LucasVarity product lines, such as its anti-lock braking system, that the company just celebrated production of its 50 millionth unit."
Space, defense and information systems
In TRW's space, defense and information systems segment, first quarter 1999 sales decreased to $1.1 billion from $1.2 billion in 1998. The decline in sales in the quarter resulted from delays in the start-up of commercial space programs, reduced funding on current programs, including a contract modification announced in 1998, the termination of the SBIRS-Low contract, contracts nearing completion, and unachieved growth in commercial information technology, offset in part by new contract awards.
Segment profit before tax decreased to $97.1 million in 1999, compared with $110.9 million in the first quarter of 1998. Including LucasVarity's aerospace business in 1999 and unusual items in the first quarter of 1998, segment profit before tax was $99.2 million in 1999, compared to $125.9 million in the first quarter of 1998. The decline in segment profit before tax resulted from the lower sales volume and increased product development costs associated with commercial programs. Included in the segment results was a gain of $43.9 million from the company's investment in RF Micro Devices, Inc., including a sale of 5 percent of the investment, which reduced our ownership percentage to 27 percent. This gain was offset by a $43.3 million charge for a commercial fixed-price contract and a capped cost reimbursable contract for the U.S. Army.
TRW's investment in RF Micro Devices is an extremely profitable relationship that has enabled TRW to leverage the company's technology leadership in gallium arsenide to take advantage of the growing telecommunications market. This investment is indicative of the value that TRW's technology and processes can bring to the commercial marketplace.
"To expand the commercial side of the business, we also took a major step with solid-state laser products by delivering the first laser for the next generation lithography process. In addition, TRW, as a subcontractor with NEC Corporation, will help develop software that will enable Japan to better prepare itself to handle natural disasters, humanitarian assistance, and national defense.
"TRW continues to play a strong role in the nation's defense with a contract from the Ballistic Missile Defense Organization to maintain its Joint National Test Facility and from the U.S. Air Force to provide operations services for its base in Turkey. Work has also commenced on Discoverer II, a space-based radar technology demonstration program that will provide ground-moving target indication and high-resolution terrain mapping," Gorman said.
TRW provides advanced technology products and services for the automotive, space and defense, and information systems 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 ability to achieve customer awards and funding, realize cost reductions, mitigate pricing pressure, and effectively implement the restructuring program and the integration of LucasVarity into the company. Additional factors can be found in TRW's Form 8-K filed with the Securities and Exchange Commission on May 29, 1998 and in the company's most recent Annual Report on Form 10-K. TRW undertakes no obligation to update any forward-looking statement.
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
First Quarter 1999
LucasVarity
Margin Acquisition LucasVarity
Operations % Costs Operations
----------------------------------------------------------------
Sales
Automotive $1,876.6 $ 88.0
Space, Defense &
Information Systems 1,114.2 18.1
----------------------------------------------------------------
Sales $2,990.8 $106.1
Segment Profit
Before Income Taxes
Automotive $137.6 7.3% $ 7.9
Space, Defense &
Information Systems 97.1 8.7% 2.1
----------------------------------------------------------------
Segment profit(loss)
before income taxes 234.7 7.8% 10.0
Company Staff and other (38.7) $(50.2)
Interest expense (39.6) (12.2) (2.0)
----------------------------------------------------------------
Earnings(loss) before
income taxes 156.4 5.2% (62.4) 8.0
Income taxes 55.3 (21.8) 2.8
----------------------------------------------------------------
Net earnings(loss) $101.1 3.4% $(40.6) $ 5.2
----------------------------------------------------------------
Diluted earnings
(loss) per share $0.83 $(0.33) $ 0.04
Basic earnings
(loss) per share $0.84 $(0.33) $ 0.04
Dividends paid
per common share $0.33
Common stock outstanding 120.2
Shares used in computing per
share amounts
Diluted 122.9
Basic 120.1
First Quarter 1999
Restructuring Margin
Charges Total(a) %
----------------------------------------------------------------
Sales
Automotive $1,964.6
Space, Defense &
Information Systems 1,132.3
----------------------------------------------------------------
Sales $3,096.9
----------------------------------------------------------------
Segment Profit Before
Income Taxes
Automotive $(9.7) $135.8 6.9%
Space, Defense &
Information Systems 99.2 8.8%
----------------------------------------------------------------
Segmentprofit (loss)
before income taxes (9.7) 235.0 7.6%
Company Staff and other (88.9)
Interest expense (53.8)
----------------------------------------------------------------
Earnings (loss)
before income taxes (9.7) 92.3 3.0%
Income taxes (2.6) 33.7
----------------------------------------------------------------
Net earnings(loss) $(7.1) $58.6 1.9%
----------------------------------------------------------------
Diluted earnings
(loss) per share $(0.06) $0.48
Basic earnings
(loss) per share $(0.06) $0.49
(a) First quarter 1999 net earnings do not yet reflect the income
statement impact, if any, of the purchase price allocation of
LucasVarity.
First Quarter 1998
Margin Unusual Margin
Operations % Items Total %
----------------------------------------------------------------------
Sales
Automotive $1,885.5 $1,885.5
Space, Defense &
Information Systems 1,209.1 1,209.1
----------------------------------------------------------------------
Sales $3,094.6 $3,094.6
Segment Profit
Before Income Taxes
Automotive $ 149.2 7.9% $ 149.2 7.9%
Space, Defense &
Information Systems 110.9 9.2% $15.0 125.9 10.4%
----------------------------------------------------------------------
Segment profit
before income taxes 260.1 8.4% 15.0 275.1 8.9%
Company Staff and other (31.6) (31.6)
Interest expense (39.7) (39.7)
----------------------------------------------------------------------
Earnings before
income taxes 188.8 6.1% 15.0 203.8 6.6%
Income taxes 69.1 5.3 74.4
----------------------------------------------------------------------
Net earnings $ 119.7 3.9% $ 9.7 $ 129.4 4.2%
----------------------------------------------------------------------
Diluted earnings
per share $ 0.95 $0.08 $ 1.03
Basic earnings
per share $ 0.97 $0.08 $ 1.05
Dividends paid
per common share $ 0.31
Common stock outstanding 122.6
Shares used in computing
per share amounts
Diluted 126.2
Basic 122.6
TRW STATISTICAL SUMMARY (UNAUDITED), CONTINUED
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Net earnings $ 59 $ 129
Depreciation and
amortization 142 135
Acquisitions, net of
cash acquired (346) 228
Net increase in debt 1,049 470
Capital expenditures 111 140
Dividend payments 40 38
Purchase of TRW common stock - 24
Net change in deferred taxes 2 (68)
SUMMARY BALANCE SHEETS
March 31, 1999(b) December 31, 1998
-------------- -----------------
ASSETS
Cash and cash equivalents $ 1,172 $ 83
Accounts receivable 2,970 1,721
Inventories 1,232 616
Other current assets 544 283
------- -------
Total current assets 5,918 2,703
Property, plant &
equipment, net 4,216 2,683
Total intangible
assets, net 5,500 1,067
Investments in
affiliated companies 330 243
Long-term deferred
income taxes 40 33
Other notes and
accounts receivable 355 227
Other assets 1,532 213
------- -------
Total assets $17,891 $ 7,169
------- -------
------- -------
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
Short-term debt $ 1,840 $ 839
Trade accounts payable 1,768 964
Current portion of
long-term debt 211 30
Payable to LucasVarity plc
shareholders 6,352 -
Other current liabilities 2,038 1,185
------- -------
Total current liabilities 12,209 3,018
Long-term liabilities 1,680 826
Long-term debt 2,031 1,353
Minority interests in
subsidiaries 157 94
Total shareholders' investment 1,814 1,878
------- -------
Total liabilities and
shareholders' investment $17,891 $7,169
------- -------
------- -------
(b) Includes the preliminary balance sheet for LucasVarity.