TRW Reports Second Quarter 1999 Results
20 July 1999
TRW Reports Second Quarter 1999 Results; Acquisition Contributes to Record Sales and Net Earnings
CLEVELAND--July 20, 1999--
Financial Highlights
--------------------
-- Second Quarter Sales $ 4.8 Billion
-- Net Earnings, Excluding Automotive
Restructuring Charge And Other
Unusual Items $ 153.5 Million
-- Diluted Earnings Per Share $ 1.25 Per Share
TRW Inc. today reported that for the quarter ended June 30, net earnings increased 22 percent to $153.5 million, or $1.25 per share, excluding automotive restructuring charges and other unusual items. This compares with second quarter 1998 net earnings of $125.8 million or $1.00 per share. TRW's second quarter 1999 earnings reflect the first full quarter results of LucasVarity, which was acquired on March 25.
Second quarter 1999 sales increased 58 percent to a record $4.8 billion, compared with $3.0 billion in the second quarter of 1998. The sales increase reflects the inclusion of $1.7 billion of LucasVarity operations. Excluding LucasVarity, second quarter 1999 sales increased 2 percent to $3.1 billion.
"Highlighted by our recent acquisition, the first half of the year has seen the TRW team move into high gear, quickly taking advantage of the new talent, new markets, and reinforcement of our leadership in each of our businesses," said Joseph T. Gorman, chairman and chief executive officer. "Our priorities are clear: deleveraging the balance sheet; integrating the acquired businesses; and improving operating performance.
"The systematic integration of LucasVarity is going well, both in the automotive and the aerospace and information systems segments," Gorman said. "As expected, the acquisition is accretive immediately. Going forward, we are increasingly confident that we will deliver on our commitment to achieve $200 million or more in cost savings and emerge as a leader in integrated vehicle control systems."
TRW moved quickly during the quarter to initiate actions that will lead to deleveraging the balance sheet, with the goal of reducing net debt by $2.5 billion by year-end 2000. After a thorough assessment of the TRW portfolio, it was determined that four operations were not core to its automotive business, and the company announced its intention to divest those operations. Other actions under way to reduce debt include an improvement in working capital, the sale of nonrevenue-producing assets, and a reduction in capital expenditures. All of these actions will contribute to TRW's maintaining its investment grade rating. In addition, $3.4 billion of debt securities in short, medium, and long maturities were issued to refinance outstanding commercial paper borrowings related to the acquisition of LucasVarity.
Including automotive restructuring charges and other unusual items, net earnings increased 11 percent in the second quarter of 1999 to a record $139.8 million, or $1.14 per share, compared with $125.8 million, or $1.00 per share, in the second quarter of 1998. Unusual items include after-tax charges of $39.5 million for automotive restructuring and $25.9 million for unusual items pertaining to LucasVarity, which were partially offset by an after-tax gain of $51.7 million from the sale of a portion of RF Micro Devices (RFMD) stock. The unusual items pertaining to LucasVarity consist of $12.7 million in unrealized losses on foreign currency hedges, $12.7 million for the one-time noncash effect of the LucasVarity inventory writeup, and $8.3 million for fees incurred to secure committed credit facilities, reduced by the $7.8 million effect of discontinuing the depreciation of assets of businesses held for sale. The second quarter of 1998 included the effects of the General Motors strike and a litigation settlement, which reduced earnings by 7 cents per share.
Net earnings for the first half of 1999 were $111.4 million, or $.91 per share, compared with $255.2 million, or $2.03 per share in 1998. The more significant items included in the first half 1999 results were after-tax charges of $46.6 million for automotive restructuring; $151.8 million for unusual items related to LucasVarity, which includes $85.3 million for purchased in-process research and development related to the acquisition; and $28.1 million of losses on fixed-price type contracts, which were partially offset by an after-tax gain of $80.2 million related to RFMD. Excluding these unusual items, net earnings were $257.7 million, or $2.10 per share.
Sales for the first half of 1999 increased to $7.9 billion, compared with $6.1 billion in the first six months of 1998. The sales increase reflects the inclusion of $1.8 billion from LucasVarity.
Automotive
In the automotive segment, second quarter sales increased to $3.3 billion from $1.8 billion in the second quarter of 1998, due primarily to the acquisition of LucasVarity. Excluding LucasVarity, second quarter sales increased 4 percent to $1.9 billion from $1.8 billion in the second quarter of 1998 as higher volume, primarily in occupant restraints and electronics, was partially offset by foreign exchange and lower pricing across all product lines. Second quarter 1998 sales were affected by the General Motors strike.
Automotive segment profit before tax and other unusual items increased to $238.2 million, compared with $153.1 million in the second quarter of 1998, due to the inclusion of LucasVarity. Excluding LucasVarity results and unusual items, segment profit before tax decreased 11 percent to $136.5 million, compared with $153.1 million in the second quarter of 1998, as cost reductions and increased volume were offset by lower pricing, start-up costs, and production inefficiencies related to the transfer of operations to lower-cost facilities in Mexico. Second quarter 1998 segment profit was affected by the General Motors strike.
"While automotive margins were unchanged from the first quarter, we're still not satisfied," Gorman said. "The company initiated significant actions that will lead to steady margin improvement through 2000. During the quarter, we stepped up actions under our restructuring program, including making key decisions that resulted in a $59 million pre-tax restructuring charge, of which $17 million is noncash."
Overall, six manufacturing facilities have been closed and eight others have been announced for closure or sale, which included recently a plant in England and two facilities in Australia. We've reduced employee headcount by more than 3,800 against a goal of 7,500. As to elimination of suppliers, the company has reduced the total supplier count by more than 20 percent of its goal. In addition, on an annual basis, $60 million of the planned $75 million in selling, general, and administrative expense reductions has been achieved.
"During the quarter, TRW and its partner Magna International dedicated in Germany the industry's most advanced independent development and testing center for modular safety systems. Also, TRW opened a new braking component and module operation in Mexico. The company's innovative electrically assisted steering (EAS) has been chosen for a new Volkswagen platform, and the company received its second order for the EAS column drive technology from a European customer for approximately 400,000 units annually. In advanced and integrated safety systems, TRW now has a total of 20 production contracts from six automakers around the world," Gorman said.
Aerospace and Information Systems
In TRW's aerospace and information systems segment, second quarter sales increased 23 percent to $1.5 billion from $1.2 billion in the second quarter of 1998, due to the inclusion of LucasVarity sales of $281.8 million.
Aerospace and information systems segment profit before tax and unusual items increased 28 percent to $141.4 million, compared with $110.9 million in the second quarter of 1998, which included a $7 million charge for a litigation settlement. Segment operating profit before tax increased primarily due to the LucasVarity acquisition. Excluding LucasVarity and unusual items, second quarter 1999 profit before tax increased slightly to $111.9 million.
"The addition of Lucas Aerospace operations to TRW's existing space, defense and information systems businesses makes us a significantly stronger global player," said Gorman. "In this newly consolidated business sector, TRW's growth focus will be on space and electronics, information systems, aeronautical systems, telecommunications, and further commercialization of our extensive bank of defense-related technologies."
In May, TRW took a major step to diversify into the commercial space payload market by announcing an equity position in Astrolink LLC. The venture, consisting of Lockheed Martin, Telespazio, and TRW, will be the first to construct a global, satellite-based, broadband data communications service. TRW was also selected by NASA as one of two contractors to develop a preliminary concept for the Next Generation Space Telescope, the successor to the Hubble Space Telescope.
During the quarter, TRW won a key government contract from the Department of Justice, Immigration and Naturalization Service to perform the fingerprint operations for the immigration application process. In addition, TRW received an initial award to provide translators to support the U.S. military contingency and peacekeeping missions in Eastern Europe, according to Gorman.
TRW provides advanced technology products and services for the automotive, aerospace 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 reduce debt, 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 Item 7, "Management Discussion and Analysis--Forward-Looking Statements" in the company's most recent Quarterly Report on Form 10-Q. 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 1999
--------------------------------------------------
Margin Unusual Items Margin
Operations % Total %
---------------------------------------------------------------------
Sales
TRW Automotive $1,877.5 $1,877.5
LV Automotive 1,416.0 1,416.0
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Total Automotive 3,293.5 3,293.5
TRW Aerospace &
Information Systems 1,210.1 1,210.1
LV Aerospace 281.8 281.8
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Total Aerospace &
Information Systems 1,491.9 1,491.9
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Sales $4,785.4 $4,785.4
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Segment Profit Before
Income Taxes
TRW Automotive $ 136.5 7.3% $(59.1) $ 77.4 4.1%
LV Automotive 101.7 7.2% (20.2) 81.5 5.8%
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Total Automotive 238.2 7.2% (79.3) 158.9 4.8%
TRW Aerospace &
Information Systems 111.9 9.2% 79.5 191.4 15.8%
LV Aerospace 29.5 10.5% 29.5 10.5%
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Total Aerospace &
Information Systems 141.4 9.5% 79.5 220.9 14.8%
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Segment profit
before income taxes 379.6 7.9% 0.2 379.8 7.9%
Corporate expense and
other (0.2) (7.1) (7.3)
Financing costs (142.2) (12.8) (155.0)
In-process research and
development -- --
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Earnings(loss) before
income taxes 237.2 5.0% (19.7) 217.5 4.5%
Income taxes 83.7 (6.0) 77.7
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Net earnings(loss) $153.5 3.2% $(13.7) $139.8 2.9%
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Diluted earnings(loss)
per share $ 1.25 $(0.11) $ 1.14
Basic earnings(loss)
per share $ 1.27 $(0.11) $ 1.16
Dividends paid per
common share $ 0.33
Common stock
outstanding 120.9
Shares used in computing
per share amounts
Diluted 123.2
Basic 120.6
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
(1998 Restated to move Telecom Initiative
to Aerospace & Information Systems)
SECOND QUARTER 1998
--------------------------------------------------
Margin Unusual Items Margin
Operations % Total %
---------------------------------------------------------------------
Sales
TRW Automotive $1,813.4 $1,813.4
LV Automotive -- --
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Total Automotive 1,813.4 1,813.4
TRW Aerospace &
Information Systems 1,214.5 1,214.5
LV Aerospace -- --
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Total Aerospace &
Information Systems 1,214.5 1,214.5
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Sales $3,027.9 $3,027.9
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Segment Profit Before
Income Taxes
TRW Automotive $ 153.1 8.4% $ 153.1 8.4%
LV Automotive -- --
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Total Automotive 153.1 8.4% 153.1 8.4%
TRW Aerospace &
Information Systems 110.9 9.1% 110.9 9.1%
LV Aerospace -- --
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Total Aerospace &
Information Systems 110.9 9.1% 110.9 9.1%
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Segment profit
before income taxes 264.0 8.7% 264.0 8.7%
Corporate expense
and other (27.2) (27.2)
Financing costs (38.6) (38.6)
In-process research and
development -- --
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Earnings before
income taxes 198.2 6.5% 198.2 6.5%
Income taxes 72.4 72.4
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Net earnings $ 125.8 4.2% $ 125.8 4.2%
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Diluted earnings
per share $ 1.00 $ 1.00
Basic earnings
per share $ 1.03 $ 1.03
Dividends paid per
common share $ 0.31
Common stock
outstanding 121.8
Shares used in computing
per share amounts
Diluted 125.4
Basic 122.1
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
(Restated to move Telecom Initiative to
Aerospace & Information Systems)
SIX MONTHS ENDED 1999
--------------------------------------------------
Margin Unusual Items Margin
Operations % Total %
---------------------------------------------------------------------
Sales
TRW Automotive $3,754.1 $3,754.1
LV Automotive 1,504.0 1,504.0
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Total Automotive 5,258.1 5,258.1
TRW Aerospace &
Information Systems 2,324.3 2,324.3
LV Aerospace 299.9 299.9
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Total Aerospace &
Information Systems 2,624.2 2,624.2
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Sales $7,882.3 $7,882.3
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Segment Profit Before
Income Taxes
TRW Automotive $ 274.1 7.3% $(68.8) $ 205.3 5.5%
LV Automotive 109.6 7.3% (20.2) 89.4 5.9%
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Total Automotive 383.7 7.3% (89.0) 294.7 5.6%
TRW Aerospace &
Information Systems 200.5 8.6% 80.1 280.6 12.1%
LV Aerospace 31.6 10.5% 31.6 10.5%
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Total Aerospace &
Information Systems 232.1 8.8% 80.1 312.2 11.9%
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Segment profit(loss)
before income taxes 615.8 7.8% (8.9) 606.9 7.7%
Corporate expense
and other (31.0) (57.3) (88.3)
Financing costs (183.8) (25.0) (208.8)
In-process research
and development -- (85.3) (85.3)
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Earnings(loss) before
income taxes 401.0 5.1% (176.5) 224.5 2.8%
Income taxes 143.3 (30.2) 113.1
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Net earnings(loss) $257.7 3.3% $(146.3) $111.4 1.4%
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Diluted earnings(loss)
per share $ 2.10 $ (1.19) $ 0.91
Basic earnings(loss)
per share $ 2.14 $ (1.22) $ 0.92
Dividends paid per
common share $ 0.66
Common stock
outstanding 120.9
Shares used in computing
per share amounts
Diluted 123.0
Basic 120.4
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
(Restated to move Telecom Initiative to
Aerospace & Information Systems)
SIX MONTHS ENDED 1998
--------------------------------------------------
Margin Unusual Items Margin
Operations % Total %
---------------------------------------------------------------------
Sales
TRW Automotive $3,698.9 $3,698.9
LV Automotive -- --
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Total Automotive 3,698.9 3,698.9
TRW Aerospace &
Information Systems 2,423.6 2,423.6
LV Aerospace -- --
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Total Aerospace &
Information Systems 2,423.6 2,423.6
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Sales $6,122.5 $6,122.5
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Segment Profit Before
Income Taxes
TRW Automotive $ 302.3 8.2% $ 302.3 8.2%
LV Automotive -- --
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Total Automotive 302.3 8.2% 302.3 8.2%
TRW Aerospace &
Information Systems 221.3 9.1% $ 15.0 236.3 9.7%
LV Aerospace -- --
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Total Aerospace &
Information Systems 221.3 9.1% 15.0 236.3 9.7%
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Segment profit
before income taxes 523.6 8.6% 15.0 538.6 8.8%
Corporate expense and
other (58.3) (58.3)
Financing costs (78.3) (78.3)
In-process research and
development -- --
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Earnings before
income taxes 387.0 6.3% 15.0 402.0 6.6%
Income taxes 141.5 5.3 146.8
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Net earnings $245.5 4.0% $ 9.7 $ 255.2 4.2%
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Diluted earnings
per share $ 1.95 $ 0.08 $ 2.03
Basic earnings
per share $ 2.00 $ 0.08 $ 2.08
Dividends paid per
common share $ 0.62
Common stock
outstanding 121.8
Shares used in computing
per share amounts
Diluted 125.8
Basic 122.3
TRW STATISTICAL SUMMARY (UNAUDITED), CONTINUED
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Six Months Ended
June 30, 1999 June 30, 1998
------------- ------------
Net earnings $ 111 $ 255
Purchased in-process research and
development 85 --
Depreciation and amortization 363 278
Acquisitions, net of cash acquired 6,049 236
Net increase in debt 6,485 429
Capital expenditures 356 273
Dividend payments 80 76
Purchase of TRW common stock -- 72
Net change in deferred taxes (131) (123)
SUMMARY BALANCE SHEETS
June 30, 1999 December 31, 1998
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ASSETS
Cash and cash equivalents $ 609 $ 83
Accounts receivable 2,684 1,721
Inventories 1,048 616
Other current assets 1,427 283
----- -----
Total current assets 5,768 2,703
Property, plant & equipment, net 3,916 2,683
Total intangible assets, net 4,100 1,067
Investments in affiliated companies 298 243
Long-term deferred income taxes -- 33
Other notes and accounts receivable 394 227
Prepaid pension cost 2,471 --
Other assets 394 213
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Total assets $17,341 $7,169
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 3,406 $ 839
Trade accounts payable 1,596 964
Current portion of long-term debt 810 30
Other current liabilities 1,995 1,185
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Total current liabilities 7,807 3,018
Long-term liabilities 1,708 826
Long-term debt 5,476 1,353
Long-term deferred income taxes 587 --
Minority interests in subsidiaries 107 94
Total shareholders' investment 1,656 1,878
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Total liabilities and shareholders'
investment $17,341 $7,169
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