TRW Announces Third Quarter 1999 Results; Earnings Increase 30 Percent
20 October 1999
TRW Announces Third Quarter 1999 Results; Earnings Increase 30 Percent
CLEVELAND--Oct. 20, 1999--TRW Inc.Financial Highlights -------------------- -- Third Quarter Sales $4.5 Billion -- Excluding Unusual Items -- Net Earnings $145.9 Million -- Diluted Earnings Per Share $1.18 Per Share -- After Unusual Items -- Net Earnings $133.5 Million -- Diluted Earnings Per Share $1.08 Per Share
TRW Inc. today reported that for the quarter ended September 30, 1999, net earnings increased 30 percent to a record $145.9 million, or $1.18 per share, excluding unusual items. This compares with third quarter 1998 net earnings of $112.2 million, or $.92 per share. TRW's third quarter 1999 earnings reflect the results of LucasVarity, which was acquired on March 25, 1999.
Third quarter 1999 sales increased 57 percent to a record $4.5 billion, compared with $2.8 billion in the third quarter of 1998. The sales increase reflects the inclusion of $1.5 billion of LucasVarity operations. Excluding LucasVarity, third quarter 1999 sales increased 4 percent to $2.9 billion.
"I'm pleased to report that TRW has been able to exceed expected bottom-line performance," said Joseph T. Gorman, chairman and chief executive officer. "As promised, the acquisition of LucasVarity continues to be accretive. The integration is proceeding well, and we have received positive feedback from our customers regarding our integrated product strategies.
"Progress has been made on actions to delever the balance sheet. We are on plan to reduce net debt by $2.5 billion by year-end 2000," Gorman said. "In the quarter, net debt was reduced by $286 million, primarily through improvements in working capital, and we've accelerated other actions aimed at reducing debt. Progress is also being made on the previously announced automotive divestitures. We remain committed to net proceeds from asset sales in the range of $1.2 billion to $1.5 billion through the sale of businesses and, if necessary, through sales of other non-revenue-producing assets. We believe that initial proceeds from asset sales will be realized beginning in the fourth quarter and continuing into early 2000. During the quarter, we also benefited from the sale of approximately 400,000 shares of RF Micro Devices (RFMD) stock, and subsequently reduced our holdings by an additional 1.6 million shares. The cash proceeds of approximately $100 million resulting from these sales will be received in October. These sales are solely in support of TRW's debt reduction efforts and are not the result of any changes in our continuing strategic alliance with RFMD."
Including unusual items, net earnings increased 28 percent in the third quarter of 1999 to a record $133.5 million, or $1.08 per share, compared with $104.2 million, or $.85 per share, in the third quarter of 1998. Unusual items of $12.4 million after tax include a $51.0 million charge associated with the write-off of TRW's investment in ICO Global Communications (Holdings) Limited (ICO). This was partially offset by gains of $14.4 million from the sale of RFMD stock and a divestiture, and $24.2 million for unusual items pertaining to the LucasVarity acquisition. These unusual items consist of a $13.9 million gain on foreign currency hedges, $14.9 million for discontinuing the depreciation of assets of businesses held for sale, and $2.2 million of additional pension income, partially offset by $6.8 million for fees incurred to secure committed credit facilities. The third quarter of 1998 included automotive restructuring charges that reduced net earnings by $8.0 million.
Net earnings for the first nine months of 1999 were $244.9 million, or $1.99 per share, compared with $359.4 million, or $2.88 per share, in 1998. Unusual items included in the 1999 nine-month results were aftertax charges of $46.6 million for automotive restructuring; $127.6 million for unusual items related to the LucasVarity acquisition, which includes $85.3 million for purchased in-process research and development; $51.0 million for the write-off of TRW's investment in ICO; and $28.1 million of losses on fixed-price type contracts, which were partially offset by aftertax gains of $94.6 million primarily related to RFMD. Excluding these unusual items, net earnings for the first nine months of 1999 were $403.6 million, or $3.28 per share. For the first nine months of 1998, net earnings were $357.7 million, or $2.87 per share. Sales for the first nine months of 1999 increased to $12.3 billion, compared with $9.0 billion in 1998. The increase reflects the inclusion of $3.3 billion of sales from LucasVarity.
Automotive
In the automotive segment, third quarter sales increased to $2.9 billion, from $1.7 billion in the third quarter of 1998, due to the acquisition of LucasVarity. Excluding LucasVarity, third quarter sales were unchanged at $1.7 billion as the effect of higher volume was offset by foreign exchange and lower pricing across all product lines. Third quarter 1998 sales were adversely affected by the General Motors strike and weakening markets in Brazil and Asia.
Automotive segment profit before tax and unusual items for the third quarter of 1999 increased to $201.3 million, compared with $119.6 million in the third quarter of 1998, due to the inclusion of LucasVarity. Excluding LucasVarity results and unusual items, segment profit before tax decreased 6 percent to $113.0 million, compared with $119.6 million in the third quarter of 1998. This decline was primarily due to lower pricing and production inefficiencies, partially offset by cost reductions.
"The margins of the former TRW automotive business will be below 1998 levels," Gorman said. "We expect to see operations improve as the benefits of our restructuring and integration activities take hold and are reflected in our year-2000 results. The automotive operations of the former LucasVarity business continue to perform well, exceeding our acquisition plan.
"For the first nine months, the occupant safety systems business was awarded over $1 billion in annual business beginning in 2003. About 70 percent of that amount came in the third quarter, and more than half of the annual total represents additional components or new vehicle platforms. Further, the number of advanced and integrated safety system production contracts has more than doubled from 12 in March of this year to 25.
"With full safety electronics development and manufacturing capabilities now in place in Europe, we recently launched production of a cost-effective Generation 5E air bag crash sensor and a side-impact sensor for European applications," Gorman said. "Demand is growing for Electrically Assisted Steering (EAS) as Opel expanded its contract for the Astra and Zafira models, and Volkswagen and two other European automakers chose EAS for new platforms."
Aerospace and Information Systems
In TRW's aerospace and information systems segment, third quarter sales increased 33 percent to $1.5 billion from $1.2 billion in the third quarter of 1998 due to the inclusion of LucasVarity sales and organic growth. Excluding LucasVarity, third quarter 1999 sales increased primarily due to the startup of the Astrolink contract, higher volume on the ICBM Prime contract, and increased restricted business.
Aerospace and information systems segment profit before tax and unusual items increased 43 percent to $160.1 million, compared with $111.9 million in the third quarter of 1998. Segment profit before tax and unusual items increased primarily due to the LucasVarity acquisition and improved program performance. During the third quarter, ICO filed a voluntary reorganization petition. As a result, ICO is operating its business under the regulations of Chapter 11 of the U.S. Bankruptcy Code. TRW recorded a charge to reserve fully its financial exposure to the ICO investment. Excluding LucasVarity and unusual items, third quarter 1999 segment profit before tax increased 14 percent to $127.0 million from $111.9 million in 1998.
"TRW received its first contract to supply commercial satellite payloads for Astrolink LLC, the international joint venture formed in May to construct a global satellite-based broadband data communications service. In addition, TRW won a $275 million contract from the U.S. Air Force for the Space-Based Infrared System Low program," Gorman said. "The TRW-built Chandra X-Ray Observatory was launched in July and continues to operate successfully for NASA. In addition, NASA awarded a contract to a TRW-led team to develop a preliminary design concept for the Next Generation Space Telescope, the successor to the Hubble Space Telescope.
"Following laudable performance of its Hunter Unmanned Aerial Vehicle in Kosovo, TRW's next generation UAV was selected to compete in a fly-off for the U.S. Army's Tactical Unmanned Aerial Vehicle contract," Gorman said. "In commercial aviation, the TRW thrust reverser actuation system has been selected by Bombardier Aerospace, in a contract valued at more than $50 million, to provide braking action for the new CRJ700 regional jet," Gorman said.
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 Item 7, "Management's 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)
THIRD QUARTER 1999
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Margin Unusual Margin
Operations % Items Total %
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Sales
TRW Automotive $ 1,693.6 $ 1,693.6
LV Automotive 1,243.3 1,243.3
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Total Automotive 2,936.9 2,936.9
TRW Aerospace & Information
Systems 1,243.0 1,243.0
LV Aerospace 281.9 281.9
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Total Aerospace & Information
Systems 1,524.9 1,524.9
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Sales $ 4,461.8 $ 4,461.8
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Segment Profit Before Income
Taxes
TRW Automotive $ 113.0 6.7% $ - $ 113.0 6.7%
LV Automotive 88.3 7.1% - 88.3 7.1%
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Total Automotive 201.3 6.9% - 201.3 6.9%
TRW Aerospace & Information
Systems 127.0 10.2% (56.4) 70.6 5.7%
LV Aerospace 33.1 11.7% - 33.1 11.7%
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Total Aerospace & Information
Systems 160.1 10.5% (56.4) 103.7 6.8%
Segment Profit Before Income
Taxes 361.4 8.1% (56.4) 305.0 6.8%
Corporate Expense and Other (40.8) 45.5 4.7
Financing Costs (150.6) (10.4) (161.0)
Pension Income 58.0 3.5 61.5
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Earnings (Loss) Before Income
Taxes $ 228.0 5.1% $ (17.8) $ 210.2 4.7%
Income Taxes 82.1 (5.4) 76.7
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Net Earnings (Loss) $ 145.9 3.3% $ (12.4) $ 133.5 3.0%
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Diluted earnings(loss)
per share $ 1.18 $ (0.10) $ 1.08
Basic earnings(loss)
per share $ 1.20 $ (0.10) $ 1.10
Dividends paid per
common share $ 0.33 $ 0.33
Common stock outstanding 121.5 121.5
Shares used in computing
per share amounts
Diluted 124.0 124.0
Basic 121.4 121.4
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
THIRD QUARTER 1998
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Margin Unusual Margin
Operations % Items Total %
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Sales
TRW Automotive $ 1,685.6 $ 1,685.6
LV Automotive - -
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Total Automotive 1,685.6 1,685.6
TRW Aerospace & Information
Systems 1,151.1 1,151.1
LV Aerospace - -
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Total Aerospace & Information
Systems 1,151.1 1,151.1
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Sales $ 2,836.7 $ 2,836.7
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Segment Profit Before
Income Taxes
TRW Automotive $ 119.6 7.1% $(12.6) $ 107.0 6.3%
LV Automotive - -
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Total Automotive 119.6 7.1% (12.6) 107.0 6.3%
TRW Aerospace & Information
Systems 111.9 9.7% - 111.9 9.7%
LV Aerospace - -
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Total Aerospace & Information
Systems 111.9 9.7% - 111.9 9.7%
Segment Profit Before Income
Taxes 231.5 8.2% (12.6) 218.9 7.7%
Corporate Expense and Other (30.4) - (30.4)
Financing Costs (24.5) - (24.5)
Pension Income - -
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Earnings (Loss) Before
Income Taxes $ 176.6 6.2% $ (12.6) $ 164.0 5.8%
Income Taxes 64.4 (4.6) 59.8
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Net Earnings (Loss) $ 112.2 4.0% $ (8.0) $ 104.2 3.7%
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Diluted earnings(loss)
per share $ 0.92 $ (0.07) $ 0.85
Basic earnings(loss)
per share $ 0.93 $ (0.07) $ 0.86
Dividends paid per
common share $ 0.31 $ 0.31
Common stock outstanding 119.7 119.7
Shares used in computing
per share amounts
Diluted 123.2 123.2
Basic 120.5 120.5
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
NINE MONTHS ENDED 1999
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Margin Unusual Margin
Operations % Items Total %
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Sales
TRW Automotive $ 5,447.7 $ 5,447.7
LV Automotive 2,747.3 2,747.3
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Total Automotive 8,195.0 8,195.0
TRW Aerospace & Information
Systems 3,567.3 3,567.3
LV Aerospace 581.8 581.8
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Total Aerospace & Information
Systems 4,149.1 4,149.1
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Sales $12,344.1 $12,344.1
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Segment Profit Before Income
Taxes
TRW Automotive $ 387.1 7.1% $( 68.8) $318.3 5.8%
LV Automotive 197.9 7.2% (20.2) 177.7 6.5%
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Total Automotive 585.0 7.1% (89.0) 496.0 6.1%
TRW Aerospace & Information
Systems 327.5 9.2% 23.7 351.2 9.8%
LV Aerospace 64.7 11.1% - 64.7 11.1%
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Total Aerospace & Information
Systems 392.2 9.5% 23.7 415.9 10.0%
Segment Profit Before Income
Taxes 977.2 7.9% (65.3) 911.9 7.4%
Corporate Expense and Other (129.8) (11.8) (141.6)
Financing Costs (334.4) (35.4) (369.8)
Pension Income 116.0 3.5 119.5
In-process Research &
Development - (85.3) (85.3)
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Earnings (Loss) Before Income
Taxes $ 629.0 5.1% $(194.3) $434.7 3.5%
Income Taxes 225.4 (35.6) 189.8
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Net Earnings (Loss) $ 403.6 3.3% $(158.7) $244.9 2.0%
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Diluted earnings(loss)
per share $ 3.28 $( 1.29) $ 1.99
Basic earnings(loss)
per share $ 3.34 $( 1.31) $ 2.03
Dividends paid per common
share $ 0.99 $ 0.99
Common stock outstanding 121.5 121.5
Shares used in computing
per share amounts
Diluted 123.4 123.4
Basic 120.7 120.7
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
NINE MONTHS ENDED 1998
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Margin Unusual Margin
Operations % Items Total %
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Sales
TRW Automotive $ 5,384.5 $ 5,384.5
LV Automotive - -
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Total Automotive 5,384.5 5,384.5
TRW Aerospace & Information
Systems 3,574.7 3,574.7
LV Aerospace - -
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Total Aerospace & Information
Systems 3,574.7 3,574.7
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Sales $ 8,959.2 $ 8,959.2
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Segment Profit Before Income
Taxes
TRW Automotive $ 421.9 7.8% $(12.6)$ 409.3 7.6%
LV Automotive - - -
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Total Automotive 421.9 7.8% (12.6) 409.3 7.6%
TRW Aerospace & Information
Systems 333.2 9.3% 15.0 348.2 9.7%
LV Aerospace - - -
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Total Aerospace & Information
Systems 333.2 9.3% 15.0 348.2 9.7%
Segment Profit Before Income
Taxes 755.1 8.4% 2.4 757.5 8.5%
Corporate Expense and Other (88.7) (88.7)
Financing Costs (102.8) (102.8)
Pension Income - -
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Earnings (Loss) Before Income
Taxes $ 563.6 6.3% $ 2.4 $ 566.0 6.3%
Income Taxes 205.9 0.7 206.6
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Net Earnings (Loss) $ 357.7 4.0% $ 1.7 $ 359.4 4.0%
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Diluted earnings(loss)
per share $ 2.87 $ 0.01 $ 2.88
Basic earnings(loss)
per share $ 2.94 $ 0.01 $ 2.95
Dividends paid per common
share $ 0.93 $ 0.93
Common stock outstanding 119.7 119.7
Shares used in computing
per share amounts
Diluted 124.9 124.9
Basic 121.7 121.7
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Nine Months Ended
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
Net earnings $ 245 $ 359
Purchased in-process research and
development 85 --
Depreciation and amortization 585 414
Acquisitions, net of cash acquired 6,083 247
Net increase in debt 5,935 641
Capital expenditures 540 415
Dividend payments 120 114
Purchase of TRW common stock -- 179
Net change in deferred taxes (97) (217)
SUMMARY BALANCE SHEETS
Sept. 30, 1999 December 31, 1998
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ASSETS
Cash and cash equivalents $ 294 $ 83
Accounts receivable 2,487 1,721
Inventories 1,090 616
Other current assets 1,328 283
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Total current assets 5,199 2,703
Property, plant & equipment, net 3,899 2,683
Total intangible assets, net 4,382 1,067
Investments in affiliated companies 288 243
Long-term deferred income taxes -- 33
Other notes and accounts receivable 283 227
Prepaid pension cost 2,729 --
Other assets 490 213
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Total assets $17,270 $ 7,169
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $2,828 $ 839
Trade accounts payable 1,530 964
Current portion of long-term debt 733 30
Other current liabilities 2,361 1,185
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Total current liabilities 7,452 3,018
Long-term liabilities 1,614 826
Long-term debt 5,530 1,353
Long-term deferred income taxes 581 --
Minority interests in subsidiaries 110 94
Total shareholders' investment 1,983 1,878
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Total liabilities and shareholders'
investment $17,270 $ 7,169
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