TRW Announces Fourth Quarter and 1999 Results
26 January 2000
TRW Announces Fourth Quarter and 1999 Results; Fourth Quarter Earnings Increase 48 Percent
CLEVELAND--Jan. 25, 2000--TRW Inc.
Financial Highlights Fourth Quarter 1999
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- Sales $4.6 billion $17.0 billion
- Excluding Unusual Items
-Net Earnings $164.8 million $568.4 million
-Diluted Earnings
Per Share $1.33 per share $4.61 per share
- Including Unusual Items
-Net Earnings $223.9 million $468.8 million
-Diluted Earnings
Per Share $1.81 per share $3.80 per share
TRW Inc. today reported that for the quarter ended December 31, 1999, net earnings increased 48 percent to a record $164.8 million, or $1.33 per share, excluding unusual items. This compares with fourth quarter 1998 net earnings of $111.4 million, or $0.91 per share. Fourth quarter 1999 sales increased 58 percent to a record $4.6 billion, compared with $2.9 billion in the fourth quarter of 1998.
TRW's fourth quarter 1999 earnings and sales reflect the results of LucasVarity, which was acquired on March 25, 1999. Excluding LucasVarity, fourth quarter 1999 sales increased 2 percent, compared to 1998.
Including unusual items, net earnings increased 91 percent in the fourth quarter of 1999 to a record $223.9 million, or $1.81 per share, compared with $117.4 million, or $0.96 per share, in the fourth quarter of 1998. For the quarter, unusual items resulted in net earnings of $59.1 million, or $0.48 per share. After tax gains of $140.5 million from the sale of assets, primarily RF Micro Devices (RFMD) stock, were offset by $53.3 million associated with the previously announced discontinuance of certain products within the warehouse management systems and software security product lines, $19.6 million of expense pertaining to the LucasVarity acquisition, and $8.5 million for automotive restructuring charges. The fourth quarter of 1998 net earnings included automotive restructuring of $10.3 million and a benefit from an interest accrual adjustment relating to a tax litigation settlement of $16.3 million.
For the year 1999, net earnings increased 20 percent to $568.4 million, or $4.61 per share, excluding unusual items. This compares with 1998 net earnings of $474.1 million, or $3.81 per share. Sales for 1999 increased 43 percent to $17.0 billion, compared with $11.9 billion in 1998. Excluding LucasVarity, sales for the year increased 1 percent.
Including unusual items, net earnings declined 2 percent in 1999 to $468.8 million, or $3.80 per share, compared with $476.8 million, or $3.83 per share, in 1998. For the year, unusual items resulting in net after-tax charges of $99.6 million included $55.1 million for automotive restructuring; $53.3 million related to the discontinuance of certain products within the warehouse management systems and software security product lines; $147.2 million for expenses related to the LucasVarity acquisition, of which $85.3 million related to purchased in-process research and development; $51.0 million for the write-off of TRW's investment in ICO Global Communications (Holdings) Limited; and $28.1 million for losses on fixed-price type contracts. These charges were partially offset by after-tax gains of $235.1 million from asset sales, primarily related to RFMD stock.
"Driven by the acquisition of LucasVarity, the strengthening of our senior management, and the divestiture of several noncore businesses, 1999 was a year of transformation for TRW," said Joseph T. Gorman, chairman and chief executive officer. "We have entered into new business opportunities, introduced new technologies, and won key contracts, clearly indicating the exciting future of this company.
"In the brief time Dave Cote has been with us as president and chief operating officer, he has focused his total attention on our complex global automotive business," said Gorman. "With his strong operations background, I am confident that Dave will contribute much to the business created by the TRW and LucasVarity combination.
"During the quarter we continued to delever the balance sheet, and we are on plan to reduce net debt by $2.5 billion by year-end 2000," Gorman said. "Net debt was reduced by $454 million through asset sales, primarily from the sale of RFMD stock and excess property, and improvements in operating working capital.
"Significant progress was made on the previously announced plan to divest noncore automotive operations. During the fourth quarter, we announced the sale of Lucas Diesel Systems for gross proceeds of approximately $875 million. That sale was substantially completed in January 2000. Also in January, we announced the sale of the Nelson Stud Welding operations, which is scheduled to close in the first quarter," Gorman said.
Automotive Operations
Fourth quarter sales in TRW's automotive business increased to $3.1 billion from $1.8 billion in the fourth quarter of 1998, due to the acquisition of LucasVarity. Excluding LucasVarity, fourth quarter sales were $1.8 billion, approximately even with the prior year, as higher volume was offset primarily by the effect of the strong U.S. dollar and price reductions.
Total automotive segment profit before tax and unusual items for the fourth quarter of 1999 increased to $230.1 million, compared with $145.7 million in the fourth quarter of 1998, due to the inclusion of LucasVarity. Excluding LucasVarity results and unusual items, segment profit before tax declined 20 percent to $117.2 million, compared with the fourth quarter of 1998. This decline was primarily due to price reductions, production inefficiencies, and costs associated with the introduction of new products, partially offset by cost reductions.
Calendar year 1999 sales in TRW's automotive business increased to $11.3 billion from $7.2 billion in 1998, due to the acquisition of LucasVarity. Excluding LucasVarity, 1999 sales were $7.2 billion, as the effect of higher volume was offset by price reductions and the effect of the strong U.S. dollar.
Segment profit before tax and unusual items for the year 1999 increased 44 percent to $815.1 million, compared with $567.6 million in 1998, due to the inclusion of LucasVarity. Excluding LucasVarity results and unusual items, segment profit before tax declined 11 percent to $504.3 million, compared to 1998 results. Similar to the fourth quarter variance, this decline was primarily due to price reductions, production inefficiencies, and costs associated with the introduction of new products, partially offset by cost reductions.
The occupant safety systems business continues to expand the scope of crash protection with advanced front- and side-impact and rollover technologies, and it has made significant progress in new business awards. In 1999, the occupant safety systems business was awarded more than $1 billion in annual business beginning fully in 2003. The awarded business will continue for four to five years.
Driven by the acquisition of LucasVarity, the automotive electronics business has nearly doubled in size and has significantly strengthened its market position. Through the combined operations, TRW has become a major player in most segments of that fast-growing market.
Aerospace and Information Systems
In TRW's aerospace and information systems business, fourth quarter sales increased 34 percent to $1.5 billion from $1.1 billion in the fourth quarter of 1998, due to the inclusion of LucasVarity sales and organic growth. Excluding LucasVarity, fourth quarter 1999 sales increased 5 percent, primarily due to the startup of the Astrolink contract and higher volume due to new government contracts in the systems engineering and support marketplace, and the growth of existing space and missile systems and non- defense contracts.
Total aerospace and information systems fourth quarter segment profit before tax and unusual items increased 46 percent to $159.0 million, compared with $109.2 million in the fourth quarter of 1998. Segment profit before tax and unusual items increased due to the LucasVarity acquisition. Excluding LucasVarity and unusual items, fourth quarter 1999 segment profit declined 8 percent to $100.5 million, primarily due to losses associated with the warehouse management product that is being discontinued, and the decline of the Y2K and enterprise resource planning integration business.
Calendar year 1999 sales in TRW's aerospace and information systems business increased to $5.7 billion from $4.7 billion in 1998, due to the acquisition of LucasVarity. Excluding LucasVarity, 1999 sales increased 1 percent as the effect of maturing programs in the first half of 1999 was offset by new business in the second half. Second half 1999 sales increased 7 percent, excluding LucasVarity.
Segment profit before tax and unusual items for the year 1999 increased 23 percent to $551.2 million, compared with $449.4 million in 1998, due to the inclusion of LucasVarity. Excluding LucasVarity results and unusual items, segment profit before tax declined 5 percent, compared with 1998, as improved performance on certain defense contracts were offset by the information technology issues previously described.
TRW announced an expansion of its strategic relationship with RFMD by extending RFMD's existing license for TRW's patented gallium arsenide transistor technology to include its use in commercial coaxial and other non-fiber applications, including the broadband wired market. RFMD granted TRW warrants to purchase additional RFMD shares in exchange for the license expansion.
TRW also demonstrated its continued technological leadership in advanced semiconductor materials with the development of the world's fastest digital integrated circuit--a frequency divider operating at 69 gigahertz. The chip, fabricated using indium phosphide, demonstrates the very high processing speeds that will enable the next generation of fiber-optic and wireless broadband telecommunications systems. In addition, TRW merged its Components International Inc. subsidiary with Cubic Memory Inc. to form Vertical Circuits Inc. (VCI), a company that designs, develops and produces stacked memory chips. TRW holds a 50 percent equity interest in VCI.
Astrolink, a wireless broadband satellite venture founded by TRW, Lockheed Martin, and Telecom Italia, secured substantially all of its remaining equity financing following an investment of $425 million by Liberty Media Group. Liberty Media's holdings in telecommunications, content and Internet businesses make it a strategic addition to the Astrolink partnership. In addition to TRW's equity holding in Astrolink, TRW is building the digital communications payload for the Astrolink satellites.
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)
FOURTH QUARTER 1999
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety
Systems $741.4 $741.4
Chassis Systems 1,488.6 1,488.6
Automotive Electronics 444.9 444.9
Other Automotive 459.8 459.8
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Total Automotive 3,134.7 3,134.7
Space & Electronics 457.5 457.5
Systems & Information
Technology 713.3 713.3
Aeronautical Systems 319.8 319.8
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Total Aerospace &
Information Systems 1,490.6 1,490.6
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Sales $4,625.3 $4,625.3
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Segment Profit Before Income Taxes
Occupant Safety
Systems $48.2 6.5% $0.3 $48.5 6.5%
Chassis Systems 111.3 7.5% (7.1) 104.2 7.0%
Automotive Electronics 38.3 8.6% (2.4) 35.9 8.1%
Other Automotive 32.3 7.0% (2.3) 30.0 6.5%
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Total Automotive 230.1 7.3% (11.5) 218.6 7.0%
Space & Electronics 55.6 12.2% 205.9 261.5 57.2%
Systems & Information
Technology 44.9 6.3% (71.8) (26.9) (3.8)%
Aeronautical Systems 58.5 18.3% - 58.5 18.3%
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Total Aerospace &
Information Systems 159.0 10.7% 134.1 293.1 19.7%
Segment Profit Before
Income Taxes 389.1 8.4% 122.6 511.7 11.1%
Corporate Expense
and Other (45.2) (12.6) (57.8)
Financing Costs (144.5) (17.1) (161.6)
Pension Income 60.3 - 60.3
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Earnings (Loss) Before
Income Taxes $259.7 5.6% $92.9 $352.6 7.6%
Income Taxes 94.9 33.8 128.7
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Net Earnings (Loss) $164.8 3.6% $59.1 $223.9 4.8%
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Diluted earnings(loss)
per share $1.33 $0.48 $1.81
Basic earnings(loss)
per share $1.35 $0.49 $1.84
Dividends paid per
common share $0.33
Common stock outstanding 122.0
Shares used in computing
per share amounts
Diluted 123.8
Basic 121.7
FOURTH QUARTER 1998
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety
Systems $796.3 $796.3
Chassis Systems 526.6 526.6
Automotive Electronics 290.6 290.6
Other Automotive 203.1 203.1
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Total Automotive 1,816.6 1,816.6
Space & Electronics 427.0 427.0
Systems & Information
Technology 683.7 683.7
Aeronautical Systems - -
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Total Aerospace &
Information Systems 1,110.7 1,110.7
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Sales $2,927.3 $2,927.3
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Segment Profit Before Income Taxes
Occupant Safety
Systems $75.2 9.4% $9.3 $84.5 10.6%
Chassis Systems 26.8 5.1% (5.3) 21.5 4.1%
Automotive Electronics 23.3 8.0% (10.8) 12.5 4.3%
Other Automotive 20.4 10.1% (4.9) 15.5 7.6%
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Total Automotive 145.7 8.0% (11.7) 134.0 7.4%
Space & Electronics 51.5 12.1% - 51.5 12.1%
Systems & Information
Technology 57.7 8.4% - 57.7 8.4%
Aeronautical Systems - - - - -
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Total Aerospace &
Information Systems 109.2 9.8% - 109.2 9.8%
Segment Profit Before
Income Taxes 254.9 8.7% (11.7) 243.2 8.3%
Corporate Expense
and Other (46.8) - (46.8)
Financing Costs (41.4) 25.1 (16.3)
Pension Income - - -
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Earnings (Loss) Before
Income Taxes $166.7 5.7% $13.4 $180.1 6.2%
Income Taxes 55.3 7.4 62.7
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Net Earnings (Loss) $111.4 3.8% $6.0 $117.4 4.0%
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Diluted earnings(loss)
per share $0.91 $0.05 $0.96
Basic earnings(loss)
per share $0.93 $0.05 $0.98
Dividends paid per
common share $0.33
Common stock
outstanding 119.9
Shares used in computing
per share amounts
Diluted 122.8
Basic 119.8
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
TWELVE MONTHS ENDED 1999
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety
Systems $3,009.2 $3,009.2
Chassis Systems 5,077.1 5,077.1
Automotive Electronics 1,631.7 1,631.7
Other Automotive 1,611.7 1,611.7
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Total Automotive 11,329.7 11,329.7
Space & Electronics 1,869.6 1,869.6
Systems & Information
Technology 2,868.5 2,868.5
Aeronautical Systems 901.6 901.6
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Total Aerospace &
Information Systems 5,639.7 5,639.7
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Sales $16,969.4 $16,969.4
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Segment Profit Before Income Taxes
Occupant Safety
Systems $196.4 6.5% $(9.5) $186.9 6.2%
Chassis Systems 374.8 7.4% (75.5) 299.3 5.9%
Automotive Electronics 127.7 7.8% (13.8) 113.9 7.0%
Other Automotive 116.2 7.2% (1.7) 114.5 7.1%
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Total Automotive 815.1 7.2% (100.5) 714.6 6.3%
Space & Electronics 243.8 13.0% 256.3 500.1 26.7%
Systems & Information
Technology 184.1 6.4% (98.5) 85.6 3.0%
Aeronautical Systems 123.3 13.7% - 123.3 13.7%
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Total Aerospace &
Information Systems 551.2 9.8% 157.8 709.0 12.6%
Segment Profit Before
Income Taxes 1366.3 8.1% 57.3 1423.6 8.4%
Corporate Expense
and Other (175.0) (24.4) (199.4)
Financing Costs (478.9) (52.5) (531.4)
Pension Income 176.3 3.5 179.8
In-process Research
& Development - (85.3) (85.3)
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Earnings (Loss) Before
Income Taxes $888.7 5.2% $(101.4) $787.3 4.6%
Income Taxes 320.3 (1.8) 318.5
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Net Earnings (Loss) $568.4 3.3% $(99.6) $468.8 2.8%
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Diluted earnings(loss)
per share $4.61 $(0.81) $3.80
Basic earnings(loss)
per share $4.69 $(0.82) $3.87
Dividends paid per
common share $1.32
Common stock outstanding 122.0
Shares used in computing
per share amounts
Diluted 123.5
Basic 121.0
TWELVE MONTHS ENDED 1998
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety
Systems $3,042.2 $3,042.2
Chassis Systems 2,201.2 2,201.2
Automotive Electronics 1,136.5 1,136.5
Other Automotive 821.2 821.2
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Total Automotive 7,201.1 7,201.1
Space & Electronics 1,921.6 1,921.6
Systems & Information
Technology 2,763.8 2,763.8
Aeronautical Systems - -
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Total Aerospace &
Information Systems 4,685.4 4,685.4
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Sales $11,886.5 $11,886.5
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Segment Profit Before Income Taxes
Occupant Safety
Systems $257.1 8.5% $0.2 $257.3 8.5%
Chassis Systems 135.8 6.2% (6.7) 129.1 5.9%
Automotive Electronics 85.9 7.6% (12.7) 73.2 6.4%
Other Automotive 88.8 10.8% (5.1) 83.7 10.2%
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Total Automotive 567.6 7.9% (24.3) 543.3 7.5%
Space & Electronics 232.4 12.1% 33.5 265.9 13.8%
Systems & Information
Technology 217.0 7.9% (25.5) 191.5 6.9%
Aeronautical Systems - - - - -
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Total Aerospace &
Information Systems 449.4 9.6% 8.0 457.4 9.8%
Segment Profit Before
Income Taxes 1,017.0 8.6% (16.3) 1,000.7 8.4%
Corporate Expense
and Other (135.5) - (135.5)
Financing Costs (144.2) 25.1 (119.1)
Pension Income - - -
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Earnings (Loss) Before
Income Taxes $737.3 6.2% $8.8 $746.1 6.3%
Income Taxes 263.2 6.1 269.3
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Net Earnings (Loss) $474.1 4.0% $2.7 $476.8 4.0%
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Diluted earnings(loss)
per share $3.81 $0.02 $3.83
Basic earnings(loss)
per share $3.91 $0.02 $3.93
Dividends paid per
common share $1.26
Common stock outstanding 119.9
Shares used in computing
per share amounts
Diluted 124.4
Basic 121.3
TRW STATISTICAL SUMMARY, CONTINUED
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Twelve Months Ended
December 31, 1999 December 31, 1998
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Net earnings $ 469 $ 477
Purchased in-process research
and development 85 -
Asset write-off 153 -
Gains on sales of assets (332) -
Depreciation and amortization 850 566
LucasVarity pension income (192) -
Deferred income taxes 233 (223)
Operating working capital 201 1
Capital expenditures (865) (625)
Acquisitions, net of cash
acquired (6,095) (249)
Proceeds from divestitures, net 432 14
Net increase in financing
activities 5,455 522
Dividend payments (160) (154)
Acquisition of TRW common stock - (184)
SUMMARY BALANCE SHEETS
December 31, 1999 December 31, 1998
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ASSETS
Cash and cash equivalents $ 228 $ 83
Accounts receivable 2,480 1,721
Inventories 1,039 616
Net assets of acquired businesses
held for sale 827 -
Other current assets 625 283
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Total current assets 5,199 2,703
Property, plant & equipment,
net 3,894 2,683
Total intangible assets, net 4,331 1,067
Investments in affiliated
companies 1,185 243
Long-term deferred income
taxes - 33
Other notes and accounts
receivable 257 227
Prepaid pension cost 2,876 -
Other assets 524 213
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Total assets $18,266 $ 7,169
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 2,444 $ 839
Trade accounts payable 1,638 964
Current portion of
long-term debt 758 30
Other current liabilities 1,889 1,185
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Total current liabilities 6,729 3,018
Long-term liabilities 1,991 826
Long-term debt 5,369 1,353
Long-term deferred income
taxes 1,352 -
Minority interests in
subsidiaries 113 94
Total shareholders' investment 2,712 1,878
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Total liabilities and
shareholders' investment $18,266 $ 7,169
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