TRW Announces Second Quarter 2000 Results
26 July 2000
Net Earnings Increase 9 Percent Over Second Quarter 1999
CLEVELAND - TRW Inc. today reported that for the second quarter ended June 30, 2000, net earnings excluding unusual items increased 9 percent to a record $166.9 million from $153.5 million last year. On a diluted basis, the related earnings per share increased 6 percent to a record $1.33 from $1.25 per share a year ago. Second quarter 2000 sales were $4.5 billion, compared with $4.8 billion in the second quarter of 1999. Sales for the second quarter of 2000 were comparable to the prior year's level, adjusted for businesses divested subsequent to the second quarter of 1999, primarily Lucas Diesel Systems.Commenting on the company's results, Joseph T. Gorman, TRW chairman and chief executive officer, said, "I'm extremely pleased with our company's performance in the second quarter, especially in light of the business environment in North America, higher interest rates, and the strong U.S. dollar. Overall, revenue and diluted earnings per share in the quarter were reduced by approximately $140 million and $0.09 per share, respectively, due primarily to the dollar's strength. Absent this effect, our earnings per share, excluding unusual items, would have improved 14 percent.
"I continue to be encouraged by the strong cash flow generation and the progress we have made to reduce debt. In the first half of the year, we reduced net debt by approximately $1.5 billion, which contributed to a reduction in interest expense of $14.5 million in the second quarter. Combined with the $1.0 billion of net debt reduction achieved in 1999 since the acquisition of LucasVarity, we have reached our $2.5 billion debt reduction goal six months ahead of schedule. I have now challenged our businesses to achieve an incremental $300 million of debt reduction for a total of $2.8 billion by the end of this year," Gorman said.
Including unusual items, net earnings in the second quarter of 2000 were $199.5 million, or $1.59 per share, compared with $139.8 million, or $1.14 per share, in 1999. In the second quarter of 2000, unusual items resulted in net earnings of $32.6 million, or $0.26 per share. After-tax gains consisted of $27.9 million from the sale of RF Micro Devices (RFMD) stock; $22.5 million relating to the merger of TRW Milliwave Inc., a wholly owned subsidiary, with Endgate Corporation to form Endwave Corporation, of which TRW currently owns 53 percent; and $14.8 million on the sale of TRW's interest in Paracel Inc. for shares in Celera Genomics Corporation. These gains were partially offset by $9.6 million of automotive restructuring charges and $23.0 million of unrealized losses on foreign currency hedges. Second quarter 1999 net earnings included unusual items that resulted in after-tax charges of $13.7 million, or $0.11 per share. These charges included $39.5 million for automotive restructuring actions and $25.9 million for expenses related to the LucasVarity acquisition, partially offset by $51.7 million of gains primarily from the sale of RFMD stock.
Net earnings before unusual items for the six-month period ended June 30, 2000, improved 24 percent to $319.0 million, compared with $257.7 million in 1999. The related earnings per share on a diluted basis increased 21 percent to $2.55 from $2.10 a year ago. Sales for the first six months of 2000 were $9.0 billion, an increase of 15 percent, compared with $7.9 billion of sales in the first half of 1999. The increase in both sales and earnings before unusual items resulted primarily from the acquisition of LucasVarity.
"We continue to make strides to lower our cost base companywide. One contributing initiative is our recently announced strategic alliance with Satyam Computer Services, Ltd., based in Hyderabad, India. This newly formed joint venture will provide TRW's automotive, aerospace, and information systems businesses with world-class information systems and engineering services. Over five years, TRW intends to channel approximately $200 million of business through the new company," Gorman said.
"The commercialization of the TRW technology bank continues well into its second year," said Gorman. "Our previously announced transaction relating to the formation of Endwave was completed in the second quarter. Early in the quarter, we formed a strategic partnership with Wireless, Inc., to develop and market high-speed wireless Internet-access equipment. Our most recent partnership, with SpaceBridge Networks Corporation to develop broadband network access products, brings to 11 the number of ventures now under way."
Automotive Operations
Second quarter sales in TRW's automotive business declined 12 percent to $2.9 billion, compared with $3.3 billion in the second quarter of 1999. This was due primarily to the disposal of several businesses, including the Lucas Diesel Systems business, which was sold in January of 2000, and by the effect of the strong U.S. dollar. Adjusting for these factors, second quarter sales increased 2 percent, as compared with the prior year. Higher volume resulting from increased automotive production was partially offset by the effect of price reductions.
Total automotive profit before unusual items for the second quarter of 2000 increased to $241.1 million, compared with $238.2 million in the second quarter of 1999. Automotive profit improved 9 percent in the second quarter, excluding the profit related to the divested businesses and the negative effect of the strong U.S. dollar. This improvement was primarily due to improved operational efficiencies, benefits from the company's cost-reduction programs, and an increase in volume, partially offset by the effect of continuing price reductions.
"Our automotive operations had a solid second quarter, reporting an 8.3 percent margin, compared with 7.2 percent last year," David M. Cote, president and chief operating officer, said. "Clearly, this margin improvement is evidence of operational efficiencies, improved production scheduling, and on-time delivery. In addition, close management of capital and a sharp focus on operating working capital have contributed to strong cash flow.
"During the quarter, TRW expanded its global brake manufacturing capability with a new facility in Mexico and announced plans for one in Poland," Cote said. "The plant in Santa Rosa Jauegui, Mexico, will supply seven automakers serving Mexico and other markets and will also serve as the company's North American Center of Excellence for the production of actuation systems. When completed in early 2001, the new braking actuation facility in Gliwice, Poland, will be TRW's fourth manufacturing site in that country."
Aerospace and Information Systems
In TRW's aerospace and information systems business, second quarter sales, driven by organic growth, increased 6 percent to $1.6 billion, compared with $1.5 billion in the second quarter of 1999. This growth was driven by increased sales to the civil federal marketplace specifically related to the U.S. Census program, growth in the company's missile defense systems business and increased sales in space-related programs, including Astrolink.
Total aerospace and information systems second quarter profit before unusual items was $141.9 million, which is comparable to the $141.3 million reported in the second quarter of 1999. Second quarter 2000 profit margin was 9.0 percent, compared with 9.5 percent in 1999. The decline in margin was driven primarily by the change in mix of major programs in the space and electronics business from maturing to early-phase programs, as profit levels are typically higher in the later years of space-related programs. This effect was offset by improved profitability in the aeronautical systems business due to operational improvement programs.
"During the quarter, TRW added to its impressive program performance record," Cote said. "In a watershed event for defense systems, TRW, along with the U.S. Army and the Israel Ministry of Defense, demonstrated for the first time that an integrated laser weapon system can intercept an artillery rocket. The company also continued its modernization of the Securities and Exchange Commission's EDGAR system, completing upgrades that enable companies to use the Internet to transmit filings. TRW also reached a milestone on its Census 2000 data capture program, processing the 100 millionth form.
"With an emphasis on leading-edge technology, we added several impressive new programs," Cote said. "TRW joined with Lockheed Martin Space Systems and Hughes Space and Communications to form a national team to begin work on a $2.5 billion program to build the Advanced Extremely High Frequency system, the next generation of highly secure communications satellites. We continued to grow our battlefield digitization business with the U.S. Army by signing two significant low-rate initial production contracts in excess of $94 million for battlefield computers and combat identification equipment. The Air Force also awarded TRW a contract valued up to $285 million for its Distributed Mission Training program.
"In addition, we are taking a lead in industry efforts to e-transform our businesses," Cote said. "The UK Council for Electronic Business cited our new www.trwaerospares.com Web initiative for being that industry's most significant implementation of e-business techniques. The Web page links directly to the company's spares logistics system, providing customers access to all TRW commercial aircraft spares -- which include 166,000 part numbers -- 24 hours a day, anywhere in the world."
TRW provides advanced-technology products and services for the automotive, aerospace, and information systems markets.
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SECOND QUARTER 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety Systems $ 727.7 $ 727.7
Chassis Systems 1,510.8 1,510.8
Automotive Electronics 437.3 437.3
Other Automotive 217.2 217.2
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Total Automotive 2,893.0 2,893.0
Space & Electronics 467.0 467.0
Systems & Information
Technology 837.5 837.5
Aeronautical Systems 277.9 277.9
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Total Aerospace
& Information Systems 1,582.4 1,582.4
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Sales $4,475.4 $4,475.4
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Profit Before Taxes
Occupant Safety Systems $ 60.1 8.3% $ (0.7)$ 59.4 8.2%
Chassis Systems 119.1 7.9% (7.1) 112.0 7.4%
Automotive Electronics 36.0 8.2% (3.4) 32.6 7.5%
Other Automotive 25.9 11.9% (2.9) 23.0 10.6%
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Total Automotive 241.1 8.3% (14.1) 227.0 7.8%
Space & Electronics 48.7 10.4% 94.4 143.1 30.6%
Systems & Information
Technology 54.7 6.5% 22.7 77.4 9.2%
Aeronautical Systems 38.5 13.9% - 38.5 13.9%
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Total Aerospace
& Information Systems 141.9 9.0% 117.1 259.0 16.4%
Profit Before Taxes 383.0 8.6% 103.0 486.0 10.9%
Corporate Expense
and Other (49.9) (35.5) (85.4)
Financing Costs (127.7) - (127.7)
Pension Income 54.0 - 54.0
In-process Research
and Development - (11.7) (11.7)
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Earnings(Loss)
Before Income Taxes $ 259.4 5.8% $ 55.8 $ 315.2 7.0%
Income Taxes 92.5 23.2 115.7
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Net Earnings(Loss) $ 166.9 3.7% $ 32.6 $ 199.5 4.5%
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Diluted earnings
(loss) per share $ 1.33 $ 0.26 $ 1.59
Basic earnings
(loss) per share $ 1.36 $ 0.26 $ 1.62
Dividends paid
per common share $ 0.33
Common stock outstanding 123.9
Shares used in computing
per share amounts
Diluted 125.6
Basic 123.2
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SECOND QUARTER 1999
--------------------------------------------
Margin Unusual Margin
Operations % Items Total %
----------------------------------------------------------------------
Sales
Occupant Safety Systems $ 779.0 $ 779.0
Chassis Systems 1,538.2 1,538.2
Automotive Electronics 540.1 540.1
Other Automotive 436.2 436.2
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Total Automotive 3,293.5 3,293.5
Space & Electronics 453.2 453.2
Systems & Information
Technology 756.9 756.9
Aeronautical Systems 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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Profit Before Taxes
Occupant Safety Systems $ 46.6 6.0% $ (6.7)$ 39.9 5.1%
Chassis Systems 133.0 8.6% (63.7) 69.3 4.5%
Automotive Electronics 36.0 6.7% (10.3) 25.7 4.8%
Other Automotive 22.6 5.2% 1.4 24.0 5.5%
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Total Automotive 238.2 7.2% (79.3) 158.9 4.8%
Space & Electronics 61.1 13.5% 78.5 139.6 30.8%
Systems & Information
Technology 50.7 6.7% 1.0 51.7 6.8%
Aeronautical Systems 29.5 10.5% - 29.5 10.5%
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Total Aerospace
& Information Systems 141.3 9.5% 79.5 220.8 14.8%
Profit Before Taxes 379.5 7.9% 0.2 379.7 7.9%
Corporate Expense
and Other (58.1) (7.1) (65.2)
Financing Costs (142.2) (12.8) (155.0)
Pension Income 58.0 - 58.0
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)
SIX MONTHS ENDED 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety Systems $ 1,488.2 $ 1,488.2
Chassis Systems 3,038.9 3,038.9
Automotive Electronics 908.8 908.8
Other Automotive 491.9 491.9
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Total Automotive 5,927.8 5,927.8
Space & Electronics 953.0 953.0
Systems & Information
Technology 1,611.3 1,611.3
Aeronautical Systems 548.6 548.6
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Total Aerospace
& Information Systems 3,112.9 3,112.9
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Sales $ 9,040.7 $ 9,040.7
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Profit Before Taxes
Occupant Safety Systems $ 114.7 7.7% $ (41.3)$ 73.4 4.9%
Chassis Systems 241.9 8.0% (51.1) 190.8 6.3%
Automotive Electronics 72.6 8.0% (7.6) 65.0 7.2%
Other Automotive 53.4 10.9% 28.1 81.5 16.6%
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Total Automotive 482.6 8.1% (71.9) 410.7 6.9%
Space & Electronics 101.6 10.7% 268.1 369.7 38.8%
Systems & Information
Technology 101.6 6.3% 22.7 124.3 7.7%
Aeronautical Systems 66.0 12.0% - 66.0 12.0%
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Total Aerospace
& Information Systems 269.2 8.6% 290.8 560.0 18.0%
Profit Before Taxes 751.8 8.3% 218.9 970.7 10.7%
Corporate Expense
and Other (101.3) (47.6) (148.9)
Financing Costs (264.5) (0.7) (265.2)
Pension Income 111.4 - 111.4
In-process Research
and Development - (11.7) (11.7)
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Earnings(Loss)
Before Income Taxes $ 497.4 5.5% $ 158.9 $ 656.3 7.3%
Income Taxes 178.4 69.1 247.5
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Net Earnings(Loss) $ 319.0 3.5% $ 89.8 $ 408.8 4.5%
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Diluted earnings
(loss) per share $ 2.55 $ 0.72 $ 3.27
Basic earnings
(loss) per share $ 2.60 $ 0.73 $ 3.33
Dividends paid
per common share $ 0.66
Common stock outstanding 123.9
Shares used in computing
per share amounts
Diluted 125.1
Basic 122.8
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
SIX MONTHS ENDED 1999
--------------------------------------------
Margin Unusual Margin
Operations % Items Total %
----------------------------------------------------------------------
Sales
Occupant Safety Systems $ 1,574.2 $ 1,574.2
Chassis Systems 2,152.0 2,152.0
Automotive Electronics 857.4 857.4
Other Automotive 674.5 674.5
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Total Automotive 5,258.1 5,258.1
Space & Electronics 914.4 914.4
Systems & Information
Technology 1,409.9 1,409.9
Aeronautical Systems 299.9 299.9
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Total Aerospace
& Information Systems 2,624.2 2,624.2
----------------------------------------------------------------------
Sales $ 7,882.3 $ 7,882.3
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Profit Before Taxes
Occupant Safety Systems $ 103.0 6.5% $ (9.8)$ 93.2 5.9%
Chassis Systems 172.4 8.0% (68.4) 104.0 4.8%
Automotive Electronics 59.3 6.9% (11.4) 47.9 5.6%
Other Automotive 49.0 7.3% 0.6 49.6 7.4%
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Total Automotive 383.7 7.3% (89.0) 294.7 5.6%
Space & Electronics 111.0 12.1% 111.6 222.6 24.3%
Systems & Information
Technology 89.5 6.3% (31.5) 58.0 4.1%
Aeronautical Systems 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%
Profit Before Taxes 615.8 7.8% (8.9) 606.9 7.7%
Corporate Expense
and Other (89.0) (57.3) (146.3)
Financing Costs (183.8) (25.0) (208.8)
Pension Income 58.0 - 58.0
In-process Research
and Development - (85.3) (85.3)
----------------------------------------------------------------------
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)
SELECTED CASH FLOW ITEMS Six Months Ended
June 30, 2000 June 30, 1999
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Net earnings(loss) $ 409 $ 111
Gains on sale of nonoperating assets (239) (95)
Gain on Endwave merger (55) -
Depreciation and amortization 427 363
Pension income (128) (61)
Deferred income taxes 117 (131)
Operating working capital (66) (66)
Capital expenditures including other
intangibles (312) (356)
Acquisitions, net of cash acquired 21 (6,049)
Net proceeds from divestitures 1,396 91
Net increase(decrease) in debt (1,454) 6,598
Dividends paid (82) (80)
Purchased in-process research and
development 12 85
SUMMARY BALANCE SHEETS
June 30, 2000 December 31, 1999
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ASSETS
Cash and cash equivalents $ 235 $ 228
Accounts receivable 2,634 2,480
Inventories 943 1,039
Net assets of acquired businesses
held for sale - 827
Other current assets 571 625
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Total current assets 4,383 5,199
Property, plant & equipment-net 3,688 3,894
Intangible assets-net 4,315 4,331
Investments in affiliated companies 1,304 1,185
Other notes and accounts receivable 297 257
Prepaid pension cost 2,821 2,876
Other assets 511 524
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Total assets $17,319 $18,266
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LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Short-term debt $ 1,610 $ 2,444
Trade accounts payable 1,711 1,638
Current portion of long-term debt 601 758
Other current liabilities 1,823 1,889
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Total current liabilities 5,745 6,729
Long-term liabilities 2,119 1,991
Long-term debt 4,865 5,369
Deferred income taxes 1,393 1,352
Minority interests in subsidiaries 206 113
Total shareholders' investment 2,991 2,712
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Total liabilities and
shareholders' investment $17,319 $18,266
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