TRW Announces Third Quarter 2000 Results
19 October 2000
TRW Announces Third Quarter 2000 Results; Earnings in Line With Previously Announced Expectations
Business EditorsCLEVELAND--Oct. 18, 2000--TRW Inc.
Financial Highlights Third Quarter
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2000 1999
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-- Sales $4.1 billion $4.5 billion
-- Excluding Unusual Items
- Net Earnings $91.3 million $145.9 million
- Diluted Earnings Per Share $0.73 per share $1.18 per share
-- Including Unusual Items
- Net Earnings $32.0 million $133.5 million
- Diluted Earnings Per Share $0.26 per share $1.08 per share
-- Net Debt to Total Capital 69.1 percent 80.8 percent
TRW Inc. today reported that for the third quarter ended September 30, 2000, net earnings excluding unusual items were $91.3 million compared to $145.9 million last year. On a diluted basis, the related earnings per share were $0.73 compared to $1.18 per share a year ago. Third quarter 2000 sales were $4.1 billion, compared to $4.5 billion in the third quarter of 1999.
Change in mix of major space-related programs, the strength of the U.S. dollar, softness and interruptions in automotive production schedules, increased investments relating to initiatives focused on commercializing defense technologies, a product recall and inventory adjustments were the primary reasons for the decline in third quarter profitability as compared to the prior year third quarter. Sales decreased primarily as a result of dispositions and the strength of the U.S. dollar.
Commenting on the company's results, Joseph T. Gorman, chairman and chief executive officer, said, "During the past three months, a convergence of negative industry-wide and TRW-specific factors has resulted in a disappointing third quarter financial performance. We are focused on mitigating the effects of the industry factors and correcting the company-specific issues, while we continue to concentrate on our productivity and capital management initiatives to improve our core operations and cash flow. These efforts, together with initiatives to commercialize our portfolio of leading-edge technologies, should result in value to our shareholders.
"Despite the negative business environment, I continue to be encouraged by our strong cash flow generation and the progress we have made to reduce debt. In the third quarter, we reduced net debt by more than $200 million, bringing the total debt reduction to approximately $1.7 billion during the first nine months of 2000. We remain ahead of plan in our debt-reduction efforts," Gorman said.
Including unusual items, net earnings in the third quarter of 2000 were $32.0 million, or $0.26 per share, compared to $133.5 million, or $1.08 per share, in 1999. In the third quarter of 2000, unusual items reduced net earnings by $59.3 million, or $0.47 per share. After-tax charges included $35.9 million relating to the consolidation of two air bag manufacturing operations; $9.9 million of restructuring charges relating to the company's automotive restructuring program; and $14.5 million of unrealized non-cash losses on foreign currency hedges. Third quarter 1999 net earnings included unusual items that resulted in after-tax charges of $12.4 million, or $0.10 per share. These charges included $51.0 million associated with the write-off of TRW's investment in ICO Global Communications (Holdings) Limited, partially offset by gains of $14.4 million, primarily from the sale of RFMD stock, and $24.2 million for items pertaining to the March 1999 acquisition of LucasVarity.
Net earnings before unusual items for the nine-month period ended September 30, 2000, were $410.3 million compared to $403.6 million in 1999. The related earnings per share on a diluted basis were unchanged at $3.28. Including unusual items, net earnings for the nine-month period ended September 30, 2000, were $440.8 million, or $3.52 per share, compared to $244.9 million, or $1.99 per share in 1999. Sales for the first nine months of 2000 were $13.1 billion, an increase of 6 percent, compared to $12.3 billion in 1999.
Automotive Operations
Third quarter sales in TRW's automotive business declined 15 percent to $2.5 billion, compared to $2.9 billion in the third quarter of 1999. This was due primarily to the disposal of several businesses, including the Lucas Diesel Systems business sold in January of 2000, and the effect of the strong U.S. dollar. Adjusting for these factors, third quarter sales were comparable to sales in the prior year as the effect of price reductions and lower industry volumes were offset by increased sales from new product offerings.
Total automotive profit before unusual items for the third quarter of 2000 declined to $135.9 million, compared to $201.3 million in the third quarter of 1999. The decline in profit of $65.4 million included approximately $17 million relating to the negative impact of the strong U.S. dollar and approximately $20 million due to a previously announced product recall and inventory adjustments. The remaining profit decline of approximately $27 million was primarily due to softness and interruptions in automotive production schedules, the effect of continuing price reductions, and costs associated with new product offerings, partially offset by benefits from the company's cost-reduction programs.
David M. Cote, president and chief operating officer, said, "During the first half of the year, we benefited from strong industry trends. The present automotive business environment is challenging on many fronts. We remain somewhat cautious regarding the outlook for global automotive production and the strong U.S. dollar. To help mitigate this difficult business environment, we continue to initiate actions aimed at improving productivity.
"We are encouraged with the progress in sales awards, having gained more than $1.9 billion in new business during the first three quarters. I'm particularly pleased to note that braking and suspension modules constitute a major portion of these awards, a strong sign that our strategic move to provide modular systems is paying off. Another industry-leading product gaining acceptance is electrically powered hydraulic steering, as TRW added yet another European automaker as a customer for this new product.
"The company continues to expand and benefit from its automotive technology base and safety systems leadership. Autocruise Ltd., our joint venture with Thomson-CSF that develops and manufactures adaptive cruise control radar sensors, announced a strategic alliance agreement with Visteon Corporation and an award by MAN, a German truck manufacturer, for radar sensors for high-technology trucks. An equity stake and licensing agreement with Eyematic Interfaces will expand our expertise in key growth areas of advanced safety and automotive convenience systems," Cote said. "An agreement with Michelin to develop next-generation tire pressure monitoring devices is aimed at addressing consumer concern about potentially hazardous tire inflation levels. Advanced technologies are being used for seat belt pretensioners, and a new cold-gas air bag inflator designed for use during rollover accidents will be offered by a North American automaker in 2001."
Aerospace and Information Systems
In TRW's aerospace and information systems business, third quarter sales were $1.6 billion, compared to $1.5 billion in the third quarter of 1999. This growth was driven primarily by increased sales to the civil federal information technology marketplace specifically related to the U.S. Census program and growth in the company's missile defense systems business, partially offset by a decline in major space-related programs and a negative currency translation effect in the aeronautical systems business.
Total aerospace and information systems third quarter profit before unusual items declined to $131.1 million, compared to $160.1 million reported in the third quarter of 1999. The decline in profit was driven primarily by the change in mix of major programs in the space and electronics business from maturing to early-phase programs, and increased investments relating to initiatives focused on commercializing defense technologies. The amortization of intangibles resulting from the formation of Endwave Corporation and TRW's share of losses from companies partially owned, together were $7.8 million in the third quarter.
"TRW's expanding technology bank initiatives remain a positive for TRW, and we are convinced that increasing investments in this industry-leading endeavor is the right action to take," said Cote. "Our most recent milestone came from Astrolink, with the start of production of a key ground-to-space interface for the developing global broadband telecom system.
"Changing our civil federal, state, local, and commercial information technology businesses into a single integrated end-to-end solutions organization will provide better focus and improved efficiencies for this important TRW business," Cote said. "In aerospace operations, the implementation of lean manufacturing techniques is resulting in reduced costs and lead times, while advanced techniques to drive forward quality initiatives continue to make significant progress.
"The unique capability of TRW laser technology to be used for tough air defense missions was demonstrated by the recent successes of the TRW-designed Tactical High Energy Laser/Advanced Concept Technology Demonstrator (THEL/ACTD)," said Cote. "The historic test, which showed THEL's ability to detect, track, engage, and destroy salvos of Katyusha rockets, turned a theoretical goal into a lasting and very significant engineering achievement."
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
THIRD QUARTER 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety Systems $ 638.6 $ 638.6
Chassis Systems 1,301.4 1,301.4
Automotive Electronics 378.1 378.1
Other Automotive 179.3 179.3
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Total Automotive 2,497.4 2,497.4
Space & Electronics 463.1 463.1
Systems & Information
Technology 835.5 835.5
Aeronautical Systems 257.7 257.7
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Total Aerospace
& Information Systems 1,556.3 1,556.3
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Sales $ 4,053.7 $4,053.7
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Profit Before Taxes
Occupant Safety Systems $ 38.0 6.0% $ (57.0) $ (19.0) (3.0%)
Chassis Systems 69.3 5.3% (1.9) 67.4 5.2%
Automotive Electronics 18.9 5.0% (7.9) 11.0 2.9%
Other Automotive 9.7 5.4% (2.4) 7.3 4.1%
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Total Automotive 135.9 5.4% (69.2) 66.7 2.7%
Space & Electronics 39.0 8.4% 1.8 40.8 8.8%
Systems & Information
Technology 57.0 6.8% - 57.0 6.8%
Aeronautical Systems 35.1 13.6% - 35.1 13.6%
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Total Aerospace
& Information Systems 131.1 8.4% 1.8 132.9 8.5%
Profit Before Taxes 267.0 6.6% (67.4) 199.6 4.9%
Corporate Expense and
Other (47.5) (22.2) (69.7)
Financing Costs (131.8) - (131.8)
Pension Income 51.9 - 51.9
In-process Research
and Development - - -
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Earnings(Loss) Before
Income Taxes $ 139.6 3.4% $ (89.6) $ 50.0 1.2%
Income Taxes 48.3 (30.3) 18.0
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Net Earnings(Loss) $ 91.3 2.3% $ (59.3) $ 32.0 0.8%
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Diluted earnings(loss)
per share $ 0.73 $ (0.47) $ 0.26
Basic earnings(loss)
per share $ 0.74 $ (0.48) $ 0.26
Dividends paid per
common share $ 0.33
Common stock
outstanding 124.3
Shares used in computing
per share amounts
Diluted 125.0
Basic 123.5
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
Occupant Safety Systems $ 693.6 $ 693.6
Chassis Systems 1,436.5 1,436.5
Automotive Electronics 329.4 329.4
Other Automotive 477.4 477.4
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Total Automotive 2,936.9 2,936.9
Space & Electronics 497.7 497.7
Systems & Information
Technology 745.3 745.3
Aeronautical Systems 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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Profit Before Taxes
Occupant Safety Systems $ 45.2 6.5% $ - $ 45.2 6.5%
Chassis Systems 91.1 6.3% - 91.1 6.3%
Automotive Electronics 30.1 9.1% - 30.1 9.1%
Other Automotive 34.9 7.3% - 34.9 7.3%
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Total Automotive 201.3 6.9% - 201.3 6.9%
Space & Electronics 77.2 15.5% (61.2) 16.0 3.2%
Systems & Information
Technology 49.7 6.7% 4.8 54.5 7.3%
Aeronautical Systems 33.2 11.8% - 33.2 11.8%
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Total Aerospace
& Information Systems 160.1 10.5% (56.4) 103.7 6.8%
Profit Before 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
In-process Research
and Development - - -
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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
Common stock
outstanding 121.5
Shares used in computing
per share amounts
Diluted 124.0
Basic 121.4
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions Except for Per Share Data)
NINE MONTHS ENDED 2000
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Margin Unusual Margin
Operations % Items Total %
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Sales
Occupant Safety Systems $ 2,126.8 $2,126.8
Chassis Systems 4,340.3 4,340.3
Automotive Electronics 1,286.9 1,286.9
Other Automotive 671.2 671.2
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Total Automotive 8,425.2 8,425.2
Space & Electronics 1,416.1 1,416.1
Systems & Information
Technology 2,446.8 2,446.8
Aeronautical Systems 806.3 806.3
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Total Aerospace &
Information Systems 4,669.2 4,669.2
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Sales $13,094.4 $13,094.4
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Profit Before Taxes
Occupant Safety Systems $ 152.7 7.2% $ (98.3) $ 54.4 2.6%
Chassis Systems 311.2 7.2% (53.0) 258.2 5.9%
Automotive Electronics 91.5 7.1% (15.5) 76.0 5.9%
Other Automotive 63.1 9.4% 25.7 88.8 13.2%
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Total Automotive 618.5 7.3% (141.1) 477.4 5.7%
Space & Electronics 140.6 9.9% 269.9 410.5 29.0%
Systems & Information
Technology 158.6 6.5% 22.7 181.3 7.4%
Aeronautical Systems 101.1 12.5% - 101.1 12.5%
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Total Aerospace &
Information Systems 400.3 8.6% 292.6 692.9 14.8%
Profit Before Taxes 1,018.8 7.8% 151.5 1,170.3 8.9%
Corporate Expense and
Other (148.8) (69.8) (218.6)
Financing Costs (396.3) (0.7) (397.0)
Pension Income 163.3 - 163.3
In-process Research
and Development - (11.7) (11.7)
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Earnings(Loss) Before
Income Taxes $ 637.0 4.9% $ 69.3 $ 706.3 5.4%
Income Taxes 226.7 38.8 265.5
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Net Earnings(Loss) $ 410.3 3.1% $ 30.5 $ 440.8 3.4%
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Diluted earnings(loss)
per share $ 3.28 $ 0.24 $ 3.52
Basic earnings(loss)
per share $ 3.33 $ 0.25 $ 3.58
Dividends paid per
common share $ 0.99
Common stock
outstanding 124.3
Shares used in computing
per share amounts
Diluted 125.1
Basic 123.0
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
Occupant Safety Systems $ 2,267.8 $2,267.8
Chassis Systems 3,588.5 3,588.5
Automotive Electronics 1,186.8 1,186.8
Other Automotive 1,151.9 1,151.9
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Total Automotive 8,195.0 8,195.0
Space & Electronics 1,412.1 1,412.1
Systems & Information
Technology 2,155.2 2,155.2
Aeronautical Systems 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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Profit Before Taxes
Occupant Safety Systems $ 148.2 6.5% $ (9.8) $ 138.4 6.1%
Chassis Systems 263.5 7.3% (68.4) 195.1 5.4%
Automotive Electronics 89.4 7.5% (11.4) 78.0 6.6%
Other Automotive 83.9 7.3% 0.6 84.5 7.3%
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Total Automotive 585.0 7.1% (89.0) 496.0 6.1%
Space & Electronics 188.2 13.3% 50.4 238.6 16.9%
Systems & Information
Technology 139.2 6.5% (26.7) 112.5 5.2%
Aeronautical Systems 64.8 11.1% - 64.8 11.1%
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Total Aerospace
& Information Systems 392.2 9.5% 23.7 415.9 10.0%
Profit Before 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
and 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
Common stock
outstanding 121.5
Shares used in
computing
per share amounts
Diluted 123.4
Basic 120.7
TRW STATISTICAL SUMMARY (UNAUDITED)
(Dollar Amounts in Millions)
SELECTED CASH FLOW ITEMS Nine Months Ended
September 30, September 30,
2000 1999
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Net earnings $ 441 $ 245
Gains on sale of nonoperating assets (239) (112)
Gain on Endwave merger (57) -
Mesa Consolidation 55 -
Depreciation and amortization 620 585
Pension income (190) (128)
Deferred income taxes 72 (76)
Operating working capital 69 42
Capital expenditures
including other intangibles (475) (540)
Acquisitions, net of cash acquired 21 (6,083)
Net proceeds from divestitures 1,431 157
Net (decrease)increase in debt (1,578) 5,935
Dividends paid (123) (120)
ICO Global investment write-off - 79
Purchased in-process research and
development 12 85
SUMMARY BALANCE SHEETS
September 30, December 31,
2000 1999
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ASSETS
Cash and cash equivalents $ 298 $ 228
Accounts receivable 2,395 2,480
Inventories 958 1,039
Net assets of acquired businesses
held for sale - 827
Other current assets 454 625
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Total current assets 4,105 5,199
Property, plant & equipment-net 3,542 3,894
Intangible assets-net 4,282 4,331
Investments in affiliated companies 1,064 1,185
Other notes and accounts receivable 306 257
Prepaid pension cost 2,817 2,876
Other assets 566 524
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Total assets $16,682 $18,266
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Short-term debt $ 1,578 $ 2,444
Trade accounts payable 1,677 1,638
Current portion of long-term debt 513 758
Other current liabilities 2,069 1,889
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Total current liabilities 5,837 6,729
Long-term liabilities 2,031 1,991
Long-term debt 4,835 5,369
Deferred income taxes 1,017 1,352
Minority interests in subsidiaries 199 113
Total shareholders' investment 2,763 2,712
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Total liabilities and
shareholders' investment $16,682 $18,266
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