TRW Reports First Quarter 1999 Results

Business Wire, April 20, 1999

CLEVELAND--(BUSINESS WIRE)--April 20, 1999--

TRW Inc. (NYSE:TRW) today reported first quarter 1999 net earnings and earnings per share, before automotive restructuring charges and the impact of the LucasVarity acquisition, of $101.1 million, or $.83 per share. This compares with net earnings before unusual items of $119.7 million or $.95 per share in the first quarter of 1998.

First quarter 1999 sales of $3.1 billion were unchanged compared with the first quarter of 1998. An increase in sales as a result of the inclusion of $106 million from LucasVarity was offset by a decrease in the space, defense and information systems business.

"Entering 1999, we anticipated that first quarter results would benefit from efficiencies being implemented in our automotive business," said Joseph T. Gorman, chairman and chief executive officer. "Delays in achieving those savings and higher start-up costs relating to new facilities and products negatively impacted automotive margins.

"Clearly, we are not satisfied with our overall operating performance, and it is being addressed with the utmost urgency," Gorman said. "Our performance objectives have been modified to increase focus on cash flow and margins across the company, and we've changed our compensation programs to align them directly with the modifications to our 1999 objectives.

"Steps to integrate LucasVarity's worldwide automotive and aerospace operations are strongly under way," Gorman said. "We are finalizing the organization structure, filling key leadership positions, and completing our deleveraging blueprint. We remain confident that LucasVarity will be accretive to earnings and that it will add strategic synergies and capabilities that position us better to serve and expand our customer base."

Including unusual items, net earnings and earnings per share in the first quarter 1999 were $58.6 million, or $.48 per share, compared with $129.4 million, or $1.03 per share, reported in the first quarter 1998. First quarter 1999 results do not yet reflect the impact, if any, of the purchase price allocation of LucasVarity.

Unusual items in the first quarter 1999 net earnings included the following items related to LucasVarity: $32.6 million nonrecurring after tax loss on foreign currency hedges; $7.9 million after tax charge for underwriting and participation fees incurred to secure committed credit facilities; and $5.2 million of LucasVarity's net earnings subsequent to March 25, the date of acquisition.

The unusual items in the first quarter 1998 net earnings included a $31.5 million benefit from the settlement of certain patent litigation, offset in part by $21.8 million in charges for litigation, contract reserves, and severance costs relating to the combination of the company's systems integration business with BDM International, Inc., acquired in 1997.

Automotive

In the automotive segment, first quarter 1999 sales increased to $2.0 billion from $1.9 billion in the first quarter of 1998 due to the inclusion of LucasVarity automotive operations. Higher volume, primarily in Europe in our occupant restraints and electronics businesses, was offset by lower pricing across all product lines.

Automotive segment profit before tax decreased to $137.6 million, compared with $149.2 million in the first quarter of 1998. The decrease excludes $9.7 million in restructuring charges and the results of LucasVarity's automotive business. The restructuring charges related primarily to severance costs. The decline in segment profits resulted primarily from delays in anticipated savings associated with the automotive restructuring and start-up costs related to new facilities and products. Lower pricing and production inefficiencies, offset in part by higher volume and cost reductions, also contributed.

"The automotive restructuring program announced in July 1998 is designed to reengineer the cost structure and increase automotive segment margins," Gorman said. "While currently behind plan, we remain committed to implementing the cost-reduction steps and improving segment margins to achieve our goals. On a quarter-to-quarter basis, 1999 first quarter selling, general and administrative costs as a percent of sales were reduced eight-tenths of a percent. On an annual basis, this will equate to savings of approximately $60 million in 1999, well on our way to achieving our target of $75 million. In the quarter we also eliminated approximately 500 of the approximately 4500 suppliers targeted for reduction in 1999, while achieving a 20 percent improvement in supplier quality parts per million.

"The company's recently announced new Ohio manufacturing facility will enable us to assemble various chassis modules to support a new DaimlerChrysler Jeep(R) platform. A program with Motorola to develop an advanced network interface standard will simplify development and installation of next-generation occupant safety systems. Building on a number of industry firsts, TRW recently secured a dozen production contracts for advanced and integrated safety systems with six automakers worldwide.