February 22, 2007 Fourth Quarter and Full Year 2006 Financial Results Conference Call Materials TRW Automotive Holdings Corp. Materials Included Pages - Press Release 1-9 - Financial Summaries A1-A9 - Presentation P1-P22 safety.
February 22, 2007
Fourth Quarter and Full Year 2006 Financial
Results Conference Call Materials
TRW Automotive Holdings Corp.
Materials Included Pages- Press Release 1-9- Financial Summaries A1-A9- Presentation P1-P22 safety.
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Investor Relations Contact: Patrick R. Stobb (734) 855-3140 Media Contact:
Manley Ford (734) 855-2616
TRW Automotive Reports Fourth Quarter and Full Year 2006 Financial Results; Provides 2007 Outlook
LIVONIA, MICHIGAN, February 22, 2007 — TRW Automotive Holdings Corp. (NYSE:
TRW), the global leader in active and passive safety systems, today reported fourth-
quarter 2006 financial results with sales of $3.3 billion, an increase of 4.3 percent
compared to the same period a year ago. Net earnings for the 2006 quarter were $33
million or $0.32 per diluted share, which compares to $59 million or $0.57 per diluted
share in the prior year quarter.
The reported results exceeded previous full year guidance levels primarily due to a
lower level of restructuring expense, a portion of which relates to a change in timing of
certain actions, and a favorable net operating outcome. Several factors affected the
year-to-year fourth quarter comparison, including lower restructuring expenses, a
higher effective tax rate in the 2006 period and the non-recurrence of a one-time
reduction in litigation reserves of $18 million that benefited the 2005 period.
The Company’s full-year 2006 sales grew to $13.1 billion, an increase of 4 percent
compared to the prior year. Net earnings for the year were $176 million, or $1.71 per
diluted share, which compares to 2005 earnings of $204 million or $1.99 per diluted
share. The reported results included debt retirement expenses in both years, as well as
non-recurring items in 2005 related to the previously mentioned reduction in litigation
reserves and a one-time tax gain. Net earnings excluding these items from both
periods, net of the assumed tax impact in each case, were $216 million or $2.10 per
diluted share in 2006, and $176 million or $1.72 per diluted share in 2005.
TRW Automotive 12001 Tech Center Drive Livonia, MI 48150
News Release
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“Despite facing significant second half operating challenges, we are pleased to report
solid 2006 financial results that exceeded the business objectives we set at the
beginning of the year,” said John Plant, president and chief executive officer. “The
Company performed well in a difficult business environment, especially in North
America where sustained pressures from domestic OEM market share losses and
commodity inflation have taken a heavy toll on the industry. Our steady financial
performance over the past few years can be attributed to the strength of our safety
portfolio, together with industry leading diversification and extensive cost reduction
actions. Additionally, we are making considerable investments to enhance our
technology and our global presence in the marketplace, with the ultimate goal of
growing the Company profitably and competitively over the long term.”
Fourth Quarter 2006
The Company reported fourth-quarter 2006 sales of $3.3 billion, an increase of $136
million or 4.3 percent over the prior year period. The 2006 quarter benefited from the
positive effect of foreign currency translation, incremental sales related to the
acquisition of Dalphimetal in October 2005, and growth from safety products and
modules. These positives were partially offset by historically low customer vehicle
production volumes in North America and price reductions provided to customers.
Operating income for fourth-quarter 2006 was $126 million, which compares to $133
million in the prior year period. The prior year included a one-time gain of $18 million
due to a favorable reduction in litigation reserves. The 2006 quarter benefited from
lower restructuring and asset impairment expenses of $43 million. Excluding the one-
time gain in 2005 and restructuring and asset impairment costs from both periods,
operating income declined by $32 million. This year-to-year decline was driven by a
number of factors, including the effect of a significant decline in North American
customer vehicle production, pricing provided to customers and higher commodity
prices. Additionally, continued underperformance in the Company’s Automotive
Components Segment also contributed. Savings generated from cost improvement
and efficiency programs and the favorable resolution of certain business settlements
helped to offset these negative pressures. Restructuring and asset impairment
expenses in the 2006 period were $8 million, which compares to $51 million in 2005.
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Net interest and securitization expense for the fourth quarter of 2006 increased to $66
million when compared to the prior year total of $58 million. The year-to-year increase
can be attributed primarily to the impact of rising interest rates on the Company’s
floating rate debt profile, which stands at approximately 71 percent of total debt
outstanding.
Fourth-quarter 2006 tax expense was $32 million. During the quarter, the Company
reversed a valuation allowance for its United Kingdom operations due to the non-
occurrence of certain planned restructuring actions and favorable operating results in
the region. As such, fourth quarter tax expense recognizes an accounting tax benefit of
$17 million related to the Lucas notes bond redemption transaction, which was
completed during the first quarter of 2006. Tax expense in the quarter excluding this
tax benefit was $49 million, resulting in an effective tax rate of 75 percent (based on
GAAP pre-tax earnings of $65 million). As mentioned previously, this higher tax rate,
which resulted from the Company’s geographic earnings profile in the 2006 quarter,
contributed to the decrease in net earnings when compared to the prior year results.
The Company reported fourth-quarter 2006 net earnings of $33 million, or $0.32 per
diluted share, which compares to $59 million or $0.57 per diluted share in the 2005
period. Fourth quarter 2006 net earnings excluding the $17 million tax benefit
discussed previously were $16 million or $0.16 per diluted share. In comparison, net
earnings for the 2005 period excluding the one-time litigation reserve adjustment of $18
million were $41 million or $0.40 per diluted share.
Earnings before interest, securitization costs, loss on retirement of debt, taxes,
depreciation and amortization (“EBITDA”) were $267 million in the fourth quarter, which
is consistent with the prior year level of $268 million.
Full Year 2006
For full-year 2006, the Company reported sales of $13.1 billion, an increase of $501
million or 4 percent compared to prior period sales of $12.6 billion. The current year
benefited from incremental sales related to the acquisition of Dalphimetal. Additionally,
sales benefited from increased safety product sales and foreign currency translation,
partially offset by a decline in North American customer vehicle production and price
reductions provided to customers.
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Operating income for the full year period was $636 million, which represents an
increase of $83 million, or 15 percent, over the 2005 result of $553 million. The current
year benefited from a higher level of sales, savings generated from cost improvement
and efficiency programs, significantly lower restructuring and asset impairment costs
and the favorable resolution of certain business settlements. These items were partially
offset by price reductions provided to customers and the impact of higher commodity
prices, along with underperformance by the Automotive Components Segment in the
second half of the year and the non-recurrence of the litigation reserve benefit that
occurred in 2005. Restructuring and asset impairment expenses in 2006 were $30
million, which compares to $109 million in 2005.
Net interest and securitization expense for 2006 totaled $250 million, which compares
to $231 million in the prior year period. The year-to-year increase can be attributed to
the impact of rising interest rates on the Company’s floating rate debt and incremental
bank debt assumed at the time of the Dalphimetal acquisition.
In 2006, the Company incurred charges of $57 million related to the tender for the
outstanding GBP 94.6 million 10-⅞% bonds of its Lucas Industries Limited subsidiary.
Similarly, the Company incurred charges of $7 million in the prior year period for debt
retirement expenses associated with the partial redemption of its 10-⅛% senior notes.
Tax expense for the full year period was $166 million. The full year effective tax rate
excluding $57 million of debt retirement expenses related to the Lucas bond
transaction, and the related tax benefit of $17 million, was 46 percent.
Additionally, tax expense in 2006 included the positive effect of a reversal of prior tax
reserves (resulting from a final tax memorandum issued by the German tax authorities
clarifying the treatment of certain corporate interest deductions) and the negative effect
of establishing a valuation allowance for the net deferred tax asset of the Company’s
Canadian operations. The year-to-year net impact of these two items was immaterial.
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2006 full year net earnings were $176 million, or $1.71 per diluted share, which
compares to $204 million or $1.99 per diluted share in the 2005 period. Net earnings in
both periods were impacted by certain non-recurring items, including 2006 expenses of
$57 million, or $40 million after-tax, related to the Lucas bond tender transaction.
Similarly, the 2005 results included net income of $28 million comprised of a one-time
tax gain of $17 million stemming from a tax law change in Poland and the litigation
reserve adjustment of $18 million, offset partially by debt retirement expenses of $7
million. Net earnings excluding these items from both periods were $216 million or
$2.10 per diluted share in 2006, which compares to $176 million or $1.72 per diluted
share in 2005.
EBITDA for the 2006 year totaled $1,166 million, which is an 8.5 percent increase
compared to the prior year total of $1,075 million. The year-to-year increase can be
attributed to the higher level of operating income in the 2006 period.
Cash Flow and Capital Structure
Net cash provided by operating activities during the fourth quarter and full year was
$397 million and $649 million, respectively. In the comparable 2005 period, the
Company’s cash flow from operating activities was $380 million in the fourth quarter
and $502 million for the full year. Fourth quarter capital expenditures were $195 million
compared to $222 million in 2005. For the 2006 year, capital expenditures were $529
million, which compares to $503 million in the previous year.
On November 10, 2006, the Company repurchased Northrop Grumman Corporation’s
remaining ownership position of 9.7 millions shares of TRW’s common stock.
Separately, on the same day, TRW sold 6.7 million of its common stock through a
public offering. Proceeds generated from the offering were used to fund a portion of the
Northrop Grumman stock repurchase. The net cash impact (cash used) to the
Company as a result of the stock transactions, which resulted in a 3 million decline in
shares outstanding, was $56 million.
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On February 2, 2006, the Company’s wholly owned subsidiary, Lucas Industries
Limited, completed the tender for its outstanding GBP 94.6 million 10⅞% bonds. As a
result of the transaction, the Company incurred a $57 million charge for loss on
retirement, which reflects the difference between the tender amount and the book value
of debt related to the bonds at the time of the transaction.
On May 3, 2005, the Company repurchased a portion of its Euro denominated 10⅛%
senior notes totaling approximately €48 million, which resulted in pre-tax expenses of
$7 million for premiums and associated fees.
As of December 31, 2006, the Company had $3,032 million of debt and $589 million of
cash and marketable securities, resulting in net debt (defined as debt less cash and
marketable securities) of $2,443 million. The year-end 2006 net debt level decreased
$117 million compared to the year-end 2005 level, which represents solid progress
considering 2006 cash outflows related to the Lucas bond tender transaction premiums
of $57 million and $56 million related to the November 2006 stock transactions.
Recent Accounting Pronouncements – Adoption of SFAS No. 158
On December 31, 2006, the Company adopted SFAS No. 158 (“Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans”), which requires the
recognition of the funded status of a company’s pension and postretirement plans on its
consolidated balance sheet. With the adoption of SFAS No. 158 at year-end, total
stockholders’ equity increased by $805 million. This adjustment reflects the recognition
of previously unrecognized actuarial gains, as well as prior service cost reductions
related primarily to corporate actions that significantly reduced pension and
postretirement obligations. Primarily as a result of this accounting change, the
Company’s debt to capital ratio (debt divided by the sum of debt plus equity) now
stands at 56 percent compared to 73 percent at the end of 2005.
2007 Outlook
For full-year 2007 sales are expected to be in the range of $13.4 to $13.8 billion
(including first quarter sales of approximately $3.5 billion). Full year net earnings per
diluted share are expected to be in the range of $1.85 to $2.15.
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This guidance range reflects estimated pre-tax restructuring expenses of approximately
$40 million (including approximately $10 million in the first quarter) and an effective tax
rate of approximately 42 percent. Lastly, capital expenditures in 2007 are expected to
be approximately 4 percent of sales.
Mr. Plant commented, “We have initiated an aggressive business plan for the 2007 year
that will again draw heavily on the strength of our safety portfolio, diversification and our
ability to achieve the appropriate level of cost reductions. The full year outlook we
provided today reflects the many challenges we expect to face during the year,
including customer and commodity pricing pressures, further market share losses by
our major North American customers, and significantly lower commercial vehicle sales.
We anticipate the first half of 2007, especially the first quarter, will be particularly
difficult due to our expectation of significantly lower customer vehicle production among
our major North American customers and other factors.”
Fourth Quarter and Full Year 2006 Conference Call
The Company will host its fourth-quarter and full-year 2006 conference call at 9:00 a.m.
(EST) today, Thursday, February 22, to discuss financial results and other related
matters. To access the conference call, U.S. locations should dial (877) 852-7898, and
locations outside the U.S. should dial (706) 634-1095. A replay of the conference call
will be available approximately two hours after the conclusion of the call and accessible
for approximately one week. To access the replay, U.S. locations should dial (800)
642-1687, and locations outside the U.S. should dial (706) 645-9291. The replay code
is 6665440. A live audio web cast and subsequent replay of the conference call will
also be available on the Company’s website at www.trw.com/results.
Reconciliation to GAAP
In addition to GAAP results included within this press release, the Company has
provided certain information which is not calculated according to GAAP (“non-GAAP”).
Management believes these non-GAAP measures are useful to evaluate operating
performance and/or regularly used by security analysts, institutional investors and other
interested parties in the evaluation of the Company.
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Non-GAAP measures are not purported to be a substitute for any GAAP measure and,
as calculated, may not be comparable to other similarly titled measures of other
companies. For a reconciliation of non-GAAP measures to the closest GAAP measure
and for share amounts used to derive earnings per share, please see the financial
schedules that accompany this release.
About TRW
With 2006 sales of $13.1 billion, TRW Automotive ranks among the world's leading
automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through
its subsidiaries, employs approximately 63,800 people in 26 countries.
TRW Automotive products include integrated vehicle control and driver assist systems,
braking systems, steering systems, suspension systems, occupant safety systems
(seat belts and airbags), electronics, engine components, fastening systems and
aftermarket replacement parts and services.
All references to "TRW Automotive", “TRW” or the "Company" in this press release
refer to TRW Automotive Holdings Corp. and its subsidiaries, unless otherwise
indicated. TRW Automotive news is available on the internet at www.trwauto.com.
Forward-Looking Statements
This release contains statements that are not statements of historical fact, but instead
are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those contained in forward-looking
statements made in this release. Such risks, uncertainties and other important factors
which could cause our actual results to differ materially from those contained in our
forward-looking statements are set forth in our Report on Form 10-K for the fiscal year
ended December 31, 2005 (the “10-K”), and our Forms 10-Q for the quarters ended
March 31, June 30 and September 29, 2006, and include: production cuts or
restructuring by our major customers; work stoppages or other labor issues at the
facilities of our customers or suppliers; non-performance by, or insolvency of, our
suppliers and customers, which may be exacerbated by recent bankruptcies and other
pressures within the automotive industry; the inability of our suppliers to deliver
products at the scheduled rate and disruptions arising in connection therewith; interest
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rate risk arising from our variable rate indebtedness (which constitutes a majority of the
company’s indebtedness); loss of market share by domestic vehicle manufacturers;
efforts by our customers to consolidate their supply base; severe inflationary pressures
impacting the market for commodities; escalating pricing pressures from our customers;
our dependence on our largest customers; fluctuations in foreign exchange rates; our
substantial leverage; product liability and warranty and recall claims and efforts by
customers to alter terms and conditions concerning warranty and recall participation;
limitations on flexibility in operating our business contained in our debt agreements; the
possibility that our owners' interests will conflict with ours and other risks and
uncertainties set forth under "Risk Factors" in the 10-K and in our other SEC filings.
We do not intend or assume any obligation to update any of these forward-looking
statements.
# # #
TRW Automotive Holdings Corp.
Index of Condensed Consolidated Financial Informati on Page Consolidated Statements of Earnings (unaudited) for the three months ended December 31, 2006 and December 31, 2005......................................A2 Consolidated Statements of Earnings for the years ended December 31, 2006 (unaudited) and December 31, 2005...............................A3 Condensed Consolidated Balance Sheets as of December 31, 2006 (unaudited) and December 31, 2005......................................................A4 Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2006 (unaudited) and December 31, 2005...............................A5 Reconciliation of GAAP Net Earnings to EBITDA (unaudited) for the three months and years ended December 31, 2006 and December 31, 2005.....................A6 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the year ended December 31, 2006 ...........................................................................................A7 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the three months ended December 31, 2005 .............................................................................A8 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the year ended December 31, 2005 ...........................................................................................A9
The accompanying unaudited condensed consolidated financial information and reconciliation schedules should be read in conjunction with the TRW Automotive Holdings Corp. Form 10-K for the year ended December 31, 2005 and Forms 10-Q for the quarterly periods ended March 31, 2006 and June 30, 2006, and September 29, 2006 as filed with the United States Securities and Exchange Commission on February 23, 2006, May 4, 2006, August 2, 2006, and November 1, 2006, respectively.
A2
TRW Automotive Holdings Corp.
Consolidated Statements of Earnings (Unaudited)
(In millions, except per share amounts) Three Months Ended
December 31,
2006
2005
Sales ........................................................................................... $ 3,272 $ 3,136 Cost of sales ............................................................................... 3,020 2,856 Gross profit............................................................................ 252 280 Administrative and selling expenses ........................................... 124 93 Amortization of intangible assets ................................................ 8 9 Restructuring charges and asset impairments ............................ 8 51 Other income — net .................................................................... (14) (6) Operating income .................................................................. 126 133 Interest expense — net ............................................................... 65 57 Accounts receivable securitization costs..................................... 1 1 Equity in earnings of affiliates, net of tax..................................... (7) (8) Minority interest, net of tax .......................................................... 2 2 Earnings before income taxes ............................................. 65 81 Income tax expense .................................................................... 32 22 Net earnings ....................................................................... $ 33 $ 59 Basic earnings per share: Earnings per share.................................................................... $ 0.33 $ 0.59
Weighted average shares ......................................................... 99.4 99.2
Diluted earnings per share: Earnings per share.................................................................... $ 0.32 $ 0.57
Weighted average shares ......................................................... 101.9 102.9
A3
TRW Automotive Holdings Corp.
Consolidated Statements of Earnings
(In millions, except per share amounts) Years Ended December 31,
2006 2005 (Unaudited)
Sales ........................................................................................... $ 13,144 $ 12,643 Cost of sales................................................................................ 11,943 11,444 Gross profit ............................................................................ 1,201 1,199 Administrative and selling expenses ........................................... 527 490 Amortization of intangible assets................................................. 35 33 Restructuring charges and asset impairments ............................ 30 109 Other (income) expense — net ................................................... (27) 14 Operating income .................................................................. 636 553 Interest expense — net ............................................................... 247 228 Loss on retirement of debt........................................................... 57 7 Accounts receivable securitization costs..................................... 3 3 Equity in earnings of affiliates, net of tax..................................... (26) (20) Minority interest, net of tax .......................................................... 13 7 Earnings before income taxes ............................................. 342 328 Income tax expense .................................................................... 166 124 Net earnings........................................................................ $ 176 $ 204 Basic earnings per share: Earnings per share .................................................................... $ 1.76 $ 2.06
Weighted average shares ......................................................... 100.0 99.1
Diluted earnings per share: Earnings per share .................................................................... $ 1.71 $ 1.99
Weighted average shares ......................................................... 103.1 102.3
A4
TRW Automotive Holdings Corp.
Condensed Consolidated Balance Sheets
(Dollars in millions)
As of December 31,
2006
2005 (Unaudited)
Assets
Current assets: Cash and cash equivalents ................................................................ $ 578 $ 659 Marketable securities ................................................................ 11 17 Accounts receivable — net ................................................................ 2,049 1,948 Inventories.......................................................................................... 768 702 Prepaid expenses .............................................................................. 60 73 Deferred income taxes ................................................................ 210 200
Total current assets ................................................................................ 3,676 3,599 Property, plant and equipment — net ....................................................... 2,714 2,538 Goodwill ................................................................................................ 2,275 2,293 Intangible assets — net ................................................................ 738 769 Prepaid pension cost .............................................................................. 979 222 Deferred income taxes................................................................ 91 100 Other assets ........................................................................................... 660 709
Total assets......................................................................................... $ 11,133 $ 10,230
Liabilities, Minority Interests and Stockholders’ E quity
Current liabilities: Short-term debt.................................................................................. $ 69 $ 98 Current portion of long-term debt ...................................................... 101 37 Trade accounts payable ................................................................ 1,977 1,865 Accrued compensation ................................................................ 271 280 Income taxes ..................................................................................... 259 271 Other current liabilities................................................................ 998 1,039
Total current liabilities ............................................................................. 3,675 3,590 Long-term debt ....................................................................................... 2,862 3,101 Post-retirement benefits other than pensions ................................ 645 917 Pension benefits ..................................................................................... 722 795 Deferred income taxes................................................................ 428 230 Other long-term liabilities ................................................................ 295 283
Total liabilities ..................................................................................... 8,627 8,916 Minority interests..................................................................................... 109 106 Commitments and contingencies Stockholders’ equity:
Capital stock ...................................................................................... 1 1 Treasury stock ................................................................................... — — Paid-in-capital .................................................................................... 1,125 1,142 Retained earnings.............................................................................. 308 132 Accumulated other comprehensive earnings (losses) ........................ 963 (67)
Total stockholders’ equity ................................................................ 2,397 1,208 Total liabilities, minority interests, and stockholders’ equity................ $ 11,133 $ 10,230
A5
TRW Automotive Holdings Corp.
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Years Ended December 31,
2006 2005 (Unaudited) Operating Activities Net earnings ................................................................................................ $ 176 $ 204 Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization ................................................................ 517 509 Pension and other post-retirement benefits, net of contributions .......................... (193) (157) Loss on retirement of debt ................................................................ 57 7 Other — net ................................................................................................ 45 40
Changes in assets and liabilities, net of effects of businesses acquired .........................................................................................
47
(101)
Net cash provided by operating activities ...................................................... 649 502 Investing Activities Capital expenditures including other intangibles ................................ (529) (503) Acquisitions, net of cash acquired and transaction fees................................ (13) (134) Purchase price adjustments and related settlements................................ (13) 2 Net proceeds from asset sales and divestitures................................ 97 4 Investments in affiliates .................................................................................... (1) (8)
Net cash used in investing activities................................................................ (459) (639) Financing Activities Change in short-term debt................................................................ (40) 9 Proceeds from issuance of long-term debt........................................................ 37 1,635 Redemption of long-term debt ................................................................ (304) (1,603) Debt issue costs ................................................................................................ — (6) Issuance of capital stock, net of fees................................................................ 153 143 Repurchase of capital stock ................................................................ (209) (143) Proceeds from exercise of stock options........................................................... 23 3
Net cash (used in) provided by financing activities ................................ (340) 38 Effect of exchange rate changes on cash ......................................................... 69 (32) Decrease in cash and cash equivalents ............................................................ (81) (131) Cash and cash equivalents at beginning of period................................ 659 790 Cash and cash equivalents at end of period ..................................................... $ 578 $ 659
A6
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to EBITDA (Unaudited)
The reconciliation schedule below should be read in conjunction with the TRW Automotive Holdings Corp. Form 10-K for the year ended December 31, 2005 and Forms 10-Q for the quarterly periods ended March 31, 2006 and June 30, 2006, and September 29, 2006, which contain summary historical data. The EBITDA measure calculated in the following schedule is a measure used by management to evaluate operating performance. Management believes that EBITDA is a useful measurement because it is frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net earnings (losses) as an indicator of operating performance, or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies.
(Dollars in millions) Three Months Ended
December 31, 2006 2005 GAAP net earnings......................................................... $ 33 $ 59
Income tax expense ................................................. 32 22 Interest expense — net ............................................ 65 57 Accounts receivable securitization costs .................. 1 1 Depreciation and amortization.................................. 136 129
EBITDA .......................................................................... $ 267 $ 268
(Dollars in millions) Years Ended December 31,
2006 2005 GAAP net earnings ........................................................ $ 176 $ 204
Income tax expense ................................................. 166 124 Interest expense — net ............................................ 247 228 Loss on retirement of debt ....................................... 57 7 Accounts receivable securitization costs.................. 3 3 Depreciation and amortization ................................. 517 509
EBITDA.......................................................................... $ 1,166 $ 1,075
A7
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Ear nings (Unaudited)
In conjunction with the Company’s February 2, 2006 repurchase of its subsidiary Lucas Industries Limited’s £94.6 million 10⅞% bonds due 2020 for £137 million, or approximately $243 million, the Company recorded a loss on retirement of debt of £32 million, or approximately $57 million. The following reconciliation excludes the loss on retirement of debt and the related tax impact.
(In millions, except per share amounts)
Year Ended December 31,
2006 Actual Adjustments
Year Ended December 31,
2006 Adjusted
Sales................................................................ $ 13,144 $ — $ 13,144 Cost of sales ................................................................ 11,943 — 11,943 Gross profit ................................................................ 1,201 — 1,201 Administrative and selling expenses ............................. 527 — 527 Amortization of intangible assets................................ 35 — 35 Restructuring charges and asset impairments ................................................................
30 — 30
Other income — net ...................................................... (27) — (27) Operating income ...................................................... 636 — 636 Interest expense, net ..................................................... 247 — 247 Loss on retirement of debt................................ 57 (57) (a) — Account receivable securitization costs......................... 3 — 3 Equity in earnings of affiliates, net of tax....................... (26) — (26) Minority interest, net of tax ................................ 13 — 13 Earnings before income taxes................................ 342 57 399 Income tax expense ..................................................... 166 17 (b) 183 Net earnings ............................................................. $ 176 $ 40 $ 216 Effective tax rate............................................................ 49% 46% Basic earnings per share: Earnings per share ...................................................... $ 1.76 $ 2.16
Weighted average shares................................ 100.0 100.0 Diluted earnings per share: Earnings per share ...................................................... $ 1.71 $ 2.10
Weighted average shares................................ 103.1 103.1
(a) Reflects the elimination of the loss on retirement of debt. (b) Represents the elimination of the tax benefit related to the loss on retirement of debt, which was recognized during the
quarter ended December 31, 2006.
A8
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Ear nings (Unaudited)
Administrative and selling expenses for the three months ended December 31, 2005 included an adjustment for a reduction in litigation-related reserves of approximately $18 million. Such adjustment carries zero tax expense due to the Company’s tax loss position. The following adjustments exclude the litigation reserve adjustment to show the impact as if this adjustment had not occurred.
(In millions, except per share amounts)
Three Months Ended
December 31, 2005
Actual
Adjustments
Three Months ended
December 31, 2005
Adjusted
Sales ...................................................................................... $ 3,136 $ — $ 3,136
Cost of Sales ................................................................ 2,856 — 2,856
Gross profit ................................................................ 280 — 280
Administrative and selling expenses................................ 93 18 (a) 111
Amortization of intangible assets ................................ 9 — 9
Restructuring charges and asset impairments........................ 51 — 51
Other income — net ............................................................... (6) — (6)
Operating income ............................................................... 133 (18) 115
Interest expense, net .............................................................. 57 — 57
Account receivable securitization ................................ 1 — 1
Equity in earnings of affiliates, net of tax ................................ (8) — (8)
Minority interest, net of tax...................................................... 2 — 2
Earnings before income taxes ................................ 81 (18) 63
Income tax expense .............................................................. 22 — 22
Net earnings ................................................................ $ 59 $ (18) $ 41 Effective tax rate................................................................ 27% 35% Basic earnings per share:
Earnings per share ............................................................... $ 0.59 $ 0.41
Weighted average shares..................................................... 99.2 99.2 Diluted earnings per share:
Earnings per share ............................................................... $ 0.57 $ 0.40
Weighted average shares..................................................... 102.9 102.9 (a) Reflects the elimination of the litigation reserve adjustment.
A9
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Ear nings (Unaudited)
In conjunction with the Company’s May 3, 2005 repurchase of approximately €48 million principal amount of its 10⅛% Senior Notes, the Company incurred $7 million of losses on retirement of debt consisting of $6 million of related redemption premium and $1 million for write-off of deferred debt issuance costs. Such debt retirement expenses carry zero tax benefit due to the Company’s tax loss position. Income tax expense for the year ended December 31, 2005 includes a one-time benefit of $17 million resulting from a tax law change in Poland related to investment tax credits for companies operating in certain special economic zones within the country. The investment tax credits replace the tax holiday that was previously in effect for the Company. Administrative and selling expenses for the year ended December 31, 2005 included an adjustment for a reduction in litigation-related reserves of approximately $18 million. Such adjustment carries zero tax expense due to the Company’s tax loss position. The following adjustments exclude the litigation reserve adjustment and the loss on retirement of debt, as well as the one-time income tax benefit, to show the impact as if these transactions had not occurred.
(In millions, except per share amounts)
Year Ended December 31,
2005 Actual
Adjustments
Year Ended December 31,
2005 Adjusted
Sales ...................................................................................... $ 12,643 $ — $ 12,643 Cost of Sales ................................................................ 11,444 — 11,444 Gross profit ................................................................ 1,199 — 1,199 Administrative and selling expenses................................ 490 18 (a) 508 Amortization of intangible assets ................................ 33 — 33 Restructuring charges and asset impairments........................ 109 — 109 Other income — net ............................................................... 14 — 14 Operating income ............................................................... 553 (18) 535 Interest expense, net .............................................................. 228 — 228 Loss on retirement of debt ...................................................... 7 (7) (b) — Account receivable securitization ................................ 3 — 3 Equity in earnings of affiliates, net of tax ................................ (20) — (20) Minority interest, net of tax...................................................... 7 — 7 Earnings before income taxes ................................ 328 (11) 317 Income tax expense .............................................................. 124 17 (c) 141 Net earnings ................................................................ $ 204 $ (28) $ 176
Effective tax rate................................................................ 38% 44% Basic earnings per share: Earnings per share ............................................................... $ 2.06 $ 1.78
Weighted average shares..................................................... 99.1 99.1
Diluted earnings per share: Earnings per share ............................................................... $ 1.99 $ 1.72
Weighted average shares..................................................... 102.3 102.3
(a) Reflects the elimination of the litigation reserve adjustment. (b) Reflects the elimination of the loss on retirement of debt incurred in conjunction with repurchase of a portion of the
Company’s 10⅛% Senior Notes. (c) Reflects the elimination of one-time income tax benefit related to a tax law change in Poland.
February 22, 2007February 22, 2007
Fourth Quarter and Full Year 2006 Financial Results
Presentation
Fourth Quarter and Full Year 2006 Financial Results
Presentation
TRW Automotive Holdings Corp.TRW Automotive Holdings Corp.
P2 © TRW Automotive Holdings Corp. 2007
IntroductionPatrick StobbDirector, Investor Relations
Business SummaryJohn C. PlantPresident andChief Executive Officer
P3 © TRW Automotive Holdings Corp. 2007
This presentation contains statements that are not statements of historical fact, but instead are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those contained in forward-looking statements made in this presentation. Such risks, uncertainties and other important factors which could cause our actual results to differ materially from those contained in our forward-looking statements are set forth in our Report on Form 10-K for the fiscal year ended December 31, 2005 (the “10-K”), and our Forms 10-Q for the quarters ended March 31, June 30 and September 29, 2006, and include: production cuts or restructuring by our major customers; work stoppages or other labor issues at the facilities of our customers or suppliers; non-performance by, or insolvency of, our suppliers and customers, which may be exacerbated by recent bankruptcies and other pressures within the automotive industry; the inability of our suppliers to deliver products at the scheduled rate and disruptions arising in connection therewith; interest rate risk arising from our variable rate indebtedness (which constitutes a majority of the company’s indebtedness); loss of market share by domestic vehicle manufacturers; efforts by our customers to consolidate their supply base; severe inflationary pressures impacting the market for commodities; escalating pricing pressures from our customers; our dependence on our largest customers; fluctuations in foreign exchange rates; our substantial leverage; product liability and warranty and recall claims and efforts by customers to alter terms and conditions concerning warranty and recall participation; limitations on flexibility in operating our business contained in our debt agreements; the possibility that our owners' interests will conflict with ours and other risks and uncertainties set forth under "Risk Factors" in the 10-K and in our other SEC filings. We do not intend or assume any obligation to update any of these forward-looking statements.
Safe Harbor Statement
P4 © TRW Automotive Holdings Corp. 2007
Summary Comments
• Posted solid and improved 2006 operating results – Company performed remarkably well in a very difficult industry environment.
• Success can be attributed to:– Leadership in safety – Industry leading diversification– Investment in technology– Cost improvement and efficiency efforts
• North American environment extremely challenging, highlighted by:– Big 3 market share losses and the unprecedented cuts in vehicle
production which have cascaded inefficiency to all levels of the supply base
– Continued commodity inflation and supplier insolvency pressures– Mix shift away from higher value SUVs and light trucks to passenger
vehicles
TRW’S PERFORMANCE IN THIS ENVIRONMENT FURTHER
EMPHASIZES ITS COMPETITIVE STRENGTHS
TRW’S PERFORMANCE IN THIS ENVIRONMENT FURTHER
EMPHASIZES ITS COMPETITIVE STRENGTHS
P5 © TRW Automotive Holdings Corp. 2007
• Record sales at $13.1 billion, an increase of 4% compared to the prior year.
• Operating cash flow of $649 million.
• Net debt at year-end down $117 million to $2.4 billion.(a)
• Achieved net new business targets at a level that supports 4% CAGR growth expectation.
• High level of restructuring underway with 17 plant closures announced since January 2005.
• Operations contained costs despite growing unit production and sales.
• Successfully integrated Dalphimetal.
• Invested over $1 billion to support engineering efforts and capital needs.
Financial Operations
• Actions to curtail pension and postretirement liabilities reduced prior service costs by $235 million, which is reflected in FAS 158 equity increase of $805 million.
• Eliminated Northrop’s ownership position through the repurchase of 9.7 million shares.
• Public offering of 6.7 million shares and reduced shares outstanding by 3 million.
FAS 158 / Capital
SOLID 2006 FINANCIAL & OPERATING PERFORMANCE =SOLID 2006 FINANCIAL & OPERATING PERFORMANCE =
MEASURABLE BUSINESS IMPROVEMENTMEASURABLE BUSINESS IMPROVEMENT(a) Net debt is equal to total indebtedness (including receivables facility) minus cash, cash equivalents and marketable securities. For net
debt reconciliation to closest GAAP equivalent, please refer to the reconciliation on slide P22 of this presentation.
“Moving the Company Forward”
P6 © TRW Automotive Holdings Corp. 2007
• Sales of $3.3 billion, an increase of $136 million or 4.3% over the prior year period:– Foreign currency translation – Dalphimetal– New product sales– North American industry production– Customer pricing
• GAAP net earnings of $33 million or $0.32 per diluted share• Net earnings excluding $17 million tax benefit were $16 million or
$0.16 per diluted share(a)
• Sales of $13.1 billion, an increase of 4% over the prior year period• GAAP net earnings of $176 million or $1.71 per diluted share, which
includes $40 million after-tax of debt retirement expenses• Net earnings excluding debt retirement expenses were $216 million
or $2.10 per diluted share(b)
2006 Financial Highlights
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Fourth QuarterFourth Quarter
Full YearFull Year
(a) For Q4 adjusted results comparison, please see slide P12.(b) For full year adjusted results comparison, please see slide P14.
P7 © TRW Automotive Holdings Corp. 2007
• The challenges facing the parts industry are significant due to:– Intense market share competition among vehicle manufacturers in
established markets, especially in North America– Rapid globalization straining resources– Cost pressures from commodity inflation and supplier/customer
insolvency issues
• TRW has been very active countering the impact of these significant industry pressures:– Extensive plant restructuring (17 plant closures announced)– Successful operating programs (Operational Excellence, Six Sigma)– Improved productivity and worker flexibility at existing facilities– Rationalized non-manufacturing costs (Pension and postretirement
curtailment actions)
Succeeding in Today’s Global Environment
P8 © TRW Automotive Holdings Corp. 2007
20.520.4
19.920.2
19.2
9.810.2
10.911.4
11.9
15.415.3
15.815.8
15.9
2007 Operating Environment
• North American vehicle production expected to increase slightly despite a 4% reduction in Big 3 production (will negatively impact 2007 sales due to customer exposure).
• First half 2007 Big 3 vehicle production in North American expected to be down approximately 9.5%.
• North American commercial vehicle sales expected to drop significantly.
• In Europe, vehicle production expected to increase less than 1%, primarily due to Eastern Europe (Western Europe expected to be down).
• Persistent commodity inflation and supplier issues expected to further pressure the cost base.
(1) Source: Light vehicle assumptions primarily CSM Worldwide and internal company estimates.
‘04’03
‘05‘06
North AmericaNorth
America
‘07
Big 3 North
America
Big 3 North
America
EuropeEurope
‘04’03
‘05‘06‘07
‘04’03
‘05‘06‘07
2007 Industry Production Assumptions(1)
(units in millions)
P9 © TRW Automotive Holdings Corp. 2007
• Expect sales in the range of $13.4 to $13.8 billion
• Net earnings per diluted share of $1.85 to $2.15(1)
• Restructuring expenses (pre-tax) of approximately $40 million
• Capital spending expected to run at approximately 4% of 2007 sales
• Effective tax rate of approximately 42%
2007 Full Year Outlook
(1) Per share amounts based on weighted average diluted shares outstanding of approximately 101.5 million shares.
P10 © TRW Automotive Holdings Corp. 2007
Financial OverviewJoseph S. CantieExecutive Vice Presidentand Chief Financial Officer
P11 © TRW Automotive Holdings Corp. 2007
Summary Comments
• Fourth quarter results better than anticipated – able to overcome industry and company specific challenges:– Dramatic decline in Big 3 North American production– Commodity inflation– Supplier related costs– Negative Automotive Components performance
• Impressive 2006 company scorecard, highlighted by:– Record sales– Operating earnings growth– Net debt reduction
SOLID 2006 PERFORMANCE – DEMONSTRATING ANOTHER YEAR OF RESILIENCY AND PROGRESS
SOLID 2006 PERFORMANCE – DEMONSTRATING ANOTHER YEAR OF RESILIENCY AND PROGRESS
P12 © TRW Automotive Holdings Corp. 2007
Fourth Quarter Results
(a) $17 million tax benefit associated with Lucas bond tender transaction (completed February 2006).(b) $18 million one-time reduction in litigation reserves.
(a)
(b)
(dollars in millions, except where noted)
GAAP Results
Adjusting Item
Adjusted Results
GAAP Results
Adjusting Item
Adjusted Results
Sales 3,272$ -$ 3,272$ 3,136$ -$ 3,136$
Operating Income 126 - 126 133 (18) 115
Net Interest and Securitization 66 - 66 58 - 58
Equity in Earnings of Affiliates (7) - (7) (8) - (8)
Minority Interest 2 - 2 2 - 2
Income Taxes 32 17 49 22 - 22
Effective Tax Rate 49% 75% 27% 35%
Net Earnings 33$ (17)$ 16$ 59$ (18)$ 41$ Share Count 101.9 101.9 102.9 102.9
Earnings Per Share 0.32$ 0.16$ 0.57$ 0.40$
Q4 2005Q4 2006
P13 © TRW Automotive Holdings Corp. 2007
Fourth Quarter EBITDA
(a) Please refer to slide P21 for management’s rationale for using this metric.
(dollars in millions)
Q4 2006 Q4 2005
Net Earnings 33$ 59$
Income Tax Expense 32 22
Net Interest and Securitization 66 58
Depreciation and Amortization 136 129
EBITDA(a)267$ 268$
Memo:Restructuring & Asset Impairments Included Above 8$ 51$
P14 © TRW Automotive Holdings Corp. 2007
Full Year 2006 Results
(b)
(c)(a)
(a) (d)
(dollars in millions, except where noted)
GAAP Results
(a) $57 million ($40 million after-tax) loss on retirement of debt associated with the Lucas bond tender transaction.(b) $18 million one-time reduction in litigation reserves.(c) $7 million premiums and fees related to a bond redemption transaction.(d) $17 million one-time tax benefit for a tax law change in Poland.
Adjusting Item
Adjusted Results
GAAP Results
Adjusting Items
Adjusted Results
Sales 13,144$ -$ 13,144$ 12,643$ -$ 12,643$
Operating Income 636 - 636 553 (18) 535
Net Interest and Securitization 250 250 231 - 231
Loss on Retirement of Debt 57 (57) - 7 (7) -
Equity in Earnings of Affiliates (26) - (26) (20) - (20)
Minority Interest 13 - 13 7 - 7
Income Taxes 166 17 183 124 17 141
Effective Tax Rate 49% 46% 38% 44%
Net Earnings (Losses) 176$ 40$ 216$ 204$ (28)$ 176$
Share Count 103.1 103.1 102.3 102.3
Earnings Per Share 1.71$ 2.10$ 1.99$ 1.72$
Full Year 2006 Full Year 2005
(a)
P15 © TRW Automotive Holdings Corp. 2007
Full Year 2006 EBITDA
(a) Please refer to slide P21 for management’s rationale for using this metric.
(dollars in millions)
Full Year 2006 Full Year 2005
Net Earnings 176$ 204$
Income Tax Expense 166 124
Net Interest and Securitization 250 231
Loss on Retirement of Debt 57 7
Depreciation and Amortization 517 509
EBITDA(a)1,166$ 1,075$
Memo:Restructuring & Asset Impairments Included Above 30$ 109$
P16 © TRW Automotive Holdings Corp. 2007
Net Debt Summary(a)
$3,437 $2,964 $2,514 $2,669 $2,443$2,372 $2,560
Feb 28, 2003 Dec 31, 2003 Dec 31, 2004 Sep 30, 2005 Dec 31, 2005 Sep 29, 2006 Dec 31, 2006
Capital Structure Summary
(a) Net debt is equal to total indebtedness (including receivables facility) minus cash, cash equivalents and marketable securities. For net debt reconciliation to closest GAAP equivalent, please refer to the reconciliation on slide P22 of this presentation.
Dalphimetal acquisition increased net debt by $244 million
(dollars in millions)
• Full year 2006 net cash flow from operating activities was $649 million, which compares to $502 million in the prior year period.
• Capital expenditures in 2006 were $529 million, which compares to $503 million in the prior year period.
• In excess of $1 billion in available liquidity at year-end.
P17 © TRW Automotive Holdings Corp. 2007
SFAS No. 158 Adoption
• On December 31, 2006, the Company adopted SFAS No. 158 (Employers’Accounting for Defined Benefit Pension and Postretirement Plans”):– Requires the recognition of the Company’s funded status of its pension and
postretirement plans on its consolidated balance sheet.
• The net impact of adopting SFAS No. 158 increased total stockholders’equity by $805 million, which reflects previously unrecognized:– Actuarial gains
– Prior service cost reductions of approximately $235 million related to corporate actions that significantly reduced pension and postretirement obligations.
(dollars in millions, except where noted)
2006 2005
Debt 3,032$ 3,236$
Equity 2,397 1,208
Total Capital 5,429$ 4,444$
Debt to Capital Ratio 56% 73%
• Primarily as a result of this change, debt to total capital (debt divided by the sum of debt plus equity) improved measurably.
P18 © TRW Automotive Holdings Corp. 2007
Closing Summary
• Assumptions Underlying 2007 sales expectations:– Foreign currency translation– Increased European and Asian vehicle production, as well as new
business (mix favors modules)– Lower North American Big 3 vehicle production– Pricing provided to customers– Decline in commercial vehicle production
• Limited operating profit benefit from currency translation (due to cross-rate exposures) and increased module sales (lower margin)
• Expect first quarter sales of $3.5 billion based on industry production of 3.9 million units in North America and 5.2 million units in Europe.
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INVESTING TO ENSURE BUSINESS GROWTH AND TO REMAIN GLOBALLY COMPETITIVE IN THE FUTURE
INVESTING TO ENSURE BUSINESS GROWTH AND TO REMAIN GLOBALLY COMPETITIVE IN THE FUTURE
TRW Automotive Holdings Corp.
“Driving Automotive Safety”
P20 © TRW Automotive Holdings Corp. 2007
Financial Reconciliation Section
P21 © TRW Automotive Holdings Corp. 2007
EBITDA Measurement
• The accompanying unaudited consolidated financial information and reconciliation of GAAP net earnings to earnings before interest, income tax, accounts receivable securitization cost, loss on retirement of debt, and depreciation and amortization (“EBITDA”) should be read in conjunction with the TRW Automotive Holdings Corp. Form 10-K for the year ended December 31, 2005, and Forms 10-Q for the quarters ended March 31, June 30 and September 29, 2006, as filed with the United States Securities and Exchange Commission.
• The EBITDA measure calculated in this presentation is a measure used by management to evaluate operating performance. Management believes that EBITDA is a useful measurement because it is frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry.
• EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net earnings (losses) as an indicator of operating performance, or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to other similarly titled measures of other companies.
P22 © TRW Automotive Holdings Corp. 2007
Net Debt Reconciliation
(dollars in millions)2/28/03 12/31/03 12/31/04 4/1/05 7/1/05 9/30/05 12/31/05 3/31/06 6/30/06 9/29/06 12/31/06
Cash 449$ 828$ 790$ 435$ 506$ 300$ 659$ 373$ 503$ 358$ 578$ Marketable securities 26 16 19 16 13 17 17 17 17 11 11
Total 475 844 809 451 519 317 676 390 520 369 589
Short term debt 168 76 40 38 37 38 98 98 83 81 69
Long term debt:Term loan facilities 1,510 1,480 1,512 1,298 1,296 1,293 1,593 1,588 1,585 1,585 1,582 Senior notes 1,142 1,178 1,063 1,042 981 972 964 960 959 975 982 Senior subordinated notes 435 458 306 300 293 293 291 294 298 298 302 Lucas Varity senior notes 167 189 202 198 187 186 181 - - - - Other borrowings 142 45 58 54 51 49 109 106 110 99 97 Total Short & Long Term Debt 3,564 3,426 3,181 2,930 2,845 2,831 3,236 3,046 3,035 3,038 3,032
Net debt operating company 3,089$ 2,582$ 2,372$ 2,479$ 2,326$ 2,514$ 2,560$ 2,656$ 2,515$ 2,669$ 2,443$
Seller note 348 382 - - - - - - - - - Net debt TRW Holdings 3,437$ 2,964$ 2,372$ 2,479$ 2,326$ 2,514$ 2,560$ 2,656$ 2,515$ 2,669$ 2,443$
Period-End Balances