Third Quarter 2005 Financial Results Conference Call Materials
November 1, 2005
Materials Included Pages- Press Release 1-7- Financial Summaries A1-A7- Conference Call Presentation P1-P21
© TRW Automotive Holdings Corp. 2005
TRW Automotive News 12001 Tech Center Drive Livonia, MI 48150 Release
Investor Relations Contact:
Patrick R. Stobb (734) 855-3140 Media Contact:
Manley Ford (734) 855-2616
TRW Automotive Reports Third Quarter 2005 Financial Results LIVONIA, MICHIGAN, November 1, 2005 — TRW Automotive Holdings Corp. (NYSE:
TRW), the global leader in active and passive safety systems, today reported third-
quarter 2005 financial results with sales of $2.9 billion, an increase of 6.5 percent
compared to the same period a year ago. Net earnings for the quarter were $10 million
or $0.10 per diluted share, which compares to $13 million or $0.13 per diluted share in
the prior year quarter. Consistent with the Company’s expectations, net debt increased
from the previous quarter due to the impact of seasonal factors on its cash flows.
Third quarter net earnings were slightly above previously provided guidance due to
better than expected operating results, but below the comparable prior year period
primarily due to higher restructuring costs and increased commodity inflation levels in
the 2005 quarter. Additionally, during the quarter, the Company announced an
agreement to acquire a majority stake in Dalphi Metal Espana, S.A. (“Dalphimetal”), a
European based manufacturer of airbags and steering wheels. Subsequent to the
quarter-end, on October 27, the Company completed its acquisition of Dalphimetal,
which it funded with a combination of cash and existing credit facilities.
“In addition to posting solid results for the quarter and achieving our operational and
financial objectives, we made progress on our strategic initiatives with the acquisition of
Dalphimetal, which enhances our Occupant Safety Systems business and further
broadens the Company’s leading sales diversification,” said John Plant, president and
chief executive officer.
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Mr. Plant added, “We’ve taken an aggressive approach to our cost reduction efforts this
year, driven by our need to adapt to changing industry conditions and growing
economic pressures. We believe the results of our cost reduction efforts and other
strategic initiatives will improve our long term competitiveness and best position the
Company to support the growing global demands of our customers.”
Third Quarter 2005 The Company reported third-quarter 2005 sales of $2.9 billion, an increase of $178
million or 6.5 percent compared to prior year sales of $2.7 billion. The increase
resulted primarily from higher product sales and foreign currency translation, partially
offset by pricing provided to customers and lower vehicle production volumes.
Operating income for third-quarter 2005 was $74 million, a decrease of $21 million
compared to the prior year period total of $95 million. The decrease resulted primarily
from the continued impact of commodity inflation above prior year levels, increased
restructuring and impairment expenses, and a higher level of research and
development costs, which were partially offset by the benefits of higher sales and cost
reduction programs in excess of pricing provided to customers and non-commodity
inflation. Restructuring and asset impairment expenses in the third quarter of 2005
were $35 million, which compares to $5 million in the prior year quarter. Operating
income after excluding the impact of restructuring and impairment expenses from both
periods increased by 9 percent compared to the prior year period.
Net interest and securitization expense for third-quarter 2005 totaled $59 million, which
is slightly below the prior year level of $60 million. The year-to-year reduction was
lessened by the impact of rising interest costs offsetting the Company’s deleveraging
activities, which include debt reduction and other capital structure improvement efforts.
During the quarter, the Company revised its annual tax rate assumption slightly
downward to 47 percent before one-time items. As a result of this change, tax expense
in the third quarter was $5 million (33 percent effective tax rate), which is the amount
required to bring the tax rate for the nine month period to the level of the revised annual
tax rate assumption of 47 percent. The Company reported third-quarter 2005 net
earnings of $10 million or $0.10 per diluted share, compared to net earnings of $13
million or $0.13 per diluted share in the 2004 period.
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Earnings before interest, securitization costs, loss on retirement of debt, taxes,
depreciation and amortization (“EBITDA”) were $200 million for third-quarter 2005,
which compares to prior year EBITDA of $215 million. The decline in EBITDA resulted
primarily from the increase in restructuring charges and asset impairments.
Year-to-Date 2005 For the nine month period ended September 30, 2005, the Company reported sales of
$9.5 billion, an increase of $682 million or 7.7 percent compared to prior year sales of
$8.8 billion. The increase resulted primarily from higher product sales together with
foreign currency translation and the effect of five additional calendar days in the first
nine months of 2005, partially offset by pricing provided to customers and lower vehicle
production volumes. Operating income for the 2005 year-to-date period was $427
million, a decrease of $23 million compared to the prior year total of $450 million. The
decrease resulted primarily from the impact of commodity inflation above prior year
levels, increased restructuring and asset impairment costs, a higher level of research
and development expenses and the impact of customer solvency issues, partially offset
by the benefits of higher sales and cost reduction programs in excess of pricing
provided to customers and non-commodity inflation. Restructuring and asset
impairment expenses in the first nine months of 2005 were $56 million, compared to
$18 million in the prior year period. Operating income after excluding the impact of
restructuring and impairment expenses from both periods increased by 3 percent
compared to the prior year level.
Net interest and securitization expense for the first nine months of 2005 totaled $173
million, which compares to $183 million in the 2004 period. The reduction can be
attributed to the benefits derived from past deleveraging efforts in excess of the impact
of rising interest rates associated with the Company’s debt. During the 2005 period, the
Company incurred $7 million for loss on retirement of debt related to the partial
redemption of its Euro denominated 10-⅛ percent senior notes. The comparable 2004
period included debt retirement and refinancing expenses of $48 million related to the
Company’s initial public offering and a bank debt refinancing transaction.
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Tax expense for the year-to-date 2005 period was $102 million, which included a one-
time tax benefit of $17 million resulting from a tax law change in Poland. The
Company’s year-to-date 2005 effective tax rate after excluding the $17 million tax
benefit and the effects of the $7 million loss on retirement of debt was 47 percent. Net
earnings for the first nine months of 2005 were $145 million or $1.42 per diluted share,
which compares to net earnings of $91 million or $0.91 per diluted share in the prior
year period. Net earnings excluding the impact of the $17 million one-time tax benefit
in 2005 and the previously mentioned losses on retirement of debt from both periods
were $135 million or $1.32 per diluted share in the 2005 period compared to $139
million or $1.39 per diluted share in the prior year.
EBITDA for the first nine months of 2005 totaled $807 million, which compares to $816
million in the prior year period. The decline in EBITDA resulted primarily from the
increase in restructuring charges and asset impairments.
Capital Structure/Liquidity Net cash flow from operating activities during the third quarter and the first nine months
of 2005 was a use of $(90) million and a source of $122 million, respectively. Capital
expenditures for the quarter were $107 million compared to $86 million in the prior year
quarter. Year to date capital expenditures totaled $281 million, which compares to
$248 million in the prior year period. As of September 30, 2005, the Company had
$2,831 million of debt and $317 million of cash and marketable securities, resulting in
net debt (defined as debt less cash and marketable securities) of $2,514 million. Net
debt increased by $188 million compared to the end of the second quarter 2005 and
$142 million compared to year-end 2004, primarily due to seasonal factors.
Subsequent Event On October 27, 2005, the Company completed its acquisition of a 68.4 percent stake of
Dalphimetal, which it purchased for approximately €112 million, or $134 million, subject
to post-closing adjustment, and the assumption of debt of approximately €80 million or
$96 million. The acquisition was funded with a combination of cash and existing credit
facilities. TRW will report Dalphimetal as a consolidated entity effective the date of the
acquisition.
4
2005 Outlook The Company is updating its full-year 2005 outlook to reflect, among other factors,
revised foreign currency and interest rate assumptions, updated production volumes
and an increased level of net pre-tax restructuring and asset impairment costs that are
expected to total $90 million. Conversely, the Company’s outlook has not been
updated to include the consolidation of Dalphimetal, which, excluding the potential
impact of purchase accounting adjustments, is not expected to have a material impact
on its 2005 operating results. As a result, the Company now expects full year revenues
of approximately $12.6 billion and earnings per diluted share in the range of $1.65 to
$1.80. Full year outlook after excluding the previously mentioned $17 million one-time
tax benefit and the $7 million loss on retirement of debt is expected to be in the range of
$1.55 to $1.70 per diluted share.
For the fourth quarter of 2005, the Company expects revenue of approximately $3.1
billion and net earnings in the range of $0.23 to $0.38 per diluted share. Fourth quarter
guidance includes net pre-tax restructuring and asset impairment expenses of
approximately $34 million.
Mr. Plant commented, “We’ve performed to the expectations we set at the beginning of
the year despite facing a more difficult industry environment than originally anticipated.
Much of our success under these conditions can be attributed to the dedication and
commitment of our employees and their ability to deliver the many cost reduction
initiatives demanded of them throughout the year. As we assess the mounting
challenges of the coming year and set our operating and financial objectives
accordingly, the same level of commitment and high level of execution will be essential
as we envision an environment that will test our ability to post flat to moderate earnings
growth in 2006.”
Third Quarter 2005 Conference Call The Company will host its third-quarter 2005 conference call at 9:00 a.m. (EST) today,
Tuesday, November 1, 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.
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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 1178039.
A live audio web cast and subsequent replay of the conference call will also be
available on the Company’s website at www.trwauto.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. 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 2004 sales of $12.0 billion, TRW Automotive ranks among the world's leading
automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through
its subsidiaries, employs approximately 60,000 people in 24 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.
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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, 2004 (the “10-K”) and our Reports on Form 10-Q for the quarters
ended April 1 and July 1, 2005, and include: our ability to successfully integrate
Dalphimetal’s operations into the Company, which includes the retention of their
customer base; possible production cuts or restructuring by our customers; efforts by
our customers to consolidate their supply base; escalating pricing pressures from our
customers; severe inflationary pressures impacting the market for commodities; non-
performance by, or insolvency of, our suppliers and customers, which may be
exacerbated by recent bankruptcies; our substantial leverage; interest rate risk arising
from our variable rate indebtedness; product liability and warranty and recall claims; our
dependence on our largest customers; loss of market share by domestic vehicle
manufacturers; limitations on flexibility in operating our business contained in our debt
agreements; fluctuations in foreign exchange rates; the possibility that our owners'
interests will conflict with ours; work stoppages or other labor issues at our facilities or
at the facilities of our customers or suppliers 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.
# # #
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A1
TRW Automotive Holdings Corp.
Index of Condensed Consolidated Financial Information Page
Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2005 and September 24, 2004..................................A2 Consolidated Statements of Operations (unaudited) for the nine months ended September 30, 2005 and September 24, 2004...................................A3 Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004 ..................................................A4 Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2005 and September 24, 2004...................................A5 Reconciliation of GAAP Net Earnings to EBITDA (unaudited) for the three and nine months ended September 30, 2005 and September 24, 2004 ...................A6 Reconciliation of Impact of Debt Retirement and Income Tax Items for the nine months ended September 30, 2005...........................................................................A7 The accompanying unaudited 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, 2004 and Forms 10-Q for the quarterly periods ended April 1, 2005 and July 1, 2005 as filed with the United States Securities and Exchange Commission on February 23, 2005, May 5, 2005 and August 2, 2005, respectively.
A2
TRW Automotive Holdings Corp.
Consolidated Statements of Operations (Unaudited)
Three Months Ended
September 30, 2005
September 24, 2004
(In millions, except per share amounts)
Sales.......................................................................................... $ 2,917 $ 2,739 Cost of sales.............................................................................. 2,623 2,458 Gross profit......................................................................... 294 281 Administrative and selling expenses......................................... 135 130 Research and development expenses ........................................ 43 36 Amortization of intangible assets ............................................. 8 8 Restructuring charges and asset impairments ........................... 35 5 Other (income) expense — net ................................................. (1) 7 Operating income ............................................................... 74 95 Interest expense — net.............................................................. 59 59 Accounts receivable securitization costs .................................. — 1 Earnings before income taxes........................................... 15 35 Income tax expense................................................................... 5 22 Net earnings ...................................................................... $ 10 $ 13 Basic earnings per share: Earnings per share................................................................... $ 0.10 $ 0.13 Weighted average shares ........................................................ 99.1 98.9 Diluted earnings per share: Earnings per share................................................................... $ 0.10 $ 0.13 Weighted average shares ........................................................ 103.1 101.2
A3
TRW Automotive Holdings Corp.
Consolidated Statements of Operations (Unaudited)
Nine Months Ended
September 30, 2005
September 24, 2004
(In millions, except per share amounts)
Sales ......................................................................................... $ 9,507 $ 8,825 Cost of sales ............................................................................. 8,443 7,840 Gross profit ........................................................................ 1,064 985 Administrative and selling expenses ........................................ 397 386 Research and development expenses........................................ 149 115 Amortization of intangible assets ............................................. 24 25 Restructuring charges and asset impairments........................... 56 18 Other (income) expense — net................................................. 11 (9) Operating income............................................................... 427 450 Interest expense — net ............................................................. 171 181 Loss on retirement of debt........................................................ 7 48 Accounts receivable securitization costs .................................. 2 2 Earnings before income taxes .......................................... 247 219 Income tax expense .................................................................. 102 128 Net earnings ...................................................................... $ 145 $ 91 Basic earnings per share: Earnings per share .................................................................. $ 1.46 $ 0.93 Weighted average shares ........................................................ 99.0 97.4 Diluted earnings per share: Earnings per share .................................................................. $ 1.42 $ 0.91 Weighted average shares ........................................................ 102.0 100.2
A4
TRW Automotive Holdings Corp.
Consolidated Balance Sheets As of
September 30,
2005 December 31,
2004 (Unaudited) (Dollars in millions)
Assets Current assets: Cash and cash equivalents......................................................................... $ 300 $ 790 Marketable securities ................................................................................ 17 19 Accounts receivable — net ....................................................................... 1,959 1,813 Inventories................................................................................................. 656 684 Prepaid expenses ....................................................................................... 83 34 Deferred income taxes .............................................................................. 162 176 Total current assets ..................................................................................... 3,177 3,516 Property, plant and equipment — net ......................................................... 2,405 2,635 Goodwill ..................................................................................................... 2,357 2,357 Intangible assets — net ............................................................................... 740 765 Prepaid pension cost ................................................................................... 214 190 Deferred income taxes ................................................................................ 120 91 Other assets ................................................................................................. 577 560
Total assets .............................................................................................. $ 9,590 $ 10,114
Liabilities, Minority Interests and Stockholders’ Equity Current liabilities: Short-term debt ......................................................................................... $ 38 $ 40 Current portion of long-term debt............................................................. 17 19 Trade accounts payable............................................................................. 1,721 1,887 Accrued compensation.............................................................................. 285 309 Income taxes payable................................................................................ 242 233 Other current liabilities ............................................................................. 995 992 Total current liabilities ................................................................................ 3,298 3,480 Long-term debt............................................................................................ 2,776 3,122 Post-retirement benefits other than pensions .............................................. 930 959 Pension benefits .......................................................................................... 715 843 Deferred income taxes ................................................................................ 261 268 Long-term liabilities.................................................................................... 307 272
Total liabilities......................................................................................... 8,287 8,944 Minority interests ........................................................................................ 56 65 Commitments and contingencies Stockholders’ equity: Capital stock.............................................................................................. 1 1 Treasury stock........................................................................................... — — Paid-in-capital ........................................................................................... 1,139 1,131 Retained earnings (accumulated deficit)................................................... 73 (72) Accumulated other comprehensive earnings ............................................ 34 45 Total stockholders’ equity........................................................................... 1,247 1,105
Total liabilities, minority interests, and stockholders’ equity.................. $ 9,590 $ 10,114
A5
TRW Automotive Holdings Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
2005 September 24,
2004 (Dollars in millions)
Operating Activities Net earnings......................................................................................................... $ 145 $ 91 Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization ................................................................... 380 366 Other — net..................................................................................................... (84) 64
Changes in assets and liabilities, net of effects of businesses acquired or divested ......................................................................................................... (319) (485)
Net cash provided by operating activities....................................................... 122 36 Investing Activities Capital expenditures ............................................................................................ (281) (248) Acquisitions, net of cash acquired....................................................................... (3) (5) Investments in affiliates....................................................................................... (8) — Net proceeds from asset sales and divestitures.................................................... 4 79
Net cash used in investing activities ......................................................... (288) (174) Financing Activities Change in short-term debt ................................................................................... (1) 6 Proceeds from issuance of long-term debt .......................................................... 1,313 1,290 Redemption of long-term debt............................................................................. (1,601) (1,855) Debt issue costs ................................................................................................... (4) (7) Issuance of capital stock, net of fees ................................................................... 143 635 Repurchase of capital stock ................................................................................. (143) (319) Proceeds from exercise of stock options ............................................................. 2 —
Net cash used in financing activities.......................................................... (291) (250) Effect of exchange rate changes on cash ............................................................. (33) (2) Decrease in cash and cash equivalents ................................................................ (490) (390) Cash and cash equivalents at beginning of period............................................... 790 828 Cash and cash equivalents at end of period ......................................................... $ 300 $ 438
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, 2004 and Forms 10-Q for the quarterly periods ended April 1, 2005 and July 1, 2005, 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.
Three Months Ended
(Dollars in millions)
September 30, 2005
September 24, 2004
GAAP net earnings............................................................... $ 10 $ 13 Income tax expense.......................................................... 5 22 Interest expense, net of interest income ........................... 59 59 Accounts receivable securitization costs.......................... — 1 Depreciation and amortization......................................... 126 120
EBITDA ................................................................................ $ 200 $ 215
Nine Months Ended
(Dollars in millions)
September 30, 2005
September 24, 2004
GAAP net earnings............................................................... $ 145 $ 91 Income tax expense.......................................................... 102 128 Interest expense, net of interest income ........................... 171 181 Accounts receivable securitization costs.......................... 2 2 Loss on retirement of debt ............................................... 7 48 Depreciation and amortization......................................... 380 366
EBITDA ................................................................................ $ 807 $ 816
A6
TRW Automotive Holdings Corp.
Reconciliation of Impact of Debt Retirement and Income Tax Items
(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 were U.S.-based, and therefore carry zero tax benefit due to the Company’s tax loss position in this jurisdiction. Income tax expense for the nine months ended September 30, 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. The following adjustments exclude 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)
Nine Months ended
September 30,2005
Actual
Adjustments
Nine Months ended
September 30,2005
Adjusted Operating income.................................................. $ 427 $ — $ 427 Interest expense, net .............................................. 171 — 171 Loss on retirement of debt..................................... 7 (7) (a) — Account Receivable Securitization ....................... 2 — 2 Earnings before income taxes ........................... 247 7 254 Income tax expense .............................................. 102 17 (b) 119 Net earnings ...................................................... $ 145 $ (10) $ 135 Effective tax rate ................................................... 41% 47% Basic earnings per share: Earnings per share............................................... $ 1.46 $ 1.36 Weighted average shares..................................... 99.0 99.0 Diluted earnings per share: Earnings per share............................................... $ 1.42 $ 1.32
Weighted average shares..................................... 102.0 102.0
(a) 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. (b) Reflects the elimination of one-time income tax benefit related to a tax law change in Poland.
A7
TRW Automotive Holdings Corp.
2005 Third Quarter Financial Results Conference Call
November 1, 2005
“The Global Leader in Automotive Safety Systems”
IntroductionPatrick StobbDirector, Investor Relations
Business SummaryJohn C. PlantPresident and Chief Executive Officer
P2© TRW Automotive Holdings Corp.2005
Safe Harbor Statement
P3© TRW Automotive Holdings Corp.2005
This material 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 during 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, 2004 (the “10-K”), and our Reports on Form 10-Q for the quarters ended April 1 and July 1, 2005, and include: our ability to successfully integrate Dalphimetal’s operations into the Company, which includes the retention of their customer base; possible production cuts or restructuring by our customers; efforts by our customers to consolidate their supply base; escalating pricing pressures from our customers; severe inflationary pressures impacting the market for commodities; our substantial leverage; non-performance by, or insolvency of, our suppliers and customers, which may be exacerbated by recent bankruptcies; interest rate risk arising from our variable rate indebtedness; the highly competitive automotive parts industry and its cyclicality; product liability and warranty and recall claims; our dependence on our largest customers; loss of market share by domestic vehicle manufacturers; limitations on flexibility in operating our business contained in our debt agreements; fluctuations in foreign exchange rates; the possibility that our owners' interests will conflict with ours; work stoppages or other labor issues at our facilities or at the facilities of our customers or suppliers 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.
• Solid third quarter and year-to-date financial results
• Leading diversification, either by product, customer or region provides strength and stability to our business
• Advanced strategic priorities with the acquisition of Dalphimetal – completed October 27, 2005
• Pace of restructuring continues, driven by highly challenging industry conditions
Third Quarter Summary Comments
LEADING TRW DIVERSIFICATION
• More than 80% of OE Sales derived from safety products
• Leading market positions in primary product lines
• Widest breadth of active and passive safety products and systems
• Highly diversified business mix as a percentage of sales, with:
– Largest product – 16.5%– Largest customer – 17.2%– Largest region – 55%– Largest platform – less than 4%
• TRW operations cover every major vehicle producing region
Note: TRW diversification information based on 2004 sales results..
P4© TRW Automotive Holdings Corp.2005
• Reported sales of $2.9 billion dollars, an increase of 6.5% from the prior year period:– New product sales– Currency translation– Industry production– Customer pricing
• Net earnings of $10 million, or $0.10 per diluted share
• Net debt of $2.5 billion at quarter end, up $188 million from the end of the second quarter(1)
– Increase in line with expectations, resulting from seasonal factors, including the timing of scheduled interest payments to bondholders
Third Quarter Financial Highlights
(1) 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 P21 of this presentation.
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P5© TRW Automotive Holdings Corp.2005
Third Quarter Business Developments• Steady pace of new business awards in the quarter:
– Total year-to-date awards in line with business plan objectives; supports long term 4% CAGR growth proxy
– Awards distributed among a broad range with no particular emphasis in any one product or customer
• 2005 Sales growth fueled by past business wins and the strength of certain customer platforms
• Dalphimetal Acquisition – completed on October 27th
– European based manufacturer of airbags and steering wheels with 2004 revenues of approx. €371 million or $453 million
– Better positions the Company to meet the growing demand for safety related products
– Represents strong cultural fit, blending two organizations committed to providing customers with leading safety technology
• “Taking Safety to the Next Level” – showcased suite of technologies that integrate active and passive safety at the Frankfurt Auto Show
P6© TRW Automotive Holdings Corp.2005
Third Quarter Business Developments (Cont.)
• Other safety developments, including:– North American test track slated for opening in fall of 2006– Mexican Seatbelt Operations earned a place on IndustryWeek’s prestigious
10 best plants list in North America for 2005
• High level of cost reduction activities continue:– Accelerated restructuring efforts prompted by difficult industry conditions– Closed or announced the closure of 9 manufacturing facilities in 2005– Recent announcements include Sterling Heights and Jackson in U.S. and
Itzehoe, Germany and Aylesbury, UK in Europe
• Commodity inflation update:– Higher pricing for steel, resins, textiles and energy continue to have a
significant financial impact on the bottom line– Maintain cautious view on our ability to continually offset inflationary
pressures in 2005 and beyond
• Consecutive market share losses by NA OEMs and commodity inflation taking a heavy toll on the supply sector
P7© TRW Automotive Holdings Corp.2005
2005 Operating Environment
• Industry conditions remain very difficult, leave little margin for error
• Expect full year Big 3 production will be down 4% year-to-year
• Western Europe production in fourth quarter expected to remain weak
• Holding European production estimate at 19.9 million
• Offsetting impact of commodity inflation and higher levels of restructuring with new business growth and cost reductions
2005 Production Assumptions(1)
(units in millions)
19.9
10.9
15.7
20.2
11.4
15.8
19.2
11.9
15.9
Europe
NorthAmerica
Big 3
NorthAmerica
‘04
‘05
‘03
‘04
‘05
‘03
‘04
‘05
‘03
(1) Source: Primarily CSM Worldwide and internal company estimates.
P8© TRW Automotive Holdings Corp.2005
2005 Full Year Outlook
• Expect sales of $12.6 billion
• Earnings per diluted share of $1.65 to $1.80(1)
– Includes full year restructuring and asset impairment expenses of approx. $90 million
– Also includes one-time tax benefit of $17 million and loss on retirement of debt of $7 million
• Earnings excluding one-time tax benefit and loss on retirement of debt in the range of $1.55 to $1.70 per diluted share(1)
• Company has performed to the expectations set at the beginning of the year despite facing a significantly more difficult industry environment than originally anticipated
(1) Per share amounts based on weighted average diluted shares outstanding of approximately 102.4 million diluted shares.
P9© TRW Automotive Holdings Corp.2005
Financial OverviewJoseph S. CantieExecutive Vice President and Chief Financial Officer
P10© TRW Automotive Holdings Corp.2005
Financial Overview
• Third quarter and year-to-date 2005 financial summary
• Capital structure– Net debt– Cash flow and liquidity– Dalphimetal Acquisition
• Initial Q4 2005 outlook
• Analyst Q&A
P11© TRW Automotive Holdings Corp.2005
Third Quarter 2005 Results(dollars in millions)
Q3 2005 Q3 2004
Sales 2,917$ 2,739$ Operating Income 74 95 Net Interest and Securitization 59 60 Income Taxes 5 22
Net Earnings 10$ 13$ Earnings Per Diluted Share 0.10$ 0.13$
Effective Tax Rate 33% 63%Diluted Shares 103.1 101.2
P12© TRW Automotive Holdings Corp.2005
Third Quarter EBITDA Summary(dollars in millions)
Q3 2005 Q3 2004
Net Earnings 10$ 13$ Income Tax Expense 5 22
Net Interest and Securitization 59 60
Operating Income 74$ 95$
Depreciation and Amortization 126 120
EBITDA(1) 200$ 215$
(1) Please refer to slide P20 for management’s rationale for using this metric.
P13© TRW Automotive Holdings Corp.2005
Adjusted AdjustedYTD Adjusting YTD YTD Adjusting YTD2005 Items 2005 2004 Items 2004
Sales 9,507$ -$ 9,507$ 8,825$ -$ 8,825$
Operating Income 427 - 427 450 - 450
Net Interest and Securitization 173 - 173 183 - 183
Loss on Retirement of Debt 7 (7) - 48 (48) -
Income Taxes 102 17 119 128 - 128
Net Earnings 145$ (10)$ 135$ 91$ 48$ 139$
Earnings Per Diluted Share 1.42$ 1.32$ 0.91$ 1.39$
Effective Tax Rate 41% 47% 58% 48%Diluted Shares 102.0 102.0 100.2 100.2
Year-to-date (YTD) 2005 Results(dollars in millions)
(c)(a)
(b)
Adjusting Items(a) $7 million of premiums and associated fees related to bond redemption transaction(b) $17 million one-time tax benefit from a tax law change in Poland(c) $48 million related to the initial public offering and a bank debt refinancing transaction
P14© TRW Automotive Holdings Corp.2005
Year-to-Date (YTD) EBITDA Summary(dollars in millions)
YTD YTD2005 2004
Net Earnings 145$ 91$ Income Tax Expense 102 128 Net Interest and Securitization 173 183
Loss on Retirement of Debt 7 48
Operating Income 427$ 450$
Depreciation and Amortization 380 366
EBITDA(1) 807$ 816$
(1) Please refer to slide P20 for management’s rationale for using this metric.
P15© TRW Automotive Holdings Corp.2005
Capital Structure((dollars in millions)
Net Debt Summary(1)
$3,089 $2,923 $2,582 $2,456 $2,304 $2,368 $2,372 $2,479 $2,326 $2,514
$2,709$2,849$2,964$3,295$3,437
$2,785
Feb 28,2003
Sep 26,2003
Dec 31,2003
Mar 26,2004
Jun 25,2004
Sep 24,2004
Dec 31,2004
Apr 1,2005
July 1,2005
Sept 30,2005
Net Debt Operating Co. PIK Seller Note
Net Debt Summary(1)
$3,089 $2,923 $2,582 $2,456 $2,304 $2,368 $2,372 $2,479 $2,326 $2,514
$2,709$2,849$2,964$3,295$3,437
$2,785
Feb 28,2003
Sep 26,2003
Dec 31,2003
Mar 26,2004
Jun 25,2004
Sep 24,2004
Dec 31,2004
Apr 1,2005
July 1,2005
Sept 30,2005
Net Debt Operating Co. PIK Seller Note
Q3Q3
Q3
(1) 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 P21 of this presentation.
P16© TRW Automotive Holdings Corp.2005
Capital Structure
• Net cash flow was a use of $90 million in the third quarter and a source of $122 million for the year-to-date period
• Third quarter capital expenditures totaled $107 million, bringing the year-to-date total to $281 million
• In excess of $1 billion in available liquidity at quarter-end
• Dalphimetal acquisition
– Purchased majority stake for approx. €112 million or $134 million, plus the assumption of debt expected to total approx. €80 million or $96 million
– Initially funded with a combination of cash and existing credit facilities
– Will begin to report Dalphimetal as a consolidated entity during fourth-quarter 2005, effective date of the acquisition
– Outlook excludes Dalphimetal consolidation, which is not expected to be material, and the potential impact of purchase accounting adjustments
P17© TRW Automotive Holdings Corp.2005
Fourth Quarter 2005 Outlook
• Year-to-date results solid, fourth quarter prospects tempered by present status of the industry
• Expect sales of $3.1 billion
• Net earnings in the range of $0.23 to $0.38 per diluted share(1)
• Earnings range includes approximately $34 million of net pre-tax restructuring and asset impairment costs
• Focused on taking actions today that help mitigate industry pressures and underpin our ability to remain globally competitive over the longer term
(1) Per share amounts based on weighted average diluted shares outstanding of approximately 103.3 million diluted shares.
P18© TRW Automotive Holdings Corp.2005
P19© TRW Automotive Holdings Corp.2005
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, 2004 and Form 10-Q for the quarterly periods ended April 1 and July 1, 2005, 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.
P20© TRW Automotive Holdings Corp.2005
Net Debt Reconciliation((dollars in millions)
3/1/03 9/26/03 12/31/03 3/26/04 6/25/04 9/24/04 12/31/04 4/1/05 7/1/05 9/30/05Cash 449$ 399$ 828$ 449$ 519$ 438$ 790$ 435$ 506$ 300$ Marketable securities 26 16 16 16 15 16 19 16 13 17
Total 475 415 844 465 534 454 809 451 519 317
Short term debt 168 54 76 66 65 27 40 38 37 38
Long term debt:Term loan facilities 1,510 1,469 1,480 1,263 1,211 1,209 1,512 1,298 1,296 1,293 Senior notes 1,142 1,155 1,178 1,049 1,017 1,044 1,063 1,042 981 972 Senior subordinated notes 435 444 458 294 294 295 306 300 293 293 Lucas Varity senior notes 167 175 189 190 192 189 202 198 187 186 Other borrowings 142 41 45 59 59 58 58 54 51 49 Total Short & Long Term Debt 3,564 3,338 3,426 2,921 2,838 2,822 3,181 2,930 2,845 2,831
Net debt operating company 3,089$ 2,923$ 2,582$ 2,456$ 2,304$ 2,368$ 2,372$ 2,479$ 2,326$ 2,514$ Seller note 348 372 382 393 405 417 - - - - Net debt TRW Holdings 3,437$ 3,295$ 2,964$ 2,849$ 2,709$ 2,785$ 2,372$ 2,479$ 2,326$ 2,514$
Period-End Balances
P21© TRW Automotive Holdings Corp.2005
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