TRW Automotive Inc. Reports 2003 Third Quarter Results
Financial Performance In-Line With Expectations Following Decline In Industry Production Volumes
LIVONIA, Mich., Nov. 7 -- TRW Automotive Inc. today reported financial results for the third quarter ended September 26, 2003. Consolidated net losses were $23 million compared to predecessor third quarter combined net earnings of $57 million in the prior year period. Sales for the current year third quarter were $2.5 billion, which were consistent with the level achieved in 2002.
Several factors contributed to the sharp decline in profit between the current and prior year third quarter periods including a $65 million pre-tax decline in net pension/OPEB income, a $31 million non-cash charge incurred in the current quarter relating to the refinancing of the Company's bank term debt, a decline of $13 million in other income, an increase of $12 million in net interest expense, and an increase of $6 million in restructuring charges between the two periods. Excluding these items, consolidated earnings before income taxes were consistent with combined prior year results.
For the third quarter ended September 26, 2003, pro forma consolidated net losses were $23 million compared to pro forma third quarter combined net earnings of $58 million in the prior year. Sales for the period were $2.5 billion, a 2.1 percent increase from the pro forma level achieved in 2002. The decline in profit between the two periods on a pro forma basis results essentially from the same factors described above.
Consolidated and combined results of the privately-held company have been adjusted to illustrate the estimated pro forma effects of the February 28, 2003 acquisition of the former TRW Inc.'s automotive business by affiliates of The Blackstone Group L.P. ("Blackstone") from Northrop Grumman Corporation ("Northrop Grumman"), as if the acquisition had occurred on January 1, 2002. Blackstone affiliates and management currently own 80.4 percent of the business while a subsidiary of Northrop Grumman owns the remaining 19.6 percent.
The Company's pro forma earnings before interest, taxes, depreciation, amortization and net pension and OPEB expense (EBITDAP) for the third quarter of 2003 totaled $214 million, a decline of 11.2 percent compared to pro forma EBITDAP of $241 million during the prior year third quarter. Included in the current quarter were $13 million of charges relating to costs associated with restructuring programs while the prior year quarter had $7 million of charges. These charges were primarily related to headcount reductions. Exclusive of these charges, third quarter 2003 EBITDAP was $227 million, a decline of 8.5 percent compared to last year.
"As expected, the third quarter proved to be a challenging period as both North American and European production volumes declined," said TRW Automotive President and Chief Executive Officer, John C. Plant. "A strong result from our cost-down and productivity programs during the quarter allowed us to offset a substantial portion of the effect from lower production volumes."
Third quarter pro forma EBITDAP results were negatively impacted by the effect of lower vehicle production volumes, both in North America and Europe, mix of products sold, and a lower level of other income. Partially offsetting these items were translation gains resulting from the relative weakness of the U.S. dollar, and the net effect of cost reduction programs in excess of inflation and pricing.
During the third quarter, the Company used $6 million of cash in support of operating activities, which included semi-annual cash interest payments of $81 million on the Company's Senior and Senior Subordinated Notes. In addition, the Company also had capital expenditures totaling $87 million in the third quarter. As of September 26, 2003, net debt (defined as debt less cash and marketable securities) was $2.9 billion, an increase of $111 million as compared to June 27, 2003. The Company also completed a refinancing transaction in the third quarter that resulted in the establishment of a bank term C tranche of $1,250 million. These proceeds, together with $46 million of available cash, were used to retire the previously existing $1,100 million term B loan and $200 million of the previously existing $410 million term A loan.
For the nine-month period ended September 26, 2003, pro forma consolidated net earnings were $114 million compared to pro forma nine-month combined net earnings of $218 million in the prior year. Excluding a $158 million pre-tax decline in net pension/OPEB income, a $15 million unrealized currency translation gain on debt positions and the $31 million refinancing charge incurred in the third quarter, nine-month 2003 pro forma earnings before taxes improved by 8.7 percent compared to last year. Pro forma sales for the nine- month period were $8.3 billion, a 7.1 percent increase from the pro forma nine-month level achieved in 2002.
The Company's pro forma EBITDAP for the nine-month period ended September 26, 2003 totaled $819 million, an increase of 5.5 percent compared to pro forma EBITDAP of $776 million during the nine-month period in 2002. Included in the nine-months of 2003 were approximately $25 million of charges relating to costs associated with restructuring programs, primarily headcount reductions, and costs associated with the separation of the Company from Northrop Grumman. The prior year nine-month results had $15 million of restructuring charges. Exclusive of these special charges, pro forma EBITDAP for the nine-month period ended September 26, 2003, was $844 million, an increase of 6.7 percent compared to last year.
Reconciliation to GAAP
For a reconciliation of the pro forma and non-GAAP numbers appearing in this release to GAAP, please see the accompanying presentation or visit our website at www.trwauto.com (investor information section).
Third Quarter Conference Call
John C. Plant, President and Chief Executive Officer, and Joseph S. Cantie, Vice President and Chief Financial Officer, will host a brief conference call to discuss third quarter results beginning at 11:00 a.m. EST, Friday, November 7, 2003.
Domestic callers may access the conference call by dialing 877-852-7898. International callers should dial 706-634-1095.
About TRW Automotive Inc.
TRW Automotive's 2002 pro forma sales of $10.4 billion place it among the ten largest of the world's automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company employs approximately 62,000 people in 22 countries who design, engineer, test and manufacture one of the broadest arrays of automotive safety systems. The Company's products include braking systems, steering systems, suspension systems, occupant safety systems (seat belts and airbags), electronics, engine valves, fastening systems and aftermarket replacement parts and services. TRW Automotive news is available on the Internet at www.trwauto.com .
TRW Automotive Inc.
Index to unaudited actual and
pro forma financial information
The accompanying unaudited actual and pro forma financial information and reconciliation to pro forma adjusted EBITDA should be read in conjunction with the TRW Automotive Inc. Registration Statement on Form S-4, as amended and filed as of November 5, 2003, which contains historical consolidated and combined financial statements and the accompanying notes to consolidated and combined financial statements and unaudited pro forma consolidated and combined financial information and accompanying notes to unaudited pro forma consolidated and combined financial information.
The accompanying unaudited combined pro forma financial statements are intended to give effect to the February 28, 2003 acquisition of the former TRW Inc.'s automotive business by affiliates of The Blackstone Group L.P. from Northrop Grumman Corporation, as if the acquisition had occurred on January 1, 2002. The unaudited pro forma combined financial statements are based upon available information and certain assumptions we believe are reasonable. However, these statements are for informational purposes only and are not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the acquisition been completed as of January 1, 2002, and should not be taken as representative of future consolidated results of operations or financial position.
TRW Automotive Inc.
Consolidated and Combined Statements of Operations (unaudited)
Successor Predecessor
Three Months Ended
(Dollars in millions) September 26, September 27,
2003 2002
Sales $2,536 $2,545
Cost of sales 2,294 2,248
Gross profit 242 297
Administrative and selling expenses 127 123
Research and development expenses 38 34
Amortization of intangible assets 9 3
Other income - net (4) (17)
Operating income 72 154
Interest expense 74 62
Interest income (1) (2)
Loss on retirement of debt 31 -
Losses on sales of receivables - 1
(Losses) earnings before income taxes (32) 93
Income tax (benefit) expense (9) 36
Net (losses) earnings $(23) $57
TRW Automotive Inc.
Consolidated and Combined Statements of Operations (unaudited)
Successor Predecessor
Seven Months Two Months Nine Months
Ended Ended Ended
September 26, February 28, September 27,
(Dollars in millions) 2003 2003 2002
Sales $6,453 $1,916 $7,956
Cost of sales 5,782 1,686 6,946
Gross profit 671 230 1,010
Administrative and
selling expenses 302 100 386
Research and development expenses 92 27 108
Purchased in-process research and
development 85 - -
Amortization of intangible assets 19 2 11
Other (income) expense - net (28) 4 (6)
Operating income 201 97 511
Interest expense 185 48 210
Interest income (5) (1) (4)
Loss (gain) on retirement of debt 31 - (4)
Losses on sales of receivables 25 - 5
(Losses) earnings before
income taxes (35) 50 304
Income tax expense 41 19 107
Net (losses) earnings $(76) $31 $197
TRW Automotive Inc.
Condensed Consolidated and Combined Balance Sheets
(unaudited at September 26, 2003)
Successor Predecessor
(Dollars in millions) September 26, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $399 $188
Marketable securities 16 26
Accounts receivable 1,887 1,348
Inventories 631 608
Prepaid expenses 59 49
Deferred income taxes 39 144
Total current assets 3,031 2,363
Property, plant and equipment - net 2,336 2,558
Goodwill and other intangible
assets - net 3,546 2,578
Prepaid pension cost 85 3,048
Other assets 450 401
$9,448 $10,948
Liabilities, minority interests and
stockholders' investment
Current liabilities:
Short-term debt $54 $327
Current portion of long-term debt 14 17
Trade accounts payable 1,485 1,407
Other current liabilities 1,289 1,004
Total current liabilities 2,842 2,755
Debt allocated from TRW - 3,279
Long-term debt 3,270 302
Post-retirement benefits
other than pensions 1,011 751
Deferred income taxes 66 731
Other long-term liabilities 1,014 658
Total liabilities 8,203 8,476
Minority interests 50 81
Stockholders' investment:
Parent company investment - 2,738
Capital stock and paid-in-capital 1,216 -
Accumulated deficit (76) -
Accumulated other comprehensive
earnings (losses) 55 (347)
Total stockholders' investment 1,195 2,391
$9,448 $10,948
TRW Automotive Inc.
Pro forma Consolidated and Combined Statements of Operations
(unaudited)
(Dollars in millions) Three Months Ended
September 26, September 27,
2003 2002
Sales $2,536 $2,485
Cost of sales 2,293 2,184
Gross profit 243 301
Administrative and selling expenses 127 114
Research and development expenses 38 34
Amortization of intangible assets 9 7
Other income - net (4) (19)
Operating income 73 165
Interest expense 74 70
Interest income (1) (2)
Loss on retirement of debt 31 -
Losses on sales of receivables - 3
(Losses) earnings before income taxes (31) 94
Income tax (benefit) expense (8) 36
Net (losses) earnings $(23) $58
TRW Automotive Inc.
Pro forma Consolidated and Combined Statements of Operations
(unaudited)
(Dollars in millions) Nine Months Ended
September 26, September 27,
2003 2002
Sales $8,326 $7,773
Cost of sales 7,368 6,748
Gross profit 958 1,025
Administrative and selling expenses 400 357
Research and development expenses 119 108
Amortization of intangible assets 24 24
Other income - net (25) (12)
Operating income 440 548
Interest expense 216 210
Interest income (5) (4)
Loss on retirement of debt 31 -
Losses on sales of receivables 9 8
Earnings before income taxes 189 334
Income tax expense 75 116
Net earnings $114 $218
TRW Automotive Inc.
Reconciliation to Pro Forma Adjusted EBITDA
(unaudited)
(Dollars in millions) Three Months Ended
September 26, September 27,
2003 2002
GAAP Operating Income $72 $154
Pro forma adjustments:
Inventory fair market value adjustment 1 -
Depreciation and amortization - 5
Stand alone costs - 6
Pro forma operating income 73 165
Depreciation and amortization,
net of pro forma adjustments 118 120
UK pension income (14) (69)
Pension expense, net of pro forma adjustment 18 8
OPEB expense 19 17
Pro forma EBITDAP 214 241
Cash restructuring charges 13 -
Other unusual items - 7
Pro forma EBITDAP, excluding unusual items 227 248
Cash paid for pensions (6) (7)
Cash paid for OPEB, less indemnity (18) (12)
Pro forma Adjusted EBITDA $203 $229
This schedule should be read in conjunction with the TRW Automotive Inc. Registration Statement on Form S-4 as amended and filed as of November 5, 2003, which contains summary historical and pro forma financial data.
EBITDAP, a measure used by management to measure operating performance, is defined as operating income plus depreciation and amortization, unrealized foreign exchange gain and net pension and OPEB expense. Adjusted EBITDA is defined as EBITDAP further adjusted to exclude unusual items and the cash paid for pension and other postretirement benefits. We believe that the inclusion of supplementary adjustments to EBITDAP applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material cash items and other unusual items that we do not expect to continue at the same level in the future.
Such Supplementary adjustments to EBITDA may not be in accordance with current Securities and Exchange Commission ("SEC") practice or with regulations adopted by the SEC that apply to registration statements filed under the Securities Act of 1933 and periodic reports filed under the Securities Exchange Act of 1934. Accordingly, the SEC may require that EBITDAP and Adjusted EBITDA be presented differently in filings made with the SEC than as presented on this schedule or not presented at all. We believe that amounts shown for Adjusted EBITDA as presented on this schedule are not materially different from the amounts calculated under the definition of EBITDA used in the indentures for our senior notes and our senior subordinated notes.
EBITDAP and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income as an indication of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies use identical calculations, these presentations of EBITDAP and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, EBITDAP and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, and, in the case of EBITDAP, pensions and other post retirement benefits.
TRW Automotive Inc.
Reconciliation to Pro Forma Adjusted EBITDA
(unaudited)
(Dollars in millions) Nine months ended
September 26, September 27,
2003 2002
GAAP Operating Income $298 $511
Pro forma adjustments:
Inventory fair market value adjustment 43 -
Purchased in-process research and
development 85 -
Stand alone costs (1) 21
Depreciation and amortization 4 15
Other 11 1
Pro forma operating income 440 548
Depreciation and amortization,
net of pro forma adjustments 359 351
Unrealized foreign exchange gain (15) -
UK pension income (67) (197)
Pension expense, net of pro forma adjustment 45 22
OPEB expense 57 52
Pro forma EBITDAP 819 776
Cash restructuring charges 19 7
Acquisition related expenses 6 -
Other unusual items - 8
Pro forma EBITDAP, excluding unusual items 844 791
Cash paid for pensions (23) (19)
Cash paid for OPEB, less indemnity (48) (36)
Pro forma Adjusted EBITDA $773 $736
This schedule should be read in conjunction with the TRW Automotive Inc. Registration Statement on Form S-4 as amended and filed as of November 5, 2003, which contains summary historical and pro forma financial data.
EBITDAP, a measure used by management to measure operating performance, is defined as operating income plus depreciation and amortization, unrealized foreign exchange gain and net pension and OPEB expense. Adjusted EBITDA is defined as EBITDAP further adjusted to exclude unusual items and the cash paid for pension and other postretirement benefits. We believe that the inclusion of supplementary adjustments to EBITDAP applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material cash items and other unusual items that we do not expect to continue at the same level in the future.
Such Supplementary adjustments to EBITDA may not be in accordance with current Securities and Exchange Commission ("SEC") practice or with regulations adopted by the SEC that apply to registration statements filed under the Securities Act of 1933 and periodic reports filed under the Securities Exchange Act of 1934. Accordingly, the SEC may require that EBITDAP and Adjusted EBITDA be presented differently in filings made with the SEC than as presented on this schedule or not presented at all. We believe that amounts shown for Adjusted EBITDA as presented on this schedule are not materially different from the amounts calculated under the definition of EBITDA used in the indentures for our senior notes and our senior subordinated notes.
EBITDAP and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income as an indication of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies use identical calculations, these presentations of EBITDAP and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, EBITDAP and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, and, in the case of EBITDAP, pensions and other post retirement benefits.