TRW Automotive Reports First Quarter 2006 Financial Results
LIVONIA, Mich., May 3, 2006 -- TRW Automotive Holdings Corp. , the global leader in active and passive safety systems, today reported first-quarter 2006 financial results with sales of $3.4 billion, an increase of 5.3 percent compared to the same period a year ago. Net earnings for the quarter were $47 million, or $0.46 per diluted share, which compares to net earnings of $50 million or $0.50 per diluted share in the prior year quarter.
As previously announced, first-quarter 2006 earnings included expenses of $57 million for loss on retirement of debt associated with the tender for the outstanding GBP 94.6 million 10.875% bonds of the Company's Lucas Industries Limited subsidiary. First quarter net earnings excluding these expenses were $104 million, or $1.01 per diluted share, which were above previously provided guidance primarily due to a higher level of revenues, a more favorable operational performance and a lower level of tax expense than previously anticipated.
"We posted a strong start to the year, highlighted by solid first quarter financial results, steady progress on our operating initiatives and new business awards at a level that supports our future growth expectations," said John Plant, president and chief executive officer. "Although industry conditions remain challenging, we have been successful at growing the business and executing our strategic restructuring initiatives at an accelerated pace."
Mr. Plant added, "Looking to the remainder of the year, our ability to achieve our objectives will depend heavily on the execution of our operating strategies, particularly in the second half of the year, where we anticipate fundamentals will worsen due to heightened commodity inflation and softer industry production schedules."
First Quarter 2006
The Company reported first-quarter 2006 sales of $3.4 billion, an increase of $171 million or 5.3 percent compared to prior year sales of $3.2 billion. The increase resulted primarily from the inclusion of sales from the acquisition of Dalphi Metal Espana, S.A. ("Dalphimetal"), which was acquired in October 2005, together with sales growth from safety products and the net benefit of higher vehicle production, primarily in Europe. These positives were partially offset by the negative effect of foreign currency translation and price reductions provided to customers.
Operating income for first-quarter 2006 was $227 million, which represents an increase of $75 million over the prior year total of $152 million. The positive variance resulted primarily from the increased level of sales and from a beneficial product mix that favored the Company's Occupant Safety business. In addition, savings generated from cost reduction, productivity and restructuring programs and the non-recurrence of certain customer solvency and currency related expenses also contributed to the year-to-year increase in operating income. These items were in part offset by price reductions provided to customers and the negative net impact of commodity inflation. Restructuring expenses in both the first quarter of 2006 and 2005 were $8 million.
Net interest and securitization expense for first-quarter 2006 totaled $61 million. In comparison, the prior year totaled $59 million, which included expenses of $3 million related to a refinancing transaction. The year-to-year increase in expense 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 that more than offset interest savings related to past debt reduction and capital structure improvement efforts and the non-recurrence of debt refinancing expenses. As mentioned previously, the Company incurred charges of $57 million related to the redemption of the 10.875% Lucas bonds during the 2006 quarter.
Tax expense in the 2006 quarter was $63 million, resulting in an effective tax rate of 57 percent. The effective tax rate excluding the previously mentioned $57 million loss on retirement of debt was 38 percent, which is below the expected annual rate as a result of the Company's quarterly geographical earnings profile.
Net earnings in the first quarter of 2006 were $47 million, or $0.46 per diluted share, which compares to $50 million or $0.50 per share in the 2005 period. Net earnings excluding the $57 million for loss on retirement of debt were $104 million or $1.01 per diluted share.
Earnings before interest, securitization costs, loss on retirement of debt, taxes, depreciation and amortization ("EBITDA") were $360 million in the first-quarter, which is a 27 percent increase compared to prior year EBITDA of $283 million. The year-to-year increase can be attributed to the higher level of operating income in the 2006 quarter.
Capital Structure/Liquidity
First-quarter 2006 net cash provided by operating activities was $18 million, which compares to cash used of $51 million in the prior year quarter. Capital expenditures for the quarter were $83 million, which is equal to the level reported in the 2005 period.
On February 2, 2006, the Company's wholly owned subsidiary, Lucas Industries Limited, completed the tender for its outstanding GBP 94.6 million 10.875% bonds. The transaction was funded with cash on hand. As mentioned previously, 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.
As of March 31, 2006, the Company had $3,046 million of debt and $390 million of cash and marketable securities, resulting in net debt (defined as debt less cash and marketable securities) of $2,656 million. Net debt increased by $96 million compared to year-end 2005 primarily due to the $57 million premium associated with the bond tender transaction and the impact of net cash used in operating and investing activities, which historically is a net outflow in the first quarter due to seasonal factors.
2006 Outlook
For full-year 2006, the Company continues to expect revenue in the range of $12.8 to $13.2 billion. However, guidance related to net earnings has been revised upward from previous levels as a result of the strong first quarter results announced today. Accordingly, the Company now expects earnings per diluted share in the range of $1.30 to $1.60, which includes the $57 million charge related to the bond tender transaction. Earnings per diluted share excluding this charge are expected to be in the range of $1.85 to $2.15.
The Company expects pre-tax restructuring expenses of $50 million and an effective tax rate of approximately 45 percent, which excludes expenses related to the bond tender transaction. Lastly, the Company's estimate for capital expenditures remains at approximately 4 percent of sales for the year.
For the second quarter of 2006, the Company expects revenue of approximately $3.4 billion and operating income to be slightly below the level achieved in the comparable prior year period.
About TRW
With 2005 sales of $12.6 billion, TRW Automotive ranks among the world's leading automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, employs approximately 63,000 people in 25 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 http://www.trwauto.com/ .
TRW Automotive Holdings Corp.
Index of Condensed Consolidated Financial Information
Page
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2006 and April 1, 2005 A2
Condensed Consolidated Balance Sheets as of
March 31, 2006 (unaudited) and December 31, 2005 A3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2006 and April 1, 2005 A4
Reconciliation of GAAP Net Earnings to EBITDA (unaudited)
for the three months ended March 31, 2006 and April 1, 2005 A5
Reconciliation of GAAP Net Earnings to Adjusted Earnings
(unaudited) for the three months ended March 31, 2006 A6
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, as filed with the United States Securities and Exchange Commission on February 23, 2006.
A1
TRW Automotive Holdings Corp.
Consolidated Statements of Operations
(Unaudited)
(In millions, except per share amounts) Three Months Ended
March 31, 2006 April 1, 2005
Sales $3,396 $3,225
Cost of sales 3,039 2,915
Gross profit 357 310
Administrative and selling expenses 129 136
Amortization of intangible assets 9 8
Restructuring charges and asset impairments 8 8
Other (income) expense - net (16) 6
Operating income 227 152
Interest expense - net 60 58
Loss on retirement of debt 57 -
Accounts receivable securitization costs 1 1
Equity in earnings of affiliates, net of tax (4) (5)
Minority interest, net of tax 3 2
Earnings before income taxes 110 96
Income tax expense 63 46
Net earnings $47 $50
Basic earnings per share:
Earnings per share $0.47 $0.51
Weighted average shares 99.5 99.0
Diluted earnings per share:
Earnings per share $0.46 $0.50
Weighted average shares 103.0 101.0
A2
TRW Automotive Holdings Corp.
Condensed Consolidated Balance Sheets
(Dollars in millions) As of
March 31, December 31,
2006 2005
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $373 $659
Marketable securities 17 17
Accounts receivable - net 2,203 1,948
Inventories 709 702
Prepaid expenses and other current assets 278 273
Total current assets 3,580 3,599
Property, plant and equipment - net 2,532 2,538
Goodwill 2,297 2,293
Intangible assets - net 761 769
Prepaid pension cost 235 222
Other assets 834 809
Total assets $10,239 $10,230
Liabilities, Minority Interests and Stockholders' Equity
Current liabilities:
Short-term debt $98 $98
Current portion of long-term debt 49 37
Trade accounts payable 1,952 1,865
Accrued compensation 254 280
Other current liabilities 1,358 1,310
Total current liabilities 3,711 3,590
Long-term debt 2,899 3,101
Post-retirement benefits other than pensions 909 917
Pension benefits 795 795
Other long-term liabilities 530 513
Total liabilities 8,844 8,916
Minority interests 107 106
Commitments and contingencies
Stockholders' equity:
Capital stock 1 1
Treasury stock - -
Paid-in-capital 1,151 1,142
Retained earnings 179 132
Accumulated other comprehensive losses (43) (67)
Total stockholders' equity 1,288 1,208
Total liabilities, minority interests,
and stockholders' equity $10,239 $10,230
A3
TRW Automotive Holdings Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions) Three Months Ended
March 31, 2006 April 1, 2005
Operating Activities
Net earnings $47 $50
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization 132 128
Other - net 11 (20)
Changes in assets and liabilities,
net of effects of businesses acquired
or divested (172) (209)
Net cash provided by (used in)
operating activities 18 (51)
Investing Activities
Capital expenditures (83) (83)
Net proceeds from asset sales and divestitures 8 -
Other - net (1) -
Net cash used in investing activities (76) (83)
Financing Activities
Change in short-term debt (3) (1)
Proceeds from issuance of long-term debt 3 1,293
Redemption of long-term debt (250) (1,506)
Debt issue costs - (4)
Issuance of capital stock, net of fees - 143
Repurchase of capital stock - (143)
Proceeds from exercise of stock options 7 -
Net cash used in financing activities (243) (218)
Effect of exchange rate changes on cash 15 (3)
Decrease in cash and cash equivalents (286) (355)
Cash and cash equivalents at beginning of period 659 790
Cash and cash equivalents at end of period $373 $435
A4
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, which contains 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
March 31, 2006 April 1, 2005
GAAP net earnings $47 $50
Income tax expense 63 46
Interest expense - net 60 58
Loss on retirement of debt 57 -
Accounts receivable securitization costs 1 1
Depreciation and amortization 132 128
EBITDA $360 $283
A5
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Earnings
(Unaudited)
In conjunction with the Company's February 2, 2006 repurchase of its subsidiary Lucas Industries Limited's GBP 94.6 million 10 7/8% bonds due 2020 for GBP 137 million, or approximately $243 million, the Company recorded a loss on retirement of debt of GBP 32 million, or approximately $57 million. Such loss on retirement of debt carries zero tax benefit due to the Company's tax loss position in the respective jurisdiction.
The following adjustment excludes the loss on retirement of debt to show the impact as if this transaction had not occurred.
(In millions, except Three Months Three Months
per share amounts) Ended Ended
March 31, 2006 March 31, 2006
Actual Adjustments Adjusted
Sales $3,396 $ - $3,396
Cost of sales 3,039 - 3,039
Gross profit 357 - 357
Administrative and selling
expenses 129 - 129
Amortization of intangible assets 9 - 9
Restructuring charges and
asset impairments 8 - 8
Other income - net (16) - (16)
Operating income 227 - 227
Interest expense, net 60 - 60
Loss on retirement of debt 57 (57) (a) -
Account receivable
securitization costs 1 - 1
Equity in earnings of affiliates,
net of tax (4) - (4)
Minority interest, net of tax 3 - 3
Earnings before income taxes 110 57 167
Income tax expense 63 - 63
Net earnings $47 $57 $104
Effective tax rate 57% 38%
Basic earnings per share:
Earnings per share $0.47 $1.05
Weighted average shares 99.5 99.5
Diluted earnings per share:
Earnings per share $0.46 $1.01
Weighted average shares 103.0 103.0
(a) Reflects the elimination of the loss on retirement of debt.
A6
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