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August 2, 2006
Second Quarter 2006 Financial Results Conference Call
Materials
TRW Automotive Holdings Corp.
Materials Included Pages- Press Release 1-8- Financial Summaries A1-A9- Presentation P1-P21 safety.
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 Second Quarter 2006 Financial Results; Provides Update on 2006 Full Year Outlook LIVONIA, MICHIGAN, August 2, 2006 — TRW Automotive Holdings Corp. (NYSE:
TRW), the global leader in active and passive safety systems, today reported second-
quarter 2006 financial results with sales of $3.5 billion, an increase of about 3 percent
compared to the same period a year ago. Net earnings for the 2006 quarter were $91
million or $0.88 per diluted share, which compares to $85 million or $0.83 per diluted
share in the prior year quarter.
The prior year second-quarter results included $10 million of net income relating to the
combined effect of a one-time tax benefit and a loss on retirement of debt. Net
earnings in the 2005 period excluding these items were $75 million or $0.73 per diluted
share. The effective tax rate in the current quarter, which is lower than the expected full
year 2006 rate due to the Company’s quarterly geographic earnings profile, contributed
significantly to the increase in earnings compared to the 2005 adjusted results.
“Our diversification and steady growth of safety products, together with a strong
operating performance, were fundamental to our results in the quarter, marking a solid
first half for the Company,” said John Plant, president and chief executive officer.
“Although we anticipate a healthy degree of our first half momentum to continue into the
second half, which is reflected in our revised full year guidance, our projection for the
remaining quarters is tempered by our expectation of weaker industry volumes, the
impact of higher interest rates and a continued headwind from commodity inflation.”
1
Mr. Plant added, “Our focus on safety and a highly diversified customer and geographic
sales base, in combination with aggressive cost cutting, are helping us achieve our
financial targets and providing the means for us to make significant investments in our
product development efforts across the globe.”
Second Quarter 2006 The Company reported second-quarter 2006 sales of $3.5 billion, an increase of $96
million or 2.9 percent over the prior year period. The current year benefited from the
inclusion of sales from Dalphi Metal Espana, S.A. (“Dalphimetal”), which was acquired
in October 2005, continued demand for safety products and the positive effect of
foreign currency translation. These positive factors were partially offset by lower
customer vehicle production in both North America and Europe, and price reductions
provided to customers.
Operating income for second-quarter 2006 was $201 million, which represents an
increase of $6 million over the prior year total of $195 million. The positive variance
resulted primarily from the increased level of sales, savings generated from cost
reduction, productivity and restructuring programs and the non-recurrence of foreign
currency losses in the prior year. These items were in part offset by price reductions
provided to customers and the negative net impact of commodity inflation.
Restructuring and asset impairment expenses in the 2006 period were $11 million,
which compares to $15 million in 2005.
Net interest and securitization expense for the second quarter of 2006 increased
sharply to $61 million when compared to the prior year total of $55 million. The year-to-
year increase can be attributed to the impact of rising interest rates on the Company’s
floating rate debt, which stands at approximately 63% of total debt outstanding, and
incremental bank debt assumed at the time of the Dalphimetal acquisition, that together
more than offset interest savings related to past debt reduction and capital structure
improvement efforts. Also in the 2005 period, the Company incurred expenses of $7
million for loss on retirement of debt related to the partial redemption of its 10-⅛ senior
notes.
2
Tax expense in the 2006 quarter was $53 million resulting in an effective tax rate of 37
percent, which is below the expected annual rate as a result of the Company’s quarterly
geographic earnings profile. The lower tax rate in the quarter contributed significantly
to the increase in net earnings when compared to the prior year’s adjusted results.
Net earnings in the second quarter of 2006 were $91 million, or $0.88 per diluted share,
which compares to $85 million or $0.83 per diluted share in the 2005 period. As
mentioned previously, the comparable 2005 period included the positive net impact of
$10 million for non-recurring items related to a one-time tax benefit that was partially
offset by debt retirement expenses. Prior year net earnings excluding the $10 million
net benefit were $75 million or $0.73 per diluted share.
Earnings before interest, securitization costs, loss on retirement of debt, taxes,
depreciation and amortization (“EBITDA”) were $326 million in the second quarter,
which is consistent with the prior year level of $324 million.
First Half 2006 The Company reported first-half 2006 sales of $6.9 billion, an increase of $267 million
or 4.1 percent compared to prior year sales of $6.6 billion. The current year benefited
from the inclusion of sales resulting from the acquisition of Dalphimetal, continued
growth from safety products and the net benefit of higher vehicle production, offset
partially by the negative effect of foreign currency translation and price reductions
provided to customers.
Operating income for first-half 2006 was $428 million, which represents an increase of
$81 million, or 23 percent, over the prior year total of $347 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, the
year-to-year increase in operating income reflected savings generated from cost
reduction, productivity and restructuring programs and the non-recurrence of certain
customer solvency and foreign currency related expenses. These items were in part
offset by price reductions provided to customers and the negative net impact of
commodity inflation. Restructuring and asset impairment expenses in the first half of
2006 were $19 million, which compares to $23 million in the 2005 period.
3
Net interest and securitization expense for first-half 2006 totaled $122 million, which
compares to $114 million in the prior year period, or $111 million after excluding $3
million of debt refinancing expenses. 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 that together more than offset
interest savings related to past debt reduction and capital structure improvement
efforts.
In the first half of 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 in the first half of 2006 was $116 million, which resulted in an effective tax
rate of 46 percent. The effective tax rate excluding expenses related to the Lucas bond
transaction of $57 million (which carry zero tax benefit due to the Company’s tax loss
position in the applicable jurisdiction) was 37 percent. This rate is below the expected
annual rate as a result of the Company’s quarterly geographic earnings profile.
Net earnings in the first half of 2006 were $138 million, or $1.34 per diluted share,
which compares to $135 million or $1.33 per diluted share in the 2005 period. As
mentioned previously, net earnings in both periods were impacted by certain non-
recurring items, including expenses of $57 million related to the Lucas bond tender
transaction in 2006 and the previously discussed positive one-time net benefit of $10
million in 2005. Net earnings excluding these items from both periods were $195
million or $1.89 per diluted share in 2006, which compares to $125 million or $1.23 per
diluted share in 2005.
EBITDA was $686 million in the first half of 2006, which is a 13 percent increase
compared to the prior year total of $607 million. The year-to-year increase can be
attributed to the higher level of operating income in the 2006 period.
4
Capital Structure/Liquidity/Transactions Second quarter net cash provided by operating activities was $233 million, which
compares to $263 million in the prior year. Capital expenditures for the quarter were
$119 million, which compares to $91 million in the 2005 period. First half net cash
provided by operating activities was $251 million, which compares to $212 million in the
prior year. Capital expenditures in the first half of 2006 were $202 million, which
compares to $174 million in the 2005 period.
As of June 30, 2006, the Company had $3,035 million of debt and $520 million of cash
and marketable securities, resulting in net debt (defined as debt less cash and
marketable securities) of $2,515 million, which represents a decrease of $45 million
compared to the year-end 2005 level. The change in net debt includes the $57 million
premium associated with the Lucas bond tender transaction.
On February 2, 2006, the Company’s wholly owned subsidiary, Lucas Industries
Limited, completed the tender for its outstanding GBP 94.6 million 10-⅞% 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 completed the redemption of a portion of its Euro
denominated 10-⅛% senior notes, which resulted in pre-tax expenses of $7 million for
premiums and associated fees.
2006 Outlook The Company revised its full year guidance upward as a result of the strong first half
results announced today. Accordingly, full year sales are expected to be in the range of
$13.0 to $13.3 billion (including third quarter sales of approximately $3.0 billion). Net
earnings per diluted share are now expected to be in the range of $1.50 to $1.80, which
includes the previously mentioned $57 million charge related to the bond tender
transaction. Earnings per diluted share excluding this charge are expected to be in the
range of $2.05 to $2.35.
5
For the year, the Company expects pre-tax restructuring expenses of $50 million
(including approximately $7 million in the third quarter) and an effective tax rate of
approximately 43 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.
Second Quarter 2006 Conference Call The Company will host its second-quarter 2006 conference call at 9:00 a.m. (EDT)
today, Wednesday, August 2, 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 2914927. 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.
6
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 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 Form 10-Q for the quarter ended
March 31, 2006, and include: 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), especially in view of the current climate of rising interest rates; possible
production cuts or restructuring by our customers; 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
7
in foreign exchange rates; our substantial leverage; product liability and warranty and
recall claims; 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.
# # #
8
TRW Automotive Holdings Corp.
Index of Condensed Consolidated Financial Information Page Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2006 and July 1, 2005.....................................................A2 Consolidated Statements of Operations (unaudited) for the six months ended June 30, 2006 and July 1, 2005 ........................................................A3 Condensed Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005 .................................................................A4 Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2006 and July 1, 2005 ........................................................A5 Reconciliation of GAAP Net Earnings to EBITDA (unaudited) for the three and six month periods ended June 30, 2006 and July 1, 2005 .............................A6 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the six months ended June 30, 2006....................................................................................A7 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the three months ended July 1, 2005 ...................................................................................A8 Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited) for the six months ended July 1, 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 Form 10-Q for the quarterly period ended March 31, 2006, as filed with the United States Securities and Exchange Commission on February 23, 2006 and May 4, 2006.
A2
TRW Automotive Holdings Corp.
Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts) Three Months Ended June 30, 2006 July 1, 2005 Sales ........................................................................................... $ 3,461 $ 3,365 Cost of sales................................................................................ 3,107 3,010 Gross profit ............................................................................ 354 355 Administrative and selling expenses ........................................... 140 126 Amortization of intangible assets................................................. 9 8 Restructuring charges and asset impairments ............................ 11 15 Other (income) expense — net ................................................... (7) 11 Operating income .................................................................. 201 195 Interest expense — net ............................................................... 60 54 Loss on retirement of debt........................................................... — 7 Accounts receivable securitization costs..................................... 1 1 Equity in earnings of affiliates, net of tax..................................... (9) (5)Minority interest, net of tax .......................................................... 5 2 Earnings before income taxes ............................................. 144 136 Income tax expense .................................................................... 53 51 Net earnings........................................................................ $ 91 $ 85 Basic earnings per share: Earnings per share .................................................................... $ 0.91 $ 0.86 Weighted average shares ......................................................... 100.3 99.0 Diluted earnings per share: Earnings per share .................................................................... $ 0.88 $ 0.83 Weighted average shares ......................................................... 103.7 102.2
A3
TRW Automotive Holdings Corp.
Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts) Six Months Ended June 30, 2006 July 1, 2005 Sales ........................................................................................... $ 6,857 $ 6,590 Cost of sales................................................................................ 6,146 5,925 Gross profit ............................................................................ 711 665 Administrative and selling expenses ........................................... 269 262 Amortization of intangible assets................................................. 18 16 Restructuring charges and asset impairments ............................ 19 23 Other (income) expense — net ................................................... (23) 17 Operating income .................................................................. 428 347 Interest expense — net ............................................................... 120 112 Loss on retirement of debt........................................................... 57 7 Accounts receivable securitization costs..................................... 2 2 Equity in earnings of affiliates, net of tax..................................... (13) (10)Minority interest, net of tax .......................................................... 8 4 Earnings before income taxes ............................................. 254 232 Income tax expense .................................................................... 116 97 Net earnings........................................................................ $ 138 $ 135 Basic earnings per share: Earnings per share .................................................................... $ 1.38 $ 1.36 Weighted average shares ......................................................... 99.9 99.0 Diluted earnings per share: Earnings per share .................................................................... $ 1.34 $ 1.33 Weighted average shares ......................................................... 103.3 101.6
A4
TRW Automotive Holdings Corp.
Condensed Consolidated Balance Sheets
(Dollars in millions) As of
June 30,
2006 December 31,
2005 (Unaudited)
Assets
Current assets: Cash and cash equivalents .................................................... $ 503 $ 659 Marketable securities ............................................................. 17 17 Accounts receivable — net .................................................... 2,329 1,948 Inventories.............................................................................. 729 702 Prepaid expenses and other current assets........................... 273 273
Total current assets .................................................................... 3,851 3,599 Property, plant and equipment — net ......................................... 2,579 2,538 Goodwill ...................................................................................... 2,304 2,293 Intangible assets — net .............................................................. 753 769 Prepaid pension cost .................................................................. 255 222 Other assets................................................................................ 844 809
Total assets............................................................................. $ 10,586 $ 10,230
Liabilities, Minority Interests and Stockholders’ Equity
Current liabilities: Short-term debt...................................................................... $ 83 $ 98 Current portion of long-term debt .......................................... 68 37 Trade accounts payable ........................................................ 2,026 1,865 Accrued compensation .......................................................... 283 280 Other current liabilities........................................................... 1,449 1,310
Total current liabilities ................................................................. 3,909 3,590 Long-term debt............................................................................ 2,884 3,101 Post-retirement benefits other than pensions ............................. 903 917 Pension benefits ......................................................................... 794 795 Other long-term liabilities ............................................................ 553 513
Total liabilities ......................................................................... 9,043 8,916 Minority interests......................................................................... 114 106
Commitments and contingencies
Stockholders’ equity: Capital stock .......................................................................... 1 1 Treasury stock ....................................................................... — — Paid-in-capital ........................................................................ 1,166 1,142 Retained earnings.................................................................. 270 132 Accumulated other comprehensive losses ........................... (8) (67)
Total stockholders’ equity ........................................................... 1,429 1,208 Total liabilities, minority interests, and stockholders’ equity.... $ 10,586 $ 10,230
A5
TRW Automotive Holdings Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions) Six Months Ended June 30, 2006 July 1, 2005 Operating Activities Net earnings ..................................................................................... $ 138 $ 135 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization........................................................ 253 254 Other — net .................................................................................... (20) (12)
Changes in assets and liabilities, net of effects of businesses acquired ......................................................................................... (120)
(165)
Net cash provided by operating activities ..................................... 251 212 Investing Activities Capital expenditures......................................................................... (202) (174)Net proceeds from asset sales and divestitures............................... 10 — Other — net ...................................................................................... (1) —
Net cash used in investing activities............................................. (193) (174) Financing Activities Change in short-term debt................................................................ (19) (2)Proceeds from issuance of long-term debt....................................... 22 1,313 Redemption of long-term debt .......................................................... (273) (1,598)Debt issue costs ............................................................................... — (4)Issuance of capital stock, net of fees ............................................... — 143 Repurchase of capital stock ............................................................. — (143)Proceeds from exercise of stock options.......................................... 17 1
Net cash used in financing activities ............................................ (253) (290)Effect of exchange rate changes on cash ........................................ 39 (32)Decrease in cash and cash equivalents ........................................... (156) (284)Cash and cash equivalents at beginning of period........................... 659 790 Cash and cash equivalents at end of period .................................... $ 503 $ 506
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 Form 10-Q for the quarterly period ended March 31, 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 June 30, 2006 July 1, 2005 GAAP net earnings........................................................ $ 91 $ 85
Income tax expense ................................................ 53 51 Interest expense — net ........................................... 60 54 Loss on retirement of debt....................................... — 7 Accounts receivable securitization costs ................. 1 1 Depreciation and amortization................................. 121 126
EBITDA ......................................................................... $ 326 $ 324
(Dollars in millions) Six Months Ended June 30, 2006 July 1, 2005 GAAP net earnings ....................................................... $ 138 $ 135
Income tax expense ................................................ 116 97 Interest expense — net ........................................... 120 112 Loss on retirement of debt ...................................... 57 7 Accounts receivable securitization costs................. 2 2 Depreciation and amortization ................................ 253 254
EBITDA......................................................................... $ 686 $ 607
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 £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. 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 per share amounts)
Six Months Ended
June 30, 2006Actual Adjustments
Six Months Ended
June 30, 2006 Adjusted
Sales............................................................. $ 6,857 $ — $ 6,857 Cost of sales ................................................. 6,146 — 6,146 Gross profit ............................................... 711 — 711 Administrative and selling expenses ............ 269 — 269 Amortization of intangible assets.................. 18 — 18 Restructuring charges and asset impairments ................................................. 19 — 19 Other income — net ..................................... (23) — (23) Operating income ..................................... 428 — 428 Interest expense, net .................................... 120 — 120 Loss on retirement of debt............................ 57 (57) (a) — Account receivable securitization costs........ 2 — 2 Equity in earnings of affiliates, net of tax...... (13) — (13) Minority interest, net of tax ........................... 8 — 8 Earnings before income taxes.................. 254 57 311 Income tax expense .................................... 116 — 116 Net earnings ............................................ $ 138 $ 57 $ 195 Effective tax rate........................................... 46% 37% Basic earnings per share: Earnings per share ..................................... $ 1.38 $ 1.95 Weighted average shares........................... 99.9 99.9 Diluted earnings per share: Earnings per share ..................................... $ 1.34 $ 1.89
Weighted average shares........................... 103.3 103.3
(a) Reflects the elimination of the loss on retirement of debt.
A7
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Earnings (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 three months ended July 1, 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)
Three Months ended
July 1, 2005 Actual
Adjustments
Three Months ended
July 1, 2005 Adjusted
Sales .................................................................. $ 3,365 $ — $ 3,365 Cost of Sales ...................................................... 3,010 — 3,010 Gross profit ..................................................... 355 — 355 Administrative and selling expenses................... 126 — 126 Amortization of intangible assets ........................ 8 — 8 Restructuring charges and asset impairments.... 15 — 15 Other income — net ........................................... 11 — 11 Operating income ........................................... 195 — 195 Interest expense, net .......................................... 54 — 54 Loss on retirement of debt .................................. 7 (7) (a) — Account receivable securitization ....................... 1 — 1 Equity in earnings of affiliates, net of tax ............ (5) — (5) Minority interest, net of tax.................................. 2 — 2 Earnings before income taxes ........................ 136 7 143 Income tax expense .......................................... 51 17 (b) 68 Net earnings ................................................... $ 85 $ (10) $ 75
Effective tax rate................................................. 38% 48%
Basic earnings per share: Earnings per share ........................................... $ 0.86 $ 0.76
Weighted average shares................................. 99.0 99.0
Diluted earnings per share: Earnings per share ........................................... $ 0.83 $ 0.73
Weighted average shares................................. 102.2 102.2
(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.
A8
TRW Automotive Holdings Corp.
Reconciliation of GAAP Net Earnings to Adjusted Earnings (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 six months ended July 1, 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)
Six Months ended
July 1, 2005 Actual
Adjustments
Six Months ended
July 1, 2005 Adjusted
Sales .................................................................. $ 6,590 $ — $ 6,590 Cost of Sales ...................................................... 5,925 — 5,925 Gross profit ..................................................... 665 — 665 Administrative and selling expenses................... 262 — 262 Amortization of intangible assets ........................ 16 — 16 Restructuring charges and asset impairments ....................................................... 23 — 23 Other income — net ........................................... 17 — 17 Operating income ........................................... 347 — 347 Interest expense, net .......................................... 112 — 112 Loss on retirement of debt .................................. 7 (7) (a) — Account receivable securitization ....................... 2 — 2 Equity in earnings of affiliates, net of tax ............ (10) — (10) Minority interest, net of tax.................................. 4 — 4 Earnings before income taxes ........................ 232 7 239 Income tax expense .......................................... 97 17 (b) 114 Net earnings ................................................... $ 135 $ (10) $ 125
Effective tax rate................................................. 42% 48%
Basic earnings per share: Earnings per share ........................................... $ 1.36 $ 1.26
Weighted average shares................................. 99.0 99.0
Diluted earnings per share: Earnings per share ........................................... $ 1.33 $ 1.23
Weighted average shares................................. 101.6 101.6
(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.
A9
August 2, 2006
Second Quarter 2006 Financial Results
Presentation
TRW Automotive Holdings Corp.
P2 © TRW Automotive Holdings Corp. 2006
IntroductionPatrick StobbDirector, Investor Relations
Business SummaryJohn C. PlantPresident andChief Executive Officer
P3 © TRW Automotive Holdings Corp. 2006
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 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 Form 10-Q for the quarter ended March 31, 2006, and include: 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 ability of our suppliers to deliver products at the scheduled rate; interest rate risk arising from our variable rate indebtedness (which constitutes a majority of the company’s indebtedness), especially in view of the current climate of rising interest rates; possible production cuts or restructuring by our customers; 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; 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. 2006
Summary Comments
• Positive momentum of the Company’s operating results continued at a strong pace during the second quarter – marking a solid start to the year
• Raising full year guidance estimates to reflect good financial results
• Operating environment remains challenging:– Expectation of lower North American customer production volumes driven by
the continuation of Big 3 market share losses– Accelerated mix shift away from light trucks and SUVs– Rising interest rates– Persistent commodity inflation pressures
• TRW’s success in the difficult and changing global marketplace can be attributed to……– Leadership in safety – Industry leading diversification– Investment in technology– Cost reduction efforts– Dedicated employees
Now 66% of sales in 2006 outside North America
P5 © TRW Automotive Holdings Corp. 2006
Second Quarter• Sales of $3.5 billion, an increase of about 3% over the prior year period:
– Dalphimetal– Foreign currency translation– New product sales– North American and European industry production– Customer pricing
• GAAP Net earnings of $91 million or $0.88 per diluted share• Net debt of $2.5 billion at quarter-end, down $141 million from the first
quarter(a)
First Half• Sales of $6.9 billion, an increase of 4% over the prior year period• GAAP net earnings of $138 million or $1.34 per diluted share, which
included $57 million of debt retirement expenses• Net earnings excluding debt retirement expenses were $195 million or
$1.89 per diluted share
Financial Highlights
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Note: Per share amounts based on weighted average diluted shares outstanding of approximately 103.7 million in the second quarter and 103.3 million in the first half period.(a) For a net debt reconciliation to closest GAAP equivalent, please refer to the reconciliation on slide P21 of this presentation.
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P6 © TRW Automotive Holdings Corp. 2006
• Pace of new business awards
• Working to increase the awareness of active and passive safety technologies in the marketplace
• Restructuring initiatives proceeding as planned
• Dalphimetal integration
• Structural and commodity issues continue to present significant challenges to the industry
Quarterly Business Developments
P7 © TRW Automotive Holdings Corp. 2006
2006 Operating Environment
• Big 3 production expected to decline 4% in the second half compared to the previous year
• Weak light truck and SUV mix expected to continue
• Persistent commodity inflation continues to pressure bottom line profits
• Strong first half operating performance has led to the second upward revision in full year guidance
(1) Source: Primarily CSM Worldwide and internal company estimates.
2006 Production Assumptions(1)
(units in millions)
20.0
10.7
15.8
19.9
10.9
15.8
20.2
11.4
15.8
19.2
11.9
15.9
Europe
NorthAmerica
Big 3
NorthAmerica
‘04’03
‘05‘06
‘06
‘04’03
‘05‘06
‘04’03
‘05‘06
P8 © TRW Automotive Holdings Corp. 2006
• Expect sales in the range of $13.0 to $13.3 billion
• GAAP Net earnings per diluted share of $1.50 to $1.80(1)
– Includes $57 million for loss on retirement of debt related to Lucas bond tender transaction
• Net earnings excluding loss on retirement of debt in the range of $2.05 to $2.35 per diluted share(1)
• Restructuring expenses of $50 million
• Capital spending expected to run at approximately 4% of sales
2006 Full Year Outlook
(1) Per share amounts based on weighted average diluted shares outstanding of approximately 103.8 million shares.
P9 © TRW Automotive Holdings Corp. 2006
Financial OverviewJoseph S. CantieExecutive Vice Presidentand Chief Financial Officer
P10 © TRW Automotive Holdings Corp. 2006
Second Quarter Results
(a) $7 million premiums and fees related to a bond redemption transaction.(b) $17 million one-time tax benefit for a tax law change in Poland.
(a)
(b)
(dollars in millions, except where noted)Q2 2006GAAP
ResultsGAAP
ResultsAdjusting
ItemsAdjusted Results
Sales 3,461$ 3,365$ -$ 3,365$
Operating Income 201 195 - 195
Net Interest and Securitization 61 55 - 55
Loss on Retirement of Debt - 7 (7) -
Equity in earnings of affiliates (9) (5) - (5)
Minority Interest 5 2 - 2
Income Taxes 53 51 17 68
Effective Tax Rate 37% 38% 48%
Net Earnings (Losses) 91$ 85$ (10)$ 75$ Share Count 103.7 102.2 102.2
Earnings Per Share 0.88$ 0.83$ 0.73$
Q2 2005
P11 © TRW Automotive Holdings Corp. 2006
Second Quarter Normalized Tax Expense
(a) Based on diluted share counts of 103.7 million for Q2 2006 and 102.2 million for Q2 2005(b) $0.09 per diluted share reflects adjustment to normalize the actual quarterly tax expense to the estimated full year effective tax rate of 43%.(c) $7 million premiums and fees related to a bond redemption transaction.(d) $17 million one-time tax benefit for a tax law change in Poland.
(c)
(d)
(b)
(earnings per share data)Q2 2006(a) Q2 2005(a)
GAAP Net Earnings 0.88$ 0.83$
Euro Note Bond Redemption - 0.07
One-time Tax Benefit -- Poland - (0.17)
Adjusted EPS 0.88$ 0.73$
Second Quarter 2006 Normalized Tax Expense
Normalized Tax Expense Adjustment (0.09)
Adjusted EPS Including Normalized Tax Expense 0.79$
P12 © TRW Automotive Holdings Corp. 2006
Second Quarter EBITDA Summary
(a) Please refer to slide P20 for management’s rationale for using this metric.
(dollars in millions)
Q2 2006 Q2 2005
Net Earnings 91$ 85$
Income Tax Expense 53 51
Net Interest and Securitization 61 55
Loss on Retirement of Debt - 7
Depreciation and Amortization 121 126
EBITDA(a)326$ 324$
Memo:Restructuring & Asset Impairments Included Above 11$ 15$
P13 © TRW Automotive Holdings Corp. 2006
First Half Results
(b)
(c)
(a)
(dollars in millions, except where noted)
GAAP Results
(a) $57 million loss on retirement of debt related to Lucas bond tender transaction.(b) $7 million premiums and fees related to a bond redemption transaction.(c) $17 million one-time tax benefit for a tax law change in Poland.
Adjusting Item
Adjusted Results
GAAP Results
Adjusting Items
Adjusted Results
Sales 6,857$ -$ 6,857$ 6,590$ -$ 6,590$
Operating Income 428 - 428 347 - 347
Net Interest and Securitization 122 122 114 - 114
Loss on Retirement of Debt 57 (57) - 7 (7) -
Equity in earnings of affiliates (13) - (13) (10) - (10)
Minority Interest 8 - 8 4 - 4
Income Taxes 116 - 116 97 17 114
Effective Tax Rate 46% 37% 42% 48%
Net Earnings (Losses) 138$ 57$ 195$ 135$ (10)$ 125$
Share Count 103.3 103.3 101.6 101.6
Earnings Per Share 1.34$ 1.89$ 1.33$ 1.23$
First Half 2006 First Half 2005
P14 © TRW Automotive Holdings Corp. 2006
First Half Normalized Tax Expense
(a) Diluted share counts based on 103.3 million in first half 2006 and 101.6 million in first half 2005(b) $57 million loss on retirement of debt related to Lucas bond tender transaction.(c) $0.17 per diluted share reflects adjustment to normalize the actual first half tax expense to the estimated full year effective tax rate of 43%.(d) $7 million premiums and fees related to a bond redemption transaction.(e) $17 million one-time tax benefit for a tax law change in Poland.
(d)
(e)
(c)
(b)
(earnings per share data)First Half
2006(a)First Half
2005(a)
GAAP Net Earnings 1.34$ 1.33$
Lucas Bond Tender Transaction 0.55 -
Euro Note Bond Redemption - 0.07
One-time Tax Benefit -- Poland - (0.17)
Adjusted EPS 1.89$ 1.23$
First Half 2006 Normalized Tax Expense
Normalized Tax Expense Adjustment (0.17)
Adjusted EPS Including Normalized Tax Expense 1.72$
P15 © TRW Automotive Holdings Corp. 2006
First Half EBITDA Summary
(a) Please refer to slide P20 for management’s rationale for using this metric.
(dollars in millions)
First Half 2006
First Half 2005
Net Earnings 138$ 135$
Income Tax Expense 116 97
Net Interest and Securitization 122 114
Loss on Retirement of Debt 57 7
Depreciation and Amortization 253 254
EBITDA(a)686$ 607$
Memo:Restructuring & Asset Impairments Included Above 19$ 23$
P16 © TRW Automotive Holdings Corp. 2006
Net Debt Summary(a)
$3,089 $2,582 $2,479 $2,326 $2,514 $2,316 $2,656 $2,515$2,372
$2,560$2,964
$3,437
Feb 28, 2003 Dec 31, 2003 Dec 31, 2004 Apr 1, 2005 July 1, 2005 Sep 30, 2005 Dec 31, 2005 Mar 31, 2006 June 30, 2006
Net Debt Operating Co. PIK Seller Note
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 P21 of this presentation.
Dalphimetal acquisition increased net debt by $244 million
(dollars in millions)
• Second quarter net cash provided by operations was $233 million, which compares to $263 million in the prior year period
• Capital expenditures totaled $119 million, which compares to $91 million in the prior year period
• In excess of $1 billion in available liquidity at quarter-end
P17 © TRW Automotive Holdings Corp. 2006
• Solid first half performance – excellent start to the year
• Raised full year guidance for the second time due to the strength of our results
• Expect third quarter sales of $3.0 billion based on industry production of 3.7 million units in North America and 4.6 millionunits in Europe
• Second half expectations tempered by industry production concerns, particularly extended customer shutdowns and persistent pressures from commodity inflation
• Company focused on delivering operational and financial commitments
Closing Summary
TRW Automotive Holdings Corp.
“Driving Automotive Safety”
P19 © TRW Automotive Holdings Corp. 2006
Financial Reconciliation Section
P20 © TRW Automotive Holdings Corp. 2006
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 Form 10-Q for the quarter ended March 31, 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.
P21 © TRW Automotive Holdings Corp. 2006
Net Debt Reconciliation
(dollars in millions)3/1/03 12/31/03 12/31/04 4/1/05 7/1/05 9/30/05 12/31/05 3/31/06 6/30/06
Cash 449$ 828$ 790$ 435$ 506$ 300$ 659$ 373$ 503$ Marketable securities 26 16 19 16 13 17 17 17 17
Total 475 844 809 451 519 317 676 390 520
Short term debt 168 76 40 38 37 38 98 98 83
Long term debt:Term loan facilities 1,510 1,480 1,512 1,298 1,296 1,293 1,593 1,588 1,585 Senior notes 1,142 1,178 1,063 1,042 981 972 964 960 959 Senior subordinated notes 435 458 306 300 293 293 291 294 298 Lucas Varity senior notes 167 189 202 198 187 186 181 - - Other borrowings 142 45 58 54 51 49 109 106 110 Total Short & Long Term Debt 3,564 3,426 3,181 2,930 2,845 2,831 3,236 3,046 3,035
Net debt operating company 3,089$ 2,582$ 2,372$ 2,479$ 2,326$ 2,514$ 2,560$ 2,656$ 2,515$
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$
Period-End Balances