TRW Reports Second Quarter and First Half 2012 Financial Results

LIVONIA, Mich., July 31, 2012 /PRNewswire/ -- TRW Automotive Holdings Corp. (NYSE: TRW), the global leader in active and passive safety systems, today reported second quarter 2012 financial results with sales of $4.2 billion, about equal compared to the prior year period (up over 8% excluding the impact of currency movements and divestitures).  The Company reported GAAP second quarter net earnings of $220 million or $1.71 per diluted share, which compares to net earnings of $293 million or $2.21 per diluted share in the prior year period.  A higher effective tax rate in the current period combined with a higher level of costs related to future growth initiatives and higher raw material prices were the primary reasons for the decline in diluted earnings per share between the two periods.              

The Company's current and prior year quarterly results both contain special items.  The current year quarter included restructuring charges and related tax benefits while the prior year period included a gain associated with the resolution of a commercial matter, debt retirement charges and favorable tax benefits.  Excluding special items, the Company reported second quarter 2012 net earnings of $221 million, or $1.72 per diluted share, which compares to net earnings of $264 million or $1.99 per diluted share in the prior year period.  

"Supported by a strong market position and increasing demand for the Company's innovative safety technologies, TRW continued to move forward in the second quarter despite a notable decline in European vehicle production," said John C. Plant, Chairman and Chief Executive Officer.  "TRW's solid performance through the first half of 2012 provides a firm foundation for TRW to reach its full year goals."

Second Quarter 2012

The Company reported second quarter 2012 sales of $4.2 billion, an increase of $5 million from the prior year period (up over 8% excluding the impact of currency movements and divestitures).  The impact of increasing demand for TRW's broad array of active and passive safety products and improved vehicle production volumes in North America were primarily offset by lower vehicle production volumes in Europe and the negative impact of currency movements between the two periods.                   

The Company's second quarter 2012 operating income was $337 million, compared with $368 million in the 2011 period.  The 2012 period included restructuring charges totaling $2 million while the 2011 period included a gain related to a favorable resolution of a commercial matter totaling $19 million.  Excluding these special items from both periods, operating income for the second quarter was $339 million, which compares to $349 million in the prior year period.  The year-to-year decline in profit was primarily driven by planned increases in costs to support future growth and the negative profit impact from higher raw material prices.                           

Net interest expense for the second quarter of 2012 totaled $27 million, which compares favorably to $30 million in the 2011 period as a result of lower debt levels.  In addition, a net loss on retirement of debt totaling $10 million was recognized in the second quarter of 2011.                 

Tax expense for the second quarter of 2012 was $92 million, which compares to a tax expense of $34 million in the prior year period.  The increase in expense is attributable to a higher effective tax rate in the current period resulting from the reversal of the Company's valuation allowance on deferred income tax assets in the United States that occurred in late 2011.  The 2012 period included a $1 million tax benefit related to restructuring charges compared to the 2011 period which included a net tax benefit of $20 million related to favorable resolutions of tax matters in foreign jurisdictions.                            

The Company reported 2012 second quarter GAAP net earnings of $220 million, or $1.71 per diluted share, which compares to GAAP net earnings of $293 million, or $2.21 per diluted share in the 2011 period. 

Excluding special items, the Company reported second quarter 2012 net earnings of $221 million, or $1.72 per diluted share, which compares to net earnings of $264 million or $1.99 per diluted share in the 2011 period. 

Earnings before interest, taxes, depreciation and amortization and special items ("adjusted EBITDA") were $444 million in the second quarter of 2012, compared to the prior year level of $461 million.  See page A6 for a description of the special items excluded in calculating adjusted EBITDA.    

First Half 2012

The Company reported first half 2012 sales of $8.4 billion, an increase of $104 million compared to prior year sales.  The increase in sales resulted from a higher level of demand for TRW's broad array of active and passive safety products and improved vehicle production volumes in North America, partially offset by lower vehicle production volumes in Europe and the negative impact of currency movements between the two periods.           

For the first half of 2012, the Company reported operating income of $668 million which compares to $740 million of operating income in the prior year period.  The 2012 period included restructuring charges totaling $4 million compared with the 2011 period which included a gain related to a favorable resolution of a commercial matter totaling $19 million and a charge related to the termination of a service contract totaling $10 million.  Excluding these items from both periods, the Company reported operating income of $672 million in the 2012 period, which compares to $731 million in the prior year.  The year-to-year decline in profit was driven primarily by a higher mix of lower margin business, planned increases in costs to support future growth, the negative profit impact from higher raw material prices and, to a lesser degree, the negative profit impact of currency movements. 

Net interest expense for the first half of 2012 totaled $56 million, which compares to $64 million in the prior year period.  In addition, the current year-to-date period included a net loss on retirement of debt totaling $5 million compared with the first half 2011 period which recognized a net loss on retirement of debt totaling $20 million.       

First half 2012 tax expense was $185 million, which compares to $90 million in the prior year.  The increase in expense is attributable to a higher effective tax rate in the current period resulting from the reversal of the Company's valuation allowance on deferred income tax assets in the United States that occurred in late 2011.  Excluding the tax benefits related to the special items previously noted in both periods, tax expense was $188 million and $110 million in the first half of 2012 and the first half of 2011, respectively.      

The Company reported first half 2012 GAAP net earnings of $426 million, or $3.30 per diluted share, which compares to GAAP net earnings of $574 million, or $4.34 per diluted share in the prior year period.

Excluding special items, the Company reported net earnings of $432 million in the first half of 2012, or $3.34 per diluted share, which compares to net earnings of $556 million or $4.20 per diluted share in the first half of 2011. 

Adjusted EBITDA totaled $883 million in first half 2012, compared to $959 million in the prior year period.  See page A6 for a description of the special items excluded in calculating adjusted EBITDA.

Cash Flow and Capital Structure

Second quarter 2012 net cash flow provided by operating activities was $191 million, which compares to $271 million in the second quarter of 2011.  Capital expenditures were $104 million in the current quarter compared to $100 million last year.  Second quarter free cash flow (cash flow from operating activities less capital expenditures) was $87 million, compared to $171 million in the prior year quarter.  The lower level of free cash flow compared with last year resulted primarily from lower overall earnings and higher working capital requirements.

For the six month period ended June 29, 2012, net cash flow provided by operating activities totaled $89 million, which compares to $352 million in first half 2011.  First half capital expenditures were $200 million compared to $167 million in 2011.  Free cash flow was an outflow of $111 million, compared to an inflow of $185 million for the same period last year.

During the first half of 2012, the Company retired $48 million of face value senior notes and reached its 2012 authorized limit to repurchase 2.3 million shares of its common stock under a program that is intended to offset, on an ongoing basis, the dilution created by the Company's stock incentive plan.  

As of June 29, 2012, the Company had $1,472 million of debt and $966 million of cash and cash equivalents, resulting in net debt (defined as debt less cash and cash equivalents) of $506 million.  Total debt sets a new historic low for the Company, $60 million lower than the balance at the end of 2011 and $233 million lower than the balance at the end of the prior year second quarter.    

2012 Outlook

TRW expects full year industry production volumes to total 14.9 million units in North America and 18.8 million units in Europe.  Within the forecast for North America, the Company expects production for the Detroit Three manufacturers will be up approximately 6% compared with their 2011 production levels.  The Company continues to expect increased vehicle production volumes in China and the rest of world regions.  Based on these revised production levels and the Company's expectations for foreign currency exchange rates, full year 2012 sales are now expected to range between $16.2 billion and $16.4 billion, with third quarter sales expected to be approximately $3.9 billion.                    

"TRW remains cautious in the near-term as our 2012 guidance provided today reflects the difficult economic environment in Europe and its negative impact on the automotive industry.  Managing through these challenges while protecting the Company's profitability and implementing TRW's extensive growth strategy is essential to ensure continued success in 2012 and beyond," said Mr. Plant.         

Second Quarter 2012 Conference Call

The Company will host its second quarter conference call at 8:30 a.m. (Eastern time) today, Tuesday, July 31st, to discuss financial results and other related matters.  To participate in the conference call, please dial (877) 852-7898 for U.S. locations, or (706) 634-1095 for international locations. 

An audio replay of the conference call will be available approximately two hours after the conclusion of the call and will be accessible afterward for approximately two weeks.  To access the replay, U.S. locations should dial (855) 859-2056, and locations outside the U.S. should dial (404) 537-3406. The replay code is 93012092.  A live audio webcast and replay of the conference call will also be available on the Company's website at www.trw.com.

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"), such as net earnings, operating income, diluted earnings per share and tax expense each excluding special items; adjusted EBITDA; and free cash flow.  Management uses these non-GAAP measures to evaluate the operating performance of the Company and its business segments and to forecast future periods.  Management believes that investors will likewise find these non-GAAP measures useful in evaluating such performance.  Such measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. 

Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.  For a reconciliation of non-GAAP measures to the most comparable GAAP financial measure and for share amounts used to derive earnings per share, please see the financial schedules that accompany this release.

About TRW

With 2011 sales of $16.2 billion, TRW Automotive ranks among the world's leading automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, operates in 26 countries and employs over 60,000 people worldwide.  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.trw.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 U.S. Private Securities Litigation Reform Act of 1995.  We caution readers not to place undue reliance on these statements, which speak only as of the date hereof.  All forward-looking statements are subject to numerous assumptions, risks and uncertainties which could cause our actual results to differ materially from those suggested by the forward-looking statements, including those set forth in our Report on Form 10-K for the fiscal year ended December 31, 2011 (our "Form 10-K") and our Report on Form 10-Q for the fiscal quarter ended March 30, 2012, such as: any developments related to antitrust investigations adversely affecting our financial condition, results, cash flows or reputation; any shortage of specialty resins, castings or other supplies causing a production disruption for any customers or us; general economic conditions causing a material contraction in automotive sales and production adversely affecting our results or the viability of our supply base; the unsuccessful implementation of our current expansion efforts adversely impacting our business and results; commodity inflationary pressures adversely affecting our profitability or supply base; strengthening of the U.S. dollar and other foreign currency exchange rate fluctuations impacting our results; pricing pressures from our customers adversely affecting our profitability; increasing costs negatively impacting our profitability; the loss of any of our largest customers materially adversely affecting us; risks associated with non-U.S. operations, including economic and political uncertainty in some regions, adversely affecting our business, results or financial condition; any inability to protect our intellectual property rights adversely affecting our business or our competitive position; costs of product liability, warranty and recall claims and efforts by customers to adversely alter contract terms and conditions concerning warranty and recall participation; costs or liabilities relating to environmental, health and safety regulations adversely affecting our results; any increase in the expense of our pension and other postretirement benefits or the funding requirements of our pension plans reducing our profitability; work stoppages or other labor issues at our facilities or at the facilities of our customers or suppliers adversely affecting our operations; volatility in our annual effective tax rate resulting from a change in our valuation allowances, our mix of earnings between jurisdictions or other factors; any impairment of a significant amount of our goodwill or other intangible assets; any disruption in our information technology systems adversely impacting our business and operations; and other risks and uncertainties set forth in our Form 10-K and in our other filings with the U.S. Securities and Exchange Commission.  We do not undertake any obligation to release publicly any update or revision to any of the forward-looking statements.   

 

A1


TRW Automotive Holdings Corp




Index of Condensed Consolidated Financial Information





Page



Consolidated Statements of Earnings (unaudited)
for the three months ended June 29, 2012 and July 1, 2011 

A2



Consolidated Statements of Earnings (unaudited)
for the six months ended June 29, 2012 and July 1, 2011

A3



Condensed Consolidated Balance Sheets as of June 29, 2012 (unaudited)
and December 31, 2011

A4



Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 29, 2012 and July 1, 2011

A5



Reconciliation of Non-GAAP Financial Measures (unaudited)


for the three and six months ended June 29, 2012 and July 1, 2011

A6



Reconciliation of GAAP Net Earnings to Adjusted Earnings (unaudited):




  • For the three months ended June 29, 2012

A7

 

  • For the six months ended June 29, 2012

A8

 

  • For the three months ended July 1, 2011

A9

 

  • For the six months ended July 1, 2011

A10

 

The accompanying unaudited condensed consolidated financial information and reconciliation schedules should be read in conjunction with the TRW Automotive Holdings Corp. Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Report on Form 10-Q for the period ended March 30, 2012, which were filed with the United States Securities and Exchange Commission



 

A2

TRW Automotive Holdings Corp












Consolidated Statements of Earnings

(Unaudited)












(In millions, except per share amounts)


Three Months Ended





June 29,

2012


July 1,

2011












Sales


$

4,239



$

4,234


Cost of sales



3,763




3,717




Gross profit



476




517


Administrative and selling expenses



143




152


Amortization of intangible assets



3




3


Restructuring charges



2




-


Other (income) expense — net



(9)




(6)




Operating income



337




368


Interest expense — net



27




30


Loss on retirement of debt — net



-




10


Equity in earnings of affiliates, net of tax



(9)




(10)




Earnings before income taxes



319




338


Income tax expense



92




34




Net earnings



227




304


Less: Net earnings attributable to noncontrolling interest, net of tax



7




11




Net earnings attributable to TRW


$

220



$

293














































Basic earnings per share:










Earnings per share


$

1.80



$

2.37



Weighted average shares outstanding



122.5




123.7













Diluted earnings per share:










Earnings per share


$

1.71



$

2.21



Weighted average shares outstanding



129.6




134.4



 

A3

TRW Automotive Holdings Corp











Consolidated Statements of Earnings

(Unaudited)














Six Months Ended

(In millions, except per share amounts)

June 29,

2012


July 1,

2011











Sales

$

8,447



$

8,343


Cost of sales


7,497




7,315




Gross profit


950




1,028


Administrative and selling expenses


289




303


Amortization of intangible assets


6




8


Restructuring charges


4




-


Other (income) expense — net


(17)




(23)




Operating income


668




740


Interest expense — net


56




64


Loss on retirement of debt — net


5




20


Gain on business acquisition


-




(9)


Equity in earnings of affiliates, net of tax


(20)




(20)




Earnings before income taxes


627




685


Income tax expense


185




90




Net earnings


442




595


Less: Net earnings attributable to noncontrolling interest, net of tax


16




21




Net earnings attributable to TRW

$

426



$

574










































Basic earnings per share:









Earnings per share

$

3.46



$

4.66



Weighted average shares outstanding


123.1




123.3












Diluted earnings per share:









Earnings per share

$

3.30



$

4.34



Weighted average shares outstanding


130.4




134.4



 

A4

TRW Automotive Holdings Corp











Condensed Consolidated Balance Sheets











(Dollars in millions)


As of




June 29,


December 31,




2012


2011














(Unaudited)





Assets

Current assets:










Cash and cash equivalents


$

966



$

1,241



Accounts receivable — net



2,667




2,222



Inventories



970




845



Prepaid expenses and other current assets



310




319


Total current assets



4,913




4,627












Property, plant and equipment — net



2,085




2,137


Goodwill



1,750




1,753


Intangible assets — net



295




298


Pension assets



1,004




918


Other assets



541




529



Total assets


$

10,588



$

10,262












Liabilities and Equity

Current liabilities:










Short-term debt


$

70



$

65



Current portion of long-term debt



50




39



Trade accounts payable



2,456




2,306



Accrued compensation



239




283



Other current liabilities



1,124




1,147


Total current liabilities



3,939




3,840


Long-term debt



1,352




1,428


Postretirement benefits other than pensions



410




421


Pension benefits



780




831


Other long-term liabilities



641




603



Total liabilities



7,122




7,123












Commitments and contingencies



















Stockholders' equity:










Capital stock



1




1



Treasury stock



-




-



Paid-in-capital



1,611




1,602



Retained earnings



1,992




1,668



Accumulated other comprehensive earnings (losses)



(335)




(331)


Total TRW stockholders' equity



3,269




2,940


Noncontrolling interest



197




199


Total equity



3,466




3,139


Total liabilities and equity


$

10,588



$

10,262



 

A5

TRW Automotive Holdings Corp












Condensed Consolidated Statements of Cash Flows

(Unaudited)












(Dollars in millions)


Six Months Ended





June 29,