TRW Reports Second Quarter and First Half 2014 Financial Results

LIVONIA, Mich., July 29, 2014 /PRNewswire/ -- TRW Automotive Holdings Corp. (NYSE: TRW), the global leader in active and passive safety systems, today reported second quarter 2014 financial results with sales of $4.6 billion, an increase of 2% compared to the prior year period (up 8% excluding the effect of businesses exited).  The Company reported GAAP second quarter net earnings of $265 million or $2.27 per diluted share, which compares to net earnings of $248 million or $1.99 per diluted share in the prior year period.                  

Excluding special items from the Company's current and prior year quarterly results, the Company reported second quarter 2014 net earnings of $270 million, or $2.32 per diluted share, an increase of 15% compared to last year's second quarter earnings of $2.02 per diluted share.            

"TRW's second quarter results reflect the Company's focus and ability to capitalize on increasing global demand for its active and passive safety technologies," said John C. Plant, Chairman and Chief Executive Officer.  "TRW is well positioned to reach its full year goals given the Company's strong operating performance achieved through the first half of 2014."       

Second Quarter 2014
The Company reported second quarter 2014 sales of $4.6 billion, an increase of $79 million from the prior year period.  The higher level of sales was driven by increasing demand for TRW's active and passive safety technologies, higher vehicle production volumes in the Company's major markets, and the positive impact of currency movements between the two periods, partially offset by the negative impact related to exiting certain businesses within the Company's North American brake component and assembly operations.                           

The Company's second quarter 2014 operating income was $383 million, compared with $385 million in the 2013 period.  Both the 2014 and 2013 periods included restructuring charges totaling $6 million and $1 million, respectively.  Excluding these charges, operating income for the second quarter was $389 million (margin of 8.5%), which compares to $386 million (margin of 8.6%) in the prior year period.  The year-to-year increase in profit was primarily driven by the higher level of sales, partially offset by planned increases in costs to support future growth.                               

Net interest expense for the second quarter of 2014 totaled $26 million, which compares to $34 million in the 2013 period.  In addition, a net loss on retirement of debt totaling $5 million was recognized in the second quarter of 2013.                          

Tax expense for the second quarter of 2014 was $92 million, which compares to a tax expense of $97 million in the prior year period.  The 2014 period included a $1 million net tax benefit related to restructuring actions, compared to the 2013 period which included a net tax benefit of $2 million related to debt retirement.      

The Company reported 2014 second quarter GAAP net earnings of $265 million, or $2.27 per diluted share, which compares to GAAP net earnings of $248 million, or $1.99 per diluted share in the 2013 period. 

Excluding special items, the Company reported second quarter 2014 net earnings of $270 million, or $2.32 per diluted share, an increase of 15% compared to last year's second quarter earnings of $2.02 per diluted share. 

Earnings before interest, taxes, depreciation and amortization and special items ("adjusted EBITDA") were $500 million in the second quarter of 2014, compared to the prior year level of $492 million.  See page A6 for a description of the special items excluded in calculating adjusted EBITDA.      

First Half 2014
The Company reported first half 2014 sales of $9.0 billion, an increase of $308 million compared to prior year sales.  The higher level of sales was driven by increasing demand for TRW's innovative technologies, higher vehicle production volumes and the positive impact of currency movements between the two periods, partially offset by the negative impact related to exiting certain businesses within the Company's North American brake component and assembly operations.            

For the first half of 2014, the Company reported operating income of $691 million which compares to $638 million of operating income in the prior year period.  Both the 2014 and 2013 periods included restructuring and asset impairment charges totaling $26 million and $38 million, respectively.  Excluding these items from both periods, the Company reported operating income of $717 million (margin of 7.9%) in the 2014 period, which compares to $676 million (margin of 7.7%) in the prior year.  The positive contribution from the higher level of sales was partially offset by planned increases in costs to support future growth.       

Net interest expense for the first half of 2014 totaled $57 million, which compares to $64 million in the prior year period.  In addition, the 2013 period included a net loss on retirement of debt totaling $5 million.         

First half 2014 tax expense was $170 million, which compares to $159 million in the prior year.  Excluding the tax benefits related to the special items previously noted in both periods, tax expense was $175 million and $171 million in the first half of 2014 and the first half of 2013, respectively.      

The Company reported first half 2014 GAAP net earnings of $464 million, or $3.95 per diluted share, which compares to GAAP net earnings of $410 million, or $3.28 per diluted share in the prior year period.

Excluding special items, the Company reported net earnings of $485 million in the first half of 2014, or $4.12 per diluted share, an increase of 17% compared to last year's first half earnings of $3.52 per diluted share.    

Adjusted EBITDA totaled $937 million in first half 2014, compared to $888 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 2014 net cash flow provided by operating activities was $257 million, which compares to $271 million in the second quarter of 2013.  Capital expenditures were $131 million in the current quarter compared to $167 million last year.  Second quarter free cash flow (cash flow from operating activities less capital expenditures) was $126 million, compared to $104 million in the prior year quarter. 

For the six month period ended June 27, 2014, net cash provided by operating activities was $74 million, which compares to $93 million in the first half of 2013.  First half capital expenditures were $236 million, compared to $271 million in 2013.  Free cash flow was an outflow of $162 million, compared to an outflow of $178 million for the same period last year.

During the first half of 2014, TRW used $400 million of cash to initially repurchase 3.9 million shares of its common stock through an accelerated share repurchase agreement.  The agreement, as previously disclosed, is expected to be completed by the end of the third quarter 2014.              

As of June 27, 2014, the Company had $1,892 million of debt and $931 million of cash and cash equivalents, resulting in net debt (defined as debt less cash and cash equivalents) of $961 million.  The $222 million decrease in total gross debt compared to year end 2013 primarily reflects $469 million of face value bond debt that matured during the first quarter, partially offset by an increase in borrowings under short-term uncommitted lines of credit.                   

2014 Outlook
TRW expects full year industry production volumes to total 17.0 million units in North America and 19.9 million units in Europe.  Within the forecast for Europe, normal seasonality is expected to place modest downward pressure on vehicle production in the near-term despite continuing signs the industry in the region appears to be headed in the right direction.  Outside North America and Europe, the Company continues to expect expansion in vehicle production volumes in China whereas Brazil remains challenged by negative economic conditions.  Based on these production levels, the Company's first half performance and expectations for foreign currency exchange rates, full year 2014 sales are expected to range between $17.5 billion and $17.7 billion, with third quarter sales expected to be approximately $4.2 billion.        

Second Quarter 2014 Conference Call
The Company will host its second quarter conference call at 8:30 a.m. (Eastern time) today, Tuesday, July 29th, 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 66704166.  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 and margin, and diluted earnings per share 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 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 2013 sales of $17.4 billion, TRW Automotive ranks among the world's leading automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, operates in 24 countries and employs approximately 65,000 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.  There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements, including those set forth in the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2013 and our report on Form 10-Q for the fiscal quarter ended March 28, 2014, including: economic conditions adversely affecting our business, results or the viability of our supply base; risks associated with non-U.S. operations, including economic and political uncertainty in some regions, adversely affecting our business, results or financial condition; the unsuccessful implementation of our current expansion efforts adversely impacting our business or results; any developments related to antitrust investigations adversely affecting our financial condition, results, cash flows or reputation; pricing pressures from our customers adversely affecting our profitability; global competition adversely affecting our sales, profitability or financial condition; any disruption in our information technology systems adversely impacting our business and operations; any shortage of supplies causing a production disruption for any customers or us; the loss of any of our largest customers or a significant amount of their business, or a significant decline in their production levels, adversely affecting us; strengthening of the U.S. dollar and other foreign currency exchange rate fluctuations impacting our results; our contingent liabilities and tax matters causing us to incur losses or costs; any inability to protect our intellectual property rights adversely affecting our business or our competitive position; commodity inflationary pressures adversely affecting our profitability or supply base; costs or adverse effects on our business, reputation or results from governmental regulations; work stoppages or other labor issues at our facilities or those of our customers or others in our supply chain adversely affecting our business, results or financial condition; any increase in the expense of our pension and other postretirement benefits or the funding requirements of our pension plans reducing our profitability; and other risks and uncertainties set forth in our Annual Report on Form 10-K and in our other filings with the 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 27, 2014 and June 28, 2013

A2



Consolidated Statements of Earnings (unaudited)
for the six months ended June 27, 2014 and June 28, 2013

A3



Condensed Consolidated Balance Sheets as of June 27, 2014 (unaudited)
and December 31, 2013

A4



Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 27, 2014 and June 28, 2013

A5



Reconciliation of Non-GAAP Financial Measures (unaudited)


for the three and six months ended June 27, 2014 and June 28, 2013

A6



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




    -- For the three months ended June 27, 2014

A7

    -- For the six months ended June 27, 2014

A8

    -- For the three months ended June 28, 2013

A9

    -- For the six months ended June 28, 2013

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, 2013 and Quarterly Report on Form 10-Q for the period ended March 28, 2014 which was filed with the United States Securities and Exchange Commission

 


A2


TRW Automotive Holdings Corp.











Consolidated Statements of Earnings

(Unaudited)













Three Months Ended

(In millions, except per share amounts)


June 27,

2014


June 28,

2013











Sales


$

4,593


$

4,514

Cost of sales



4,026



3,983



Gross profit



567



531

Administrative and selling expenses



169



147

Restructuring charges and asset impairments



6



1

Other expense (income) — net



9



(2)



Operating income



383



385

Interest expense — net



26



34

Loss on retirement of debt — net



-



5

Equity in earnings of affiliates, net of tax



(10)



(11)



Earnings before income taxes



367



357

Income tax expense



92



97



Net earnings



275



260

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


10



12



Net earnings attributable to TRW


$

265


$

248









































Basic earnings per share:









Earnings per share


$

2.39


$

2.09


Weighted average shares outstanding



110.8



118.9











Diluted earnings per share:









Earnings per share


$

2.27


$

1.99


Weighted average shares outstanding



117.4



125.8

 


A3



TRW Automotive Holdings Corp.










Consolidated Statements of Earnings

(Unaudited)













Six Months Ended

(In millions, except per share amounts)

June 27,

2014


June 28,

2013









Sales

$

9,035


$

8,727

Cost of sales


7,968



7,769



Gross profit


1,067



958

Administrative and selling expenses


335



288

Restructuring charges and asset impairments


26



38

Other expense (income) — net


15



(6)



Operating income


691



638

Interest expense — net


57



64

Loss on retirement of debt — net


-



5

Equity in earnings of affiliates, net of tax


(20)



(23)



Earnings before income taxes


654



592

Income tax expense


170



159



Net earnings


484



433

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


20



23



Net earnings attributable to TRW

$

464


$

410





































Basic earnings per share:








Earnings per share

$

4.14


$

3.44


Weighted average shares outstanding


112.0



119.2










Diluted earnings per share:








Earnings per share

$

3.95


$

3.28


Weighted average shares outstanding


118.6



126.3

 


A4


TRW Automotive Holdings Corp.










Condensed Consolidated Balance Sheets












As of




June 27,


December 31,

(Dollars in millions)


2014


2013













(Unaudited)




Assets

Current assets:








Cash and cash equivalents


$

931


$

1,729


Accounts receivable — net



3,078



2,478


Inventories



1,119



1,019


Prepaid expenses and other current assets


473



402

Total current assets



5,601



5,628










Property, plant and equipment — net



2,734



2,718

Goodwill



1,759



1,760

Intangible assets — net



289



292

Pension assets



1,189



1,059

Other assets



861



795


Total assets


$

12,433


$

12,252










Liabilities and Equity

Current liabilities:









Short-term debt


$

406


$

159


Current portion of long-term debt



37



482


Trade accounts payable



2,729



2,597


Accrued compensation



277



285


Other current liabilities



1,308



1,232

Total current liabilities



4,757



4,755










Long-term debt



1,449



1,473

Postretirement benefits other than pensions


369



375

Pension benefits



654



676

Other long-term liabilities



665



577


Total liabilities



7,894



7,856










Commitments and contingencies

















Stockholders' equity:









Capital stock



1



1


Paid-in-capital



1,641



1,715


Retained earnings



3,002



2,858


Accumulated other comprehensive losses


(320)



(380)

Total TRW stockholders' equity



4,324



4,194

Noncontrolling interest



215



202

Total equity



4,539



4,396

Total liabilities and equity


$

12,433


$

12,252

 


A5


TRW Automotive Holdings Corp.











Condensed Consolidated Statements of Cash Flows

(Unaudited)













Six Months Ended





June 27,


June 28,

(Dollars in millions)


2014

2013











Operating Activities








Net earnings


$

484


$

433

Adjustments to reconcile net earnings to net cash provided by operating activities:








Depreciation and amortization



220



212


Net pension and other postretirement benefits income and contributions


(112)



(138)


Loss on retirement of debt — net



-



5


Asset impairments



12



-


Deferred income taxes



76



82


Other — net



8



25

Changes in assets and liabilities:









Accounts receivable — net



(619)



(723)


Inventories



(103)



(49)


Trade accounts payable



148



216


Prepaid expenses and other assets



(117)



(22)


Other liabilities



77



52



Net cash provided by operating activities



74



93











Investing Activities








Capital expenditures, including other intangible assets



(236)



(271)

Investment in non-consolidated joint venture assets



(6)



-



Net cash used in investing activities 



(242)



(271)











Financing Activities








Change in short-term debt



251



20

Proceeds from issuance of long-term debt, net of fees



-



482

Redemption of long-term debt



(475)



(120)

Proceeds from exercise of stock options



2



19

Repurchase of capital stock



(400)



(200)

Dividends paid to noncontrolling interest



(3)



(15)



Net cash (used in) provided by financing activities



(625)



186

Effect of exchange rate changes on cash



(5)



(17)

Decrease in cash and cash equivalents



(798)



(9)

Cash and cash equivalents at beginning of period



1,729



1,223

Cash and cash equivalents at end of period


$

931


$

1,214

A6

TRW Automotive Holdings Corp.

Reconciliation of Non-GAAP Financial Measures
(Unaudited)

EBITDA, Adjusted EBITDA and free cash flow are not recognized terms under GAAP and do not purport to be alternatives to the most comparable GAAP amounts.  Further, since all companies do not use identical calculations, our definition and presentation of these measures may not be comparable to similarly titled measures reported by other companies.

EBITDA and Adjusted EBITDA
EBITDA as calculated below is a measure used by management to evaluate the operating performance of the Company and its business segments and to forecast future periods.  Adjusted EBITDA is defined as EBITDA excluding restructuring charges, asset impairments, loss on retirement of debt−net and other significant special items.  Management uses Adjusted EBITDA to evaluate the performance of ongoing operations separate from items that may have a disproportionate impact in any particular period.  EBITDA and Adjusted EBITDA are frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry.

EBITDA and Adjusted EBITDA do not purport to be alternatives to net earnings as an indicator of operating performance, nor to cash flows from operating activities as a measure of liquidity.  Additionally, neither is intended to be a measure of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.













Three Months Ended


Six Months Ended





June 27,


June 28,


June 27,


June 28,

(Dollars in millions)


2014


2013


2014


2013


















GAAP net earnings attributable to TRW


$

265


$

248


$

464


$

410


Income tax expense



92



97



170



159


Interest expense - net



26



34



57



64


Depreciation and amortization



111



107



220



212

EBITDA



494



486



911



845




















Restructuring charges and asset impairments


6



1



26



38


Loss on retirement of debt - net



-



5



-



5

Adjusted EBITDA


$

500


$

492


$

937


$

888



















Free Cash Flow
Free cash flow represents net cash provided by operating activities less capital expenditures, and is used by management in analyzing the Company's ability to service and repay its debt and to forecast future periods.  However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures.





















Three Months Ended


Six Months Ended





June 27,


June 28,


June 27,


June 28,

(Dollars in millions)


2014


2013


2014


2013


















Cash flow provided by operating activities

$

257


$

271


$

74


$

93

Capital expenditures



(131)



(167)



(236)



(271)

Free cash flow


$

126


$

104


$

(162)


$

(178)


















 



A7


TRW Automotive Holdings Corp.














Reconciliation of GAAP Net Earnings to Adjusted Earnings

(Unaudited)












































Three Months






Three Months





Ended






Ended





June 27, 2014






June 27, 2014

(In millions, except per share amounts)


Actual


Adjustments


Adjusted














Operating income


$

383


$

6

 (a) 


$

389

Interest expense — net



26



-




26

Equity in earnings of affiliates, net of tax



(10)



-




(10)



Earnings before income taxes



367



6




373

Income tax expense



92



1

 (b) 



93



Net earnings



275



5




280

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


10



-




10



Net earnings attributable to TRW


$

265


$

5



$

270














Basic earnings per share:












Earnings per share


$

2.39






$

2.44


Weighted average shares outstanding



110.8







110.8














Diluted earnings per share:












Earnings per share


$

2.27






$

2.32


Weighted average shares outstanding



117.4







117.4

__________
























(a)

Represents the elimination of restructuring charges of $6 million related to severance and other charges

(b)

Represents the elimination of the income tax impact of the above adjustment, by calculating the income tax impact using the appropriate tax rate for the jurisdiction where the charges were incurred

 



A8


TRW Automotive Holdings Corp.
















Reconciliation of GAAP Net Earnings to Adjusted Earnings

(Unaudited)


















































Six Months Ended






Six Months Ended





June 27, 2014






June 27, 2014

(In millions, except per share amounts)


Actual


Adjustments


Adjusted
















Operating income


$

691


$

26

 (a) 


$

717

Interest expense — net



57



-




57

Equity in earnings of affiliates, net of tax



(20)



-




(20)



Earnings before income taxes



654



26




680

Income tax expense



170



5

 (b) 



175



Net earnings



484



21




505

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


20



-




20



Net earnings attributable to TRW


$

464


$

21



$

485
















Basic earnings per share:














Earnings per share


$

4.14






$

4.33


Weighted average shares outstanding



112.0







112.0
















Diluted earnings per share:














Earnings per share


$

3.95






$

4.12


Weighted average shares outstanding



118.6







118.6

__________




























(a)

Represents the elimination of:


(i)

Restructuring charges of $14 million related to severance and other charges, and


(ii)

Asset impairment charges of $12 million

(b)

Represents the elimination of the income tax impact of the above adjustments, by calculating the income tax impact of each of these items using the appropriate tax rate for the jurisdiction where the charges were incurred

 



A9


TRW Automotive Holdings Corp.
















Reconciliation of GAAP Net Earnings to Adjusted Earnings

(Unaudited)


















































Three Months






Three Months





Ended






Ended





June 28, 2013






June 28, 2013

(In millions, except per share amounts)


Actual


Adjustments


Adjusted
















Operating income


$

385


$

1

 (a) 


$

386

Interest expense — net



34



-




34

Loss on retirement of debt — net



5



(5)

 (b) 



-

Equity in earnings of affiliates, net of tax



(11)



-




(11)



Earnings before income taxes



357



6




363

Income tax expense



97



2

 (c) 



99



Net earnings



260



4




264

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


12



-




12



Net earnings attributable to TRW


$

248


$

4



$

252
















Basic earnings per share:














Earnings per share


$

2.09






$

2.12


Weighted average shares outstanding



118.9







118.9
















Diluted earnings per share:














Earnings per share


$

1.99






$

2.02


Weighted average shares outstanding



125.8







125.8

__________




























(a)

Represents the elimination of restructuring charges of $1 million related to severance and other charges

(b)

Represents the elimination of the loss on retirement of debt

(c)

Represents the elimination of the income tax impact of the above adjustments, by calculating the income tax impact of each of these items using the appropriate tax rate for the jurisdiction where the charges were incurred

 


A10


TRW Automotive Holdings Corp.
















Reconciliation of GAAP Net Earnings to Adjusted Earnings

(Unaudited)


















































Six Months Ended






Six Months Ended





June 28, 2013






June 28, 2013

(In millions, except per share amounts)


Actual


Adjustments


Adjusted
















Operating income


$

638


$

38

 (a) 


$

676

Interest expense — net



64



-




64

Loss on retirement of debt — net



5



(5)

 (b) 



-

Equity in earnings of affiliates, net of tax



(23)



-




(23)



Earnings before income taxes



592



43




635

Income tax expense



159



12

 (c) 



171



Net earnings



433



31




464

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


23



-




23



Net earnings attributable to TRW


$

410


$

31



$

441
















Basic earnings per share:














Earnings per share


$

3.44






$

3.70


Weighted average shares outstanding



119.2







119.2
















Diluted earnings per share:














Earnings per share


$

3.28






$

3.52


Weighted average shares outstanding



126.3







126.3

__________




























(a)

Represents the elimination of restructuring charges of $38 million related to severance and other charges

(b)

Represents the elimination of the loss on retirement of debt

(c)

Represents the elimination of the income tax impact of the above adjustments, by calculating the income tax impact of each of these items using the appropriate tax rate for the jurisdiction where the charges were incurred

 

SOURCE TRW Automotive Holdings Corp.



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