TRW Reports Fourth Quarter and Full Year 2014 Financial Results

LIVONIA, Mich., Feb. 13, 2015 /PRNewswire/ --

• Fourth quarter sales of $4.3 billion; record full year sales of $17.5 billion, an increase of 1% compared to 2013 despite divestitures.
• Excluding special items, fourth quarter net earnings of $2.31 per diluted share (up 26%); full year net earnings of $8.18 per diluted share (up 19%).
• Permanent abatement of over $5 billion of gross pension obligations completed in the fourth quarter.
• Fourth quarter free cash flow (cash flow from operating activities excluding pension abatement contributions, less capital expenditures) of $508 million; 2014 full year free cash flow of $435 million.

TRW Automotive Holdings Corp. (NYSE: TRW), the global leader in active and passive safety systems, today reported fourth quarter 2014 financial results with sales of $4.3 billion, a decrease of 3% compared to the prior year period.  The Company reported GAAP fourth quarter net losses of $360 million or $3.22 per share, which compares to net earnings of $363 million or $3.00 per diluted share in the prior year period.  Both periods are affected by significant special items described in further detail below.                  

Excluding special items from the Company's current and prior year quarterly results, the Company reported record fourth quarter 2014 net earnings of $268 million, or $2.31 per diluted share, an increase of 26% compared to last year's fourth quarter earnings of $1.84 per diluted share.    

The Company's full year 2014 sales grew to a record $17.5 billion, an increase of 1% compared to 2013.  For the year, GAAP net earnings were $293 million, or $2.54 per diluted share.  Similar to the Company's quarterly results, both the 2014 and 2013 full year results contain special items.  Excluding special items, the Company reported record full year 2014 net earnings of $958 million, or $8.18 per diluted share, an increase of 19% compared to 2013 earnings of $6.89 per diluted share. 

As previously announced, the Company entered into a definitive agreement with ZF Friedrichshafen AG ("ZF") on September 15, 2014 under which ZF will acquire all outstanding shares of TRW for $105.60 per share in an all-cash transaction valued at approximately $13.5 billion on an enterprise value basis.  The transaction is expected to close in the first half of 2015.

"2014 was a highly successful year for TRW as the Company set new records for sales and adjusted earnings per share while not only continuing to invest for future growth, but also addressing the level of our legacy pension obligations." said John C. Plant, Chairman and Chief Executive Officer.  "In addition, the agreement signed with ZF during the third quarter provides significant benefits for our shareholders who will receive full and certain value for their shares, as well as for our employees, customers and communities all of which will reap the benefits of being part of a larger, more diversified global organization."       

Fourth Quarter 2014
The Company reported fourth quarter 2014 sales of $4.3 billion, a decrease of $148 million from the prior year period.  The positive impact on sales related to increasing demand for TRW's active and passive safety technologies was more than offset by the effect of exiting certain businesses within the Company's North American brake component and assembly operations in the first quarter of 2014 and the negative impact of currency movements between the two periods.                         

The Company reported a fourth quarter 2014 operating loss of $481 million, compared with operating income of $300 million in the 2013 period.  Both periods included special items relating to benefit plan abatement actions and restructuring and asset impairment charges while the 2014 period also included transaction costs.  The 2014 fourth quarter included pension settlement charges of $790 million related to the permanent abatement of approximately $5.0 billion of pension obligations completed in the quarter as well as $48 million of restructuring and asset impairment charges and $7 million of transaction costs.  The 2013 period included restructuring and asset impairment charges totaling $23 million and a net charge of $13 million relating to certain pension and other post retirement benefit matters, primarily lump sum pension and retiree medical buyouts made to certain of our U.S. employees.  Excluding these special items from both periods, operating income for the fourth quarter of 2014 was $364 million (margin of 8.4%), which compares to $336 million (margin of 7.5%) in the prior year period.                               

Net interest expense for the fourth quarter of 2014 totaled $27 million, which compares to $35 million in the 2013 period.  In addition, net losses on retirement of debt totaling $7 million and $15 million were recognized in the fourth quarters of 2014 and 2013, respectively.                        

A tax benefit of $154 million was recognized in the fourth quarter of 2014, which compares to a tax benefit of $107 million in the prior year.  Both the 2014 and 2013 periods include special tax items.  In 2014, net special tax benefits totaling $224 million were recognized primarily relating to the pension abatement charges.  In 2013, net special tax benefits totaling $185 million were recognized primarily relating to the recognition of available foreign tax credits and the impact of various tax law changes.  Excluding these special items, tax expense was $70 million in 2014 compared to $78 million in 2013.   

The Company reported 2014 fourth quarter GAAP net loss of $360 million, or $3.22 per share, which compares to GAAP net earnings of $363 million, or $3.00 per diluted share in the 2013 period. 

Excluding special items, the Company reported fourth quarter 2014 net earnings of $268 million, or $2.31 per diluted share, which compares to net earnings of $222 million or $1.84 per diluted share in the 2013 period. 

Earnings before interest, taxes, depreciation and amortization and special items ("adjusted EBITDA") were $472 million in the fourth quarter of 2014, compared to the prior year level of $447 million.  See page A6 for a description of the special items excluded in calculating adjusted EBITDA.    

Full Year 2014
The Company reported record 2014 sales of $17.5 billion, an increase of $104 million compared to prior year sales.  The higher level of sales was driven by increasing demand for TRW's innovative technologies and higher vehicle production volumes, partially offset by the effect of exiting certain businesses within the Company's North American brake component and assembly operations in the first quarter of 2014.           

For full year 2014, the Company reported operating income of $501 million, which compares to $1,227 million in the prior year.  Both 2014 and 2013 years included special items. The 2014 year included $790 million of pension abatement charges, $84 million of restructuring and asset impairment expenses and $20 million of transaction costs.  In 2013, net charges of $13 million relating to certain pension and other post retirement benefit matters, primarily lump sum pension and retiree medical buyouts, were incurred and $66 million of restructuring and asset impairment charges were recorded.  Excluding these items from both periods, the Company reported operating income of $1,395 million (margin of 8.0%) in the 2014 period, which compares to $1,306 million (margin of 7.5%) in 2013.  The improvement was due to the positive profit contribution from the higher level of sales and a positive mix of products sold, which was partially offset by several factors including planned increases in costs to support future growth.      

Net interest expense for 2014 totaled $109 million, which compares to $132 million in the prior year period.  In addition, the 2014 period included a net loss on retirement of debt totaling $7 million, compared to 2013, which recognized a net loss on retirement of debt totaling $20 million.          

Tax expense of $96 million was recognized in 2014, which compares to tax expense of $114 million in the prior year.  Excluding the tax benefits related to the special items previously noted in both years, tax expense was $332 million and $326 million for 2014 and 2013, respectively.           

The Company reported 2014 GAAP net earnings of $293 million, or $2.54 per diluted share, which compares to GAAP net earnings of $970 million, or $7.85 per diluted share in the prior year period.

Excluding special items, the Company reported 2014 net earnings of $958 million, or $8.18 per diluted share, which compares to net earnings of $850 million or $6.89 per diluted share in 2013. 

Adjusted EBITDA totaled $1,843 million in 2014, compared to $1,738 million in the prior year.  See page A6 for a description of the special items excluded in calculating adjusted EBITDA.

Cash Flow and Capital Structure
Fourth quarter 2014 net cash flow provided by operating activities totaled $673 million, which compares to $886 million in the fourth quarter of 2013.  The 2014 operating cash flow includes the impact of $175 million of special cash contributions to pension plans to facilitate pension abatement actions.  Capital expenditures were $340 million in the current quarter compared to $324 million last year.  Fourth quarter free cash flow (cash flow from operating activities excluding pension abatement contributions, less capital expenditures) was $508 million, compared to $562 million in the prior year quarter. 

For full year 2014, net cash provided by operating activities was $954 million, which compares to $1,126 million in 2013.  The 2014 cash flow amount includes the impact of $175 million of special cash contributions to pension plans to facilitate pension abatement actions.  Capital expenditures were $694 million in 2014, which compares to $735 million last year.  For 2014, free cash flow (cash flow from operating activities excluding pension abatement contributions, less capital expenditures) was a positive $435 million, compared to $391 million in 2013.

During 2014, TRW used $400 million of cash to repurchase over 4.5 million shares of its common stock.   In addition, $116 million in principal amount of exchangeable notes were converted into approximately 3.9 million shares of Company stock during 2014.

As of December 31, 2014, the Company had $1,578 million of debt and $1,031 million of cash and cash equivalents, resulting in net debt (defined as debt less cash and cash equivalents) of $547 million, which compares to $385 million at year end 2013.

2015 Outlook
TRW's planning assumptions for industry production volumes in 2015 are approximately 17.4 million units in North America and 20.0 million units in Europe, up 2% and flat, respectively, compared to 2014 levels.  The Company continues to expect expansion in vehicle production volumes in China and rest of world regions.  Based on these production levels, the negative impact of lost sales related to divested businesses, primarily the previously announced sale of TRW's engine valve business, and the Company's expectations for foreign currency exchange rates, full year 2015 sales are expected to range between $16.6 and $16.9 billion, with first quarter sales expected to be approximately $4.2 billion.        

Fourth Quarter and Full Year 2014 Conference Call
The Company will host its fourth quarter conference call at 8:30 a.m. (Eastern time) today, Friday, February 13^th, 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 62804364.  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, tax expense 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 2014 sales of $17.5 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 communication includes "forward-looking statements," as that term is defined by the federal securities laws. The forward-looking statements include statements concerning regulatory approvals and the expected timing, completion and effects of the proposed ZF merger, the Company's outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. When used in this communication, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are so designated. All forward-looking statements are based upon our current expectations and various assumptions, and apply only as of the date of this communication. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will be achieved.

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.  These risks and uncertainties include the occurrence of any event, change or other circumstances that could give rise to the termination of the ZF merger agreement, which could have a material adverse effect on us and our stock price; the inability to consummate  the proposed ZF merger or the inability to consummate the ZF merger in the timeframe or manner currently anticipated, due to the failure to satisfy conditions to completion of the proposed ZF merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction, could have a material adverse effect on us and our stock price; risks related to disruption of management's attention from our ongoing business operations due to the ZF merger; the effect of the announcement of the proposed ZF merger on the Company's relationships with its customers, suppliers, joint venture partners and others, as well as our operating results and business generally; strengthening of the U.S. dollar and other foreign currency exchange rate fluctuations impacting our results; 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; 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 significant amount of their business, or a significant decline in their production levels, adversely affecting us; 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; 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; a commodity inflationary pressures adversely affecting our profitability or supply base; 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 the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2013 under "Item 1A. Risk Factors" and in our other filings with the U.S. Securities and Exchange Commission.

All forward-looking statements are expressly qualified in their entirety by such cautionary statements. We do not undertake any obligation to release publicly any update or revision to any of the forward-looking statements.

SOURCE TRW Automotive Holdings Corp.

Related Links

http://www.trwauto.com