17th February 2005 - TRW Automotive Reports Fourth Quarter and Full Year 2004 Financial Results

In Line with Guidance; Provides 2005 Outlook

TRW Automotive Holdings Corp., today reported fourth quarter 2004 sales of $3.2 billion, an increase of 7% over the prior year quarter, and net losses of $62 million, or $(0.63) per share, compared to net losses of $1 million or $(0.01) per share during the same period a year ago.

The fourth-quarter 2004 results included $125 million of expenses relating to financing transactions completed in the fourth quarter, primarily for the loss on retirement of debt related to the repurchase of the Company's $600 million acquisition related seller note from Northrop Grumman ("Seller Note"). Excluding these debt retirement and refinancing expenses, net of the assumed tax impact, fourth quarter earnings were $34 million or $0.34 per diluted share.

The Company's net debt position was reduced by $413 million during the fourth quarter, down to its lowest quarter-end level since the February 2003 acquisition of the Company by affiliates of The Blackstone Group. L.P. ("Blackstone").

"The fourth quarter and 2004 year were very challenging for us, marked not only by a number of capital base transactions following our emergence as an independent company in 2003, but also by an unrelenting industry environment that drew heavily on our operational strengths at every turn," said John C. Plant, president and chief executive officer.

"In addition to our initial public offering, we successfully achieved our 2004 financial and operational objectives and furthered our strategic initiatives, despite facing significant inflationary cost pressures and the negative impact of declining vehicle market share at our major North American customers. Much of our success in achieving these objectives can be attributed to the strength of our diversified product portfolio and geographic balance, along with the effectiveness of our cost reduction initiatives and the commitment and resolve demonstrated by our employees."

For full-year 2004, the Company reported sales of $12.0 billion and net earnings of $29 million or $0.29 per diluted share, which included pre-tax expenses of $173 million primarily for debt retirement expenses associated with the redemption of public bonds at the time of the initial public offering ("IPO"), repurchase of the Seller Note, and credit facility refinancing actions. Excluding these debt retirement and refinancing expenses, net of the assumed tax impact, full year earnings were $173 million or $1.72 per diluted share.

In comparison, the Company reported sales of $9.4 billion and net losses of $101 million or $(1.16) per share for the ten-month period ended December 31, 2003. This ten-month period represents the reporting period following the February 28, 2003, acquisition of the former TRW Inc.'s automotive business by Blackstone from Northrop Grumman Corporation (the "Acquisition"). Prior to the Acquisition, the predecessor company reported sales of $1.9 billion and net earnings of $31 million for the two-month period ended February 28, 2003.

As a result of the Acquisition, certain consolidated and combined financial information relating to the full year period ended December 31, 2003, contained within this release (labeled as pro forma) has been adjusted to illustrate the estimated pro forma effects of the Acquisition, and the Company's July 2003 debt refinancing, which included pre-tax charges of $31 million, as if these transactions had occurred on January 1, 2003. For a reconciliation of the full year GAAP historical financials to full year pro forma financials, please see the financial schedules that accompany this release.

Fourth Quarter 2004 Compared to the Prior Year Period

The Company reported fourth-quarter 2004 sales of $3.2 billion, an increase of $204 million or 7% compared to prior year sales of $3.0 billion. The increase resulted primarily from foreign currency translation and sales from new product areas, partially offset by pricing provided to customers and a reduction in sales due to a first-quarter 2004 divestiture. Operating income for fourth-quarter 2004 was $133 million, a decrease of $6 million compared to the prior year period. The prior year operating income included non-cash unrealized foreign currency exchange gains of $17 million that did not recur in the 2004 quarter. Additionally, pre-tax restructuring costs increased by $6 million to $20 million for fourth-quarter 2004 compared to the prior year. Excluding the year-to-year effect of these items, operating income improved by $17 million or 13% compared to the prior year. This increase resulted primarily from an increased level of sales and a higher level of cost savings, partially offset by pricing provided to customers and inflation, primarily in the area of ferrous metals.

Net interest expense for the fourth quarter of 2004 totaled $69 million, which included approximately $6 million of expenses relating to refinancing of the Company's bank debt facilities. Net interest excluding these expenses was $63 million for the quarter, down considerably from the prior year level of $83 million, reflecting the impact of the Company's reduction in debt and capital structure improvement efforts.

In the fourth quarter, the Company incurred $112 million of loss on retirement of debt resulting from the repurchase of the Seller Note, which was a component of the original Acquisition financing. At the time of the Acquisition, the Company determined that the fair value of the Seller Note, and corresponding book value at March 1, 2003, was $348 million. The loss on retirement of debt resulted primarily from the difference between the purchase price and the accreted book value of the Seller Note on the Company's balance sheet at the time of the transaction in early November 2004. The book loss associated with the transaction was U.S. based and therefore carries zero tax benefit due to the Company's tax loss position in this jurisdiction. Loss on retirement of debt also included $7 million of expenses related to the December 2004 refinancing of the Company's bank debt.

The Company reported fourth-quarter 2004 net losses of $62 million or $(0.63) per share, which included $125 million of debt retirement and refinancing expenses for financial transactions completed during the quarter.

Excluding these debt retirement and refinancing expenses, net of the assumed tax impact, fourth quarter earnings were $34 million or $0.34 per diluted share compared to net losses of $1 million or $(0.01) per diluted share in the prior year.

Earnings before interest, loss on sales of receivables, taxes, depreciation and amortization, and loss on retirement of debt ("EBITDA") were $264 million for fourth-quarter 2004, which compares to prior year EBITDA of $268 million. As mentioned previously, fourth-quarter 2004 EBITDA was negatively impacted by the non-recurrence of unrealized foreign currency exchange gains of $17 million that occurred in the 2003 quarter and by $6 million of higher restructuring costs when compared to the prior year. Excluding the year-to-year effect of these items, fourth-quarter 2004 EBITDA improved by 7%.

Full Year 2004 Compared to Pro Forma Full-Year 2003

The Company reported sales of $12.0 billion for full-year 2004, an increase of $703 million or 6% compared to prior year pro forma sales of $11.3 billion. Operating income during the full-year period was $583 million, an increase of $4 million compared to the prior year pro forma operating income. Although operating income improved in 2004, the year-over-year comparison was negatively impacted by a $39 million first-quarter 2004 decline in net pension and OPEB income, resulting primarily from the application of purchase accounting at the time of the Acquisition, and the non-recurrence of certain 2003 non-cash unrealized foreign currency exchange gains of $32 million. The negative year-over-year impact of these items was more than offset by the Company's new business growth, currency translation and overall cost performance.

Net interest expense for the year totaled $252 million, which included approximately $6 million of expenses relating to refinancing of the Company's bank debt facilities. Net interest excluding these expenses was $246 million compared to $327 million in the prior year.

Loss on retirement of debt totaled $167 million in 2004, which consisted of the fourth quarter losses previously described and $48 million related primarily to prepayment premiums on high yield notes redeemed with proceeds from the Company's IPO and other expenses related to a January 2004 bank debt refinancing.

Income tax expense for 2004 was $135 million resulting in an effective tax rate of 82%. Due to the Company's tax position in the United States, losses and expenses associated with the refinancing transactions described previously provide no accounting tax benefits in the period. Excluding the expenses related to these capital transactions, the Company estimates that its effective tax rate would have been approximately 49% for the year.

The Company reported full-year 2004 net earnings of $29 million or $0.29 per diluted share, which, as described previously, included $173 million of debt retirement and refinancing expenses for financial transactions completed during the year. Excluding these debt retirement and refinancing expenses, net of the assumed tax impact, full year earnings were $173 million or $1.72 per diluted share compared to pro forma earnings of $93 million or $1.03 per diluted share in the prior year.

EBITDA was $1,080 million for full-year 2004 compared to pro forma EBITDA of $1,065 million in the prior year. When compared to the prior year period, 2004 EBITDA was negatively impacted by the previously mentioned $39 million first quarter decline in net pension and OPEB income and $32 million for non- cash unrealized foreign currency exchange gains in 2003, which did not recur in 2004. Excluding these two items, EBITDA increased by approximately 9% for full-year 2004 compared to pro forma EBITDA in the prior year.

Capital Structure

At December 31, 2004, the Company had $3,181 million of debt and $809 million of cash and marketable securities, resulting in net debt (defined as debt less cash and marketable securities) of $2,372 million. Net debt declined by $592 million compared to the prior year 2003 level resulting primarily from the cash flow from operations and net proceeds to the Company from the February 2004 IPO of approximately $287 million. Capital expenditures for 2004 increased to $493 million compared to $416 million in the prior year, which is partially due to currency translation between the years.

In the fourth quarter, cash provided by operating activities was $791 million. Capital expenditures for the quarter were $245 million compared to $198 million in the prior year quarter.

In December 2004 the Company completed a refinancing of its bank credit facilities, whereby it replaced $1.7 billion of its existing $2.0 billion facilities with $1.9 billion of new facilities. Under the new agreement, the Company gained greater financial flexibility by increasing the amount of its revolving credit facility and improving its borrowing terms. The majority of related fees associated with the transaction were included in fourth-quarter 2004 results.

2005 Outlook

For full-year 2005, the Company expects revenue in the range $12.3 to $12.7 billion and earnings per diluted share in the range of $1.50 to $1.75, reflecting a less favorable production environment and the impact of higher raw material prices as compared to a year ago. This guidance range includes approximately $3 million of expenses related to refinancing transactions initiated in the fourth quarter of 2004.

In addition, this guidance includes pre-tax expenses of approximately $8 million for the adoption of FASB Statement No. 123 Revised, which requires the recognition of book expense related to stock-based compensation, approximately $35 million related to restructuring actions and $33 million of expenses for amortization of intangibles resulting from the February 2003 Acquisition. The earnings range also assumes an effective tax rate in the range of 45% to 50%. Lastly, the Company expects capital expenditures to total approximately 4% of sales for the year.

"The objectives we have set for 2005 will again stretch the resources of the organization as we brace for another year of significant commodity inflation and customer pricing pressures, combined with anticipated lower production volumes in North America," said Mr. Plant. "As our 2005 guidance implies, we expect to offset a major share of these challenges with new business growth, aggressive cost reduction efforts, and interest savings generated by prior year deleveraging activities."

For the first quarter of 2005, the Company expects revenue of approximately $3.1 billion and earnings per diluted share in the range of $0.24 to $0.38. This guidance range includes approximately $3 million of expenses related to refinancing transactions initiated in the fourth quarter of 2004.

Additionally, first quarter guidance includes restructuring costs for various initiatives of approximately $30 million, which constitutes a major share of the Company's planned restructuring for the year.

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 pro forma results and other non-GAAP measures appearing in this release to the closest GAAP measure, please see the financial schedules that accompany this release.

About TRW

With 2004 sales of $12.0 billion, TRW Automotive ranks among the world's top 10 automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, employs approximately 60,000 people in 24 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. 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 the TRW Automotive Holdings Corp. final prospectus dated as of February 2, 2004 (the "Prospectus") filed with the Securities and Exchange Commission (the "SEC") pursuant to Rule 424(b)(4), our Report on Form 10-K for the fiscal year ended December 31, 2003 (the "10K"), and our Reports on Form 10-Q for the quarters ended March 26, June 25, and September 24, 2004, and include: escalating pricing pressures from our customers; severe inflationary pressures impacting the ferrous metals market; our substantial leverage; interest rate risk arising from our variable rate indebtedness; the highly competitive automotive parts industry and its cyclicality; non-performance by, or insolvency of, our suppliers; product liability and warranty and recall claims; our dependence on our largest customers; loss of market share by domestic vehicle manufacturers; limitations on flexibility in operating our business contained in our debt agreements; fluctuations in foreign exchange rates; the possibility that our owners' interests will conflict with ours; work stoppages or other labor issues and other risks and uncertainties set forth under "Risk Factors" in the Prospectus, 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.

Source: TRW Automotive Press Release