2nd August 2006 - TRW Automotive Reports Second Quarter 2006 Financial Results; Provides Update on 2006 Full Year Outlook

TRW Automotive Holdings Corp., 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."

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 10-1/8 senior notes.

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.

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 10-7/8% 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 10-1/8% 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.

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 10-7/8% 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 10-1/8% 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.

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.

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 http://www.trwauto.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"). 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.

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 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.

Source: TRW Automotive Holdings Press Release