TRW Automotive Reports Second Quarter 2008 Financial Results; Provides Update on 2008 Outlook

LIVONIA, Mich., July 31 -- TRW Automotive Holdings Corp. , the global leader in active and passive safety systems, today reported second-quarter 2008 financial results with sales of $4.4 billion, an increase of 18.4 percent compared to the same period a year ago. The Company reported second quarter net earnings of $127 million or $1.24 per diluted share, which compares to net earnings of $97 million or $0.94 per diluted share in the prior year period.

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During the second quarter of the previous year, the Company completed the final step of its 2007 debt recapitalization plan with the successful refinancing of its $2.5 billion credit facilities. The second quarter results of last year included $8 million of costs related to this refinancing. Excluding the refinancing costs in 2007, the Company earned $127 million or $1.24 per diluted share in the 2008 quarter compared to $105 million, or $1.02 per diluted share in the prior year. The current quarter benefited from a higher level of operating income, despite increased restructuring and asset impairment charges between the two periods, and also from a lower level of interest expense.

"Our second quarter and first half results have demonstrated the strength of TRW's safety product portfolio, leading customer and geographical diversification and the Company's intense cost reduction efforts," said John Plant, President and Chief Executive Officer. "These strengths have allowed TRW to mitigate the increasingly challenging industry conditions, primarily in North America, and provide the basis for the continued advancement of the Company's strategic and operational objectives."

Mr. Plant added, "The transformation of TRW is not complete as we need to successfully react to the changing automotive landscape, while continuing to provide leading safety technologies, whose prospects we expect will be further enhanced by growth in emerging markets. We continue to explore strategies that will strengthen our competitiveness and help to achieve our goal of growing the Company profitably over the long term."

Second Quarter 2008

The Company reported second-quarter 2008 sales of $4.4 billion, an increase of $692 million or 18.4 percent over the prior year period. The 2008 quarter benefited from the positive effect of foreign currency translation, higher customer vehicle production in Europe and China and continued growth of safety products in all markets, including above-trend sales of lower margin modules. These positive factors were partially offset by lower vehicle production levels at our major customers in North America and price reductions provided to customers.

Operating income for second-quarter 2008 was $224 million, which compares to $205 million in the prior year period. The year-to-year increase was driven by a number of factors, including savings generated from cost improvement and efficiency programs, including reductions in pension and other postretirement benefit related costs, higher product volumes, the net positive effect of an insurance recovery totaling $14 million received in the current quarter relating to a prior year business disruption at one of the Company's manufacturing facilities, and the non-recurrence of certain one-off items that netted to an expense in the prior year. These positive factors were in part offset by price reductions provided to customers, higher commodity prices, a negative mix of products sold and a $13 million increase in restructuring and asset impairment expenses.

Net interest and securitization expense for the second quarter of 2008 totaled $44 million, which compares to $57 million in the prior year. The year-to-year decline can be attributed to the benefits derived from the Company's 2007 debt recapitalization and lower interest rates between the two periods. As mentioned previously, the 2007 quarter also included debt retirement costs of $8 million.

Second-quarter 2008 tax expense was $56 million, resulting in an effective tax rate of 31 percent, which compares to $45 million or 30 percent in the prior year, excluding debt retirement expenses. The second-quarter 2008 tax rate is below the expected full year rate primarily due to the Company's geographic earnings profile and other factors in the quarter.

The Company reported second-quarter 2008 net earnings of $127 million, or $1.24 per diluted share, which compares to $97 million or $0.94 per diluted share in the 2007 period. Net earnings in the 2007 quarter excluding previously mentioned debt retirement costs of $8 million were $105 million or $1.02 per diluted share.

Earnings before interest, securitization costs, loss on retirement of debt, taxes, depreciation and amortization ("EBITDA") were $380 million in the second quarter, as compared to the prior year level of $344 million.

First Half 2008

The Company reported first-half 2008 sales of $8.6 billion, an increase of $1.3 billion or 17.3 percent compared to prior year sales of $7.3 billion. The 2008 period benefited primarily from the positive effect of foreign currency translation, higher product volumes related to new product growth, including above-trend sales of lower margin modules, and robust industry sales in overseas markets. These positives were partially offset by the continued decline in North American customer vehicle production and price reductions provided to customers.

Operating income for the first half of 2008 was $412 million, which is an 8.4 percent increase from the prior year result of $380 million. The year-to-year improvement was driven by a number of factors, including savings generated from cost improvement and efficiency programs, including reductions in pension and OPEB related costs, higher product volumes, the net positive effect of an insurance recovery received in 2008 relating to a prior year business disruption, and the non-recurrence of certain one-off items that netted to an expense in the prior year. These positives were partially offset by price reductions provided to customers, negative product mix, higher commodity prices and a higher level of restructuring and asset impairment expenses in 2008 compared to the prior year.

Net interest and securitization expense in the first-half 2008 period was $93 million, which represents a significant improvement from the prior year result of $121 million. The decline in interest expense resulted primarily from the Company's debt recapitalization completed in the first half of 2007 and lower interest rates between the two periods. The 2007 period also included debt retirement costs of $155 million related to the debt recapitalization.

First-half 2008 tax expense was $103 million, resulting in an effective tax rate of 32 percent, which compares to $98 million or 37 percent excluding previously mentioned debt retirement expenses in the prior year.

The Company reported first-half 2008 net earnings of $221 million, or $2.16 per diluted share, which compares to $11 million or $0.11 per diluted share in the 2007 period. The comparison of net earnings, excluding the previously mentioned debt retirement costs from the prior year, were $221 million, or $2.16 per diluted share in 2008 as compared to $166 million or $1.62 per diluted share in 2007.

EBITDA was $717 million in the first half of 2008, which is a 9.8 percent increase from the prior year level of $653 million primarily due to the higher level of operating income in the current year.

Cash Flow and Capital Structure

Second quarter 2008 net cash provided by operations was $40 million, which compares to $290 million in the prior year. Cash flow in the 2007 period included proceeds of $127 million related to outstanding borrowings under the Company's U.S. based Accounts Receivable Securitization Facility ("Receivable Facility"). Absent these proceeds, the Company's cash flow from operations in the 2007 quarter was $163 million. Second quarter 2008 capital expenditures were $120 million compared to $109 million in 2007.

For the six month period ended June 27, 2008, the Company had a net cash usage in operating activities of $75 million, which compares to net cash generated of $69 million in the prior year. Excluding proceeds related to outstanding borrowings under the Receivable Facility, cash flow from operations was a use of $58 million in the 2007 period. The year-to-year decline resulted primarily from higher working capital requirements, partly offset by higher operating income. First half capital expenditures were $217 million compared to $228 million in 2007.

As mentioned previously, the Company refinanced substantially all of its debt in 2007. The Company incurred debt retirement charges of approximately $155 million during the 2007 year-to-date period related to these transactions.

As of June 27, 2008, the Company had $3,122 million of debt and $453 million of cash and marketable securities, resulting in net debt (defined as debt less cash and marketable securities) of $2,669 million. Net debt is $324 million higher than the balance at the end of 2007.

2008 Outlook

The Company increased its full year outlook to reflect the strong second quarter outcome, partially offset by a lower outlook for the second half of 2008. Sales are now expected to be in the range of $16.4 to $16.8 billion (including third quarter sales of approximately $3.9 billion). Full year net earnings per share are now expected to be in the range of $2.40 to $2.70.

This guidance range reflects pre-tax restructuring and asset impairment charges of approximately $75 million (including approximately $25 million in the third quarter). The effective tax rate is expected to be in the range of approximately 38 to 42 percent. Lastly, the Company expects capital expenditures in 2008 to be approximately 3.5 percent of sales.

"In recent months, the outlook for the North American automotive industry has further deteriorated with the decline in overall production of light vehicles, the shift of production away from light trucks to passenger cars and severe commodity inflation being the primary pressures in this market," said Mr. Plant. "Our updated 2008 outlook provided today reflects the weaker outlook for the North American market as well as our expectations for a softening production environment in Europe." Mr. Plant added, "The pressures we are seeing for the second half of 2008 will undoubtedly continue into 2009."

Second Quarter 2008 Conference Call

The Company will host its second-quarter conference call at 8:30 a.m. (EDT) today, Thursday, July 31, to discuss financial results and other related matters. To access the conference call, U.S. locations should dial (877) 852-7898, and locations outside the U.S. should dial (706) 634-1095.

A replay of the conference call will be available approximately two hours after the conclusion of the call and accessible for approximately one week. To access the replay, U.S. locations should dial (800) 642-1687, and locations outside the U.S. should dial (706) 645-9291. The replay code is 55410719. A live audio webcast and subsequent replay of the conference call will also be available on the Company's website at www.trw.com/results .