TRW Automotive Holdings Corporation (TRW)

TRW 
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TRW Automotive Holdings Corporation (TRW)

Q4 2009 Earnings Call Transcript

February 25, 2010 8:30 am ET

Executives

Mark Oswald – Director, IR

John Plant – President and CEO

Joe Cantie – EVP and CFO

Analysts

Himanshu Patel – JP Morgan

John Murphy – Banc of America/Merrill Lynch

Chris Ceraso – Credit Suisse

Brett Hoselton – KeyBanc

Patrick Nolan – Deutsche Bank

Kirk Ludtke – CRT Capital Group

Presentation

Operator

Good morning and welcome to the TRW conference call. All lines have been placed on listen-only mode. And as a reminder, this conference call is being recorded. Presentation material for today’s call was posted to the company’s website this morning at trw.com/results. Please download the material now if you have not already done so. After the speakers’ remarks, there will be a question-and-answer period. Due to today’s limitation on time, the company requests that participants limit follow-up questions to one per caller. (Operator instructions) I would now like to introduce your host for today’s conference call, Mark Oswald, Director of Investor Relations. Sir, you may begin.

Mark Oswald

Thank you and good morning. I would like to welcome everyone to our fourth quarter and full-year 2009 financial results conference call. Joining me this morning are John Plant, our President and Chief Executive Officer, and Joe Cantie, our Chief Financial Officer.

On today’s call, John will provide an overview of the current automotive environment and its impact on TRW. John will also provide a brief summary of the financial results for the quarter and full year, which were released earlier today. After that, John will discuss other related business matters, including our outlook for 2010. After John’s comments, Joe will provide an expanded review of the financial information. At the conclusion of Joe’s comments, we will open the call to your questions.

As usual, there are a few items I would like to cover before getting started. First, today’s conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from the forward-looking statements made on this call.

Please refer to slide two of the presentation for our complete Safe Harbor statement. The Risk Factors section of our 2008 Form 10-K and our second and third quarter 10-Qs contain additional information about risks and uncertainties that could impact our business. You can access a copy of our 2008 10-K and 2009 quarterly SEC filings by visiting the Investors section on our website at trw.com or through the SEC’s website at sec.gov.

On a related matter, we expect to file our 2009 Form 10-K within the next day or so. Once filed, the 10-K can also be accessed through either website. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company’s operating performance.

Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials, which are posted on the Investors section of our website at trw.com. And finally, a replay of this call can be accessed via dial-in or through a webcast on our website. Replay instructions were included in our release this morning. We have not given our permission for any other recording of this call and do not approve or sanction any transcribing of the call. These conclude my comments.

I’ll now turn the call over to John.

John Plant

Thank you, Mark. And good morning, everyone. I’m pleased to report that TRW completed 2009 with a strong fourth quarter. Sales increased over Q3 and also were 20% higher compared to the fourth quarter of 2008. Operating profit was $255 million, excluding restructuring charges. Net income was $168 million on the same basis. And year-end net debt was reduced to $1.583 billion, an all time low, with free cash flow up to $154 million for the year. This was a very good conclusion to a year that faced many challenges.

The challenges of extremely low vehicle production in the first half, certain vehicle manufacturer bankruptcies, supplier and peer group bankruptcies, and the poor availability of bank credit throughout the supply chain and the industry at large. The strong fourth quarter production levels reinforce our belief that the industry is trending back towards a sustainable and more normalized level of production albeit reaching the true normalized levels, which will be some years away.

In this time of gradual recovery, the downturn management actions that were taken by TRW are paying and will continue to pay significant dividends. The positive impact of those actions was demonstrated in our strong results as well as our second and third quarter results earlier this year.

Separate from our ongoing efforts to improve the cost structure, we also successfully completed a series of capital markets transactions, which have resulted in a more flexible and strengthened balance sheet. During the quarter, we raised approximately $900 million of capital to new bonds and term loans, which we used to repay existing debt, and we extended the maturity of the company’s undrawn revolving credit facility, more of which will be commented on in Joe’s section.

Our strong results combined with these financial restructuring actions and the success of equity offering completed in the third quarter provide increased flexibility to manage TRW’s capital structure in support of the company’s future growth. We remain focused on taking the necessary steps to position the company for long-term success. As we entered 2010, we believe that TRW is very well positioned.

In order to provide more context to the fourth quarter, I’ll add the following comments. In North America, overall vehicle production was up 2%, with the Detroit 3 production levels down about 6%. Although overall production was about equal compared to year-ago levels, production in the fourth quarter marked the highest level in the quarters in 2009 of just over 2.7 million units.

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