TRW Automotive Holdings Corporation (TRW)

TRW 
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TRW Automotive Holdings (TRW)

Q4 2010 Earnings Call

February 17, 2011 8:30 am ET

Executives

Joseph Cantie - Chief Financial Officer, Executive Vice President and Treasurer

John Plant - Chief Executive Officer, President and Director

Mark Oswald - Director of Investor Relations

Analysts

Rod Lache - Deutsche Bank AG

Patrick Archambault - Goldman Sachs Group Inc.

Christopher Ceraso - Crédit Suisse AG

Himanshu Patel - JP Morgan Chase & Co

Presentation

Operator

Good morning, and welcome to the TRW conference call. [Operator Instructions] Presentation material for today's call was posted on the company's website this morning at trw.com/results. Please download the material now, if you have not already done so. [Operator Instructions] I would now like to introduce your host for today's call conference call: Mark Oswald, Director of Investor Relations. Sir, you may begin.

Mark Oswald

Thank you and good morning. I'd like to welcome everyone to our fourth quarter and full year 2010 financial results conference call. This morning, as usual, I'm joined by John Plant, our Chairman, 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 and discuss other related business matters, including our outlook for 2011. 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.

Before I turn the call over to John and Joe, there are a few items I'd like to cover. 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 2 of the presentation for our complete Safe Harbor statement.

The risk factors section of our 2009 Form 10-K and our first, 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 2009 10-K and 2010 quarterly SEC filings by visiting the Investors section of our website at trw.com or through the SEC's website at sec.gov. On a related matter, we expect to file our 2010 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. 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 permission for any other recording of this call and do not approve or sanction any transcribing of the call. This concludes my comments. I'll now turn the call over to John.

John Plant

Thank you, Mark, and good morning, everyone. As you can see from the results posted this morning, TRW finished 2010 with a strong fourth quarter, and this solidified a highly successful year for the company. During the fourth quarter sales, which totaled some $3.7 billion, were 10% higher than with the prior-year quarter and over 13% on a currency adjusted basis. Operating profit before special items was $310 million, a margin of over 8%. This marked the highest level of operating profit and margin for any fourth quarter. GAAP net income was $204 million and earnings per share were $1.56 on a GAAP basis. Regarding cash, even after making $170 million of discretionary contributions to our pension plans, the company in Q4 generated cash from operations, less capital expenditures, of $236 million. And finally, net debt reached a historic low at $768 million.

As mentioned in our press release this morning, the outstanding performance achieved in 2010 enabled the company to achieve an improved balance sheet with lower net debt and a 0.5x net debt to EBITDA ratio, and also make a step change during the quarter in addressing legacy liabilities, mainly certain of the company's pension obligations despite a lower discount rate compared with 2009. This reduction exceeded $400 million.

The discretionary contributions, combined with the management actions taken since 2009 (such as closing plans to new participants, lowering accrual rates and ultimately curtailing both the U.K. and now the U.S. plans) have allowed the company to limit and, in fact, reduce its future pension and other postretirement liabilities. This is a very good outcome, considering the economic headwinds that have recently impacted those liabilities such as rising healthcare costs, below-expected asset returns and historically low interest rates.

In addition to minimizing these liabilities of our past, we also took steps to secure our future, as TRW recorded the highest level of new business awards during 2010 than any previous year by a very substantial margin. The bottom line is: If you look at new business wins, TRW's success at expanding its regional diversification or our continued world-class quality metrics, the accomplishments of last year go beyond the record financial results and just about cover every financial metric.

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