Deutsche Bank Annual Global High Yield Conference

Transcription

1 Deutsche Bank Annual Global High Yield Conference September 29, 2005 Scottsdale, AZ Joseph S. Cantie Executive Vice President and Chief Financial Officer

2 Safe Harbor Statement This material 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 presentation. 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, 2004 (the 10-K ), and our Reports on Form 10-Q for the quarters ended April 1 and July 1, 2005, and include: our ability to receive the necessary antitrust approval to complete the acquisition of Dalphimetal España, S.A. ( Dalphimetal ); our ability to integrate Dalphimetal s operations into the Company; our ability to retain Dalphimetal s customers after the acquisition; possible production cuts from our customers; escalating pricing pressures from our customers; severe inflationary pressures impacting the market for ferrous metals and other commodities; our substantial leverage; non-performance by, or insolvency of, our suppliers and customers; interest rate risk arising from our variable rate indebtedness; the highly competitive automotive parts industry and its cyclicality; 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 10-K and in our other SEC filings. We do not intend or assume any obligation to update any of these forward-looking statements. 2

3 Executive Summary

4 2005 Summary Comments Solid first half results Company demonstrated operational and financial resiliency in a difficult environment Leading diversification and focused safety portfolio fundamental to Company s near and long-term competitiveness Industry environment not expected to improve any time soon Sustained industry pressures at this magnitude producing major long term challenges, causing the Company to: Reevaluate all aspects of business to identify and achieve offsetting cost reduction actions Significantly increase the level of restructuring in order to maintain market leadership positions Delivering operational and financial commitments build on first half success with solid second half performance 4

5 Business Overview

6 Driving Automotive Safety Growth driven by increasing safety content in vehicles Safety focused product portfolio Leading market positions in primary product lines Largest portfolio of safety products in the world Sales of $12.0 billion in 2004 TRW is among the most diverse in the industry based on geography, product and customer mix over 60% of sales derived outside North America More than 80% of OE sales derived from safety related products Market leading service, value and innovation from a global network of 60,000 employees, located in 24 countries, in over 200 manufacturing facilities, technical centers, sales offices and joint ventures 6

7 Taking Advantage of Independence Post-IPO Independence Provides Significant Advantage Over Prior Conglomerate Ownership Initial Public Offering Completed IPO February 2004 Use of net proceeds from sale of 24.1 million shares 50% to retire public debt 50% to buy-back 12 million shares owned by Blackstone Present ownership Blackstone 57 % Public 31 Northrop Grumman 10 Management 2 Total 100 % To our customers A single face and brand presence worldwide Operationally Aligned global organizational structure with consistent processes and practices Financially A capital structure that fully supports R&D and CAPEX initiatives Cash flow utilized to support core business strategies 7

8 TRW Operating Segments Chassis Systems Active Safety Financials (1) Primary Products Sales: $6,950 Foundation Brakes % of Sales: 58% ABS/VSC PBT Margin: 4% Steering Systems Occupant Safety Systems Passive Safety Safety Electronics 4.6% Sales Product Mix (1) Steering Wheels 2.8% Fasteners 3.3% Other 1.3% Financials (1) Primary Products Sales: $3,438 Air Bags % of Sales: 29% Seat Belt Systems PBT Margin 10% Safety Electronics Automotive Components Financials (1) Primary Products Sales: $1,623 Engineered Fasteners % of Sales: 13% Body Controls PBT Margin 6% Engine Components Body Controls 4.7% Engine Valves 4.8% Linkage & Suspension 5.2% Modules 5.3% Aftermarket 7.2% Seat Belts 8.2% Steering Systems ABS & VSC 8.9% 16.5% Airbags 13.9% Foundation Brakes 13.3% (1) Full year 2004 results 8

9 Supporting Our Customers Globally North America Europe 2004 Sales of $4.4B 41 mfg. facilities (1) 20,200 employees (2) 3 joint ventures All products and aftermarket ROW (3) Sales $0.3B 7 Mfg. Facilities (1) 4,200 Employees (2) 3 Joint Ventures Primarily Chassis and aftermarket 37% 2% 55% 6% 2004 Sales of $6.6B 72 Mfg. Facilities (1) 32,200 Employees (2) 1 Joint Venture All products and aftermarket Asia Pacific Sales of $0.7B 20 Mfg. Facilities (1) 3,300 Employees (2) 15 Joint Ventures All products and aftermarket TRW OPERATIONS COVER EVERY MAJOR VEHICLE PRODUCING REGION AND ARE GROWING AT A PACE THAT MATCHES THE FUTURE NEEDS OF OUR CUSTOMERS (1) Manufacturing facilities includes majority-owned joint-venture facilities (as of August 3, 2005). (2) Total headcount includes only active employees. (3) Primarily South America 9

10 Highly Diversified Business Mix Product Customer Regional Steering Wheels 2.8% Fasteners 3.3% Other 1.3% Safety Electronics 4.6% Steering Systems 16.5% Body Controls 4.7% Engine Valves 4.8% Linkage & Suspension 5.2% Modules 5.3% Aftermarket 7.2% Seat Belts 8.2% ABS & VSC 8.9% Airbags 13.9% Foundation Brakes 13.3% Honda 1.8% Hyundai 1.7% BMW 2.5% Toyota 2.9% PSA 4.2% Fiat 4.5% Renault/Nissan 8.4% Other 16.2% General Motors 11.1% Ford 17.2% Volkswagen 14.2% Daimler- Chrysler 15.3% Europe 55.0% Rest of World 8.0% North America 37.0% Minimizes exposure to a single product Product innovation establishes new price points Enhances portfolio defensibility Customer access to a highly focused but broad safety product portfolio Limited reliance on single customer and vehicle platform Provides defensive characteristics to customer negotiations Allows leverage of technologies and products across customer base Limits dependence on single market fluctuations and cycles Extends technology and trends across markets Scale provides leverage to optimize cost structure Note: Based on full year sales of $12 billion in

11 Planned Acquisition Expected to Improve Business Mix Product (1) Steering Wheels 42% Privately held European manufacturer of airbags and steering wheels 2004 sales of 371 million, or approximately $453 million, primarily European-based (2) Over 2,000 employees located in over 10 facilities (1) Based on 2004 full year sales. (2) Assumes a Euro-to-dollar exchange rate of 1.22 Airbags 48% Opel 6% Nissan 6% Land Rover 4% Ford 3% Fiat 5% Customer (1) Volvo 7% Seat/VW 9% Other 10% PSA 31% Renault 30% 11

12 Safety Sells, with Consumers Governments Manufacturers Consumers regularly look for vehicle safety information before making their purchase decision J.D. Power lists safety as the most desired aspect of vehicle features Safety awareness levels increasing along with aging U.S. population NHTSA side impact protection (FMVSS214) Occupant sensing (FMVSS208) TREAD Act - tire pressure monitoring and rollover testing Fuel economy Pedestrian protection Safety products and features help differentiate vehicles Adopting voluntary safety standards in response to market demand and regulatory trends Advertising and marketing heavily focused on safety message SHOPPING FOR A SAFER CAR If you're like most people shopping for a new car, safety ranks high among your purchase considerations. Every new passenger vehicle must meet federal standards specifying minimum safety levels, but this doesn't mean all cars are equally safe. There still are important safety differences (Insurance Institute For Highway Safety) 12

13 Innovation Secures Our Future Investment in technology critical to long-term product leadership positions Customers expect safety products that differentiate vehicles in the market place Over 5,000 engineers worldwide actively engaged in the design, testing, manufacturing and improvement of products 24 technology focused engineering facilities in close proximity to our customers Annual net research, development and engineering expenditures run at approximately 5% of sales in excess of $600 million TRW has over 10,000 patents and patent pending applications, which are a byproduct of our continuous efforts to innovate 13

14 Growing the Business Expect approximately 4% CAGR top-line annual growth over the foreseeable future: Flat to moderate industry growth Constant exchange Pricing factor Pending U.S. regulations should be a lift to this revenue growth Growth in Asia leveraging infrastructure and working with partners around the world CAGR PROVIDES BALANCED PROXY FOR FORWARD REVENUE 14

15 Strategic Priorities Drive Success Best Quality Lowest Cost Global Reach Innovative Technology Drive quality in everything we do product, launches, engineering Ensure we make product right the first time and deliver only quality products on time to our customers Relentlessly drive down costs to offer customers superior value Utilize manufacturing programs (Six Sigma and Operational Excellence) to manage costs to optimal levels Position businesses globally to service key customers Leverage for low cost & grow with new markets Offer leading-edge systems & products that add value for our customers TRW is uniquely positioned to be a leader in active & passive safety technologies Adherence to strategic priorities essential to the Company s long-term competitiveness Integrated into daily business activities and guide allocation of resources to support R&D, manufacturing investments and growth initiatives Results are clear TRW is positioned with leading diversification and a globally competitive operating structure 15

16 Cost Savings Efforts Providing Results Total Headcount (000) Headcount Reduction (1) ,100 workers % thru Facilities (in millions of ft²) Facility Closures in High Cost Countries 3.2 mm ft² % thru Facility Additions in Low Cost Countries Cash Restructuring Costs Facilities (in millions of ft²) 0.4 mm ft² 8% thru (US $ in millions) $62 $77 $189 $27 $32 $ Planned plant closures announced in 2005: Aylesbury, Brighton, Burgos, Cookeville, Frankley, Jackson, Kingsway and Sterling Heights Note: Pro forma for divestitures. (1) Total headcount includes active, inactive and temporary employees; excludes TKS headcount; approximately 59,900 active employees in

17 Financial Overview

18 First Half 2005 Financial Summary Sales of $6.6 billion, up approximately 8% versus 2004 Net earnings of $135 million or $1.33 per share: Includes a one-time favorable tax benefit of $17 million resulting from a tax law change in Poland Includes $7 million loss on retirement of debt related to the partial redemption of the Company s 10-⅛% senior notes Earnings flat versus prior year, excluding debt repayment charges and one-time tax benefit EBITDA up slightly versus prior year level Total net debt down $46 million from year end 2004 Achieved operational and financial objectives 18

19 First Half 2005 Results (dollars in millions) Adjusted Adjusted First Half Adjusting First Half First Half Adjusting First Half 2005 Items Items 2004 Sales $ 6,590 $ - $ 6,590 $ 6,086 $ - $ 6,086 Operating Income Net Interest and Securitization Loss on Retirement of Debt 7 (7) - 48 (48) - Income Taxes Net Earnings $ 135 $ (10) $ 125 $ 78 $ 48 $ 126 Earnings Per Diluted Share $ 1.33 $ 1.23 $ 0.78 $ 1.27 (a) (b) (c) Effective Tax Rate 42% 48% 58% 46% Diluted Shares Adjusting Items (a) $7 million of premiums and associated fees related to bond redemption transaction (b) $17 million one-time tax benefit from a tax law change in Poland (c) $48 million related to the initial public offering and a bank debt refinancing transaction 19

20 First Half EBITDA Summary (dollars in millions) First Half First Half Net Earnings $ 135 $ 78 Income Tax Expense Net Interest and Securitization Loss on Retirement of Debt 7 48 Operating Income $ 353 $ 355 Depreciation and Amortization EBITDA (1) $ 607 $ 601 (1) Please refer to slide 27 for management s rationalization in using this metric. 20

21 Dalphimetal Transaction Summary Transaction structure TRW will pay 113 million (approximately $137 million) in cash for a controlling 68.4% interest in Dalphimetal and assume debt totaling 84 million (approximately $103 million) (1) Dalphimetal implied total enterprise value of 253 million (approximately $309 million) (1) TRW plans to finance the purchase initially with a combination of cash and existing credit facilities Timing Expected to close within the next six months Requires regulatory approval and resolution of other related closing conditions Expected financial impact on TRW Slightly accretive to earnings in Year 1 (2006) Positive cash flow impact in Year 1 (2006) Minimal impact on TRW s credit profile (1) Assumes a Euro-to-dollar exchange rate of

22 Evolution of Capital Structure Subsequent to the February 2003 Blackstone LBO transaction, a steady evolution of the capital structure has occurred to improve financial strength and flexibility of the Company Debt Reduction through IPO and operating cash flows Several refinancing transactions to improve terms, liquidity and flexibility Eliminated acquisitionrelated seller note Equity IPO structure resulted in reduction of Blackstone ownership March 2005 reduction of Northrop ownership from 17% to 10% Public float has increased to approximately 31% EXPECT CAPITAL STRUCTURE WILL CONTINUE TO EVOLVE EXPECT CAPITAL STRUCTURE WILL CONTINUE TO EVOLVE 22

23 Capital Structure/Liquidity (dollars in millions) Net Debt Summary (1) $3,437 $2,964 $3,089 $2,582 $2,372 $2,326 Feb 28, 2003 Dec 31, 2003 Dec 31, 2004 July 1, 2005 Strong first half cash flow result Q2 net cash provided by operations of $263 million Completed partial bond redemption of Euro denominated 10-⅛ senior notes ($63m) in Q2 In excess of $1 billion in available liquidity Net Debt Operating Co. PIK Seller Note CASH FLOW DRIVES DELEVERAGING CASH FLOW DRIVES DELEVERAGING (1) Net debt is equal to total indebtedness (including receivables facility) minus cash, cash equivalents and marketable securities. For net debt reconciliation to closest GAAP equivalent, please refer to the reconciliation on slide 28 of this presentation. 23

24 Eye For Long Term Value Safety Sells expected to maintain pace at least through end of decade Innovation points toward convergence of active and passive safety technologies Diversified portfolio smoothes growth prospects and provides a defensive aspect to our growth Organization committed to delivering strategic priorities Utilize free cash flow to forward initiatives that maximize shareholder value Goal is steady earnings growth 24

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26 Financial Reconciliations

27 EBITDA Measurement The accompanying unaudited consolidated financial information and reconciliation of GAAP net earnings to earnings before interest, income tax, accounts receivable securitization cost, loss on retirement of debt, and depreciation and amortization ( EBITDA ) should be read in conjunction with the TRW Automotive Holdings Corp. Form 10-K for the year ended December 31, 2004 and Forms 10-Q for the quarterly periods ended April 1 and July 1, 2005 as filed with the United States Securities and Exchange Commission. The EBITDA measure calculated in this presentation is a measure used by management to evaluate operating performance. Management believes that EBITDA is useful to investors because it is frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net earnings (losses) as an indicator of operating performance, or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. 27

28 Net Debt Reconciliation (dollars in millions) Period-End Balances 3/1/03 9/26/03 12/31/03 3/26/04 6/25/04 9/24/04 12/31/04 4/1/05 7/1/05 Cash $ 449 $ 399 $ 828 $ 449 $ 519 $ 438 $ 790 $ 435 $ 506 Marketable securities Total Short term debt Long term debt: Term loan facilities 1,510 1,469 1,480 1,263 1,211 1,209 1,512 1,298 1,296 Senior notes 1,142 1,155 1,178 1,049 1,017 1,044 1,063 1, Senior subordinated notes Lucas Varity senior notes Other borrowings Total Short & Long Term Debt 3,564 3,338 3,426 2,921 2,838 2,822 3,181 2,930 2,845 Net debt operating company $ 3,089 $ 2,923 $ 2,582 $ 2,456 $ 2,304 $ 2,368 $ 2,372 $ 2,479 $ 2,326 Seller note Net debt TRW Holdings $ 3,437 $ 3,295 $ 2,964 $ 2,849 $ 2,709 $ 2,785 $ 2,372 $ 2,479 $ 2,326 28