TRW Automotive Holdings Corp. (NYSE: TRW), the global leader in active and passive safety systems, today reported first quarter 2015 financial results with sales of $4.1 billion, an increase of 7% compared to the prior year period excluding the effects of currency and divested businesses. The Company reported GAAP first quarter net earnings of $366 million or $3.13 per diluted share, which compares to net earnings of $199 million or $1.68 per diluted share in the prior year period.
The first quarter 2015 results include a pre-tax gain of $186 million on the previously announced sale of TRW’s Engine Valve business to Federal-Mogul Holdings Corporation (NASDAQ: FDML), which closed during the quarter. Excluding this gain and other special items from the TRW’s current and prior year quarterly results, the Company reported first quarter 2015 net earnings of $235 million, or $2.01 per diluted share, an increase of 11% compared to last year’s first quarter earnings of $1.81 per diluted share.
As previously announced, the Company entered into a definitive agreement with ZF Friedrichshafen AG (“ZF”) onSeptember 15, 2014 under which ZF will acquire all outstanding shares of TRW for $105.60 per share in an all-cash transaction. The transaction is expected to close by the end of June 2015.
“TRW achieved a strong start to 2015, which will provide a solid foundation as we enter the merger with ZF,” saidJohn C. Plant, Chairman and Chief Executive Officer. “The agreement signed with ZF, which we expect to close during the second quarter, provides significant benefits for our shareholders who will receive full and certain value for their shares, as well as for our employees, customers and communities all of which will reap the benefits of being part of a larger, more diversified global organization.”
First Quarter 2015
The Company reported first quarter 2015 sales of $4.1 billion, a decrease of $300 million from the prior year period. Excluding the effects of currency ($379 million) and divested businesses ($191 million), sales increased $270 millionor 7% compared to the previous year. The higher level of sales was driven by increasing demand for TRW’s innovative technologies and higher vehicle production volumes.
The Company’s first quarter 2015 operating income was $534 million, compared with $308 million in the 2014 period. Excluding the $186 million gain on the sale of TRW’s Engine Valve business, restructuring and asset impairment charges totaling $4 million in 2015 and $20 million in 2014, and transaction costs of $2 million in 2015, operating income for the first quarter was $354 million (margin of 8.5%), which compares to $328 million (margin of 7.4%) in the prior year period. The margin improvement resulted primarily from the positive profit impact of the higher underlying sales, a positive mix of sales and improved operational performance. These benefits were partially offset by a lower level of pension income in the current quarter compared to last year.
Net interest expense for the first quarter of 2015 totaled $23 million, which compares to $31 million in the 2014 period. The current quarter included a $1 million loss on the retirement of debt.
Tax expense for the first quarter of 2015 was $144 million, which compares to a tax expense of $78 million in the prior year period. The 2015 period included a net tax expense of $48 million primarily related to the gain on the sale of the Engine Valve business. The 2014 period included a tax benefit of $4 million related to special items.
The Company reported 2015 first quarter GAAP net earnings of $366 million, or $3.13 per diluted share, which compares to GAAP net earnings of $199 million, or $1.68 per diluted share in the 2014 period.
Excluding special items, the Company reported first quarter 2015 net earnings of $235 million, or $2.01 per diluted share, an increase of 11% compared to last year’s first quarter earnings of $1.81 per diluted share.
Earnings before interest, taxes, depreciation and amortization and special items (“adjusted EBITDA”) were $460 million in the first quarter of 2015, compared to the prior year level of $437 million. See page A5 for a description of the special items excluded in calculating adjusted EBITDA.
Cash Flow and Capital Structure
First quarter 2015 net cash flow used in operating activities was $192 million, which compares to a use of $183 million in the first quarter of 2014. Capital expenditures were $95 million in the current quarter compared to $105 million last year. First quarter free cash flow (cash flow from operating activities less capital expenditures) was an outflow of $287 million which is consistent with the prior year quarter’s outflow of $288 million.
During the first quarter of 2015, TRW received net cash proceeds of $313 million relating to the sale of substantially all of TRW’s Engine Valve business, which closed during the first quarter.
As of April 3, 2015, the Company had $1,594 million of debt and $1,017 million of cash and cash equivalents, resulting in net debt (defined as debt less cash and cash equivalents) of $577 million.
Subsequent Events
On April 21, 2015, TRW announced that it had signed a definitive agreement to divest its Linkage and Suspension business for $400 million in cash, subject to working capital and other adjustments, to THK Co., LTD (TSE:6481). The planned divestiture of the Linkage and Suspension business, which has annual sales of approximately $550 million, is expected to close by the end of TRW’s fiscal third quarter and is subject to customary conditions, including regulatory approvals.
2015 Outlook
TRW’s planning assumptions for industry production volumes in 2015 are approximately 17.4 million units in North America and 20.0 million units in Europe, up 2% and flat, respectively, compared to 2014 levels. The Company continues to expect expansion in vehicle production volumes in China and rest of world regions. Based on these production levels, the negative impact of lost sales related to divested businesses, primarily the previously announced sale of TRW’s Engine Valve business, and the Company’s expectations for foreign currency exchange rates, full year 2015 sales are expected to range between $16.2 and $16.5 billion.