TRW Automotive Holdings Q1 2010 Earnings Call Transcript

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

Christopher Ceraso - Crédit Suisse First Boston, Inc.

Patrick Archambault - Goldman Sachs Group Inc.

Rod Lache - Deutsche Bank AG

John Murphy - BofA Merrill Lynch

Himanshu Patel - JP Morgan Chase & Co

Brett Hoselton - KeyBanc Capital Markets Inc.

TRW Automotive Holdings (TRW) Q1 2010 Earnings Call May 5, 2010 8:30 AM ET

Operator

Good morning, and welcome to the TRW Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Presentation materials 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. [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'd like to welcome everyone to our First Quarter 2010 Financial Results Conference Call. Joining me this morning are John Plant, our President and Chief Executive Officer; and Joe Cantie, our Chief Financial Officer.

Today's call will follow our usual format. 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 business matters related to TRW and the outlook for the remainder of the year. 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 contains additional information about risks and uncertainties that could impact our business. You can access a copy of our 2009 10-K and other 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 first quarter 10-Q within the next day or so. Once filed, the 10-Q 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 on 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. This concludes my comments.

I'll now turn the call over to John Plant.

John Plant

Thank you, Mark, and good morning, everybody. I'm pleased to report that TRW is off to a strong start in 2010 as evidenced by our first quarter results. In the quarter, sales increased compared with the fourth quarter of 2009 and were also some 50% higher than compared with the prior-year first quarter. Operating profit after restructuring was $300 million, resulting in an operating margin of 8.4%. And this is another record for TRW building on our fourth quarter margin in excess of 7%.

Net income was $204 million and earnings per share were $1.61, again records. And finally, our cash flow was the best-ever first quarter outcome for the company. The increased profitability and strong cash performance resulted in a net debt to the last 12 month EBITDA ratio of only 1.2x, another best-ever result for the company. This rerating of our net debt to EBITDA cannot be stressed too much. The strong cash performance in the quarter continues to build on TRW's solid track record of delivering consistent positive cash flow. Since becoming an independent company in 2003, TRW has generated over $1.5 billion of free, free cash flow for an average some $220 million of annual positive cash flow, albeit having gone through the worst economic conditions and recession in some 70 years.

This is very important, as it has allowed the company to significantly reduce its level of debt over that same period and of course, reduce its financing charges. The first quarter was a good example of this, as our strong cash outcome and confidence in generating cash allowed the company to permanently pay down some $100 million of term loans. And also with an additional $75 million of term loans, which have already been paid down so far in the second quarter.

Restructuring and downturn management programs implemented over the past year, combined with our geographic and customer diversity, innovative technology and world-class quality, have positioned TRW to take advantage of the industry rebound from the historic lows of a year ago. Our first quarter results demonstrate that TRW is taking advantage of its strong position.

During the quarter, industry volumes remain robust especially in North America and made a significant positive contribution to our Q1 results. In North America, overall vehicle production was up 70% compared with the first quarter of 2009 when industry production fell to its lowest point of the cycle. Given the abnormally low levels of output in Q1 2009, we believe the comparison to Q4 is probably more meaningful. And when compared to last year's fourth quarter, Q1 production increased some 5% and marked the fourth sequential quarterly increase for the region.

Production in Europe held up well during the quarter and continued to be somewhat influenced by government scrappage schemes. In Western Europe, production was up 32% compared to the same period a year ago and was about even when compared with the fourth quarter of last year. This vehicle production outcome was better than we, and most other industry observers, had expected at the beginning of the year. Strong demand in certain countries such as the U.K., Italy and France offset weak demand in Germany where vehicle registrations fell some 23% in the quarter.

Even though vehicle sales were significantly lower in Germany, European production outperformed sales as result of inventory rebuilding and exports. In addition, the market also experienced an improvement in vehicle mix. The better production levels in Q1 have not changed our concern for the region as we move through the balance of year. I'll provide you with our expectations for the remainder of the year in just a few moments.

In the developing markets of the world, which is China and Brazil, where TRW sales totaled $1.4 billion last year, the first quarter production was up some 65% and some 20% respectively, compared to Q1 of 2009. This is very good news, as those markets are, and will continue to be an important part of TRW's future.

For the quarter and for the record, TRW sales in those markets outpaced these very high levels of industry production. The robust global production levels during the quarter, combined with our low cost structure, allowed the company to beat its previous quarterly profit record, which incidentally was established just a quarter ago. Although TRW is proud of its results during the past quarters, we continue to take further steps to position the company for long-term success.

During the quarter, we implemented some small and targeted workforce reductions within certain businesses. Although much smaller in scale compared with previous reductions, it demonstrates our focus on reducing and containing costs during this recovery period. We think of this as upturn management.

Short-term working programs were also used during the first quarter in certain parts of Europe. Albeit the overall program compared to previous quarters were substantially reduced, taking into account the robust production levels during the quarter. And we continue to -- with our intense focus on keeping indirect spending down during this period of volume growth, benefit of higher sales can be truly maximized. The cost of restructuring actions taken during the first quarter was $7 million and is more in line with our historical run rates. These charges were below those taken in 2009.

Separate from the specific restructuring actions, ongoing value engineering and value analysis products continue to be implemented across all businesses, yielding additional savings. As we continue in this period of gradual recovery to more normal levels of production in North America and Europe, cost containment is essential as we work to prevent the costs that may creep back into our operations. We're also mindful of the increases in spot prices for raw materials in the last few months, which suggests that commodity inflation will begin to negatively impact our results going forward. The team is focused on mitigating and controlling these rising costs to preserve our profitability.

Moving on to first quarter business developments. During the quarter, we continued to strengthen our diversification and leadership in intelligence safety solutions to a number of product launches. A few examples include; the driver and passenger airbag modules, slip control and seat belt systems on the Ford F 250 through 550 Super Duty trucks in North America, our passenger and side and curtain airbags and seat belt systems on the Alfa Romeo Giulietta in Europe. And our ABS airbags and safety and sensor electronics, including the airbag control unit and side impact sensors on Shanghai Automotive's MG6 launch in China.

In addition to these launches, we continue to develop products, which demonstrate how the company is focused on providing value to our customers through a number of solutions such as modularity, scalability, integration and cost optimization. One such example was the announcement during the quarter that the company secured its first production contract with a major Asian auto manufacturer for an integrated Remote Keyless Entry and Direct Tire Pressure Monitoring system receiver. This system simplifies the electronics architecture by eliminating the need for separate receivers, thereby enhancing value and performance to electronics integration.

Understanding that safety is core to our business, we recognize that in order to apply the best safety technologies across the full range of vehicles, we need to support our customers in making these technologies more affordable. Products continue to be delivered with world-class quality and now as the result of our ongoing quality and six sigma programs, for the quarter, our quality average is approximately six PPM across all products and all customers.

Before I turn the call over to Joe, let me comment on our expectations for the second quarter and the remainder of 2010. Overall, production forecasts have been revised upwards in North America and Europe since we provided our original planning and assumptions in late February. In North America, we expect second quarter production to be at least 2.9 million units, an increase of some 66% compared to last year and about equal with Q1.

For the full year, we now expect North American production to be approximately 11.5 million units, an increase of 35% compared to 2009 and some 700,000 units which is significantly higher than earlier expectations.

Improving vehicle sales and well managed dealer inventories these appear to support with current level of, a predicted level of production. In Europe, vehicle production continues to be difficult to predict as a result of the uncertainty surrounding the payback effect of the cessation of the scrappage programs that were in place in 2009, most notably in Germany.

During the second quarter, vehicle production in Western Europe is projected to be about 3.1 million units, about even with last year but down about 100,000 units compared with Q1. Total European production is forecasted at 4.4 million units.

We continue to believe that production is likely to reduce in late Q2 and early Q3 and then start to turn back upwards as we head into the fourth quarter and into 2011. For the full year, although the risk of the decline in year-over-year production is fading due the strong Q1 levels, we remain cautious on the region. We expect production of around 16.7 million units for the total of Europe and within this estimates, Western European production is about 11.9 million units, about an increase of 2% compared with last year.

We will continue to monitor these production plans and our customers closely and make any necessary adjustments to the operations accordingly. Beyond North America and Western Europe, we expect full year production levels in the developing markets of the world such as China, India and South America to remain robust, albeit with probably lower growth rates compared to last year.

Based on our revised production estimates, we now expect sales for the year of approximately $12.9 billion to $13.3 billion. Sales in the second quarter are expected to be approximately $3.4 billion or 24% higher than the prior year.

We still expect capital spending for the year will be in the range of $300 million to $325 million as we align our spending with the large plans of our customers. Although spending has increased from 2009, it remains well below our historical run rate.

In summary, we are pleased with our start in 2010. But by no means are we complacent. Managing through the industry rebound and mitigating increased costs and industry headwinds will be just as important to the future success of TRW as it was managing through the downturn. We remain confident that we are executing the correct strategies for TRW and believe that our lower cost structure, combined with our strengthened balance sheet and technology positions, that TRW will be able to take full advantage of the industry rebound that is presently underway.

Generally speaking, we're feeling good right now given the high levels of vehicle build, our improved cost structure, the stronger customer security with their improved balance sheets and our very improved capital structure position.

With that, I'll now hand the call across to Joe to discuss our financial results in further detail.

Joseph Cantie

Thank you, John, and good morning, everyone. As you can see from our financials published this morning, we've had an incredible start to the year with just about everything going right for us in the first quarter. In addition to higher vehicle production levels in North America and the surprisingly strong European production levels, our results continue to benefit from a benign commodity inflation environment and our previously implemented downturn management actions. As John mentioned, there were some significant highlights that stand out in our Q1 results that lay a firm foundation for the remainder of 2010.

First, our sales were 50% higher compared with Q1 of last year and 6% higher compared with the previous quarter. Sales have now increased sequentially in each of the last four quarters. Net income of $204 million in the quarter set a new best-ever level of profit achieved by the company. And finally, our cash flow for the quarter was outstanding, benefiting from the higher levels of profit and continued control over capital deployment in our businesses.

I'll expand on our capital structure, including our available liquidity in a few minutes. First, let me review our first quarter results with you in a bit more detail. For the quarter, we reported sales of $3.6 billion, an increase of $1.2 billion compared to the same period a year ago. In addition to the higher production volumes discussed earlier, currency translation increased our sales by $184 million. The euro to dollar exchange rate averaged 1.38 this quarter, which was about 6% higher than the same period a year ago.

Now the euro has weakened against the dollar since the end of the first quarter, so we expect to get less of an exchange benefit in future quarters. Excluding the effects of currency translation, sales increased about 42% compared to the previous year. One final point on sales, again excluding the effects of currency, revenues increased in each of our major markets. China continued to set the pace and help boost sales in our Rest of World region by 60% quarter-on-quarter.

For the quarter, we had an operating profit of $300 million compared to an operating loss of $125 million in the 2009 period. Included in this quarter's operating profit were restructuring and fixed asset impairment charges totaling $7 million compared with $24 million last year. In addition, the 2009 period included an intangible asset impairment charge of $30 million.

Excluding these charges from both periods, operating income in the first quarter of this year was $307 million compared with an operating loss of $71 million last year. For the current quarter, our operating margin was 8.6%. We circled that one in red for you in the slide so it didn't get lost on the page.

There were many reasons for this increase in operating income and margins, the two most prominent being the positive impact of higher sales and the significant impact of our restructuring and cost-containment programs implemented over the past year. Basically, you're seeing the operating leverage effect of a lowered cost base.

Below operating income, interest expense totaled $45 million, an increase of $3 million compared to the prior year. We benefited from a reduced level of debt, which was more than offset by higher interest rates given the change to components of debt between the two periods. The prior year also included a gain on retirement of debt totaling $34 million.

Finally, tax expense was $50 million in the quarter, which compares to a tax benefit of $5 million last year. The increase was primarily the result of higher pre-tax earnings in the current quarter. The $50 million tax expense in Q1 resulted in an effective tax rate of about 19%, which is well below our historical average and the level we anticipated at the beginning of this year. The Q1 tax rate reflects the impact of our overall improvement in operating results and the geographic mix of our earnings specifically in the United States, where we are currently in a valuation allowance position and therefore, do not recognize tax expense on U.S. income. This has the effect of driving our effective tax rate to a lower level. I guess you should add lowest tax rate to the list of records for the quarter.

I'll provide our revised full year tax rate expectations in just a few minutes. At the bottom line, we posted GAAP net earnings of $1.61 per diluted share compared with a net loss of $1.30 per share in the 2009 period. Excluding the special items discussed previously, we reported net earnings of $1.65 per diluted share compared with a loss of $1.14 per share in the prior year.

One item to highlight here, our diluted share count was 129.3 million shares in the quarter, reflecting the dilutive effect of the convertible security that was issued in the fourth quarter of 2009. For modeling purposes, you should assume this level of shares outstanding for future quarters.

In terms of EBITDA, we had $425 million for the quarter, excluding special items, compared with $43 million in the prior year measured on the same basis. This basically reflects the significantly improved operating income between the two periods.

Moving on to our cash flow and capital structure. First on cash flow, for the quarter, operating cash flow was $21 million, which compares to a use of $254 million in 2009. Free cash flow, defined as operating cash flow less capital expenditures, was a use of $24 million compared to a use of $289 million last year. The year-over-year improvement of over $250 million is due primarily to the increased level of profitability between the two quarters. The strong cash flow outcome demonstrates our continued focus on managing every dollar earned and certainly bodes well for the level of expected full year cash flow.

Capital expenditures in the quarter totaled $45 million, up $10 million compared with the same period last year but well below normalized levels. Our net debt of $1,587,000,000 at quarter end is about even with the balance at year end 2009, which I'll point out again was a historic low for the company. Compared with the balance of the end of the first quarter last year, net debt is down $836 million.

Given the strong start to the year, the strength in our capital structure and our comfort regarding the near-term outlook, during the first quarter, we permanently paid down $100 million of our bank term loans, resulting in our gross debt also being at its lowest level since becoming an independent company in 2003. In addition, subsequent to the end of the first quarter, we permanently paid down an additional $75 million of our term loans, eliminating our entire Term Loan B position.

Regarding liquidity, despite the term loan pay-down, at the end of the quarter we had an excess of $1.6 billion available to us, consisting primarily of cash on hand and our undrawn revolver.

Switching subjects now to our expectations for the second quarter and remainder of 2010. John discussed our revised expectations for production in North America and Europe, up 35% and 2%, respectively, which should translate to full year sales for us in the range of $12.9 billion to $13.3 billion. At the midpoint of that range, our sales will be up about 13% from 2009 or about $1.5 billion. For the second quarter, we expect sales of $3.4 billion, which is 24% above last year's level but lower than our first quarter as we expect Europe to see some softening.

We expect capital spending to range between $300 million to $325 million for the year, which is consistent with our earlier projections. With regards to restructuring, we still expect our full year expense to be somewhere in the range of $30 million to $40 million.

Full year interest expense is now expected to range between $185 million and $195 million, given our expectations of interest rates. The lower-than-expected tax rate in the first quarter will result in a full year rate below our previous guidance. Based on our current forecasts, it's reasonable to expect that our full year effective tax rate will range between 27% and 34% for the year. We have a wide range on this one given the volatility of our situation.

And finally, given raw material prices have been increasing over the past several months, we fully expect a higher level of commodity inflation as we move through the year. Similar to prior periods of inflation, the company will aggressively work to reduce and minimize the negative impact on our results.

In closing, the fast start in 2010 provides a strong foundation for the balance of the year. Although we're very proud of our first quarter accomplishments, we note the industry headwinds such as lower European production and increased commodity prices, which we expect will impact our second half results. We'll work hard to mitigate those challenges and ensure that we continue to have long-term success for the company.

We'll now move to the question-and-answer portion of the call. Mandy?

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Rod Lache with Deutsche Bank.

Rod Lache - Deutsche Bank AG

First, it looks like your incremental margin on a year-over-year basis was quite high relative to where you had been thinking it would be. Excluding the $184 million of FX benefit, it looks like it may have been as much as 37% on a year-over-year basis. So I was hoping you can just give us a little bit of color on what's happening here and how you would expect that to kind of progress over the course of this year?

Joseph Cantie

Sure, Rod. I mean, if you look at it, it was 32%. If you don't exclude the currency, I think you're right. It's somewhere 36%, 37% if you take out the currency out of it. You're comparing to the prior-year first quarter and if you go back a year ago, we were in the heart of what I'll call the significant actions that we were doing in terms of headcount and other things. So that 37% or 32%, whichever one you want to use, really reflects the fixed cost structure cuts that were made between last year and this year. If you look at the incremental margin between the fourth quarter and the first quarter, you'll see that it's about 25%, a tad bit higher if you exclude the one-offs that we talked about in the fourth quarter. So you do see that fading a bit, but that's still a great number moving from the first quarter to away from the fourth quarter. When you look at it going forward, you would expect that to moderate and come down. I know I've said that last quarter as well, and that didn't happen. So we, obviously, had a stronger quarter than I would have thought when we last spoke. Difficult to predict going forward, but I would think it would moderate for a couple of reasons. One, you have commodity inflation that's going to come back into the frame. Two, sales should be lower if you look at production builds, so you're going to have a reversed fixed cost leverage effect. So -- but it's still very positive for us, and we're looking forward to a good year as each quarter rolls through.

Rod Lache - Deutsche Bank AG

Can you give us any quantification of the raw material cost headwinds that you're alluding to?

John Plant

Well, it's pretty difficult at this point in time because while we've seen spot rates move up we actually haven't really seen the impact into our cost base and clearly, we're about trying to mitigate that as much as possible because a lot of the stuff we buy has a value-added content on it. And at the moment there's tremendous under-capacity. So it's pretty difficult to give you good calibration in that. I mean, we expect it to move up, so I don't know, it could be double-digit millions we expect and then clearly we'll be offsetting some of that through arrangements with our customers. But it's pretty difficult to predict at this point in time, both size and timing. So it's just an uncertainty that's out there.

Operator

Our next question is from the line of Chris Ceraso with Crédit Suisse.

Christopher Ceraso - Crédit Suisse First Boston, Inc.

Joe, if I look back over the past several years, there's been a pretty pronounced seasonality in your earnings, much stronger in the first half than the second half. Is that just volume in Europe? Or are there other factors that come into play with your business that's specific to TRW? And how do you envision things playing out in 2010 in that regard?

Joseph Cantie

Yes, I think you're right. Typically, if you go back over the last four or five years, the first half is always stronger than the second half. That's natural because in the third quarter, as you know, we have a large European content and most of the OEs have a shut down period that's pretty much the whole month of August. You also have the North American guy shutting down in that third quarter as well. So we would expect the same pattern to occur again this year, where first half would be stronger from a sales perspective versus the second half. You see that reflected in the vehicle build estimates by CSM and others as well. And whenever you have that volume that comes down a bit, you get less leverage off your fixed cost base. So we would expect the same thing to happen for us and every other auto company in the second half of 2010 versus the first half.

John Plant

In fact, Chris, the only exception to that I think was 2009 when the third quarter, because of both Europe and North America, both sales profit and margins were up in 2009. But as you can imagine with let's say projected European builds, so if you take most of the forecasting services, show that in the third quarter production's down and therefore sales will be down and then they tend to rebound in the fourth quarter.

Christopher Ceraso - Crédit Suisse First Boston, Inc.

And then you mentioned that material cost, directionally you expect to go higher. Are there other items -- in the fourth quarter, I think you had talked about a variety of labor-related things that you thought would start to trend back up in 2010. Did any of that happen in Q1? Was that stuff that started January 1 or are there costs that are still expected to rise that we haven't seen yet?

John Plant

The things that we said would occur have indeed already occurred. So basically, we did pay a wage and salary increase on the, in certain places, the first of the year and for the majority salaried on the 1st of February. We also did reinstate, in the U.S., the 401(k) match program. And that was effective, I’ve forgotten whether it was either January 15 or 1st of February, I can't remember now.

Joseph Cantie

As John said, most of that occurred in the first quarter. There will be a full quarter effect in the second quarter versus partial quarter effect on some of those items that we did. So there will be a bit more of a cost increase as we go forward but not substantial, Chris.

Christopher Ceraso - Crédit Suisse First Boston, Inc.

Maybe just to wrap up then and I know you're not giving bottom line guidance for the full year but maybe if we think out a year or two, in kind of a normal market the profit potential of this company running at 8% plus in the first quarter, is well above what you've ever done a full year basis. Where do think you settle out on a full year view from a margin perspective?

John Plant

Well, I’ve never given margin guidance in any of the last, let's say seven or eight years, Chris. So I can't see myself doing it now. The one thing I would say yes, the margin is up. We are pleased with it. We, of course, would like higher rather than lower. But the one thing that I’d observe to you is that, if anything that I could point out to you is, the strong cash performance, the confidence to pay down the debt, the LTM to EBITDA ratio of net debt to EBITDA of only 1.2x. I just think I can't stress that too much. I mean, that sets us up very well for our whole capital structure and hopefully the things we can continue to with that.

Operator

Our next question is from Brett Hoselton with KeyBanc.

Brett Hoselton - KeyBanc Capital Markets Inc.

Tax rate, you talked a little bit about the U.S. operations. Are they actually profitable at this point in time? And then is your outlook that, that should continue, kind of in the foreseeable future?

Joseph Cantie

Yes to the first one. Yes, the U.S. operations are profitable and as you can tell from our guidance now on the full year effective tax rate, it would imply that we expect U.S. to continue to be profitable.

Brett Hoselton - KeyBanc Capital Markets Inc.

Now, as we kind of stepped out into 2011 and assuming that North American production continues to kick-up and possibly outpaces, let's say Europe or something along those lines, I would expect that, that tax rate, 27% to 35% would start to trend down towards the lower end of that as we move out beyond 2010. Is that reasonable or unreasonable, Joe?

Joseph Cantie

No, I think that's reasonable for a period of time. It will trend low. As long as we continue to be in the evaluation allowance position, which should be a number of years.

Brett Hoselton - KeyBanc Capital Markets Inc.

And then is there some way that you can kind of give us some parameters for -- your commodity cost, typically steel’s been the big issue, can you give us some parameters as to how we might be able to think about your commodity costs whether it be the dollar amount of your direct and indirect steel buy and how much of your contracts actually have some pass-through mechanism?

John Plant

Steel for us, in last year was about $1.5 billion in total, but that includes probably 75% of it or more than that, which has a value-added content. So let's say turn parts, press parts or whatever and hence the true rule steel element within it is obviously a much smaller in number, which you can sort of backward calculate from that. I mean, then we had castings last year, which were about $800 million. Again, all of our castings tend to be indexed and again, obviously, have a large added value content compared to, just let's say, the raw metal element within it. So that gives you a couple of significant buckets for us.

Brett Hoselton - KeyBanc Capital Markets Inc.

As you think about your customer facing contracts, can you give us may be some idea of what percentage might actually have a formal indexing mechanism to pass higher steel costs along?

John Plant

It's very difficult to give you a single point percentage because the arrangements differ by customer and also by region. And therefore obviously famous [ph] depends upon the relative rate of sales, growth of those customers and the vehicle production in those regions. But if you went back to 2004 when – the way I look it at, we'd had more than a decade of very benign commodity price conditions and so, we were lulled into a false sense of security and in fact some of the escalators that we had in place had indeed fallen away. And so we struggled with this over the last few years. I mean, during that period of time, clearly, we have been reinstating and putting those back in. So I would say, I'm going to give a broad range, but from being relatively uncovered maybe nearly 20% area in 2004, we are probably more like in that 55% to 75% range now, accordingly to all the parameters I've given.

Operator

Our next question is from Himanshu Patel with JPMorgan.

Himanshu Patel - JP Morgan Chase & Co

Joe, would you happen, just so we can know how you guys did relative to industry production, which you happen to have European regional and North American regional sales, excluding foreign exchange, just kind of directional growth rates in those regions?

John Plant

I'll give it to you, Himanshu, but I’m going to give it just in total sales, so in North America, our take of our OE sales, we were up 69% and that compares to 70%. So its smack on the number and you can't tell for 1% plus or minus. In Europe, in total, Western Europe production was up 32%, east was 35%, blending at 33%, and we were up 33%. And then the rest of the world, I'm going to give you four countries; China, 65%; Russia, 59%; India 40%; Brazil 20%. So blend that lot together and clearly it's going to be sub 60%. And our Rest of World sales were up some 77%. So in terms of relatively higher growth compared to industry production, I'll say the China, Brazil story at our content gross, position played well for us.

Himanshu Patel - JP Morgan Chase & Co

How big is the China component now of consolidated revenues?

John Plant

We tend to give Rest of World, which is for us, China is significant. And I think we ended last year around about 16%, 17%. And so, clearly, we're up at about the 17% of our sales, using the Rest of the World segment. And within that, China it clearly is the largest element of it, maybe 40% of it, something.

Joseph Cantie

Yes, gross dollars were $1.4 billion last year. And China was close to $1 billion.

Himanshu Patel - JP Morgan Chase & Co

And just to be clear, these numbers are OE, right? They exclude your aftermarket business?

John Plant

Yes I just gave you OE because I think that's the best comparison. I can give you regions but then you’ve got to pick out after market sales within it so I think it’s right, it's OE to OE.

Himanshu Patel - JP Morgan Chase & Co

Second question, any color we can get on divisional margins; chassis, occupant safety, automotive components. Do you guys have that breakdown handy?

Joseph Cantie

Yes.

John Plant

Our Q will be issued shortly.

Joseph Cantie

Yes, but roughly speaking, our electronics group led the bunch and you'll see this when our Q gets filed, they were 12% plus margin in the quarter, occupant safety was close to 10%, chassis’ was 7-plus and auto components was about 6%. So just about everybody was at peak levels.

Himanshu Patel - JP Morgan Chase & Co

Just going back to one of the earlier questions, I know you guys don’t want to give guidance for this year, but we have heard from several suppliers this notion that current operating margins are either peak-ish or perhaps a medium term not sustainable because they're so strong they could invite a higher OEM pricing pressure or commodity cost or whatever it would be. I'm just curious, John, in kind of your view, just given that you've seen this business through several years. I mean is this a business that can operate at this level of margin sustainably, assuming whatever volume assumptions you want? Or is it fair to say that maybe there's a period where you overshoot your normalized margins for a little bit and then down the road, as capacity adds back and as raw materials costs increased maybe you sort of migrate down to a lower level, albeit with higher revenues?

John Plant

But I mean, actually one of the forces for us, I think, has been the consistency of management. And the way I look at it is the margin, clearly, in our third quarter and fourth quarter last year and the first quarter this year is higher. I have never given margin guidance and I've said repeatedly, don't plan to do so and I certainly won’t be doing today. I mean, I couldn't really tell you what the future holds because there’s so many variables in this industry. I mean, it's highly likely that we're in a very good zone now. I can’t tell you that it's going to go higher than this and therefore, I think you should use the word peak. Clearly, if we're facing lower production levels in one of our major regions, then that's a force for reduction anyway, but I don’t see taking out another swathe of cost, just to respond to a dip in our third quarter or if that does occur. And then it's so difficult to predict what 2011 holds at this point in time. I mean, it's a function of volume, yes. Commodity costs, yes, and now obviously, our operation efficiency. Clearly, on the operations we intend to continue to our efficiency drives. Commodity costs is largely out of our control, even though we’ve tried to neutralize some of that with arrangements. And then afterwards volumes, I mean I just at this point, feel as though it’s stronger in most parts of the world with the wildcard remain to be Europe. Because it’s difficult to know post scrappage, you’ve got all this whole Greek drama going. So I don't really feel like putting margin percentages out there. And so I’ll just say to you its good and I can’t see it being, with all those things I’ve talked about, certainly not -- you can’t go hire, I wouldn't have thought, and it’s more likely to go lower. But, of course, our job is to try to make sure it doesn't go back to where we have been in some times past, where we’re faced years of decline. My current sentiment is, having had years of decline particularly in North America, we should be set with an upwards trajectory in that, therefore this force is for the good as well. Having said all of that, it’s probably, the answer is I don't know.

Joseph Cantie

Himanshu, I'm just going to add a few things. If you look at our operating margin levels, 2005 thru 2007 before this all happened, we were basically in the 4.2% to 4.8% zone. I think when you look at our company today, we are fundamentally different in that the cost structure is fundamentally different, our capital structure, debt positions, are fundamentally different. Clearly, don't see us going back to that 4.2% to 4.8% zone. So you look at the company today, it's fundamentally different, stronger, better than it was in that pre-downturn zone. So I guess I'd just leave you with that thought, as you and the rest of the investors, is to how you think about TRW. I would think that there needs to be a fresh look at the power of this, the earnings power and the cash flow power of this company versus years ago.

John Plant

In fact, just in case you didn't get it, Himanshu, because I mean, you must have been struggling with your phone earlier on. So I’m going to repeat it again. So long-term EBITDA ratio of net to EBITDA was 1.2x on an LTM basis. And, I mean just so, I want to make sure that point comes across. I really like that.

Himanshu Patel - JP Morgan Chase & Co

We've seen a couple of your competitors or just peers in the auto parts industry start to do some small acquisitions. You're kind of in this unique position where you’ve got a different balance sheet and I think you've also got a couple of non-core assets that you’ve always talked about. Where is kind of the M&A environment for you? We haven't seen you guys move a lot on that recently. Are you feeling like a) the confidence is there to maybe doing acquisition, and b) I'm curious is there a market to potentially consider selling some of the non-core assets within, I think, what you call automotive components group?

John Plant

Well, as you know, I've got to react first of all to the non-core tax. I don't ever use that. I just say there’s a safety focus and there’s a couple of areas where we don't have the safety focus. I'm not sure that the market for deal multiples is in its zone yet for automotive because there’s still an awful lot of, I call, poor quality assets on the market. But my thought is that we’re probably entering a period where maybe the right multiple, the right price then it’s conceivable it might monetized something, I don't know. But at the same time there are other things that show on our radar screen which should they become available, then we will consider those as well. But I mean, at this point of our view it's more in that all-time type of arrangement. We’re not really considering fundamental moves. And so it's, you could imagine if there’s something that we want, we can bolt it on and feel pretty good about that and it's going to let us continue. Certainly, won't damage our leverage ratios, I would not have thought. And as you say, there’s a prospect, if we get the right arrangements, the right conditions, than I might be willing to monetize something which is in the non-safety space as well.

Operator

Our next question is from Patrick Archambault with Goldman Sachs.