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TRW Automotive Holdings (NYSE:TRW)

Q1 2012 Earnings Call

May 01, 2012 8:30 am ET

Executives

Mark Oswald - Director of Investor Relations

John C. Plant - Chairman, Chief Executive Officer and President

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

Analysts

Peter Nesvold

Rod Lache - Deutsche Bank AG, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Ravi Shanker - Morgan Stanley, Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Operator

Good morning, and welcome to the TRW Conference Call. [Operator Instructions] 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. [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 2012 financial results conference call. This morning, I'm joined by John Plant, our Chairman and Chief Executive Officer; and Joe Cantie, our Chief Financial Officer.

On today's call, I 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 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 2011 Form 10-K contains additional information about risks and uncertainties that could impact our business. You can access a copy of our 2011 10-K and other 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 the 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 in 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 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?

John C. Plant

Thank you, Mark, and good morning, everyone.

As you can see from the results posted this morning, TRW has achieved a solid start to 2012 and looks to build on the positive momentum established over the past several quarters.

During the first quarter, sales, which totaled $4.2 billion, were 2% higher compared with the prior-year quarter and marked the highest level achieved for any first quarter. Adjusting for currency and divestitures, sales increased by 5.4%. Operating profit and margin before special items was $333 million and 7.9%, respectively, and tracks in line with our expectations. Net income was $211 million, and earnings per share were $1.62 on the same basis.

And finally, also in line with company expectations and normal seasonality, operating cash flow in the quarter was a use of some $102 million. In addition to funding our growth, the company used about $91 million during the quarter to repurchase certain bonds and stock. Joe will discuss these capital structure transactions in more detail in just a few moments.

Despite the use of cash in the first quarter, we anticipate 2012 will be another strong year of cash generation for TRW.

Overall, the first quarter results demonstrate TRW's strong market position and commitment to protecting its profitability, especially in the light of weak industry conditions that exist in Europe. The strength of recovery in North America, which surpassed the expectations of most industry observers established at the beginning of the quarter, has partially offset the year-on-year decline in vehicle sales and production in Europe and also a slower-than-expected start in China.

In North America, overall vehicle production was up 16% compared with the first quarter of 2011. On a sequential basis, compared with the fourth quarter of last year, production was up about 14%. The upstream production level of about 3.9 million vehicles in the quarter was the highest quarterly level achieved since before the start of the 2008 recession. The unexpected North American higher production growth presented some challenges, primarily for our supply base, yet we expect it will moderate as we move through the year.

Within the quarter's vehicle build, the Detroit 3 manufacturers liked the overall growth for the region, with production up 10% year-on-year, a good outcome to start the year. However, we continue to expect, as the year progresses, a larger portion of the region's growth will be provided by the Japanese vehicle manufacturers as they continue to recover from their earthquake-related constraints.

The higher level of production in North America has been supported by the acceleration of consumer demand. For the quarter, seasonally adjusted annual selling rates averaged just over 14.4 million units. In contrast, Europe's frail economy and battered consumer confidence drags on the pace of vehicle sales. For the quarter, vehicle production was down about 5% compared with last year's first quarter. This decline in the first quarter production was driven by the deteriorating consumer demand inside Europe, which experienced a 9% year-on-year decrease in vehicle registrations in the 5 core markets of the region. Marginal gains in Germany and the U.K. didn't offset the steep declines in France and Italy. Among carmakers, the magnitude of vehicle sales and production declines vary, as Volkswagen and Europe's luxury brands have maintained a relatively stable outlook compared to the drops at PSA, Renault and Fiat. This disparity has softened the negative impact to TRW, given our favorable customer and product mix.

With regard to China and Brazil, although the vehicle industry in those markets started the year slower than most observers expected, TRW sales remain robust and continue to impact and outpace the industry. Combined sales in those markets accounted for 15% of TRW's first quarter sales, and we were up some 15% overall.

Despite China's sluggish vehicle sales in early 2012, we remain confident China will remain the world's highest growth market for the years to come.

Moving on to the first quarter business developments. Product launches during the quarter continued to strengthen TRW's diversity and leadership in intelligent safety solutions. A few examples include the driver-side and curtain airbag modules, steering wheel, brake actuation, Active Control Retractor seatbelts and steering wheel on the Audi A3 in Europe. The Dodge Dart in North America was launched with TRW's passenger and knee airbag modules, steering wheel and certain safety and sensor electronics. And Kia cee'd vehicle in Europe was launched with our driver and passenger knee airbag modules, foundation brakes and safety and sensor electronics. As a result of our ongoing quality and Six Sigma programs, we continue to launch products with world-class quality. For the quarter, our initial quality averaged just under 4 parts to a million across all of our products and customers worldwide.

In addition to the product range of products launched during the first quarter, TRW announced future launches and unveiled new products during the quarter that will continue to strengthen our already strong market position. A few highlights include: the start of production of our electric power steering for the South American market at our facilities in Limeira, Brazil; the announcement of TRW's first production contract for its Active Buckle Lifter with a major European vehicle manufacturer. This ABL product simplifies the locating and fastening of the seatbelts by lifting the buckle into a convenient position, which helps reduce seatbelt slack in dynamic driving situations and can also contribute to reducing the possibility of out-of-position occupants; the development of "Green" airbag modules that will strengthen our product offerings in the area of green thinking. The range of drivers airbag modules are now made of regenerative plastic material, which offers a number of environmental benefits; and finally, in the area of smart thinking, TRW announced it is developing its second generation of scalable airbag control units designed for the low-cost vehicle and emerging markets. This second-generation scalable ACU offers emerging markets' vehicle manufacturers the opportunity to fit vehicles with advanced safety equipment, and the new units will include the option to integrate inertial measurements units into this overall control systems. And they will be able to sense vehicle yaw, key technology for the growing electronic stability control market.

It is exciting to look forward toward the bright future that lies ahead of TRW when you combine the products of today and tomorrow with our world-class quality, low-cost base and global reach.

And speaking of global reach, I'm pleased to report TRW's growth strategy, which includes building or expanding 11 manufacturing plants worldwide, is progressing as planned and will further strengthen our global footprint.

During a recent visit to our operator in China, it was exciting to see the progress of our new technical center in Anting, which will become one of TRW's largest design and research facilities. This line contains R&D, engineering design and application testing and validation across all of TRW's product lines. This is a very important facility in the build-out of the company's future.

Before I turn the call over to Joe, let me comment on our expectations for the second quarter and the remainder of 2012. Overall, global vehicle production levels are expected to be influenced by the macroeconomic environment that is prevalent in each of our regions. In North America, with the recovery headed in the right direction, consumer demand for vehicles has accelerated. Second quarter production is estimated at 3.8 million units, up 21% compared to last year. However, since TRW's business performance in the region is more correlated to the movements in the Detroit 3 production, I'll point out that within that estimate, the D3 manufacturers are only expected to post a modest increase of about 3% and they're down modestly on a sequential basis.

For the full year, we expect production to total 14.7 million units, an increase of about 12% compared to 2011. Similar to the second quarter, we expect production with the Detroit 3 manufacturers will differ from the overall region's growth and will increase about 5% year-on-year.

In Europe, the negative economic condition within the Eurozone is expected to continue, putting a downward pressure on vehicle demand and production within the region.

During the quarter, vehicle production for total Europe is projected to be about 4.8 million units, down about 9% from last year. Western Europe vehicle production is forecasted at 3.2 million units.

For the full year, our forecast is for production at 18.9 million units. Within this estimate, Western European production is 12.6 million units, which is a decrease of 7% compared with 2011.

Although we are confident in our ability to manage through this level of low production, we do remain cautious on the region. As you would expect, we'll continue to monitor the production plans of our customers and make adjustments to our operations as appropriate. Beyond North America and Western Europe, we expect full year production levels in the high-growth markets of the world, such as Brazil and China, to expand as we move through the balance of the year, albeit at a slower pace of growth compared to last year.

Based upon the forecasted production estimates, currency assumptions and our first quarter performance, we now expect sales to increase to approximately $16.3 billion to $16.6 billion in 2012, a small increase on prior guidance. Sales in the second quarter are expected to be approximately $4.2 billion.

We still expect that capital spending for the year will be in the range of $650 million to $700 million primarily due to the incremental capital allocated to our important high-growth areas, namely China and Brazil, and continued expansion of the newer, innovative technologies.

With regards to restructuring, we continue to expect 2012 restructuring expense to be within the historical range of $30 million to $40 million.

In summary, a lot of hard work lies ahead to complete our year. The team is focused on generating cash, executing our growth strategy while mitigating the impact of the near-term industry issues, particularly in Europe. We remain confident that we're executing the correct strategies to ensure the long-term success of the company. Our balance sheet is solid. We have innovative technologies and strong new market positions, and this will enable TRW to build on its positive momentum as we move into 2013 and beyond.

And with that, I'll now hand the call to Joe to discuss our financial results in more detail.

Joseph S. Cantie

Thank you, John, and good morning, everyone. Our results published this morning show that we're off to a good start for 2012, with the first quarter providing a solid base for TRW to reach its full year goals of strong profits and cash flows while also investing to support our future growth. Key highlights for the quarter included sales of $4.2 billion, up from last year's level despite lower production in Europe and a negative impact of currency movements and divestitures between the 2 periods.

Operating income before special items was $333 million for an operating margin of 7.9%, in line with the remarks provided during our fourth quarter earnings call back in mid-February. A solid outcome, in fact, it's the second best outcome for any first quarter in the company's history, surpassed only by last year's result, which was aided by an incredibly strong mix of sales and other favorable income items.

In this year's quarter, earnings per share were $1.59 on a GAAP basis and $1.62 after excluding special items. And finally, the company's capital structure continues to be in great shape with lower gross debt and net debt increasing only slightly from year end, due mostly to seasonal factors.

Although we're off to a solid start in 2012, we're focused on managing through and mitigating the negative impact of industry issues, with the most prominent being the decline in production in TRW's largest market, Europe.

I'll expand on our 2012 outlook shortly, but before doing so, I'll review our first quarter numbers in a bit more detail.

Starting with the income statement, for the quarter we reported sales of $4.2 billion, an increase of $99 million, or 2%, compared to the same period a year ago. Currency translation had a negative impact on sales during the quarter, decreasing sales by $95 million as the euro-to-dollar exchange rate averaged $1.31 this quarter compared with $1.37 last year. In addition, sales were $28 million lower in this quarter relating to divestitures we completed at the end of 2011. Adjusting for currency and the effect of the divestitures, sales improved by 5.4%, which compares favorably to the geographically weighted vehicle build for TRW of about flat in the quarter.

We had an operating profit of $331 million in Q1, compared to $372 million in the 2011 period. As I mentioned earlier, the prior year benefited from an unusually favorable mix of units produced and other net favorable items. With that in mind, a summary of the movements between the 2 quarters would be that the profit contribution from the higher level of sales was more than offset by a higher mix of lower-margin business, a net commodity inflation impact of about $15 million and planned cost increases to support future growth of about $20 million.

In addition and to a lesser degree, the first quarter was also adversely impacted by approximately $10 million of net currency losses.

Moving down the income statement, interest expense totaled $29 million, which compares to $34 million last year. The reduced expense is reflective of our cash flows and reduced levels of debt between the 2 periods.

The current quarter included a loss on retirement of debt totaling $5 million as we repurchased just under $48 million face value in bond debt during the quarter. The prior year's first quarter included a $10 million loss. Below interest expense, just a quick reminder that in the first quarter of last year the company recorded a $9 million gain on an acquisition in our aftermarket operations.

Finally, tax expense was $93 million in the current quarter, compared with $56 million last year. The increase in expense year-on-year is attributable to the higher effective tax rate in the current period resulting from the reversal of the company's valuation allowance on deferred income tax assets in the United States that occurred in late 2011. As a reminder, despite the higher tax expense, TRW will not pay cash taxes in the U.S. for many years given our existing tax NOL position.

At the bottom line, we posted GAAP net earnings of $1.59 per diluted share compared with net earnings of $2.13 in the prior year. Excluding special items from both periods, earnings were $1.62 this year compared with $2.21 in last year's first quarter. Not to make this more complicated, but for those interested, on a comparable tax rate basis, the prior-year earnings per share would have been $0.38 lower, or $1.83 per share. We've included in our slide deck today a schedule that provides 2011 pro forma results by quarter, adjusting taxes as if the U.S. valuation allowance had been eliminated prior to 2011 in order to help you with earnings comparisons as we move through 2012.

In terms of EBITDA, for the quarter we had $439 million, excluding special items, compared with $498 million in the prior year measured on the same basis.

Let me shift now to our cash flow and capital structure. For the quarter, operating cash flow was a use of $102 million, which compares to an inflow of $81 million in 2011. Free cash flow, which I'm defining as operating cash flow less capital expenditures, was a negative $198 million this quarter compared to a positive $14 million last year. Consistent with our expectations, the higher level of investment needed to support our growth plan, combined with increased working capital, a substantial portion of which was just timing between quarters, drove the year-on-year decline. As John pointed out earlier, despite this cash outflow in the first quarter, we anticipate that 2012 will be another strong cash-generating year for TRW.

At the end of our first quarter, our total gross debt was $1,503,000,000, while net debt outstanding was $506 million, both in great shape and down significantly from our year-ago levels.

As we discussed in our last conference call this past February, we continue to evaluate our capital structure with the goal of moving it to a more efficient position once we gain clarity on a few business issues, including Europe and antitrust. We expect to gain clarity on these and other matters as we move through this year.

In the meantime, we continue to opportunistically use our cash to better position the capital structure. During the first quarter, $91 million of cash was used to repurchase bonds and our stock. In addition to the $48 million face value of bonds repurchased that I mentioned earlier, $38 million of cash was used to repurchase 838,000 of our shares under a minor share repurchase program that was approved by the company's Board of Directors in February, which is intended to offset the dilution created by the company's benefit plans. For 2012, the company is authorized to repurchase up to 2.3 million shares in total.

Switching subjects now to the second quarter and the remainder of 2012. As John discussed, TRW's full year 2012 production forecasts are for 14.7 million units in North America and 18.9 million in Europe. Based on our revised production forecasts, full year sales are now forecasted in the range of $16.3 billion to $16.6 billion.

At this time, we're expecting second quarter sales of about $4.2 billion, which is about flat compared to last year's level. Similar to the quarter just ended, currency is expected to negatively impact the quarter comparison to the prior year. At this point, that impact is estimated at $180 million.

For completeness, we expect capital spending to range between $650 million and $700 million, which is consistent with our earlier guidance. With regards to restructuring, we still expect our full year charges to be somewhere between $30 million to $40 million, most of which will occur in the second half of this year. Full year interest expense is forecasted to be in the range of $110 million to $115 million, given the cost and level of debt for the company. Ancillary costs associated with our growth plans, namely engineering, development and infrastructure costs, to name a few, are tracking as planned at about $50 million to $70 million for the full year. And although difficult to predict, we still expect net commodity headwinds of about $50 million in 2012. As you might expect, we're aggressively working to recover and minimize the negative impact of these rising costs.

Finally, given our expected results by geographic location, you should continue to assume a full year 2012 effective tax rate of around 32% for modeling purposes.

In closing, we're pleased with the solid start in 2012 as it's established a good foundation for us to build on as we progress through the year. Our focus and commitment to growing the business, generating substantial cash and strengthening our market position has served us well in the past and will continue to drive long-term success for the company.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Peter Nesvold with Jefferies.

Peter Nesvold

Can you just hit on again the 3 buckets, materials, RD&E and FX? What was the impact in the quarter year-over-year, and what do you expect the full year to be again?

Joseph S. Cantie

Sure. The net commodity inflation was about $15 million. The bucket that we call investment for growth, which includes engineering, infrastructure, costs related to building of the plants that we're building, is about -- so it's more than just R&D, which you mentioned -- it was about $20 million in the quarter. And then currency, we had about, I'm going to say, about $10 million in the quarter of headwind compared to last year.

Peter Nesvold

Okay. And if I add those back to the gross margin for the quarter, I get an incremental year-over-year of about 8% if I'm just taking the gross profits that you reported in the quarter and comparing it to the year-ago quarter. In the past, you talked about something in the high teens. Was there anything else that might have been a headwind, whether it was mix, any other items I should be thinking about as I rule the model forward for the rest of the year?

Joseph S. Cantie

Yes. As I mentioned in my comments, I mean, last year, we had like a 9.3% margin in the quarter, which was, like, extremely high for us. And last year, when we reported that quarter, we indicated that there was a number of things in that quarter that were very favorable to it, primarily a very rich mix. Our module business was very low in that quarter, given that a couple of key plants were closed for a portion of that quarter. So our module sales are up about $153 million quarter-on-quarter. So that drives a negative mix when you look between the comparisons. And then in addition, there was a number of one-off favorable income items in last year's quarter that also contributed to that high margin. So it's a little bit of an apples-and-oranges comparison when you go back to that last year.

Peter Nesvold

Okay. And the last question, what were the legal costs that you accrued in the quarter?

Joseph S. Cantie

We didn't call those out at all, and they didn't factor in any major variance as they did in previous quarters. So you can assume that they were not as material in the previous 2 quarters when we called them out, and you can assume that they're below $10 million in the quarter.

Peter Nesvold

Okay. Does that mean that the process is winding down?

John C. Plant

I think Joe looks to me, so I'll take that one then, Peter. We can't really comment on the status of anything to do with the antitrust matter. I think all we can say is we started the proceeding with vigor during 2011, as soon as we were notified of the issue. And we're moving through, and you can see by the fact of what Joe has just answered is that the legal costs are substantially lower than they were in the 2 previous quarters. And that really is about all I wish just to comment on the call today.

Operator

Our next question is from Rod Lache with Deutsche Bank.

Rod Lache - Deutsche Bank AG, Research Division

I'm just also trying to get just a little bit of better understanding about the incremental walk. Your D&A was also down on a year-over-year basis, so if I look at the EBITDA on a year-over-year basis, Clean looks like it fell by $59 million. You guys described a $9 million good item last year, the FX of $10 million, engineering of $20 million, raw mats of $15 million, so that's $54 million and it leaves another $5 million or so. But the top line was up on a year-over-year basis. So I guess is there something that you can provide for us to just sort of reconcile what the real conversion is on an EBITDA basis or any way you'd want to describe what incremental margins are?

Joseph S. Cantie

Sure. I continue to talk about this contribution margin level in the 22% to 23%. That still holds true, Rod, in a macro sense. When I look at the things that you listed off, when you get down to $5 million, we're talking about small things. I will point out that the increase in sales, we didn't mention, and I did mention, I think we have it in our slide deck, the last year, prior-year quarter had a very rich mix of vehicles, and one of the things we cite as an example is that our module sales were extremely low in the prior-year first quarter. This quarter, they're more normalized. What that means, though, is that this quarter was not abnormal. It was really the quarter a year ago. And there's a difference of about $153 million in module sales between last time and this time. Module sales don't pull through at a 22% to 23% contribution margin. In fact, as you know, we're basically taking parts, assembling them, passing it on. It's really a good cash flow, return on capital business for us. But our margins are 2%, 3% on those sales. So that is one example of the mix difference that occurred between last year and this year. And again, it's not that this year was weak in any sense. It's just that last year was a very abnormal quarter, which drove that 9.3% margin, which was unusual for us, and we pointed that out last year.

John C. Plant

On the manufacturing side, everything was in line, and just the mix effects and the rest is pretty much reconciled, I think, Rod.

Rod Lache - Deutsche Bank AG, Research Division

Okay. And just given how strong Chrysler has been, just sales-wise and production, is that module comparison something that's likely to persist? Are you incorporating a big increase in module revenue on a year-over-year basis?

John C. Plant

I'll let Joe answer the specifics, but certainly in North America our module sales do pertain to Chrysler, so that gives you a pretty good idea there. And also I want to try to say in my remarks, Rod, is that the actual almost vertical rise of some of those manufacturing sales in Chrysler did actually cause some, I'll say, some subsupply difficulties, which pretty much accounts for the balance of stuff. But those will basically disappear as we move through the balance of the year. And anything else, Joe, you want to add?

Joseph S. Cantie

Yes, just on the modules, Rod, I mean, yes, our module business was up year-on-year because of Chrysler, but we also have a very good module business in Asia-Pacific that was up strongly this year. And when I referred to a couple of plants being downtime last year first quarter, those were really in the Asia-Pacific region. When I think of going forward, we'll have a little bit of a similar effect in the second quarter. So my guess -- not to the extent of $153 million, but if I had to call it, it'd be about a $70 million effect year-on-year in the second quarter and then after that, it'll normalize. And we shouldn't have increases between the quarters in Q3 and Q4.

Rod Lache - Deutsche Bank AG, Research Division

And just lastly, FX historically didn't really translate to the bottom line, but now it is. Is that something that we should anticipate going forward?

Joseph S. Cantie

Thanks for mentioning that because, as you know, we always talk about the fact that there's correlations between the movement in the euro and some of the sub-currencies. We always cite the euro as the one that we give you the metrics on, but we are managing a host of different currencies within the TRW network. And typically, there's a correlation that when you get weakness or strength in the euro, you're usually getting an offset to some of the sub-currencies within Europe, so zloty and pound to the euro. And when we talk about correlation, over time, that usually works, but in any given quarter, you either have pluses or minuses. And it just so happens that in this quarter, we had more of the weakness than normal, about $10 million.

John C. Plant

But the way I think about it, Rod, is that despite that FX negative and the modules is that sequentially, quarter-on-quarter, Q1 to Q4, there's actually a small margin improvement.

Operator

Your next question comes from the line of Chris Ceraso with Credit Suisse.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

A couple of follow-up items. There are some things on the cash flow statement. I understand the seasonal outflow in working capital, but there was a $30 million outflow for prepaid expenses and $20 million for other. This was -- these items were $15 million favorable a year ago. Can you give me an idea of what's in there, Joe?

Joseph S. Cantie

Yes, I think on the prepaid expense and other assets side, we had -- the largest factor in there pertains to taxes, our VAT. So in my comments, I indicated that some of the working capital was timing. That also holds true for what's going on in some of these subaccounts. So the largest movement was the timing of our VAT payments and VAT receipts. We also had other accrual movements during the quarter pertaining to benefit plans as well. Those are the main drivers.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. I was wondering if there was an accrual there for the antitrust settlement. One of your competitors did make a small accrual. I think people got a little bit excited about that. Are you getting close to doing something like that as well?

John C. Plant

We made no accrual in our Q1, Chris, for this matter.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. And then you mentioned or you've been mentioning recently a willingness to start returning cash to shareholders at some point. Can you give us an update on the potential timing of that and then, as part of that question, maybe comment on your willingness to put some leverage back on the balance sheet? Would you be willing to add a turn to put some of that cash to work? What's your view there?

John C. Plant

So on that subject, Chris, in fact, at the recent Investor Conference in the early part of April, what I did was to reiterate really what I'd said before, so I'll do it again this morning just to make sure we have clarity everywhere. And that was -- I said that commensurate with what I said in February, that during the -- sometime during the 4 quarters starting with summer this year, that's basically Q3 of this year to the end of Q2 of 2013, during that time frame, we anticipated to be able to commence something regarding the shareholder-friendly actions we talked about. We, of course, covered the waterfronts of what those might be without giving any particular emphasis to any of them, whether it's share buyback or dividend or what it might be. And we said it really depended upon several factors. It depended upon gaining clarity regarding the future outlook in Europe. It required us to gain clarity as we move through the antitrust matter. It also required us to balance all of the needs of our capital structure, including what we decide to do in terms of putting leverage on the balance sheet and, indeed, concluding the maturity repayments of our 2014 bonds and revolver renewal. So all of those factors are being weighed at the moment, and it's a dialogue that we've been having both for management and also, I'll disclose to you that it was a discussion at our last TRW Board meeting as well. We do anticipate continuing those discussions with the Board during our next couple of Board meetings. And then hopefully, as soon as we are able to, we'll obviously be making that disclosure publicly, of what we intend to do. So I think you can see that we're on track. It's a live discussion. There's no backing away. We've just not commented on specific timing or the specific amount of leverage that we intend to put on the company.

Joseph S. Cantie

Yes, the only other thing I'd add to that, Chris, is we continue, under the radar, to opportunistically move where we can. So we did spend $91 million in the first quarter on buying back bonds, and $38 million of that was on buying back shares. And when I look at last year, again, we spent over $400 million paying down debt. And in one sense, we also put in another $100 million into our pension plans, which I consider that to be a friendly action as well. So we continue to just not sit here and take advantage of the opportunities that are presented within what we have in our structure.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. Just one last one. To the extent that you've been involved in industry discussions on Nylon 12, can you give us any update on the status there?

John C. Plant

We don't have particularly significant exposure directly to that. Our exposure is indirect. And so obviously, we've engaged with our customers appropriately at that level. And I'm just hoping that the overall industry manages to work through the matter as it seems to be doing so. But we don't have any particularly significant direct exposure.

Operator

Your next question is from the line of Matt Stover with Guggenheim Partners.

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

Most questions have been asked, but there's 2 things. One is, you made reference, John, in your comments to some supply-base issues. I was wondering if you could give us some color on the issue there and sort of value of impact and why you expect that issue to recede as you made in your formal remarks.

John C. Plant

Okay. I'll give you one example, would be the casting industry. And we saw -- first of all, in 2011, we still began to see some indirect impacts of that, particularly in the powertrain segment, for some of our customers having difficulty, particularly in North America, to get subcomponents for their powertrains. And then as the industry has gone up in build and demand is that we have seen constraints appear in that casting base. And that has impacted us quickly as we've had some, I'll say, high-level demand and sometimes additional schedules dropped in during the first quarter, again, in the North American markets. As you'd expect, not only have we been working directly with our subsuppliers to ensure the full allocation of parts that we require, we've also been putting into place additional plans to gain second and third levels of supply sources for those components so that we don't have the effects of disruptive things and causing us to incur some premium freights. We haven't called it out as a specific item. We just note it's just one of the factors we've been dealing with. I guess it's in that lower level of noise that we talked about on the reconciling items in terms of the movement year to year, and we hope that, that -- even though it's a few million, that noise level hopefully will go away as we work through the balance of the year.

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

The other question is the incremental margin guidance is always sort of a conceptual idea, and there's going to be variances quarter to quarter and business to business. And I'm wondering, as we think about that incremental margin, if there were any geographic differences or business difference beyond the module issues that you called out that we should think about.

John C. Plant

I don't think so, really. We're pretty well balanced. We probably had a bit of an unusual effect in the, I'll say, the combination of a strong Chrysler in Q1. And also within -- well, for us, you can see that China grew strongly for the company, although given the vehicle build down, we actually did have slightly higher module sales there as well, which is a bit of an anachronistic feature. But overall, it's difficult to pull that one out because while, let's say, China vehicle build was down 2%, in fact, our sales were up double digits. And so basically, it's a fundamental content growth, but some of that did reflect one of the vehicle manufacturers', I will say, slightly higher production. So I think it was those 2 factors, more than anything. Apart from that, it'd be difficult to pull out any specifics. It's pretty much on track everywhere. We've incurred the growth expense we talked about. We have been putting capacity in, for example, into Brazil, getting ready for the uptick in restraints, in the restraints market, particularly in the airbag area. And also, plus, in fact, we've been facilitating out a whole plant for -- or a section of a plant for electric steering in Brazil, which, again, as you know, is a very positive thing for us as we move through in the second half of this year and into 2013.

Operator

Your next question is from the line of John Murphy with Bank of America Merrill Lynch.

John Murphy - BofA Merrill Lynch, Research Division

Just to follow on the line of margins and taking Matt's point that incrementals are very theoretical. I mean, based on a lot of the commentary you've made on the different line items, it appears that, that margin pressure we'll see early this year will abate quite dramatically in the back half of the year, and it looks like you might even get a little bit of margin expansion in the fourth quarter. Is that sort of a correct interpretation or are we going to be waiting until 2013 for the margins to start to flatten out and start recovering?

John C. Plant

We haven't commented on margin for this year. We've always shied away in recent years from giving specific profit guidance. The thing we did say in prior calls is that as we move through 2013 to '14, that we felt that with the investments that we've made and with all of those coming onstream, that we felt that the margin would be stronger at that time. We've made no specific reference to the balance of this year. And with that, I'll pass it across to Joe.

Joseph S. Cantie

Yes. You've got to be careful because, of course, the third quarter is the summer shutdown period, where if you just look traditionally, given the shutdown period, your margin always declines versus the other quarters. So I'm not sure I would get to the same conclusion you got to when you think of the third quarter shutdown. And then fourth quarter, a lot can go on between now and the fourth quarter.

John Murphy - BofA Merrill Lynch, Research Division

Okay, Joe. And as we think about the module sales as sort of lower-margin business, what percent of your total sales are modules?

Joseph S. Cantie

I know we have a chart out there. Let me just real quick -- so they're about 12% of our total sales.

John Murphy - BofA Merrill Lynch, Research Division

Got you. And, John, one just last one. I mean, have you seen any change in the quoting activity with automakers? Has that stepped up in the first quarter for you?

John C. Plant

No, it's been pretty constant. If I just take a sweep through, I think if you looked at -- I think we told you that 2010 was just an outstanding year for us, and that is, obviously, very important underpinning some growth. We've called out that as just a record year by a long way. And that was also, some view, the cadence of order intake and new vehicle platforms, renewal at the courting stage. 2011 was also a very strong year, in fact, the second highest in our history, only second to 2010. And this year started as expected with the cadence of contracts, which have been let, and our bid win percentage is in the normal, I'll say, good zone. So no specific comment on this year's absolute level at this point. It's still a bit early in the year, but bid win percentage is in good position.

John Murphy - BofA Merrill Lynch, Research Division

I'm sorry, just one last housekeeping issue, Joe. Has there been any change in payment terms or your receivable terms from automakers?

Joseph S. Cantie

No, not really.

Operator

Your next question is from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker - Morgan Stanley, Research Division

Sorry to touch upon the whole legal cost issue again but, Joe, do you say that the legal fees for the remainder of the year is going to be a similar run rate to 1Q?

John C. Plant

We didn't comment on the balance of year at all. We just commented that in the first quarter, that it was -- clearly, it was lower because it wasn't relevant to disclose. And Joe also said it was below $10 million, which gives you a fairly big bandwidth, but it was fundamentally lower than we've seen in the 2 quarters, where we went after the investigation very quickly in Q3 and Q4 of 2011.

Ravi Shanker - Morgan Stanley, Research Division

Okay. And also a bigger-picture question for you. We've seen some OEMs recently put airbags in unusual places, so to speak, between the front seats and seat belts and that sort of thing. In your view, is there a limit to how many airbags can go in a car? And also, what kind of conversations are you having with the OEMs? Is this something that veers a one-off, or is this like a real secular trend, where OEMs are looking to stuff their vehicles with airbags?

John C. Plant

Well, when you look at the next frontiers of safety, certainly, in a lot of recent investigations, we've dealt with rollover now by putting additional protection in terms of side curtains and side-impact airbags, and we're still expanding those features in terms of full coverage and in degree -- in impact, the degree of numbers of rolls that we'll actually cover in the vehicle. So it's a fundamentally more expensive airbag as you put into control that, say, a full 7-second maximum rollout you can possibly have. What's interesting now is a lot of attention is being paid to the impacts now of people inside the vehicle, because as actually these rolls happening is that -- what you're actually finding is that while we're protecting people from being ejected from the vehicle, is that the heads and torsos of the occupants are actually crashing together inside the vehicle now. And so what you're seeing, a lot of head injuries that people who actually -- the passenger being impacted into the driver and vice versa, depending on which direction the roll is. So there is actually a movement now to also put airbags that protect in between the passengers inside the vehicle. And also, you have to put detection mechanisms in there according to the different occupants of the seating positions in the car. But clearly, if we're now going to protect people, and there are some really very difficult, I'll say, injuries caused by 2 heads impacting, and that is not quite as severe as, let's say, limbs bend or whole people being ejected from the car, but that really is the next frontier of what is happening in terms of vehicle safety, in terms of the airbag. And so you kind of expect to see more in that regard. And the same as the effectiveness of knee airbags. I mean, it doesn't just protect knees, but also protects the hips as well. So you're actually seeing the build-out of that. I mean, clearly, at some point, there's a limit inside the vehicle. But I do think you'll see a large increase in those sort of things that I've talked about in the coming years.

Operator

Your next question is from the line of Brett Hoselton with Keybanc.

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Your comments about potential shareholder-friendly actions have, I think, led some people in the investment community to believe that you expect to see some clarity on the antitrust issues by the end of the year. Kind of as though you have some particular insight into the progress of that investigation that would lead you to believe that you'd get some clarity, maybe some resolution by the end of the year. And I guess my question is, do you have any particular insights into the progress of that investigation that causes you to believe that to be the case?

John C. Plant

Well, first of all, I've got to correct you in that we have not said or indicated any specific time frame. Clearly, there are normal time frames over which these things are resolved and -- but, I mean, it would probably take too long to go into describing the, I'll say, the bandwidth of what normal is. But what I have said is that we are hopeful that we can discuss with the whole of the investment community somewhere in the 4 quarters starting in the summer of this year, which is the Q3 of this year. So I don't think I've ever said that's anything regarding timing of this antitrust matter at all. We've normally said we really have nothing to add to the disclosure we've made, and I mean, it will be our position today. We have nothing really to add to the disclosures today. And so I'm not sure I can be very helpful to you in that regard. And I'd point you to the normalized duration of both the U.S. investigation and the European investigation.

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

No, actually, John, that was very helpful. Switching gears over to the new business revenue growth, you had talked about some acceleration as you move into that 2013, 2014 time frame. But I'm wondering, can you quantify what that actually means? I mean, what kind of revenue growth do you typically see yourself as having? And then what do you expect that improvement to look like? I tend to think of your revenue growth apart from production changes as being kind of 1%, 2%, 3% new business revenue growth, and then maybe you pick up an additional 100 to 200 basis points as you move into 2013 or 2014 or something. But I really have no idea. I'm wondering if you could quantify that.

John C. Plant

I am going to have to look to Joe to remind me exactly what we have disclosed in terms of that revenue growth. What we have said is it is accelerating in that as we go into '14 and '15, beyond the normal level. I do note that we seem to call out historically a very conservative position in terms of revenue growth. And when I benchmark us to the industry, I note that our actual results tend to be on the rather healthy side of any comparator measurements. And so that will be the case again this quarter and for the 2012 year. I'm not sure that we've actually gone out and I'm pretty sure we haven't gone out and given specific revenue guidance for 2014 to '15 apart from to say it is at an accelerated rate in terms of our underlying growth compared to, I'll say, the average swing through the last few years, adjusting for build. Joe, do you have any comment on...

Joseph S. Cantie

Yes, I'll just agree with everything you said. What we have said is, again, we expect it to accelerate as we exit '13, '14, '15. And again, you can connect the dots. We're sitting here talking about building infrastructure. We're talking about 11 plants, either new plants or expansion of plants. Our CapEx is up. So a very observant person could sit there and say, well, we must be doing that for a reason, and obviously, we're doing that to support the growth that we see coming in that '14, '15 time frame. And we did say that if you have a normal view for us, it would accelerate into those '14, '15. But we haven't put any specific numbers on that yet. At the appropriate time, we will.

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Okay. And then just with regards to your margin commentary, in some improvement as you move into 2013, '14 and '15, basically, the same question. Is there any desire on your part to kind of put some parameters around that? I mean, is that potentially high 7% range, could you potentially get back up into the mid-8% range on an operating margin basis, which is where you were back in 2010? Any thoughts along those lines?

John C. Plant

I think what we try to say to everybody is when we think of TRW, when you went back a few years, between 4.5%, plus or minus 0.5 point, or 5.5% range, we feel as though we have moved up, clearly. I think it's about -- I think last year, about 1/3 of the improvement to the post-cyclical bounce coming off the historic lows and about 2/3 for the fundamental repositioning of our product portfolio and the additional investments that we've made in engineering. And we've been conscious of trying to build on that with the investments we've made in engineering in the last 2 or 3 years and with those investments in new products that we totally protected during the, let's call it, the great recession. And we've commented on the excellent order intake that we've had in the last couple of years of being beyond any norms that we've previously had. So I think that they're all being recognized. We haven't gone out and given specific margin guidance. Obviously, we will try to give you some of that as we do move through. We do shrink away from giving specific guidance of profits in the year. But it is incumbent upon us to say something regarding that. But at this stage, because we're still a ways from that time period, what we're trying to do is to guide you through a series of markers which is healthy order intake, the building out of plants, the investments in infrastructure and capital that we're making in terms of plants and engineering, and that sort of underpins and gives credence to the growth rate we've talked about as we exit '13 to '14 and '15. And clearly, we'll be saying something about the bandwidth of margins. As soon as we sense that we can, there's no point in getting ahead of ourselves. And we will try to give you surfacing and further color on that. But at this point, there's no real upside in doing so.

Mark Oswald

And Mandy, I think we're at our time limit now. If you could please move to conclude the conference call.

Operator

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.

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