UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended March 26, 2004

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from                                            to                                            .

Commission File No. 001-31970

TRW Automotive Holdings Corp.

(Exact name of registrant as specified in its charter)

12025 Tech Center Drive
Livonia, Michigan 48150
(734) 266-2600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x

As of March 26, 2004, the number of shares outstanding of the registrant’s Common Stock was 98,914,266 shares.

TRW Automotive Holdings Corp.

Index

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED AND COMBINED INTERIM FINANCIAL STATEMENTS

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined interim financial statements.

1

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined interim financial statements.

2

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined interim financial statements.

3

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined interim financial statements.

4

TRW Automotive Holdings Corp.

1. Description of Business and Change in Ownership

Description of Business

TRW Automotive Holdings Corp. (also referred to herein as the “Company” or the “Successor”), is among the world’s largest and most diversified suppliers of automotive systems, modules and components to global automotive vehicle manufacturers (“VMs”) and related aftermarkets. The Company conducts substantially all of its operations through subsidiaries. These operations primarily encompass the design, manufacture and sale of active and passive safety related products. Active safety related products principally refer to vehicle dynamic controls (primarily braking and steering), and passive safety related products principally refer to occupant restraints (primarily air bags and seat belts) and crash sensors. The Company is primarily a “Tier-1” supplier (a supplier which sells directly to VMs), with over 85% of its sales in 2003 made directly to VMs.

Change in Ownership

TRW Automotive Inc. (which the Company did not acquire and was renamed Richmond TAI Corp.) (“Automotive” or the “Predecessor”) was incorporated in Delaware on June 3, 2002 as a wholly owned subsidiary of TRW Inc. (“TRW”) in contemplation of the spin-off announced by the TRW Board of Directors in March 2002. Automotive, together with TRW’s other subsidiaries engaged in the automotive business, comprised TRW’s automotive business. Historically, TRW’s automotive business resulted from the combination of the legacy TRW automotive business with the legacy Lucas Varity plc (“Lucas Varity”) automotive business.

Prior to the consummation of the planned spin-off, TRW entered into an Agreement and Plan of Merger with Northrop Grumman Corporation (“Northrop”), dated June 30, 2002, whereby Northrop would acquire all of the outstanding common stock of TRW, including TRW’s automotive business, in exchange for Northrop shares. The acquisition of TRW by Northrop was completed on December 11, 2002 (the “Merger”).

Additionally, on November 18, 2002, an entity controlled by affiliates of The Blackstone Group, L.P. (“Blackstone”), entered into a Master Purchase Agreement, as amended, pursuant to which the Company, a newly-formed entity, would cause its indirect wholly-owned subsidiary, TRW Automotive Acquisition Corp., to purchase the shares of the subsidiaries of TRW engaged in the automotive business from Northrop (“the Acquisition”). The Predecessor’s 51% interest in the joint venture, TRW Koyo Steering Systems Company (“TKS”), was not transferred to the Company as part of the Acquisition.

The Acquisition was completed on February 28, 2003 for a purchase price of $4,443 million (excluding assumed debt of $210 million), subject to certain post-closing adjustments. Subsequent to the Acquisition, TRW Automotive Acquisition Corp. changed its name to TRW Automotive Inc. (referred to herein as “TRW Automotive”). Upon completion of the Acquisition, a subsidiary of Northrop retained a 19.6% interest in the Company.

The Company was capitalized by cash equity contributions totaling $698 million (further described below) and contributed the $698 million in cash plus newly issued shares of its common stock having an implied value of $170 million to TRW Automotive Intermediate Holdings Corp. (“Intermediate”), which is the direct parent of TRW Automotive. Intermediate issued a $600 million face amount subordinated 8% pay-in-kind note due 2018 (the “Seller Note”) to an affiliate of Northrop to acquire the stock of certain TRW automotive subsidiaries. The Seller Note had an estimated fair value of $348 million (excluding related deferred tax) as of the Acquisition date. Intermediate contributed such stock together with cash equity contributions of $698 million and the $170 million of the Company’s common stock to TRW Automotive for 100% of TRW Automotive’s stock. Intermediate has no independent operations or investments other than its investment in

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

TRW Automotive. Intermediate will be dependent on the cash flows of TRW Automotive to repay the Seller Note upon maturity.

In connection with the Acquisition, TRW Automotive issued senior notes (the “Senior Notes”) and senior subordinated notes (the “Senior Subordinated Notes”) in a private offering, entered into new revolving credit and term loan facilities (the “Senior Secured Credit Facilities”) and initiated a trade accounts receivable securitization program (the “Receivables Facility”).

Funding for the cash portion of the purchase price of the Acquisition included $1,577 million in proceeds from the Senior Notes and Senior Subordinated Notes, $1,510 million in borrowings under the Senior Secured Credit Facilities, and a cash equity contribution primarily from affiliates of Blackstone, in exchange for shares of the Company’s common stock. Employees of TRW Automotive and certain of its subsidiaries also made cash equity contributions in exchange for shares of the Company. In connection with the Acquisition, TRW Automotive incurred approximately $56 million in costs, which have been capitalized and included as part of the purchase price (included in Goodwill).

In addition, TRW Automotive assumed certain debt instruments existing at the Acquisition including 10.875% debentures previously issued by Lucas Industries Limited due 2020 at face amount of $149 million and certain other borrowings, including accrued interest, totaling approximately $60 million. Northrop retained all other indebtedness outstanding at the Acquisition, including debt allocated from TRW.

The following unaudited historical and pro forma financial data summarizes the results of operations for the three months ended March 26, 2004 and March 28, 2003, respectively. The financial data for three months ended March 28, 2003 reflect pro forma adjustments as if the Acquisition had occurred as of January 1, 2003. Pro forma adjustments include the removal of the results of operations of TKS, elimination of a $35 million inventory write-up recorded as a result of the Acquisition, adjustments to depreciation and amortization to reflect fair value of property, plant and equipment and identified intangible assets (with finite lives), the elimination of the amortization of unrecognized pension and other post retirement benefit losses, adjustments to corporate allocations to reflect estimated stand-alone costs, adjustments to interest expense to reflect the Company’s new capital structure, adjustments to losses on sales of receivables relating to the initiation costs of the Receivables Facility and certain corresponding adjustments to income tax expense. These pro forma amounts are not necessarily indicative of the results that would have been attained if the Acquisition had occurred at January 1, 2003 or that may be attained in the future.

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

2. Basis of Presentation

These consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission (“SEC”).

The following provides a description of the basis of presentation during all periods presented:

Successor — Represents the consolidated financial position of the Company as of March 26, 2004 and December 31, 2003 and consolidated results of operations and cash flows for the three months ended March 26, 2004 and one month ended March 28, 2003 following the Acquisition. The financial position as of March 26, 2004 and results of operations and cash flows for the three months ended March 26, 2004 and one month ended March 28, 2003 reflect purchase accounting for the Acquisition (as described more fully below).

Predecessor — Represents the combined financial position as of February 28, 2003 and the results of operations and cash flows for the two months ended February 28, 2003 of the automotive business of TRW for the period prior to the Acquisition. This presentation reflects the historical basis of accounting without any application of purchase accounting for the Merger due to the temporary nature of Northrop’s ownership of TRW’s automotive business. Prior to the Merger on December 11, 2002, Northrop entered into the Master Purchase Agreement on November 18, 2002 with affiliates of Blackstone to sell TRW’s automotive business as discussed in Note 1. The extensive representations, warranties and restrictions on Northrop’s conduct prior to the closing of the Acquisition in the Master Purchase Agreement severely limited any actions that could have been taken by Northrop during its brief and temporary ownership of TRW’s automotive business.

The Predecessor’s 51% interest in the joint venture, TKS, was not transferred to the Successor as part of the Acquisition.

The accompanying unaudited consolidated financial statements of the Successor and unaudited combined financial statements of the Predecessor have been prepared pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. These financial statements include all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company. Operating results for the three months ended March 26, 2004 are not necessarily indicative of results that may be expected for the year ended December 31, 2004.

The consolidated financial statements of the Successor as of and for the three months ended March 26, 2004 and for the one month ended March 28, 2003 reflect the Acquisition under the purchase method of accounting, in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS 141”).

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of Acquisition:

Net assets acquired as presented above includes the effect of the discount to fair value of the Seller Note as of the Acquisition date (see Note 1). Cash and cash equivalents, accounts receivable, other current assets, and accounts payable and other current liabilities were stated at historical carrying values, given the short-term nature of these assets and liabilities. The Company’s projected pension, post-retirement and post-employment benefit obligations and assets have been reflected in the allocation of purchase price at the projected benefit obligation less plan assets at fair market value, based on computations of independent actuaries engaged by the Company. Deferred income taxes have been provided in the consolidated balance sheet based on the Company’s estimates of the tax versus book basis of the assets acquired and liabilities assumed, as adjusted to estimated fair values. Valuation allowances have been established against those assets for which realization is not likely, namely in the U.S., as losses are currently being generated in that tax jurisdiction. Property, plant and equipment have been recorded at fair value based on a valuation prepared by independent appraisers, and inventory and debt outstanding as of the effective date of the Acquisition based on management’s judgments and estimates. The Company also recorded a $39 million reserve, primarily for severance related to strategic restructurings, plant closings and involuntary employee termination arrangements outside the U.S. to be paid over the next several years in accordance with local law.

The Company engaged independent appraisers to provide fair values of intangible assets acquired; including purchased in-process research and development, trademarks, developed technology and customer relationships.

8

ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

The Company recorded a one-time charge for purchased in-process research and development (“Purchased IPR&D”) expenses of $85 million. The value of Purchased IPR&D was comprised of 21 ongoing development projects, which ranged from 5% to 95% complete at the Acquisition date. Purchased IPR&D was derived by assigning values to those projects identified by management as having economic value, but that had not yet reached technological feasibility and had no alternative future use. These products had not been released to the market as of the date of the Acquisition, but the features and functionality of the products had been defined.

Developed technology and trademarks were valued based on the relief of royalty approach. This method allocates value based on what the Company would be willing to pay as a royalty to a third-party owner of the technology or trademark in order to exploit the economic benefits. The technologies that have been valued under this approach are innovative and technological advancements within the safety business. A total value of $77 million has been allocated to developed technologies and will be amortized over 8 years.

The trademarks have been valued at $292 million and assigned an indefinite life. The Company holds a number of trademarks covering its products including “TRW,” “Lucas,” and “Kelsey-Hayes.” These trademarks represent the goodwill and reputation that the Company has built up through the years by selling high-quality products to its customers. A number of third parties have entered into license agreements with the Company pursuant to which they pay royalty fees in exchange for the right to apply its trademarks to their products.

Customer relationships were valued using an excess earnings approach after considering a fair return on fixed assets, working capital, trademarks, technology, and assembled workforce. A value of $452 million has been assigned to customer relationships and will be amortized on a straight-line basis over 20 years.

Management believes that the carrying values of all other assets acquired and liabilities assumed approximate their fair values.

The resulting goodwill after all identifiable intangible assets have been valued was approximately $2.5 billion, of which approximately $1.1 billion was tax deductible. Goodwill and trademarks will be subject to annual impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).

The consolidated statement of operations for the one month ended March 28, 2003 includes $35 million in cost of sales representing the write-off of the inventory adjustment recorded in purchase accounting relating to the sale of inventory on hand as of the Acquisition date that was sold during this period.

Earnings per share. Basic earnings (losses) per share are calculated by dividing net earnings (losses) by the weighted average shares outstanding during the period. Diluted earnings (losses) per share reflect the weighted average impact of all potentially dilutive securities from the date of issuance.

For the three months ended March 26, 2004, basic and diluted earnings per share have been calculated based on the weighted average shares outstanding for the period of 94,283,151 and 97,790,923, respectively. Basic and diluted losses per share for the one month ended March 28, 2003 have been calculated based on the weighted average shares outstanding for the period of 86,800,000,retroactively adjusted to reflect the 100 for 1 stock split effected on January 27, 2004. Shares issuable pursuant to outstanding common stock options under the Company’s 2003 Stock Incentive Plan have been excluded from the computation of diluted losses per share for the one month period because their effect is antidilutive.

Earnings per share are not calculated for the Predecessor period as there were no shares outstanding during the period.

9

ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

Warranties. Product warranty liabilities are recorded based upon management estimates including such factors as the written agreement with the customer, the length of the warranty period, the historical performance of the product and likely changes in performance of newer products and the mix and volume of products sold. The liability is reviewed on a regular basis and adjusted to reflect actual experience.

The following table presents the movement in the product warranty liability for the three months ended March 26, 2004, the one month ended March 28, 2003 and the two months ended February 28, 2003:

Stock-based compensation. Stock options under employee compensation plans are accounted for using the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Pursuant to APB 25, no stock-based employee compensation expense is reflected in net earnings (losses) if options granted have exercise prices greater than or equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net earnings (losses) as if the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” had been applied to stock-based employee compensation:

Recent accounting pronouncements. In January 2004, the FASB issued FASB Staff Position No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“FSP 106-1”). FSP 106-1, permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Regardless of whether a sponsor elects that deferral, the FSP requires certain disclosures in financial statements of fiscal years ending after December 7, 2003 pending further consideration of the underlying accounting issues. The Company has elected to defer financial recognition of this legislation and has included the required disclosures in Note 13.

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

3. Subsequent Event

On April 19, 2004, the Company paid down approximately $51 million equivalent principal amount under its senior secured credit facilities on the euro-denominated term loan D-2 with available cash on hand. The outstanding principal balance after this payment is €50 million.

4. Supplemental Cash Flow Information

A portion of the Acquisition purchase price was financed with non-cash consideration. As described in Note 1, Intermediate issued the Seller Note to an affiliate of Northrop to acquire the stock of certain TRW automotive subsidiaries. Intermediate contributed these acquired subsidiaries, with a deemed fair value of $348 million (excluding related deferred tax), to TRW Automotive. Intermediate also contributed the $170 million of the Company’s common stock to TRW Automotive. TRW Automotive transferred these shares of the Company’s common stock to a subsidiary of Northrop as part of the purchase price. In addition, the purchase price included a preliminary post-closing adjustment estimate recorded by TRW Automotive as short-term debt. Net cash used in operating activities has been adjusted by the non-cash interest on the pay-in-kind Seller Note of $11 million for the three months ended March 26, 2004.

5. Acquisitions and Divestitures

On January 9, 2004 the Company completed the disposal of its North American Independent Aftermarket business, (“Autospecialty”), which had sales of approximately $55 million in 2003. Proceeds from the sale were approximately $10 million, net of cash retained in the business. Through the sale date, Autospecialty’s financial position and results of operations were included in the Company’s consolidated and combined financial statements.

During the three months ended March 26, 2004, the Company completed two sale-leaseback transactions involving certain land and buildings used for corporate and engineering activities in Shirley, England and Livonia, Michigan. The Company received cash on the disposals of approximately $90 million (including unremitted VAT of approximately $14 million) and $7 million, respectively. The Shirley transaction included a capital lease component due to the retention of interest by the Company in certain buildings.

6. Restructuring

For the two months ended February 28, 2003, Chassis Systems and Occupant Safety Systems recorded charges of $2 million and $1 million, respectively, for severance and costs related to the consolidation of certain facilities. For the one month ended March 28, 2003, Chassis Systems recorded charges totaling $1 million for severance and costs related to the consolidation of certain facilities.

In connection with the Acquisition, the Company assumed liabilities (subject to certain exceptions) totaling approximately $51 million for various restructuring activities, primarily related to involuntary severance obligations and costs to exit certain activities.

For the three months ended March 26, 2004, Chassis Systems recorded charges of $5 million for severance and costs related to the consolidation of certain facilities. The Company also recorded an additional $2 million reserve in purchase accounting primarily for severance related to strategic restructurings and plant closings.

11

ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

The following table illustrates the movement of the restructuring reserves:

Of the $59 million restructuring reserve accrued at March 26, 2004, approximately $36 million is expected to be paid through 2004, and approximately $19 million relates to involuntary employee termination arrangements outside the United States to be paid over the next several years in accordance with local law.

7. Inventories

8. Goodwill and Other Intangible Assets

Goodwill

The changes in goodwill for the period are as follows:

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

Intangible Assets

     The following table reflects intangible assets, and related amortization information:

The estimated annual amortization expense is: 2004 - $46 million; 2005 - $40 million; 2006 - $34 million; 2007 - $33 million; and 2008 - $33 million.

9. Other (Income) Expense — Net

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

10. Operating Segments

11. Accounts Receivable Securitization

At December 31, 2003, the Receivables Facility provided up to $600 million in funding. On January 8, 2004, the Company completed an amendment to the Receivables Facility, which reduced the amount of committed funding thereunder from $600 million to $400 million. During the quarter, the Company caused one of its subsidiaries to enter into a new receivables financing program in Europe.

Approximately $317 million of the Company’s total reported accounts receivable balance as of March 26, 2004 was considered eligible for borrowings under the Receivables Facility, of which approximately $216 million would have been available for funding. As these amounts were collected from customers and no amounts were securitized at March 26, 2004, the fair value of the multi-seller conduits’ loans was less than 10% of the fair value of the borrower’s assets and, therefore, the financial statements of the borrower were included in the consolidated financial statements as of March 26, 2004.

12. Income Taxes

For the three months ended March 26, 2004, the Company recorded income tax expense of $41 million on pre-tax income of $43 million, or 95%, as compared to income tax expense of $17 million on a pre-tax loss of $29 million, or (59%), for the one month ended March 28, 2003 and income tax expense of $19 million on

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

pre-tax income of $50 million, or 38%, for the two months ended February 28, 2003. The income tax rates vary from the United States statutory income tax rate of 35% due primarily to losses in the United States without recognition of a corresponding income tax benefit and higher than United States statutory effective income tax rates in certain foreign jurisdictions. Included in the tax provision calculation for the three months ended March 26, 2004 is a one-time charge of $47 million resulting from the refinancing of our term loans and prepayment of a portion of our senior and senior subordinated notes with no recognition of a corresponding tax benefit due to the valuation allowance position in the United States.

Income tax expense for the one month ended March 28, 2003 resulted primarily from not providing a tax benefit for the losses in the United States and certain foreign countries. For the two months ended February 28, 2003 the combined statements of operations include an allocation to the Predecessor of Northrop’s income taxes, in amounts generally equivalent to the provisions that would have resulted had these entities filed separate income tax returns for the period presented.

13. Pension Plans and Post-Retirement Benefits Other Than Pensions (“OPEB”)

The following table provides the components of net pension cost (income) for the Company’s defined benefit pension plans for the three months ended March 26, 2004, the one month ended March 28, 2003, and the two months ended February 28, 2003:

The following table provides the components of net post-retirement benefit cost for the plans for the three months ended March 26, 2004, the one month ended March 28, 2003, and the two months ended February 28, 2003:

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MPD Act”). The MPD Act expanded Medicare to include, for the first time, coverage for prescription drugs. The Company sponsors retiree welfare programs and the Company expects that this legislation will eventually reduce the Company’s costs for some of these programs. At this point, the

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

Company’s investigation into its response to the legislation is preliminary, as we await guidance from various governmental and regulatory agencies concerning the requirements that must be met to obtain these cost reductions as well as the manner in which such savings should be measured.

Because of the various uncertainties related to the Company’s response to this legislation and the appropriate accounting for this event, the Company has elected to defer financial recognition of this legislation until the FASB issues final accounting guidance. As such, measures of the accumulated post-retirement benefits obligation and net periodic post-retirement benefits cost included in these financial statements do not reflect the effects of the MPD Act. When issued, that final guidance could require the Company to change previously reported information. This deferral election is permitted under FSP 106-1.

14. Debt and Credit Agreements

Total outstanding debt of the Company as of March 26, 2004 and December 31, 2003 consisted of the following:

On January 9, 2004, the Company refinanced all of the borrowings under its existing term loan facilities with the proceeds of new term loan facilities, together with approximately $213 million of available cash on hand. Deferred debt issuance costs associated with the existing term loan facilities of $11 million were expensed in the first quarter of 2004. The new term loan facilities consist of tranche A-1 term loan issued in a face amount of $350 million maturing February 2009 and tranche D term loans issued in face amounts of $800 million and €93 million maturing February 2011.

In January 2004 the Company entered into a series of interest rate swap agreements with a total notional value of $500 million to effectively change a fixed rate debt obligation into a floating rate obligation. The total notional amount of these agreements is equal to the face value of the designated debt instrument. The swap agreements are expected to settle in February 2013, the maturity date of the corresponding debt instrument. As of March 26, 2004, approximately $7 million was added to the Company’s debt reflecting the mark-to-market adjustment of the interest rate swap agreements.

On February 6, 2004, the Company completed an initial public offering of 24,137,931 shares of common stock registered on Form S-1, registration statement number 333-110513, as amended. Net proceeds from the offering, after deducting underwriting discounts and offering expenses, were approximately $635 million. The Company used approximately $319 million of the net proceeds from the offering to repurchase 12,068,965 shares of common stock held by an affiliate of Blackstone and approximately $317 million of such proceeds

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

to repay a portion of each of the dollar and euro Senior Notes and Senior Subordinated Notes in each case, including the payment of a related redemption premium thereon, as follows:

	•		$117 million of such proceeds were used to repay 35% of the $300,000,000 aggregate principal amount of 11% Senior Subordinated Notes due 2013;
	•		$61 million were used to repay 35% of the €125,000,000 aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2013;
	•		$109 million were used to repay 11% of the $925,000,000 aggregate principal amount of 9 3/8% Senior Notes due 2013; and
	•		$30 million were used to repay 11% of the €200,000,000 aggregate principal amount of 10 1/8% Senior Notes due 2013.

The related redemption premiums totaling $30 million and deferred debt costs totaling $6 million were expensed in the first quarter of 2004.

On April 19, 2004, the Company paid down approximately $51 million equivalent principal amount under its senior secured credit facilities on the euro-denominated term loan D-2 with available cash on hand. The outstanding principal balance after this payment is €50 million.

As of March 26, 2004, TRW Automotive had approximately $54 million in outstanding letters of credit, none of which had been drawn against.

15. Other Comprehensive Losses

The components of accumulated other comprehensive losses are as follows:

The components of comprehensive losses, net of related tax, are as follows:

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

16. Related Party Transactions

As part of the Acquisition, the Company executed a Transaction and Monitoring Fee Agreement with Blackstone whereby Blackstone agreed to provide the Company monitoring, advisory and consulting services, including advice regarding (i) structure, terms and negotiation of debt and equity offerings; (ii) relationships with the Company’s and its subsidiaries’ lenders and bankers; (iii) corporate strategy; (iv) acquisitions or disposals and (v) other financial advisory services as more fully described in the agreement. Pursuant to this agreement, the Company paid Blackstone a transaction fee of $49 million at the time of the Acquisition. The Company has agreed to pay an annual monitoring fee of $5 million for these services, approximately $1 million of which is included in the unaudited consolidated statement of operations for the three months ended March 26, 2004 and approximately $0.5 million for the one month ended March 28, 2003.

The combined statements of operations for the two months ended February 28, 2003 include $8 million of administrative and selling expenses and $48 million of interest expense allocated from Northrop.

The Company used approximately $319 million of the net proceeds from the Company’s initial public offering to repurchase 12,068,965 shares of the Company’s common stock held by Automotive Investors L.L.C., an affiliate of Blackstone, at a price per share equal to $26.46, which is the proceeds per share received by the Company less the underwriting discounts.

As of March 26, 2004, the Company has recorded certain receivables from Northrop related to certain indemnities in the Master Purchase Agreement.

Under the Master Purchase Agreement related to the Acquisition, Northrop was obligated to indemnify the Company for certain cash OPEB payments. Also under the Master Purchase Agreement, the occurrence of the Company’s initial public offering caused such payments with respect to the OPEB indemnity instead to be directed (when they are paid) to the non-employee shareholders as of the closing of the Acquisition who remain shareholders as of the date of such payment in proportion to their beneficial ownership of the Company’s voting securities as of such date of payment. In addition, in the first quarter of 2004, Automotive Investors L.L.C. (the affiliate of Blackstone that owns the Company’s shares directly) agreed to share its portion of such indemnity payment with the employee shareholders who purchased their shares on or prior to March 25, 2003, including the executive officers of the Company, in proportion to their ownership of the shares, provided such shareholders are employees of the Company or its subsidiaries on the date of payment.

17. Contingencies

Various claims, lawsuits and administrative proceedings are pending or threatened against the Company or its subsidiaries, covering a wide range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and environmental matters. In addition, the Company and its subsidiaries are conducting a number of environmental investigations and remedial actions at current and former locations of certain of the Company’s subsidiaries. Along with other companies, certain subsidiaries of the Company have been named potentially responsible parties for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably with respect to the Company or the relevant subsidiary. A reserve estimate for each environmental matter is established using standard engineering cost estimating techniques on an undiscounted basis. In the determination of such costs, consideration is given to the professional judgment of Company environmental engineers, in consultation with outside environmental specialists, when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At March 26, 2004, the Company had reserves for environmental matters of $89 million. The Company believes any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

Company’s financial position or results of operations. However, the Company cannot predict the effect on the Company’s financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, the Company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the Company’s financial position or results of operations or the possible effect of compliance with environmental requirements imposed in the future.

Further, product liability claims may be asserted in the future for events not currently known by management. Although the ultimate liability from these potential claims cannot be ascertained at March 26, 2004, management does not anticipate that any related liability, after consideration of insurance recovery, would have a material adverse effect on the Company’s financial position.

In October 2000, Kelsey-Hayes Company (formerly known as Fruehauf Corporation) was served with a grand jury subpoena relating to a criminal investigation being conducted by the U.S. Attorney for the Southern District of Illinois. The U.S. Attorney has informed the Company that the investigation relates to possible wrongdoing by Kelsey-Hayes Company and others involving certain loans made by Kelsey-Hayes Company’s then-parent corporation to Fruehauf Trailer Corporation, the handling of the trailing liabilities of Fruehauf Corporation and actions in connection with the 1996 bankruptcy of Fruehauf Trailer Corporation. Kelsey-Hayes Company became a wholly owned subsidiary of TRW upon TRW’s acquisition of Lucas Varity in 1999 and became a subsidiary of the Company upon the Acquisition. The Company has cooperated with the investigation and is unable to predict the outcome of the investigation at this time.

On May 6, 2002, ArvinMeritor Inc. filed suit against TRW in the United States District Court for the Eastern District of Michigan, claiming breach of contract and breach of warranty in connection with certain tie rod ends that TRW supplied to ArvinMeritor and the recall of some of these tie rod ends. ArvinMeritor subsequently recalled all of the tie rod ends, and claims that it is entitled to reimbursement from TRW for the costs associated with both the products recalled by TRW and those recalled by ArvinMeritor on its own. ArvinMeritor is seeking $18.3 million in damages plus legal fees, administrative expenses and interest. Management believes that the Company has meritorious defenses and intends to defend vigorously the claims asserted against the Company, but cannot predict the outcome of this lawsuit.

While certain of the Company’s subsidiaries have been subject in recent years to asbestos-related claims, management believes that such claims will not have a material adverse effect on the Company’s financial condition or results of operations. In general, these claims seek damages for illnesses alleged to have resulted from exposure to asbestos used in certain components sold by the Company’s subsidiaries. Management believes that the majority of the claimants were assembly workers at the major U.S. automobile manufacturers.

The vast majority of these claims name as defendants numerous manufacturers and suppliers of a wide variety of products allegedly containing asbestos. Management believes that, to the extent any of the products sold by these subsidiaries and at issue in these cases contained asbestos, the asbestos was encapsulated. Based upon several years of experience with such claims, management believes that only a small proportion of the claimants has or will ever develop any asbestos-related impairment.

Neither settlement costs in connection with asbestos claims nor average annual legal fees to defend these claims have been material in the past. These claims are strongly disputed by the Company and its subsidiaries and it has been the policy to defend against them aggressively. Many of these cases have been dismissed without any payment whatsoever. Moreover, there is significant insurance coverage with solvent carriers with respect to these claims. However, while costs to defend and settle these claims in the past have not been material, there can be no assurances that this will remain so in the future.

Management believes that the ultimate resolution of the foregoing matters will not have a material adverse effect on the Company’s financial condition or results of operations.

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ITEM 1.	Consolidated and Combined Interim Financial Statements Notes to Consolidated and Combined Interim Financial Statements(unaudited) (continued)

18. Capital Stock

On February 6, 2004, the Company completed an initial public offering of 24,137,931 shares of common stock registered on Form S-1, registration statement number 333-110513, as amended. Net proceeds from the offering, after deducting underwriting discounts and offering expenses, were approximately $636 million. The Company used approximately $319 million of the net proceeds from the proposed offering to repurchase 12,068,965 shares of common stock held by an affiliate of Blackstone and approximately $317 million of such proceeds to repay a portion of each of the dollar and euro Senior Notes and Senior Subordinated Notes in each case, including the payment of a related redemption premium.

In connection with the offering, the Company effected a 100 for 1 stock split of outstanding shares of common stock on January 27, 2004. All share and per share amounts in the consolidated financial statements and these notes thereto have been retroactively adjusted to reflect the 100 for 1 stock split.

The Company’s authorized capital stock consists of (i) 500 million shares of common stock, par value $.01 per share, of which 98,914,266 shares are issued and outstanding as of March 26, 2004 and (ii) 250 million shares of preferred stock, par value $.01 per share, including 500,000 shares of Series A junior participating preferred stock of which no shares are currently issued and outstanding.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations covers periods prior and subsequent to the Acquisition. Accordingly, the discussion and analysis of historical operations of the Predecessor during the periods prior to the consummation of the Acquisition do not reflect the significant impact that the Acquisition has had and will have on us. In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the “Forward-Looking Statements” section. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled “Forward-Looking Statements,” and the historical consolidated and combined financial statements included elsewhere in this report.

Executive Overview

Our first quarter 2004 net sales were just over $2.9 billion, up $110 million or approximately 4 percent from pro forma first quarter 2003. The increase can be attributed to a stronger Euro and sales of new products, partially offset by pricing provided to customers, lower volume and mix, and a reduction in sales due to divestitures. Net earnings for the first quarter 2004 were $2 million, down $46 million from pro forma first quarter 2003 due primarily to $47 million of one-time charges associated with debt repayment transactions in the first quarter 2004. The quarter also reflected a decline in net pension and OPEB income of $39 million resulting primarily from the application of purchase accounting in first quarter 2003 to reflect the fair value of plan assets at the time of the Acquisition.

Debt reductions during the first quarter totaled $494 million, including a January 2004 pay down of bank term debt and the use of proceeds from our initial public offering to redeem a portion of our senior notes and senior subordinated notes. See “Liquidity and Capital Resources” below. A major accomplishment of the first quarter, of course, was that we completed our initial public offering on February 6, 2004.

During the quarter we have worked with our suppliers and customers to mitigate the impact of increasing costs of steel such that our operating results were not materially impacted by these increased costs. However, we cannot assure you that we will not experience increased costs or disruptions in supply over the remainder of the year or longer term, or that such increased costs will not adversely impact earnings.

Basis of Presentation

The Predecessor did not historically operate as a stand-alone business, but as part of TRW Inc. (“TRW”), which became a subsidiary of Northrop Grumman Corporation (“Northrop”) on December 11, 2002. TRW Automotive Acquisition Corp. acquired the shares of the subsidiaries of TRW engaged in the automotive business upon consummation of the February 28, 2003 acquisition (the “Acquisition”). Subsequent to the Acquisition, TRW Automotive Acquisition Corp. changed its name to TRW Automotive Inc. (referred to herein as “TRW Automotive”).

Due to a change in ownership, and the resultant application of purchase accounting, the historical financial statements of the Predecessor and the Successor included in this report have been prepared on different bases for the periods presented and are not comparable.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The following provides a description of the basis of presentation during all periods presented:

Successor — Represents our consolidated financial position as of March 26, 2004 and our consolidated results of operations and cash flows for the three months ended March 26, 2004 following the Acquisition. The financial position as of March 26, 2004 and results of operations and cash flows for the three months ended March 26, 2004 reflect the application of purchase accounting, described below, relating to the Acquisition.

Predecessor — Represents the combined financial position as of February 28, 2003 and the results of operations and cash flows for the two months ended February 28, 2003 of the automotive business of TRW for the period prior to the Acquisition. This presentation is on the historical basis of accounting without the application of purchase accounting related to the acquisition of TRW by Northrop on December 11, 2002 (the “Merger”) in any period presented, due to the temporary nature of Northrop’s ownership of TRW’s automotive business. Prior to the Merger, Northrop entered into the master purchase agreement on November 18, 2002 with affiliates of The Blackstone Group L.P. (“Blackstone”) to sell TRW’s automotive business. The extensive representations, warranties and covenants contained in the master purchase agreement restricting Northrop’s conduct prior to the closing of the Acquisition severely limited any actions that could have been taken by Northrop during its brief and temporary ownership of TRW’s automotive business.

The unaudited pro forma information for the three months ended March 28, 2003 is based on the historical assets, liabilities, sales and expenses of the Predecessor for the two month period ended February 28, 2003 and of the Successor for the one month period ended March 28, 2003. The pro forma adjustments reflect the effect of the Transactions (which means, collectively, the Acquisition and the related financings described elsewhere in this report, including the subsequent refinancing of the senior secured credit facilities) as if they had occurred on January 1, 2003.

The financial position, results of operations and cash flows of the Successor exclude, while those of the Predecessor include, for all periods presented, the assets, liabilities, results of operations and cash flows of the joint venture, TRW Koyo Steering Systems Company (“TKS”), which was not transferred to us as part of the Acquisition.

As a result, the historical and other financial information of the Predecessor included in this report may not reflect what our results of operations, financial position and cash flows would have been had we operated as a separate, stand-alone company for the periods presented.

Results of Operations on a Historical and Pro Forma Basis

The following unaudited pro forma consolidated and combined statements of operations for three months ended March 28, 2003 include adjustments to reflect the effect of the Transactions as if they have occurred on January 1, 2003. These unaudited pro forma consolidated and combined statements of operations and related notes are provided for informational purposes only and do not purport to be indicative of the results which would have actually been attained had the Transactions occurred on January 1, 2003 or that may be attained in the future.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Total Company Results of Operations

HISTORICAL AND PRO FORMA
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The historical and pro forma results of operations of the Predecessor and the Successor reflect the impact of various unusual items during the periods discussed. Pretax earnings for the historical three months ended March 26, 2004 and for the pro forma three months ended March 28, 2003 were negatively impacted by the effects of these unusual items as presented in the following table:

     These unusual items are classified in the statements of operations as follows:

Historical three months ended March 26, 2004 compared to pro forma three months ended March 28, 2003

Sales for the three months ended March 26, 2004 of $2.9 billion increased $110 million from $2.8 billion for the pro forma three months ended March 28, 2003. Higher sales resulted primarily from the favorable impact of foreign currency exchange of $241 million partially offset by the combination of price reductions to our customers and lower volume totaling $90 million and by the effect of business divestitures of $41 million.

Gross profit for the three months ended March 26, 2004 of $319 million declined $37 million from $356 million for the pro forma three months ended March 28, 2003. The decrease resulted from a decline in net pension and OPEB income of $37 million, the unfavorable impact of adverse product mix and lower volume totaling $12 million, an increase in product warranty costs, primarily in Europe, of $9 million, and the unfavorable effect of business divestitures of $2 million, partially offset by the favorable impact of foreign currency exchange of $20 million, and savings from cost reduction programs, net of price reductions to our customers and inflation, of $3 million. Gross profit for the three months ended March 26, 2004 was reduced by $5 million of restructuring charges, primarily severance. Net pension and OPEB expense included in gross profit for the pro forma three months ended March 26, 2004 was approximately $19 million compared to income of $18 million for the pro forma three months ended March 28, 2003. Gross profit for the pro forma three months ended March 28, 2003 was reduced by unusual items totaling $4 million, which included $3 million of restructuring expenses mainly for severance costs and $1 million for costs associated with our separation from Northrop. Gross profit as a

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

percentage of sales for the three months ended March 26, 2004 was 10.9% compared to 12.7% for the pro forma three months ended March 28, 2003.

Administrative and selling expenses for the three months ended March 26, 2004 of $124 million declined $12 million from $136 million for the pro forma three months ended March 28, 2003. The decline resulted primarily from cost savings and lower expenditures totaling $16 million, a reduction in charges for unusual items of $5 million and the effect of business divestitures of $3 million, partially offset by the unfavorable effect of foreign currency exchange of $9 million and an increase in net pension and OPEB expense of $2 million. Net pension and OPEB expense included in administrative and selling expenses for the three months ended March 26, 2004 was $7 million compared to $5 million for the pro forma three months ended March 28, 2003. Administrative and selling expenses for the pro forma three months ended March 28, 2003 included $5 million of charges for unusual items, which were primarily costs associated with our separation from Northrop. Administrative and selling expenses as a percentage of sales for the three months ended March 26, 2004 were 4.2% and 4.8 % for the pro forma three months ended March 28, 2003.

Research and development expenses were $37 million for the three months ended March 26, 2004 compared to $40 million for the pro forma three months ended March 28, 2003. The decrease in expenses reflected cost savings and lower spending of $7 million, partly offset by the unfavorable effect of foreign currency exchange of $4 million. Research and development expenses as a percentage of sales were 1.3% for the three months ended March 26, 2004 and 1.4% for the pro forma three months ended March 28, 2003.

Other (income) expense — net for the three months ended March 26, 2004 was income of $4 million compared to income of $3 million for the pro forma three months ended March 28, 2003. Other income for the three months ended March 26, 2004 consisted of earnings of affiliates of $4 million, net miscellaneous other income of $3 million and foreign currency exchange loss of $3 million. Other income for the pro forma three months ended March 28, 2003 consisted of net earnings of affiliates of $1 million, miscellaneous other income of $3 million, and an asset impairment charge of $1 million.

Interest expense, net for the three months ended March 26, 2004 was $63 million compared to $77 million for the pro forma three months ended March 28, 2003.

Loss on retirement of debt for the three months ended March 26, 2004 totaled $47 million. The loss resulted from the refinancing of all of the borrowings under our existing term loan facilities with proceeds of new term loan facilities together with available cash on hand and the repayment of a portion of each of the dollar and euro Senior Notes and Senior Subordinated Notes with proceeds from our initial public offering. We expensed $11 million of debt issuance costs related to the existing term loan facilities, $30 million of redemption premiums and $6 million of deferred debt issuance costs related to the senior notes and senior subordinated notes.

Income tax expense for the three months ended March 26, 2004, was $41 million on pre-tax income of $43 million, or 95%, as compared to income tax expense of $51 million on a pre-tax income of $99 million, or 52%, for the pro forma three months ended March 28, 2003. The income tax rate varies from the United States statutory income tax rate of 35% due primarily to losses in the United States without recognition of a corresponding income tax benefit and higher than United States statutory effective income tax rates in certain foreign jurisdictions. Included in the tax provision calculation for the three months ended March 26, 2004 is a one-time charge of $47 million resulting from the refinancing of our term loans and prepayment of a portion of our senior and senior subordinated notes with no recognition of a corresponding tax benefit due to the valuation allowance in the United States. We expect an effective tax rate of approximately 55% for the full year 2004.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Earnings before interest, taxes, depreciation and amortization (EBITDA): EBITDA is defined as earnings (losses) before interest, losses on sales of receivables, gain (loss) on retirement of debt, taxes, depreciation and amortization (“EBITDA”). EBITDA for the three months ended March 26, 2004 was $276 million compared to $295 million for the pro forma three months ended March 28, 2003. The decline of EBITDA resulted primarily from the changes in operating income line items (Gross profit, Administrative and selling expenses, Research and development expenses, and Other (income) expense-net) previously described.

EBITDA, a measure used by management to measure performance, is reconciled to net earnings (losses) in the following table. Our management believes EBITDA is useful to the investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net earnings (losses) as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The amounts shown for EBITDA, as presented herein, differ from the amounts calculated under the definition of EBITDA used in our debt instruments. The definition of EBITDA used in our debt instruments is further adjusted for certain cash and non-cash charges and is used to determine compliance with financial covenants and our ability to engage in certain activities such as incurring additional debt and making certain payments.

The following table provides a reconciliation of historical and pro forma net earnings to EBITDA: