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 June 25, 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

(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 July 28, 2004, the number of shares outstanding of the registrant’s Common Stock was 98,918,266 shares.

TRW Automotive Holdings Corp.
Index

i

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined financial statements.

2

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined financial statements.

3

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined financial statements.

4

TRW Automotive Holdings Corp.

See accompanying notes to consolidated and combined financial statements.

5

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”) 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. This automotive business is referred to herein as the Company’s predecessor and financial information related to this automotive business is included in the predecessor financial statements included herein.

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. 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

6

ITEM 1. Consolidated and Combined Financial Statements

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

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”).

As a result of the Acquisition on February 28, 2003, the consolidated financial statements of the Company 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”). For periods following the Acquisition, the consolidated financial statements of the Company are presented as “Successor.” For periods preceding the Acquisition, the combined financial statements are presented as “Predecessor.”

The accompanying unaudited consolidated financial statements of the Successor and predecessor unaudited combined financial statements 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 six months ended June 25, 2004 are not necessarily indicative of results that may be expected for the year ending December 31, 2004.

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. Actual weighted average shares outstanding used in calculating earnings per share were:

Basic and diluted losses per share for the three and four months ended June 27, 2003 have been retroactively adjusted to reflect the 100 for 1 stock split effected on January 27, 2004.

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

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.

7

ITEM 1. Consolidated and Combined Financial Statements

The following table presents the movement in the product warranty liability for the three and six months ended June 25, 2004, the three and four months ended June 27, 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, permitted 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 (the “MPD Act”). Regardless of whether a sponsor elects that deferral, the FSP required certain disclosures in financial statements of fiscal years ending after December 7, 2003 pending further consideration of the underlying

8

ITEM 1. Consolidated and Combined Financial Statements

accounting issues. The Company has elected to defer financial recognition of this legislation and has included the required disclosures in Note 10.

In May 2004, the FASB issued FASB Staff Position No. FAS 106-2 (“FSP 106-2”), which superseded FSP 106-1. FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy provided by the MPD Act and specifies the disclosure requirements for employers who have adopted FSP 106-2. Detailed regulations necessary to implement the MPD Act have not been issued, including those that would specify the manner in which actuarial equivalency must be determined, the evidence required to demonstrate actuarial equivalency and the documentation requirements necessary to be entitled to the subsidy. The Company is currently evaluating the effect that the adoption of FSP 106-2 will have on its results of operations and financial condition. Accounting for the effect of the MPD Act may be made either retroactively (as was required under FSP 106-1), or prospectively only, at the Company’s option. The accounting guidance must be adopted no later than the third quarter 2004.

3. Acquisitions and Divestitures

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.

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.

4. Restructuring

For the three months ended June 25, 2004, Chassis Systems, Occupant Safety Systems and Automotive Components recorded charges of $5 million, $1 million and $2 million, respectively, for severance and costs related to the consolidation of certain facilities.

For the six months ended June 25, 2004, Chassis Systems, Occupant Safety Systems and Automotive Components recorded charges of $10 million, $1 million, and $2 million, respectively, for severance and costs related to the consolidation of certain facilities.

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 four months ended June 27, 2003, Chassis Systems recorded charges totaling $3 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.

9

ITEM 1. Consolidated and Combined Financial Statements

The following table illustrates the movement of the restructuring reserves:

Of the $54 million restructuring reserve accrued at June 25, 2004, approximately $27 million is expected to be paid through the remainder of 2004, and approximately $17 million relates to involuntary employee termination arrangements outside the United States to be paid over the next several years in accordance with local law.

5. Inventories

6. Goodwill and Other Intangible Assets

Goodwill

The changes in goodwill for the period are as follows:

10

ITEM 1. Consolidated and Combined Financial Statements

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.

7. Other (Income) Expense — Net

11

ITEM 1. Consolidated and Combined Financial Statements

8. Operating Segments

9. Income Taxes

Under Accounting Principles Board Opinion No, 28, “Interim Financial Reporting”, the Company is required to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The provision for income taxes for the three months ended June 25, 2004, was $65 million on pre-tax income of $140 million as compared to $33 million on pre-tax income of $13 million in the same period a year ago. For the six months ended June 25, 2004, the Company recorded income tax expense of $106 million on pre-tax income of $183 million as compared to income tax expense of $50 million on a pre-tax loss of $16 million for the four months ended June 27, 2003 and income tax expense of $19 million on pre-tax income of $50 million for the two months ended February 28, 2003. The income tax rate varies from the United States statutory income tax rate 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 six months ended June 25, 2004, are charges of $48 million related to debt prepayment and debt refinancing on which no corresponding tax benefit was recorded due to the valuation allowance in the United States.

Income tax expense for the four month period ended June 27, 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

12

ITEM 1. Consolidated and Combined Financial Statements

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.

10. 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 and six months ended June 25, 2004, the three and four months ended June 27, 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 and six months ended June 25, 2004, the three and four months ended June 27, 2003, and the two months ended February 28, 2003:

On December 8, 2003, President Bush signed into law 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 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.

Because of the various uncertainties related to the Company’s response to this legislation, the Company has elected to defer financial recognition of this legislation until the third quarter of 2004 in accordance with FSP 106-2. 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. See Note 2, “Recent Accounting Pronouncements,” for further discussion.

13

ITEM 1. Consolidated and Combined Financial Statements

11. Debt and Credit Agreements and Capital Stock

Total outstanding debt of the Company as of June 25, 2004, and December 31, 2003, consisted of the following:

On January 9, 2004, the Company refinanced all of the borrowings under its then-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 then-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.

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. Deferred debt issuance costs of $1 million were expensed in the second quarter of 2004.

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 June 25, 2004, approximately $25 million was reduced from 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. 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 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 thereon. The related redemption premiums totaling $30 million and deferred debt costs totaling $6 million were expensed in the first quarter of 2004.

14

ITEM 1. Consolidated and Combined Financial Statements

As of June 25, 2004, TRW Automotive had approximately $54 million in outstanding letters of credit, none of which had been drawn against.

The Company’s authorized capital stock consists of (i) 500 million shares of common stock, par value $.01 per share, of which 98,918,266 shares are issued and outstanding as of June 25, 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.

12. Other Comprehensive Earnings (Losses)

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

13. 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 $3 million of which is included in the unaudited consolidated statement of operations for the six months ended June 25, 2004, and approximately $2 million for the four months ended June 27, 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 June 25, 2004, the Company has recorded certain receivables from Northrop related to tax, environmental and other indemnities in the Master Purchase Agreement.

In the second quarter of 2004, Intermediate entered into a letter agreement with subsidiaries of Northrop to amend the Seller Note. The amendment provides for the delivery of certain financial statements of Intermediate upon request in exchange for a fee and for certain management support in connection with any

15

ITEM 1. Consolidated and Combined Financial Statements

efforts by the holder of the note to assign a portion of the note. No such fees have been paid by Northrop as of June 25, 2004.

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. No such payment has been made as of June 25, 2004.

14. 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 June 25, 2004, the Company had reserves for environmental matters of $87 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 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 June 25, 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.

16

ITEM 1. Consolidated and Combined Financial Statements

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.

17

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

The following should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission on March 29, 2004, and the other information included herein.

Executive Overview

We achieved strong second quarter 2004 results, with net sales of approximately $3.2 billion, up $186 million or approximately 6.2% from second quarter 2003. The increase can be attributed to higher customer volume, new product growth, and favorable currency translation, partially offset by pricing provided to customers, and a reduction in sales due to divestitures. Net earnings for the second quarter 2004 were $75 million, up from a net loss of $20 million from second quarter 2003 due primarily to the absence of purchase accounting adjustments related to the Acquisition, favorable operating performance due to the higher customer volume and favorable currency translation. Additionally, we experienced interest savings resulting from debt repayment, refinancing actions and swapping fixed rate debt for floating rate debt.

During the second quarter and first half of 2004, we continued to work with our suppliers and customers to mitigate the impact of increasing costs of ferrous metals and as a result, our operating results were not materially impacted by these increased costs. However, inflationary pressures on metals continue and have begun extending into oil and gas based commodities such as resins and textile yarns. Consequently, 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 our future earnings. Additionally, we believe the third quarter will be a difficult production quarter in North America, as we expect customer production to be down as compared to prior year.

Basis of Presentation

We 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”). Our predecessor’s 51% interest in the joint venture, TRW Koyo Steering Systems Company (“TKS”), was not transferred to us as part of the Acquisition.

Due to the change in ownership, and the resultant application of purchase accounting, our predecessor’s pre-Acquisition and our post-Acquisition financial statements have been prepared on a different basis for the periods presented and are not comparable. For purposes of the periods presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the results of operations of our predecessor for the two months ended February 28, 2003, prior to the Acquisition, and our results of operations for the four months ended June 27, 2003, have been combined for convenience of discussion and are collectively referred to as “six months ended June 27, 2003.”

18

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
                (continued)

Results of Operations

The following consolidated and combined statements of operations compare the results of operations for three and six months ended June 25, 2004, to the three and six months ended June 27, 2003.

The related variances include not only the effects of our operations, but also the estimated effect of the Transactions. Transactions means, collectively, the Acquisition, (including the issuance of the senior notes and senior secured notes, entering into the revolving credit and term loan facilities and the initiation of the trade accounts receivables securitization program) and the July 22, 2003, refinancing of our senior secured credit facilities as if they had occurred on January 1, 2003.

Total Company Results of Operations

CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)