##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004
  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 LOGO) TRW Automotive Holdings Corp. (Exact name of registrant as specified in its charter) Delaware
(State or other jurisdiction of Incorporation or Organization)
    
    81-0597059
(I.R.S. Employer Identification Number)
 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: Title of Each Class
    
    Name of Each Exchange on Which RegisteredcCommon Stock, $0.01 par value per share
    
    New York Stock Exchange
 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.




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TRW Automotive Holdings Corp. Index PagePART I  FINANCIAL INFORMATIONITEM 1.
    
    CONSOLIDATED AND COMBINED INTERIM FINANCIAL STATEMENTS
    
    
    1Consolidated and Combined Statements of OperationsConsolidated Balance SheetsConsolidated and Combined Statements of Cash FlowsConsolidated
Statement of Changes in Stockholders EquityNotes to Consolidated and Combined Interim Financial StatementsITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    21ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    40PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    41ITEM 2.
    
    CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    41ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    42ITEM 5.
    
    OTHER INFORMATION
    
    
    42ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
    
    
    432003 Stock Incentive PlanExecutive Supplemental Retirement PlanAmendment to Employment Agreement - David BialoskyAmendment to Employment Agreement - Joseph CantieAmendment to Employment Agreement - Peter Lake302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  i




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##### Table of Contents



PART I. FINANCIAL INFORMATION 
 ITEM 1. CONSOLIDATED AND COMBINED INTERIM FINANCIAL STATEMENTS TRW Automotive Holdings Corp. 
 Consolidated and Combined Interim Statements of Operations
 Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(In millions, except per share amounts)
    
    2004
    
    2003
    
    2003(Unaudited)
    
    (Unaudited)Sales
    
    $
    2,923
    
    
    $
    940
    
    
    $
    1,916Cost of sales
    
    
    2,604
    
    
    
    863
    
    
    
    1,686Gross profit
    
    
    319
    
    
    
    77
    
    
    
    230Administrative and selling expenses
    
    
    124
    
    
    
    38
    
    
    
    100Research and development expenses
    
    
    37
    
    
    
    13
    
    
    
    27Amortization of intangible assets
    
    
    9
    
    
    
    1
    
    
    
    2Other (income) expense  net
    
    
    (4
    )
    
    
    (6
    )
    
    
    4Operating income
    
    
    153
    
    
    
    31
    
    
    
    97Interest expense, net
    
    
    63
    
    
    
    42
    
    
    
    47Loss on retirement of debt
    
    
    47
    
    
    
    
    
    
    
    Loss on sales of receivables
    
    
    
    
    
    
    18
    
    
    
    Earnings (losses) before income taxes
    
    
    43
    
    
    
    (29
    )
    
    
    50Income tax expense
    
    
    41
    
    
    
    17
    
    
    
    19Net earnings (losses)
    
    $
    2
    
    
    $
    (46
    )
    
    $
    31Basic earnings (losses) per share:Earnings (losses) per share
    
    $
    0.02
    
    
    $
    (0.53
    )Weighted average shares
    
    
    94.3
    
    
    
    86.8Diluted earnings (losses) per share:Earnings (losses) per share
    
    $
    0.02
    
    
    $
    (0.53
    )Weighted average shares
    
    
    97.8
    
    
    
    86.8
 See accompanying notes to consolidated and combined interim financial statements. 1




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TRW Automotive Holdings Corp. 
 Consolidated Balance Sheets
 As ofMarch 26,
    
    December 31,(Dollars in millions)
    
    2004
    
    2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    449
    
    
    $
    828Marketable securities
    
    
    16
    
    
    
    16Accounts receivable, net
    
    
    2,115
    
    
    
    1,643Inventories
    
    
    564
    
    
    
    635Prepaid expenses
    
    
    93
    
    
    
    73Deferred income taxes
    
    
    120
    
    
    
    120Total current assets
    
    
    3,357
    
    
    
    3,315Property, plant and equipment
    
    
    2,826
    
    
    
    2,877Less accumulated depreciation and amortization
    
    
    471
    
    
    
    378Total property, plant and equipment  net
    
    
    2,355
    
    
    
    2,499Intangible assets:Goodwill
    
    
    2,487
    
    
    
    2,503Other intangible assets
    
    
    858
    
    
    
    8563,345
    
    
    
    3,359Less accumulated amortization
    
    
    49
    
    
    
    37Total intangible assets  net
    
    
    3,296
    
    
    
    3,322Prepaid pension cost
    
    
    134
    
    
    
    120Deferred income taxes
    
    
    129
    
    
    
    129Other assets
    
    
    504
    
    
    
    522$
    9,775
    
    
    $
    9,907LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    66
    
    
    $
    76Current portion of long-term debt
    
    
    22
    
    
    
    24Trade accounts payable
    
    
    1,706
    
    
    
    1,626Accrued compensation
    
    
    325
    
    
    
    338Income taxes
    
    
    204
    
    
    
    187Other current liabilities
    
    
    831
    
    
    
    875Total current liabilities
    
    
    3,154
    
    
    
    3,126Long-term debt
    
    
    3,226
    
    
    
    3,708Post-retirement benefits other than pensions
    
    
    934
    
    
    
    935Pension benefits
    
    
    853
    
    
    
    838Deferred income taxes
    
    
    222
    
    
    
    222Long-term liabilities
    
    
    300
    
    
    
    300Total liabilities
    
    
    8,689
    
    
    
    9,129Minority interests
    
    
    53
    
    
    
    50Stockholders equity:Capital Stock
    
    
    1
    
    
    
    1Paid-in-capital
    
    
    1,184
    
    
    
    868Accumulated deficit
    
    
    (99
    )
    
    
    (101
    )Accumulated other comprehensive losses
    
    
    (53
    )
    
    
    (40
    )Total stockholders equity
    
    
    1,033
    
    
    
    728$
    9,775
    
    
    $
    9,907
 See accompanying notes to consolidated and combined interim financial statements. 2




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TRW Automotive Holdings Corp. 
 Consolidated and Combined Statements of Cash Flows
 Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003(Unaudited)
    
    (Unaudited)Operating activitiesNet earnings (losses)
    
    $
    2
    
    
    $
    (46
    )
    
    $
    31Adjustments to reconcile net earnings (losses) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    123
    
    
    
    39
    
    
    
    84Interest on pay-in-kind Seller Note
    
    
    11
    
    
    
    4
    
    
    
    Pension and other post-retirement benefits, net of contributions
    
    
    (3
    )
    
    
    (4
    )
    
    
    (28
    )Loss on retirement of debt
    
    
    17
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    9
    
    
    
    (3
    )Other  net
    
    
    1
    
    
    
    2
    
    
    
    6Changes in assets and liabilities, net of effects of businesses
acquired or divested:Accounts receivable, net
    
    
    (524
    )
    
    
    (233
    )
    
    
    (284
    )Securitization of accounts receivable
    
    
    
    
    
    
    150
    
    
    
    Inventories
    
    
    17
    
    
    
    48
    
    
    
    2Trade accounts payable
    
    
    111
    
    
    
    54
    
    
    
    64Prepaid expenses and other assets
    
    
    (9
    )
    
    
    (11
    )
    
    
    17Other liabilities
    
    
    39
    
    
    
    70
    
    
    
    39Other  net
    
    
    6
    
    
    
    5
    
    
    
    (1
    )Net cash (used in) provided by operating activities
    
    
    (209
    )
    
    
    87
    
    
    
    (73
    )Investing activitiesCapital expenditures including other intangibles
    
    
    (67
    )
    
    
    (11
    )
    
    
    (66
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (3,293
    )
    
    
    Acquisition transaction fees
    
    
    
    
    
    
    (56
    )
    
    
    Proceeds from divestitures
    
    
    10
    
    
    
    
    
    
    
    Proceeds from asset sales
    
    
    97
    
    
    
    
    
    
    
    Other  net
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Net cash provided by (used in) investing activities
    
    
    38
    
    
    
    (3,358
    )
    
    
    (68
    )Financing activities(Decrease) increase in short-term debt
    
    
    (10
    )
    
    
    4
    
    
    
    (321
    )Proceeds from debt in excess of 90 days
    
    
    1,268
    
    
    
    
    
    
    
    Principal payments on debt in excess of 90 days
    
    
    (1,769
    )
    
    
    (2
    )
    
    
    (18
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    3,085
    
    
    
    Debt issue costs
    
    
    (6
    )
    
    
    (110
    )
    
    
    Gross proceeds from initial public offering
    
    
    638
    
    
    
    
    
    
    
    Repurchase of capital stock
    
    
    (319
    )
    
    
    
    
    
    
    Equity contributions
    
    
    
    
    
    
    698
    
    
    
    Net transfers from parent company
    
    
    
    
    
    
    
    
    
    
    503Other  net
    
    
    (3
    )
    
    
    1
    
    
    
    78Net cash (used in) provided by financing activities
    
    
    (201
    )
    
    
    3,676
    
    
    
    242Effect of exchange rate changes on cash
    
    
    (7
    )
    
    
    
    
    
    
    (13
    )(Decrease) increase in cash and cash equivalents
    
    
    (379
    )
    
    
    405
    
    
    
    88Cash and cash equivalents at beginning of period
    
    
    828
    
    
    
    
    
    
    
    188Cash and cash equivalents at end of period
    
    $
    449
    
    
    $
    405
    
    
    $
    276
 See accompanying notes to consolidated and combined interim financial statements. 3




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TRW Automotive Holdings Corp. 
 Consolidated Statement of Changes in Stockholders Equity
 (Unaudited)
 Capital StockAccumulatedOtherPar
    
    Paid-in
    
    Accumulated
    
    Comprehensive(Dollars in millions, except share information)
    
    Shares
    
    Value
    
    Capital
    
    Deficit
    
    Losses
    
    TotalBalance at December 31, 2003
    
    
    86,845,300
    
    
    $
    1
    
    
    $
    868
    
    
    $
    (101
    )
    
    $
    (40
    )
    
    $
    728Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Foreign currency translation loss, net of
current and deferred tax liability of $71 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Deferred cash flow hedges, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Issuance of capital stock
    
    
    24,137,931
    
    
    
    
    
    
    
    635
    
    
    
    
    
    
    
    
    
    
    
    635Repurchase capital stock
    
    
    (12,068,965
    )
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    
    
    
    
    (319
    )Balance at March 26, 2004
    
    
    98,914,266
    
    
    $
    1
    
    
    $
    1,184
    
    
    $
    (99
    )
    
    $
    (53
    )
    
    $
    1,033
 See accompanying notes to consolidated and combined interim financial statements. 4




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TRW Automotive Holdings Corp. 
 Notes to Consolidated and Combined Interim Financial Statements (Unaudited)
 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 5




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ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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. Three months endedHistorical
    
    Pro FormaMarch 26,
    
    March 28,(In millions, except per share amounts)
    
    2004
    
    2003Sales
    
    $
    2,923
    
    
    $
    2,813Operating income
    
    
    153
    
    
    
    177Net earnings
    
    
    2
    
    
    
    48Basic earnings per share:Earnings per share
    
    $
    0.02
    
    
    $
    0.55Weighted average shares
    
    
    94.3
    
    
    
    86.8Diluted earnings per share:Earnings per share
    
    $
    0.02
    
    
    $
    0.55Weighted average shares
    
    
    97.8
    
    
    
    87.8
 6




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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). 7




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ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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: As of(Dollars in millions)
    
    March 1, 2003Cash and cash equivalents
    
    $
    276Accounts receivable
    
    
    1,623Inventories
    
    
    607Deferred income taxes
    
    
    391Other current assets
    
    
    63Property, plant and equipment
    
    
    2,380Intangible assets not subject to amortization  trademarks
    
    
    292Intangible assets subject to amortization:Developed technology (8 years)
    
    
    77Customer relationships (20 years)
    
    
    452Other long-term assets
    
    
    561Purchased in-process research and development
    
    
    85Deferred income taxes
    
    
    120Goodwill
    
    
    2,484Total assets acquired
    
    
    9,411Accounts payable and other current liabilities
    
    
    2,555Long-term debt assumed
    
    
    210Deferred income taxes
    
    
    473Post-retirement benefits other than pensions
    
    
    946Other long-term liabilities
    
    
    1,036Total liabilities assumed
    
    
    5,220Net assets acquired
    
    $
    4,191
 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




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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: Change inCurrent
    
    Used for
    
    EstimatesBeginning
    
    Period
    
    Purposes
    
    and
    
    Ending(Dollars in millions)
    
    Balance
    
    Accruals
    
    Intended
    
    Translation
    
    BalanceThree months ended March 26, 2004
    
    $
    74
    
    
    $
    19
    
    
    $
    (7
    )
    
    $
    
    
    
    $
    86One month ended March 28, 2003
    
    
    46
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    46Two months ended February 28, 2003
    
    
    43
    
    
    
    8
    
    
    
    (5
    )
    
    
    
    
    
    
    46
 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: Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(In millions, except per share amounts)
    
    2004
    
    2003
    
    2003Net earnings (losses), as reported
    
    $
    2
    
    
    $
    (46
    )
    
    $
    31Add: Stock-based compensation as reported
    
    
    
    
    
    
    
    
    
    
    Deduct: Stock-based compensation under SFAS 123
fair value method, net of related tax effects
    
    
    (2
    )
    
    
    (1
    )
    
    
    Adjusted net (losses) earnings, fair value method
    
    $
    
    
    
    $
    (47
    )
    
    $
    31Basic and diluted earnings (losses) per share:Losses per share
    
    $
    
    
    
    $
    (0.54
    )
    
    NAWeighted average shares
    
    
    94.3
    
    
    
    86.8
    
    
    NA
 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. 10




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes to Consolidated and Combined Interim Financial Statements(unaudited)(continued) The following table illustrates the movement of the restructuring reserves: ProvisionPurchase
    
    Used forBeginning
    
    Administrative
    
    Cost of
    
    Price
    
    Purposes
    
    Ending(Dollars in millions)
    
    Balance
    
    and Selling
    
    Sales
    
    Allocation
    
    Intended
    
    BalanceThree months ended March 26, 2004
    
    $
    79
    
    
    $
    
    
    
    $
    5
    
    
    $
    2
    
    
    $
    (27
    )
    
    $
    59One month ended March 28, 2003
    
    
    51
    
    
    
    
    
    
    
    1
    
    
    
    30
    
    
    
    (3
    )
    
    
    79Two months ended February 28, 2003
    
    
    61
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    (13
    )
    
    
    51
 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 As ofMarch 26,
    
    December 31,(Dollars in millions)
    
    2004
    
    2003Finished products and work in process
    
    $
    324
    
    
    $
    385Raw materials and supplies
    
    
    240
    
    
    
    250$
    564
    
    
    $
    635
 8. Goodwill and Other Intangible Assets Goodwill The changes in goodwill for the period are as follows: OccupantChassis
    
    Safety
    
    AutomotiveSystems
    
    Systems
    
    Components(Dollars in millions)
    
    Segment
    
    Segment
    
    Segment
    
    TotalBalance as of December 31, 2003
    
    $
    1,001
    
    
    $
    971
    
    
    $
    531
    
    
    $
    2,503Purchase price adjustments
    
    
    (6
    )
    
    
    (10
    )
    
    
    
    
    
    
    (16
    )Balance as of March 26, 2004
    
    $
    995
    
    
    $
    961
    
    
    $
    531
    
    
    $
    2,487
 12




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes to Consolidated and Combined Interim Financial Statements(unaudited)(continued) Intangible Assets The following table reflects intangible assets, and related amortization
information: As of
    
    As ofMarch 26, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    Accumulated(Dollars in millions)
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationIntangible assets subject to amortizationCapitalized software
    
    $
    34
    
    
    $
    (14
    )
    
    $
    34
    
    
    $
    (10
    )Customer relationships
    
    
    452
    
    
    
    (24
    )
    
    
    451
    
    
    
    (19
    )Developed technology
    
    
    80
    
    
    
    (11
    )
    
    
    79
    
    
    
    (8
    )Total
    
    
    566
    
    
    $
    (49
    )
    
    
    564
    
    
    $
    (37
    )Intangible assets not subject to amortizationTrademarks
    
    
    292
    
    
    
    
    
    
    
    292Total
    
    $
    858
    
    
    
    
    
    
    $
    856Aggregate Amortization ExpenseFor the three months ended March 26, 2004
    
    $
    12Amortization of capitalized software is included in cost of sales and
administrative and selling expenses
 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 Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003Minority interest
    
    $
    3
    
    
    $
    1
    
    
    $
    4Asset impairments
    
    
    
    
    
    
    
    
    
    
    1Earnings of affiliates
    
    
    (4
    )
    
    
    
    
    
    
    (1
    )Foreign currency exchange
    
    
    3
    
    
    
    (4
    )
    
    
    4Miscellaneous other income
    
    
    (6
    )
    
    
    (3
    )
    
    
    (4
    )$
    (4
    )
    
    $
    (6
    )
    
    $
    4
 13




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes to Consolidated and Combined Interim Financial Statements(unaudited)(continued) 10. Operating Segments Successor
    
    PredecessorThree months
    
    One monthended
    
    ended
    
    Two months endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003Sales to external customers:Chassis Systems
    
    $
    1,662
    
    
    $
    537
    
    
    $
    1,110Occupant Safety Systems
    
    
    859
    
    
    
    275
    
    
    
    555Automotive Components
    
    
    402
    
    
    
    128
    
    
    
    251$
    2,923
    
    
    $
    940
    
    
    $
    1,916Segment profit before taxes:Chassis Systems
    
    $
    70
    
    
    $
    9
    
    
    $
    46Occupant Safety Systems
    
    
    84
    
    
    
    25
    
    
    
    53Automotive Components
    
    
    35
    
    
    
    9
    
    
    
    26Segment profit before taxes
    
    
    189
    
    
    
    43
    
    
    
    125Corporate expense and other
    
    
    (32
    )
    
    
    (6
    )
    
    
    (44
    )Financing costs
    
    
    (64
    )
    
    
    (61
    )
    
    
    (47
    )Loss on retirement of debt
    
    
    (47
    )
    
    
    
    
    
    
    Net employee benefits income (expense)
    
    
    (3
    )
    
    
    (5
    )
    
    
    16Profit before taxes
    
    $
    43
    
    
    $
    (29
    )
    
    $
    50Intersegment sales:Chassis Systems
    
    $
    
    
    
    $
    
    
    
    $
    Occupant Safety Systems
    
    
    4
    
    
    
    
    
    
    
    1Automotive Components
    
    
    13
    
    
    
    4
    
    
    
    7$
    17
    
    
    $
    4
    
    
    $
    8
 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 14




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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: Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003U.S.
    
    Non-U.S.
    
    U.S.
    
    Non- U.S.
    
    U.S.
    
    Non- U.S.Defined benefit plansService cost
    
    $
    8
    
    
    $
    13
    
    
    $
    3
    
    
    $
    3
    
    
    $
    5
    
    
    $
    7Interest cost on projected benefit obligations
    
    
    17
    
    
    
    61
    
    
    
    6
    
    
    
    18
    
    
    
    10
    
    
    
    37Expected return on plan assets
    
    
    (13
    )
    
    
    (78
    )
    
    
    (5
    )
    
    
    (23
    )
    
    
    (13
    )
    
    
    (80
    )Amortization of recognized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    10Net pension cost (income)
    
    $
    12
    
    
    $
    (4
    )
    
    $
    4
    
    
    $
    (2
    )
    
    $
    3
    
    
    $
    (26
    )
 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: Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003Service cost
    
    $
    2
    
    
    $
    1
    
    
    $
    2Interest cost
    
    
    16
    
    
    
    6
    
    
    
    10Amortization of recognized income
    
    
    
    
    
    
    
    
    
    
    1Net post-retirement benefit cost
    
    $
    18
    
    
    $
    7
    
    
    $
    13
 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 15




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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: (Dollars in millions)
    
    March 26, 2004
    
    December 31, 2003Short-term debt
    
    $
    66
    
    
    $
    76Long-term debtSenior Notes
    
    $
    1,049
    
    
    $
    1,178Senior Subordinated Notes
    
    
    294
    
    
    
    458Term Loan facilities
    
    
    1,263
    
    
    
    1,480Revolving credit facility
    
    
    
    
    
    
    10.875% Lucas Industries Limited debentures due 2020
    
    
    190
    
    
    
    189Seller Note
    
    
    393
    
    
    
    382Capitalized leases
    
    
    38
    
    
    
    19Other borrowings
    
    
    21
    
    
    
    26Total long-term debt
    
    
    3,248
    
    
    
    3,732Less current portion
    
    
    22
    
    
    
    24$
    3,226
    
    
    $
    3,708
 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 16




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ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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: As ofMarch 26,
    
    December 31,(Dollars in millions)
    
    2004
    
    2003Foreign currency translation loss (net of current
and deferred tax liability of $71 million in 2004
and 2003)
    
    $
    (51
    )
    
    $
    (34
    )Unrealized losses on cash flow hedges (net of tax)
    
    
    (2
    )
    
    
    (6
    )$
    (53
    )
    
    $
    (40
    )
 The components of comprehensive losses, net of related tax, are as follows: Successor
    
    PredecessorThree months
    
    One month
    
    Two monthsended
    
    ended
    
    endedMarch 26,
    
    March 28,
    
    February 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003Net earnings (losses)
    
    $
    2
    
    
    $
    (46
    )
    
    $
    31Foreign currency translation (losses) gains, net
    
    
    (17
    )
    
    
    8
    
    
    
    (58
    )Realized net gains on cash flow hedges
    
    
    4
    
    
    
    
    
    
    
    Comprehensive losses
    
    $
    (11
    )
    
    $
    (38
    )
    
    $
    (27
    )
 17




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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 18




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ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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. 19




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##### Table of Contents



ITEM 1.
    Consolidated and Combined Interim Financial StatementsNotes 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. 20




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##### Table of Contents



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. 21




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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. 22




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##### Table of Contents



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 Historical
    
    
    
    
    
    Pro FormaSuccessor
    
    PredecessorThree months
    
    One month
    
    Two months
    
    
    
    
    
    Three monthsended
    
    ended
    
    ended
    
    
    
    
    
    endedMarch 26,
    
    March 28,
    
    February 28,
    
    Pro Forma
    
    March 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003
    
    Adjustments
    
    2003Sales
    
    $
    2,923
    
    
    $
    940
    
    
    $
    1,916
    
    
    $
    (43
    ) (a)
    
    $
    2,813Cost of sales
    
    
    2,604
    
    
    
    863
    
    
    
    1,686
    
    
    
    (92
    ) (b)
    
    
    2,457Gross profit
    
    
    319
    
    
    
    77
    
    
    
    230
    
    
    
    49
    
    
    
    356Administrative and selling expenses
    
    
    124
    
    
    
    38
    
    
    
    100
    
    
    
    (2
    ) (c)
    
    
    136Research and development expenses
    
    
    37
    
    
    
    13
    
    
    
    27
    
    
    
    
    
    
    
    40Amortization of intangible assets
    
    
    9
    
    
    
    1
    
    
    
    2
    
    
    
    3
    (d)
    
    
    6Other (income) expense  net
    
    
    (4
    )
    
    
    (6
    )
    
    
    4
    
    
    
    (1
    ) (e)
    
    
    (3
    )Operating income
    
    
    153
    
    
    
    31
    
    
    
    97
    
    
    
    49
    
    
    
    177Interest expense, net
    
    
    63
    
    
    
    42
    
    
    
    47
    
    
    
    (12
    ) (f)
    
    
    77Loss on retirement of debt
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on sales of receivables
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    (17
    ) (f)
    
    
    1Earnings (losses) before income taxes
    
    
    43
    
    
    
    (29
    )
    
    
    50
    
    
    
    78
    
    
    
    99Income tax expense
    
    
    41
    
    
    
    17
    
    
    
    19
    
    
    
    15
    (g)
    
    
    51Net earnings (losses)
    
    $
    2
    
    
    $
    (46
    )
    
    $
    31
    
    
    $
    63
    
    
    $
    48
   (a)
    
    Reflects the elimination of the sales of TKS, which was not transferred
to us as part of the Acquisition. See Note 1 of the Notes to Combined and
Consolidated Interim Financial Statements.(b)
    
    Reflects the elimination of $40 million of cost of sales of TKS, $12
million in pension and OPEB adjustments as a result of purchase
accounting, the elimination of the effects of a $35 million inventory
write-up recorded as a result of the Acquisition and $5 million net
decrease in depreciation and amortization expense resulting from fair
value adjustments to fixed assets and certain intangibles.(c)
    
    Reflects the elimination of $1 million administrative and selling expense
of TKS, the addition of $1 million in the annual monitoring fee payable to
an affiliate of Blackstone and $2 million decrease in depreciation and
amortization expense resulting from fair value adjustments to fixed assets
and capitalized software.(d)
    
    Reflects the incremental increase in amortization resulting from
assignment of fair value to certain intangibles.(e)
    
    Reflects elimination of $1 million other expense related to TKS.(f)
    
    Reflects adjustments to present pro forma net financing costs based upon
our new capital structure and the initiation of our receivables facility.(g)
    
    Reflects the tax effect of the above adjustments at the applicable tax
rates. 23




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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: Historical
    
    Pro FormaThree months
    
    Three monthsended
    
    endedMarch 26,
    
    March 28,(Dollars in millions)
    
    2004
    
    2003Restructuring charges  Severance and other (cash)
    
    $
    (5
    )
    
    $
    (4
    )Northrop/TRW merger-related transaction costs
    
    
    
    
    
    
    (6
    )Unusual items pre-tax earnings (losses)
    
    $
    (5
    )
    
    $
    (10
    )
 These unusual items are classified in the statements of operations as
follows: Historical
    
    Pro FormaThree months
    
    Three monthsended
    
    endedMarch 26,
    
    March 28,(Dollars in millions)
    
    2004
    
    2003Cost of sales
    
    $
    5
    
    
    $
    4Administrative and selling expenses
    
    
    
    
    
    
    5Other expense (income)  net
    
    
    
    
    
    
    1Reduction in earnings (losses) before income taxes
    
    
    5
    
    
    
    10Income tax (benefit)
    
    
    2
    
    
    
    3Reduction in earnings (losses)
    
    $
    3
    
    
    $
    7
 Historical three months ended March 26, 2004 compared to pro forma three months
ended
March 28, 2003 Salesfor 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 profitfor 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 24




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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 expensesfor 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 expenseswere $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  netfor 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, netfor 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 debtfor 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 expensefor 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. 25




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##### Table of Contents



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: Historical
    
    Pro FormaThree months
    
    Three monthsended
    
    endedMarch 26,
    
    March 28,(Dollars in millions)
    
    2004
    
    2003Net earnings
    
    $
    2
    
    
    $
    48Depreciation and amortization
    
    
    123
    
    
    
    118Interest expense, net
    
    
    63
    
    
    
    77Loss on retirement of debt
    
    
    47
    
    
    
    Loss on sales of receivables
    
    
    
    
    
    
    1Income tax expense
    
    
    41
    
    
    
    51EBITDA
    
    $
    276
    
    
    $
    295
 Short Period Discussions on a Historical Basis As a result of the Acquisition, our historical results of operations for the
one month ended March 28, 2003 are reported on a different basis under the
purchase method of accounting and thus are not comparable to previous periods
of the Predecessor. Following is a discussion of the results of operations of
the Predecessor for the two months ended February 28, 2003 and of the Successor
for the one month ended March 28, 2003 on a historical basis. Two Months Ended February 28, 2003 For the two months ended February 28, 2003, the Predecessor generated sales of
$1,916 million, with cost of sales of $1,686 million, resulting in a gross
profit of $230 million and a gross profit margin of 12.0%. Administrative and
selling expenses were $100 million or 5.2% of sales. Research and development 26




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) expenses were $27 million or 1.4% of sales. Amortization of intangible assets
was $2 million, other expense was $4 million and operating income was $97
million or 5.1% of sales. Interest expense was $48 million, interest income was
$1 million and income tax expense was $19 million. Net earnings were $31
million or 1.6% of sales. One Month Ended March 28, 2003 For the one month ended March 28, 2003, the Successor generated sales of $940
million, with cost of sales of $863 million, resulting in a gross profit of $77
million and a gross profit margin of 8.2%. Administrative and selling expenses
were $38 million or 4.0% of sales. Research and development expenses were $13
million or 1.4% of sales. Amortization of intangible assets was $1 million,
other income was $6 million and operating income was $31 million or 3.3% of
sales. Interest expense was $43 million, interest income was $1 million, losses
on sales of receivables was $18 million, and income tax expense was $17
million. Net losses were $46 million or 4.9% of sales. Included in cost of
sales for the one month ended March 28, 2003 was a $35 million charge for the
reversal of inventory fair value write-up recorded as of the Acquisition date,
relating to inventory sold during the period. Included in interest expense was
$11 million related to bridge commitment fees and $5 million of net interest
expense on borrowed funds held in escrow prior to the closing of the
Acquisition. Included in losses on sales of receivables were $18 million of
one-time fees related to the establishment of the receivables facility. Segment Results of Operations The following table reconciles historical and pro forma segment sales and
profit before taxes to historical and pro forma consolidated sales and profit
before taxes for the three months ended March 26, 2004 and March 28, 2003,
respectively. See Note 10 to the consolidated and combined interim financial
statements for the reconciliation of historical segment sales and profit before
taxes to historical amounts. Historical
    
    Pro FormaThree months
    
    Three monthsended
    
    endedMarch 26,
    
    March 28,(Dollars in millions)
    
    2004
    
    2003Sales:Chassis Systems
    
    $
    1,662
    
    
    $
    1,604Occupant Safety Systems
    
    
    859
    
    
    
    830Automotive Components
    
    
    402
    
    
    
    379$
    2,923
    
    
    $
    2,813Profit before taxes:Chassis Systems
    
    $
    70
    
    
    $
    78Occupant Safety Systems
    
    
    84
    
    
    
    85Automotive Components
    
    
    35
    
    
    
    39Segment profit before taxes
    
    
    189
    
    
    
    202Corporate expense and other
    
    
    (32
    )
    
    
    (48
    )Financing costs
    
    
    (64
    )
    
    
    (78
    )Loss on retirement of debt
    
    
    (47
    )
    
    
    Net employee benefits income (expense)
    
    
    (3
    )
    
    
    23Profit before taxes
    
    $
    43
    
    
    $
    99
 27




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Chassis Systems Historical
    
    
    
    
    
    Pro FormaSuccessor
    
    PredecessorThreemonths
    
    One month
    
    Two months
    
    
    
    
    
    Three monthsended
    
    ended
    
    ended
    
    
    
    
    
    endedMarch 26,
    
    March 28,
    
    February 28,
    
    Pro Forma
    
    March 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003
    
    Adjustments
    
    2003Sales
    
    $
    1,662
    
    
    $
    537
    
    
    $
    1,110
    
    
    $
    (43
    )
    
    $
    1,604Profit before taxes
    
    
    70
    
    
    
    9
    
    
    
    46
    
    
    
    23
    
    
    
    78Unusual items  expense included
in profit before taxes
    
    
    (5
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )
 Historical Three Months Ended March 26, 2004 Compared to Pro Forma Three Months
Ended March 28, 2003 Salesfor the three months ended March 26, 2004 of $1,662 million increased $58
million from $1,604 million for the pro forma three months ended March 28,
2003. The increase resulted from the favorable impact of foreign currency
exchange of $139 million, partially offset by the net combined unfavorable
impact of price reductions to our customers and lower volume totaling $67
million and business divestitures of $14 million. Profit before taxesfor the three months ended March 26, 2004 of $70 million
declined $8 million from $78 million for the pro forma three months ended March
28, 2003. The decrease resulted primarily from the combined impact of
unfavorable product mix and lower volume totaling $11 million, an increase in
warranty costs, primarily in Europe, of $6 million, and an increase in net
pension and OPEB expense of $9 million, partially offset by savings from cost
reduction activities in excess of inflation and lower pricing totaling $17
million, and the favorable impact of divested businesses of $2 million.
Unusual items for the three months ended March 26, 2004 of $5 million were
restructuring expenses primarily for severance. Unusual items for the pro
forma three months ended March 28, 2003 totaled $3 million and were primarily
restructuring expenses for severance due to workforce reduction actions. Occupant Safety Systems Historical
    
    
    
    
    
    Pro FormaSuccessor
    
    PredecessorThree
    
    One
    
    Two monthsmonths
    
    month
    
    ended
    
    
    
    
    
    Three monthsended
    
    ended
    
    February
    
    
    
    
    
    endedMarch 26,
    
    March 28,
    
    28,
    
    Pro Forma
    
    March 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003
    
    Adjustments
    
    2003Sales
    
    $
    859
    
    
    $
    275
    
    
    $
    555
    
    
    $
    
    
    
    $
    830Profit before taxes
    
    
    84
    
    
    
    25
    
    
    
    53
    
    
    
    7
    
    
    
    85Unusual items  expense included
in profit before taxes
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
 28




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Historical Three Months Ended March 26, 2004 Compared to Pro Forma Three Months
Ended March 28, 2003 Salesfor the three months ended March 26, 2004 of $859 million increased $29
million from $830 million for the pro forma three months ended March 28, 2003.
The increase resulted from the favorable impact of foreign currency exchange of
$67 million that was partially offset by the unfavorable impact of price
reductions to our customers in excess of higher volume totaling $11 million and
the effect of a business divestiture completed in 2003 of $27 million. Profit before taxesfor the three months ended March 26, 2004 of $84 million
decreased $1 million from $85 million for the pro forma three months ended
March 28, 2003. The decrease reflected the unfavorable impact of inflation and
pricing provided to our customers in excess of savings from cost reductions of
$4 million, and an increase in net pension and OPEB expense of $2 million,
partly offset by the favorable effect of foreign currency exchange of $3
million, and the favorable impact of higher volume, net of unfavorable product
mix, of $2 million. Unusual items for the pro forma three months ended March
28, 2003 totaled $1 million for restructuring and asset impairment charges. Automotive Components Historical
    
    
    
    
    
    Pro FormaSuccessor
    
    PredecessorThree
    
    One
    
    Two monthsmonths
    
    month
    
    ended
    
    
    
    
    
    Three monthsended
    
    ended
    
    February
    
    
    
    
    
    endedMarch 26,
    
    March 28,
    
    28,
    
    Pro Forma
    
    March 28,(Dollars in millions)
    
    2004
    
    2003
    
    2003
    
    Adjustments
    
    2003Sales
    
    $
    402
    
    
    $
    128
    
    
    $
    251
    
    
    $
    
    
    
    $
    379Profit before taxes
    
    
    35
    
    
    
    9
    
    
    
    26
    
    
    
    4
    
    
    
    39Unusual items  expense included
in profit before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Historical Three Months Ended March 26, 2004 Compared to Pro Forma Three Months
Ended March 28, 2003 Salesfor the three months ended March 26, 2004 of $402 million increased $23
million from $379 million for the pro forma three months ended March 28, 2003.
The increase resulted primarily from the favorable impact of foreign currency
exchange of $35 million, which was partially offset by lower volume and price
reductions to our customers of $12 million. Profit before taxesfor the three months ended March 26, 2004 of $35 million
decreased $4 million from $39 million for the pro forma three months ended
March 28, 2003. The decrease resulted from an increase in net pension and OPEB
expense of $3 million, the unfavorable impact of price givebacks and inflation
in excess of savings from cost reduction activities of $3 million, and the
unfavorable effect of adverse product mix and lower volume totaling $3 million,
partially offset by the favorable impact of foreign currency exchange of $4
million. Liquidity and Capital Resources Debt and Commitments Our primary source of liquidity is cash flow generated from operations. We also
have availability under our revolving credit facility and receivables facility,
subject to certain conditions, described below. See 29




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued)  Off-balance Sheet Arrangements. Our primary liquidity requirements are
expected to be for debt service, working capital, capital expenditures and
research and development. We are significantly leveraged. In connection with the Acquisition, TRW
Automotive Intermediate Holdings Corp., our direct subsidiary (Intermediate),
issued the Northrop subordinated note (the Seller Note) to an affiliate of
Northrop. TRW Automotive issued the senior notes and the senior subordinated
notes, entered into senior credit facilities, consisting of a revolving credit
facility and term loan facilities, and initiated a trade accounts receivable
securitization program, or the receivables facility. As of March 26, 2004, we
had outstanding $3,314 million in aggregate indebtedness, with an additional
$444 million of borrowing capacity available under our revolving credit
facility, after giving effect to $56 million in outstanding letters of credit,
which reduced the amount available. As of March 26, 2004, approximately $317
million of our total reported accounts receivable balance was considered
eligible for borrowings under our receivables facility, of which approximately
$216 million would have been available for funding, and we had no advance
outstanding under our receivables facility. See  Off-balance Sheet
Arrangements. Our liquidity requirements will be significant, primarily due to
debt service requirements and costs incurred in connection with our receivables
facility. Seller Note.The Seller Note will mature on the fifteenth anniversary of the
issue date, or the twelfth anniversary if, on or at any date after the fifth
anniversary of the closing date of the Acquisition, the debt rating on our
lowest rated securities is investment grade. The Seller Note bears interest at
8% per year initially, payable in kind at the option of Intermediate until
maturity, with an increase to 10% per year from the first date on or after the
fifth anniversary of the closing date of the Acquisition that the debt rating
on our lowest rated securities is investment grade. We have valued the note
based on the 15-year life and 8% pay-in-kind interest and determined that the
fair value of this note at March 1, 2003 was $348 million using a 12% discount
rate. Notwithstanding Intermediates option to make cash interest payments, our
indentures governing the notes prohibit the payment of dividends by TRW
Automotive to Intermediate for the purpose of making any payments in respect
of, or otherwise servicing the obligations represented by, the Seller Note. If
Intermediate declares and pays a dividend (other than a stock dividend and
subject to certain other exceptions) to its stockholders, then commencing on
the payment date for such dividend, interest on the Seller Note will thereafter
be payable in cash, in quarterly installments. Senior Secured Credit Facilities.The senior secured credit facilities
consist of a secured revolving credit facility and various senior secured term
loan facilities. The revolving credit facility, through a syndication of
lenders, provides for borrowings of up to $500 million including the
availability of letters of credit, and is available in U.S. dollars, euros,
pounds sterling and other currencies. The revolving credit facility matures on
February 28, 2009. The term loan facilities consist of a $350 million term loan
A-1 facility that matures on February 28, 2009 and term loan D facilities that
mature on February 28, 2011 consisting of an $800 million dollar-denominated
term loan D-1 and 93 million euro-denominated term loan D-2. 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 balance after this
payment is 50 million. The senior credit facilities are unconditionally guaranteed on a senior secured
basis, in each case, by us, substantially all our existing and future wholly
owned domestic subsidiaries, including Intermediate, and by TRW Automotive
Finance (Luxembourg), S.à.r.l. (TRW Automotive Luxembourg). In addition, all
obligations under the senior credit facilities, and the guarantees of those
obligations, are secured by substantially all of our assets and all the assets
of TRW Automotive and each U.S. guarantor, subject to certain exceptions. The
obligations of the foreign subsidiary borrowers under the senior credit
facilities, and foreign guarantees of such obligations are, subject to certain
exceptions and only to the extent permitted by applicable legal and contractual
provisions and to the extent that it does not result in adverse tax
consequences, secured by substantially all of the assets of the foreign
subsidiary borrowers and foreign subsidiary guarantors. 30




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Borrowings under the senior credit facilities bear interest at a rate equal to
an applicable margin plus, at our option, either (a) a base rate determined by
reference to the higher of (1) JPMorgan Chase Banks prime rate and (2) the
federal funds rate plus 1/2 of 1% or (b) a LIBOR or a eurocurrency rate
determined by reference to the costs of funds for deposits in the currency of
such borrowing for the interest period relevant to such borrowing adjusted for
certain additional costs. At March 26, 2004, the applicable margin under the
term loan A-1 facility was 0.75% with respect to base rate borrowings and 1.75%
with respect to eurocurrency borrowings and the applicable margins for
borrowings under the term loan D facilities was 1.25% with respect to base rate
borrowings and 2.25% with respect to eurocurrency borrowings. The applicable
margin for the borrowings under the term loan A-1 facility may be reduced or
increased based on our attaining certain leverage ratios. The applicable margin
for the borrowings under the term loan D-1 facilities may be reduced or
increased based on our attaining certain leverage ratios or certain ratings for
our senior secured debt. The applicable margin for the borrowings under the
term loan D-2 facilities may be increased but will not be decreased. In addition to paying interest on outstanding principal under the senior credit
facilities, we are required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unutilized commitments thereunder
currently at a rate equal to 0.75% per annum (which may be reduced or increased
under certain circumstances). We also pay customary letter of credit fees. The term loans amortize each year in the following approximate aggregate
principal amounts (in millions) as set forth below: Term
    
    TermTerm
    
    Loan D-1
    
    Loan D-2Loan A-1
    
    Dollar Denominated
    
    Euro DenominatedYears Ending December 31,
    
    Facility
    
    Facility
    
    Facility2004
    
    $
    
    
    
    $
    6
    
    
    
    2005
    
    
    
    
    
    
    8
    
    
    
    12006
    
    
    
    
    
    
    8
    
    
    
    2007
    
    
    141
    
    
    
    8
    
    
    
    12008
    
    
    166
    
    
    
    8
    
    
    
    2009
    
    
    43
    
    
    
    8
    
    
    
    1Thereafter
    
    
    
    
    
    
    754
    
    
    
    47Total
    
    $
    350
    
    
    $
    800
    
    
    
    50
 Notes.As a result of our use of proceeds from our initial public offering to
repay a portion of our notes in the first quarter 2004, our senior notes
currently consist of $825 million principal amount of 9 3/8% Senior Notes due
2013 and 178 million principal amount of 10 1/8% Senior Notes due 2013. Our
senior subordinated notes currently consist of $195 million principal amount of
11% Senior Subordinated Notes due 2013 and 81 million principal amount of 11
3/4% Senior Subordinated Notes due 2013. Interest is payable semi-annually on
February 15 and August 15. Our senior notes are unconditionally guaranteed on a
senior unsecured basis and our senior subordinated notes are unconditionally
guaranteed on a senior subordinated unsecured basis, in each case, by
substantially all existing and future wholly owned domestic subsidiaries of TRW
Automotive and by TRW Automotive Luxembourg, our restricted Luxembourg
subsidiary. Debt Restrictions.The senior credit facilities, senior notes and senior
subordinated notes contain a number of covenants that, among other things,
restrict, subject to certain exceptions, the ability of our subsidiaries to
sell assets, incur additional indebtedness or issue preferred stock, repay
other indebtedness (including, in the case of the senior credit facilities, the
senior notes and senior subordinated notes, as well as the Seller Note), pay
dividends and distributions or repurchase capital stock, create liens on
assets, 31




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) make investments, loans or advances, make certain acquisitions, engage in
mergers or consolidations, enter into sale and leaseback transactions, engage
in certain transactions with affiliates, amend certain material agreements
governing our indebtedness (including, in the case of the senior credit
facilities, the senior notes, senior subordinated notes and the receivables
facility, as well as the Seller Note), and change the business conducted by us
and our subsidiaries. In addition, the senior credit facilities contain the
following financial covenants: a maximum total leverage ratio, a minimum
interest coverage ratio, and a maximum capital expenditures limitation and
require certain prepayments from excess cash flows, as defined, and in
connection with certain asset sales and the incurrence of debt not permitted
under the senior credit facilities. The senior credit facilities and the indentures governing the notes generally
restrict the payment of dividends or other distributions by TRW Automotive,
subject to specified exceptions. The exceptions include, among others, the
making of payments or distributions in respect of expenses required for us and
Intermediate to maintain our corporate existence, general corporate overhead
expenses, tax liabilities and legal and accounting fees. Since we are a holding
company without any independent operations, we do not have significant cash
obligations, and are able to meet our limited cash obligations under the
exceptions to our debt covenants. Interest Rate Swap Agreements.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
swaps. Other Commitments.We are subject to increased OPEB cash costs due to, among
other factors, rising health care costs. Any indemnification from Northrop for
certain cash OPEB payments under the master purchase agreement will go to
certain of our shareholders as of the closing date of the Acquisition instead
of to us as a result of the occurrence of our initial public offering. See
Note 16 to our consolidated and combined interim financial statements. In
addition, we expect to have substantially increased pension funding obligations
in the future. Pricing pressure from customers has been a characteristic of the automotive
parts industry in recent years. Virtually all VMs have policies of seeking
price reductions each year. We have taken steps to reduce costs and resist
price reductions; however, price reductions have impacted our sales and profit
margins. If we are not able to offset continued price reductions through
improved operating efficiencies and reduced expenditures, those price
reductions may have a material adverse effect on our results of operations. In addition to pricing concerns, we continue to be approached by our customers
for changes in terms and conditions in our contracts concerning warranty and
recall participation and payment terms on product shipped. We believe that the
likely resolution of these proposed modifications will not have a material
adverse effect on our financial condition, results of operations or cash flow. As previously disclosed, under the master purchase agreement relating to the
Acquisition, we are required to indemnify Northrop for certain tax losses or
liabilities. This indemnification obligation is capped at $67 million (with no
more than $49 million payable this year). Although we have made no payments to
date, we expect to make payments on this indemnification in the remainder of
2004. Funding our Requirements.We believe that funds generated from operations and
planned borrowing capacity will be adequate to fund debt service requirements,
capital expenditures, working capital requirements and company-sponsored
research and development programs. Our ability to continue to fund these items
and continue to reduce debt may be affected by general economic, financial,
competitive, 32




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) legislative and regulatory factors, and the cost of warranty and recall and
litigation claims, among other things. We believe that our current financial position and financing plans will provide
flexibility in worldwide financing activities and permit us to respond to
changing conditions in credit markets. We cannot assure you, however, that our
business will generate sufficient cash flow from operations or that future
borrowings will be available to us under our revolving credit facility or
receivables facility in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. Cash Flows Cash used in operating activities for the three months ended March 26, 2004 was
$209 million as compared to cash provided by operating activities of $14
million for the two months ended February 28, 2003, and the one month ended
March 28, 2003 combined. The $223 million decrease was due primarily to
proceeds from the securitization of accounts receivable in 2003, which did not
occur in the current period, as well as obligations, ordinarily settled in the
first quarter of each year, being paid in December 2002 prior to the Merger. Cash provided by investing activities in the first three months of 2004
increased by approximately $3.4 billion over the comparable period in 2003.
Cash used to fund the Acquisition, including related fees, in 2003 accounts for
the majority of the improvement. Proceeds from asset sales and divestitures
totaled approximately $107 million (including unremitted VAT of approximately
$14 million) for the three months ended March 26, 2004 compared to zero in the
prior year. Cash used in financing activities was approximately $201 million in the first
quarter of 2004 compared to cash provided by financing activities of
approximately $3.9 billion in the comparable period of 2003. During the three
months ended March 26, 2004, we sold shares in an initial public offering for
approximately $636 million, net of fees, repurchased shares from Blackstone for
approximately $319 million and paid down a portion of principal on our senior
notes and senior subordinated notes of approximately $287 million. In
addition, we used approximately $200 million in cash on hand to pay down a
portion of principal on our senior secured credit facilities, including issue
costs. In the same period last year, we received approximately $500 million in
net transfers from our former parent company associated with participation in
their cash management system. In addition, in the first quarter 2003, we
repaid approximately $300 million in short term debt, issued shares for
approximately $698 million and borrowed approximately $3 billion, net of issue
costs, all in connection with the Acquisition. Capital Expenditures Through March 2004, we have spent approximately $67 million in capital
expenditures, primarily in connection with the continuation of new product
launches started in 2003, upgrading existing products, additional new product
launches in 2004 and providing for incremental capacity, infrastructure and
equipment at our facilities to support our manufacturing and cost reduction
efforts. We expect to spend approximately $360 million in such capital
expenditures during the remainder of 2004. Contractual Obligations and Commitments Since December 31, 2003, we reduced principal outstanding on our senior secured
credit facilities by $213 million in January 2004 and $51 million in April 2004
with available cash on hand and principal outstanding on our senior notes and
senior subordinated notes by $287 million in February 2004 with the proceeds of
our initial public offering. The impact of these transactions on our long-term
debt obligations due less than one year is a decrease of $4 million, due one to
three years is a decrease of $7 million, due three to five years an increase of
$114 million and due thereafter a decrease of $652 million. 33




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Off-Balance Sheet Arrangements We do not have guarantees related to unconsolidated entities, which have, or
are reasonably likely to have, a material current or future effect on our
financial position, results of operations or cash flows. In connection with the Acquisition, TRW Automotive entered into a receivables
facility, which, as amended, provides up to $400 million in funding from
commercial paper conduits sponsored by several commercial lenders, based on
availability of eligible receivables and other customary factors. Certain of our subsidiaries (the sellers) sell trade accounts receivables
(the receivables) originated by them in the United States through the
receivables facility. Receivables are sold to TRW Automotive Receivables LLC
(the transferor) at a discount. The transferor is a bankruptcy-remote special
purpose limited liability company that is our wholly owned consolidated
subsidiary. The transferors purchase of receivables is financed through a
transfer agreement with TRW Automotive Global Receivables LLC (the borrower).
Under the terms of the transfer agreement, the borrower purchases all
receivables sold to the transferor. The borrower is a bankruptcy-remote
qualifying special purpose limited liability company that is wholly owned by
the transferor and is not consolidated when certain requirements are met as
further described below. Generally, multi-seller commercial paper conduits supported by committed
liquidity facilities are available to provide cash funding for the borrowers
purchase of receivables through secured loans/tranches to the extent desired
and permitted under the receivables loan agreement. A note is issued by the
borrower to the transferor for the difference between the purchase price for
the receivables purchased and cash available to be borrowed through the
facility. The sellers of the receivables act as servicing agents per the
servicing agreement and continue to service the transferred receivables for
which they receive a monthly servicing fee at a rate of 1% per annum of the
average daily outstanding balance of receivables. The usage fee under the
facility is 1.50% of outstanding borrowings. In addition, we are required to
pay a fee of 0.50% on the unused portion of the receivables facility. These
rates are per annum and payments of these fees are made to the lenders on the
monthly settlement date. Availability of funding under the receivables facility depends primarily upon
the outstanding trade accounts receivable balance for the week as of Friday of
the previous week. This balance is reported no later than the third business
day of the subsequent week to the lenders. Availability is determined by
reducing the receivables balance by outstanding borrowings under the program,
the historical rate of collection on those receivables and other
characteristics of those receivables that affect their eligibility (such as
bankruptcy or downgrading below investment grade of the obligor, delinquency
and excessive concentration). Based on the terms of this facility and on the
criteria described above, as of March 26, 2004, approximately $317 million of
our accounts receivable balance was considered eligible for borrowings under
the program, of which approximately $216 million would have been available for
funding. We had no outstanding borrowings under this facility as of March 26,
2004. This facility can be treated as a general financing agreement or as an
off-balance sheet financing arrangement. Whether the funding and related
receivables are shown as liabilities and assets, respectively, on our
consolidated balance sheet, or, conversely, are removed from the consolidated
balance sheet depends on the level of the multi-seller conduits loans to the
borrower. When such level is at least 10% of the fair value of all of the
borrowers assets (consisting principally of receivables sold by the sellers),
the securitization transactions are accounted for as a sale of the receivables
under the provisions of SFAS 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and are removed from the
consolidated balance sheet. The proceeds received are included in cash flows
from operating activities in the statements of cash flows. Costs associated
with the receivables facility are recorded as losses on sale of receivables in
our consolidated statement of operations. The book value of 34




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) our retained interest in the receivables approximates fair market value due to
the current nature of the receivables. However, at such time as the fair value of the multi-seller commercial paper
conduits loans are less than 10% of the fair value of all of the borrowers
assets, we are required to consolidate the borrower, resulting in the funding
and related receivables being shown as liabilities and assets, respectively, on
our consolidated balance sheet and the costs associated with the receivables
facility being recorded as interest expense. As there were no borrowings
outstanding under the receivables facility on March 26, 2004, the fair value of
the multi-seller conduits loans was less than 10% of the fair value of all of
the borrowers assets and, therefore, the financial position and results of
operations of the borrower were included in our consolidated financial
statements as of March 26, 2004. In addition to the receivables facility described above, which was entered into
in connection with the Acquisition, in December 2003 and January 2004, certain
of our European subsidiaries entered into receivables financing arrangements in
France and Germany for terms of two years and twelve months, respectively.
Total availability under these receivables financing arrangements is an
aggregate of approximately 145 million. We expect to enter into an additional
receivables financing arrangement in the United Kingdom in the second quarter
of 2004 with a term of two years and an availability of approximately £40
million. The receivables financing arrangement in France does not involve a
special purpose vehicle, but rather is a factoring arrangement in which
customers send bills of exchange directly to the bank. The receivables
financing arrangements in Germany and the United Kingdom involve a German or a
U.K. special purpose vehicle, as the case may be, that is our subsidiary
purchasing trade receivables from subsidiaries in their country of origin and
selling the trade receivables it purchases to a bank in their country of
origin. These financing arrangements provide or will provide, as the case may
be, efficient short-term financing to meet our liquidity needs. Environmental Matters 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 our 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, we had reserves for environmental matters of $89
million. We do not believe that compliance with environmental protection laws and
regulations will have a material effect upon our capital expenditures, results
of operations or competitive position. Our capital expenditures for
environmental control facilities during 2004 and 2005 are not expected to be
material to us. We believe that any liability that may result from the
resolution of environmental matters for which sufficient information is
available to support cost estimates will not have a material adverse effect on
our financial position or results of operations. However, we cannot predict the
effect on our financial position of expenditures for aspects of certain matters
for which there is insufficient information. In addition, we cannot predict the
effect of compliance with environmental laws and regulations with respect to
unknown environmental matters on our financial position or results of
operations or the possible effect of compliance with environmental requirements
imposed in the future. In connection with the Acquisition, Northrop Grumman has
agreed to indemnify us for 50% of any environmental liabilities associated with
the operation or ownership of TRWs automotive business existing at or prior to
the Acquisition, subject to certain exceptions. 35




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Contingencies Various claims, lawsuits and administrative proceedings are pending or
threatened against our subsidiaries, covering a wide range of matters that
arise in the ordinary course of our business activities with respect to
commercial, product liability and environmental matters. 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 us 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 our wholly owned subsidiary in
connection with the Acquisition. We have cooperated with the investigation and
are 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 voluntary 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. We believe that we have meritorious
defenses and intend to defend vigorously the claims asserted against us, but
cannot predict the outcome of this lawsuit. While certain of our subsidiaries have been subject in recent years to
asbestos-related claims, we believe that such claims will not have a material
adverse effect on our 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 our subsidiaries. We believe
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. We believe that, to the extent any of the products sold by
our subsidiaries and at issue in these cases contained asbestos, the asbestos
was encapsulated. Based upon several years of experience with such claims, we
believe that only a small proportion of the claimants has or will ever develop
any asbestos-related impairment. Neither our settlement costs in connection with asbestos claims nor our average
annual legal fees to defend these claims have been material in the past. These
claims are strongly disputed by us and it has been our policy to defend against
them aggressively. We have been successful in obtaining the dismissal of many
cases without any payment whatsoever. Moreover, there is significant insurance
coverage with solvent carriers with respect to these claims. However, while our costs to defend and settle these claims in the past have not
been material, we cannot assure you that this will remain so in the future. We believe that the ultimate resolution of the foregoing matters will not have
a material effect on our financial condition or results of operations. 36




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued) Recent Accounting Pronouncements See Note 2 for a discussion of recent accounting pronouncements. Outlook We expect full-year 2004 revenue in the range of $11.4 to $11.6 billion and
earnings per share in the range of $1.08 to $1.23, including first-quarter
charges of approximately $47 million, or $0.47 per share on a fully diluted
basis for expenses related to debt repayment transactions in conjunction with
the initial public offering and a January 2004 bank debt refinancing. Further,
our guidance includes pre-tax expenses of approximately $33 million for
amortization of intangibles (principally customer relationships) and $30
million related to restructuring initiatives. We expect an effective annual tax rate of approximately 55% for 2004, including
the negative impact of the previously mentioned debt repayment charges of $47
million, which are U.S. based and therefore carry zero tax benefit due to our
U.S. tax loss position and related valuation allowances. This effective tax
rate guidance is dependent on several assumptions, including the level of
future income by taxing jurisdiction and static global corporate tax rates and
laws. Annually, we purchase large quantities of ferrous metals for use in our
manufacturing process either indirectly as part of purchased components, or
directly as raw materials and therefore we are exposed to the recent
inflationary pressures impacting the ferrous metal markets. We are monitoring
the situation closely and where applicable, working with suppliers and
customers to mitigate the potential effect on our financial results. However,
our efforts to mitigate the effects may be insufficient and the pressures may
worsen, thus potentially having a negative impact on our financial results. For the second quarter, 2004, we expect revenue of approximately $3 billion and
earnings per share in the range of $0.57 to $0.65, which includes pre-tax
restructuring charges of approximately $8 million. Forward-Looking Statements This report includes forward-looking statements. Forward-looking statements
include statements concerning our plans, objectives, goals, strategies, future
events, future revenue or performance, capital expenditures, financing needs,
plans or intentions relating to acquisitions, business trends and other
information that is not historical information. When used in this report, the
words estimates, expects, anticipates, projects, plans, intends,
believes, forecasts, or future or conditional verbs, such as will,
should, could or may, and variations of such words or similar expressions
are intended to identify forward-looking statements. All forward-looking
statements, including, without limitation, managements examination of
historical operating trends and data, are based upon our current expectations
and various assumptions. Our expectations, beliefs and projections are
expressed in good faith and we believe there is a reasonable basis for them.
However, there can be no assurance that managements expectations, beliefs and
projections will be achieved. There are a number of risks, uncertainties and other important factors that
could cause our actual results to differ materially from the forward-looking
statements contained in this report. Such risks, uncertainties and other
important factors which could cause our actual results to differ materially
from those suggested by our forward-looking statements are set forth in our
final prospectus dated as of February 2, 2004 (the Prospectus) filed with the
Securities and Exchange Commission (the SEC) pursuant to Rule 424(b)(4) and
our Report on Form 10-K for the fiscal year ended December 31, 2003 (the
10-K) and include: 37




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(continued)  
    
    our substantial leverage;
    
    limitations on flexibility in operating our business imposed by our debt agreements;
    
    increases in interest rates;
    
    our dependence on our largest customers;
    
    the possibility that our owners interests will conflict with ours;
    
    the highly competitive automotive parts industry;
    
    the cyclicality of automotive production and sales;
    
    pricing pressures from our customers;
    
    risks associated with our non-U.S. operations;
    
    risks related to our ability to operate on a stand-alone basis,
separate from our former parent, TRW;
    
    fluctuations in currency exchange rates;
    
    product liability and customer warranty and recall claims;
    
    changes to environmental and automotive safety regulations;
    
    increasing costs for purchased components and raw materials;
    
    non-performance by, or insolvency of, our suppliers;
    
    work stoppages;
    
    changes in our relationships with our employees and the unions that represent them;
    
    our ability to attract and retain skilled employees, particularly
engineers and other employees with electronics and software expertise;
    
    economic, regulatory and political conditions domestically and
internationally; and
    
    other risks and uncertainties set forth under Risk Factors in the
Prospectus, in the 10-K and in our other SEC filings. All forward-looking statements attributable to us or persons acting on our
behalf apply only as of the date of this report and are expressly qualified in
their entirety by the cautionary statements included in this report, in the
10-K, in the Prospectus and in our other SEC filings. We undertake no
obligation to update or revise forward-looking statements, which may be made to
reflect events, or circumstances that arise after the date made or to reflect
the occurrence of unanticipated events. 38




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are subject to inherent risks attributed to operating in a global economy.
Our practice is to utilize derivative financial instruments to manage foreign
currency exchange rate risks. Historically, the Predecessor managed cash flow
transactional foreign currency exchange risk pursuant to TRWs written
corporate policy. Forward contracts and, to a lesser extent, options are
utilized to protect our cash flow from adverse movements in exchange rates.
Forward contracts and options are only used to hedge transaction exposures and
are accounted for according to SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. Risk associated with translation exposures
are not hedged. Transactional currency exposures are reviewed monthly and any
natural offsets are considered prior to entering into a derivative financial
instrument. Following the Acquisition, we are operating in accordance with
written polices regarding the use of derivative financial instruments that are
similar to those historically maintained by TRW, but we are continuing to
evaluate these policies. We are exposed to credit loss in the event of nonperformance by the other party
to the derivative financial instruments. We limit this exposure by entering
into agreements directly with a number of major financial institutions that
meet our credit standards and that are expected to satisfy fully their
obligations under the contracts. We view derivative financial instruments as a
risk management tool and do not use them for speculative or trading purposes. Based on our exposure to foreign currency exchange rate risk relating to
derivative foreign currency instruments outstanding at March 26, 2004, a 10%
uniform strengthening in the value of the U.S. dollar relative to the
currencies in which those derivative foreign currency instruments are
denominated would result in an increase in fair value of approximately $35
million. As a result of the refinancing on January 9, 2004, we are no longer required
under the senior secured credit facilities to maintain interest protection and
hedging arrangements to ensure that at least 50% of our consolidated
indebtedness would effectively bear interest at a fixed rate for a period of
three years. At March 26, 2004, approximately 55% of our total debt was at
variable interest rates compared to 40% at December 31, 2003. Based on our
interest rate exposure on variable rate borrowings outstanding at March 26,
2004, a one-percentage-point increase in the average interest rate would
increase future interest expense by approximately $18 million per year. At March 26, 2004 approximately 20% of our total debt was in foreign currencies
compared to 21% at December 31, 2003. Based on our foreign currency exposure on
foreign currency denominated borrowings outstanding at December 31, 2003, a 10%
increase in foreign currency rates would increase future interest expense by
approximately $6.5 million per year. Our sensitivity analyses of the effects of changes in foreign currency exchange
rates do not reflect the effect of such changes on the related hedged
transactions or on other operating transactions. The analyses also do not
factor in a potential change in the level of variable rate borrowings or
derivative instruments outstanding that could take place if these hypothetical
conditions prevailed. 39




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ITEM 4. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer, based on their
evaluation of the effectiveness of the Companys disclosure controls and
procedures as of March 26, 2004, have concluded that the Companys disclosure
controls and procedures are adequate and effective in alerting them on a timely
basis to material information relating to the Company required to be included
in the Companys reports filed under the Securities Exchange Act of 1934. There were no significant changes in the Companys internal controls or in
other factors that could significantly affect the Companys internal controls
over financial reporting subsequent to the date of their evaluation. 40




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PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS Except as set forth in this Quarterly Report under Managements Discussion and
Analysis of Financial Condition and Results of Operations  Contingencies,
there have been no material developments in legal proceedings involving the
Company or its subsidiaries since those reported in the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2003. 
  ITEM 2.
    CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Issuer Purchases of Equity Securities Total
    
    Maximum Number(Or ApproximateNumber of Shares
    
    Dollar Value)Average
    
    Purchased as Part
    
    of SharesTotal
    
    Price
    
    of Publicly
    
    That May Yet Benumber of shares
    
    Paid per
    
    Announced Plans
    
    Purchased Under thePeriod
    
    purchased
    
    Share
    
    or Programs
    
    Plans or ProgramsMonth #1 (January 1, 2004
to January 30, 2004)
    
    
    70
    (1)
    
    $
    1,300
    
    
    
    
    
    
    
    Month #2 (January 31, 2004
to February 27, 2004)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #3 (February 28, 2004
to March 26, 2004)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    70
    
    
    $
    91,000
    
    
    
    
    
    
    
    
  (1)
    
    Such shares of common stock were repurchased prior to the initial public offering of our shares from one former employee
following his termination of employment. 41




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  (a)
    
    The Company held its 2004 Annual Meeting of Stockholders on January 26,
2004. At the meeting, the following matters were submitted to a vote of
the stockholders of the Company (all share amounts set forth below are on
pre-stock split basis):  (1)
    
    Approval of an amendment and restatement of TRW Automotive
Holdings Corp. 2003 Stock Incentive Plan: FOR
    
    AGAINST
    
    ABSTAIN698,453
    
    
    0
    
    
    
    0
  (2)
    
    Approval of an amendment and restatement of the Companys
Amended and Restated Certificate of Incorporation: FOR
    
    AGAINST
    
    ABSTAIN698,453
    
    
    0
    
    
    
    0
  (3)
    
    The election of eight directors to be divided into three
classes of staggered terms as follows:Class I directors for a term expiring at the 2005 annual meeting of
stockholders:Joshua H. Astrof
Mark Johnson
Paul H. ONeillClass II directors for a term expiring at the 2006 annual meeting
of stockholders:Robert Friedman
J. Michael Losh
Michael J. ONeillClass III directors for a term expiring at the 2007 annual meeting
of stockholders:John C. Plant
Neil Simpkins FOR
    
    AGAINST
    
    ABSTAIN698,453
    
    
    0
    
    
    
    0
 
 ITEM 5. OTHER INFORMATION On February 23, 2004, Mark Johnson resigned from the Companys Board of
Directors. On April 19, 2004, Francois J. Castaing was elected to the
Companys Board of Directors to serve as a Class I director for a term expiring
at the 2005 annual meeting of stockholders. Mr. Castaing joins the Board as an
independent director and will serve with Mr. Losh on the Audit Committee of the
Board of Directors. 42




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) 1) Exhibits (including those incorporated by reference) ExhibitNumber
    
    Exhibit Name10.1
    
    Restricted Stock Unit Agreement with J. Michael Losh10.2
    
    Executive Supplemental Retirement Plan for John Plant10.3
    
    Amendment to Employment Agreement for David L. Bialosky10.4
    
    Amendment to Employment Agreement for Joseph S. Cantie10.5
    
    Amendment to Employment Agreement
for Peter J. Lake31 (a)
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231 (b)
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232 (a)
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232 (b)
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (b)
    
    Reports on Form 8-KDuring the quarter for which this report is filed, the following reports
on Form 8-K were filed:February 17, 2004, Form 8-K reporting under ITEM 12. Results of
Operations and Financial
Condition the filing of financial information for the fourth quarter
and year ended December 31, 2003. 43




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. TRW Automotive Holdings Corp.(Registrant)By:
    
    /s/ Joseph S. CantieJoseph S. CantieDate: May 7, 2004
    
    
    
    Executive Vice President and Chief Financial Officer(On behalf of the Registrant and as Principal Financial Officer)
 44




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Exhibit Index ExhibitNumber
    
    Exhibit Name10.1
    
    Restricted Stock Unit Agreement with J. Michael Losh10.2
    
    Executive Supplemental Retirement Plan for John Plant10.3
    
    Amendment to Employment Agreement for David L. Bialosky10.4
    
    Amendment to Employment Agreement for Joseph S. Cantie10.5
    
    Amendment to Employment Agreement for Peter J. Lake31 (a)
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231 (b)
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232 (a)
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232 (b)
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002