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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File No. 333-89778

12025 Tech Center Drive

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

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

     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 þ          No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

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

     None of the Company’s voting stock is held by non-affiliates. As of March 8, 2004, there were 100 shares of $0.01 par value common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The registrant meets the condition set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

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TRW AUTOMOTIVE INC.

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	*	Item is omitted pursuant to the reduced disclosure format, as set forth on the cover page of this filing since all of the equity securities of the registrant are owned indirectly by TRW Automotive Holdings Corp.

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PART I

Item 1.     Business

      The Company. TRW Automotive Inc., a wholly owned indirect subsidiary of TRW Automotive Holdings Corp., is among the world’s largest and most diversified suppliers of automotive systems, modules and components to global vehicle manufacturers, or VMs, and related aftermarkets. We conduct substantially all of our operations through our subsidiaries. We believe we have leading market positions (which we consider to be a number 1, 2 or 3 position) in our primary business lines which 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. We are primarily a “Tier-1” supplier, with over 85% of our sales in 2003 made directly to VMs and approximately 7% sold in the worldwide aftermarket for VM service and replacement parts and the balance sold primarily to other parts suppliers for use in their systems. Our products are primarily used in the manufacture of light vehicles, consisting of passenger cars and light trucks (which includes vans and sport-utility vehicles (SUVs)). Our history in the automotive supply business dates back to the early 1900s when our predecessor companies began manufacturing valves, wheels, and electrical components and selling them to the burgeoning automobile industry.

      History and Ownership. On November 18, 2002, an entity controlled by affiliates of The Blackstone Group L.P. (“Blackstone”), entered into an agreement pursuant to which it agreed to cause us to purchase the shares of the subsidiaries of TRW Inc. engaged in the automotive business from Northrop Grumman Corporation (“Northrop Grumman”). This acquisition, which we refer to as the “Acquisition” in this Annual Report on Form 10-K (this “report”), was consummated on February 28, 2003. Northrop Grumman acquired TRW Inc.’s automotive business in its December 11, 2002 acquisition of TRW Inc. (now known as Northrop Grumman Space & Mission Systems Corp.) (“TRW”), which we refer to as the “Merger” in this report.

      All references in this report to “TRW Automotive,” the “Company,” “we,” “our” and “us” mean, unless the context indicates otherwise, (1) our predecessor, which is the former TRW Automotive Inc. (which we did not acquire and was renamed Richmond TAI Corp.) and its subsidiaries and the other subsidiaries, divisions and affiliates of TRW that together constituted the automotive business of TRW, for the periods prior to February 28, 2003, the date the Acquisition was consummated and (2) the successor and registrant, TRW Automotive Inc. (formerly named TRW Automotive Acquisition Corp.) and its subsidiaries, that own and operate the automotive business of TRW as a result of the Acquisition. In addition, when the context so requires, we use the term “Predecessor” to refer to the historical operations of our predecessor prior to the Acquisition and “Successor” to refer to our historical operations following the Acquisition and we use the terms “we,” “our” and “us” to refer to the Predecessor and the Successor collectively. The historical financial statements for the periods prior to the Acquisition and summaries thereof appearing in this report are those of our predecessor and represent the combined financial statements of TRW’s automotive business. Prior to the Acquisition, our predecessor operated as a segment of TRW, which was acquired by Northrop Grumman on December 11, 2002. Our predecessor’s 51% interest in the joint venture, TRW Koyo Steering Systems Company (“TKS”), was not transferred to us as part of the Acquisition.

      In connection with the Acquisition, we entered into new senior secured credit facilities, entered into a new receivables facility and sold $925 million principal amount of 9 3/8% Senior Notes due 2013, $300 million principal amount of 11% Senior Subordinated Notes due 2013, €200 million principal amount of 10 1/8% Senior Notes due 2013 and €125 million principal amount of 11 3/4% Senior Subordinated Notes due 2013 (collectively, “the notes”). See Notes 15 and 20 to the Consolidated and Combined Financial Statements.

      All references in this report to “pro forma” results of operations, and other financial data mean pro forma for 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 on July 22, 2003, without giving effect to the application of $46 million of cash, that was used to permanently retire debt in conjunction with that refinancing.

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      As a result of the Acquisition, Automotive Investors L.L.C., or AIL, an affiliate of Blackstone, held approximately 78.4%, an affiliate of Northrop Grumman held approximately 19.6% and our management group held approximately 2.0% of the shares of common stock of TRW Automotive Holdings Corp. (“TRW Automotive Holdings”), our indirect parent. On February 6, 2004, TRW Automotive Holdings completed an initial public offering of 24,137,931 shares (or 24.4%) of its common stock. After TRW Automotive Holdings’ initial public offering, including the use of a portion of the net proceeds from such initial public offering to repurchase a portion of the shares held by AIL, AIL holds approximately 56.7%, an affiliate of Northrop Grumman holds approximately 17.2% and our management group holds approximately 1.7% of TRW Automotive Holdings’ common stock.

      Overview. We have become a leader in the global automotive parts industry by capitalizing on the strength of our products, technological capabilities and systems integration skills. Over the last decade, we have experienced sales growth in many of our product lines due to an increasing focus by both governments and consumers on safety and fuel efficiency. We believe that this trend is continuing as evidenced by ongoing regulatory activities, and will enable us to experience growth in the most recent generation of advanced safety and fuel efficient products, such as vehicle stability control systems (“VSC”), curtain air bags, occupant sensing systems, electrically assisted power steering systems and tire pressure monitoring systems. Throughout our long history as a leading supplier to major VMs, we have focused on products where we have a technological advantage. We have extensive technical experience in a broad range of product lines and strong systems integration skills, which enable us to provide comprehensive, systems-based solutions for our VM customers.

      We have a broad and established global presence, with a workforce of approximately 60,800 employees and a network of manufacturing facilities, technical centers, sales offices and joint ventures located in every major vehicle-producing region of the world. We have 136 wholly owned manufacturing facilities and 21 joint-venture facilities in 22 countries. We sell to all the major VMs across the world’s major vehicle producing regions. Among our largest customers are Ford Motor Company, DaimlerChrysler AG, Volkswagen AG, General Motors Corporation and Renault-Nissan BV. Our geographic breakdown of sales is among the most diverse in the industry, with approximately 50% of our pro forma sales for 2003 derived from Europe, 41% from North America and 9% from the rest of the world. No single customer accounted for more than 19% of such sales, which, we believe, is among the lowest customer concentration levels of major global Tier-1 suppliers. In addition, our four largest customers together accounted for approximately 63% of such sales for the same period. We believe our diversified business limits our exposure to the risks of any one geographic economy, product line or major customer.

      The following discussion describes each of our operating segments, as well as the major product groups within each segment.

      Chassis Systems. Our Chassis Systems segment focuses on the design, manufacture and sale of product lines relating to steering, foundation brakes, brake control, modules and suspension. Chassis Systems accounted for approximately $6.5 billion, or 57.4% of our total pro forma sales and $265 million, or 38.6%, of our pro forma segment profit before taxes for the year ended December 31, 2003 and approximately $5.8 billion, or 56.2%, of our total pro forma sales and $283 million, or 45.3% of our pro forma segment profit before taxes for the year ended December 31, 2002.

      We believe our Chassis Systems segment is well positioned to capitalize on growth trends toward increasing active safety systems, particularly in the areas of electric steering, electronic vehicle stability control and other advanced braking systems and integrated vehicle control systems.

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      The following table describes the principal product lines in order of 2003 sales in our Chassis Systems segment:

      We sell our Chassis Systems products primarily to VMs and other Tier-1 suppliers. We also sell these products to VM service organizations and in the independent aftermarket, through a license in North America, and in the rest of the world, to independent distributors.

      Occupant Safety Systems. Our Occupant Safety Systems segment focuses on the design, manufacture and sale of air bags, seat belts, safety electronics, steering wheels and security electronic systems. Occupant Safety Systems accounted for approximately $3.3 billion, or 29.2%, of our total pro forma sales and $301 million, or 43.9%, of our pro forma segment profit before taxes for year ended December 31, 2003 and approximately $3.1 billion, or 30.3% of our total pro forma sales and $212 million, or 33.9%, of our pro forma segment profit before taxes for year ended December 31, 2002.

      We believe our Occupant Safety Systems segment is well positioned to capitalize on growth trends toward increasing passive safety systems, particularly in the areas of side and curtain air bag systems, occupant sensing systems, active seat belt pretensioning and retractor systems, and tire pressure monitoring systems.

      The following table describes the principal product lines in order of 2003 sales in our Occupant Safety Systems segment:

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      We sell our Occupant Safety Systems products primarily to VMs and also to other Tier-1 suppliers. We also sell these products to VM service organizations for service parts.

      Automotive Components. Our Automotive Components segment focuses on the design, manufacture and sale of body controls, engine valves and engineered fasteners and components. Automotive Components segment accounted for approximately $1.5 billion, or 13.4%, of our total pro forma sales and $120 million, or 17.5%, of our pro forma segment profit before taxes for the year ended December 31, 2003 and approximately $1.4 billion, or 13.6% of our total pro forma sales and approximately $130 million, or 20.8%, of our pro forma segment profit before taxes for the year ended December 31, 2002.

      We believe our Automotive Components segment is well positioned to capitalize on growth trends toward multi-valve engines and increasing electronic content per vehicle. The following table describes in order of 2003 sales our principal product lines in our Automotive Components segment:

      We sell our Automotive Components products primarily to VMs and also to other Tier-1 suppliers. We also sell these products to VM service organizations. In addition, we sell some engine valve and body control products to independent distributors for the automotive aftermarket.

Joint Ventures

      Joint ventures represent an important part of our business, both operationally and strategically. We have often used joint ventures to enter into new geographic markets such as China, Korea and India, or to acquire new customers or to develop new technologies such as electro-hydraulic steering pumps and radar sensors.

      In the case of entering new geographic markets, where we have not previously established substantial local experience and infrastructure, teaming with a local partner can reduce capital investment by leveraging pre-existing infrastructure. In addition, local partners in these markets can provide knowledge and insight into local customs and practices and access to local suppliers of raw materials and components. All of these advantages can reduce the risk, and thereby enhance the prospects for the success, of an entry into a new geographic market.

      Joint ventures can also be an effective means to acquire new customers. Joint venture arrangements can allow partners access to technology they would otherwise have to develop independently, thereby reducing the time and cost of development. More importantly, they can provide the opportunity to create synergies and applications of the technology that would not otherwise be possible.

Customers

      We sell to all the major VM customers across the world’s entire major vehicle producing regions. Among our largest customers are Ford Motor Company, DaimlerChrysler AG, Volkswagen AG, General Motors Corporation and Renault-Nissan BV. We believe that, among major automotive parts suppliers, the breadth of our customer mix is among the industry leaders. Our long-standing relationships with our customers have enabled us to understand global customer needs and business opportunities. We believe that we will continue to be able to compete effectively for our customers’ business because of the high quality of our products, our ongoing cost reduction efforts, our strong global presence and our product and technology innovations. The

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(1)	Our pro forma sales for the year ended December 31, 2003 exclude sales of TKS but include sales of our former Canadian joint venture, Quality Safety Systems (“QSS”), through June 27, 2003, at which time it was sold. Both TKS and QSS sales were primarily to Toyota.

      We also sell products to the global aftermarket as replacement parts for current production and older vehicles. For the year ended December 31, 2003, our pro forma sales to the aftermarket represented approximately 7% of our total sales. We sell these products through both VM service organizations and independent distribution networks.

Sales and Marketing

      We have a sales and marketing organization of dedicated customer teams that provide a consistent interface with our key customers. These teams are located in all major vehicle producing regions to best represent their respective customers’ interests within our organization, to promote customer programs and to coordinate global customer strategies with the goal of enhancing overall customer service and satisfaction. Our ability to support our customers globally is further enhanced by our broad global presence in terms of sales offices, manufacturing facilities, engineering/ technical centers and joint ventures.

      Our sales and marketing organization and activities are designed to create overall awareness and consideration of, and to increase purchases of, our systems, modules and components. To further this objective, we participate in international trade shows in Paris, Frankfurt and Detroit. We also provide on-site technology demonstrations at our major VM customers on a regular basis.

Customer Support

      Our engineering, sales and production facilities are located in 22 countries. With approximately 500 dedicated sales/ customer development employees, we provide effective customer solutions, products and service in any region in which these facilities operate or manufacture.

Intellectual property

      We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets, and are involved in numerous licensing arrangements. Although our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve, no single patent, copyright, trade secret or license, or group of related patents, copyrights, trade secrets or licenses, is, in our opinion, of such value to us that our business would be materially affected by the expiration or termination thereof. However, we view the name TRW Automotive and primary mark “TRW” (which has been transferred to us as part of the Acquisition) as material to our business as a whole. Our general policy is to

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      Our patent portfolio of nearly 10,000 patents and pending patent applications reflects our commitment to invest in technology and covers many aspects of our products and the processes for making those products. In addition, we have developed a substantial body of manufacturing know-how that we believe provides a significant competitive advantage in the marketplace.

      We have entered into several hundred technology license agreements that either strategically exploit our intellectual property rights or provide a conduit for us into third party intellectual property rights useful in our businesses. In many of these agreements, we license technology to our suppliers, joint venture companies and other local manufacturers in support of product production for us and our customers. In other agreements, we license the technology to other companies to obtain royalty income.

      We own a number of secondary trade names and marks applicable to certain of our businesses and products that we view as important to such businesses and products as well.

      As part of the Acquisition, we have entered into intellectual property license agreements with TRW.

Seasonality

      Our business is moderately seasonal because our largest North American customers typically halt operations for approximately two weeks in July and one week in December. Additionally, customers in Europe historically shut down vehicle production during a portion of August and one week in December. In addition, third quarter automotive production traditionally is lower as new models enter production. Accordingly, our third and fourth quarter results may reflect these trends.

Research and Development

      We operate a global network of technical centers worldwide where we employ approximately 4,200 engineers, researchers, designers, technicians and their supporting functions. This global network allows us to develop automotive active and passive technologies while improving existing products and systems. We utilize sophisticated testing and computer simulation equipment, including computer-aided engineering, noise-vibration-harshness, crash sled, math modeling and vehicle simulations. We have advanced engineering and research and development programs for next-generation components and systems in our chassis, occupant safety and automotive component product areas. We are disciplined in our approach to research and development, employing various tools to improve efficiency and reduce cost, such as Six Sigma, “follow-the-sun,” a 24-hour a day engineering program that utilizes our global network, and other e-Engineering programs, and outsourcing non-core activities.

      Company-funded research and development costs totaled:

	•	$137 million for the ten months ended December 31, 2003;
	•	$27 million for the two months ended February 28, 2003;
	•	$151 million for the year ended December 31, 2002; and
	•	$131 million for the year ended December 31, 2001.

      We believe that continued research and development activities are critical to maintaining our leadership position in the industry and will provide us with a competitive advantage as we seek additional business with new and existing customers.

Manufactured Components and Raw Materials

      We purchase various manufactured components and raw materials for use in our manufacturing processes. The principal components and raw materials we purchase include castings, electronic parts, molded plastic parts, finished subcomponents, fabricated metal, aluminum, steel, resins, leather and wood. All of these components and raw materials are available from numerous sources. We have recently seen significant inflationary pressures in the ferrous metals markets. At this time, we are working with our suppliers and

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Employees

      As of December 31, 2003, we had approximately 60,800 employees (including employees of our majority owned joint ventures but excluding temporary employees and employees who are on approved forms of leave), of whom approximately 22,300 were employed in North America, approximately 32,000 were employed in Europe, approximately 3,900 were employed in South America and approximately 2,600 were employed in Asia. Approximately 16,000 of our employees are salaried and approximately 44,800 are hourly. As of December 31, 2003, approximately 21% of our United States workforce and approximately 72% of our hourly workforce outside of the United States were represented by 39 unions. We consider relations with our employees to be good.

Environmental Matters

      Governmental requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had, and will continue to have, an effect on us and our operations. We have made and continue to make expenditures for projects relating to the environment, including pollution control devices for new and existing facilities. We are conducting a number of environmental investigations and remedial actions at current and former locations to comply with applicable requirements and, along with other companies, have been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to us.

      A reserve estimate for each 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 December 31, 2003, we had reserves for environmental matters of $90 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. Under the master purchase agreement entered into in connection with the Acquisition, Northrop Grumman will indemnify us for 50% of any environmental liabilities associated with the operation or ownership of TRW’s automotive business on or prior to the Acquisition (subject to certain exceptions), regardless of whether the liabilities arise before or after the Acquisition.

Item 2.     Properties

      Our principal executive offices are located in Livonia, Michigan. Our operations include numerous manufacturing, research and development and warehousing facilities and offices. We own or lease principal facilities located in 18 states in the United States and in 21 other countries as follows: Austria, Brazil, Canada, China, the Czech Republic, France, Germany, Italy, Japan, Malaysia, Mexico, Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden, Thailand, Turkey, and the United Kingdom. Approximately 57% of our principal facilities are used by the Chassis Systems segment, 18% by the Occupant Safety Systems segment and 25% by the Automotive Components segment.

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      Of the total number of principal facilities operated by us, approximately 58% of such facilities are owned, 37% are leased, and 5% are held by joint ventures in which we have a majority interest.

Item 3.     Legal Proceedings

      Various claims, lawsuits and administrative proceedings are pending or threatened against us or 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.

Item 4.     Submission of Matters to a Vote of Security Holders

      Omitted pursuant to General Instruction I(2)(c) to Form 10-K.

PART II

      The Company is an indirect wholly owned subsidiary of TRW Automotive Holdings Corp. and, accordingly, there is no market for the Company’s common stock.

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      Since our inception, we have paid no dividends on our common stock. Our senior credit facilities and the indentures governing the notes generally restrict the payment of dividends or other distributions by us, subject to specified exceptions. The exceptions include, among others, the making of payments or distributions in respect of expenses required for TRW Automotive Holdings and TRW Automotive Intermediate Holdings Corp., our direct parent (“TRW Automotive Intermediate Holdings”) to maintain their corporate existence, general corporate overhead expenses, tax liabilities and legal and accounting fees.

      Omitted pursuant to General Instruction I(2)(a) to Form 10-K.

      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,” “Risk Factors” and the historical combined financial statements of our predecessor and our consolidated financial statements included elsewhere in this report.

Basis of Presentation

      The Predecessor did not historically operate as a stand-alone business, but as part of TRW, which became a subsidiary of Northrop Grumman on December 11, 2002. We acquired the shares of the subsidiaries of TRW engaged in the automotive business upon consummation of the Acquisition.

      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.

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

	Successor — Represents our consolidated financial position as of December 31, 2003 and our consolidated results of operations and cash flows for the ten month period ended December 31, 2003 following the Acquisition. The financial position as of December 31, 2003 and results of operations and cash flows for the ten month period ended December 31, 2003 reflect the application of purchase accounting, described below, relating to the Acquisition.
	Predecessor — Represents the combined financial position of the automotive business of TRW for all periods prior to the Acquisition on February 28, 2003. This presentation is on the historical basis of accounting without the application of purchase accounting related to the Merger in any period presented, due to the temporary nature of Northrop Grumman’s ownership of TRW’s automotive business. Prior to the Merger on December 11, 2002, Northrop Grumman entered into the master purchase agreement on November 18, 2002 with affiliates of Blackstone to sell TRW’s automotive business. The extensive representations, warranties and covenants contained in the master purchase agreement restricting Northrop Grumman’s conduct prior to the closing of the Acquisition severely limited any actions that could have been taken by Northrop Grumman during its brief and temporary ownership of TRW’s automotive business.

      The combined financial statements of the Predecessor for each of the two years in the period ended December 31, 2002 and the unaudited pro forma information included in the results of operations for the year ended December 31, 2002 are based on the historical assets, liabilities, sales and expenses of the Predecessor for the periods prior to the Acquisition, including the allocation of a portion of TRW’s general and

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      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, 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.

Executive Overview

      We are among the world’s largest and most diversified suppliers of automotive systems, modules and components to global VMs and related aftermarkets. We operate our business along three operating segments: Chassis Systems, Occupant Safety Systems and Automotive Components. Our cost of sales consists of variable and fixed components. Our variable and fixed costs approximate 80% and 20% of cost of sales, respectively. Variable costs are proportional to volume and mix and consist principally of materials and labor to manufacture our products. Our fixed costs are not significantly influenced by production volume, in the short term, and consist principally of administrative salaries, benefits and depreciation and other facility-related costs.

      Our business is moderately seasonal because our largest North American customers typically halt operations for approximately two weeks in July and one week in December. Additionally, customers in Europe historically shut down vehicle production during a portion of August and one week in December. Third quarter automotive production traditionally is also lower as new models enter production. Accordingly, our third and fourth quarter sales tend to be lower than our first and second quarter sales.

      Contract durations for automotive parts generally range from one year to the entire life of the vehicle model, generally three to seven years for cars and four to ten years for light trucks. Tier-l suppliers generally compete for new VM business at the beginning of the development of new vehicle models and upon the redesign of existing vehicle models. New vehicle model development generally begins at least two to five years before the marketing of such models to consumers. As a result, a significant portion of a supplier’s annual sales are generated pursuant to arrangements begun about two to five years before the revenues related to the arrangements begin to be realized. The Tier-l sourcing process for vehicle programs, which varies according to VM, is typically initiated when a VM seeks requests for quotations from several suppliers at least three to six years before anticipated vehicle production. Based on these quotations, VMs, in many cases, then select and work with a supplier on specific component design and development projects related to the new vehicle program. At varying points during this process, VMs may issue “nomination letters,” letters of intent or other representations to the supplier that, based on the supplier’s quotation and subject to a number of conditions established by the VM, the VM intends to award specific business relating to the vehicle program to the supplier. By the time the design and development of the vehicle program is nearly complete, the VM will typically have evaluated the supplier’s performance to date and its ability to meet the VM’s specific production and service requirements. The VM will then develop a proposed production timetable, including current vehicle volume and option mix estimates based on its own assumptions, and then source business with the supplier pursuant to written contracts, purchase orders or other firm commitments, provided that the supplier can meet the VM’s designated conditions and remain competitive in terms of price, quality, technology and delivery. In general, these contracts, purchase orders and commitments provide that the VM can terminate for convenience, and in some cases, they provide that the price will decrease over the proposed production timetable. Awarded business generally covers the supply of all or a portion of a VM’s production and service requirements of a particular product program rather than the supply of a specific quantity of products. Accordingly, in estimating awarded business over the life of a contract or other commitment, a supplier must make various assumptions as to the estimated number of vehicles expected to be produced, the timing of that production, the mix of options on the vehicles produced and pricing of the products being supplied. The

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Automotive Environment

      Our business is greatly affected by the automotive build rates in North America and Europe. The automobile industry is characterized by short-term volatility, but long-term growth of, light vehicle sales and production. New vehicle demand is driven by macro-economic and other factors such as interest rates, manufacturer and dealer sales incentives, fuel prices, consumer confidence and employment and income growth trends. These factors ultimately determine longer-term vehicle production and sales rates.

      One of the current trends in the automotive industry is for VMs to shift research and development, design and testing responsibility to suppliers. VMs have also been reducing the number of their suppliers, preferring strong relationships with fewer suppliers. We operate in a difficult pricing environment and our goal is to mitigate the pricing pressure imposed by VMs by continuing cost reduction efforts and restructuring our business. We also have recently seen significant inflationary pressures in the ferrous metals markets. We are fully engaged in supply chain management and utilizing Six Sigma as a leading quality improvement program throughout our operations and functions.

Acquisitions and Divestitures

      In 2001, the Predecessor disposed of five non-core businesses, one of which was accounted for as discontinued operations and four of which were not accounted for as discontinued operations. The business included in discontinued operations was Lucas Varity’s diesel business. Proceeds from the sale of the discontinued operations was $29 million and there was a $10 million gain on the sale, which is included in the net results of discontinued operations. The most significant of the four businesses divested that were not accounted for as discontinued operations were Lucas Varity India’s electrical businesses, and certain sensor and related components businesses. The revenues of these businesses were included in sales of the combined statements of operations and were $69 million for the year ended December 31, 2001. Proceeds from the sales of these divested businesses were $17 million and the gain on the sales of these businesses was $18 million.

      On April 8, 2003, we sold our 21.8% equity interest in Toyoda TRW Automotive, Inc. (“Toyoda”) to our joint venture partner, Toyoda Machine Works, Ltd. We had previously accounted for our interest in Toyoda under the equity method, and classified this investment in “Other assets” (long-term) in our combined and consolidated balance sheets.

      On June 27, 2003, we sold our 60% partnership interest in Quality Safety Systems Company (“QSS”), a Canadian seatbelt joint venture, to a subsidiary of our partner, Tokai Rika Co., Ltd. Through the sale date, QSS’s financial position results of operations and cash flows were included in our consolidated and combined financial statements.

      On December 29, 2003, we completed the disposal of a European forge parts facility (“Linn”), which provided components internally to other portions of our businesses. Through the sale date, Linn’s financial position results of operations and cash flows were included in our consolidated and combined financial statements.

      Proceeds from the Toyoda, QSS and Linn divestitures were approximately $57 million, net of cash retained in the QSS business.

      On June 26, 2003, we acquired sole ownership of the immediate parent of Autocruise, S.A. (“Autocruise”) by acquiring for nominal consideration the equity interest held by our former joint venture partner, Thales Group. Autocruise, operating a custom-built facility in Brest, France, designs and manufactures radar-based sensors for adaptive cruise control systems, principally sold in certain European markets.

      On September 22, 2003, we acquired a 50% equity interest in EnTire Solutions, LLC, a new joint venture we entered into with Group Michelin. This joint venture will focus on the development, marketing, manufacture and sale of advanced direct tire pressure monitoring systems for passenger cars and light trucks.

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Restructuring

      In 2001, the Predecessor recorded charges of $213 million related to the closing of two facilities and various headcount reduction activities including the integration of the former Chassis, Occupant Safety Systems and Automotive Electronics segments under one management team. The combination of these activities in 2001 resulted in a reduction of approximately 6,000 employees. In 2002, the Predecessor recorded charges of $59 million for actions that resulted in the closing of three plants and employee reductions of approximately 950. During the two months ended February 28, 2003, the Predecessor recorded charges of $3 million for severance and costs related to the consolidation of certain facilities. The charges described above include both cash and non-cash items. For the periods ended December 31, 2001 and 2002, the cash charges were $189 million and $27 million, respectively, and the non-cash charges were $24 million and $32 million, respectively. For the two months ended February 28, 2003, only cash charges were recorded totaling $3 million.

      In connection with the Acquisition, we 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 ten months ended December 31, 2003, we recorded cash charges of $29 million for severance and costs related to the consolidation of certain facilities. Additionally, we recorded a $37 million reserve through purchase accounting primarily for severance related to strategic restructurings, plant closings and involuntary employee termination arrangements outside of the United States to be paid over the next several years in accordance with local laws.

      While we continuously evaluate whether additional restructuring opportunities exist to increase our operating efficiencies, we do not have any current plans that would result in additional restructuring charges of the magnitude that the Predecessor incurred in 2001 and 2002.

      The following table sets forth a summary of the activity in the balance sheet accounts related to the restructuring reserves:

      Of the $79 million restructuring reserve accrued at December 31, 2003, approximately $46 million is expected to be paid through 2004, and approximately $20 million relates to involuntary employee termination arrangements outside the United States to be paid over the next several years in accordance with local law.

Asset Impairments Other Than Restructuring

      In 2001, Chassis Systems, Occupant Safety Systems and Automotive Components segments recorded asset impairment charges of $28 million, $10 million and $12 million, respectively. These charges, related primarily to the write-down of property, plant and equipment, were recorded as $38 million in cost of sales, $11 million in other (income) expense-net and $1 million in goodwill amortization. Of these charges, $49 million was a result of the reduction of volume, consolidation of production and outsourcing at certain facilities. In 2002, Occupant Safety Systems and Automotive Components segments recorded asset impairment charges of $11 million and $6 million, respectively. Of these charges, $10 million related to the write-down of the investment in two affiliates to fair market value. The remaining $7 million related primarily to the write-down of property, plant and equipment to fair value. Of these charges, $9 million was recorded in other income-net, $7 million in cost of sales and $1 million in amortization of intangible assets.

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Pension Plans

      During the periods presented, substantially all our employees participated in defined benefit pension plans or retirement/termination indemnity plans. Net pension income included in earnings from continuing operations of the Predecessor for the years ended December 31, 2001 and 2002 and the two months ended February 28, 2003 was $209 million, $222 million and $23 million, respectively. Generally, pension income is required to be retained by the applicable pension plan and is not available for general corporate use. The net pension income during these periods is principally due to the overfunded status of the U.K. defined benefit plan. The fair value of plan assets in excess of the projected benefit obligation for the U.K. plan was $1.8 billion, $1.2 billion, $155 million, $55 million and $280 million at January 1, 2001, 2002, 2003, March 1, 2003 and October 31, 2003, respectively. The projected benefit obligations in excess of the fair value of plan assets for the U.S. and other plans was $174 million, $327 million, $563 million, $801 million and $826 million on January 1, 2001, 2002, 2003, March 1, 2003, and October 31, 2003, respectively. For the ten months ended December 31, 2003, net pension expense of the Successor was $24 million. The pension expense reflects the application of purchase accounting related to the Acquisition, including the recognition of all unamortized gains and losses in the opening balance sheet, valuing of the assets at fair value as of March 1, 2003 and changes in actuarial assumptions at March 1, 2003. See “— Critical Accounting Estimates — Employee Benefit Plans” and Note 18 to the financial statements.

Critical Accounting Estimates

      The critical accounting estimates that affect our financial statements and that use judgments and assumptions are listed below. In addition, the likelihood that materially different amounts could be reported under varied conditions and assumptions is noted.

      Product Recalls. We are at risk for product recall costs. Recall costs are costs incurred when the customer or we decide to recall a product through a formal campaign, soliciting the return of specific products due to a known or suspected safety concern. In addition, the National Highway Traffic Safety Administration has the authority, under certain circumstances, to require recalls to remedy safety concerns. Product recall costs typically include the cost of the product being replaced, customer cost of the recall and labor to remove and replace the defective part.

      During the Predecessor periods when a decision to recall a product had been made for which we bore some responsibility, we recorded the estimated cost to us of the recall as a charge to net earnings in that period, in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies” (“SFAS 5”). In making estimates relating to product recalls, judgment was required as to the number of units to be returned, the total cost of the recall campaign, the ultimate negotiated sharing of the cost between us and the customer and, in some cases, the extent to which our supplier would share in the recall cost. As a result, our actual recall costs could be significantly different from our estimated costs.

      Effective as of the Acquisition date, we implemented a new methodology for actuarially estimating our recall obligations that differs from that of our predecessor. We engaged independent third-party actuaries to run loss histories for the purpose of establishing loss projections and completed the valuation work in the fourth quarter of 2003. Under the actuarial estimation methodology, we accrue for recalls when revenues are recognized upon the shipment of product. The adoption of this estimation methodology does not have a material effect on the reported results of operations or cash flows for the ten month period ended December 31, 2003 or any individual quarter within such period. In the future, using an actuarial based estimation will have the effect of better matching revenues and expenses as relative to the methodology employed by our predecessor, we will record higher expenses in a period of minor or no recalls and lower expenses in a period of a significant recall since the obligation will have already been accrued as the revenue was recognized.

      Impairment of Long-Lived Assets and Intangibles. We evaluate long-lived assets and intangibles subject to amortization for impairment when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows to be generated by those assets are less than their carrying value. If the undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value.

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      The determination of undiscounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are based on industry specific data. We use external vehicle build assumptions published by widely used external sources and market share data by customer based on known and targeted awards over a five-year period. The projected profit margin assumptions included in the plans are based on the current cost structure and anticipated cost reductions. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and additional impairment of assets might be required to be recorded.

      We test intangible assets not subject to amortization, other than goodwill, for impairment on an annual basis by comparing the estimated fair values to the carrying values. If the carrying value exceeds the estimated fair value, the asset is written down to its estimated fair value. Estimated fair value is based on cash flows, discussed above, discounted at a risk-adjusted rate of return.

      We also evaluate the useful lives of intangible assets each reporting period.

      Goodwill. Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” See “Recent Accounting Pronouncements.” In connection with the Acquisition, we have applied the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”) and, after the application of purchase accounting, we have recorded approximately $2.5 billion in goodwill.

      In accordance with SFAS 142, we no longer amortize goodwill but perform annual impairment testing at a reporting unit level. Our reporting units are our three reportable operating segments. To test goodwill for impairment, we estimate the fair value of each reporting unit and compare the estimated fair value to the carrying value. If the carrying value exceeds the estimated fair value, then a possible impairment of goodwill exists and requires further evaluation. Estimated fair values are based on the cash flows projected in the reporting units’ strategic plans and long-range planning forecasts (see “Impairment of Long-Lived Assets and Intangibles”), discounted at a risk-adjusted rate of return.

      As the estimated fair values of our reporting units exceeded their carrying values at each testing date since adoption, we have recorded no goodwill impairment. While we believe our estimates of fair value are reasonable based upon current information and assumptions about future results, changes in our businesses, the markets for our products, the economic environment and numerous other factors could significantly alter our fair value estimates and result in future impairment of recorded goodwill.

      Employee Benefit Plans. Assumptions used in determining projected benefit obligations and the fair value of plan assets for our pension plans and other post-retirement benefits are evaluated periodically by management in consultation with outside actuaries and outside investment advisors. Changes in assumptions are based on relevant company data, such as the rate of increases in compensation levels and the long-term rate of return on plan assets. Critical assumptions such as the expected long-term rate of return on plan assets, the discount rate used to measure our benefit obligations and health care cost projections are evaluated and updated annually. Based on our assumptions as of October 31, 2003, as discussed below, a one fourth percentage point change in these assumptions, holding all other assumptions constant, would have the following effect on our U.S. pension costs and obligations on an annual basis:

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      Pensions. We account for our defined benefit pension plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), which requires that amounts recognized in financial statements be determined on an actuarial basis. This determination involves the selection of an expected rate of return on plan assets and a discount rate. SFAS 87 and the policies we have used, notably the use of a calculated value of plan assets for pensions (which is further described below), generally reduced the volatility of pension income and expense that would have otherwise resulted from changes in the value of the pension plan assets and pension liability discount rates. A substantial portion of our pension benefits relate to our plans in the United States and the United Kingdom. As discussed in “— Pension plans”, the Predecessor’s results of operations for the periods presented through February 28, 2003 reflect net pension income due to the over-funded status of our U.K. plan, net of pension expense for our U.S. and other plans. For the ten months ended December 31, 2003, our net pension expense reflects a combination of a decreased long-term rate of return assumption on the assets, decreased discount rate and use of fair value of plan assets as of March 1, 2003 in our purchase accounting, as opposed to the five-year market related value used historically.

      One key assumption in determining our net pension (income) expense in accordance with SFAS 87 is the expected long-term rate of return on plan assets. The expected long-term annual rate of return on pension assets for 2001, 2002, and 2003 through February 28 were assumed by the Predecessor to be 9.5%, 9.5%, and 9.0%, respectively, in the United States and 8.75% in the United Kingdom. Effective March 1, 2003, we are assuming long-term annual rates of return on pension assets of 8.5% in the U.S. and 7.75% in the U.K. The actual returns on pension assets were a negative 4.3% in 2001, a negative 2.5% in 2002 and a positive 25.9% in 2003 for the U.S. plans and a negative 8.6% in 2001 and a negative 14.4% in 2002 and a positive 17% in 2003 for the U.K. plan. Over the last twelve years through December 31, 2003, our U.S. and U.K. plans have averaged returns of 8.4% and 8.2%, respectively. We review our long-term rate of return assumptions annually through comparison of our historical actual rates of return with our expectations, consultation with our actuaries regarding the assumptions used by other large companies and consultation with our investment managers regarding their expectations for future returns. While we believe our assumptions of future returns are reasonable and appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligations and our future pension (income) expense. The expected long-term rate of return on assets is applied to a calculated market-related value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that is included in pension (income) expense. In computing the expected return on plan assets that was included in the pension expense of the Successor for the ten month period ended December 31, 2003, the market-related value of assets was set equal to the fair value of assets; and, in future years, assets gains and losses will be amortized over five years in determining the market-related value of assets used to calculate the expected return component of pension income. The Predecessor used this same methodology to calculate the expected return.

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      Another key assumption in determining our net pension (income) expense is the determination of the discount rate to be used to discount plan liabilities. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, we look to rates of return on high quality, fixed-income investments that receive one of the two highest ratings given by a recognized ratings agency, and we review the assumption with our actuaries. As of December 31, 2001, the Predecessor determined its pension discount rates to be 7.25% for the U.S. plans and 5.75% for the U.K. plan. As of December 31, 2002, the Predecessor assumed discount rates of 6.5% and 5.5% for the U.S. plans and the U.K. plan, respectively. These rates were used for the two-month period ended February 28, 2003. Beginning March 1, 2003, we are using discount rates of 6.25% and 5.5% for the U.S. plans and the U.K. plan respectively. Changes in discount rates over the past three years have not materially affected pension income (expense), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred historically as allowed by SFAS 87. As a result of the Acquisition and the application of purchase accounting, all unamortized historical changes were immediately recognized in the opening balance sheet.

      We expect to contribute approximately $60 to $70 million to our U.S. pension plans (subject to possible legislative changes) and approximately $26 million to our non-U.S. pension plans in 2004.

      Other Post-Retirement Benefits. We account for our Other Post-Retirement Benefits (“OPEB”) in accordance with SFAS No. 106, “Employers’ Accounting for Post-Retirement Benefits Other Than Pensions”, which requires that amounts recognized in financial statements be determined on an actuarial basis. This determination requires the selection of a discount rate and health care cost trend rates used to value benefit obligations. The discount rate reflects the current rate at which the OPEB liabilities could be effectively settled at the end of the year. In estimating this rate, we look to rates of return on high quality, fixed-income investments that receive one of the two highest ratings given by a recognized ratings agency and we review the assumption with our actuaries. As of December 31, 2002, the Predecessor determined its discount rate for OPEB to be 6.5%. The Predecessor used a discount rate for OPEB of 6.5% for the two-month period ended February 28, 2003, based on information available as of December 31, 2002. Beginning March 1, 2003, we are using a discount rate for OPEB of 6.25%. We develop our estimate of the health care cost trend rates used to value benefit obligations through review of our recent health care cost trend experience and through discussions with our actuary regarding the experience of similar companies. At December 31, 2001, the Predecessor assumed a 6.4% annual rate of increase in the per capita cost of covered health care benefits for the U.S. plan (representing substantially all of the OPEB benefits), which was assumed to gradually decrease to 5.1% in the year 2009 and remain at that level thereafter. At December 31, 2002, the Predecessor assumed a 10.0% annual rate of increase in the per capita cost of covered health care benefits for the U.S. plan, which was assumed to decrease gradually to 5.0% over eight years and remain at that level thereafter. This assumption was maintained after the Acquisition. We fund our OPEB obligation on a pay-as-you-go basis and have no plan assets. We expect to contribute approximately $75 million on a pay-as-you-go basis to our plans in 2004. Changes in the assumed discount rate or health care cost trend rate can have a significant impact on our actuarially determined liability and related OPEB expense.

      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. We sponsor retiree welfare programs and expect that this legislation will eventually reduce our costs for some of these programs. At this point, our investigation into a 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 our response to this legislation and the appropriate accounting methodology for this event, we have elected to defer financial recognition of this legislation until the Financial Accounting Standards Board 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. This deferral election is permitted under FASB Staff Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”.

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      Income Taxes and Tax Valuation Allowances. We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our balance sheets, as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply for taxable income in the years in which those temporary differences are expected to be recovered or settled. We follow specific guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. We review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowances against all or a significant portion of our deferred tax assets resulting in an increase in our effective tax rate and an adverse impact on our reported results. On February 28, 2003, the Acquisition required the Company to record certain purchase accounting adjustments, which accordingly required the Company to record certain deferred taxes. As of December 31, 2003, our gross deferred tax assets were approximately $1,202 million and our gross deferred tax liabilities were approximately $864 million. These amounts were reduced by a valuation allowance of $223 million for a net deferred tax asset of $115 million.

      Environmental. Governmental regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had, and will continue to have, an effect on our operations. We have made and continue to make expenditures for projects relating to the environment, including pollution control devices for new and existing facilities. We are conducting a number of environmental investigations and remedial actions at current and former locations to comply with applicable requirements and along with other companies, have been named a potentially responsible party for certain waste management sites.

      A reserve estimate for each 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. Each of the environmental matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to us. We believe that any liability, in excess of amounts accrued in our consolidated and combined financial statements, that may result from the resolution of these matters for which sufficient information is available to support cost estimates, will not have a material adverse affect on our financial position, results of operations or cash flows. However, we cannot predict the effect on our financial position, results of operations or cash flows 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.

Results of Operations on a Pro Forma Basis

      The following unaudited pro forma consolidated and combined statements of operations for years ended December 31, 2003 and 2002 include adjustments to reflect the effect of the Transactions as if they have occurred on January 1, 2002. 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, 2002 or that may be attained in the future.

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PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

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PRO FORMA COMBINED STATEMENT OF OPERATIONS

      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. Earnings (losses) from continuing operations (pretax) for the pro forma years ended December 31, 2003 and 2002 and the historical years ended

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

      Sales for the year ended December 31, 2003 of $11.3 billion increased $924 million from $10.4 billion for the year ended December 31, 2002. Higher sales resulted primarily from the favorable impact of foreign currency exchange of $967 million and the impact of higher volume and product growth in excess of unfavorable pricing of $17 million partially offset by the effect of business divestitures completed in 2003 of $60 million. This higher volume was achieved despite a lower level of underlying industry production in both North America and Europe.

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      Gross Profit for the year ended December 31, 2003 of $1,266 million declined $70 million from $1,336 million for the year ended December 31, 2002. The decrease resulted from a decline in net pension and OPEB income of $219 million, and the net unfavorable impact of negative product mix in excess of the positive effect of higher volume of $72 million, partially offset by the favorable impact of foreign currency exchange of $101 million, cost reduction savings in excess of inflation and lower pricing of $80 million, and a decrease in charges for unusual items of $41 million. Gross profit for 2003 was reduced by unusual items of $20 million, which were primarily restructuring costs for severance. Net pension and OPEB expense included in gross profit for 2003 was approximately $33 million compared to income of approximately $186 million for 2002. Gross profit for 2002 was reduced by unusual items of $61 million, which consisted of restructuring expense of $43 million, principally for asset impairments and severance related charges, asset impairment charges other than restructuring of $14 million, and other charges related to employee compensation arising from the Northrop Grumman acquisition of TRW of $4 million. Gross profit as a percentage of sales for 2003 was 11.2% compared to 12.9% for 2002.

      Administrative and selling expenses for the year ended December 31, 2003 of $544 million increased $43 million from $501 million for the year ended December 31, 2002. Higher costs resulted primarily from the unfavorable impact of foreign currency exchange of $31 million, an increase in net pension and OPEB expense of $5 million, and increases in inflation, advertising costs, professional fees and other net costs of $24 million, partially offset by a reduction in charges for unusual items of $17 million. Net pension and OPEB expense included in administrative and selling expenses for the years 2003 and 2002 was approximately $28 million and $23 million, respectively. Administrative and selling expenses for 2003 included $18 million of charges for unusual items, which consisted of approximately $13 million of restructuring costs, and $5 million for costs associated with our separation from Northrop Grumman. Administrative and selling expenses for 2002 included charges for unusual items of $35 million, which consisted of restructuring expenses primarily for severance of $16 million, and other charges of $19 million related to employee compensation arising from the Northrop Grumman acquisition of TRW. Administrative and selling expenses as a percentage of sales were 4.8% for 2003 and for 2002.

      Research and development expenses were $164 million for the year ended December 31, 2003 compared to $151 million for the year ended December 31, 2002. Expenses increased primarily due to the unfavorable impact of foreign currency exchange of $14 million. Research and development expenses as a percentage of sales were 1.5% for 2003 and 2002.

      Other (income) expense — net for the year ended December 31, 2003 was income of $53 million compared to income of $14 million for the year ended December 31, 2002. Other income for 2003 consisted of non-cash unrealized currency translation gains on intercompany debt (which we do not expect to recur on an ongoing basis) of $37 million, earnings of affiliates of $9 million, net miscellaneous other income of $8 million and an asset impairment charge of $1 million. Other income for 2002 consisted of net gain on sales of assets of $12 million, earnings of affiliates of $6 million and miscellaneous other income of $12 million, partially offset by asset impairment charges of $9 million and foreign currency exchange losses of $7 million.

      Interest expense for the year ended December 31, 2003 was $281 million compared to $268 million for year ended December 31, 2002.

      The effective tax rate for the year ended December 31, 2003 was 53% compared to 43% for the year ended December 31, 2002. For 2003, the effective rate was higher than the U.S. statutory rate due primarily to tax losses in the United States, where tax benefits for net operating losses are being fully reserved. For 2002, the effective rate was higher than the U.S. statutory rate due primarily to operating profits in certain foreign tax jurisdictions with higher tax rates.

      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 year ended December 31, 2003 was $1,065 million compared to $1,148 million for the year ended December 31, 2002. The decrease resulted primarily from a decline in net pension and OPEB income of $224 million, the unfavorable impact of negative product mix in excess of the favorable effect of higher volume of $72 million, and other net costs of $6 million. These decreases were largely offset by the favorable impact of foreign currency exchange of $132 million (which included a $32 million non-cash unrealized currency translation gain on intercompany debt positions),

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      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 pro forma net earnings to EBITDA:

      As a result of the Acquisition, our historical results of operations for the ten months ended December 31, 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 ten months ended December 31, 2003 on a historical basis.

      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 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

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      For the ten months ended December 31, 2003, the Successor generated sales of $9,435 million, with cost of sales of $8,456 million, resulting in a gross profit of $979 million and a gross profit margin of 10.4%. Administrative and selling expenses were $446 million or 4.7% of sales. Research and development expenses were $137 million or 1.5% of sales. Purchased in-process research and development expense was $85 million, amortization of intangible assets was $27 million, other income was $56 million and operating income was $340 million or 3.6% of sales. Interest expense was $260 million, interest income was $8 million, losses on sales of receivables was $25 million, loss on retirement of debt was $31 million, and income tax expense was $98 million. Net losses were $66 million. Included in cost of sales for the ten months ended December 31, 2003 was a $43 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 was $18 million of one-time fees related to the establishment of the receivables facility.

      Sales for the year ended December 31, 2002 of $10.6 billion increased $539 million from $10.1 billion in the year ended December 31, 2001. The increase resulted from higher volume, net of price reductions, of $384 million, and the positive impact of foreign currency exchange of $224 million, partially offset by the effect of divestitures completed in 2001 of $69 million. Higher volume primarily reflected higher customer vehicle production in North America and sales growth in the Asia Pacific region.

      Gross profit for the year ended December 31, 2002 of $1,315 million increased $213 million from $1,102 million in the year ended December 31, 2001. The increase was primarily due to a decrease in unusual items of $108 million, the combined effect of savings from cost reduction activities and a seat belt recall in the third quarter of 2001, net of price reductions and inflation, of $104 million, the net positive impact of higher sales volume and product mix of $24 million, higher U.K. pension income of $16 million, and the favorable effect of foreign currency exchange of $13 million. This increase was partially offset by a combination of higher costs due to a product launch in Europe, a temporary increase in costs following the closing of a facility in Europe and asset write-offs totaling $32 million, and the impact of divestitures completed in 2001 of $23 million. Gross profit in 2002 was reduced by unusual items totaling $61 million, consisting of restructuring charges of $43 million, principally for asset impairments and severance related expenses, asset impairment charges other than restructuring of $14 million and other charges related to employee compensation arising from the Northrop Grumman acquisition of TRW of $4 million. Gross profit in 2001 was reduced by unusual items totaling $169 million, consisting of $126 million in restructuring expenses, asset impairment charges other than restructuring of $38 million and other charges of $5 million. Gross profit margin for 2002 increased to 12.4% from 10.9% in 2001.

      Administrative and selling expenses for the year ended December 31, 2002 of $541 million decreased $56 million from $597 million in the year ended December 31, 2001. Lower expenses resulted primarily from a decrease in unusual items of $52 million, the effect of divestitures completed in 2001 of $10 million and net cost reductions of $6 million, partially offset by the unfavorable effect of foreign currency exchange of $6 million and higher costs associated with increased volume of $4 million. Administrative and selling expenses in 2002 included charges for unusual items of $35 million, consisting of restructuring expenses primarily for severance of $16 million and other charges of $19 million related to employee compensation arising from the Northrop Grumman acquisition of TRW. Administrative and selling expenses in 2001 included unusual items related to restructuring charges of $87 million. Administrative and selling expenses as a percentage of sales were 5.1% in 2002 compared to 5.9% in 2001.

      Research and development expenses were $151 million for the year ended December 31, 2002 and $131 million for the year ended December 31, 2001. The increase in expenses is primarily due to additional

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      Interest expense for the year ended December 31, 2002 of $316 million decreased $57 million from $373 million for the year ended December 31, 2001. The decrease results from lower average debt outstanding and lower short-term interest rates in the United States.

      Amortization of intangible assets and goodwill was $15 million for the year ended December 31, 2002 compared to $78 million for the year ended December 31, 2001. The decrease resulted primarily from the adoption of SFAS 142 on January 1, 2002, in accordance with which goodwill is no longer amortized.

      Other (income) expense — net was income of $6 million and $2 million for the years ended December 31, 2002 and 2001, respectively. Other income for 2002 consisted of net gain on sale of assets of $12 million, earnings of affiliates of $6 million and miscellaneous other income of $4 million, partially offset by asset impairment charges of $9 million and foreign currency exchange losses of $7 million. Other income for 2001 consisted of a net gain on the sale of assets of $18 million, primarily from the disposition of electrical products and aftermarket businesses in India and Turkey, earnings of affiliates of $9 million and other income of $15 million, partially offset by pending and threatened litigation expenses of $29 million and asset impairment charges of $11 million.

      The effective tax rate was 45.9% in both the years ended December 31, 2002 and 2001.

      EBITDA for the year ended December 31, 2002 of $1,123 million increased $277 million from $846 million for the year ended December 31, 2001. The increase resulted primarily from a reduction in unusual items of $192 million, the combined positive impact of a seatbelt recall in 2001 and cost reductions in excess of lower pricing and inflation of $102 million, the favorable impact of foreign currency exchange of $16 million, the net positive impact of higher volume partially reduced by a shift to lower margin products of $11 million, and an increase in net pension and OPEB income of $10 million. The increase was partially reduced by higher costs related to a product launch in Europe, a temporary increase in costs following the closure of a facility in Europe and asset write-offs totaling $32 million, and the unfavorable impact of divestitures completed in 2001 of $10 million. EBITDA for 2002 included unusual items totaling $88 million, consisting of restructuring charges of $58 million, asset impairment charges other than restructuring of $17 million, charges related to the acquisition of TRW by Northrop Grumman of $23 million, litigation charges of $2 million and gains on asset sales of $12 million. EBITDA for 2001 included unusual items aggregating $280 million, consisting of restructuring charges of $213 million, asset impairment charges other than restructuring of $49 million, charges for pending and threatened litigation and claims of $36 million, and gains on the sale of assets of $18 million. EBITDA included net pension and OPEB income of $153 million in 2002 and $143 million in 2001.

      Following is a reconciliation of net earnings (losses) to EBITDA:

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      The following table reconciles pro forma segment sales and profit before taxes to pro forma consolidated sales and profit before taxes for 2003 and 2002. See Note 14 to the consolidated and combined financial statements for the reconciliation of historical segment sales and profit before taxes to historical consolidated amount and a description of segment profit before taxes for the periods presented.