TRW Automotive 10Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 28, 2007
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 FileNo. 001-31970

TRW Automotive Holdings Corp.

(Exact name of registrant as specified in its charter)


Delaware		81-0597059
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

12001 Tech Center Drive

Livonia, Michigan 48150

(Address, Including Zip Code, of Registrant’s Principal Executive Offices)

(734) 855-2600

(Registrant’s Telephone Number, Including Area Code)

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

As of October 23, 2007, the number of shares outstanding of the registrant’s Common Stock was 100,614,451.

TRW Automotive Holdings Corp.

Index


			Page

PART I — FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)		1
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
	Item 4.	Controls and Procedures		44

PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings		45
	Item 1A.	Risk Factors		45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		45
	Item 6.	Exhibits		46
Signatures				47
Supplemental Indenture dated as of September 14, 2007, pertaining to 6 3/8% Senior Notes due 2014
Supplemental Indenture dated as of September 14, 2007, pertaining to 7% Senior Notes due 2014
Supplemental Indenture dated as of September 14, 2007, pertaining to 7 1/4% Senior Notes due 2017
Certification Pursuant to Rule 13a-14(a)
Certification Pursuant to Rule 13a-14(a)
Certification Pursuant to 18 U.S.C.
Certification Pursuant to 18 U.S.C.

PART I — FINANCIAL INFORMATION


Item 1.	*Condensed Consolidated Financial Statements*

TRW Automotive Holdings Corp.

Condensed Consolidated Statements of Earnings


	Three Months Ended
	September 28,			September 29,
	2007			2006
	(Unaudited)
	(In millions, except per share amounts)

Sales	$	3,495		$	3,015
Cost of sales		3,260			2,785

Gross profit		235			230
Administrative and selling expenses		126			134
Amortization of intangible assets		9			9
Restructuring charges and asset impairments		13			3
Other (income) expense — net		(8	)		2

Operating income		95			82
Interest expense — net		54			62
Accounts receivable securitization costs		2			—
Equity in earnings of affiliates, net of tax		(5	)		(6	)
Minority interest, net of tax		3			3

Earnings before income taxes		41			23
Income tax expense		18			18

Net earnings	$	23		$	5

Basic earnings per share:
Earnings per share	$	0.23		$	0.05

Weighted average shares		100.6			100.8

Diluted earnings per share:
Earnings per share	$	0.22		$	0.05

Weighted average shares		103.3			104.0

See accompanying notes to unaudited condensed consolidated financial statements.

TRW Automotive Holdings Corp.

Condensed Consolidated Statements of Earnings


	Nine Months Ended
	September 28,			September 29,
	2007			2006
	(Unaudited)
	(In millions, except per share amounts)

Sales	$	10,816		$	9,872
Cost of sales		9,921			8,923

Gross profit		895			949
Administrative and selling expenses		401			403
Amortization of intangible assets		27			27
Restructuring charges and asset impairments		32			22
Other income — net		(40	)		(13	)

Operating income		475			510
Interest expense — net		173			182
Loss on retirement of debt		155			57
Accounts receivable securitization costs		4			2
Equity in earnings of affiliates, net of tax		(20	)		(19	)
Minority interest, net of tax		13			11

Earnings before income taxes		150			277
Income tax expense		116			134

Net earnings	$	34		$	143

Basic earnings per share:
Earnings per share	$	0.34		$	1.43

Weighted average shares		99.5			100.2

Diluted earnings per share:
Earnings per share	$	0.33		$	1.38

Weighted average shares		102.8			103.6

See accompanying notes to unaudited condensed consolidated financial statements.

TRW Automotive Holdings Corp.

Condensed Consolidated Balance Sheets


	As of
	September 28,		December 31,
	2007		2006
	(Unaudited)
	(Dollars in millions)

ASSETS
Current assets:
Cash and cash equivalents	$	473	$	578
Marketable securities		13		11
Accounts receivable — net		2,616		2,049
Inventories		910		768
Prepaid expenses and other current assets		290		270

Total current assets		4,302		3,676
Property, plant and equipment — net of accumulated depreciation of $2,160 million and $1,644 million, respectively		2,806		2,714
Goodwill		2,285		2,275
Intangible assets — net		718		738
Pension asset		1,053		979
Other assets		762		751

Total assets	$	11,926	$	11,133


LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	161	$	69
Current portion of long-term debt		26		101
Trade accounts payable		2,077		1,977
Accrued compensation		295		271
Other current liabilities		1,143		1,257

Total current liabilities		3,702		3,675
Long-term debt		3,328		2,862
Post-retirement benefits other than pensions		638		645
Pension benefits		700		722
Other long-term liabilities		842		723

Total liabilities		9,210		8,627
Minority interests		128		109
Commitments and contingencies
Stockholders’ equity:
Capital stock		1		1
Treasury stock		—		—
Paid-in-capital		1,170		1,125
Retained earnings		342		308
Accumulated other comprehensive earnings		1,075		963

Total stockholders’ equity		2,588		2,397

Total liabilities, minority interests and stockholders’ equity	$	11,926	$	11,133

See accompanying notes to unaudited condensed consolidated financial statements.

TRW Automotive Holdings Corp.

Condensed Consolidated Statements of Cash Flows


	Nine Months Ended
	September 28,			September 29,
	2007			2006
	(Unaudited)
	(Dollars in millions)

*Operating Activities*
Net earnings	$	34		$	143
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		408			381
Pension and other post-retirement benefits, net of contributions		(147	)		(139	)
Net gains on sale of assets		(19	)		(1	)
Loss on retirement of debt		155			57
Other — net		27			76
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable — net, and receivable from affiliate		(424	)		(94	)
Inventories		(86	)		(38	)
Trade accounts payable		(10	)		(112	)
Other assets		(9	)		13
Other liabilities		(18	)		(34	)

Net cash (used in) provided by operating activities		(89	)		252
*Investing Activities*
Capital expenditures		(339	)		(334	)
Acquisitions, net of cash acquired		(12	)		(12	)
Investment in affiliates		—			(1	)
Termination of interest rate swaps		(12	)		—
Purchase price adjustments		3			(12	)
Proceeds from sale/leaseback transactions		6			—
Net proceeds from asset sales and divestitures		35			33

Net cash used in investing activities		(319	)		(326	)
*Financing Activities*
Change in short-term debt		66			(25	)
Net proceeds from revolving credit facility		638			—
Proceeds from issuance of long-term debt, net of fees		2,584			28
Redemption of long-term debt		(3,000	)		(291	)
Proceeds from exercise of stock options		29			21

Net cash provided by (used in) financing activities		317			(267	)
Effect of exchange rate changes on cash		(14	)		40

Decrease in cash and cash equivalents		(105	)		(301	)
Cash and cash equivalents at beginning of period		578			659

Cash and cash equivalents at end of period	$	473		$	358

See accompanying notes to unaudited condensed consolidated financial statements.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements


1.	Description of Business

TRW Automotive Holdings Corp. (also referred to herein as the “Company”) is among the world’s largest and most diversified suppliers of automotive systems, modules and components to global automotive original equipment manufacturers (“OEMs”) 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 safety electronics (electronic control units and crash and occupant weight sensors). The Company is primarily a “Tier 1” supplier (a supplier which sells to OEMs). In 2006, approximately 86% of the Company’s end-customer sales were to major OEMs.


2.	Basis of Presentation

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2007. Certain prior period amounts have been reclassified to conform to the current year presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“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 and nine months ended September 28, 2007 are not necessarily indicative of results that may be expected for the year ending December 31, 2007.

The Company follows a fiscal calendar that ends on December 31. However, each fiscal quarter has three periods consisting of one five week period and two four week periods. Each quarterly period ends on a Friday, with the possible exception of the final quarter of the year, which always ends on December 31.

Earnings per Share. Basic earnings per share are calculated by dividing net earnings by the weighted average shares outstanding during the period. Diluted earnings per share reflect the weighted average impact of all potentially dilutive securities from the date of issuance. Actual weighted average shares outstanding used in calculating earnings per share were:


	Three Months Ended				Nine Months Ended
	September 28,		September 29,		September 28,		September 29,
	2007		2006		2007		2006
	(In millions)

Weighted average shares outstanding		100.6		100.8		99.5		100.2
Effect of dilutive securities		2.7		3.2		3.3		3.4

Diluted shares outstanding		103.3		104.0		102.8		103.6

Warranties. Product warranty liabilities are recorded based upon management estimates including factors such 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. Product warranty liabilities are reviewed on a regular basis and adjusted to reflect actual experience.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

The following table presents the movement in the product warranty liability for the three and nine month periods ended September 28, 2007 and September 29, 2006:


	Three Months Ended						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
	2007			2006			2007			2006
	(Dollars in millions)

Beginning balance	$	137		$	126		$	133		$	101
Current period accruals, net of changes in estimates		15			10			43			44
Used for purposes intended		(10	)		(10	)		(37	)		(25	)
Effects of foreign currency translation		5			3			8			9

Ending balance	$	147		$	129		$	147		$	129

Comprehensive Earnings. The components of comprehensive earnings, net of related tax, are as follows:


	Three Months Ended					Nine Months Ended
	September 28,			September 29,		September 28,			September 29,
	2007			2006		2007			2006
	(Dollars in millions)

Net earnings	$	23		$	5	$	34		$	143
Foreign currency translation earnings, net		68			27		118			94
Realized net (losses) gains on cash flow hedges		(5	)		2		1			(6	)
Adjustments to pension and post-retirement benefits other than pension liabilities		(4	)		—		(7	)		—

Comprehensive earnings	$	82		$	34	$	146		$	231

Recent Accounting Pronouncements. In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on the items for which the fair value option has been elected in earnings. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company has not completed its analysis of the potential impact of the adoption of SFAS No. 159 on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106, and 132(R)” (“SFAS No. 158”), which requires employers to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The Company adopted the recognition provisions of SFAS No. 158 as of December 31, 2006, resulting in the recognition of the Company’s overfunded and underfunded defined benefit pension and other postretirement plans as assets and liabilities, respectively, with corresponding offsets, net of tax, to accumulated other comprehensive earnings. Such adoption had no impact on the Company’s results of operations or cash flows. In addition, SFAS No. 158 requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This requirement is effective for fiscal years ending after December 15, 2008. The Company has

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

not completed its analysis of the potential impact of the adoption of the measurement date principles of SFAS No. 158 on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not completed its analysis of the potential impact of the adoption of SFAS No. 157 on the Company’s financial position, results of operations, or cash flows.

In June 2006, the FASB issued Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement disclosures of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires an entity to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires an entity to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the largest amount of benefit that has a greater than fifty percent likelihood of being realized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007, and recognized no material adjustment to the opening balance of retained earnings as a cumulative effect of change in accounting principle. See Note 8 for more information regarding the impact of adopting FIN 48.


3.	Restructuring Charges and Asset Impairments

Restructuring charges and asset impairments include the following:


	Three Months Ended					Nine Months Ended
	September 28,		September 29,			September 28,		September 29,
	2007		2006			2007		2006
	(Dollars in millions)

Severance and other charges	$	13	$	10		$	25	$	24
Asset impairments related to restructuring activities		—		2			4		3
Curtailment gains		—		(10	)		—		(10	)

Total restructuring charges		13		2			29		17
Other asset impairments		—		1			3		5

Total restructuring charges and asset impairments	$	13	$	3		$	32	$	22

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

Restructuring charges and asset impairments by segment are as follows:

Chassis Systems


	Three Months Ended					Nine Months Ended
	September 28,		September 29,			September 28,		September 29,
	2007		2006			2007		2006
	(Dollars in millions)

Severance and other charges	$	9	$	7		$	17	$	17
Asset impairments related to restructuring activities		—		2			—		2
Curtailment gains		—		(10	)		—		(10	)

Total restructuring charges		9		(1	)		17		9
Other asset impairments		—		—			3		3

Total restructuring charges and asset impairments	$	9	$	(1	)	$	20	$	12

For the three and nine months ended September 28, 2007, the Company incurred charges of $9 million and $17 million, respectively, related to severance, retention and outplacement services at various production facilities in its Chassis Systems segment. For the three and nine months ended September 29, 2006, the Company incurred charges of $7 million and $17 million, respectively, related to severance, retention and outplacement services at various facilities.

For the three and nine months ended September 29, 2006, the Company recorded net asset impairments related to restructuring activities of approximately $2 million to write down certain machinery and equipment to fair value based on estimated future cash flows.

For the three and nine months ended September 29, 2006, the Company recorded curtailment gains of approximately $10 million related to a reduction of retiree medical benefit obligations for certain employees at a closed facility.

For the nine months ended September 28, 2007, the Company recorded other asset impairments of $3 million to write down certain buildings to fair value based on current real estate market conditions, and $3 million for the nine months ended September 29, 2006 to write down certain machinery and equipment to fair value based on estimated future cash flows.

Occupant Safety Systems


	Three Months Ended				Nine Months Ended
	September 28,		September 29,		September 28,		September 29,
	2007		2006		2007		2006
	(Dollars in millions)

Severance and other charges	$	1	$	1	$	—	$	4
Asset impairments related to restructuring activities		—		—		3		1

Total restructuring charges		1		1		3		5
Other asset impairments		—		1		—		2

Total restructuring charges and asset impairments	$	1	$	2	$	3	$	7

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

During the three months ended September 28, 2007, the Company incurred charges of $1 million related to severance, retention and outplacement services at various production facilities in its Occupant Safety Systems segment. During the nine months ended September 28, 2007, the Company incurred charges of $2 million related to severance, retention and outplacement services at various production facilities, which were offset by a $2 million reversal of reserves for severance and other charges associated with the closing of a facility as the related activities were completed at a lower cost than previously estimated.

The Company incurred approximately $1 million and $4 million during the three and nine months ended September 29, 2006, respectively, for charges primarily related to severance, retention and outplacement services at a closed facility.

For the nine months ended September 28, 2007, the Company recorded net asset impairments related to restructuring activities of $3 million to write-down certain machinery and equipment to fair value based on estimated future cash flows, and $1 million for the nine months ended September 29, 2006 to write down certain buildings to fair value based on current real estate market conditions.

For the three and nine months ended September 29, 2006, the Company recorded other asset impairments of approximately $1 million and $2 million, respectively, to write down certain property, plant and equipment to fair value based on estimated future cash flows.

Automotive Components


	Three Months Ended				Nine Months Ended
	September 28,		September 29,		September 28,		September 29,
	2007		2006		2007		2006
	(Dollars in millions)

Severance and other charges	$	3	$	2	$	8	$	3
Asset impairments related to restructuring activities		—		—		1		—

Total restructuring charges	$	3	$	2	$	9	$	3

For the three and nine months ended September 28, 2007, the Company incurred charges of $3 million and $8 million, respectively, related to severance, retention and outplacement services at various production facilities in its Automotive Components segment.

The Company incurred approximately $2 million and $3 million during the three and nine months ended September 29, 2006, respectively, for charges related to lease termination costs, severance and headcount reductions at certain production facilities.

For the nine months ended September 28, 2007, the Company recorded net asset impairments related to restructuring activities of $1 million to write down certain machinery and equipment to fair value based on estimated future cash flows.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

Restructuring Reserves

The following table illustrates the movement of the restructuring reserves for severance and other charges:


	Three Months Ended						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
	2007			2006			2007			2006
	(Dollars in millions)

Beginning balance	$	44		$	60		$	66		$	69
Current period accruals, net of changes in estimates		13			10			25			24
Purchase price allocation		—			12			1			7
Used for purposes intended		(19	)		(11	)		(55	)		(32	)
Effects of foreign currency translation		1			(1	)		2			2

Ending balance	$	39		$	70		$	39		$	70

Of the $39 million restructuring reserves accrued as of September 28, 2007, approximately $14 million is expected to be paid in 2007. The remainder is expected to be paid in 2008 through 2011, and is comprised mainly of recently announced restructuring actions, as well as involuntary employee termination arrangements outside the United States.

During the nine months ended September 28, 2007, the Company recorded net adjustments of approximately $1 million to purchase price allocations related to acquisitions in accordance with the provisions of EITF IssueNo. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” For the three and nine months ended September 29, 2006, such adjustments to the purchase price allocation totaled $12 million and $7 million, respectively.


4.	Inventories

The major classes of inventory are as follows:


	As of
	September 28,		December 31,
	2007		2006
	(Dollars in millions)

Finished products and work in process	$	464	$	395
Raw materials and supplies		446		373

Total inventories	$	910	$	768

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)


5.	Goodwill and Intangible Assets

Goodwill

The changes in goodwill for the period are as follows:


			Occupant
	Chassis		Safety			Automotive
	Systems		Systems			Components
	Segment		Segment			Segment		Total
	(Dollars in millions)

Balance as of December 31, 2006	$	866	$	949		$	460	$	2,275
Acquisitions and purchase price adjustments		5		(3	)		—		2
Effects of foreign currency translation		—		8			—		8

Balance as of September 28, 2007	$	871	$	954		$	460	$	2,285

During the nine months ended September 28, 2007, the Company completed an acquisition in its Chassis Systems segment which was not material to the Company’s financial position. In conjunction with this acquisition, the Company recorded goodwill of approximately $5 million, which is subject to adjustment while the Company finalizes its purchase price allocation. The Company also reduced goodwill in its Occupant Safety Systems segment by $3 million during the nine months ended September 28, 2007 in conjunction with the purchase price finalization for an earlier acquisition.

Intangible assets

The following table reflects intangible assets and related amortization:


	As of September 28, 2007							As of December 31, 2006
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
	(Dollars in millions)

Definite-lived intangible assets:
Customer relationships	$	498	$	(108	)	$	390	$	492	$	(89	)	$	403
Developed technology		82		(47	)		35		81		(39	)		42
Non-compete agreements		1		—			1		1		—			1

Total		581	$	(155	)		426		574	$	(128	)		446

Indefinite-lived intangible assets:
Trademarks		292					292		292					292

Total	$	873				$	718	$	866				$	738

In conjunction with the acquisition in its Chassis Systems segment, the Company recorded customer relationships of approximately $4 million during the nine months ended September 28, 2007.

The weighted average amortization periods for intangible assets subject to amortization are as follows:


	Weighted Average
	Amortization
	Period

Customer relationships		20 years
Developed technology		8 years
Non-compete agreements		5 years

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

Aggregate amortization expense for each of the three month periods ended September 28, 2007 and September 29, 2006 was $9 million. Aggregate amortization expense for each of the nine month periods ended September 28, 2007 and September 29, 2006 was $27 million. The Company expects that ongoing amortization expense will approximate the following over the next five years:


	Amortization
Years Ending December 31,	Expense
	(Dollars in millions)

2007	$	36
2008		35
2009		35
2010		35
2011		27


6.	Other (Income) Expense — Net

The following table provides details of other (income) expense — net:


	Three Months Ended						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
	2007			2006			2007			2006
	(Dollars in millions)

Net provision for bad debts	$	2		$	2		$	(1	)	$	5
Net gains on sales of assets		(7	)		(1	)		(19	)		(3	)
Foreign currency exchange losses		5			5			4			3
Royalty and grant income		(7	)		(5	)		(20	)		(17	)
Miscellaneous other (income) expense		(1	)		1			(4	)		(1	)

Other (income) expense — net	$	(8	)	$	2		$	(40	)	$	(13	)

During the three and nine month periods ended September 28, 2007, the Company recognized gains on asset sales of $7 million and $19 million, respectively, primarily related to sales of various buildings and real estate. The Company received $18 million and $35 million, respectively, from those sales during the three and nine months ended September 28, 2007.


7.	Accounts Receivable Securitization

United States Facility. The United States receivables facility, as amended (the “Receivables Facility”), extends until December 2009 and provides up to $209 million in funding from commercial paper conduits sponsored by commercial lenders, based on availability of eligible receivables and other customary factors. On January 19, 2007, the Company reduced the committed amount of the facility from $250 million to $209 million and amended certain terms of the Receivables Facility to increase availability of funding under the facility.

Under the Receivables Facility, certain subsidiaries of the Company (the “Sellers”) sell trade accounts receivable (the “Receivables”) originated by them and certain of their subsidiaries as sellers 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 a wholly-owned subsidiary of the Company. 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 special purpose limited liability company that is wholly-owned by the Transferor and is not consolidated when certain requirements are met.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

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. The Transferor records a receivable from the Borrower for the difference between Receivables purchased and cash borrowed through the Receivables Facility. The Company does not own any variable interests, as that term is defined in FASB Interpretation 46(R) “Consolidation of Variable Interest Entities (revised December 2003) — an interpretation of ARB No. 51,” in the multi-seller commercial paper conduits.

The Sellers act as servicing agents per the servicing agreement, and continue to service the 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 Receivables Facility is 0.85% of outstanding borrowings. In addition, the Company is required to pay a fee of 0.40% on the unused portion of the Receivables Facility. Both the usage fee and the fee on the unused portion of the Receivables Facility are subject to a leverage-based grid. These rates are per annum and payments of these fees are made to the lenders monthly.

The Receivables Facility can be treated as a general financing agreement or as an off-balance sheet financing arrangement. Whether the funding and Receivables are shown as liabilities and assets, respectively, on the Company’s consolidated balance sheet, or, conversely, are removed from the consolidated balance sheet depends on the level of fair value 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 Borrower is considered a qualifying special purpose entity under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities;” and its financial statements are not included in the Company’s consolidated financial statements. Costs associated with the Receivables Facility are recorded as accounts receivable securitization costs in the Company’s consolidated statement of earnings. The proceeds received net of repayments disbursed are included in cash flows from operating activities in the consolidated statement of cash flows. Repayments disbursed less proceeds received from the Receivables Facility in the three month period ended September 28, 2007 were $127 million. Proceeds received less repayments disbursed on the Receivables Facility were zero in the nine month period ended September 28, 2007.

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, the Company is required to include the financial statements of the Borrower in the Company’s consolidated financial statements. The Company had no outstanding borrowings under the Receivables Facility as of September 28, 2007 and December 31, 2006. As such, 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 statements of the Borrower were included in the Company’s condensed consolidated financial statements as of September 28, 2007 and December 31, 2006.

Availability of funding under the Receivables Facility depends primarily upon the outstanding trade accounts receivable balance, and 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). As of September 28, 2007, based on the terms of the Receivables Facility and the criteria described above, approximately $242 million of the Company’s reported accounts receivable were considered eligible to support borrowings under the Receivables Facility, of which approximately $178 million was available for funding.

Other Receivables Facilities. In addition to the Receivables Facility described above, certain of the Company’s European subsidiaries have entered into receivables financing arrangements. The Company has up to €75 million available until January 2008 through an arrangement involving a wholly-owned special purpose vehicle, which purchases trade receivables from its German affiliates and sells those trade receivables to a German bank. Additionally, the Company has a receivables financing arrangement of up to £25 million available until November 2008 through an arrangement involving a wholly-owned special purpose vehicle, which purchases trade

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

receivables from its United Kingdom affiliates and sells those trade receivables to a United Kingdom bank. The Company has a factoring arrangement in France which provides for availability of up to €80 million until July 2008. This arrangement involves a wholly-owned special purpose vehicle, which purchases trade receivables from its French affiliates and sells those trade receivables to a French bank. All European arrangements are renewable for one year at the end of their respective terms, if not terminated. As of September 28, 2007, approximately €128 million and £25 million were available for funding under the Company’s European accounts receivable facilities. There were no outstanding borrowings under any of these facilities as of September 28, 2007 or December 31, 2006.


8.	Income Taxes

Under Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” the Company is required to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company is also required to record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon mix and timing of actual earnings versus annual projections.

Income tax expense for the three months ended September 28, 2007 was $18 million on pre-tax earnings of $41 million, while income tax expense for the nine months ended September 28, 2007 was $116 million on pre-tax earnings of $150 million and does not include a tax benefit related to the $155 million loss on retirement of debt. See Note 10. Income tax expense for the three and nine months ended September 29, 2006 was $18 million on pre-tax income of $23 million and $134 million on pre-tax income of $277 million, respectively. Income tax expense for the nine months ended September 29, 2006, does not include a tax benefit related to the $57 million loss on retirement of debt. See Note 10. The income tax rate varies from the United States statutory income tax rate due primarily to losses in the United States and certain foreign jurisdictions, including the losses on retirement of debt noted above, without the recognition of a corresponding income tax benefit, partially offset by favorable foreign tax rates, holidays, and credits.

For the three months ended September 28, 2007, income tax expense includes a net benefit of $5 million as the result of tax law changes enacted in Germany and the United Kingdom. Among other changes, the tax legislation in both jurisdictions includes reductions in the corporate tax rates for 2008 forward. While the reduced tax rates are not effective until 2008, the deferred tax assets and liabilities in these jurisdictions have been revalued during the three months ended September 28, 2007 to reflect the new rates.

The Company adopted FIN 48 as of January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” As a result of the adoption of FIN 48, the Company recognized no material adjustment to retained earnings relating to unrecognized tax benefits. In addition, the Company recorded an increase in long-term income tax liabilities of $150 million, along with a corresponding decrease in current income tax liabilities in accordance with the provisions of FIN 48.

The gross unrecognized tax benefits as of January 1, 2007 were $356 million including interest and penalties of $46 million. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $100 million. The gross unrecognized tax benefits differ from the amount that would affect the effective tax rate due to the impact of valuation allowances, foreign country offsets relating to transfer pricing adjustments, and resolutions relating to purchase business combinations. The gross unrecognized tax benefits as of January 1, 2007 have decreased by approximately $25 million as the result of tax payments made during the nine months ended September 28, 2007, primarily relating to the examination of the Company’s German tax returns for tax years 1997 through 2000. The Company believes that it is reasonably possible that a reduction to the gross unrecognized tax

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

benefits, ranging from $60 to $80 million, may occur within the next twelve months. This potential reduction relates primarily to anticipated settlements with the German tax authorities pertaining to various transfer pricing matters for tax years 1997 through 2005 and certain temporary items for tax years 1997 through 2000. A significant portion of this potential settlement relates to periods in which the entities were members of the Company’s predecessor and the resolution of any issues relating to those periods are subject to the indemnification provisions of the master purchase agreement between the Company and Northrop Grumman Corporation (“Northrop”). Under the indemnification provisions, the Company will be reimbursed for these anticipated settlement payments and as such has recorded a receivable.

The Company, or one or more of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state and foreign jurisdictions. Various tax examinations are in process globally, including an examination by the United States Internal Revenue Service (“IRS”) of the Company’s U.S. income tax returns for the earliest open years, 2003 and 2004, and an examination by the German tax authorities of the Company’s German income tax returns for years 1997 through 2004. The Company anticipates closing the examination by the IRS within the next twelve months without a material change in financial position. The Company has tentatively reached agreement on substantially all issues raised by the German tax authorities for years 1997 through 2000 and as noted above, anticipates a potential reduction in gross unrecognized tax benefits in settlement of these matters.

The Company operates globally but considers its significant tax jurisdictions to include the United States, Germany, Czech Republic, Spain and the United Kingdom. Generally, the Company has years open to tax examination in significant tax jurisdictions from 2002 forward, with the exception of Germany which has open tax years from 1997 forward.

The Company classifies all interest and penalties as income tax expense. As of January 1, 2007, the Company had recorded approximately $46 million in liabilities for tax related interest and penalties on its consolidated balance sheet. For the three and nine months ended September 28, 2007, the Company has recorded approximately $1 million and $2 million, respectively, related to interest and penalties in the condensed consolidated statements of earnings.


9.	Pension Plans and Post-Retirement Benefits Other Than Pensions

Pension Plans

The following table provides the components of net pension cost (income) for the Company’s defined benefit pension plans for the three and nine months ended September 28, 2007 and September 29, 2006:


	Three Months Ended
	September 28,									September 29,
	2007									2006
							Rest of									Rest of
	U.S.			U.K.			World			U.S.			U.K.			World
	(Dollars in millions)

Service cost	$	5		$	11		$	6		$	6		$	11		$	6
Interest cost on projected benefit obligations		16			73			9			16			64			9
Expected return on plan assets		(19	)		(98	)		(5	)		(16	)		(84	)		(4	)
Amortization		(2	)		—			1			—			—			1
Curtailments		—			—			(2	)		—			—			—

Net pension cost (income)	$	—		$	(14	)	$	9		$	6		$	(9	)	$	12

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)


	Nine Months Ended
	September 28,									September 29,
	2007									2006
							Rest of									Rest of
	U.S.			U.K.			World			U.S.			U.K.			World
	(Dollars in millions)

Service cost	$	15		$	33		$	18		$	18		$	31		$	18
Interest cost on projected benefit obligations		48			215			27			48			187			26
Expected return on plan assets		(55	)		(289	)		(13	)		(48	)		(245	)		(11	)
Amortization		(8	)		—			3			—			—			3
Curtailments/settlements		—			—			(3	)		—			—			—

Net pension cost (income)	$	—		$	(41	)	$	32		$	18		$	(27	)	$	36

Post-Retirement Benefits Other Than Pensions (“OPEB”)

The following table provides the components of net OPEB cost for the Company’s plans for the three and nine months ended September 28, 2007 and September 29, 2006:


	Three Months Ended
	September 28,						September 29,
	2007						2006
				Rest of						Rest of
	U.S.			World			U.S.			World
	(Dollars in millions)

Service cost	$	—		$	1		$	1		$	—
Interest cost on projected benefit obligations		7			1			8			2
Amortization		(3	)		(1	)		(4	)		—
Settlements		(1	)		—			(3	)		—

Net OPEB cost	$	3		$	1		$	2		$	2


	Nine Months Ended
	September 28,						September 29,
	2007						2006
				Rest of						Rest of
	U.S.			World			U.S.			World
	(Dollars in millions)

Service cost	$	1		$	1		$	3		$	1
Interest cost on projected benefit obligations		23			5			25			7
Amortization		(14	)		(3	)		(11	)		(1	)
Settlements		(6	)		—			(7	)		—

Net OPEB cost	$	4		$	3		$	10		$	7

During the three and nine months ended September 28, 2007, the Company recorded settlement gains of $1 million and $6 million, respectively, from retiree medical buyouts. During the three and nine months ended September 29, 2006, the Company recorded settlement gains of $3 million and $7 million, respectively, from retiree medical buyouts.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)


10.	Debt

Total outstanding debt of the Company as of September 28, 2007 and December 31, 2006 consisted of the following:


	As of
	September 28,		December 31,
	2007		2006
	(Dollars in millions)

Short-term debt	$	161	$	69

Long-term debt:
Senior notes, due 2014 and 2017	$	1,489	$	—
Senior and senior subordinated notes, due 2013		18		1,284
Term loan facilities		1,100		1,582
Revolving credit facility		638		—
Capitalized leases		43		42
Other borrowings		66		55

Total long-term debt		3,354		2,963
Less current portion		26		101

Long-term debt, net of current portion	$	3,328	$	2,862

Senior Notes and Senior Subordinated Notes

On March 12, 2007, the Company commenced tender offers to repurchase TRW Automotive Inc.’s outstanding 93/8% Senior Notes and 101/8% Senior Notes in original principal amounts of $925 million and €200 million, respectively, each due 2013, and 11% Senior Subordinated Notes and 113/4% Senior Subordinated Notes in original principal amounts of $300 million and €125 million, respectively, each due 2013 (collectively, the “Old Notes”). In conjunction with the tender offers, the Company also commenced consent solicitations to eliminate substantially all the covenants and certain events of default and to modify the provisions relating to the defeasance of the Old Notes in the governing indentures.

On March 26, 2007, the Company completed the issuance by TRW Automotive Inc. of 7% Senior Notes due 2014 and 63/8% Senior Notes due 2014 in principal amounts of $500 million and €275 million, respectively, and 71/4% Senior Notes due 2017 in the principal amount of $600 million (collectively, the “New Senior Notes”) in a private offering. Proceeds from the issuance totaled approximately $1,465 million. Interest is payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2007.

On March 26, 2007, the Company paid cash consideration, including a consent payment, to holders who had tendered their Old Notes and delivered their consents on or before March 23, 2007 (the “Consent Date”) and amended the indentures. In conjunction with the repurchase of tendered Old Notes, the Company recorded a loss on retirement of debt of $147 million in the first quarter of 2007. This loss included $111 million for redemption premiums paid for the Old Notes tendered on or before the Consent Date, $20 million for the write-off of deferred debt issue costs, $11 million relating to the principal amount in excess of carrying value of the 93/8% Senior Notes (see Other Borrowings), and $5 million of fees.

On April 4, 2007, the Company increased the cash consideration paid for Old Notes tendered after the Consent Date, but on or before April 18, 2007 (the “Tender Expiration Date”), to an amount equal to the cash consideration paid to holders that tendered prior to the Consent Date. In conjunction with the repurchase of the Old Notes tendered after the Consent Date, the Company recorded a loss on retirement of debt of $1 million for redemption premiums paid in the second quarter of 2007. As of the Tender Expiration Date, a total of 99% of the Old Notes had been

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

tendered. Accordingly, only $18 million of the principal amount of the Old Notes remain outstanding. Interest is payable semi-annually on February 15 and August 15 for the Old Notes that remain outstanding after the Tender Expiration Date. The Old Notes mature on February 15, 2013 and are callable at a specified premium beginning February 15, 2008.

The New Senior Notes and the outstanding 93/8% Senior Notes and 101/8% Senior Notes are unconditionally guaranteed on a senior unsecured basis, and the outstanding 11% Senior Subordinated Notes and 113/4% Senior Subordinated Notes are guaranteed on a senior subordinated unsecured basis, in each case by substantially all existing and future wholly-owned domestic subsidiaries and by TRW Automotive Finance (Luxembourg), S.à.r.l., a Luxembourg subsidiary.

Credit Facilities

Senior Secured Credit Facilities. On May 9, 2007, the Company entered into its Fifth Amended and Restated Credit Agreement with the lenders party thereto. The amended and restated credit agreement provides for $2.5 billion in senior secured credit facilities, consisting of (i) a5-year $1.4 billion Revolving Credit Facility (the “Revolving Credit Facility”), (ii) a6-year $600.0 million Term LoanA-1 Facility (the “Term LoanA-1”) and (iii) a 6.75-year $500.0 million Term Loan B-1 Facility (the “Term Loan B-1”; combined with the Revolving Credit Facility and Term LoanA-1, the “Senior Secured Credit Facilities”). On May 9, 2007, the entire principal on the Term LoanA-1 and the Term Loan B-1 were funded and the Company drew down $461 million of the Revolving Credit Facility. These proceeds, together with approximately $15.6 million of available cash on hand, were used to refinance $2.5 billion of existing senior secured credit facilities by repaying approximately $1,561 million of existing senior secured credit facilities (consisting of Term Loan A in the amount of approximately $385 million, Term Loan B in the amount of approximately $587 million, Term Loan B-2 in the amount of approximately $296 million and Term Loan E in the amount of approximately $293 million) and to pay interest along with certain fees and expenses related to the refinancing. In conjunction with the May 9, 2007 refinancing, the Company capitalized $6 million of deferred debt issue costs and recorded a loss on retirement of debt of $7 million related to the write-off of debt issue costs associated with the former revolving facility and the former syndicated term loans.

Borrowings under the Senior Secured Credit Facilities will bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the administrative agent’s prime rate and (2) the federal funds rate plus 1/2 of 1% or (b) a London Inter-Bank Offered Rate (“LIBOR”) or a eurocurrency rate determined by reference to interest rates for deposits in the currency of such borrowing for the interest period relevant to such borrowing adjusted for certain additional costs. As of September 28, 2007, the applicable margin for the Term LoanA-1 and the Revolving Credit Facility was 0.125% with respect to base rate borrowings and 1.125% with respect to eurocurrency borrowings, and the applicable margin for the Term Loan B-1 was 0.50% with respect to base rate borrowings and 1.50% with respect to eurocurrency borrowings. The commitment fee on the undrawn amounts under the Revolving Credit Facility was 0.25%. The commitment fee and the applicable margin on the Revolving Credit Facility and the applicable margin on the Term LoanA-1 are subject to a leverage-based grid.

The Term LoanA-1 will amortize in quarterly installments, beginning with $30 million in 2009, $75 million in 2010, $120 million in 2011, $225 million in 2012 and $150 million in 2013. The Term Loan B-1 will amortize in equal quarterly installments, beginning September 30, 2007, in an amount equal to 1% per annum during the first 6 years and six months and in one final installment on the maturity date.

The Senior Secured Credit Facilities, like the previously existing senior credit facilities, are unconditionally guaranteed by the Company and substantially all existing and subsequently acquired wholly-owned domestic subsidiaries. Obligations of the foreign subsidiary borrowers are unconditionally guaranteed by the Company, TRW Automotive Inc. and certain foreign subsidiaries of TRW Automotive Inc. The Senior Secured Credit Facilities, like the previously existing senior credit facilities, are secured by a perfected first priority security interest in, and mortgages on, substantially all tangible and intangible assets of TRW Automotive Inc. and substantially all of its

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

domestic subsidiaries, including a pledge of 100% of the stock of TRW Automotive Inc. and substantially all of its domestic subsidiaries and 65% of the stock of foreign subsidiaries owned by domestic entities. In addition, foreign borrowings under the Senior Secured Credit Facilities will be secured by assets of the foreign borrowers.

Debt Covenants

New Senior Notes. The indentures governing the New Senior Notes contain covenants that impose significant restrictions on the Company’s business. The covenants, among other things, restrict, subject to a number of qualifications and limitations, the ability of TRW Automotive Inc. and its subsidiaries, to pay certain dividends and distributions or repurchase the Company’s capital stock, incur liens, engage in mergers or consolidations, and enter into sale and leaseback transactions.

Senior Secured Credit Facilities. The Senior Secured Credit Facilities, like the previously existing senior credit facilities, contain a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of TRW Automotive Inc. and its subsidiaries, to incur additional indebtedness or issue preferred stock, repay other indebtedness (including the New Senior Notes), pay certain dividends and distributions or repurchase capital stock, create liens on assets, 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 TRW Automotive Inc.’s indebtedness, including the New Senior Notes and the Receivables Facility, and change the business conducted by the Company. In addition, the Senior Secured Credit Facilities, like the previously existing senior credit facilities, contain financial covenants relating to a maximum total leverage ratio and a minimum interest coverage ratio and require certain prepayments from excess cash flows, as defined, in connection with certain asset sales and the incurrence of debt not permitted under the Senior Secured Credit Facilities. The Senior Secured Credit Facilities also include customary events of default.

As of September 28, 2007, TRW Automotive Inc. was in compliance with all of its financial covenants.

The Old Notes. In connection with the tender offers for the Old Notes, the Company also received consents to amend the indentures governing the Old Notes. The amendments eliminated substantially all of the restrictive covenants and certain events of default and modified the provisions relating to the defeasance of the remaining Old Notes.

Other Borrowings

The Company has borrowings under uncommitted credit agreements in many of the countries in which it operates. These borrowings are denominated primarily in the local foreign currency of the country or region where the Company’s operations are located. The borrowings are from various domestic and international banks at quoted market interest rates.

On February 2, 2006, the Company repurchased its subsidiary Lucas Industries Limited’s £94.6 million 107/8% bonds due 2020 for £137 million, or approximately $243 million. This repurchase resulted in a loss on retirement of debt of £32 million, or approximately $57 million, which was recognized in the first quarter 2006 results. The Company funded the repurchase from cash on hand.

In November 2005, the Company entered into a series of interest rate swap agreements with a total notional value of $250 million to hedge the variability of interest payments associated with its variable-rate term debt. Since the interest rate swaps hedged the variability of interest payments on variable rate debt with the same terms, they qualified for cash flow hedge accounting treatment. In October and November 2006, the Company unwound these interest rate swaps.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

were expected to settle in February 2013, the maturity date of the corresponding debt instrument. Since these interest rate swaps hedged the designated debt balance and qualified for fair value hedge accounting, changes in the fair value of the swaps also resulted in a corresponding adjustment to the value of the debt. In February 2007, the Company unwound these interest rate swaps and paid approximately $12 million. In conjunction with the repurchase of the Old Notes, an $11 million adjustment to the value of the corresponding debt was immediately written off to loss on retirement of debt, as previously discussed.


11.	Capital Stock

On May 29, 2007, the Company, Automotive Investors LLC (“AI LLC”), an affiliate of The Blackstone Group L.P. (“Blackstone”), and certain management stockholders entered into an underwriting agreement with Banc of America Securities LLC (the “Underwriter”) pursuant to which AI LLC and certain executive officers of the Company agreed to sell to the Underwriter 11,000,000 shares of the Company’s common stock in a registered public secondary offering (the “Offering”) pursuant to the Company’s shelf registration statement onForm S-3 filed with the SEC on November 6, 2006. The Company did not receive any proceeds related to the Offering, nor did its total number of shares of common stock outstanding change as a result of the Offering. Immediately following the Offering, the percentage of shares of the Company’s common stock held by AI LLC decreased from 56.4% to 46.4%. See Note 13.

From time to time, capital stock is issued in conjunction with the exercise of stock options and the vesting of restricted stock units as part of the Company’s stock incentive plan.


12.	Share-Based Compensation

Effective in February 2003, the Company established the TRW Automotive Holdings Corp. 2003 Stock Incentive Plan (as amended, the “Plan”), which permits the grant of up to 18,500,000 non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock and other stock-based awards to the employees, directors or consultants of the Company or its affiliates.

On February 27, 2007, the Company granted 917,700 stock options and 449,300 restricted stock units to employees, executive officers and directors of the Company pursuant to the Plan. The options have an8-year life, and both the options and restricted stock units vest ratably over three years. The options have an exercise price equal to the fair value of the stock on the grant date, which was $30.54.

On February 27, 2006, the Company granted 905,450 stock options and 439,400 restricted stock units to employees, executive officers and directors of the Company pursuant to the Plan. The options have an8-year life, and both the options and restricted stock units vest ratably over three years. The options have an exercise price equal to the fair value of the stock on the grant date, which was $26.61.

As of September 28, 2007, the Company had approximately 3,804,000 shares of Common Stock available for issuance under the Plan. Approximately 7,199,000 stock options and 893,000 nonvested restricted stock units were outstanding as of the same date. The majority of the options have a10-year term and vest ratably over five years.

The total share-based compensation expense recognized for the Plan was as follows:


	Three Months Ended				Nine Months Ended
	September 28,		September 29,		September 28,		September 29,
	2007		2006		2007		2006
	(Dollars in millions)

Stock options	$	3	$	3	$	9	$	8
Restricted stock units		3		2		8		5

Total share-based compensation expense	$	6	$	5	$	17	$	13

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)


13.	Related Party Transactions

In connection with the acquisition by affiliates of Blackstone of the shares of the subsidiaries of TRW Inc. engaged in the automotive business (the “Acquisition”) from Northrop Grumman Corporation (“Northop”), 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 has agreed to pay an annual monitoring fee of $5 million for these services. Approximately $2 and $4 million, respectively, are included in the condensed consolidated statements of earnings for the three and nine month periods ended September 28, 2007 and September 29, 2006.

On May 29, 2007, the Company entered into a Third Amended and Restated Stockholders Agreement (the “Third Restated Agreement”) with AI LLC, which restated AI LLC’s registration rights as set forth in the Second Amended and Restated Stockholders Agreement dated as of January 28, 2004 among the Company, AI LLC and an affiliate of Northop (the “Second Restated Agreement”). The Third Restated Agreement deleted provisions in the Second Restated Agreement that were no longer relevant.

Prior to the Offering referenced in Note 11, the Company was considered a “controlled company” within the meaning of the New York Stock Exchange corporate governance rules due to the majority voting control held by AI LLC. As a result of the Offering and the decrease in AI LLC’s holdings in Company common stock to below 50%, the Company has ceased to be a “controlled company,” and therefore is required to comply with certain corporate governance requirements, which the Company is permitted to phase-in over a 12 month period ending in June 2008.

In the first quarter of 2006, the Company entered into a five-year participation agreement (“participation agreement”) with Core Trust Purchasing Group, formerly named Cornerstone Purchasing Group LLC (“CPG”) designating CPG as exclusive agent for the purchase of certain indirect products and services. CPG is a group purchasing organization which secures from vendors pricing terms for goods and services that are believed to be more favorable than participants could obtain for themselves on an individual basis. Under the participation agreement the Company must purchase 80% of the requirements of its participating locations for the specified products and services through CPG. In connection with purchases by its participants (including the Company), CPG receives a commission from the vendor in respect of purchases. Although CPG is not affiliated with Blackstone, in consideration for Blackstone’s facilitating the Company’s participation in CPG and monitoring the services CPG provides to the Company, CPG remits a portion of the commissions received from vendors in respect of purchases by the Company under the participation agreement to an affiliate of Blackstone. For the three and nine months ended September 28, 2007, the affiliate of Blackstone received de minimis fees from CPG.

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)


14.	Operating Segments

The following table presents certain financial information by segment:


	Three Months Ended						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
	2007			2006			2007			2006
	(Dollars in millions)

Sales to external customers:
Chassis Systems	$	1,927		$	1,632		$	5,865		$	5,335
Occupant Safety Systems		1,100			983			3,483			3,250
Automotive Components		468			400			1,468			1,287

Total sales	$	3,495		$	3,015		$	10,816		$	9,872

Earnings before taxes:
Chassis Systems	$	55		$	56		$	212		$	235
Occupant Safety Systems		83			76			338			322
Automotive Components		5			(5	)		59			65

Segment earnings before taxes		143			127			609			622
Corporate expense and other		(46	)		(42	)		(127	)		(104	)
Finance costs		(56	)		(62	)		(177	)		(184	)
Loss on retirement of debt		—			—			(155	)		(57	)

Earnings before income taxes	$	41		$	23		$	150		$	277

Intersegment sales:
Chassis Systems	$	5		$	7		$	19		$	21
Occupant Safety Systems		29			24			91			78
Automotive Components		11			9			31			31

	$	45		$	40		$	141		$	130


15.	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 the Company’s business activities with respect to commercial, patent, product liability, environmental and occupational safety and health law 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.

As of September 28, 2007, the Company had reserves for environmental matters of $54 million. In addition, the Company has established a receivable from Northrop for a portion of this environmental liability as a result of indemnification provided for in the Master Purchase Agreement relating to the Acquisition. The Company believes

TRW Automotive Holdings Corp.

Notes to Condensed Consolidated Financial Statements — (Continued)

any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the Company’s financial position or results of operations. However, the Company cannot predict the effect on the Company’s financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, the Company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the Company’s financial position or results of operations or the possible effect of compliance with environmental requirements imposed in the future.

The Company faces an inherent business risk of exposure to product liability, recall and warranty claims in the event that its products actually or allegedly fail to perform as expected or the use of its products results, or is alleged to result, in bodily injuryand/or property damage. Accordingly, the Company could experience material warranty, recall or product liability losses in the future. In addition, the Company’s costs to defend product liability claims have increased in recent years.

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 the Company’s 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 annual legal fees to defend these claims have been material in the past. These claims are strongly disputed by the Company and it has been its 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 effect on the Company’s financial condition or results of operations.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following should be read in conjunction with our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on February 23, 2007, and the other information included herein. References herein to “we,” “our,” or the “Company” refer to TRW Automotive Holdings Corp., together with its subsidiaries.

EXECUTIVE OVERVIEW

Our Business. We are among the world’s largest and most diversified suppliers of automotive systems, modules and components to global automotive original equipment manufacturers, or OEMs, and related aftermarkets. We conduct substantially all of our 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 safety electronics (electronic control units and crash and occupant weight sensors). We operate our business along three operating segments: Chassis Systems, Occupant Safety Systems and Automotive Components. We are primarily a “Tier 1” supplier, with over 86% of our end-customer sales in 2006 made to major OEMs. Approximately 57% of our 2006 sales were in Europe, approximately 33% were in North America, and approximately 10% were in the rest of the world.

Financial Results. In the third quarter of 2007, our net sales were $3.5 billion, which represents an increase of 16% over the third quarter of 2006. This increase resulted primarily from higher customer vehicle production in Europe and China and growth in the market for safety products, as well as the favorable effect of foreign currency exchange. Operating income for the third quarter of 2007 was $95 million compared to $82 million for the prior year period, while net earnings for the third quarter of 2007 were $23 million as compared to $5 million for the third quarter of 2006.

Our net sales for the nine months ended September 28, 2007 were $10.8 billion, which represents an increase of 10% over the nine months ended September 29, 2006. The increase was driven by favorable foreign currency exchange, higher volumes resulting from production increases in Europe and China, and increased module business in North America and Asia. Operating income for the nine months ended September 28, 2007 was $475 million compared to $510 million for the prior year period. The decline in operating income of $35 million resulted primarily from price reductions to customers and the net unfavorable impact of certain product-related settlements, partially offset by favorable supplier resolutions, and higher commodity inflation in excess of cost reductions achieved by our Company. Also contributing to the decline were costs from property damage and related business interruption caused by a roof collapse at one of our South American facilities and negative operational performance in our Automotive Components segment compared to the prior year period. These items were partially offset by higher volumes (net of adverse mix), favorable supplier resolutions, a reduction in pension and post-employment benefit costs and favorable currency exchange.

Net earnings for the nine months ended September 28, 2007 were $34 million as compared to $143 million for the nine months ended September 29, 2006. Included in net earnings for the nine months ended September 28, 2007 is a loss on retirement of debt of $155 million, consisting of $148 million related to the repurchase of substantially all of our then-outstanding senior notes and senior subordinated notes, and $7 million related to refinancing of our previously existing senior secured credit facilities. Included in net earnings for nine months ended September 29, 2006 is a loss on retirement of debt of $57 million related to the repurchase of all of our subsidiary Lucas Industries Limited’s £94.6 million 107/8% bonds.

The Unfavorable Automotive Climate. The automotive and automotive supply industries continued to face challenging conditions during the third quarter of 2007. Among the negative industry characteristics are:


	•	a decline in market share and significant production cuts among some of our largest customers primarily in North America, including Ford Motor Company, General Motors Corporation and Chrysler LLC ( the “Big Three”);


	•	the deteriorating financial condition of certain of our customers and the resulting uncertainty as they continue to implement restructuring initiatives, including in certain cases, significant capacity reductionsand/or reorganization under bankruptcy laws;

	•	the continued rise in inflationary pressures impacting certain commodities such as petroleum-based products, resins, yarns, ferrous metals, aluminum, base metals, and other chemicals;

	•	a consumer shift in the North American market away from sport utility vehicles and light trucks to more fuel efficient passenger cars;

	•	the growing concerns over the economic viability of our Tier 2 and Tier 3 supply base which faces inflationary pressures and financial instability in certain of its customers;

	•	continuing pricing pressure from OEMs; and

	•	fluctuations in the value of the U.S. dollar compared to other currencies, mainly the Euro.

In recent years and into 2007, the Big Three have seen a steady decline in their market share for vehicle sales in North America and, to a lesser extent, Europe, with Asian OEMs increasing their share in these markets. The Big Three’s North American operations, in particular, continue to suffer significantly in this regard. Although we do have business with the Asian OEMs, our customer base is more heavily weighted toward other OEMs. In addition, declining market share and inherent legacy issues with the Big Three have led to recent, unprecedented production cuts. During the first nine months of 2007, Big Three North American production levels declined approximately 6% as compared to the same period in 2006. In order to address market share declines, reduced production levels, negative industry trends and other structural issues specific to their companies (such as significant overcapacity and pension and healthcare costs), the Big Three and certain of our other customers are undergoing various forms of restructuring initiatives in their North American operations. These restructuring actions may have a significant impact throughout our industry.

Work stoppages or other labor issues may potentially occur at these customers’ or their suppliers’ facilities. During the third quarter and into October 2007, brief union strikes occurred at General Motors and Chrysler during the renegotiation of the labor agreements between the Big Three and its major union. These strikes did not have a material impact on our business due to their relatively short length. Nonetheless, future work stoppages, shutdowns, or other labor issues could have a material adverse affect on us.

Through the first nine months of 2007, commodity inflation continued to impact the industry. Costs of petroleum-based products were volatile, while ferrous metals, resins, yarns and energy costs continued to increase. Also, aluminum and other base metal prices increased, some dramatically, during the first nine months of 2007. Consequently, overall commodity inflation pressures remain a significant concern for our business and have placed a considerable operational and financial burden on the Company. We expect such inflationary pressures to continue into the foreseeable future, and continue to work with our suppliers and customers to mitigate the impact of increasing commodity costs. However, it is generally difficult to pass increased prices for manufactured components and raw materials through to our customers in the form of price increases.

Furthermore, because we purchase various types of equipment, raw materials and component parts from our suppliers, we may be adversely affected by their failure to perform as expected or if they are unable to adequately mitigate inflationary pressures. These pressures have proven to be insurmountable to some of our suppliers and we have seen the number of bankruptcies and insolvencies increase. While the unstable condition of some of our suppliers or their failure to perform has not led to any material disruptions thus far, it has led to certain delivery delays and production issues, and has negatively impacted certain of our businesses in 2007. The overall condition of our supply base may possibly lead to further delivery delays, production issues or delivery of non- conforming products by our suppliers in the future. As such, we continue to monitor our vendor base for the best source of supply.

Fuel price increases and volatility have continued to concern consumers. As a result, there remains a shift in the North American market to more fuel-efficient vehicles away from sport utility vehicles, light trucks and heavy-duty pickup trucks. Sport utility and light- and heavy-duty truck platforms tend to be higher margin products for OEMs and suppliers than car platforms. While this change has negatively impacted the mix of our product sales, we

provide content for both passenger car and sport utility/light truck platforms and therefore the effect to TRW is somewhat, but not fully, mitigated.

Pricing pressure from our customers is characteristic of the automotive parts industry. This pressure is substantial and will continue. Virtually all OEMs have policies of seeking price reductions each year. Consequently, we have been forced to reduce our prices in both the initial bidding process and during the terms of contractual arrangements. We have taken steps to reduce costs and resist price reductions; however, price reductions have negatively impacted our sales and profit margins and are expected to do so in the future. 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 products 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.

Given the global nature of our operations, we maintain an inherent exposure to fluctuations in foreign currencies relative to the U.S. dollar. A significant strengthening of the dollar against other currencies could have a negative translation impact on our results of operations due to our proportional concentration of sales volumes derived from outside the United States. In addition, while we generally benefit through translation from the weakening of the dollar, over the long term such weakening may have a material adverse affect on the competitiveness of our manufacturing facilities located in countries whose currencies are appreciating against the dollar.

Company Strategy. Throughout 2007, our operations have been able to produce favorable results despite the negative industry pressures previously discussed. The effect of the unfavorable industry climate was mitigated by, among other things, our customer, product and geographic diversity. We also benefited from sales growth, continued demand for safety products, continued implementation of previously announced restructuring actions and targeted cost reductions throughout our businesses.

We have significant exposure to the European market, with approximately 57% of our 2006 sales generated from that region. Our geographic diversity and presence in this region has helped offset many of the negative industry pressures and sales declines experienced in the North American market. The European market remains extremely competitive, and similar to the North American market, has also experienced the major inroads made by Asian manufacturers into the region over the past few years. While many of our major OEM customers have implemented, or are in the process of implementing varying levels of restructuring actions in North America, no significant actions have been experienced recently in the European market. We are not aware of, nor do we anticipate, any major restructuring aimed at eliminating vehicle assembly capacity at our major European customers.

While we continue our efforts to mitigate the risks described above, we expect the negative industry conditions to continue in the near future, thereby impacting the remainder of 2007. There can be no assurances that the results of our ongoing efforts will continue to be successful in the future or that we will not experience a decline in sales, increased costs or disruptions in supply. Further, there can be no assurances that a significant strengthening of the U.S. dollar compared to other currencies will not occur, or that negative industry pressures will not adversely impact our future earnings. We will continue to evaluate the negative industry conditions referred to above, and whether additional actions may be required to mitigate those trends. Plant rationalization beyond the facilities we have closed or announced for closure, and additional global capacity optimization efforts across our businesses, may be warranted.

Other Matters. As previously disclosed, during the third quarter of 2007, we signed an agreement with Delphi Corporation to purchase a portion of its North American brake component machining and module assembly assets. The transaction is subject to U.S. Bankruptcy Court approval and other conditions. We hope to complete all necessary agreements during the first quarter of 2008.

Our Debt and Capital Structure. On an ongoing basis we monitor, and may modify, our debt and capital structure to reduce associated costs and provide greater financial and covenant flexibility.

In May 2007, we entered into an amended and restated credit agreement whereby we refinanced $2.5 billion of existing senior secured credit facilities with new facilities consisting of a secured revolving credit facility (the “Revolving Credit Facility”) and various senior secured term loan facilities (collectively the “Senior Secured Credit Facilities”). In March and April 2007, we commenced and completed a tender offer for our then outstanding $1.3 billion of senior and senior subordinated notes (the “Old Notes”). In March 2007, we also issued new senior

notes for approximately $1.5 billion (the “New Senior Notes”), and used the proceeds to fund the repurchase of the Old Notes.

As market conditions warrant, we and our major equity holders, including The Blackstone Group L.P. and their affiliates (the “Blackstone Investors”), may from time to time repurchase debt securities issued by the Company or its subsidiaries, in privately negotiated or open market transactions, by tender offer or otherwise.

On June 4, 2007, we completed a secondary public offering of 11 million shares of our common stock held by the Blackstone Investors and certain members of our management. We did not receive any proceeds related to this offering. As a result of this transaction, the Blackstone Investor’s ownership stake in our common stock decreased from 56.4% to 46.4%.

Our variable rate indebtedness exposes us to interest rate risk, which could cause our debt costs to increase significantly. A significant portion of our borrowings, including borrowings under TRW Automotive Inc.’s senior secured credit facilities, are at variable rates of interest. As of September 28, 2007, approximately 54% of our total debt was at variable interest rates, compared to December 31, 2006, when approximately 55% of our total debt was at variable interest rates (or 71% when considering the effect of interest rate swaps). As interest rates increase, the amount we are required to pay on our variable rate indebtedness increases even though the amount borrowed remains the same.

Effective Tax Rate. Our overall effective tax rate is equal to consolidated tax expense as a percentage of consolidated earnings before tax. However, tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. We are in a position whereby losses incurred in certain tax jurisdictions provide no current financial statement benefit. In addition, certain jurisdictions have statutory rates greater than or less than the United States statutory rate. As such, changes in the mix of earnings between jurisdictions could have a significant impact on our overall effective tax rate in future periods. Changes in tax law and rates could also have a significant impact on the effective rate in future periods, as could changes in our debt and capital structure, among other items.

Income tax expense for the nine months ended September 28, 2007 was $116 million on pretax earnings of $150 million, and included zero tax benefit related to the $155 million loss on retirement of debt incurred during the period related to the refinancing activities previously discussed.

RESULTS OF OPERATIONS

The following unaudited consolidated statements of earnings compare the results of operations for the three and nine months ended September 28, 2007 and September 29, 2006.

Total Company Results of Operations

Consolidated Statements of Earnings
For the Three Months Ended September 28, 2007 and September 29, 2006
(Unaudited)


	Three Months Ended						Variance
	September 28,			September 29,			Increase
	2007			2006			(Decrease)
	(Dollars in millions)

Sales	$	3,495		$	3,015		$	480
Cost of sales		3,260			2,785			475

Gross profit		235			230			5
Administrative and selling expenses		126			134			(8	)
Amortization of intangible assets		9			9			—
Restructuring charges and asset impairments		13			3			10
Other (income) expense — net		(8	)		2			10

Operating income		95			82			13
Interest expense — net		54			62			(8	)
Accounts receivable securitization costs		2			—			2
Equity in earnings of affiliates, net of tax		(5	)		(6	)		(1	)
Minority interest, net of tax		3			3			—

Earnings before income taxes		41			23			18
Income tax expense		18			18			—

Net earnings	$	23		$	5		$	18

Three Months Ended September 28, 2007 Compared to Three Months Ended September 29, 2006

Salesfor the three months ended September 28, 2007 were $3.5 billion, an increase of $480 million as compared to $3.0 billion for the three months ended September 29, 2006. Higher volume (net of price reductions provided to customers) of $279 million contributed to the sales increase, driven by higher customer vehicle production in Europe and China, an increase in module sales in North America and Asia, and the general growth of safety products in all markets. The favorable effect of currency exchange of $201 million also contributed to the sales increase, as the dollar weakened against other currencies (most notably the Euro).

Gross profitfor the three months ended September 28, 2007 was $235 million, an increase of $5 million as compared to $230 million for the three months ended September 29, 2006. The increase was driven primarily by favorable volume (net of adverse mix) of $42 million, a reduction in pension and post-employment benefit expense of $9 million, the favorable effect of currency exchange of $6 million, and net insurance proceeds related to the property damage at our brake line production facility located in South America of $5 million. These items were partially offset by price reductions and other costs related to our customers, including the net unfavorable impact of certain product-related matters, and higher inflation in excess of cost reductions, of $32 million. The favorable resolution of certain patent matters of $11 million in the third quarter of 2006 that did not recur in 2007, higher engineering expenses in the current quarter of $9 million, and higher warranty expenses of $5 million also partially offset the increase in gross profit. Gross profit as a percentage of sales for the three months ended September 28, 2007 was 6.7% compared to 7.6% for the three months ended September 29, 2006.

Administrative and selling expensesfor the three months ended September 28, 2007 were $126 million as compared to $134 million for the three months ended September 29, 2006. The decrease was driven primarily by various cost reductions and performance and other improvements of $11 million, and a reduction in pension and post-employment benefit expense of $3 million. These items were partially offset by the unfavorable impact of

currency exchange of $6 million. Administrative and selling expenses as a percentage of sales for the three months ended September 28, 2007 were 3.6% as compared to 4.4% for the three months ended September 29, 2006.

Amortization of intangible assetswas $9 million for each of the three month periods ended September 28, 2007, and September 29, 2006, respectively.

Restructuring charges and asset impairmentswere $13 million for the three months ended September 28, 2007 as compared to $3 million for the three months ended September 29, 2006. For the three months ended September 28, 2007 and September 29, 2006, the Company incurred charges of $13 million and $10 million, respectively, for severance, retention and outplacement services at various production facilities. Charges for the three months ended September 29, 2006 also included $2 million of asset impairments related to restructuring actions and $1 million for other asset impairments to write down certain buildings, machinery and equipment to fair value, offset by curtailment gains of $10 million.

Other (income) expense — netfor the three months ended September 28, 2007 was income of $8 million as compared to expense of $2 million for the three months ended September 29, 2006. The increase in income was driven primarily by increased net gains on fixed asset sales of $6 million, an increase of $2 million in royalty and grant income, and an increase in miscellaneous income of $2 million.

Interest expense — netfor the three months ended September 28, 2007 was $54 million as compared to $62 million for the three months ended September 29, 2006. The decrease in interest expense was primarily due to lower interest rates on the New Senior Notes compared to the Old Notes, partially offset by higher outstanding debt balances on the New Senior Notes, largely as a result of financing the redemption premium relating to the tender transactions in early 2007.

Accounts receivable securitization costswere $2 million for the three months ended September 28, 2007 and were immaterial for the three months ended September 29, 2006. The increase is due to higher utilization fees on borrowings during the period.

Equity in earnings of affiliateswas $5 million for the three months ended September 28, 2007 as compared to $6 million for the three months ended September 29, 2006.

Minority interestwas $3 million for each of the three month periods ended September 28, 2007 and September 29, 2006.

Income tax expensefor the three months ended September 28, 2007 was $18 million on pre-tax earnings of $41 million as compared to income tax expense of $18 million on pre-tax earnings of $23 million for the three months ended September 29, 2006. Income tax expense for the three months ended September 28, 2007 includes a net tax benefit of $5 million relating to the revaluation of deferred tax items in Germany and the United Kingdom as a result of a change in tax rates enacted in those jurisdictions. The income tax rate varies from the United States statutory income tax rate due primarily to losses in the United States and certain foreign jurisdictions without the recognition of a corresponding income tax benefit, partially offset by favorable foreign tax rates, holidays, and credits.

Consolidated Statements of Earnings
For the Nine Months Ended September 28, 2007 and September 29, 2006
(Unaudited)


	Nine Months Ended						Variance
	September 28,			September 29,			Increase
	2007			2006			(Decrease)
	(Dollars in millions)

Sales	$	10,816		$	9,872		$	944
Cost of sales		9,921			8,923			998

Gross profit		895			949			(54	)
Administrative and selling expenses		401			403			(2	)
Amortization of intangible assets		27			27			—
Restructuring charges and asset impairments		32			22			10
Other income — net		(40	)		(13	)		27

Operating income		475			510			(35	)
Interest expense — net		173			182			(9	)
Loss on retirement of debt		155			57			98
Accounts receivable securitization costs		4			2			2
Equity in earnings of affiliates, net of tax		(20	)		(19	)		1
Minority interest, net of tax		13			11			2

Earnings before income taxes		150			277			(127	)
Income tax expense		116			134			(18	)

Net earnings	$	34		$	143		$	(109	)

Nine Months Ended September 28, 2007 Compared to Nine Months Ended September 29, 2006

Salesfor the nine months ended September 28, 2007 were $10.8 billion, an increase of $944 million as compared to $9.9 billion for the nine months ended September 29, 2006. The increase was driven primarily by the favorable effect of currency exchange of $528 million. Higher volume (net of price reductions provided to customers) of $416 million also contributed to the sales increase, driven by higher customer vehicle production in Europe and China, an increase in module sales in North America and Asia, and the general growth of safety products in all markets, partially offset by lower North American production.

Gross profitfor the nine months ended September 28, 2007 was $895 million, a decrease of $54 million as compared to $949 million for the nine months ended September 29, 2006. The decrease was driven primarily by price reductions and other costs related to our customers, including the net unfavorable impact of certain product-related settlements, and higher inflation, in excess of cost reductions, of $127 million and higher engineering expenses of $12 million. Other drivers negatively impacting the gross profit comparison included the favorable resolution of certain patent matters of $11 million in the third quarter of 2006 that did not recur in 2007, inefficient product launches within the Automotive Components segment of $9 million, net costs incurred from property damage at our brake line production facility located in South America of $6 million, and incremental costs related to a first quarter acquisition of $3 million. These items were partially offset by favorable volume (net of adverse mix) and favorable supplier resolutions, together which totaled $59 million, a reduction in pension and post-employment benefit expense of $35 million, and the favorable effect of currency exchange of $19 million. Gross profit as a percentage of sales for the nine months ended September 28, 2007 was 8.3% compared to 9.6% for the nine months ended September 29, 2006.

Administrative and selling expensesfor the nine months ended September 28, 2007 were $401 million as compared to $403 million for the nine months ended September 29, 2006. The decrease was driven primarily by cost reductions and performance improvements of $12 million and a reduction in pension and post-employment benefit expense of $9 million, partially offset by the unfavorable effect of currency exchange of $19 million. Administrative

and selling expenses as a percentage of sales for the nine months ended September 28, 2007 were 3.7% as compared to 4.1% for the nine months ended September 29, 2006.

Amortization of intangible assetswas $27 million for each of the nine months ended September 28, 2007 and September 29, 2006.

Restructuring charges and asset impairmentswere $32 million for the nine months ended September 28, 2007 as compared to $22 million for the nine months ended September 29, 2006. For the nine months ended September 28, 2007, the Company incurred charges of $25 million for severance and other costs related to the consolidation and closure of certain facilities, $4 million of net asset impairments related to restructuring to write down certain buildings to fair value, and $3 million of other asset impairments to write down certain buildings, machinery and equipment to fair value. Charges for the nine months ended September 29, 2006 included $24 million for severance costs and expenses to consolidate certain facilities, $3 million of asset impairments related to restructuring actions and $5 million for other asset impairments, offset by post-retirement benefit curtailment gains of $10 million.

Other income — netfor the nine months ended September 28, 2007 was $40 million, an increase of $27 million compared to $13 million for the nine months ended September 29, 2006. The increase was driven primarily by increased net gains on fixed asset sales of $16 million, a reduction in bad debt expense of $6 million, and an increase in miscellaneous income of $3 million.

Interest expense — netfor the nine months ended September 28, 2007 was $173 million as compared to $182 million for the nine months ended September 29, 2006. The decrease in interest expense was primarily due to lower interest rates on the New Senior Notes compared to the Old Notes, partially offset by higher outstanding debt balances on the New Senior Notes, largely as a result of financing the redemption premium relating to the tender transactions in early 2007. Additionally, the impact of higher interest rates on floating rate debt was offset by lower applicable margins on borrowings under the senior secured credit facilities refinanced in May 2007.

Loss on retirement of debtfor the nine months ended September 28, 2007 was $155 million as compared to $57 million for the nine months ended September 29, 2006. On March 26, 2007 we repurchased substantially all of the Old Notes for $1,386 million resulting in a loss on retirement of debt of $147 million. On April 18, 2007 in conjunction with the tender of Old Notes after the Consent Date, we recorded a loss on retirement of debt of $1 million. The loss on the Old Notes was comprised of $112 million for redemption premiums paid, $20 million for the write-off of deferred debt issue costs, $11 million relating to the principal amount in excess of carrying value of the 93/8% Senior Notes and $5 million of fees. Additionally, on May 9, 2007, with the refinancing of the existing senior secured credit facilities we recorded a loss on retirement of debt of $7 million related to the write-off of debt issue costs associated with the former revolving facility and the former syndicated term loans. On February 2, 2006 we repurchased all of our subsidiary Lucas Industries Limited’s £94.6 million 107/8% bonds due 2020, for £137 million, or approximately $243 million. The repayment of debt resulted in a charge of £32 million, or approximately $57 million, for loss on retirement of debt.

Accounts receivable securitization costswere $4 million for the nine months ended September 28, 2007 as compared to $2 million for the nine months ended September 29, 2006. The increase is due to higher utilization fees on borrowings during the period.

Equity in earnings of affiliateswas $20 million for the nine months ended September 28, 2007 as compared to $19 million for the nine months ended September 29, 2006.

Minority interestwas $13 million for the nine months ended September 28, 2007, as compared to $11 million for the nine months ended September 29, 2006. The increase was driven primarily by an increase in joint venture activity with consolidated affiliates in Asia.

Income tax expensefor the nine months ended September 28, 2007 was $116 million on pre-tax earnings of $150 million as compared to income tax expense of $134 million on pre-tax earnings of $277 million for the nine months ended September 29, 2006. Income tax expense for the nine months ended September 28, 2007 and September 29, 2006 includes zero tax benefit related to the $155 million and $57 million losses on retirement of debt, respectively. In addition, income tax expense for the nine months ended September 28, 2007 includes a net tax

benefit of $5 million relating to the revaluation of deferred tax items in Germany and the United Kingdom as a result of a change in tax rates enacted in those jurisdictions. The income tax rate varies from the United States statutory income tax rate due primarily to losses in the United States and certain foreign jurisdictions, including the losses on retirement of debt noted above, without the recognition of a corresponding income tax benefit, partially offset by favorable foreign tax rates, holidays, and credits.

Segment Results of Operations

The following table reconciles segment sales and earnings before taxes to consolidated sales and earnings before taxes for three and nine months ended September 28, 2007 and September 29, 2006.


	Three Months Ended						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
	2007			2006			2007			2006
	(Dollars in millions)

Sales to external customers:
Chassis Systems	$	1,927		$	1,632		$	5,865		$	5,335
Occupant Safety Systems		1,100			983			3,483			3,250
Automotive Components		468			400			1,468			1,287

Total sales	$	3,495		$	3,015		$	10,816		$	9,872

Earnings before taxes
Chassis Systems	$	55		$	56		$	212		$	235
Occupant Safety Systems		83			76			338			322
Automotive Components		5			(5	)		59			65

Segment earnings before taxes		143			127			609			622
Corporate expense and other		(46	)		(42	)		(127	)		(104	)
Financing costs		(56	)		(62	)		(177	)		(184	)
Loss on retirement of debt		—			—			(155	)		(57	)

Earnings before taxes	$	41		$	23		$	150		$	277

Chassis Systems

Three Months Ended September 28, 2007 Compared to Three Months Ended September 29, 2006


	Three Months Ended					Variance
	September 28,		September 29,			Increase
	2007		2006			(Decrease)
	(Dollars in millions)

Sales	$	1,927	$	1,632		$	295
Earnings before taxes		55		56			(1	)
Restructuring charges and asset impairments included in earnings before taxes		9		(1	)		10

Salesfor the Chassis Systems segment for the three months ended September 28, 2007 were $1,927 million, an increase of $295 million compared to $1,632 million for the three months ended September 29, 2006. The increase was driven primarily by favorable volume, including higher module sales in North America and Asia, (net of price reductions provided to customers) of $185 million, and the favorable effect of currency exchange of $110 million.

Earnings before taxesfor the Chassis Systems segment for the three months ended September 28, 2007 were $55 million, a decrease of $1 million as compared to $56 million for the three months ended September 29, 2006. The decrease was driven primarily by the favorable resolution of certain patent matters of $11 million in the third quarter of 2006 that did not recur in 2007, an increase in restructuring costs and impairment charges of $10 million, higher engineering expenses of $6 million, price reductions to our customers and inflation (net of cost reductions) of

$3 million, and higher warranty costs of $3 million. These items were partially offset by favorable volume (net of adverse mix), higher sales of lower margin module business in North America and Asia of $20 million, a reduction in pension and post-employment benefit spending of $5 million, and net insurance recoveries related to property damage at our brake line production facility located in South America of approximately $5 million.

For the three months ended September 28, 2007, Chassis Systems recorded restructuring charges of $9 million in connection with severance and other costs related to the consolidation of certain facilities. For the three months ended September 29, 2006, Chassis Systems recorded net restructuring income of $1 million primarily related to $10 million post-retirement benefit curtailment gains, offset by $7 million of severance and other charges and $2 million of asset impairments.

Nine Months Ended September 28, 2007 Compared to Nine Months Ended September 29, 2006


	Nine Months Ended				Variance
	September 28,		September 29,		Increase
	2007		2006		(Decrease)
	(Dollars in millions)

Sales	$	5,865	$	5,335	$	530
Earnings before taxes		212		235		(23	)
Restructuring charges and asset impairments included in earnings before taxes		20		12		8

Salesfor the Chassis Systems segment for the nine months ended September 28, 2007 were $5,865 million, an increase of $530 million as compared to $5,335 million for the nine months ended September 29, 2006. The increase was driven primarily by the favorable effect of currency exchange of $300 million, as well as favorable volume, including higher module sales in North America and Asia (net of price reductions provided to customers) of $230 million.

Earnings before taxesfor the Chassis Systems segment for the nine months ended September 28, 2007 were $212 million, a decrease of $23 million as compared to $235 million for the nine months ended September 29, 2006. The decrease was driven primarily by higher engineering expenses of $13 million, the favorable resolution of certain patent matters of $11 million in the third quarter of 2006 that did not recur in 2007, the net unfavorable impact of property damage at our brake line production facility in South America of $7 million, higher restructuring charges and asset impairments of $8 million, price reductions to our customers and higher inflation (net of cost reductions) of $4 million, the unfavorable impact of currency exchange of $3 million, incremental costs related to a first quarter acquisition of $3 million, and adverse mix driven primarily by higher sales of lower margin module business in North America and Asia (net of favorable volume) of $2 million. These items were offset by a reduction in pension and post-employment benefit spending of $22 million, and a reduction in warranty expenses of $5 million.

For the nine months ended September 28, 2007, Chassis Systems recorded restructuring charges of $17 million in connection with severance and other costs related to the consolidation of certain facilities and $3 million in other asset impairments to write down certain buildings to fair value. For the nine months ended, September 29, 2006, Chassis Systems recorded net restructuring charges of $9 million, primarily related to $17 million of severance and other costs related to the consolidation of certain facilities and $2 million of asset impairments related to restructuring, offset by $10 million of post-retirement benefit curtailment gains. Chassis Systems also recorded $3 million of other asset impairments during the nine months ended September 29, 2006.

Occupant Safety Systems

Three Months Ended September 28, 2007 Compared to Three Months Ended September 29, 2006


	Three Months Ended				Variance
	September 28,		September 29,		Increase
	2007		2006		(Decrease)
	(Dollars in millions)

Sales	$	1,100	$	983	$	117
Earnings before taxes		83		76		7
Restructuring charges and asset impairments included in earnings before taxes		1		2		(1	)

Salesfor the Occupant Safety Systems segment for the three months ended September 28, 2007 were $1,100 million, an increase of $117 million as compared to $983 million for the three months ended September 29, 2006. The increase was driven primarily by the favorable effect of currency exchange of $64 million, as well as favorable volume (net of price reductions provided to customers) of $53 million.

Earnings before taxesfor the Occupant Safety Systems segment for the three months ended September 28, 2007 were $83 million, an increase of $7 million as compared to $76 million for the three months ended September 29, 2006. The increase was driven primarily by the favorable impact of volume (net of adverse mix) of $13 million, and a gain on the sale of an idle facility of $7 million. These items were partially offset by price reductions to our customers and inflation (net of cost reductions) of $9 million, and higher engineering expenses of $5 million.

For the three months ended September 28, 2007, Occupant Safety Systems recorded restructuring charges of $1 million in connection with severance and other costs related to the consolidation of certain facilities. For the three months ended September 29, 2006, Occupant Safety Systems recorded restructuring charges of $1 million in connection with severance and other costs related to the consolidation of certain facilities, and $1 million of other asset impairments.

Nine Months Ended September 28, 2007 Compared to Nine Months Ended September 29, 2006


	Nine Months Ended				Variance
	September 28,		September 29,		Increase
	2007		2006		(Decrease)
	(Dollars in millions)

Sales	$	3,483	$	3,250	$	233
Earnings before taxes		338		322		16
Restructuring charges and asset impairments included in earnings before taxes		3		7		(4	)

Salesfor the Occupant Safety Systems segment for the nine months ended September 28, 2007 were $3,483 million, an increase of $233 million as compared to $3,250 million for the nine months ended September 29, 2006. The increase was driven primarily by the favorable effect of currency exchange of $150 million, as well as favorable volume (net of price reductions provided to customers) of $82 million.

Earnings before taxesfor the Occupant Safety Systems segment for the nine months ended September 28, 2007 were $338 million, an increase of $16 million as compared to $322 million for the nine months ended September 29, 2006. The increase was driven primarily by the favorable impact of volume (net of adverse mix) and favorable supplier resolutions, which together totaled $38 million, a gain on the sale of an idle facility of $7 million, lower restructuring and impairment costs of $4 million, and a reduction in net pension and post-employment benefit spending of $4 million. These items were offset by price reductions to our customers and inflation (net of cost reductions) of $38 million.

For the nine months ended September 28, 2007, Occupant Safety Systems recorded $3 million related to restructuring activities to write-down certain machinery and equipment to fair value. For the nine months ended September 29, 2006, Occupant Safety Systems recorded restructuring charges of $4 million in connection with

severance and other costs and $1 million of asset impairments related to the consolidation of certain facilities. Occupant Safety Systems also recorded $2 million of other impairments during the nine months ended September 29, 2006.

��

Automotive Components

Three Months Ended September 28, 2007 Compared to Three Months Ended September 29, 2006


	Three Months Ended					Variance
	September 28,		September 29,			Increase
	2007		2006			(Decrease)
	(Dollars in millions)

Sales	$	468	$	400		$	68
Earnings before taxes		5		(5	)		10
Restructuring charges and asset impairments included in earnings before taxes		3		2			1

Salesfor the Automotive Components segment for the three months ended September 28, 2007 were $468 million, an increase of $68 million as compared to $400 million for the three months ended September 29, 2006. The increase was driven primarily by favorable volume (net of price reductions provided to customers) of $42 million, and the favorable effect of currency exchange of $26 million.

Earnings before taxesfor the Automotive Components segment for the three months ended September 28, 2007 were $5 million, an increase of $10 million as compared to a loss of $5 million for the three months ended September 29, 2006. The increase was driven primarily by the favorable impact of volume (net of adverse mix) of $7 million, and cost reductions (net of adverse inflation and price reductions to our customers) of $4 million, partially offset by an increase in warranty costs of $1 million.

For the three months ended September 28, 2007, Automotive Components recorded restructuring charges of $3 million related to severance and other costs related to the consolidation of certain facilities, as compared to $2 million for the three months ended September 29, 2006.

Nine Months Ended September 28, 2007 Compared to Nine Months Ended September 29, 2006


	Nine Months Ended				Variance
	September 28,		September 29,		Increase
	2007		2006		(Decrease)
	(Dollars in millions)

Sales	$	1,468	$	1,287	$	181
Earnings before taxes		59		65		(6	)
Restructuring charges and asset impairments included in earnings before taxes		9		3		6

Salesfor the Automotive Components segment for the nine months ended September 28, 2007 were $1,468 million, an increase of $181 million as compared to $1,287 million for the nine months ended September 29, 2006. The increase was driven primarily by favorable volume (net of price reductions provided to customers) of $104 million, and the favorable effect of currency exchange of $77 million.

Earnings before taxesfor the Automotive Components segment for the nine months ended September 28, 2007 were $59 million, a decrease of $6 million as compared to $65 million for the nine months ended September 29, 2006. The decrease was driven primarily by price reductions to our customers and inflation (net of cost reductions) of $17 million, higher costs resulting from inefficient product launches of $9 million, higher restructuring charges of $6 million, and higher warranty costs of $3 million. These items were partially offset by higher volume (net of adverse mix) of $17 million, the gain on the sale of an Engine Components manufacturing facility of $10 million, and the favorable effect of currency exchange of $2 million.

For the nine months ended September 28, 2007, Automotive Components recorded restructuring charges of $8 million in connection with severance and other costs, and $1 million of asset impairments related to

restructuring. For the nine months ended September 29, 2006, Automotive Components recorded restructuring charges of $3 million related to severance and other charges.

Liquidity and Capital Resources

Cash Flows

Operating Activities. Cash used in operating activities for the nine months ended September 28, 2007 was $89 million as compared to cash provided by operating activities of $252 million for the nine months ended September 29, 2006. This decrease is due primarily to higher working capital requirements, a higher level of business in Europe and Asia where net payment terms are less favorable than in North America, and lower profits.

Investing Activities. Cash used in investing activities for the nine months ended September 28, 2007 was $319 million as compared to $326 million for the nine months ended September 29, 2006.

During the nine months ended September 28, 2007 and September 29, 2006, we spent $339 million and $334 million, respectively, in capital expenditures, primarily in connection with upgrading existing products, continuing new product launches started in 2006 and providing for incremental capacity, infrastructure and equipment at our facilities to support our manufacturing and cost reduction efforts. We expect to spend approximately $540 million, or slightly below 4% of sales, in such capital expenditures during 2007. We received proceeds from the sale of various assets of $35 million and $33 million during the nine months ended September 28, 2007 and September 29, 2006, respectively.

Financing Activities. Cash provided by financing activities was $317 million for the nine months ended September 28, 2007, as compared to cash used of $267 million in the nine months ended September 29, 2006. During the nine months ended September 28, 2007, we repurchased substantially all of our Old Notes for approximately $1,396 million, and issued the New Senior Notes for cash proceeds of approximately $1,465 million. Proceeds from the issuance of the New Senior Notes were used to fund the repurchase of the Old Notes and for general corporate purposes. On May 9, 2007, the entire $1.1 billion of principal of term loans under our Senior Secured Credit Facilities was funded, and we drew down $461 million of the Revolving Credit Facility and used such proceeds, together with approximately $15.6 million of available cash on hand, to refinance $2.5 billion of existing senior secured credit facilities by repaying approximately $1,561 million outstanding on the existing senior secured credit facilities and to pay interest along with certain fees and expenses related to the refinancing. During the nine months ended September 28, 2007, the amount outstanding under our Revolving Credit Facility increased by $638 million, including the initial draw of $461 million. On February 2, 2006, we repurchased all of our subsidiary Lucas Industries Limited’s £94.6 million 107/8% bonds due 2020, for £137 million, or approximately $243 million.

Debt and Commitments

Sources of Liquidity. Our primary source of liquidity is cash flow generated from operations. We also have availability under our revolving credit facility and receivables facilities described below, subject to certain conditions. See “Senior Secured Credit Facilities,” “Off-Balance Sheet Arrangements” and “Other Receivables Facilities.” Our primary liquidity requirements, which are significant, are expected to be for debt service, working capital, capital expenditures, research and development costs and other general corporate purposes.

In March 2007, we issued New Senior Notes consisting of 7% Senior Notes due 2014 and 63/8% Senior Notes due 2014 in principal amounts of $500 million and €275 million, respectively, and 71/4% Senior Notes due 2017 in the principal amount of $600 million. The proceeds from the issuance of the New Senior Notes of $1,465 million were used to repurchase substantially all of the Old Notes previously outstanding and for general corporate purposes. In May 2007, the entire $1.1 billion principal amount of the term loans under our Senior Secured Credit Facilities was funded and we drew down $461 million of the Revolving Credit Facility and used such proceeds, together with approximately $15.6 million of available cash on hand, to refinance $2.5 billion of existing senior secured credit facilities by repaying approximately $1,561 million outstanding.

We intend to draw down on, and use proceeds from, the Revolving Credit Facility and our United States and European accounts receivables facilities (collectively, the “Liquidity Facilities”) to fund normal working capital

needs from month to month in conjunction with available cash on hand. As of September 28, 2007, we had approximately $600 million of availability under our Revolving Credit Facility, which primarily reflects $638 million of revolver borrowings, as well as $103 million of outstanding under our ancillary facilities and $70 million in outstanding letters of credit, which reduced the amount available. As of September 28, 2007, approximately $242 million of our total reported accounts receivable balance was considered eligible for borrowings under our United States receivables facility, of which approximately $178 million was available for funding. As of September 28, 2007, we had no outstanding borrowings under this receivables facility. In addition, as of September 28, 2007, we had approximately €128 million and £25 million available under our European accounts receivable facilities. We had no outstanding borrowings under the European accounts receivable facilities as of September 28, 2007.

During any given month we anticipate that we will have up to $850 million outstanding under the Liquidity Facilities, which reflects the initial draw of $461 million on May 9, 2007. Portions of the amounts drawn under the Liquidity Facilities typically will be paid back throughout the month as cash from customers is received. We may then draw upon such facilities again for working capital purposes in the same or succeeding months. These borrowings reflect normal working capital utilization of liquidity. In addition, we own a 78.4% interest in Dalphi Metal Espana, S.A. (“Dalphimetal”). Dalphimetal and its subsidiaries have approximately €34 million of credit facilities, of which €20 million was available as of September 28, 2007. Our subsidiaries in the Asia Pacific region also have various credit facilities totaling approximately $97 million (US dollar equivalent), of which $50 million (US dollar equivalent), was available on September 28, 2007. These borrowings are primarily in the local currency of the country where our subsidiary’s operations are located. We expect that these additional facilities will be drawn from time to time for normal working capital purposes.

Debt Repurchases. On March 26, 2007, we repurchased substantially all of the Old Notes for $1,386 million resulting in a loss on retirement of debt of $147 million. On April 18, 2007, we repurchased additional Old Notes tendered after the Consent Date, but on or before the Tender Expiration Date, for $10 million and recorded a loss on retirement of debt of $1 million. We funded these repurchases from the March 2007 issuance of the New Senior Notes. On May 9, 2007, we refinanced approximately $1,561 million outstanding under the existing senior secured credit facilities and recorded a loss on retirement of debt of $7 million.

On February 2, 2006, we repurchased all of our subsidiary Lucas Industries Limited’s £94.6 million 107/8% bonds due 2020 for approximately £137 million, or approximately $243 million. The repayment of debt resulted in a pretax charge of approximately £32 million, or approximately $57 million, for loss on retirement of debt. We funded the repurchase from cash on hand.

We continuously evaluate our capital structure in order to ensure the most appropriate and optimal structure. As market conditions warrant, we and our majority equity holders, including the Blackstone Investors, may, from time to time, repurchase senior notes, senior subordinated notes or any other of our debt in the open market, by tender offers or through redemption or retirement.

Funding Our Requirements. While we are highly leveraged, we believe that funds generated from operations and available borrowing capacity will be adequate to fund debt service requirements, capital expenditures, working capital requirements and company-sponsored research and development programs. In addition, 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. However, our ability to continue to fund these items and to reduce debt may be affected by general economic (including difficulties in the automotive industry), financial market, competitive, legislative and regulatory factors, and the cost of warranty and recall and litigation claims, among other things. Therefore, we cannot assure you 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 facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Credit Ratings. Set forth below are our credit ratings for Standard & Poor’s, Moody’s and Fitch as of September 28, 2007.

S & P

Moody’s

Fitch

Corporate Rating

Bank Debt Rating

BBB

Baa

New Senior Notes Rating

–

Old Notes Rating


*		Ratings withdrawn

Senior Secured Credit Facilities. The Senior Secured Credit Facilities consist of the Revolving Credit Facility and various senior secured term loan facilities. As of September 28, 2007, the term loan facilities, with maturities ranging from 2013 to 2014, consisted of an aggregate of $1.1 billion dollar-denominated term loans and the Revolving Credit Facility provided for borrowing of up to $1.4 billion.

The Term LoanA-1 will amortize in quarterly installments, beginning with $30 million in 2009, $75 million in 2010, $120 million in 2011, $225 million in 2012 and $150 million in 2013. The Term Loan B-1 will amortize in equal quarterly installments beginning September 30, 2007 in an amount equal to 1% per annum during the first 6 years and six months and in one final installment on the maturity date.

Guarantees and Security of Senior Secured Credit Facilities. The Senior Secured Credit Facilities, like the previously existing senior credit facilities, are unconditionally guaranteed by the Company and substantially all existing and subsequently acquired wholly-owned domestic subsidiaries. Obligations of the foreign subsidiary borrowers are unconditionally guaranteed by the Company, TRW Automotive Inc. and certain foreign subsidiaries of TRW Automotive Inc. The Senior Secured Credit Facilities, like the previously existing senior credit facilities, are secured by a perfected first priority security interest in, and mortgages on, substantially all tangible and intangible assets of TRW Automotive Inc. and substantially all of its domestic subsidiaries, including a pledge of 100% of the stock of TRW Automotive Inc. and substantially all of its domestic subsidiaries and 65% of the stock of foreign subsidiaries owned by domestic entities. In addition, foreign borrowings under the Senior Secured Credit Facilities will be secured by assets of the foreign borrowers.

Interest Payments. Borrowings under the Senior Secured Credit Facilities will bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the administrative agent’s prime rate and (2) the federal funds rate plus 1/2 of 1% or (b) a London Inter-Bank Offered Rate (“LIBOR”) or a eurocurrency rate determined by reference to interest rates for deposits in the currency of such borrowing for the interest period relevant to such borrowing adjusted for certain additional costs. As of September 28, 2007, the applicable margin for the Term LoanA-1 and the Revolving Credit Facility was 0.125% with respect to base rate borrowings and 1.125% with respect to eurocurrency borrowings, and the applicable margin for the Term Loan B-1 was 0.50% with respect to base rate borrowings and 1.50% with respect to eurocurrency borrowings. The commitment fee on the undrawn amounts under the Revolving Credit Facility was 0.25%. The commitment fee and the applicable margin on the Revolving Credit Facility and the applicable margin on the Term LoanA-1 are subject to a leverage-based grid. Variable rate debt exposes us to the risk of rising interest rates. As interest rates increase, our debt service obligation on variable rate debt increases, even though principal amounts borrowed remain unchanged.

Our New Senior Notes, which mature in 2014 and 2017, bear interest, payable semi-annually on March 15 and September 15, at fixed rates ranging from 63/8% to 71/4%. Our remaining Old Notes, which mature in 2013, bear interest, payable semi-annually on February 15 and August 15, at fixed rates ranging from 93/8% to 113/4%.

Debt Restrictions. The Senior Secured Credit Facilities, like the previously existing senior credit facilities, contain a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of TRW Automotive Inc. and its subsidiaries, to incur additional indebtedness or issue preferred stock, repay other indebtedness (including the New Senior Notes), pay certain dividends and distributions or repurchase capital stock, create liens on assets, 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 TRW Automotive Inc.’s indebtedness, including the New Senior Notes and the Receivables Facility, and change the business we conduct. In addition, the Senior Secured Credit Facilities, like the previously existing senior credit facilities, contain financial covenants relating to a maximum total leverage ratio and a minimum interest coverage ratio 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 Secured Credit Facilities. The Senior Secured Credit Facilities generally restrict the payment of dividends or other distributions by TRW Automotive Inc., subject to specified exceptions. The exceptions include, among others, the making of payments or distributions in respect of expenses required for us and our wholly-owned subsidiary, TRW Automotive Intermediate Holdings Corp., 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. The Senior Secured Credit Facilities also include customary events of default.

The indentures governing the New Senior Notes contain covenants that impose significant restrictions on the business. The covenants, among other things, restrict, subject to a number of qualifications and limitations, the ability of TRW Automotive Inc. and its subsidiaries, to pay certain dividends and distributions or repurchase our capital stock, incur liens, engage in mergers or consolidations, and enter into sale and leaseback transactions.

In connection with the tender offers to purchase the Old Notes, we also received consents to amend the indentures governing the Old Notes. The amendments eliminated substantially all of the covenants and certain events of default and modified the provisions relating to the defeasance of the remaining Old Notes.

Interest Rate Swap Agreements. In November 2005, the Company entered into a series of interest rate swap agreements with a total notional value of $250 million to hedge the variability of interest payments associated with its variable-rate term debt. Since the interest rate swaps hedged the variability of interest payments on variable rate debt with the same terms, they qualified for cash flow hedge accounting treatment. In October and November 2006, the Company unwound the interest rate swaps with a total notional value of $250 million. In conjunction with the May 9, 2007 refinancing of our existing senior secured credit facilities, we reclassified approximately $1 million remaining in other comprehensive earnings to loss on retirement of debt relating to these interest rate swaps.

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 was equal to the face value of the designated debt instrument. The swap agreements were expected to settle in February 2013, the maturity date of the corresponding debt instrument. Since these interest rate swaps hedged the designated debt balance and qualified for fair value hedge accounting, changes in the fair value of the swaps also resulted in a corresponding adjustment to the value of the debt. In February 2007, the Company unwound the interest rate swaps with a total notional value of $500 million and paid approximately $12 million. In conjunction with the repurchase of the Old Notes, an $11 million adjustment to the value of the corresponding debt was immediately written off to loss on retirement of debt.

Contractual Obligations and Commitments

In the nine months of 2007, we repurchased substantially all of the Old Notes for approximately $1,396 million, and issued the New Senior Notes for proceeds of approximately $1,465 million. In May 2007, we refinanced approximately $1,561 million outstanding under the then-existing senior secured credit facilities with new Senior Secured Credit Facilities.

Other Commitments. Escalating pricing pressure from customers has been a characteristic of the automotive parts industry in recent years. Virtually all OEMs 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.

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.

We have entered into a receivables facility, which, as amended (the “Receivables Facility”), extends to December 2009 and currently provides up to $209 million in funding from commercial paper conduits sponsored by commercial lenders, based on availability of eligible receivables and other customary factors. On January 19, 2007, we reduced the committed amount of the facility from $250 million to $209 million and amended certain terms of the Receivables Facility to increase availability of funding under the facility.

Certain of our subsidiaries (the “Sellers”) sell trade accounts 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 special purpose limited liability company that is wholly-owned by the Transferor and is not consolidated when certain requirements are met.

Generally, multi-seller commercial paper conduits supported by committed liquidity facilities are available to provide cash funding for the Borrower’s purchase of receivables through secured loans/tranches to the extent desired and permitted under the receivables loan agreement. The Transferor records a receivable for the difference between the purchase price of the receivables purchased and cash borrowed through the Receivables Facility.

The Sellers 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 Receivables Facility is 0.85% of outstanding borrowings. In addition, we are required to pay a fee of 0.40% on the unused portion of the Receivables Facility. Both the usage fee and the fee on the unused portion of the Receivables Facility are subject to a leveraged based grid. 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 and 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). As of September 28, 2007, based on the terms of the Receivables Facility and the criteria described above, approximately $242 million of our reported accounts receivable were considered eligible to support borrowings under the Receivables Facility, of which approximately $178 million was available for funding.

We had no outstanding borrowings under the Receivables Facility as of September 28, 2007 and December 31, 2006. As such, 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 statements of the Borrower were included in the Company’s consolidated financial statements at September 28, 2007 and December 31, 2006. Repayments disbursed less proceeds received from the Receivables Facility in the three month period ended September 28, 2007 were $127 million. Proceeds received less repayments disbursed on the Receivables Facility were zero in the nine month period ended September 28, 2007.

Other Receivables Facilities

In addition to the Receivables Facility described above, certain of the Company’s European subsidiaries have entered into receivables financing arrangements. The Company has up to €75 million available until January 2008 through an arrangement involving a wholly-owned special purpose vehicle, which purchases trade receivables from its German affiliates and sells those trade receivables to a German bank. Additionally, the Company has a

receivables financing arrangement of up to £25 million available until November 2008 through an arrangement involving a wholly-owned special purpose vehicle, which purchases trade receivables from its United Kingdom affiliates and sells those trade receivables to a United Kingdom bank. The Company has a factoring arrangement in France which provides for availability of up to €80 million until July 2008. This arrangement involves a wholly-owned special purpose vehicle which purchases trade receivables from its French affiliates and sells those trade receivables to a French bank. All European arrangements are renewable for one year at the end of their respective terms, if not terminated. As of September 28, 2007, approximately €128 million and £25 million were available for funding under the Company’s European accounts receivable facilities. There were no outstanding borrowings under any of these facilities as of September 28, 2007 or December 31, 2006.

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 our operations and us. 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. As of September 28, 2007, we had reserves for environmental matters of $54 million. In addition, the Company has established a receivable from Northrop Grumman Corporation (“Northrop”) for a portion of this environmental liability as a result of the indemnification provided for in the master purchase agreement under which Northrop has agreed to indemnify us for 50% of any environmental liabilities associated with the operation or ownership of TRW Inc.’s automotive business existing at or prior to the Acquisition, subject to certain exceptions.

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 2007 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.

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, patent, product liability, environmental and occupational safety and health law matters. We face an inherent business risk of exposure to product liability, recall and warranty claims in the event that our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in bodily injuryand/or property damage. Accordingly, we could experience material warranty, recall or product liability losses in the future. In addition, our costs to defend the product liability claims have increased in recent years.

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 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.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the accompanying Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

OUTLOOK

With nine months of results reported, the Company refined its full year 2007 outlook, which now calls for sales of approximately $14.5 billion (including fourth quarter sales of $3.7 billion). The Company narrowed its estimates for net earnings per diluted share to be in the range of $0.60 to $0.80, which includes debt retirement costs of $155 million, or $1.50 per diluted share. This guidance range reflects pre-tax restructuring expenses of approximately $45 million (including approximately $13 million in the fourth quarter), and an effective tax rate to be in excess of 60% since there is no corresponding income tax benefit related to the debt retirement costs. Lastly, the Company expects capital expenditures in 2007 to be slightly below 4% of sales.

The expected annual effective tax rate underlying our guidance is dependent on several assumptions, including the level and mix of future income by taxing jurisdiction, current enacted global corporate tax rates and global corporate tax laws remaining constant. Changes in tax law and rates could have a significant impact on the effective rate. The overall effective tax rate is equal to consolidated tax expense as a percentage of consolidated earnings before tax. However, tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. We are in a position whereby losses incurred in certain jurisdictions provide no current financial statement benefit. In addition, certain taxing jurisdictions have statutory rates greater than or less than the Unites States statutory rate. As such, changes in the mix of projected earnings between jurisdictions could have a significant impact on our overall effective tax rate.

We are concerned about the ongoing financial health and solvency of our major customers as they address negative industry conditions through various restructuring activities. Such restructuring actions, if significant, could have a negative impact on our financial results. Annually, we purchase large quantities of ferrous metals, aluminum, base metals, resins, and textiles for use in our manufacturing process either indirectly as part of purchased components, or directly as raw materials, and therefore we continue to be exposed to the recent inflationary pressures impacting the resin/yarn, ferrous metal, aluminum, and other commodity markets on a worldwide basis. We are also concerned about the viability of the Tier 2 and Tier 3 supply base as they face these inflationary pressures and other financial difficulties in the current automotive environment. We expect these trends to continue, further pressuring the Company’s performance near future. While we continue our efforts to mitigate the impact of these negative conditions on our financial results, including earnings and cash flows, our efforts may be insufficient and the pressures may worsen, thereby potentially having a negative impact on our future results.

Given the nature of our global operations, we maintain an inherent exposure to fluctuations in foreign currencies relative to the U.S. dollar. A significant strengthening of the U.S. dollar against other currencies could have a negative impact on our results of operations due to our proportional concentration of sales volumes in

countries outside the United States (i.e. translation exposures). Conversely, a significant weakening of mainly the U.S. dollar and the Euro against other currencies could, even after hedging, have a negative impact on gross profit as our supply base is proportionately less concentrated in the U.S. and Euro currency regions than our sale volumes (i.e. transaction exposures). Additionally, our variable rate indebtedness exposes us to the risk of rising interest rates. As interest rates increase, our debt service obligation on variable rate indebtedness increases, even though amounts borrowed remain unchanged.

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 the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006 under “Item 1A. Risk Factors” and include: production cuts or restructuring by our major customers; work stoppages or other labor issues at the facilities of our customers or suppliers; non-performance by, or insolvency of, our suppliers and customers, which may be exacerbated by bankruptcies and other pressures within the automotive industry; the inability of our suppliers to deliver products at the scheduled rate and disruptions arising in connection therewith; interest rate risk arising from our variable rate indebtedness; loss of market share by domestic vehicle manufacturers; efforts by our customers to consolidate their supply base; severe inflationary pressures impacting the market for commodities; escalating pricing pressures from our customers; our dependence on our largest customers; fluctuations in foreign exchange rates; our substantial leverage; product liability and warranty and recall claims and efforts by customers to alter terms and conditions concerning warranty and recall participation; limitations on flexibility in operating our business contained in our debt agreements; the possibility that our owners’ interests will conflict with ours; and other risks and uncertainties set forth in ourForm 10-K and our other filings with the Securities and Exchange Commission.

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 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements which have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*

Our primary market risk arises from fluctuations in foreign currency exchange rates, interest rates and commodity prices. We manage foreign currency exchange rate risk, interest rate risk, and to a lesser extent commodity price risk, by utilizing various derivative instruments and limit the use of such instruments to hedging activities. We do not use such instruments for speculative or trading purposes. If we did not use derivative instruments, our exposure to such risk would be higher. We are exposed to credit loss in the event of nonperformance by the counterparty 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 fully satisfy their obligations under the contracts.

Foreign Currency Exchange Rate Risk. We utilize derivative financial instruments to manage foreign currency exchange rate risks. Forward contracts and, to a lesser extent, options are utilized to protect our cash flow from adverse movements in exchange rates. These derivative instruments are currently only used to hedge transaction exposures but may in the future be used to hedge also translation exposures. Foreign currency exposures are reviewed monthly and any natural offsets are considered prior to entering into a derivative financial instrument. As of September 28, 2007, approximately 19% of our total debt was in foreign currencies as compared to 15% as of December 31, 2006.

Interest Rate Risk. We are subject to interest rate risk in connection with the issuance of variable and fixed-rate debt. In order to manage interest costs, we utilize interest rate swap agreements to exchange fixed and variable-rate interest payment obligations over the life of the agreements. Our exposure to interest rate risk arises primarily from changes in London Inter-Bank Offered Rates (“LIBOR”). As of September 28, 2007, approximately 54% of our total debt was at variable interest rates, with no interest rate swaps in effect, compared to December 31, 2006, when approximately 55% of our total debt was at variable interest rates (or 71% when considering the effect of interest rate swaps).

Sensitivity Analysis. We utilize a sensitivity analysis model to calculate the fair value, cash flows or income statement impact that a hypothetical 10% change in market rates would have on our debt and derivative instruments. For derivative instruments, we utilized applicable forward rates in effect as of September 28, 2007 to calculate the fair value or cash flow impact resulting from this hypothetical change in market rates. 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. The results of the sensitivity model calculations follow:


	Assuming a 10%			Assuming a 10%			Favorable
	Increase in			Decrease in			(Unfavorable)
	Rates			Rates			Change in
	(Dollars in millions)

Market Risk
*Foreign Currency Rate Sensitivity:*
Forwards*
— Long US$	$	(49	)	$	49			Fair value
— Short US$	$	35		$	(35	)		Fair value
Debt**
— Foreign currency denominated	$	(66	)	$	66			Fair value
*Interest Rate Sensitivity:*
Debt
— Fixed rate	$	62		$	(66	)		Fair value
— Variable rate	$	(13	)	$	13			Cash flow


*		Change in fair value of forward contracts hedging the identified underlying positions assuming a 10% change in the value of the U.S. Dollar vs. foreign currencies.

**		Change in fair value of foreign currency denominated debt assuming a 10% change in the value of the foreign currency.


Item 4.	*Controls and Procedures*

Evaluation of Disclosure 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 defined inrule 13a-15(e) under the Securities Exchange Act of 1934) as of September 28, 2007, have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files and submits under the Securities Exchange Act of 1934 is accumulated and submitted to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting subsequent to the date of their evaluation.

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 — Environmental” and “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 onForm 10-K for the fiscal year ended December 31, 2006, Quarterly Report onForm 10-Q for the quarter ended March 30, 2007 and Quarterly Report onForm 10-Q for the quarter ended June 29, 2007.


Item 1A.	*Risk Factors*

There have been no material changes in risk factors involving the Company or its subsidiaries from those previously disclosed in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*


*(c)*	*Issuer repurchases*

The independent trustee of our 401(k) plans and similar plans purchases shares in the open market to fund investments by employees in our common stock, one of the investment options available under such plans, and matching contributions in Company stock to employee investments. In addition, our stock incentive plan permits payment of an option exercise price by means of cashless exercise through a broker and for the satisfaction of tax obligations upon exercise of options and the vesting of restricted stock units through stock withholding. However, the Company does not believe such purchases or transactions are issuer repurchases for the purposes of this Item 2 of this Report onForm 10-Q. In addition, although our stock incentive plan also permits the satisfaction of tax obligations upon the vesting of restricted stock through stock withholding, there was no such withholding in the third quarter of 2007.


Item 6.	*Exhibits*


Exhibit
Number			Exhibit Name

	4.1		Supplemental Indenture dated as of September 14, 2007, among TRW Integrated Chassis Systems LLC, the existing guarantors and The Bank of New York, as trustee, pertaining to 63/8% Senior Notes due 2014
	4.2		Supplemental Indenture dated as of September 14, 2007, among TRW Integrated Chassis Systems LLC, the existing guarantors and The Bank of New York, as trustee, pertaining to 7% Senior Notes due 2014
	4.3		Supplemental Indenture dated as of September 14, 2007, among TRW Integrated Chassis Systems LLC, the existing guarantors and The Bank of New York, as trustee, pertaining to 71/4% Senior Notes due 2017
	31(a	)	Certification Pursuant toRule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
	31(b	)	Certification Pursuant toRule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
	32(a	)	Certification Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002
	32(b	)	Certification Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002

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. CANTIE

Joseph S. Cantie

Executive Vice President and
Chief Financial Officer

(On behalf of the Registrant and as Principal Financial Officer)

Date: October 30, 2007

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TRW Automotive (TRW) Inactive 10-Q2007 Q3 Quarterly report

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