10-K 1 k02389e10vk.htm ANNUAL REPORT FOR FISCAL YEAR ENDED 12/31/2005 e10vk
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
 
Form 10-K
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2005
    OR
o
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from           to           .
Commission File No. 001-31970
TRW AUTOMOTIVE LOGO
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
(734) 855-2600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
     
Title of Each Class   Name of Each Exchange on Which Registered
     
Common Stock, $0.01 par value per share
   New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes þ          No o
      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o          No þ
      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o
      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated file     þ          Accelerated filer     o          Non-accelerated filer     o
      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ
      As of July 1, 2005, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Common Stock, $0.01 par value per share, held by non-affiliates of the registrant was approximately $805,875,822 based on the closing sale price of the registrant’s Common Stock as reported on the New York Stock Exchange on that date. As of February 8, 2006, the number of shares outstanding of the registrant’s Common Stock was 99,343,692.
Documents Incorporated by Reference
      Certain portions, as expressly described in this report, of the Registrant’s Proxy Statement for the 2006 Annual Meeting of the Stockholders, to be filed within 120 days of December 31, 2005, are incorporated by reference into Part III, Items 10-14.
Website Access to Company Reports and Other Information
      TRW Automotive Holdings Corp. Internet website address is www.trwauto.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Corporate Governance Guidelines and Standards of Conduct (our code of business conduct and ethics) are also available on our website and available in print to any shareholder who requests it.
 
 

 

TRW Automotive Holdings Corp.
Index
             
        Page
         
 PART I
   Business     1  
   Risk Factors     12  
   Unresolved Staff Comments     15  
   Properties     15  
   Legal Proceedings     16  
   Submission of Matters to a Vote of Security Holders     17  
 PART II
   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     17  
   Selected Financial Data     19  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     20  
   Quantitative and Qualitative Disclosures about Market Risks     45  
   Financial Statements and Supplementary Data     46  
     Reports of Independent Registered Public Accounting Firm     89  
   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     92  
   Control and Procedures     92  
   Other Information     92  
 PART III
   Directors and Executive Officers of the Registrant     92  
   Executive Compensation     93  
   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     93  
   Certain Relationships and Related Transactions     93  
   Principal Accounting Fees and Services     93  
 PART IV
   Exhibits and Financial Statement Schedules     94  
 First Supplemental Trust Deed, dated February 1, 2006
 Incremental Facility Amendment dated as of November 18, 2005
 List of Subsidiaries
 Consent of Ernst & Young LLP
 Certification Pursuant to Rule 13a-14(a) to Section 302
 Certification Pursuant to Rule 13a-14(a) to Section 302
 Certification Pursuant to 18 U.S.C. to Section 906
 Certification Pursuant to 18 U.S.C. to Section 906

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PART I
ITEM 1. BUSINESS
The Company
      TRW Automotive Holdings Corp. (the “Company”) is 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). 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 are primarily a “Tier 1” supplier (a supplier which sells to OEMs). In 2005, approximately 85% of our end-customer sales were to major OEMs. Our history in the automotive supply business dates back to the early 1900s.
      Predecessor and Successor Company. As a result of the acquisition on February 28, 2003 (as defined and further discussed below), all references in this report to “TRW Automotive,” the “Company,” “we,” “our” and “us” mean, unless the context indicates otherwise, (i) our predecessor, which is the former TRW Automotive Inc. (which we did not acquire and was renamed Richmond TAI Corp.) and its subsidiaries and the other subsidiaries, divisions and affiliates of TRW Inc. (“Old TRW”) that together constituted the automotive business of Old TRW, for the periods prior to February 28, 2003, the date the Acquisition was consummated, and (ii) the successor and registrant, TRW Automotive Holdings Corp. and its subsidiaries, that own and operate the automotive business of Old TRW as a result of the Acquisition. Our predecessor’s 51% interest in the joint venture, TRW Koyo Steering Systems Company (“TKS”), was not transferred to us as part of the Acquisition. In addition, when the context so requires, we use the term “Predecessor” to refer to the historical operations of our predecessor prior to the Acquisition and “Successor” to refer to our historical operations following the Acquisition, and we use the terms “we,” “our” and “us” to refer to the Predecessor and the Successor collectively. The historical financial statements for the periods prior to the Acquisition and summaries thereof appearing in this report are those of our predecessor and represent the combined financial statements of Old TRW’s automotive business. Prior to the Acquisition, our predecessor operated as a segment of Old TRW, which was acquired by Northrop Grumman Corporation (“Northrop”) on December 11, 2002.
      Change in Ownership. Old TRW entered into an Agreement and Plan of Merger with Northrop, dated June 30, 2002, whereby Northrop would acquire all of the outstanding common stock of Old TRW, including Old TRW’s automotive business, in exchange for Northrop shares. The acquisition of Old TRW by Northrop was completed on December 11, 2002 (the “Merger”).
      Additionally, on November 18, 2002, an entity controlled by affiliates of The Blackstone Group, L.P. (“Blackstone”), entered into a master purchase agreement, as amended, (the “Master Purchase Agreement”) pursuant to which the Company, a newly-formed entity, would cause its indirect wholly-owned subsidiary, TRW Automotive Acquisition Corp., to purchase the shares of the subsidiaries of Old TRW engaged in the automotive business from Northrop (the “Acquisition”). The Acquisition was completed on February 28, 2003. Subsequent to the Acquisition, TRW Automotive Acquisition Corp. changed its name to TRW Automotive Inc. (referred to herein as “TRW Automotive”). As a result of the Acquisition, Automotive Investors L.L.C., or AIL, an affiliate of Blackstone, held approximately 78.4%, an affiliate of Northrop held approximately 19.6% and our management group held approximately 2.0% of our common stock.
      Initial Public Offering. On February 6, 2004, we completed an initial public offering of 24,137,931 shares of our common stock (the “Common Stock”). In connection with our initial public offering, we effected a 100 for one stock split of the outstanding shares of Common Stock on January 27, 2004. After our initial public offering, including the use of a portion of the net proceeds from our initial public offering to repurchase a portion of the shares held by AIL, AIL held approximately 56.7%, an affiliate of

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Northrop held approximately 17.2% and our management group held approximately 1.7% of our Common Stock.
      Share Repurchases and Issuances in 2005. On March 11, 2005, we repurchased from an affiliate of Northrop 7,256,500 shares of Common Stock for approximately $143 million in cash. These shares were immediately retired following the repurchase. As a result of the repurchase and after considering the share issuance referenced below, the Northrop affiliate held 9.9% of the outstanding Common Stock, down from 17.2%.
      Separately, on March 11, 2005, we sold to T. Rowe Price Group, Inc., as investment adviser to certain mutual funds and institutional accounts, 5,256,500 newly issued shares of Common Stock for approximately $103 million in cash. On March 11, 2005, we also sold to certain investment advisory clients of Wellington Management Company, llp., 2,000,000 newly issued shares of Common Stock for approximately $40 million in cash. We filed a registration statement with the Securities and Exchange Commission for the registration of the resale of these newly issued shares. Pursuant to the registration statement, the holders of those shares are able to sell their shares of Common Stock into the market from time to time.
      We used the $143 million of proceeds we received from these share issuances initially to return cash and/or reduce liquidity line balances to the levels that existed immediately prior to the time the share purchase from an affiliate of Northrop referenced above took place. On May 3, 2005, a portion of the proceeds from these share issuances was then used to repurchase €48 million principal amount of the Company’s 101/8% Senior Notes.
Financial and Operating Information
      Segment Information. We conduct substantially all of our operations through our subsidiaries and along three operating segments: Chassis Systems, Occupant Safety Systems and Automotive Components. The table below summarizes certain financial information for our operating segments.
                                     
    Successor   Predecessor
         
    Years Ended   Ten Months   Two Months
    December 31,   Ended   Ended
        December 31,   February 28,
    2005   2004   2003   2003
                 
    (Dollars in millions)
Sales to external customers:
                                
 
Chassis Systems
   $ 7,197     $ 6,950     $ 5,424     $ 1,110  
 
Occupant Safety Systems
     3,755       3,438       2,751       555  
 
Automotive Components
     1,691       1,623       1,260       251  
                         
Total sales
   $ 12,643     $ 12,011     $ 9,435     $ 1,916  
                         
Segment earnings before taxes:
                                
 
Chassis Systems
   $ 258     $ 258     $ 127     $ 46  
 
Occupant Safety Systems
     314       327       216       53  
 
Automotive Components
     88       102       90       26  
                         
Segment earnings before taxes
     660       687       433       125  
Corporate expense and other
     (94 )     (104 )     (93 )     (28 )
Financing costs
     (231 )     (252 )     (312 )     (47 )
Loss on retirement of debt
     (7 )     (167 )     (31 )     —  
                         
   
Earnings (losses) before income taxes
   $ 328     $ 164     $ (3 )   $ 50  
                         
      See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 21 to the consolidated and combined financial statements for a discussion of segment earnings before taxes.

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      Sales by Product Line. Our 2005 sales by product line are as follows:
         
Product Line   Percentage of Sales
     
Steering gears and systems
     16.3 %
Air bags
     14.2 %
Foundation brakes
     14.1 %
ABS and other brake control
     9.3 %
Seat belts
     7.4 %
Aftermarket
     7.2 %
Crash sensors and other safety and security electronics
     5.8 %
Engine valves
     4.9 %
Linkage and suspension
     4.7 %
Body controls
     4.4 %
Chassis modules
     3.9 %
Engineered fasteners and plastic components
     3.4 %
Steering wheels
     3.2 %
Other
     1.2 %
      Sales by Geography. Our 2005 sales by geographic region are as follows:
         
Geographic Region   Percentage of Sales
     
Europe
     55.1 %
North America
     36.2 %
Rest of the World
     8.7 %
      See Note 21 to our consolidated and combined financial statements included in this report for additional product sector and geographical information.
Business Developments and Industry Trends
      Business Development and Strategy. We have become a leader in the global automotive parts industry by capitalizing on the strength of our products, technological capabilities and systems integration skills. Over the last decade, we have experienced sales growth in many of our product lines due to an increasing focus by both governments and consumers on safety and fuel efficiency. We believe that this trend is continuing as evidenced by ongoing regulatory activities and escalating fuel costs, and will enable us to experience growth in the most recent generation of advanced safety and fuel efficient products, such as vehicle stability control systems, curtain and side air bags, occupant sensing systems, electrically assisted power steering systems and tire pressure monitoring systems.
      Throughout our long history as a leading supplier to major OEMs, we have focused on products where we have a technological advantage. We have extensive technical experience in a focused range of safety-related product lines and strong systems integration skills. These traits enable us to provide comprehensive, systems-based solutions for our OEM customers. We have a broad and established global presence and sell to major OEMs across all of the world’s major vehicle producing regions. We believe our diversified business mitigates our exposure to the risks of any one geographic economy, product line or major customer concentration. It also enables us to extend our portfolio of products and new technologies across our customer base and geographic regions, and provides us the necessary scale to optimize our cost structure.
      Industry Trends. The following key trends have been affecting the automotive parts industry over the past several years. (The statements regarding industry outlook, trends, the future development of certain automotive systems and other non-historical statements contained in this section are forward-looking statements.):
  •  Asian OEM Market Share. In recent years, Ford Motor Company, General Motors Corporation and, to a lesser extent, the Chrysler unit of DaimlerChrysler AG (the “Big Three”) have seen a steady

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  decline in their market share for vehicle sales in North America and Europe, with Asian OEMs increasing their share in such markets. Although we do have business with the Asian OEMs, our customer base is more heavily weighted toward the Big Three.
 
  •  Inflationary Pressures and Supply Base. Our industry continues to experience increases in costs of resins, yarns and other petroleum-based products, as well as higher energy costs. Costs of other commodities such as ferrous metals also remain a worry despite declines in costs from recent highs. Therefore, overall commodity inflation pressures remain a significant concern for our industry and business and have placed a considerable operational and financial burden on us and the industry. We expect such inflationary pressures to continue.

  In addition, the inflationary environment surrounding resins, yarns, petroleum-based products and ferrous metals has resulted in concern about the viability of the Tier 2 and Tier 3 supply base as they face these inflationary pressures.
  •  Restructuring Initiatives. As a result of the market share losses and inflationary pressures discussed above, most major OEMs and Tier 1 suppliers have embarked upon multi-year restructuring programs in order to realign their cost structures in the face of these issues. Some of these restructuring programs have involved reorganizations in bankruptcy.
 
  •  Escalating Pricing Pressures on Automotive Suppliers. Pricing pressure from customers has been a characteristic of the automotive supply industry in recent years. This pressure has been substantial and is likely to continue. Virtually all OEMs have policies of seeking price reductions each year. We and other suppliers have been forced to reduce prices in both the initial bidding process and throughout long-term supply arrangements. We have taken steps to reduce costs and resist price reductions; however, price reductions have impacted our sales and profit margins and are expected to do so in the future.
 
  •  Consumer and Regulatory Focus on Safety. Consumers, and therefore OEMs, are increasingly focused on, and governments are increasingly requiring, improved safety in vehicles. For example, the Alliance of Automobile Manufacturers and the Insurance Institute for Highway Safety announced voluntary performance criteria which encompass a wide range of occupant protection technologies and designs, including enhanced matching of vehicle front structural components and enhanced side-impact protection through the use of features such as side air bags, air bag curtains and revised side-impact structures. By September 1, 2007, at least 50% of all vehicles offered in the United States by participating manufacturers are expected to meet the front-to-side performance criteria, and by September 2009, 100% of the vehicles of participating manufacturers are expected to meet the criteria.
  In October 2005, the National Highway Safety Traffic Administration (“NHTSA”) updated its mandate for the assembly onto vehicles of a direct tire pressure monitoring system, capable of detecting when one or more tires are significantly under-inflated. The phase-in period for compliance is as follows: 20% of light vehicles are required to comply with the standard during the period from October 5, 2005 to August 31, 2006; 70% during the period from September 1, 2006 to August 21, 2007; and all light vehicles thereafter. In September 2004, NHTSA released preliminary results of a study on the effectiveness of electronic stability control that indicated a dramatic reduction in single-vehicle crashes for vehicles equipped with these systems.
 
  Advances in technology by us and others have led to a number of innovations in our product portfolio, which will allow us to benefit from this trend. Such innovations include electronic vehicle stability control systems, tire pressure monitoring systems, occupant sensing systems, rollover sensing and curtain air bag systems.
  •  Globalization of Suppliers. To serve multiple markets more cost effectively, many OEMs are manufacturing global vehicle platforms, which typically are designed in one location but are produced and sold in many different geographic markets around the world. Having operations in the geographic markets in which OEMs produce global platforms enables suppliers to meet OEMs’ needs more

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  economically and efficiently. Few suppliers have this global coverage, and it is a source of significant competitive advantage for those suppliers that do.
 
  •  Shift of Engineering to Suppliers. Increasingly, OEMs are focusing their efforts on consumer brand development and overall vehicle design, as opposed to the design of individual vehicle systems. In order to simplify the vehicle design and assembly processes and reduce their costs, OEMs increasingly look to their suppliers to provide fully engineered, combinations of components in systems and modules rather than individual components. Systems and modules increase the importance of Tier 1 suppliers because they generally increase the Tier 1 suppliers’ percentage of vehicle content.

  We have also seen certain vehicle manufacturers shift away from their funding of development contracts for new technology. We expect this trend to continue in 2006, thereby causing our engineering and research and development expenses to increase.
  •  Increased Electronic Content and Electronics Integration. The electronic content of vehicles has been increasing and, we believe, will continue to increase in the future. Consumer and regulatory requirements in Europe and the United States for improved automotive safety and environmental performance, as well as consumer demand for increased vehicle performance and functionality at lower cost largely drive the increase in electronic content. Electronics integration generally refers to replacing mechanical with electronic components and integration of mechanical and electrical functions within the vehicle. This allows OEMs to achieve a reduction in the weight of vehicles and the number of mechanical parts, resulting in easier assembly, enhanced fuel economy, improved emissions control, increased safety and better vehicle performance. As consumers seek more competitively-priced ride and handling performance, safety, security and convenience options in vehicles, such as electronic stability control, active cruise control, air bags, keyless entry and tire pressure monitoring, we believe that electronic content per vehicle will continue to increase.
 
  •  Increased Emphasis on Speed to Market. As OEMs are under increasing pressure to adjust to changing consumer preferences and to incorporate technological advances, they are shortening product development times. Shorter product development times also generally reduce product development costs. We believe suppliers that are able to deliver new products to OEMs in a timely fashion to accommodate the OEMs’ needs will be well-positioned to succeed in this evolving marketplace.
Competition
      The automotive parts industry is extremely competitive. OEMs rigorously evaluate us and other suppliers based on many criteria such as quality, price/cost competitiveness, system and product performance, reliability and timeliness of delivery, new product and technology development capability, excellence and flexibility in operations, degree of global and local presence, effectiveness of customer service and overall management capability. We believe we compete effectively with leading automotive suppliers on all of these criteria. For example, we generally follow manufacturing practices designed to improve efficiency, including but not limited to, one-piece-flow machining and assembly, and just-in-time scheduling of our manufacturing plants, all of which enable us to manage inventory so that we can deliver components and systems to our customers in the quantities and at the times ordered. Our resulting delivery performance, as measured by our customers, generally meets or exceeds our customers’ expectations.
      Within each of our product segments, we face significant competition. Our principal competitors include Advics, Bosch, Continental-Teves, Delphi, Koyo Seiko, Visteon, and ZF in the Chassis Systems segment; Autoliv, Bosch, Delphi, Key Safety, and Takata, in the Occupant Safety Systems segment; and Delphi, Eaton, ITW, Kostal, Nifco, Raymond, Textron, Tokai Rika, and Valeo in the Automotive Components segment.

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Sales and Products by Segment
      Sales. The following table provides sales for each of our operating segments:
                                                   
    Years Ended December 31,
     
    2005   2004   2003(1)
             
    Sales   %   Sales   %   Sales   %
                         
    (Dollars in millions)
Chassis Systems
   $ 7,197       57.0 %   $ 6,950       57.9 %   $ 6,534       57.6 %
Occupant Safety Systems
     3,755       29.7 %     3,438       28.6 %     3,306       29.1 %
Automotive Components
     1,691       13.3 %     1,623       13.5 %     1,511       13.3 %
                                     
 
Total Sales
   $ 12,643       100.0 %   $ 12,011       100.0 %   $ 11,351       100.0 %
                                     
 
(1)  Sales of our predecessor for the two months ended February 28, 2003 prior to the Acquisition, and our results of operations for the ten months ended December 31, 2003, have been combined for convenience of discussion and are collectively referred to as “year ended December 31, 2003.”
      Products. The following tables describe the principal product lines by segment in order of 2005 sales:
Chassis Systems
     
Product Line   Description
     
Steering
   Electrically assisted power steering systems (column-drive, rack-drive type), electrically powered hydraulic steering systems, hydraulic power and manual rack and pinion steering gears, hydraulic steering pumps, fully integral commercial steering systems, commercial steering columns and pumps
Foundation brakes
   Front and rear disc brake calipers, drum brake and drum-in-hat parking brake assemblies, rotors, drums and electric park brake
Brake control
   Four-wheel ABS, electronic vehicle stability control systems, active cruise control systems, actuation boosters and master cylinders, electronically controlled actuation
Linkage and Suspension
   Forged steel and aluminum control arms, suspension ball joints, rack and pinion linkage assemblies, conventional linkages, commercial steering linkages and suspension ball joints, active roll control systems
Modules
   Brake modules, corner modules, pedal box modules, strut modules, front cross-member modules, rear axle modules

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Occupant Safety Systems
     
Product Line   Description
     
Air Bags
   Driver air bag modules, passenger air bag modules, side air bag modules, curtain air bag modules, single-and dual-stage air bag inflators
Seatbelts
   Retractor and buckle assemblies, pretensioning systems, height adjusters, active control retractor systems
Safety electronics
   Front and side crash sensors, vehicle rollover sensors, air bag diagnostic modules, weight sensing and vision systems for occupant detection
Steering wheels
   Full range of steering wheels from base designs to leather, wood, heated designs, including multifunctional switches and integral air bag modules
Security electronics
   Remote keyless entry systems, advanced theft deterrent systems, direct tire pressure monitoring systems
Automotive Components
     
Product Line   Description
     
Engine Valves
   Engine Valves, valve train components, electro-magnetic valve actuation
Body controls
   Display and heating, ventilating and air conditioning electronics, controls and actuators; motors, power management controls; man/machine interface controls and switches, including a wide array of automotive ergonomic applications such as steering column and wheel switches, rotary connectors, climate controls, seat controls, window lift switches, air bag disable switches; and rain sensors
Engineered fasteners and components
   Engineered and plastic fasteners and precision plastic moldings and assemblies
      Chassis Systems. Our Chassis Systems segment focuses on the design, manufacture and sale of product lines relating to steering, foundation brakes, brake control, linkage and suspension, and modules. We sell our Chassis Systems products primarily to OEMs and other Tier 1 suppliers. We also sell these products to OEM service organizations and in the independent aftermarket, through a licensee in North America, and in the rest of the world, to independent distributors. We believe our Chassis Systems segment is well positioned to capitalize on growth trends towards (1) increasing active safety systems, particularly in the areas of electric steering, electronic vehicle stability control and other advanced braking systems and integrated vehicle control systems; and (2) integration of active and passive safety systems.
      Occupant Safety Systems. Our Occupant Safety Systems segment focuses on the design, manufacture and sale of air bags, seat belts, safety electronics, steering wheels and security electronic systems. We sell our Occupant Safety Systems products primarily to OEMs and also to other Tier 1 suppliers. We also sell these products to OEM service organizations for service parts. We believe our Occupant Safety Systems segment is well positioned to capitalize on growth trends towards (1) increasing passive safety systems, particularly in the areas of side and curtain air bag systems, occupant sensing systems, active seat belt pretensioning and retractor systems, and tire pressure monitoring systems; and (2) integration of active and passive safety systems.
      Automotive Components. Our Automotive Components segment focuses on the design, manufacture and sale of engine valves, body controls, and engineered fasteners and components. We sell our Automotive Components products primarily to OEMs and also to other Tier 1 suppliers. We also sell these products to OEM service organizations. In addition, we sell some engine valve and body control products to independent distributors for the automotive aftermarket. We believe our Automotive Components segment is well

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positioned to capitalize on growth trends toward multi-valve engines and increasing electronic content per vehicle.
Customers
      We sell to all the major OEM customers across all of the world’s major vehicle producing regions. Our long-standing relationships with our customers have enabled us to understand global customers’ needs and business opportunities. We believe that we will continue to be able to compete effectively for our customers’ business because of the high quality of our products, our ongoing cost reduction efforts, our strong global presence and our product and technology innovations. Although business with any given customer is typically split among numerous contracts, the loss of or a significant reduction in purchases by, one or more of those major customers could materially and adversely affect our business, results of operations and financial condition.
      End-customer sales (by OEM group) that constitute 10% or more of our sales for the years ended December 31, 2005 and 2004 were:
                     
        Percentage of Sales
         
OEM Group   OEMs   2005   2004
             
Ford
   Ford, Land Rover, Jaguar, Aston-Martin, Volvo, Mazda     16.1 %     17.2 %
DaimlerChrysler
   Chrysler, Mercedes, Smart, Mitsubishi     14.4 %     15.3 %
Volkswagen
   Volkswagen, Audi, Seat, Skoda, Bentley     14.3 %     14.2 %
General Motors
   General Motors, Opel, Saab, Isuzu, Subaru     11.3 %     11.1 %
All Other
         43.9 %     42.2 %
      We also sell products to the global aftermarket as replacement parts for current production and older vehicles. For each of the years ended December 31, 2005 and 2004, our sales to the aftermarket represented approximately 7% of our total sales. We sell these products through both OEM service organizations and independent distribution networks.
Sales and Marketing
      We have a sales and marketing organization of dedicated customer teams that provide a consistent interface with our key customers. These teams are located in all major vehicle-producing regions to best represent their respective customers’ interests within our organization, to promote customer programs and to coordinate global customer strategies with the goal of enhancing overall customer service and satisfaction. Our ability to support our customers globally is further enhanced by our broad global presence in terms of sales offices, manufacturing facilities, engineering/technical centers, joint ventures and licensees.
      Our sales and marketing organization and activities are designed to create overall awareness and consideration of, and to increase purchases of, our systems, modules and components. To further this objective, we participate in an international trade show in Frankfurt. We also provide on-site technology demonstrations at our major OEM customers on a regular basis.
Customer Support
      Our engineering, sales and production facilities are located in 25 countries. With hundreds of dedicated sales/customer development employees, we provide effective customer solutions, products and service in any region in which these facilities operate or manufacture.
Joint Ventures
      Joint ventures represent an important part of our business, both operationally and strategically. We have often used joint ventures to enter into new geographic markets such as China and India, or to acquire new customers or to develop new technologies such as direct tire pressure monitoring systems.

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      In the case of entering new geographic markets where we have not previously established substantial local experience and infrastructure, teaming with a local partner can reduce capital investment by leveraging pre-existing infrastructure. In addition, local partners in these markets can provide knowledge and insight into local customs and practices and access to local suppliers of raw materials and components. All of these advantages can reduce the risk, and thereby enhance the prospects for the success, of an entry into a new geographic market.
      Joint ventures can also be an effective means to acquire new customers. Joint venture arrangements can allow partners access to technology they would otherwise have to develop independently, thereby reducing the time and cost of development. More importantly, they can provide the opportunity to create synergies and applications of the technology that would not otherwise be possible.
      The following table shows our unconsolidated joint ventures in which we have a 49% or greater interest that are accounted for under the equity method:
                         
        Our        
        Ownership        
Country   Name   Percentage   Products   2005 Sales
                 
                (Dollars in millions)
Brazil
   SM-Sistemas Modulares Ltda.     50%     Brake modules   $ 16.6  
China
   Shanghai TRW Automotive Safety Systems Co., Ltd.     50%     Seat belt systems, air bags and steering wheels     24.1  
    CSG TRW Chassis Systems Co., Ltd.     50%     Foundation brakes     19.4  
India
   Brakes India Limited     49%     Foundation brakes, actuation brakes, valves and hoses     236.2  
    Rane TRW Steering Systems Limited     50%     Steering gears, systems and components and seat belt systems     78.2  
Spain
   Mediterranea de Volantes SL     50%     Steering wheels     0.2 (1)
United States
   Methode Lucas Controls, Inc.     50%     Multi-functional column-mounted controls (pressed parts and key moldings for column switchgear)     15.2  
    EnTire Solutions, LLC     50%     Direct tire pressure monitoring systems     42.6  
 
(1)  Sales for Mediterranea de Volantes SL are for the two months following our recently completed acquisition of Dalphi Metal Espana, S.A.
Intellectual Property
      We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets, and are involved in numerous licensing arrangements. Although our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve, no single patent, copyright, trade secret or license, or group of related patents, copyrights, trade secrets or licenses, is, in our opinion, of such value to us that our business would be materially affected by the expiration or termination thereof. However, we view the name TRW Automotive and primary mark “TRW” as material to our business as a whole. Our general policy is to apply for patents on an ongoing basis in the United States, Germany and appropriate other countries to protect our patentable developments.
      Our portfolio of patents and pending patent applications reflects our commitment to invest in technology and covers many aspects of our products and the processes for making those products. In addition, we have developed a substantial body of manufacturing know-how that we believe provides a significant competitive advantage in the marketplace.

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      We have entered into numerous technology license agreements that either strategically exploit our intellectual property rights or provide a conduit for us into third party intellectual property rights useful in our businesses. In many of these agreements, we license technology to our suppliers, joint venture companies and other local manufacturers in support of product production for our customers and us. In other agreements, we license the technology to other companies to obtain royalty income.
      We own a number of secondary trade names and marks applicable to certain of our businesses and products that we view as important to such businesses and products as well.
      As part of the Acquisition, we entered into intellectual property license agreements with Old TRW.
Seasonality
      Our business is moderately seasonal because our largest North American customers typically halt operations for approximately two weeks in July and one week in December. Additionally, customers in Europe historically shut down vehicle production during portions of August and one week in December. As new models are typically introduced during the third quarter, automotive production traditionally is lower during that period. Accordingly, our third and fourth quarter results may reflect these trends.
Research, Development and Engineering
      We operate a global network of technical centers worldwide where we employ approximately 5,000 engineers, researchers, designers, technicians and their supporting functions. This global network allows us to develop automotive active and passive technologies while improving existing products and systems. We utilize sophisticated testing and computer simulation equipment, including computer-aided engineering, noise-vibration-harshness, crash sled, math modeling and vehicle simulations. We have advanced engineering and research and development programs for next-generation components and systems in our chassis, occupant safety and automotive component product areas. We are disciplined and innovative in our approach to research and development, employing various tools to improve efficiency and reduce cost, such as Six Sigma, “follow-the-sun” (a 24-hour a day engineering program that utilizes our global network) and other e-Engineering programs, and outsourcing non-core activities.
      Company-funded research, development and engineering costs totaled:
                   
    Years Ended
    December 31,
     
    2005