SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
---------------
For the period ended September 30, 1997 Commission file number: 001-12933
AUTOLIV, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0378542
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Trade Center
Klarabergsviadukten 70 Box 70381
S-107 24 Stockholm, Sweden
(Address of principal executive offices)
Registrant's telephone number, including area code: 46 (8) 402 0600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes: X No:
------ -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: There were
approximately 102 million shares of Common Stock of Autoliv, Inc., par
value $1.00 per share, outstanding as of October 20, 1997.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
AUTOLIV, INC.
Consolidated Statement of Income (unaudited)
(dollars in millions except per share data)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1996 2) 1997 1) 1996 2)
<S> <C> <C> <C> <C>
Sales $ 716.8 $ 376.6 $ 1883.3 $ 1275.6
Cost of sales (561.4) (299.1) (1480.9) (1021.6)
------- ------- ------- -------
Gross profit 155.4 77.5 402.4 254.0
Selling, administration and general (37.1) (17.0) (90.3) (53.8)
expense
Research and development expense (36.2) (23.0) (99.3) (74.0)
Amortization of intangibles, (14.0) (3.0) (27.0) (8.0)
primarily goodwill
Other income - net 2.4 0.5 2.6 4.1
------- ------- ------- -------
Operating income 70.5 35.0 188.4 122.3
Equity in earnings of 2.6 1.8 6.8 5.8
affiliates
Interest income 1.3 0.9 3.8 3.8
Interest expense (12.9) (1.1) (23.0) (3.1)
------- ------- ------- -------
Income before income taxes 61.5 36.6 176.0 128.8
Income taxes (26.7) (12.7) (69.0) (44.4)
Minority interests in subsidiaries 0.1 (0.2) (0.8) (0.5)
------- ------- ------- -------
Net income before one-time item 34.9 23.7 106.2 83.9
Write-off of acquired R&D -- (732.3) --
Reported net income 34.9 23.7 (626.1) 83.9
======= ======= ======= =======
Net income per share, fully diluted
from operations before one-time items 0.34 0.43 1.30 1.53
after one-time items 0.34 0.43 (7.67) 1.53
Number of shares used in computing 102.9 55.0 81.6 55.0
per share amount
Number of shares outstanding, 102.9 55.0 102.8 55.0
including Autoliv AB shares not
converted in the Exchange Offer
(millions)
</TABLE>
See notes to consolidated financial statement
1) Autoliv AB and subsidiaries for period on and prior to April 30, 1997;
Autoliv, Inc., for May 1 to September 30, 1997
2) Autoliv AB and subsidiaries
AUTOLIV, INC.
Consolidated Balance Sheet (unaudited)
(dollars in millions)
September 30, December 31,
1997 1996(1)
------------ ------------
ASSETS
Cash and cash equivalents $ 153.5 $ 131.7
Receivables, less allowances 581.0 383.4
Inventories 166.1 100.8
Refundable and deferred income tax
benefit 38.7 15.9
Prepaids 35.8 9.4
-------- --------
Total current assets 975.1 641.2
Property, plant and equipment, net 689.9 322.4
Investments in affiliated companies 31.4 26.0
Miscellaneous 1.1 --
Intangible assets, net (mainly
acquisition goodwill) 1,559.8 64.0
-------- --------
TOTAL ASSETS 3,257.3 1,053.6
======== ========
LIABILITIES AND EQUITY
Short-term debt 98.5 62.1
Accounts payable 374.4 281.2
Accrued expenses 266.1 182.1
Income taxes 67.0 21.1
-------- --------
Total current liabilities 806.0 546.5
Long-term debt 672.8 12.8
Other noncurrent liabilities 75.9 13.8
Minority interests in subsidiaries 16.4 22.0
-------- --------
Total noncurrent liabilities
and minority interests 765.1 48.6
Common stock, par value $1 per share 102.2 80.1
Additional paid-in capital 1,899.5
Retained earnings (accumulated
deficit) and foreign currency
translation adjustments (315.5) 378.4
-------- --------
Total shareholders' equity 1,686.2 458.5
-------- --------
TOTAL LIABILITIES AND EQUITY 3,257.3 1,053.6
======== ========
See notes to consolidated financial statement
- --------
1 Autoliv AB and subsidiaries
AUTOLIV, INC.
Consolidated Statement of Cash Flows (unaudited)
(dollars in millions)
NINE MONTHS ENDED
SEPT 30, SEPT 30,
1997(1) 1996(2)
OPERATING ACTIVITIES
Net Income $ (626.1) $ 83.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Write-off of acquired R&D 732.3
Depreciation and amortization 107.6 59.8
Deferred income taxes (3.7)
Undistributed earnings from affiliated
companies (5.7) (5.7)
Changes in operating assets and liabilities
Receivables and other assets 3.1 1.7
Inventories (1.1) (6.1)
Accounts payable and accrued expenses (29.5) (58.3)
Income taxes 5.0 (2.6)
Other-net 12.0
------ ------
Net cash provided by operating activities 193.9 72.7
INVESTING ACTIVITIES
Expenditure for property, plant and equipment (109.7) (101.4)
Acquisition of businesses and
investments in affiliated companies (3.9) (67.9)
Other 0.7 1.0
------ ------
Net cash used for investing activities (112.9) (168.3)
Cash flow before financing 81.0 (95.6)
FINANCING ACTIVITIES
(Decrease) / increase in debt (46.6) 27.4
(Decrease)in long term liabilities (0.7) (2.8)
(Decrease) / increase in minority interest (5.6) 21.6
Dividends paid (31.7) (18.5)
Other - net (4.5) 10.6
------ ------
Net cash (used for) provided by financing
activities (89.1) 38.3
Effect of exchange rate changes on cash (15.4) 5.7
INCREASE / (DECREASE) IN CASH AND
CASH EQUIVALENTS (23.5) (51.6)
Cash in ASP May 1, 1997 45.2
Cash and cash equivalents at beginning of
period 131.7 161.0
------ ------
Cash and cash equivalents at end of period 153.4 109.4
====== ======
- --------------
See notes to consolidate financial statement
1 Autoliv AB and subsidiaries for period on and prior to April 30, 1997;
Autoliv Inc., for May 1 to September 30, 1997
2 Autoliv AB and subsidiaries
Autoliv, Inc.
Notes to consolidated Financial Statements
(unaudited)
Sept 30, 1997
1. Basis of Presentation
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to form 10-Q
and Rule 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management all adjustments considered necessary for a fair presentation
have been included in the financial statements. All such adjustments are
of a normal recurring nature. The write-off of the appraisal value of
in-process research and development of $732 million is not a recurring
item and has not been included in the operating results for the nine
month period. The unaudited interim financial statements should be read
in conjunction with the proforma financial statements and notes thereto
contained in the Proxy Statement/Prospectus/Exchange Offer dated
March 24, 1997 (the "Prospectus").
2. Acquisition of Business
On May 1, 1997, Autoliv, Inc. consummated the transactions described in
the Prospectus relating to the following transactions: (i) the exchange
by Autoliv, Inc. (the "Exchange Offer") of one share of Autoliv, Inc. for
each share of Autoliv AB, a Swedish corporation ("Autoliv AB"), which was
tendered in the Exchange Offer and (ii) the merger (the "Merger," and,
together with the Exchange Offer, the "Combination") of Morton
International, Inc. ("Morton") into a wholly owned subsidiary of Autoliv,
Inc. in which Morton (renamed Autoliv ASP Inc.) was the surviving
corporation and the shareholders of Morton received one share of New
Autoliv for approximately every three shares they owned of Morton. On
April 30, 1997, Morton transferred all of its assets and liabilities
other than those relating exclusively to the Automotive Safety Products
Business of Morton ("ASP") to a newly formed subsidiary of Morton, New
Morton International, Inc. (the "Spin-off"). Prior to May 1, 1997,
Autoliv, Inc. had no operations. Following the transactions described
above, Autoliv, Inc. began conducting operations May 1, 1997, through its
two wholly owned subsidiaries - Autoliv AB and Autoliv ASP Inc.
As of September 30, 1997, 54,391,516 shares of Autoliv AB, representing
approximately 98.9% of the outstanding shares of Autoliv AB were
exchanged for the same number of shares of Autoliv, Inc. Pursuant to the
Merger, Morton shareholders received 47,753,108 shares of Autoliv, Inc.
As of September 30, 1997, there were 102,191,024 shares of Autoliv, Inc.
issued and outstanding with a par value of $1 per share. Autoliv, Inc.
will exchange the remaining 608,484 Autoliv AB shares in a compulsory
acquisition procedure pursuant to Swedish law.
The Combination has been accounted for as a purchase for financial
accounting purposes in accordance with US generally accepted accounting
principles, with Autoliv AB treated as the acquiror of ASP. The purchase
price for ASP was allocated to the assets acquired and liabilities
assumed based on the estimated fair values at the date of acquisition as
follows:
(Millions of Dollars)
PURCHASE PRICE:
Debt assumed less cash $ 704.8
Other long term liabilities assumed 32.4
Stock issued 1,931.3(1)
Merger cost 32.9
----------
2,701.4
FAIR MARKET VALUE OF ASSETS AND
LIABILITIES ACQUIRED
Net working capital 107.9
Property, Plant and equipment 368.0
Investments and other non current assets 2.2
Deferred taxes - non current (38.0)
Intangible assets 267.0
In-process research and development 732.3
----------
Purchase Price over
Fair Value of Net Assets Acquired (Goodwill) $ 1,262.0
1) Based on the average share price of Autoliv AB on the Stockholm
Stock Exchange of SEK 267.5 - two days prior and two days post
announcement of the combination on September 30, 1996 (or
$40.41/share based on an exchange rate of $1 = SEK 6.62). The
issuance of 47,803.738 new shares results in a purchase price
for ASP of $1,931.3 million.
The excess of the purchase price over the fair value of net assets
acquired has been recorded as goodwill. Independent appraisals have been
used in establishing the fair market values.
The preliminary allocation of the purchase price will be adjusted during
the fourth quarter of 1997 to reflect revised estimates of preacquisition
contingencies, liabilities, restructuring costs and forward contract losses
of approximately $75 million net of deferred income tax of approximately
$50 million. A study is currently underway to finalize the valuation of
the forward contract losses that should have been recognized at the time of
purchase. The final estimate will be adjusted to goodwill in the fourth
quarter of this year.
The In-process research and development is charged to income in May, 1997
as a non-tax deductible one-time item. The intangible assets and goodwill
amortization will also be non deductible.
The estimated life and yearly amortization using the straight-line method
are:
Yearly
amortization
Intangible assets:
Assembled work force 8.0 years 1.4
Specific Patent Technology 7.5 " 9.0
Common Technology 25.0 " 7.6
Goodwill 40 " 31.5
-----
Total 49.5
Autoliv has not yet completed the appraisal of the assets of ASP. The
allocation of the purchase price and the proforma information presented
below will be adjusted once complete information on the fair market value
of ASP's assets and liabilities is developed.
The following unaudited proforma statements present the consolidated
results of operation as if the acquisition had occurred at the beginning
of the periods presented and does not purport to be indicative of what
would have occurred, had the combination been made as of those dates or
of results which may occur in the future.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Three Months July - September Nine Months Jan.- Sept.
1997 1996(1) 1997(2) 1996(1)
<S> <C> <C> <C> <C>
Net sales
- - Airbag products $ 516.1 $ 519.6 $ 1 724.5 $ 1 684.6
- - Seat belt products 200.7 209.9 676.0 681.8
---------- ---------- ---------- ----------
TOTAL NET SALES 716.8 729.5 2 400.5 2 366.4
Cost of sales (561.4) (575.4) (1 865.3) (1 866.9)
---------- ---------- ---------- ----------
GROSS PROFIT 155.4 154.1 535.2 499.5
Selling, general &
administrative expense (37.1) (35.2) (118.0) (106.5)
Research & development (36.2) (31.3) (110.4) (99.0)
Amortization of intangibles (14.0) (15.4) (43.5) (45.1)
Other income, net 2.4 0.5 1.9 5.9
---------- ---------- ---------- ----------
OPERATING INCOME 70.5 72.7 265.2 254.8
Equity in earnings of affiliates 2.6 1.9 7.5 3.9
Interest income 1.3 1.1 5.3 4.3
Interest expense (12.9) (13.3) (39.5) (39.8)
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 61.5 62.4 238.5 223.2
Income taxes (26.7) (27.2) (99.3) (95.3)
Minority interests in subsidiaries 0.1 (0.2) (0.8) (0.5)
---------- ---------- ---------- ----------
NET INCOME BEFORE ONE-TIME ITEMS 34.9 35.0 138.4 127.4
EARNINGS PER SHARE 0.34 0.34 1.35 1.24
Write-off of acquired R&D - (732.3)
---------- ---------- ---------- ----------
REPORTED NET INCOME $ 34.9 $ 35.0 $ (593.9) $ 127.4
</TABLE>
1) Pro forma
2) Whereof January - April is reported as pro forma
3. Inventories
Inventories are stated at lower of cost (principally FIFO) or market. The
components of inventories were as follows:
Sept 30, 1997 Dec. 31, 1996
------------- -------------
Autoliv AB
Finished products
and work in progress $70.9 mil. 45.3
Raw material 95.2 55.5
---- ----
166.1 100.8
4. Borrowings
Prior to the Combination on May 1, 1997, ASP obtained a new credit
facility of $850 million with a group of banks. ASP borrowed $750 million
under this facility which it contributed to New Morton in connection with
the Spin-Off. ASP currently utilizes a commercial paper program to cover
its financing needs. The amount available under the new credit facility
remains unchanged at $850 million.
5. Other recent developments
Autoliv made on August 29, 1997 a cash offer to purchase the shares of
Marling Industries p.l.c. The purchase price is about 31 million pounds
sterling ($50 million). Payment for these shares was made in October and
the company became thereby a subsidiary. As of October 21, 1997 97.3% of the
Marling shares have been tendered and a compulsory acquisition
procedure has begun.
As previously reported on August 5 the Board of Directors approved the
adoption by the company of a Shareholder Right Plan. To implement the Plan
a right will be distributed on December 4, 1997, for each share of Autoliv's
common stock to holders of record at the close of Business on
November 6, 1997.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Whereas the data provided under Item 1 in the Consolidated Statement of
Income, Consolidated Balance Sheet and Consolidated Statement of Cash
Flows reflect the results of Autoliv, Inc. for all periods subsequent to
April 30, 1997 and for Autoliv AB for all periods prior to May 1, 1997,
the analysis provided below is based on actual results of Autoliv, Inc.
for all periods subsequent to April 30, 1997 and pro forma results of
Autoliv, Inc. for all periods prior to May 1, 1997.
RECENT ACQUISITION
On May 1, 1997, Autoliv, Inc. consummated the transactions described in
the Prospectus, pursuant to which Autoliv, Inc, became a holding company
which conducts operations through its two subsidiaries - Autoliv AB and
Autoliv ASP Inc. In connection with such transactions, on May 1, 1997,
the shares of Autoliv, Inc. began trading on the New York Stock Exchange
under the symbol "ALV" and Swedish Depositary Receipts representing
shares of Autoliv, Inc. began trading on the Stockholm Stock Exchange
under the symbol "ALIV".
Prior to the Combination, Morton borrowed $750 million which it
contributed to New Morton in connection with the Spinoff. Such borrowing
became a liability of Autoliv ASP Inc. as a result of the Combination.
Autoliv, Inc. recognized goodwill in the amount of $1.2 billion in
connection with the Combination.
THREE AND NINE MONTHS ENDED SEPT. 30, 1997 COMPARED WITH THREE AND NINE
MONTHS ENDED SEPT. 30, 1996
Autoliv Inc, reported earnings per share of 34 cents compared to 34 cents
for the third quarter 1996 and net income of $34.9 million for the three month
period ended September 30, 1997, despite a 7 percent negative effect on sales
from the stronger U.S. dollar. In addition, earnings have been affected by the
commencement of several lower margin contracts following the model year shift
in July. The negative effects have been offset, however, by higher vertical
integration and the introduction of more cost-efficient components and designs.
Income before taxes amounted to $61.5 million compared to $62.4 million for
the third quarter 1996.
Posted consolidated net sales for the third quarter 1997 declined by 2% to
$717 million over the corresponding quarter 1996, mainly due to a stronger
U.S. dollar and a continued price decline for airbags. (65% of sales are
outside the U.S.). Excluding the currency translation effects, sales grew
by about 5%. Sales have been negatively affected by supplier problems mainly
due to a large number of production startups for new car models. The
production of light vehicles in Europe and the U.S. is estimated to have grown
by 1%.
Posted sales of airbag products (incl. steering wheels) declined by 1% to
$516 million, while sales adjusted for currency effects, grew by 4%. Side-
impact airbag sales grew particularly fast.
Posted sales of seat belt products (incl. seat sub-system) decreased by 4% to
$201 million, while sales excluding currency effects grew by 9%. The
improvements are due to continued strong sales of the new seat belt products
such as pretensioners and load limiters.
Posted net sales for the nine-month period ended September 30 rose by 1% to
$2.4 billion over the corresponding period 1996. Adjusted for currency
translation effects and corporate acquisitions, sales grew by about 6%. Posted
sales for airbags increased by 2% and decreased for seat belts by 1%, while
sales excluding currency effects and acquisitions grew for both product
segments by 5% and 10%, respectively.
Net income for the nine-month period rose on a comparable basis by 9% to
$138 million and earnings per share to $1.35, compared to $127 million and
$1.24, respectively, for the corresponding period 1996. Earnings before taxes
rose by 7% to $239 million from $223 million.
The tax rates remained almost unchanged at approximately 45% and 43%,
respectively, from the previous year's third quarter and the nine-month period.
Excluding non-deductible amortization, the tax rate is 39% for the
third quarter.
LIQUIDITY AND SOURCES OF CAPITAL
Cash provided by operations amounted to $283 million during the nine-month
period, of which $62 million was generated during the third quarter. Capital
expenditures amounted to $146 and $43 million, respectively, for the nine-month
period and third quarter.
Cash flow after operating and investing activities improved by $20 million
during the third quarter to $133 million for the nine-month period, or to
$1.29 per share.
As of September 30, 1997, net debt was $618 million, a decrease of $86 million
since the beginning of the year and of $7 million since the end of the second
quarter. As of September 30, 1997 net debt to equity stood at 37% compared to
43% at the beginning of the year.
RESTRUCTURING COSTS AND SAVINGS POTENTIAL
Based on an on-going assessment, goodwill is expected to increase by
approximately $75 million, net of income tax, in the next quarter and the
annual goodwill amortization to grow by approximately $2 million or $0.02
per share. This adjustment will reflect estimates of restructering costs,
revised preacquisition contingencies and liabilities as well as forward
contract losses.
The cost savings from the merger are calculated to amount to $100 million
annually, when they begin to be fully realized in 1999. In addition to these
cost reductions, the merger is expected to generate top-line synergies due to
higher sales of, for instance, seat belts and steering wheels and by better
penetration of new markets than would have resulted without the merger.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K. Autoliv, Inc. filed the following reports on
Form 8-K during the third quarter of 1997:
(1) Report, dated August 29, 1997, containing press release announcing
tender offer for Marling Industries p.l.c.
(2) Report, dated August 5, 1997, containing press release announcing
dividend and adoption of Shareholder Right's plan.
SIGNATURE
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.
Autoliv, Inc.
(Registrant)
Date: November 14, 1997 By: /s/ Wilhelm Kull
-----------------------
Wilhelm Kull
Chief Financial Officer
