SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the period ended September 30, 1998
AUTOLIV, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0378542
(State or 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) 587 20 600
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:
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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 22, 1998.
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 30,1)
1998 1997 1998 1997
<S> C> <C> <C> <C>
Sales $ 804.4 $ 716.8 $ 2,520.1 $ 1,883.3
Cost of sales (641.5) (561.4) (1,981.4) (1,480.9)
------- ------- --------- ---------
Gross profit 162.9 155.4 538.8 402.4
Selling, administration and general
expense (36.1) (37.2) (114.7) (90.4)
Research and development expenses (40.2) (36.2) (131.9) (99.3)
Write-off of acquired R&D (732.3)
Amortization of intangibles, (15.2) (14.0) (45.6) (26.9)
primarily goodwill
Other income - net 2.7 2.4 3.5 2.6
------- ------- --------- ---------
Operating income (loss) 74.1 70.4 250.1 (543.9)
Equity in earnings of 0.9 2.6 5.1 6.8
affiliates
Interest income 1.7 1.3 6.4 3.8
Interest expense (12.7) (12.9) (42.6) (23.0)
------- ------- ---------- ----------
Income (loss) before income taxes 64.0 61.4 219.0 (556.3)
Income taxes (26.2) (26.7) (87.9) (68.9)
Minority interests in subsidiaries - 0.1 (0.2) (0.9)
------- ------- ---------- ----------
Net income (loss) $ 37.8 $ 34.8 $ 130.9 $(626.1)
Net income (loss) per share - assuming
dilution $ 0.37 $ 0.40 $ 1.28 $ (8.85)
Number of shares used in computing 102.2 86.5 102.2 70.7
per share amount
Number of shares outstanding 102.2 102.2 102.2 102.2
</TABLE>
See notes to consolidated financial statements
1) Autoliv AB and subsidiaries prior to April 30, 1997;Autoliv Inc,
for May 1 to September 30, 1997
AUTOLIV, INC.
Consolidated Balance Sheet (unaudited)
(dollars in millions)
September 30, December 31,
1998 1997
------------ ------------
ASSETS
Cash and cash equivalents $ 139.4 $ 152.0
Receivables, less allowances 668.3 569.2
Inventories 247.8 197.8
Refundable and deferred income tax
benefit 36.8 20.5
Prepaids 41.0 34.7
--------- --------
Total current assets 1,133.3 974.2
Property, plant and equipment, net 831.5 727.2
Investments and other receivables 22.2 34.6
Intangible assets, net (mainly
acquisition goodwill) 1,648.1 1,694.5
--------- ---------
TOTAL ASSETS 3,635.1 3,430.5
========== =========
LIABILITIES AND EQUITY
Short-term debt 184.6 186.2
Accounts payable 390.6 385.3
Accrued expenses 337.5 326.1
Other current liabilities 90.3 69.6
Income taxes 53.1 32.3
--------- --------
Total current liabilities 1,056.1 999.5
Long-term debt 671.5 611.8
Other noncurrent liabilities 84.9 100.8
Minority interests in subsidiaries 13.6 14.4
--------- --------
Total noncurrent liabilities
and minority interests 770.5 727.0
Common stock, par value $1 per share 102.2 102.2
Additional paid-in capital 1,938.5 1,938.5
Retained earnings (accumulated
deficit) and foreign currency
translation adjustments (231.7) (336.7)
-------- --------
Total stockholders' equity 1,809.0 1,704.0
-------- --------
TOTAL LIABILITIES AND EQUITY 3,635.1 3,430.5
======== ========
See notes to consolidated financial statement
AUTOLIV, INC.
Consolidated Statement of Cash Flows (unaudited)
(dollars in millions)
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (1)
OPERATING ACTIVITIES
Net Income $ 130.9 $ (626.1)
Adjustments to reconcile net income to
net cash provided by operating activities:
Write-off of acquired R&D 732.3
Depreciation and amortization 167.6 107.6
Deferred income taxes (0.1) (3.7)
Undistributed earnings from affiliated
companies (1.8) (5.7)
Changes in operating assets and liabilities
Receivables and other assets (111.3) 3.1
Inventories (45.3) (1.1)
Accounts payable and accrued expenses 20.6 (29.5)
Income taxes 19.8 5.0
Other - 12.0
------ ----
Net cash provided by operating activities 180.4 193.9
INVESTING ACTIVITIES
Expenditure for property, plant and equipment (202.5) (109.7)
Acquisition of businesses and
investments in affiliated companies (12.8) (3.9)
Other 5.0 0.7
------ ------
Net cash used for investing activities (210.2) (112.9)
Cash flow before financing (29.8) 81.0
FINANCING ACTIVITIES
Increase / (decrease) in short-term debt (3.5) (46.6)
Increase / (decrease) in long-term liabilities 58.5 (0.7)
Decrease in minority interest (0.7) (5.6)
Dividends paid (33.7) (31.7)
Other - net (2.0) (4.5)
------ ------
Net cash provided by (used for) financing
activities 18.6 (89.1)
Effect of exchange rate changes on cash (1.4) (15.4)
INCREASE / (DECREASE) IN CASH AND
CASH EQUIVALENTS (12.6) (23.5)
Cash and cash equivalents at beginning of
period 152.0 176.9
------ ------
Cash and cash equivalents at end of period 139.4 153.4
====== ======
- - --------------
See notes to consolidated financial statements
1) Autoliv AB and subsidiaries prior to April 30, 1997;Autoliv Inc,
for May 1 to September 30, 1997 Autoliv AB and subsidiaries
Autoliv, Inc.
Notes to Consolidated Financial Statements
(unaudited)
SEPTEMBER 30, 1998
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.
For comparison purposes the proforma income statement for the first nine
months 1997 and proforma full year 1997 is included below.
For a further description of the combination on May 1, 1997 of Autoliv AB
with the Automotive Safety Products Business of Morton International, Inc.,
see Autoliv Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997.
Certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 are contained within this report, reflecting
management's current estimate of future events. These forward-looking statements
are based on many assumtions and contain a number of risks and uncertainties
including changes in demand, prices of raw materials, and competitive
conditions, Autoliv's ability to control internal costs, the successful
development of new technologies, the implementation of strategic initiatives
and general economic conditions. Accordingly, such forward-looking statements
should not be relied upon as a prediction of actual results.
CONSOLIDATED STATEMENTS OF INCOME PROFORMA (UNAUDITED)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Quarter July - Sept. Nine Months Jan. - Sept Full Year
1998 1997 1998 1997(1) 1997(1)
<S> <C> <C> <C> <C> <C>
Net sales
- - - Airbag products $ 553.9 $ 516.1 1,737.4 1,724.5 2,316.4
- - - Seat belt products 250.5 200.7 782.8 676.0 940.4
---------- ---------- ---------- ---------- ----------
TOTAL NET SALES 804.4 716.8 2,520.2 2,400.5 3,256.8
Cost of sales (641.5) (561.4) (1,981.5) (1,865.3) (2,537.0)
---------- ---------- ---------- ---------- ----------
GROSS PROFIT 162.9 155.4 538.7 535.2 719.8
Selling, general &
administrative expense (36.1) (37.1) (114.6) (113.0) 2) (154.7) 2)
Research & development (40.2) (36.2) (131.8) (115.4) 2) (152.7) 2)
Amortization of intangibles (15.2) (14.0) (45.7) (43.5) (59.6)
Other income, net 2.7 2.4 3.5 1.9 3.2
---------- ---------- ---------- ---------- ----------
OPERATING INCOME 74.1 70.5 250.1 265.2 356.0
Equity in earnings of affiliates 0.9 2.6 5.1 7.5 10.3
Interest income 1.7 1.3 6.4 5.3 7.1
Interest expense (12.7) (12.9) (42.6) (39.5) (55.9)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE TAXES 64.0 61.5 219.0 238.5 317.5
Income taxes (26.2) (26.7) (88.0) (99.3) (129.4)
Minority interests in subsidiaries - 0.1 (0.1) (0.8) (3.2)
---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE ONE-TIME ITEMS 37.8 34.9 130.9 138.4 184.9
EARNINGS PER SHARE 0.37 0.34 1.28 1.35 1.81
Write-off of acquired R&D 3) - - - (732.3)3) (732.3)3)
---------- ---------- ---------- ---------- ----------
REPORTED NET INCOME $ 37.8 $ 34.9 $ 130.9 $ (593.9) (547.4)
</TABLE>
1) Includes proforma results for January 1 to April 30, 1997
2) Pro forma numbers reclassified
3) In the audited financial statements for Autoliv, Inc.
(Autoliv AB and subsidiaries for period on and prior to
April 30, 1997 and Autoliv, Inc. for May 1 to December 31, 1997)
the Write-off of acquired R&D is reflected as operating expense
and a loss per share of $6.70 is reported for full year 1997.
2. Inventories
Inventories are stated at lower of cost (principally FIFO) or market. The
components of inventories were as follows:
(Dollars in millions) September 30, 1998 Dec. 31, 1997
------------------ -------------
Finished products
and work in progress $ 103.4 mil. 113.0
Raw material 144.4 84.8
---- ----
247.8 197.8
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.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (ACTUAL) COMPARED WITH THREE
(ACTUAL)AND NINE MONTHS (PROFORMA) ENDED SEPTEMBER 30, 1997
Autoliv, Inc. reported a 12 percent increase in sales to $804 million for
the three-month period ended September 30, 1998, and an 8 percent improvement
in earnings per share to $0.37, despite continued severe pricing pressure on
airbags, lower vehicle production and the strike at General Motors.
Sales were boosted by a record number of product launches, exceptionally strong
demand for the company's side-impact airbags and a 25 percent increase in seat
belt sales. Autoliv therefore believes that it has further strengthened its
global market share, both in airbags and seat belts.
Income before taxes rose by 4 percent to $64 million from $62 million during the
corresponding quarter 1997 and net income by 8 percent to $38 million from $35
million.
Consolidated net sales for the third quarter 1998 rose by 12% to
$804 million from $717 million for the corresponding quarter 1997. The
underlying sales increase (i.e. excluding currency effects and acquisitions)
was 9%. The strike at General Motors is estimated to have negatively
affected sales for the quarter by about 3%.
The production of light vehicles is estimated to have grown by 6% in Europe,
while that production in North America and Japan is estimated to have fallen
by 3% and 9%, respectively. The average weighted decline was approximately 2%.
Sales of airbags products (including steering wheels) grew by 7% to $554
million, while sales adjusted for currency effects and corporate acquisitions
rose by 5%. The pricing pressure has continued to be severe, especially in the
U.S. Unit sales grew, howewer, significantly faster, particularly for side and
passenger airbags.
Sales of seat belt products (including seat sub-systems) grew by 25% to $251
million, while sales excluding currency effects and acquisitions grew by 20%.
The significant increase is due to new products, higher vehicle production for
some important customers and new contracts. The latest pretensioner generation
("The Roto-Pretensioner") introduced last year has made it possible not only to
increase sales of pretensioners but also to win sales for complete belt systems
where this new innovative feature is an integrated part of the retractor.
Net sales for the nine-month period rose by 5% over the corresponding period
1997 to $2,520 million. Sales for airbags increased by 1% and sales for seat-
belts by 16%. The net of the translation effects from currency exchange rates
and from corporate acquisitions was not significant.
The Company's net income for the third quarter increased by 8% to $38 million
mainly as a result of higher sales. The record number of product launches (more
than 100 in the new model year beginning mid-1998) and the exceptionally
strong demand for many new Autoliv products have led to extra costs for start-
ups, overtime, premium freights, etc. and therefore to somewhat lower margins.
Gross margin declined from 21.7% to 20.3% and operating margin from 9.8% to
9.2%. The GM strike has also had a negative effect on margins.
For the nine-month period ended September 30, 1998 net income and earnings per
share decreased by 5% to $131 million and $1.28, respectively, principally due
to the decline in the first quarter and to higher R&D expenditures to take
advantage of Autoliv's many business opportunities, especially in new areas
such as pre- and post- crash systems. During the nine-month period, R&D
expenditures rose by 14% compared to the sales increase of 5%.
The effective tax rate was 42% for the quarter and 41% for the nine-month
period, compared to 45% and 43%, respectively,for the corresponding periods
in 1997. Excluding non-deductible amortization, the tax rate was 36%.
LIQUIDITY AND SOURCES OF CAPITAL
Cash generated by operations during the quarter amounted to $24 million,
after a $70 million increase in working capital to $122 million. Of the
cash, $76 million was used for capital expenditures and $3 million for
acquisitions of businesses, compared to $43 million and $0 million, respec-
tively, during the third quarter 1997. The substantial increase in capital
expenditures reflects the need for more manufacturing capacity following the
strong demand for Autoliv's new products.
Net debt increased by $64 million to $717 million during the quarter and
increased during the nine-month period by $71 million. At the end of the
quarter, net debt to total equity stood at 40% compared to 38% at the
beginning of the year.
YEAR 2000
Many financial information and operations systems used today may be unable to
interpret dates after December 31, 1999 because these systems allow only two
digits to indicate the year in a date. Consequently, these systems are unable to
distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequenses on the operations of an entity and the integrity of information
processing. This potential problem is referred to as the "Year 2000" or "Y2K"
issue.
Autoliv has established a company-wide Y2K compliance program to determine Y2K
issues and define a strategy to assure Y2K compliance. The compliance program
includes: internal computer systems, manufacturing systems, suppliers and
service providers. The company is following the compliance program of the
Automotive Industry Action Group ("AIAG"), which represents several of its
largest customers. The AIAG self assessment surveys are updated each quarter.
The phases common to all areas of the compliance program are: project start-up;
inventory and assessment; conversion, upgrade and renovation; validation,
including testing; and implementation. The project start-up and the inventory
and assessment phases are essentially complete, with a limited set of activities
relating to the inventory and assessment phase scheduled to be complete by the
end of 1998.
Many of the Company's IT systems are currently Y2K ready. The balance of the
Company's systems are currently being modified or replaced, with all significant
systems targeted for Y2K readiness status by mid 1999. The need for contingency
plans will be evaluated as this target date approaches. In several instances,
the Company has replaced, or is in the process of replacing, older software
with new programs and systems, rather than modifying existing systems solely to
become Y2K ready. Replacing these systems results in a significant upgrade in
systems and capabilities. Although the timing of the system repacements is
influenced by the Y2K issue, in most instances these systems would have been
replaced in the normal course of business. The Company does not anticipate that
the costs associated with remediating the Company's non-compliant IT systems
will be material.
The non-IT systems such as in the manufacturing, warehousing, R&D and building
facilities areas are also being tested. The conversion, upgrade and renovation
of such equipment is planned to be completed to a large extent by year-end
1998. The renovation of the remaining systems is expected to be completed by
mid 1999. The cost of making the non-IT systems Y2K compliant is not expected
to be material.
The Company has identified the most likely risk of Y2K non-compliance as the
risk that automotive suppliers will not be Y2K compliant. Due to the general
uncertainty inherent in the Y2K problem, the Company is unable to determine at
this time whether the consequences of Y2K compliance failures will have a
material effect on the Company's results of operations or financial condition.
In addition, the Company does not have control over service providers and as
a result cannot currently estimate to what extent future operating results
may be adversely affected by the failure of these service providers to
successfully address their Y2K issues.
The need for a contingency plan to deal with a scenario where Autoliv's external
suppliers and service providers are not Y2K compliant at an appropriate date
will be established during the second quarter of 1999.
The dates of completion and the costs of the program described above are based
on management's estimates, which were derived utilizing assumptions of future
events, including the availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved, and if the actual timing and costs for the Y2K
program differ materially from those anticipated, the Company's financial
results and financial condition could be materially adversely affected.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the three months
ended September 30, 1998.
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: Nov 13, 1998 By: /s/ Wilhelm Kull
-----------------------
Wilhelm Kull
Chief Financial Officer
