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 June 30, 1999
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:
------ -------
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 July 20, 1999.
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>
Quarter Apr. - June Six Months Jan. - June 12 months
1999 1998 1999 1998 July 98- Full Year
<S> June 99 1998
<C> <C> <C> <C> <C> <C>
Net sales
- - - - Airbag products $ 698.0 $ 599.9 $ 1,357.2 $ 1,183.5 $ 2,590.4 $ 2,416.4
- - - - Seat belt products 279.0 278.0 555.2 532.3 1,094.9 1,072.0
------ ------- -------- --------- --------- ---------
TOTAL NET SALES 977.0 877.9 1,912.4 1,715.8 3,685.3 3,488.7
Cost of sales (767.8) (684.9) (1,512.0) (1,340.0) (2,913.2) (2,741.2)
----- ------- --------- --------- --------- ---------
Gross profit 209.2 193.0 400.4 375.8 772.1 747.5
Selling, administration and general (44.8) (39.1) (87.7) (78.6) (167.7) (158.5)
expense
Research and development expenses (50.3) (45.5) (99.2) (91.7) (183.8) (176.2)
Amortization of intangibles, (16.1) (15.3) (32.4) (30.4) (63.4) (61.5)
primarily goodwill
Other income - net 0.1 0.1 0.4 0.9 2.4 2.8
------- ------- -------- --------- --------- ---------
Operating income 98.1 93.2 181.5 176.0 359.6 354.1
Equity in earnings of (0.4) 2.4 0.8 4.2 3.0 6.4
affiliates
Interest income 2.4 3.1 5.1 4.7 8.4 8.0
Interest expense (13.6) (14.4) (28.0) (29.9) (54.1) (56.0)
------- ------- --------- --------- --------- ---------
Income before income taxes 86.5 84.3 159.4 155.0 316.9 312.5
Income taxes (35.6) (33.5) (65.0) (61.7) (127.1) 123.9
Minority interests in subsidiaries 0.3 (0.2) 0.9 (0.2) 0.8 (0.3)
------- ------- ---------- --------- --------- ---------
Net income 51.2 50.6 95.3 93.1 190.6 188.3
Net income per share - assuming 0.50 0.50 0.93 0.91 1.86 1.84
dilution
Number of shares used in computing 102.3 102.2 102.3 102.2 102.3 102.3
per share amount
Number of shares outstanding 102.3 102.2 102.3 102.2 102.3 102.3
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
AUTOLIV, INC.
Consolidated Balance Sheet (unaudited)
(dollars in millions)
June 30, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 106.2 $ 118.5
Receivables, less allowances 716.4 664.2
Inventories 252.3 264.9
Refundable and deferred income tax
benefit 46.3 43.2
Prepaids 34.3 41.1
-------- --------
Total current assets 1,155.6 1,131.8
Property, plant and equipment, net 850.7 868.6
Investments and other receivables 16.4 18.5
Intangible assets, net (mainly
acquisition goodwill) 1,630.7 1,649.1
-------- --------
TOTAL ASSETS 3,653.3 3,668.1
======== ========
LIABILITIES AND EQUITY
Short-term debt 247.1 192.6
Accounts payable 441.3 457.1
Accrued expenses 301.9 312.4
Other current liabilities 83.6 76.0
Income taxes 36.5 24.5
-------- --------
Total current liabilities 1,113.2 1,062.7
Long-term debt 561.7 628.6
Other noncurrent liabilities 110.7 116.3
Minority interests in subsidiaries 2.3 14.6
-------- --------
Total noncurrent liabilities
and minority interests 674.7 759.4
Common stock, par value $1 per share 102.3 102.3
Additional paid-in capital 1,941.5 1,940.0
Retained earnings (accumulated
deficit) and foreign currency
translation adjustments (178.4) (196.3)
-------- --------
Total shareholders' equity 1,865.4 1,846.0
-------- --------
TOTAL LIABILITIES AND EQUITY 3,653.3 3,668.1
======== ========
See notes to consolidated financial statement
</TABLE>
<TABLE>
<CAPTION>
AUTOLIV, INC.
Consolidated Statement of Cash Flows (unaudited)
(dollars in millions)
Quarter Apr. - June SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income $ 51.2 $ 50.6 $ 95.3 $ 93.1
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 64.3 55.7 131.0 110.0
Deferred income taxes 13.2 (3.5) 16.8 0.8
Undistributed earnings from affiliated
companies (0.4) 0.1 1.7 (1.6)
Changes in operating assets and liabilities
Receivables and other assets 1.7 7.6 (48.7) (60.9)
Inventories (7.2) (27.7) 12.6 (27.3)
Accounts payable and accrued expenses (4.4) 32.7 (16.0) 36.4
Income taxes (11.1) (19.1) 12.0 5.8
------ ------- ------ ------
Net cash provided by operating activities 107.3 96.4 204.7 156.4
INVESTING ACTIVITIES
Expenditure for property, plant and equipment (72.3) (66.3) (139.2) (127.6)
Acquisition of businesses and
investments in affiliated companies (9.3) (6.9) (34.1) (10.2)
Other 8.8 (1.3) 13.2 6.3
------ ------- ------ ------
Net cash used for investing activities (72.8) (74.6) (160.0) (131.6)
Cash flow before financing 34.5 21.9 44.6 24.8
FINANCING ACTIVITIES
Increase in short-term debt 40.7 (4.1) 54.4 36.9
(Decrease) / increase in long-term liabilities (35.0) (8.7) (66.8) 54.9
Decrease in minority interest (14.8) (1.4) (12.3) (2.2)
Dividends paid (11.3) (11.2) (22.5) (22.5)
Other - net 4.8 (6.9) (3.0) (2.3)
------ ------ ------ ------
Net cash (used for) provided by financing
activities (15.6) (32.3) (50.2) 64.8
Effect of exchange rate changes on cash (2.0) 0.0 (6.7) (2.0)
<DECREASE> / INCREASE IN CASH AND
CASH EQUIVALENTS 16.8 (10.4) (12.3) 87.6
Cash and cash equivalents at beginning of
period 89.4 250.1 118.5 152.0
------ ------ ------ ------
Cash and cash equivalents at end of period 106.2 239.7 106.2 239.7
====== ====== ====== ======
- ----------------
See notes to consolidated financial statements
</TABLE>
Autoliv, Inc.
Notes to Consolidated Financial Statements
(unaudited)
June 30, 1999
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.
Statements in this report that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
actual results of Autoliv Inc. ("Autoliv" or the "Company"). A description
of the important factors that could cause Autoliv's actual results to
differ materially from the forward-looking statements contained in this
report may be found in Autoliv's reports filed with the
Securities and Exchange Commission.
2. Inventories
Inventories are stated at lower of cost (principally FIFO) or market. The
components of inventories were as follows:
(Dollars in millions) June 30, 1999 Dec. 31, 1998
-------------- -------------
Finished products
and work in progress $112.7 mil. $107.9
Raw material 139.6 157.0
---- ----
252.3 264.9
3. Other recent developments
Autoliv has made Isodelta wholly-owned by exercising its option to acquire
the remaining 23% of the shares in the European steering wheel company.
A plant for labor-intensive production has been opened in Poland. The number
of employees will be increased from 200 to 600 by the end of next year.
A memorandum of understanding has been reached to acquire close to 50% of the
shares in the Estonian company Norma AS, the dominant seat belt supplier to
Russian vehicle industry. A definitive agreement, which is expected to be
concluded during the fall, would improve Autoliv's possibilities to sell new
safety technoligies in Estern Europe and provide yet another possibility to
move production to low labor-cost countries.
Construction of a new plant in Romania has begun. The new facility will both
replace the existing plant and provide additional manufacturing capacity,
especially for the rapidly expanding contract work for Autoliv's companies
in high-cost countries.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE AND SIX MONTHS
ENDED JUNE 30, 1998
Consolidated net sales for the second quarter 1999 grew by 11% to $977 million
from $878 million during the corresponding period 1998, while sales adjusted
for currency translation effects grew by 13%. Since approximately 60% of
Autoliv's business is in Europe, the weakening of Euro had a negative
impact of 2%. The effect of acquisitions was insignificant.
The production of light vehicles is estimated to have grown by 2% in Europe
and by 11% in North America. In Japan, however, the production is estimated
to have fallen by 4% from an already low level. The average increase in the
Triad was 4%.
Sales of airbag products (incl. steering wheels) rose by 16% to $698 million
from $600 million during the second quarter 1998. The underlying sales
adjusted for currency effects increased by 18% and unit sales rose by almost
30%. This means that Autoliv continues to increase its market share.
Sales of seat belts (incl. seat sub-systems) were almost unchanged at $279
million, while sales excluding currency effects and acquisitions increased
by 3%.
For the six-month period January through June, both consolidated sales
and sales adjusted for currency effects increased by 12% to $1,912 million.
Airbag sales rose by 15% to $1,357 million and seat belt sales by 4% to
$555 million.
The order intake has been strong during the last two quarters and represents
an increase of more than 30% over the corresponding period 1998. These multi-
year contracts will results in sales beginning in 2001.
The Company's action program improved the Gross margin from 20.4%
during the first quarter to 21.4%, which was only 0.6 percentage points
below the record margin recorded in the second quarter 1998. The operating
margin improved from 8.9% during the first quarter to 10.0%, also 0,6
percentage point below the operating margin for the comparable quarter 1998.
Compared to the year-ago quarter, gross profit improved by 8% to $209 million
and operating income by 5% to $98 million. Income before taxes increased by
3% to 87 million. Income from affiliated companies fell as some joint ventures
have become wholly owned. Net income increased by 1% to $51 million. Earnings
per share stood unchanged at $.50.
The effective tax rate stood unchanged at 41% from the first quarter, but
increased from 40% recorded during the year-ago period. Excluding
non-deductible amortization, the tax rate was 36%.
For the six-month period ended June 30 1999, net income improved by 2% to
$95 million. Earnings per share increased from $.91 to $.93.
LIQUIDITY AND SOURCES OF CAPITAL
Cash generated by operations increased by 11% from $96 million to $107
million or to $1.05 per share. Capital expenditures amounted to $64
million compared to $68 million during the corresponding quarter 1998.
The most important capital expenditures were higher inflator production
capacity, new plants in Turkey and Brazil, and a technical center in
Japan.
Net debt stood unchanged at $703 million from the beginning of the year,
despite acquisitions totaling $34 million. Net debt to equity was 38%,
both at period-end and at the beginning of the year.
Year 2000 Issue
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 consequences 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 has defined 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 completed. The conversion,
upgrade and renovation as well as validation, testing and implementation
are essentially completed.
The majority of the Company's IT systems are currently Y2K ready. The
balance of the Company's systems are currently in the final stage of being
modified or replaced, with all significant systems Y2K ready 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 replacements 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 remedying 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 completed to a large extent. The renovation
of the remaining critical systems is 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 scenarios where Autoliv's
external suppliers and service providers are not Y2K compliant at an
appropriate date will be established during the third 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. 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. Management is periodically providing status reports to
the Board of Directors. The Company is mainly using internal resources to
address this issue, and believes that these resources will be sufficient to
mitigate any potentially significant problems. Related expenses, which are
not material, are charged to income as incurred.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K for the three
months ended June 30, 1999.
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: July 22, 1999 By: /s/ Hans Biorck
-----------------------
Hans Biorck
Chief Financial Officer
<TABLE> <S> <C>
<S><C>
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<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 106
<SECURITIES> 0
<RECEIVABLES> 549
<ALLOWANCES> 9
<INVENTORY> 252
<CURRENT-ASSETS> 1156
<PP&E> 1636
<DEPRECIATION> 785
<TOTAL-ASSETS> 3653
<CURRENT-LIABILITIES> 1113
<BONDS> 562
0
0
<COMMON> 102
<OTHER-SE> 1763
<TOTAL-LIABILITY-AND-EQUITY> 3653
<SALES> 1912
<TOTAL-REVENUES> 1912
<CGS> 1512
<TOTAL-COSTS> 1512
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 29
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<NET-INCOME> 95
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.93
</TABLE>
