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 March 31, 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 April 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>
Three Months ended
Mar. 31, Mar. 31,
1999 1998
<S> <C> <C>
Net sales
- - - - Airbag products 659.2 583.6
- - - - Seat belt products 276.2 254.3
------ -------
TOTAL NET SALES 935.4 837.9
Cost of sales (744.2) (655.1)
------- -------
Gross profit 191.2 182.8
Selling, administration and general (42.9) (39.4)
expense
Research and development expenses (48.9) (46.1)
Amortization of intangibles, (16.3) (15.2)
primarily goodwill
Other income - net 0.3 0.7
------- -------
Operating income 83.4 82.8
Equity in earnings of 1.2 1.8
affiliates
Interest income 2.7 1.6
Interest expense (14.4) (15.5)
------- -------
Income before income taxes 72.9 70.7
Income taxes (29.4) (28.3)
Minority interests in subsidiaries 0.6 (0.0)
------- -------
Net income 44.1 42.4
Net income per share - assuming 0.43 0.41
dilution
Number of shares used in computing 102.3 102.2
per share amount
Number of shares outstanding 102.3 102.2
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
AUTOLIV, INC.
Consolidated Balance Sheet (unaudited)
(dollars in millions)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 89.4 $ 118.5
Receivables, less allowances 704.3 664.2
Inventories 245.1 264.9
Refundable and deferred income tax
benefit 47.3 43.2
Prepaids 47.0 41.1
-------- --------
Total current assets 1,133.1 1,131.8
Property, plant and equipment, net 846.5 868.6
Investments and other receivables 18.6 18.5
Intangible assets, net (mainly
acquisition goodwill) 1,650.2 1,649.1
-------- --------
TOTAL ASSETS 3,648.4 3,668.1
======== ========
LIABILITIES AND EQUITY
Short-term debt 206.4 192.6
Accounts payable 439.6 457.1
Accrued expenses 301.9 312.4
Other current liabilities 92.3 76.0
Income taxes 47.6 24.5
-------- --------
Total current liabilities 1,087.8 1,062.7
Long-term debt 596.8 628.6
Other noncurrent liabilities 103.9 116.3
Minority interests in subsidiaries 17.1 14.6
-------- --------
Total noncurrent liabilities
and minority interests 717.8 759.4
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 (201.0) (196.3)
-------- --------
Total shareholders' equity 1,842.8 1,846.0
-------- --------
TOTAL LIABILITIES AND EQUITY 3,648.4 3,668.1
======== ========
See notes to consolidated financial statement
</TABLE>
<TABLE>
<CAPTION>
AUTOLIV, INC.
Consolidated Statement of Cash Flows (unaudited)
(dollars in millions)
THREE MONTHS ENDED
MAR. 31, MAR. 31,
1999 1998
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 44.1 $ 42.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 66.7 54.3
Deferred income taxes 3.6 4.3
Undistributed earnings from affiliated
companies 2.1 (1.7)
Changes in operating assets and liabilities
Receivables and other assets (50.2) (68.5)
Inventories 19.8 0.4
Accounts payable and accrued expenses (11.8) 3.8
Income taxes 23.1 24.9
------ ------
Net cash provided by operating activities 97.4 59.9
INVESTING ACTIVITIES
Expenditure for property, plant and equipment (66.9) (59.0)
Acquisition of businesses and
investments in affiliated companies (24.8) (3.3)
Other 4.4 5.3
------ ------
Net cash used for investing activities (87.2) (57.0)
Cash flow before financing 10.1 2.9
FINANCING ACTIVITIES
Increase in short-term debt 13.7 41.1
(Decrease) / increase in long-term liabilities (31.8) 63.6
Increase / (decrease) in minority interest 2.5 (0.9)
Dividends paid (11.3) (11.2)
Other - net (7.8) 4.6
------ ------
Net cash (used for) provided by financing
activities (34.7) 97.2
Effect of exchange rate changes on cash (4.6) (2.0)
INCREASE / (DECREASE) IN CASH AND
CASH EQUIVALENTS (29.1) 98.1
Cash and cash equivalents at beginning of
period 118.5 152.0
------ ------
Cash and cash equivalents at end of period 89.4 250.1
====== ======
- ----------------
See notes to consolidated financial statements
</TABLE>
Autoliv, Inc.
Notes to Consolidated Financial Statements
(unaudited)
March 31, 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) March 31, 1999 Dec. 31, 1998
-------------- -------------
Finished products
and work in progress $98.5 mil. $107.9
Raw material 146.6 157.0
---- ----
245.1 264.9
3. Other recent developments
Autoliv has exercised its option to increase its holding from 51% to
66% in the inflator company Livbag and has secured the right to make
Livbag a wholly-owned company. Livbag is Autoliv's most important
supplier in Europe of inflators for airbags.
Autoliv has invested NOK 10 million (approx. US $1 million) in 330,000
newly issued shares in SensoNor, a supplier of airbag sensors. The
investment will support development of new crash sensor technologies.
Construction of a completely new plant has begun in Turkey. The new
facility will both replace the old plant and provide additional manufacturing
capacity for recently secured new orders from such new customers as
Ford and Renault.
Lars Westerberg assumed the position of President and Chief Executive
Officer of Autoliv Inc., as of February 1 and was elected to the Company's
board on February 10.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1998
Consolidated net sales for Autoliv Inc. grew by 12 percent to $935 million in
the three-month period ended March 31, 1999, and earnings per share by
4 percent to $.43 compared to the corresponding quarter 1998. Sales of side
airbags have continued to grow fast. Autoliv's margins have been negatively
affected mainly by higher depreciation and delays in the cost reduction
program due to the fast capacity build-up.
The income before taxes improved by 3 percent to $73 million.
Consolidated net sales for the first quarter 1999 grew by 12% to $935 million
from $838 million during the first quarter 1998. Currency translation effects
and acquisitions contributed approximately one percentage point each to the
increase, which means that the underlying sales growth was approximately 10%.
Since approximately 70% of Autoliv's business is outside the United States, a
major portion of sales was favorably affected by the weaker U.S. dollar
compared to the first quarter 1998.
The production of light vehicles is estimated to have grown by 4% in Europe
and by 6% in North America. In Japan, however, the production is estimated
to have fallen by 6% from an already low level. The average increase in the
Triad thus was 2%.
Sales of airbag products (incl. steering wheels) rose by 13% to $659 million
from $584 million. Adjusted for currency effects, the underlying sales increase
was 12%. The decline in average selling prices has abated slightly, but is
still considerable. As a result of higher installation rates, sales of side
airbags continued to rise sharply. Sales of side airbags therefore already
account for 13% of Autoliv's airbag revenues compared to 9% during the year-ago
quarter. Sales of frontal airbags have continued to grow due to higher
penetration rates and higher market share.
Sales of seat belt products (incl. seat-sub system) grew by 9% to $276
million from $254 million, while sales excluding currency effects and
acquisitions grew by 6%. The increase in seat belt sales is due to higher
sales volume and to new products.
Operating income for the quarter was almost unchanged, $83 million, from
the corresponding period 1998, while income before taxes increased by 3%
to $73 million as a result of lower interest rates. Net income and earnings
per share improved by 4% to $44 million and $.43, respectively.
Gross margin fell from 21.8% to 20.4%. Of the decline, approximately one
percentage point is due to higher depreciation. This reflects last years'
substantial capital expenditures needed to take advantage of the strong
order-intake and new business opportunities. Although pricing pressure
has moderated slightly, the price decline is still considerable and
additional cost reductions introduced by Autoliv have not been sufficient
to offset the decline. Margins have also been affected by the fact that side
airbags are becoming a mass product also for the low- price end of the
vehicle market, especially since the strong demand has made it neccessary
to give prioirity to capacity increases rather than to cost reductions. In
addition, start-up costs have been high due to the strategic decision to enter
many new markets and establish production in countries such as Brazil,
Poland, Canada and steering wheels for the North American market.
Operating margin decreased from 9.9% to 8.9% during the first quarter 1999
due to the decline in gross margin. Both selling, general and administrative
expenses, and research and development costs have, instead, had a positive
effect on margins since these costs shrunk in relation to sales.
The effective tax rate was unchanged at 41%. Excluding nondeductible
amortization, the tax rate was 36%.
LIQUIDITY AND SOURCES OF CAPITAL
The cash generated by operations amounted to $97 million compared to
$60 million. Capital expenditures amounted to $63 million and $54 million,
respectively, while $25 million and $3 million, respectively, were used for
acquisitions of businesses. The net cash flow after operating and
investing activities improved from $6 million to $10 million. The most
important acquisitions were the increase of Autoliv's interest in Livbag
and the investment in SensoNor. The most important capital expenditure
projects were the new plants in Canada, Poland, Brazil and Turkey as
well as additional production capacity for side airbags.
As a result of the acquisitions, net debt increased from $703 million at
the beginning of the quarter to $714 million at the end. During the same
period, the net-debt-to-equity ratio increased from 38% to 39%. Equity
has been negatively impacted by currency effects.
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 are essentially completed. Validation, testing and
implementation has to a large extent been completed during first quarter 1999.
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 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 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 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 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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual Meeting of Stockholders of Autoliv, Inc. was held on May 6,
1999. At the meeting, the following matters were submitted to a vote of
the stockholders of Autoliv, Inc.
<TABLE>
<CAPTION>
(1) The reelection of three directors to hold office until the 2002
Annual Meeting of Stockholders. The vote was as follows:
<S> <C> <C>
Nominee For Witheld
------- --- -------
Wilhelm Kull 98,041,056 229,481
Jay Stewart 98,034,341 236,196
Roger Stone 98,052,090 218,447
(2) The approval of Amendment to the Corporation 1997 Stock Incentive Plan.
For Against Abstain
--- ------- -------
94,595,519 1,999,438 1,675,580
(3) The ratification of Ernst&Young AB as the Corporation's
independent auditing firm for the fiscal year ending
December 31, 1999.
For Against Abstain
--- ------- -------
98,138,909 42,129 89,499
</TABLE>
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 March 31, 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: May 12, 1999 By: /s/ Hans Biorck
-----------------------
Hans Biorck
Chief Financial Officer
<TABLE> <S> <C>
<S><C>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 89
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<ALLOWANCES> 9
<INVENTORY> 245
<CURRENT-ASSETS> 1133
<PP&E> 1621
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0
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