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, 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 October 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 July - Sept Nine Months Jan. - Sept 12 months
1999 1998 1999 1998 Oct 98- Full Year
<S> Sept 99 1998
<C> <C> <C> <C> <C> <C>
Net sales
- - - - Airbag products $ 621.2 $ 553.9 $ 1,978.4 $ 1,737.4 $ 2,657.7 $ 2,416.7
- - - - Seat belt products 252.6 250.5 807.8 782.8 1,097.0 1,072.0
------ ------- -------- --------- --------- ---------
TOTAL NET SALES 873.8 804.4 2,786.2 2,520.2 3,754.7 3,488.7
Cost of sales (689.6) (641.5) (2,201.6) (1,981.5) (2,961.3) (2,741.2)
----- ------- --------- --------- --------- ---------
Gross profit 184.2 162.9 584.6 538.7 793.4 747.5
Selling, administration and general (41.0) (36.1) (128.7) (114.6) (172.6) (158.5)
expense
Research and development expenses (45.7) (40.2) (144.9) (131.8) (189.3) (176.2)
Amortization of intangibles, (16.3) (15.2) (48.7) (45.7) (64.5) (61.5)
primarily goodwill
Other income - net (0.3) 2.7 0.1 3.5 (0.6) 2.8
------- ------- -------- --------- --------- ---------
Operating income 80.9 74.1 262.4 250.1 366.4 354.1
Equity in earnings of 2.2 0.9 3.0 5.1 4.3 6.4
affiliates
Interest income 2.6 1.7 7.7 6.4 9.3 8.0
Interest expense (13.9) (12.7) (41.9) (42.6) (55.3) (56.0)
------- ------- --------- --------- --------- ---------
Income before income taxes 71.8 64.0 231.2 219.0 324.7 312.5
Income taxes (28.6) (26.2) (93.6) (88.0) (129.5) (123.9)
Minority interests in subsidiaries 0.0 0.0 0.9 (0.1) 0.8 (0.3)
------- ------- ---------- --------- --------- ---------
Net income 43.2 37.8 138.5 130.9 196.0 188.3
Net income per share - assuming 0.42 0.37 1.35 1.28 1.92 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)
Sept 30, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 119.9 $ 118.5
Receivables, less allowances 717.9 664.2
Inventories 271.0 264.9
Refundable and deferred income tax
benefit 50.4 43.1
Prepaids 32.6 41.1
-------- --------
Total current assets 1,191.8 1,131.8
Property, plant and equipment, net 859.7 868.6
Investments and other receivables 14.9 18.6
Intangible assets, net (mainly
acquisition goodwill) 1,617.6 1,649.1
-------- --------
TOTAL ASSETS 3,684.0 3,668.1
======== ========
LIABILITIES AND EQUITY
Short-term debt 265.9 192.6
Accounts payable 426.3 457.1
Accrued expenses 292.2 312.4
Other current liabilities 100.9 76.1
Income taxes 22.0 24.5
-------- --------
Total current liabilities 1,107.3 1,062.7
Long-term debt 537.1 628.6
Other noncurrent liabilities 124.5 116.2
Minority interests in subsidiaries 2.6 14.6
-------- --------
Total noncurrent liabilities
and minority interests 664.2 759.4
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 (131.3) (196.3)
-------- --------
Total shareholders' equity 1,912.5 1,846.0
-------- --------
TOTAL LIABILITIES AND EQUITY 3,684.0 3,668.1
======== ========
See notes to consolidated financial statement
</TABLE>
<TABLE>
<CAPTION>
AUTOLIV, INC.
Consolidated Statement of Cash Flows (unaudited)
(dollars in millions)
Quarter July - Sept NINE MONTHS ENDED
Sept 30, Sept 30,
1999 1998 1999 1998
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income $ 43.2 $ 37.8 $ 138.5 $ 130.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58.4 57.6 189.4 167.6
Deferred income taxes 18.7 (0.9) 35.5 (0.1)
Undistributed earnings from affiliated
companies 3.0 (0.2) 4.7 (1.8)
Changes in operating assets and liabilities
Receivables and other assets (2.0) (50.4) (50.7) (111.3)
Inventories (18.8) (18.0) (6.2) (45.3)
Accounts payable and accrued expenses (12.1) (15.8) (28.1) 20.7
Income taxes (14.5) 14.0 (2.5) 19.8
------ ------- ------ ------
Net cash provided by operating activities 75.9 24.1 280.6 180.5
INVESTING ACTIVITIES
Expenditure for property, plant and equipment (48.0) (77.1) (187.2) (202.5)
Acquisition of businesses and
investments in affiliated companies 7.7 (2.6) (26.4) (12.8)
Other 11.4 1.0 24.6 5.0
------ ------- ------ ------
Net cash used for investing activities (28.9) (78.7) (189.0) (210.3)
Cash flow before financing 47.0 (54.6) 91.5 (29.8)
FINANCING ACTIVITIES
Increase in short-term debt 9.3 (40.5) 63.8 (3.5)
(Decrease) / increase in long-term liabilities (24.6) 3.6 (91.4) 58.5
Increase / (decrease) in minority interest 0.3 1.5 (12.0) (0.7)
Dividends paid (11.3) (11.2) (33.8) (33.7)
Other - net (9.4) 0.3 (12.4) (2.0)
------ ------ ------ ------
Net cash (used for) provided by financing
activities (35.7) (46.3) (85.8) 18.6
Effect of exchange rate changes on cash 2.4 0.6 (4.3) (1.4)
<DECREASE> / INCREASE IN CASH AND
CASH EQUIVALENTS 13.7 (100.3) 1.4 (12.6)
Cash and cash equivalents at beginning of
period 106.2 239.7 118.5 152.0
------ ------ ------ ------
Cash and cash equivalents at end of period 119.9 139.4 119.9 139.4
====== ====== ====== ======
- ----------------
See notes to consolidated financial statements
</TABLE>
Autoliv, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Sept 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) Sept 30, 1999 Dec. 31, 1998
-------------- -------------
Finished products
and work in progress $115.1 mil. $107.9
Raw material 155.9 157.0
---- ----
271.0 264.9
3. Other recent developments
The order intake has continued to be good, but it will also result in
higher R&D expenditures during the next few quarters.
In October Autoliv acquired 49.5% of the shares in the Estonian company
Norma AS, the dominant seat belt supplier to the Russian vehicle industry.
The agreement also gives Autoliv the right to acquire another 1.5% of the
Norma shares. The transaction improves Autoliv's possibilities to sell new
safety technologies in Eastern Europe and provides yet another possibility
to move production to low labor-cost countries.
The world's first anti-whiplash system specially developped for rear-seat
occupants was launched by Autoliv in September. This Self-Inflating Head Re-
straint (SIHR) follows upon the introduction last year of Autoliv's anti-
whiplash system (AWS) for front-seat occupants.
Autoliv is in the process of consolidating all the automotive safety com-
panies in Malaysia into one company, Autoliv HT (Malaysia), in which Autoliv
will hold a 49% interest. The new company will have 250 employees and annual
sales of approximately $25 million. The change is subject to approval by the
Malaysian authorities.
Autoliv has made its 49%-owned joint venture in Indonesia a wholly-owned
subsidiary.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
Consolidated net sales for the third quarter 1999 rose by 9% to $874 mil-
lion from $804 million during the corresponding period 1998, mainly as a re-
sult of new airbag business in Japan, continued strong demand for side air-
bags and the anti-whiplash system Autoliv introduced last year. Sales ad-
justed for currency translation effects grew by 12%. Since approximately 60%
of Autoliv's business is in Europe, the weakening of the Euro had a negative
impact of 3%. The effect of acquisitions was insignificant.
During the quarter, the production of light vehicles is estimated to have
grown by 2% in Europe and by 12% in North America. In Japan, however, the
production is estimated to have fallen by 4%. The average increase in the
Triad was 4%.
Sales of airbag products (incl. steering wheels) rose by 12% to $622 mil-
lion from $554 million during the third quarter 1998. The underlying sales
adjusted for currency effects increased by 15%, which means that Autoliv con-
tinues to increase its market share. Sales were particularly strong in Japan,
Germany, Spain and the U.S. Sales of side airbags grew by 37% and sales of
steering wheels doubled.
Sales of seat belts (incl. seat sub-systems) stood almost unchanged at
$252 million. Excluding currency effects and acquisitions sales increased by
4%. The increase was driven by higher sales of seat sub-systems as a result
of the new anti-whiplash system introduced last year and by market share
gains for seat belts in the U.S.
For the nine-month period January through September consolidated sales
increased by 11% to $2,786 million, while sales adjusted for currency effects
rose by 12%. Consolidated sales of airbags grew by 14% to $1,980 million and
of seat belt sales by 3% to $807 million, while currency-adjusted sales grew
by 15% and 4%, respectively.
The Company's action program improved the gross margin from 20.3% during
the third quarter last year to 21.1%. Operating margin, however, was almost
unchanged (9.3% versus 9.2%) mainly due to higher R&D expenditure and higher
SG&A expense. The R&D expenditure has been affected by the strong order in-
take and the SG&A expenses by acquisitions and new market investments.
Gross profit improved by 13% to $184 million and operating income by 9%
to $81 million. Income before taxes increased by 12% to $72 million, while net
income and earnings per share improved by 14% to $43 million and $.42, re-
spectively.
The effective tax rate was 41% compared to 42% during the corresponding
quarter 1998. Excluding non-deductible amortization, the tax rate was 36%.
For the nine-month period ended September 30 1999, net income improved by
6% to $139 million. Earnings per share increased from $1.28 to $1.35.
LIQUIDITY AND SOURCES OF CAPITAL
Cash generated by operations improved from $24 million during the third
quarter 1998 to $76 million during the same quarter 1999, mainly as a result
of less need for additional working capital. Cash flow after investing activi-
ties improved by $102 million from a deficit of $55 million to a surplus of
$47 million, partly due to lower capital expenditures. These expenditures de-
creased by 52% or by $39 million to $37 million.
Net debt has been reduced to $683 million from $703 million at the begin-
ning of the year. During the same period net debt to equity has declined to
36% from 38%.
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. During quarter two in
1999 the AIAG reporting has been expanded with ten new supplemental questions
on status of acceptance tests, contingency plans and supply chain readiness
which are updated on a monthly basis.
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 completed except for a few well defined exceptions.
All the Company's significant IT systems are currently Y2K ready. The need
for contingency plans have been evaluated and will be regularly reviewed
during quarter four in 1999. In several instances, the Company has replaced
older software with new programs and systems, rather than modifying existing
systems solely to become Y2K ready. Replacing these systems has resulted 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 have also been tested. The conversion, upgrade and
renovation of such equipment is completed with very few well defined exceptions
where late vendor fixes are in the process of being finally installed and will
be completed early quarter four in 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 has been established during the third quarter of 1999 and
will be regularly updated during the fourth 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 September 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: October 22, 1999 By: /s/ Hans Biorck
-----------------------
Hans Biorck
Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
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</TABLE>
