a5521891.htm
UNITED
STATES
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 quarterly
period ended September 30, 2007
Commission
File
No.: 1-12933
AUTOLIV,
INC.
(Exact
name of
registrant as
specified
in its
charter)
Delaware
|
|
51-0378542
|
(State
or
other jurisdic-
|
|
(I.R.S.
Employer Identi-
|
tion
of
incorporation or
|
|
fication
No.)
|
organization)
|
|
|
|
|
|
World
Trade
Center,
|
|
|
Klarabergsviadukten
70,
|
|
|
Box
70381,
|
|
|
SE-107
24 Stockholm, Sweden
|
|
N/A
|
(Address
of
principal executive offices)
|
|
(Zip
Code)
|
+46
8 587 20
600
(Registrant’s
telephone number,
including
area
code)
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 requirement for the
past
90 days.
Indicate
by check
mark whether the registrant is a large accelerated filer, an accelerated
filer,
or a non-accelerated filer.
Large
accelerated filer: [x]
|
Accelerated
filer: [ ]
|
Non-accelerated
filer [ ]
|
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the
Act).
Indicate
the
number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date: As of October 22, 2007, there were
75,881,299 shares of common stock of Autoliv, Inc., par value $1.00 per share,
outstanding.
FORWARD-LOOKING
STATEMENTS
This
Form 10-Q
contains statements that are not historical facts but rather forward-looking
statements that involve risks and uncertainties that could cause Autoliv,
Inc.’s
(“Autoliv”, the “Company”, “we” or “our”) results to differ materially from what
is projected. These risks and uncertainties include, but are not limited
to, the
following: higher raw material costs or other expenses; a major loss of
customers; increased competitive pricing pressure; failure to develop or
commercialize successfully new products or technologies; the outcome of pending
and future litigation and changes in governmental procedures, laws or
regulations, including environmental regulations; plant disruptions or
shutdowns; labor disputes; product liability and recall issues; and other
difficulties in improving margin or financial performance. In addition, the
Company's forward-looking statements could be affected by general industry
and
market conditions and growth rates, general domestic and international economic
conditions, including currency exchange rate fluctuations, and other factors.
Except for the Company's ongoing obligation to disclose material information
under the U.S. federal securities laws, the Company undertakes no obligation
to
update publicity and forward-looking statements whether as a result of new
information or future events. For any forward-looking statements contained
in
any document, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995.
INDEX
PART
I -
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
1.1 Basis
of Presentation
1.2 Receivables
1.3 Inventories
1.4 Restructuring
1.5 Product-Related
Liabilities
1.6 Comprehensive
Income
1.7 Business
Acquisitions
1.8 New
Accounting Pronouncements
1.9 Income
Taxes
1.10
Retirement
Plans
1.11
Contingent
Liabilities
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM
4.
CONTROLS AND PROCEDURES
ITEM
4T.
CONTROLS AND PROCEDURES
PART
II -
OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM
5.
OTHER INFORMATION
ITEM
6.
EXHIBITS
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
(Dollars
in millions, except per share data)
|
|
Quarter
July-September
|
|
|
First
nine months
January-September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Airbag
products
|
|
|
$1,002.2
|
|
|
|
$925.8
|
|
|
|
$3,231.5
|
|
|
|
$3,030.3
|
|
-
Seatbelt
products
|
|
|
555.0
|
|
|
|
484.8
|
|
|
|
1,753.2
|
|
|
|
1,556.1
|
|
Total
net sales
|
|
|
1,557.2
|
|
|
|
1,410.6
|
|
|
|
4,984.7
|
|
|
|
4,586.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of
sales
|
|
|
(1,254.9) |
|
|
|
(1,132.4) |
|
|
|
(4,001.3) |
|
|
|
(3,634.9) |
|
Gross
profit
|
|
|
302.3
|
|
|
|
278.2
|
|
|
|
983.4
|
|
|
|
951.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
(84.7) |
|
|
|
(79.3) |
|
|
|
(270.6) |
|
|
|
(242.8) |
|
Research,
development & engineering expenses
|
|
|
(93.0) |
|
|
|
(94.6) |
|
|
|
(314.3) |
|
|
|
(307.8) |
|
Amortization
of intangibles
|
|
|
(4.9) |
|
|
|
(3.7) |
|
|
|
(14.5) |
|
|
|
(11.3) |
|
Other
income
(expense), net
|
|
|
(9.7) |
|
|
|
1.3
|
|
|
|
(46.1) |
|
|
|
(5.8) |
|
Operating
income
|
|
|
110.0
|
|
|
|
101.9
|
|
|
|
337.9
|
|
|
|
383.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in
earnings of affiliates
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
4.7
|
|
|
|
4.6
|
|
Interest
income
|
|
|
2.1
|
|
|
|
1.7
|
|
|
|
5.9
|
|
|
|
6.4
|
|
Interest
expense
|
|
|
(15.2) |
|
|
|
(12.2) |
|
|
|
(44.7) |
|
|
|
(33.8) |
|
Other
financial items, net
|
|
|
(3.3) |
|
|
|
(1.1) |
|
|
|
(6.8) |
|
|
|
(3.7) |
|
Income
before income taxes
|
|
|
95.0
|
|
|
|
91.8
|
|
|
|
297.0
|
|
|
|
357.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(29.8) |
|
|
|
34.9
|
|
|
|
(96.5) |
|
|
|
(43.9) |
|
Minority
interests in subsidiaries
|
|
|
(2.0) |
|
|
|
(5.0) |
|
|
|
(6.6) |
|
|
|
(14.3) |
|
Net
income
|
|
|
$63.2
|
|
|
|
$121.7
|
|
|
|
$193.9
|
|
|
|
$299.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
|
$0.82
|
|
|
|
$1.49
|
|
|
|
$2.46
|
|
|
|
$3.62
|
|
Earnings
per share – diluted
|
|
|
$0.81
|
|
|
|
$1.48
|
|
|
|
$2.45
|
|
|
|
$3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, assuming dilution and net
of
treasury shares (in millions)
|
|
|
77.8
|
|
|
|
82.1
|
|
|
|
79.2
|
|
|
|
83.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares outstanding, excluding dilution and net of treasury shares
(in
millions)
|
|
|
75.9
|
|
|
|
81.2
|
|
|
|
75.9
|
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend per share – declared
|
|
|
$0.39
|
|
|
|
$0.37
|
|
|
|
$1.17
|
|
|
|
$1.04
|
|
Cash
dividend per share – paid
|
|
|
$0.39
|
|
|
|
$0.35
|
|
|
|
$1.15
|
|
|
|
$0.99
|
|
See
“Notes
to
unaudited consolidated financial statements.”
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars
in millions)
|
|
September
30
2007
|
|
|
December
31
2006
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
&
cash equivalents
|
|
|
$160.1
|
|
|
|
$168.1
|
|
Receivables
|
|
|
1,297.3
|
|
|
|
1,206.7
|
|
Inventories
|
|
|
565.2
|
|
|
|
545.4
|
|
Other
current assets
|
|
|
160.8
|
|
|
|
178.2
|
|
Total
current assets
|
|
|
2,183.4
|
|
|
|
2,098.4
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equipment, net
|
|
|
1,222.8
|
|
|
|
1,160.4
|
|
Investments
and other non-current assets
|
|
|
192.8
|
|
|
|
175.7
|
|
Goodwill
assets
|
|
|
1,585.6
|
|
|
|
1,537.1
|
|
Intangible
assets, net
|
|
|
139.4
|
|
|
|
139.2
|
|
Total
assets
|
|
|
$5,324.0
|
|
|
|
$5,110.8
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
$330.4
|
|
|
|
$294.1
|
|
Accounts
payable
|
|
|
787.6
|
|
|
|
762.5
|
|
Accrued
expenses
|
|
|
372.2
|
|
|
|
270.6
|
|
Other
current liabilities
|
|
|
226.3
|
|
|
|
204.4
|
|
Total
current liabilities
|
|
|
1,716.5
|
|
|
|
1,531.6
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
975.7
|
|
|
|
887.7
|
|
Pension
liability
|
|
|
96.6
|
|
|
|
93.8
|
|
Other
non-current liabilities
|
|
|
132.4
|
|
|
|
109.7
|
|
Minority
interests in subsidiaries
|
|
|
59.3
|
|
|
|
85.1
|
|
Shareholders’
equity
|
|
|
2,343.5
|
|
|
|
2,402.9
|
|
Total
liabilities and shareholders’ equity
|
|
|
$5,324.0
|
|
|
|
$5,110.8
|
|
See
“Notes
to
unaudited consolidated financial statements.”
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Quarter
July-September
|
|
|
First
nine months
January-September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
$63.2
|
|
|
|
$121.7
|
|
|
|
$193.9
|
|
|
|
$299.1
|
|
Depreciation
and amortization
|
|
|
77.4
|
|
|
|
74.1
|
|
|
|
236.3
|
|
|
|
222.8
|
|
Deferred
taxes and other
|
|
|
(6.4) |
|
|
|
(2.8) |
|
|
|
11.8
|
|
|
|
(2.0) |
|
Changes
in
operating assets and liabilities
|
|
|
13.9
|
|
|
|
(91.0) |
|
|
|
107.2
|
|
|
|
(117.2) |
|
Net
cash provided by operating activities
|
|
|
148.1
|
|
|
|
102.0
|
|
|
|
549.2
|
|
|
|
402.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(75.4) |
|
|
|
(87.6) |
|
|
|
(235.6) |
|
|
|
(247.7) |
|
Proceeds
from sale of property, plant and equipment
|
|
|
3.2
|
|
|
|
3.5
|
|
|
|
7.8
|
|
|
|
32.9
|
|
Acquisitions
of businesses and other, net
|
|
|
1.8
|
|
|
|
6.4
|
|
|
|
(76.3) |
|
|
|
6.8
|
|
Net
cash used in investing activities
|
|
|
(70.4) |
|
|
|
(77.7) |
|
|
|
(304.1) |
|
|
|
(208.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase
(decrease) in short-term debt
|
|
|
14.9
|
|
|
|
30.3
|
|
|
|
23.7
|
|
|
|
(318.6) |
|
Issuance
of
long-term debt
|
|
|
174.7
|
|
|
|
28.5
|
|
|
|
248.4
|
|
|
|
323.7
|
|
Repayments
and other changes in long-term debt
|
|
|
(56.0) |
|
|
|
-
|
|
|
|
(193.7) |
|
|
|
(158.5) |
|
Dividends
paid
|
|
|
(30.6) |
|
|
|
(28.7) |
|
|
|
(91.2) |
|
|
|
(82.1) |
|
Shares
repurchased
|
|
|
(160.4) |
|
|
|
(52.4) |
|
|
|
(257.0) |
|
|
|
(155.1) |
|
Stock
options exercised
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
8.5
|
|
|
|
6.1
|
|
Minority
interests and other, net
|
|
|
(2.8) |
|
|
|
(3.1) |
|
|
|
(1.3) |
|
|
|
(3.4) |
|
Net
cash used in financing activities
|
|
|
(59.3) |
|
|
|
(24.8) |
|
|
|
(262.6) |
|
|
|
(387.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of
exchange rate changes on cash
|
|
|
5.6
|
|
|
|
6.6
|
|
|
|
9.5
|
|
|
|
29.2
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
24.0
|
|
|
|
6.1
|
|
|
|
(8.0) |
|
|
|
(164.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
cash equivalents at period-start
|
|
|
136.1
|
|
|
|
125.8
|
|
|
|
168.1
|
|
|
|
295.9
|
|
Cash
and cash equivalents at period-end
|
|
|
$160.1
|
|
|
|
$131.9
|
|
|
|
$160.1
|
|
|
|
$131.9
|
|
See
“Notes
to
unaudited consolidated financial statements.”
KEY
RATIOS (UNAUDITED)
(Dollars
in millions, except per share data)
|
|
Quarter
July
– September
|
|
|
First
nine months
January-September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per
share – basic 1)
|
|
|
$0.82
|
|
|
|
$1.49
|
|
|
|
$2.46
|
|
|
|
$3.62
|
|
Earnings
per
share – diluted 1)
|
|
|
$0.81
|
|
|
|
$1.48
|
|
|
|
$2.45
|
|
|
|
$3.60
|
|
Equity
per
share
|
|
|
$30.88
|
|
|
|
$29.37
|
|
|
|
$30.88
|
|
|
|
$29.37
|
|
Cash
dividend per share – paid
|
|
|
$0.39
|
|
|
|
$0.35
|
|
|
|
$1.15
|
|
|
|
$0.99
|
|
Operating
working capital 3)
|
|
|
$666
|
|
|
|
$668
|
|
|
|
$666
|
|
|
|
$668
|
|
Capital
employed
|
|
|
$3,482
|
|
|
|
$3,352
|
|
|
|
$3,482
|
|
|
|
$3,352
|
|
Net
debt
3)
|
|
|
$1,138
|
|
|
|
$967
|
|
|
|
$1,138
|
|
|
|
$967
|
|
Net
debt to
capitalization, %3)4)
|
|
|
32
|
|
|
|
28
|
|
|
|
32
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin, % 5)
|
|
|
19.4
|
|
|
|
19.7
|
|
|
|
19.7
|
|
|
|
20.7
|
|
Operating
margin, % 6)
|
|
|
7.1
|
|
|
|
7.2
|
|
|
|
6.8
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on shareholders’ equity, %
|
|
|
10.6
|
|
|
|
20.6
|
|
|
|
10.8
|
|
|
|
17.0
|
|
Return
on
capital employed, %
|
|
|
12.9
|
|
|
|
12.5
|
|
|
|
13.2
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average no. of shares in millions 1)2)
|
|
|
77.8
|
|
|
|
82.1
|
|
|
|
79.2
|
|
|
|
83.0
|
|
No.
of
shares at period-end in millions 7)
|
|
|
75.9
|
|
|
|
81.2
|
|
|
|
75.9
|
|
|
|
81.2
|
|
No.
of
employees at period-end
|
|
|
35,000
|
|
|
|
35,400
|
|
|
|
35,000
|
|
|
|
35,400
|
|
Headcount
at
period-end
|
|
|
41,500
|
|
|
|
41,300
|
|
|
|
41,500
|
|
|
|
41,300
|
|
Days
receivables outstanding 8)
|
|
|
70
|
|
|
|
83
|
|
|
|
69
|
|
|
|
74
|
|
Days
inventory outstanding 9)
|
|
|
33
|
|
|
|
37
|
|
|
|
33
|
|
|
|
33
|
|
1)
|
Net
of
treasury shares
|
2)
|
Assuming
dilution
|
3)
|
See
tabular presentation reconciling this non-GAAP measure to GAAP
in the
Management’s Discussion & Analysis of Financial Condition and Results
of Operations
|
4)
|
Net
debt
in relation to net debt, minority and equity
|
5)
|
Gross
profit relative to sales
|
6)
|
Operating
income relative to sales
|
7)
|
Net
of
treasury shares and excluding dilution
|
8)
|
Outstanding
receivables relative to average daily sales
|
9)
|
Outstanding
inventory relative to average daily
sales
|
See
“Notes
to
unaudited consolidated financial statements”.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unless
otherwise noted, all amounts are presented in millions of
dollars,
except for per share amounts)
September
30, 2007
1.1
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 Article 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.
During
the year
ended December 31, 2006, the Company adopted FAS-158. Under FAS-158, the
actual
funded status of retirement benefits are recognized in the financial statements.
Unrecognized amounts, such as net actuarial losses, are shown in the
Comprehensive Income section of the Shareholders' Equity Statement. The adoption
of FAS-158 had no effect on the Company’s consolidated statements of income for
2006 or any prior period presented and will not effect the income statements
in
future periods. For further information, see Note 18 to the Company’s Annual
Report on Form 10-K/A for the year ending December 31, 2006.
The
Company
adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN-48”), on January 1, 2007. Therefore, the
method of determining the liability recorded for unrecognized tax benefits
has
changed and is not comparable with prior years. For further information see
Note
1.9 Income Taxes.
The
consolidated
balance sheet at December 31, 2006 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
The
Company's
reporting periods consist of thirteen-week periods, ending on the Friday
closest
to the last day of the calendar month. For convenience, the accompanying
financial statements are shown as ending on the last day of the calendar
month.
Statements
in this
report that are not of historical fact are forward-looking statements that
involve risks and uncertainties that could affect the actual results of 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 (the “SEC”). For further information, refer
to the consolidated financial statements, footnotes and definitions thereto
included in the Company’s Annual Report on Form 10-K/A for the year ended
December 31, 2006.
The
Company’s
filings with the SEC, including annual reports on Form 10-K, quarterly reports
on Form 10-Q, proxy statements, management certifications, current reports
on Form 8-K and other documents, can be obtained free of charge from Autoliv
at
the Company’s address. These documents are also available at the SEC’s
web site at www.sec.gov and at the Company's corporate website at
www.autoliv.com.
1.2
Receivables
During
the third
quarter of 2007, the Company sold receivables relating to selected customers
to
various external financial institutions without recourse. These factoring
agreements have the effect of reducing accounts receivable and days sales
outstanding. At September 30, 2007 and December 31, 2006, $86 million and
$98
million, respectively, of sold receivables remained outstanding under these
agreements.
1.3
Inventories
Inventories
are
stated at the lower of cost (principally FIFO) or market. The components
of
inventories were as follows, net of reserve:
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
Raw
materials
|
|
|
$205.7
|
|
|
|
$196.4
|
|
Work
in
progress
|
|
|
238.0
|
|
|
|
234.5
|
|
Finished
products
|
|
|
121.5
|
|
|
|
114.5
|
|
Total
|
|
|
$565.2
|
|
|
|
$545.4
|
|
In
2006, the
employee-related restructuring provisions mainly related to headcount reductions
in high-cost countries. The cash payments mainly related to operations in
Europe
and Australia for plant consolidation initiated in 2006, as well as in 2005.
The
change in liability during 2006 includes a resolution of a legal dispute
resulting in cash payments. The changes in the reserves have been charged
against “Other income (expense), net” in the income statement. The table below
summarizes the change in the balance sheet position of the restructuring
reserves from December 31, 2005 to December 31, 2006.
|
|
Dec.
31
2005
|
|
|
Cash
payments
|
|
|
Change
in
reserve
|
|
|
Translation
difference
|
|
|
Dec.
31
2006
|
|
Restructuring
- employee related
|
|
|
$7.8
|
|
|
|
$(15.2) |
|
|
|
$13.2
|
|
|
|
$0.6
|
|
|
|
$6.4
|
|
Liability
|
|
|
9.5
|
|
|
|
(4.5) |
|
|
|
(5.3) |
|
|
|
0.3
|
|
|
|
-
|
|
Total
reserve
|
|
|
$17.3
|
|
|
|
$(19.7) |
|
|
|
$7.9
|
|
|
|
$0.9
|
|
|
|
$6.4
|
|
During
2006, 938
employees covered by the restructuring reserves left the Company. As of December
31, 2006, 217 employees remained who were covered by the restructuring
reserves.
2007
Q1
The
increase in
the employee-related restructuring provisions in the quarter mainly related
to
operations in high-cost countries. The cash payments mainly related to
operations in Europe, USA and Australia for restructuring activities initiated
in 2006, as well as in 2005. The change in the reserve has been charged against
“Other income (expense), net” in the income statement. The table below
summarizes the change in the balance sheet position of the restructuring
reserves from December 31, 2006 to March 31, 2007.
|
|
Dec.
31
2006
|
|
|
Cash
payments
|
|
|
Change
in
reserve
|
|
|
Translation
difference
|
|
|
Mar.
31
2007
|
|
Restructuring
- employee related
|
|
|
$6.4
|
|
|
|
$(1.6 |
) |
|
|
$0.6
|
|
|
|
$0.0
|
|
|
|
$5.4
|
|
During
the
quarter, 71 employees covered by the reserves left the Company. As of March
31, 2007, 179 employees remained who were covered by the restructuring
reserves.
Q2
The
increase in
the employee-related restructuring provisions in the quarter mainly relates
to
operations in high-cost countries. The cash payments mainly relate to operations
in Canada, USA, Sweden and Australia for restructuring activities initiated
in
2007, 2006 and 2005. The change in the reserve has been charged against “Other
income (expense), net” in the income statement. The table below summarizes the
change in the balance sheet position of the restructuring reserves from March
31, 2007 to June 30, 2007.
|
|
Mar.
31
2007
|
|
|
Cash
payments
|
|
|
Change
in
reserve
|
|
|
Translation
difference
|
|
|
Jun.
30
2007
|
|
Restructuring
- employee related
|
|
|
$5.4
|
|
|
|
$(4.0 |
) |
|
|
$5.8
|
|
|
|
$0.3
|
|
|
|
$7.5
|
|
During
the
quarter, 210 employees covered by the reserves left the Company. As of June
30, 2007, 274 employees remained who were covered by the restructuring
reserves.
Q3
The
increase in
the employee-related restructuring provisions in the quarter mainly relates
to
operations in high-cost countries. The cash payments mainly relate to operations
in Canada, USA, Sweden and Australia for restructuring activities initiated
in
2007, 2006 and 2005. The change in the reserve has been charged against “Other
income (expense), net” in the income statement. The table below summarizes the
change in the balance sheet position of the restructuring reserves from June
30,
2007 to September 30, 2007.
|
|
Jun.
30
2007
|
|
|
Cash
payments
|
|
|
Change
in
reserve
|
|
|
Translation
difference
|
|
|
Sep.
30
2007
|
|
Restructuring
- employee related
|
|
|
$7.5
|
|
|
|
$(5.8 |
) |
|
|
$6.6
|
|
|
|
$0.0
|
|
|
|
$8.3
|
|
During
the quarter, 225 employees covered by the reserves left the Company. As of
September 30, 2007, 334 employees remained who were covered by the restructuring
reserves.
1.5
Product-Related
Liabilities
The
Company
maintains reserves for product risks. Such reserves relate to product
performance issues, including recall, product liability and warranty issues.
The
Company records liabilities for product-related risks when probable claims
are
identified and it is possible to reasonably estimate costs. Provisions for
warranty claims are estimated based on prior experience, likely changes in
performance of newer products and the mix and volume of the products sold.
The
provisions are recorded on an accrual basis. Cash payments have been made,
in
the past, for recall and warranty-related issues in connection with a variety
of
different products and customers. For further explanation, see Note 1.11
Contingent Liabilities below.
The
table below
summarizes the change in the balance sheet position of the product-related
liabilities for the quarter.
|
|
Quarter
July-September
|
|
|
Nine
months
January-September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Reserve
at beginning of the period
|
|
|
$21.7
|
|
|
|
$26.0
|
|
|
|
$22.8
|
|
|
|
$33.3
|
|
Change
in
reserve
|
|
|
(0.2) |
|
|
|
2.7
|
|
|
|
4.3
|
|
|
|
4.4
|
|
Cash
payments
|
|
|
(2.8) |
|
|
|
(5.5) |
|
|
|
(8.7) |
|
|
|
(16.1) |
|
Translation
difference
|
|
|
0.8
|
|
|
|
-
|
|
|
|
1.1
|
|
|
|
1.6
|
|
Reserve
at end of the period
|
|
|
$19.5
|
|
|
|
$23.2
|
|
|
|
$19.5
|
|
|
|
$23.2
|
|
1.6
Comprehensive
Income
Comprehensive
income includes net income for the year and items charged directly to
equity.
|
|
Quarter
July – September
|
|
|
Nine
months
January
– September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
income 1)
|
|
|
$63.2
|
|
|
|
$121.7
|
|
|
|
$193.9
|
|
|
|
$299.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability 2)
|
|
|
0.2
|
|
|
|
(0.2) |
|
|
|
0.3
|
|
|
|
(0.5) |
|
Fair
value
of derivatives
|
|
|
(0.1) |
|
|
|
(0.3) |
|
|
|
-
|
|
|
|
(1.3) |
|
Translation of
foreign operations
|
|
|
41.3
|
|
|
|
-
|
|
|
|
72.1
|
|
|
|
17.8
|
|
Other
comprehensive income
|
|
|
41.4
|
|
|
|
(0.5)
|
|
|
|
72.4
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income 1)
|
|
|
$104.6
|
|
|
|
$121.2
|
|
|
|
$266.3
|
|
|
|
$315.1
|
|
1)
For
additional information, see the Management's Discussion and Analysis net
income
discussion and the caption Items Affecting Comparability and Part II – Other
Information, Item 1 below 2) During the quarter and the first nine months
2006,
the adjustment charged directly to equity was related to Minimum pension
liability.
1.7
Business Acquisitions
On
January 15,
2007, Autoliv Inc. acquired the remaining 35% of the shares in its Korean
subsidiary Autoliv-Mando, an entity which already had been a consolidated
entity, for $80 million.
1.8
New
Accounting Pronouncements
The
following
accounting pronouncements have been issued and will be effective for the
Company
in fiscal year 2008:
Statement
No.157,
Fair Value Measurements (“FAS-157”), establishes a framework for measuring fair
value in generally accepted accounting principles, clarifies the definition
of
fair value within that framework, and expands disclosures about the use
of fair
value measurements. FAS-157 was issued in September 2006 and is effective
for
fiscal years beginning after November 15, 2007. The Company has not yet
completed the evaluation of the effects on earnings and financial position
that
may result from the adoption of FAS-157. The Company will adopt FAS-157
prospectively on January 1, 2008.
Statement
No.159,
The Fair Value Option for Financial Assets and Financial Liabilities
(“FAS-159”), provides companies with an option to report selected financial
assets and liabilities at fair value. The objective of FAS-159 is to reduce
both
complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently.
FAS-159
was issued in February 2007 and is effective for fiscal years beginning
after
November 15, 2007. The Company has not yet completed the evaluation of
the
effects on earnings and financial position that may result from the adoption
of
FAS-159.
1.9
Income Taxes
The
effective tax
rate for the first nine months of 2007 was 32.5%, compared with 12.3%
in the
first nine months of 2006. During the third quarter of 2006, the Company
recognized a non-cash income tax benefit of $57 million resulting from
the
release of income tax reserves associated with the U.S. income tax audit
examination cycle. In addition, during the second quarter of 2006, several
subsidiaries recorded adjustments to their estimates of prior year income
tax
provisions. During the first quarter of 2006, several subsidiaries completed
studies of R&D tax credit eligibility and recorded a 2005 catch-up effect
entirely in that quarter. These catch-up effects in the first three quarters
of
2006 caused an approximately 20% reduction to the effective tax rate
for the
first nine months of 2006.
The
Company files
income tax returns in the United States federal jurisdiction, and various
states
and foreign jurisdictions. The Company is no longer subject to income
tax
examination by the U.S. federal tax authorities for years prior to 2003.
With
few exceptions, the Company is also no longer subject to income tax examination
by U.S. state or local tax authorities for tax years prior to
2003. In addition, with few exceptions, the Company is no longer
subject to income tax examinations by non-U.S. tax authorities for years
before
2001. The Internal Revenue Service (“IRS”) began an examination of the Company’s
2003-2005 U.S. income tax returns in the second quarter of 2006 that
is
anticipated to be completed in early 2008. In addition, the Company is
undergoing tax audits in several non-U.S. jurisdictions covering multiple
years.
As of September 30, 2007, as a result of those tax examinations, the
Company is
not aware of any material proposed income tax adjustments. The Company
expects
the completion of certain tax audits in the near term and believes that
it is
reasonably possible that some portion of reserves could be released into
income
in some future period or periods.
The
Company
adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN-48”), on January 1, 2007. As a result of
the implementation of FIN-48, the Company recognized a decrease of $9.9
million
in the liability recorded for unrecognized tax benefits as a cumulative
effect
of a change in accounting principle, which was accounted for as an increase
to
the January 1, 2007 balance in retained earnings. The Company recognizes
interest and potential penalties accrued related to unrecognized tax
benefits in
tax expense. The Company had approximately $6.7 million accrued for the
payment
of interest and penalties as of September 30, 2007. As of January 1,
2007, the
Company had recorded approximately $39.6 million for unrecognized tax
benefits,
including accrued interest and penalties, related to prior years. During
the
third quarter of 2007, the Company recorded a net decrease of $0.2 million
to income tax reserves for unrecognized tax benefits based on tax positions
related to the current and prior years and interest accrued related to
unrecognized tax benefits of prior years, for a total of $3.9 million
accrued
year to date 2007. Substantially all of these reserves would impact the
effective tax rate if released into income. Of the total unrecognized
tax
benefits recorded at September 30, 2007, $25.9 million is classified
as current
tax payable and $17.6 million is classified as non-current tax payable
on the
balance sheet. Prior to the adoption of FIN-48, at December 31, 2006,
all
unrecognized tax benefits were classified as current tax
payable.
1.10
Retirement Plans
The
Company has
non-contributory defined benefit pension plans covering employees at
most
operations in the United States. Benefits are based on an average of
the
employee’s earnings in the years preceding retirement and on credited service.
Certain supplemental unfunded plan arrangements also provide retirement
benefits
to specified groups of participants.
The
Company has
frozen participation in the U.S. pension plans to include only those
employees
hired as of December 31, 2003. The U.K. defined benefit plan is the most
significant non-U.S pension plan and participation was frozen for all
employees
hired after April 30, 2003.
The
Net Periodic
Benefit Costs related to Other Post-retirement Benefits were not significant
to
the Consolidated Financial Statements of the Company for the nine months
ended
September 30, 2007 or September 30, 2006.
The
Net Periodic
Benefit Cost increased by $2.2 million (excluding payroll tax) during
2007 due
to pension benefits that became fully accrued when Mr. Lars Westerberg
retired
as President and Chief Executive Officer of Autoliv Inc. on April 1,
2007,
instead of June 2008 as originally planned. These pension costs are reported as
Special Termination Benefit Cost for the nine month period presented
in the
table below.
For
further
information on Pension Plans and Other Post-retirement Benefits, see
Note 18 to
the Consolidated Financial Statements of the Company included in the
Company’s
Annual Report on Form 10-K/A for the year ended December 31, 2006.
The
components of
the total Net Periodic Benefit Cost associated with the Company’s defined
benefit retirement plans are as follows:
|
|
Quarter
July
- September
|
|
|
Nine
months
January
– September
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
|
$3.8
|
|
|
|
$3.8
|
|
|
|
$11.6
|
|
|
|
$11.4
|
|
Interest
cost
|
|
|
3.5
|
|
|
|
3.0
|
|
|
|
10.4
|
|
|
|
8.9
|
|
Expected
return on plan assets
|
|
|
(2.9) |
|
|
|
(2.8) |
|
|
|
(8.7) |
|
|
|
(8.4) |
|
Amortization
of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Amortization
of net (gain) loss
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
1.3
|
|
|
|
1.8
|
|
Special
termination benefit
|
|
|
0.1
|
|
|
|
-
|
|
|
|
2.2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Periodic Benefit Cost
|
|
|
$4.9
|
|
|
|
$4.6
|
|
|
|
$16.9
|
|
|
|
$13.8
|
|
1.11
Contingent Liabilities
Product
Warranty and Recalls
Autoliv
is exposed
to product liability and warranty claims in the event that its products fail
to
perform as expected and such failure results, or is alleged to result, in
bodily
injury and/or property damage. The Company may experience material warranty
or
product liability losses in the future and may incur significant costs to
defend
such claims. In addition, if any of Autoliv’s products are or are alleged to be
defective Autoliv may be required to participate in a recall involving such
products. Each vehicle manufacturer has its own practices regarding product
recalls and other product liability actions relating to its suppliers. As
suppliers become more integrally involved in the vehicle design process and
assume more of the vehicle assembly functions, vehicle manufacturers are
increasingly looking to their suppliers for contribution when faced with
recalls
and product liability claims. A recall claim or a product liability claim
brought against Autoliv in excess of available insurance may have a material
adverse effect on the Company’s business, financial condition and results of
operations. Vehicle manufacturers are also increasingly requiring their outside
suppliers to guarantee or warrant their products and bear the costs of repair
and replacement of such products under new vehicle warranties. A vehicle
manufacturer may attempt to hold Autoliv responsible for some or all of the
repair or replacement costs of defective products under new vehicle warranties,
when the product supplied did not perform as represented. Accordingly, the
future costs of warranty claims by customers may be material. However, Autoliv
believes its established reserves are adequate to cover potential warranty
settlements. Autoliv’s warranty reserves are based upon the Company’s best
estimates of amounts necessary to settle future and existing claims. The
Company
regularly evaluates the appropriateness of these reserves, and adjusts them
when
appropriate. However, the final amounts determined to be due related to these
matters could differ materially from the Company’s recorded
estimates.
The
table in Note
1.5 Product-Related Liabilities above summarizes the change in the balance
sheet
position of the product related liabilities from December 31, 2006 to September
30, 2007.
Legal
Disputes
Litigation
in United States (Autoliv ASP, Inc.)
In
December 2003,
a United States Federal District Court awarded a former supplier of Autoliv
ASP,
Inc., a subsidiary of Autoliv Inc., approximately $27 million plus pre-judgment
interest in connection with a commercial dispute that related to purchase
commitments. Autoliv appealed the verdict and the supplier cross-appealed
in
regard to the calculation of the amount of pre-judgment interest. The United
States Court of Appeals for the Federal Circuit on August 7, 2006, affirmed
the
judgment of the district court on certain appeal issues, vacated the district
court’s decision on certain other appeal issues and remanded the case for the
district court to reconsider, and finally adjusted the district court’s
calculations of pre-judgment interest. On November 29, 2006, the United States
Federal District Court amended the judgment by increasing the pre-judgment
interest to approximately $7 million and denied Autoliv’s motion for vacatur.
Autoliv appealed the decision and on July 11, 2007 the United States Federal
Circuit Court of Appeals upheld the judgment entered against Autoliv ASP,
Inc.
Autoliv’s subsequent motion for rehearing was denied and on October 4, 2007,
Autoliv, being granted leave to do so on its own application, deposited
approximately $36 million with the United States District Court for the Eastern
District of Michigan to be distributed by the district court among the
plaintiffs.
When
depositing
the above amount, Autoliv calculated the post-judgment interest through October
2, 2007 to be approximately $1.8 million, which amount is included in the
amount
deposited. In a motion filed with the district court on October 10,
2007, the plaintiffs have argued that the interest should be approximately
$6.6
million, or approximately $4.9 million more than Autoliv calculated. A hearing
was held before the district court on October 25th, 2007, during which the
district court ruled, consistent with Autoliv's position, that pre-judgment
interest should accrue until December 4, 2003, and that post-judgment interest
should accrue in accordance with the federal statute thereafter and until
satisfaction of the judgment. The plaintiffs may appeal the ruling.
For
additional information, see the
caption Items Affecting Comparability, Item 2, and Part II – Other Information,
Item 1 below.
Litigation
in France (Autoliv Holding Limited)
In
1997, Autoliv
AB acquired Marling Industries plc (“Marling”). Marling was at that time
involved in a litigation relating to the disposition of a French subsidiary
of
Marling in 1992. The acquirer of the French subsidiary claims that
a trademark,
which was sold to a UK subsidiary of Marling prior to the sale of the
French
subsidiary, should have been included in the sale. The UK subsidiary
was sold by
Marling prior to the acquisition of Marling by
Autoliv AB.
In
May 2006, a
French court ruled that the agreement whereby Marling’s French subsidiary had
transferred the trademark to Marling’s UK subsidiary was invalid and that
Marling (now named Autoliv Holding Limited) had fraudulently failed
to disclose
the previous sale of the trademark to the acquirer of the French subsidiary.
The
court also appointed an expert to assess the losses suffered by the
acquirer of
the French subsidiary. The acquirer of the French subsidiary has made
claims for
damages of €40 million ($57 million) but has not yet provided the court
appointed expert with the materials needed to substantiate its
claims.
Autoliv
Holding
Limited and Autoliv AB have appealed against the May 2006 court decision.
No decision on this appeal is expected before the end of 2008. While
legal
proceedings are subject to inherent uncertainty, Autoliv Holding Limited
and
Autoliv AB believe they have meritorious grounds for their appeal. Given
the status of the claim, and the failure of the plaintiff to substantiate
its
claims, it is in the opinion of the Company’s management not possible to give
any meaningful estimate of any financial impact that may arise from
the claim at
this time.
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following
discussion should be read in conjunction with our Consolidated Financial
Statements and accompanying Notes thereto included elsewhere herein and with
our
2006 Annual Report on Form 10-K/A filed with the SEC on February 28, 2007.
Unless otherwise noted, all dollar amounts are in millions.
Autoliv
is the
world's largest automotive safety system supplier with sales to all the leading
vehicle manufacturers in the world. Autoliv develops, markets and manufactures
airbags, seatbelts, safety electronics, steering wheels, anti-whiplash systems,
child safety as well as night vision systems and other active safety systems.
Autoliv accounts for more than one third of its market. Autoliv has
manufacturing facilities in 28 vehicle-producing countries.
Autoliv
is a
Delaware holding corporation with principal executive offices in Stockholm,
Sweden, which owns two principal subsidiaries, Autoliv AB ("AAB") and Autoliv
ASP, Inc. ("ASP"). AAB, a Swedish corporation, is a leading
developer, manufacturer and supplier to the automotive industry of car occupant
restraint systems. Starting with seat belts in 1956, AAB expanded its product
lines to include seat belt pretensioners (1989), frontal airbags (1991),
side-impact airbags (1994), steering wheels (1995) and seat sub-systems (1996).
ASP, an Indiana corporation, pioneered airbag technology in 1968 and has
since
grown into one of the world's leading producers of airbag modules and inflators.
ASP designs, develops and manufactures airbag inflators, modules and airbag
cushions, seat belts and steering wheels. It sells inflators and modules
for use
in driver, passenger, side-impact and knee bolster airbag systems for worldwide
automotive markets.
Shares
of Autoliv
common stock are traded on the New York Stock Exchange under the symbol "ALV"
and Swedish Depositary Receipts representing shares of Autoliv common stock
trade on the OMX Nordic Exchange in Stockholm under the symbol "ALIV". Options
in Autoliv shares are traded in Philadelphia and AMSE under the symbol
"ALV".
Non-GAAP
financial measures
Some
of the
following discussions refer to non-GAAP financial measures: see "Organic
sales",
"Operating working capital", "Net debt", "Leverage ratio" and "Interest coverage
ratio". Management believes that these non-GAAP financial measures assist
investors in analyzing trends in the Company's business. Investors should
consider these non-GAAP financial measures in addition to, rather than as
a
substitute for, financial reporting measures prepared in accordance with
GAAP.
These non-GAAP financial measures have been identified as applicable in each
section of this report with a tabular presentation reconciling them to GAAP.
It
should be noted that these measures, as defined, may not be comparable to
similarly titled measures used by other companies.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30,
2006
Market
overview
During
the third
quarter 2007, global light vehicle production is estimated by CSM and J.D.
Power to have increased by nearly 8% compared to the same quarter 2006. At
the
beginning of the quarter, global light vehicle production was expected to
grow
by 7%.
In
Europe (including Eastern Europe), where Autoliv
generates more than half of its revenues, light vehicle production is
estimated to have risen by 8% which was 3 percentage points better than
expected. At the beginning of the quarter, light vehicle production in Western
Europe was expected to be flat, while it now is reported to have increased
by
4%. Light vehicle production in Eastern Europe rose by 20%, as
expected.
In
North America, which accounts for
approximately one quarter of Autoliv’s consolidated revenues, light vehicle
production increased by 4%. GM, Ford and Chrysler (“the Detroit 3”) reduced
their production by less than 1% compared to an expected increase of 2%,
while
the Asian and European vehicle manufacturers increased their North American
production by almost 13%, as expected.
In
Japan, which accounts for one tenth of Autoliv’s
consolidated sales, light vehicle production decreased by 1% compared to
an
expected increase of 1%.
In
the
Rest of the World (RoW) light vehicle production is estimated
to have risen by 16%, primarily due to a 23% increase in
China.
Autoliv’s
market
is driven not only by vehicle production but also by the fact that new vehicle
models are being equipped with more airbags and other safety systems, often
in
response to new regulations. An important example of such regulation was
provided in September when the U.S. National Highway Traffic Safety
Administration (NHTSA) released new stringent crash test criteria that will,
in
effect, mandate head curtain airbags and chest side airbags on all new light
vehicles within the next five years.
Consolidated
Sales
The
Company has
substantial operations outside the United States and currently approximately
75%
of its sales are denominated in currencies other than the U.S. dollar. This
makes the Company and its performance in regions outside the United States
sensitive to changes in U.S dollar exchange rates. The measure “Organic sales”
presents the increase or decrease in the Company’s overall U.S. dollar net sales
on a comparative basis, allowing separate discussion of the impacts of
acquisitions/divestments and exchange rate fluctuations. The tabular
reconciliation below presents the change in “Organic sales” reconciled to the
change in the total net sales as can be derived from our unaudited financial
statements.
|
|
Reconciliation
of the change in “Organic sales” to GAAP financial
measure
|
|
|
|
Components
of net sales increase (decrease)
Quarter
July - September, 2007
(Dollars
in millions)
|
|
|
|
Europe
|
|
|
North
America
|
|
|
Japan
|
|
|
RoW
|
|
|
Total
|
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
Organic
sales change
|
|
|
4.6
|
|
|
|
33.2
|
|
|
|
1.9
|
|
|
|
7.5
|
|
|
|
17.0
|
|
|
|
22.4
|
|
|
|
13.1
|
|
|
|
20.3
|
|
|
|
5.9
|
|
|
|
83.4
|
|
Impact
of
acquisitions/
divestments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effect
of
exchange rates
|
|
|
7.8
|
|
|
|
56.0
|
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
(1.4) |
|
|
|
(1.7) |
|
|
|
5.6
|
|
|
|
8.7
|
|
|
|
4.5
|
|
|
|
63.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net sales change
|
|
|
12.4
|
|
|
|
89.2
|
|
|
|
1.9
|
|
|
|
7.7
|
|
|
|
15.6
|
|
|
|
20.7
|
|
|
|
18.7
|
|
|
|
29.0
|
|
|
|
10.4
|
|
|
|
146.6
|
|
During
the third
quarter 2007, Autoliv’s consolidated net sales rose by more than 10% to $1,557
million compared to the third quarter 2006. Excluding currency translation
effects of 4%, organic sales (i.e. sales excluding currency translation effects,
and acquisitions/divestitures) grew by 6%. At the beginning of the quarter,
organic sales were anticipated to grow by 4%. However, light vehicle production
in Western Europe has been stronger than expected.
Growth
in
Autoliv’s organic sales of 6% was driven by strong performance in seatbelts, due
to the introduction of active seatbelts and higher global light vehicle
production. Organic sales were also driven by higher penetration of curtain
airbags and other side protection systems into an increasing number of new
vehicle models, and by market share gains in safety electronics. Sales grew
organically in all regions and particularly for customers such as BMW, Nissan
and Mitsubishi. Additionally, sales to the Chinese manufacturers
Brilliance-Jinbei and Chery grew the fastest, albeit from low
levels.
Sales
by
Product
Sales
of
airbag products (including steering wheels and
electronics) increased by 8% to $1,002 million, including currency effects
of
4%. Organic sales growth of 4% was due to higher penetration rates of curtain
airbags (organic sales up 12%) and other side airbags (up 8%) into an increasing
number of vehicle models. Increased market share for safety electronics (organic
sales up 16%) and steering wheels (up 10%) also contributed to the performance,
while sales of frontal airbags declined due to intensive price
competition.
Sales
of
seatbelt products (including seat sub-systems) rose by
15% to $555 million. Excluding currency effects of 6%, organic sales grew
by 9%
due to the introduction of more sophisticated seatbelt systems and to the
strong
global light vehicle production.
Sales
by
Region
Sales
from
Autoliv’s European companies rose by 12% to $811
million. Excluding currency effects of 8%, sales grew organically by
4%. This increase reflects the introduction of active seatbelts with
electric pretensioners and of the demand for seatbelts with pyrotechnic
pretensioners. Sales were also affected by the booming vehicle production
in
Eastern Europe and by Autoliv’s market share gains in steering wheels.
Additionally, sales were driven by the introduction of curtain airbags into
such models as BMW’s Mini and Clubman; Ford’s Galaxy and Mondeo; Kia’s Cee’d;
Mercedes C- and E-class; Nissan’s Qashqai; Peugeot’s 207; Renault’s Laguna 3;
Volvo’s C30 and V70 and Volkswagen’s Tiguan. Sales of frontal airbags
declined primarily due to pricing pressure from customers.
Sales
from
Autoliv’s North American companies increased by 2% to $409
million. Sales were driven by the introduction and higher penetration of
head
curtain airbags (up 23%) and by market share gains in safety electronics
(up
20%). Sales of frontal airbags were negatively impacted by pricing pressure
and
the expiration of certain contracts. Autoliv’s strong performance in
curtain airbags was driven by new business for BMW’s X5; Buick’s
Enclave; Chevrolet’s Express and Silverado; Chrysler’s Sebring, Avenger, Compass
and Patriot; GMC’s Acadia; Nissan’s Altima, Centra and Versa; and Saturn’s
Outlook and Vue.
Sales
from
Autoliv’s companies in Japan increased by 16% to $153 million
despite negative currency effects of 1%. Organic growth of 17% compares
favorably with the 1% decline in Japanese vehicle production. Organic growth was
recorded in all product lines and was particularly strong in seatbelts due
to
new business with Honda. Sales of head curtain airbags rose organically by
25%,
primarily due to new business and higher production of Mazda’s Axela;
Mitsubishi’s Outlander; Nissan’s X-trail and Toyota’s Rav4 and
MarkX.
Sales
from
Autoliv’s companies in the Rest of the World (RoW)
rose by 19% to $184 million. Excluding currency effects of 6%, sales grew
organically by 13%. Organic sales were driven by strong vehicle production
in
China and other Asian countries. This was primarily the result of vigorous
sales
of seatbelts (up 16% organically), as well as of steering wheels and safety
electronics, albeit from previously low levels. The demand was particularly
strong in China (up 20%), partially as a result of sales to
Brilliance-Jinbei’s Junjie; Chery’s A; Citroën’s C4; Ford’s Mondeo; Mazda’s
Axela, Peugeot’s 307, Saic’s R-75 and Skoda Octavia.
Earnings
for the Three-Month Period Ended September 30, 2007
Prices
for raw
materials remain at near record levels. Consequently, many Autoliv component
suppliers continue to be squeezed between high raw material prices and the
constant pricing pressure in the automotive industry. This squeeze has forced
Autoliv to incur additional costs of approximately $5 million during the
quarter
for raw materials and financially distressed suppliers. In addition, sales
are
growing particularly fast for products with relatively higher component costs.
As a result, gross margin in the third quarter declined to 19.4% from 19.7%
for
the same period 2006. Despite this margin pressure, gross profit improved
by $24
million or 9% to $302 million. This improvement was due primarily to higher
organic sales and currency effects.
Operating
income
rose by 8% or $8 million to $110 million, while operating margin was virtually
unchanged at 7.1% despite 0.7 percentage points higher other operating expenses
than in the same quarter 2006. These operating expenses rose by $11 million
to
$10 million, primarily as a result of stepped-up restructuring activities.
Both
Selling, General and Administrative expense (S,G&A) and Research,
Development and Engineering expense (R,D&E) declined as a percentage of
sales to 5.4% and 6.0%, respectively, from 5.6% and 6.7% during the same
quarter
2006. At the beginning of the quarter, operating margin was expected to reach
approximately 7.0%.
Income
before
taxes increased by 3% or $3 million to $95 million. The $8 million improvement
in operating income was partially offset by $3 million higher interest expense
as a result of higher market interest rates and higher average net debt,
primarily due to the share repurchase program and the acquisition in January
of
the remaining shares in Autoliv-Mando in Korea (“the Mando Acquisition”).
Additionally, costs for Other financial items rose due to factoring and negative
currency effects on certain non-U.S. dollar loans.
Net
income
amounted to $63 million compared to $122 million for the same quarter 2006,
when
net income was boosted by the release of tax reserves and by other discrete
tax
items. Excluding this effect of $66 million, net income rose by 13% or $7
million as a result of higher income and a lower underlying effective tax
rate.
The effective tax rate was 31.4%, while the effective tax rate in the same
quarter 2006 was a positive 38.0%. This was due to the income from the
release of tax reserves and other discrete tax items.
Earnings
per share
amounted to 81 cents compared to $1.48 reported for the third quarter 2006,
a
decrease of 67 cents. The third quarter 2006 included discrete tax items
that
had a positive impact of 80 cents per share. Excluding these items there
was an
improvement this year of 13 cents per share, primarily the result of 6
cents from the stock repurchase program and 5 cents from currency effects.
The
average number of shares outstanding decreased by 5% to 77.8
million.
Return
on capital
employed improved slightly to 13%, while return on equity declined to 11%
from
21%. However, in the third quarter last year, return on equity was boosted
by 11
percentage points by the release of tax reserves and other discrete tax
items.
During
the
quarter, operating income was negatively affected by employee-related expenses
of $6.6 million in connection with restructuring of (mainly textile) operations
in high-cost countries. During the quarter, 225 employees covered by the
restructuring reserves left the Company.
NINE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30,
2006
Market
overview
During
the
nine-month period January - September 2007, global light vehicle production
is
estimated to have increased by nearly 5%, but only 2% in the Triad where
Autoliv
derives almost 90% of its sales.
In
Europe, light vehicle production is estimated to have
increased 6%, primarily due to an 18% growth in Eastern Europe. The increase
in
Western Europe was 2%.
In
North America, light vehicle production
declined by 2% due to GM, Ford and Chrysler cutting back their production
by
8%.
In
Japan, light vehicle production was flat
for
the nine-month period.
In
the
Rest of the World, light vehicle production is estimated to
have risen by 12%.
Consolidated
Sales
The
Company has
substantial operations outside the United States and currently approximately
75%
of its sales are denominated in currencies other than the U.S. dollar. This
makes the Company and its performance in regions outside the United States
sensitive to changes in U.S dollar exchange rates. The measure “Organic sales”
presents the increase or decrease in our overall U.S. dollar net sales on
a
comparative basis, allowing separate discussion of the impacts of
acquisitions/divestments and exchange rate fluctuations. The tabular
reconciliation below presents the change in “Organic sales” reconciled to the
change in the total net sales as can be derived from our unaudited financial
statements.
|
|
Reconciliation
of the change in “Organic sales” to GAAP financial
measure
|
|
|
|
Components
of net sales increase (decrease)
First
nine months, 2007
(Dollars
in millions)
|
|
|
|
Europe
|
|
|
North
America
|
|
|
Japan
|
|
|
RoW
|
|
|
Total
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
Organic
sales change
|
|
|
3.1
|
|
|
|
74.1
|
|
|
|
1.4
|
|
|
|
17.8
|
|
|
|
11.5
|
|
|
|
47.1
|
|
|
|
11.1
|
|
|
|
52.5
|
|
|
|
4.2
|
|
|
|
191.5
|
|
Impact
of acquisitions/
divestments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effect
of exchange rates
|
|
|
8.1
|
|
|
|
196.2
|
|
|
|
0.0
|
|
|
|
(0.4 |
) |
|
|
(3.0 |
) |
|
|
(12.2 |
) |
|
|
4.9
|
|
|
|
23.2
|
|
|
|
4.5
|
|
|
|
206.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net sales change
|
|
|
11.2
|
|
|
|
270.3
|
|
|
|
1.4
|
|
|
|
17.4
|
|
|
|
8.5
|
|
|
|
34.9
|
|
|
|
16.0
|
|
|
|
75.7
|
|
|
|
8.7
|
|
|
|
398.3
|
|
For
the
year’s first nine months, sales increased by 9% to $4,985 million, including
currency translation effects of 5%. Organic sales growth of 4% were driven
by
strong performance in seatbelts, partially as a reflection of the
introduction of active seatbelts with electric pretensioners and of the
demand for seatbelts with pyrotechnic pretensioners. Sales were also affected
by
the booming vehicle production in emerging markets and strong demand for curtain
airbags and higher market share for steering wheels and safety
electronics.
Sales
by
Product
Sales
of
airbag products increased by 7% to $3,232 million.
Excluding currency effects of 4%, organic sales grew by 3% due to strong
curtain
airbags sales, partially offset by declines in frontal airbags.
Sales
of
seatbelt products increased by 13% to $1,753 million
including 6% from currency effects. The 7% increase in organic sales reflects
strong vehicle production in Asia Pacific and Eastern Europe, and rapidly
increasing demand for pretensioners and active seatbelts.
Sales
by
Region
Sales
from
Autoliv’s European companies
increased by 11% to $2,685 million of which 8% was due to currency effects.
Organic growth of 3% was less than the increase in European vehicle production
due to the fact that production in Eastern Europe grew much faster than in
Western Europe which has higher safety content per vehicle.
Sales
from
Autoliv’s North American companies increased by 1% to
$1,304 million despite the 2% decline in the region’s light vehicle production.
This was due to strong demand for side curtain airbags and market share gains
in
safety electronics.
Sales
from Autoliv
companies in Japan increased by 9% to
$446 million despite a 3% negative currency effect. Growth in organic sales
of
12% was significantly stronger than light vehicle production in Japan which
stood virtually unchanged.
Sales
from Autoliv
companies in the Rest of the
World rose by 16% to $550 million including
currency effects of 5%. Growth in organic sales of 11% was driven by all
product
lines supported by an increase of roughly the same magnitude in light vehicle
production in the region.
Earnings
for the Nine-Month Period Ended September 30, 2007
Gross
profit
increased by 3% or $32 million to $983 million on higher sales. However,
gross
margin decreased to 19.7% from 20.7% as a result of higher direct cost and
pricing pressure from customers.
Operating
income
declined by 12% or $46 million to $338 million. Of the decline, 8 percentage
points were due to a $30 million increase in legal reserves (see significant
events) and 4 points or $16 million to other factors, including $28 million
higher S,G&A expense. Operating margin declined from 8.4% to 6.8% and to
7.4% excluding the increase in legal reserves (see table for this non-U.S.
GAAP
measure). Most of the latter decline was caused by lower gross margin and
higher
S,G&A.
Income
before
taxes declined by 17% or $60 million to $297 million. Of the decrease, 8
percentage points were due to the increase in legal reserves and 9 points
or $30
million to other factors, including $11 million in higher net interest due
to
higher market interest rates and higher average net debt as a result of stock
buybacks and the Mando acquisition.
Net
income
decreased by 35% or $105 million to $194 million. Of the decrease, 24
percentage points were due to the $71 million release of tax reserves and
other
discrete tax items in 2006, 7 percentage points were due to the increase
in
legal reserves, and 4 points or $14 million to other factors. The Mando
acquisition had a favorable effect of $8 million by reducing the minority
interest. The effective tax rate rose to 32.5 % from 12.3%
primarily due to discrete tax items in 2006.
Earnings
per share
declined by $1.15 to $2.45 and to $2.71 excluding the 26 cent effect of the
increase in legal reserves Earnings per share was also negatively impacted
by 46
cents from lower underlying net income and by 89 cents from the year-over-year
change in discrete tax items. The stock repurchase program had a favorable
effect of 11 cents and currency effects of 10 cents. The average number
of shares outstanding decreased by 5% to 79.2 million.
ITEMS
AFFECTING COMPARABILITY
The
following
items have significantly affected the comparability of reported results from
year to year. Management believes that, to assist in understanding the Company's
operations, it is useful to consider certain U.S. GAAP measures exclusive
of
these items. Accordingly, the accompanying tables reconcile from U.S. GAAP
to
the equivalent non-U.S. GAAP measure.
On
July 11, 2007,
the United States Federal Circuit Court of Appeals upheld a judgment entered
against Autoliv ASP, Inc., a subsidiary of Autoliv Inc. In the second quarter
2007, Autoliv increased its provision for legal disputes by $30 million which
was charged against “Other income (expense), net” in the income statement, with
a negative impact of $20 million on Net income. The table below reconciles
the
impact of the increase in legal reserves on reported GAAP income and key
ratios.
Impact
of legal reserve increase
|
|
(Dollars
in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Quarter
July – September 2007
|
|
|
First
nine months 2007
|
|
|
|
Non-GAAP
Excl.
increase
|
|
|
Increase
Amount
|
|
|
Reported
GAAP
|
|
|
Non-GAAP
Excl.
increase
|
|
|
Increase
Amount1)
|
|
|
Reported
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
$110.0
|
|
|
|
$(-) |
|
|
|
$110.0
|
|
|
|
$368.3
|
|
|
|
$(30.4) |
|
|
|
$337.9
|
|
Operating
margin, % 2)
|
|
|
7.1
|
|
|
|
(-) |
|
|
|
7.1
|
|
|
|
7.4
|
|
|
|
(0.6) |
|
|
|
6.8
|
|
Income
before taxes
|
|
|
95.0
|
|
|
|
(-) |
|
|
|
95.0
|
|
|
|
327.4
|
|
|
|
(30.4) |
|
|
|
297.0
|
|
Net
income
|
|
|
63.2
|
|
|
|
(-) |
|
|
|
63.2
|
|
|
|
214.3
|
|
|
|
(20.4) |
|
|
|
193.9
|
|
Operating
working capital
|
|
|
666
|
|
|
|
(-) |
|
|
|
666
|
|
|
|
686
|
|
|
|
(20) |
|
|
|
666
|
|
Capital
employed
|
|
|
3,482
|
|
|
|
(-) |
|
|
|
3,482
|
|
|
|
3,502
|
|
|
|
(20) |
|
|
|
3,482
|
|
Return
on
equity, %
|
|
|
10.6
|
|
|
|
(-) |
|
|
|
10.6
|
|
|
|
11.8
|
|
|
|
(1.0) |
|
|
|
10.8
|
|
Return
on
capital employed, %
|
|
|
12.9
|
|
|
|
(-) |
|
|
|
12.9
|
|
|
|
14.3
|
|
|
|
(1.1) |
|
|
|
13.2
|
|
Earnings
per
share 3)
|
|
|
0.81
|
|
|
|
(-) |
|
|
|
0.81
|
|
|
|
2.71
|
|
|
|
(0.26) |
|
|
|
2.45
|
|
Equity
per
share
|
|
|
30.88
|
|
|
|
(-) |
|
|
|
30.88
|
|
|
|
31.14
|
|
|
|
(0.26) |
|
|
|
30.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
Increase
in legal reserves based on the estimated costs for a judgment rendered
by
the U.S. Federal Circuit Court on July 11, 2007 accrued for in
the second
quarter 2007.
|
2)
|
Operating
income relative to sales.
|
3)
|
Assuming
dilution and net of treasury shares. The difference between basic
and
dilutive per share amounts is less than one percent for each
period.
|
For
additional
information see the caption Legal Disputes under Note 1.11 above and Part
II –
Other Information, Item 1 below.
LIQUIDITY
AND SOURCES OF CAPITAL
The
Company uses
the non-GAAP measure “Operating working capital” as defined in the table below
in its communication with investors and for management review of the development
of the working capital cash generation from operations. The reconciling items
used to derive this measure are by contrast managed as part of the Company’s
overall debt management.
Reconciliation
of “Operating working capital” to GAAP financial
measure
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept
30, 2007
|
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
|
Sept
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
$2,183.4
|
|
|
|
$2,120.9
|
|
|
|
$2,098.4
|
|
|
|
$2,065.4
|
|
Total
current liabilities
|
|
|
(1,716.5) |
|
|
|
(1,682.0) |
|
|
|
(1,531.6) |
|
|
|
(1,414.3) |
|
Working
capital
|
|
|
466.9
|
|
|
|
438.9
|
|
|
|
566.8
|
|
|
|
651.1
|
|
Cash
and
cash equivalents
|
|
|
(160.1) |
|
|
|
(136.1) |
|
|
|
(168.1) |
|
|
|
(131.9) |
|
Short-term
debt
|
|
|
330.4
|
|
|
|
312.4
|
|
|
|
294.1
|
|
|
|
118.8
|
|
Derivative
asset and liability, current
|
|
|
(1.5) |
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
0.1
|
|
Dividends
payable
|
|
|
29.8
|
|
|
|
33.6
|
|
|
|
29.6
|
|
|
|
30.1
|
|
Operating
working capital
|
|
|
$665.5
|
|
|
|
$648.9
|
|
|
|
$723.6
|
|
|
|
$668.2
|
|
Operations
continue to generate strong cash flow. During the quarter, operating
cash flow improved to $148 million from $102 million in the third quarter
2006,
and cash flow before financing to $78 million from $24 million. The strong
cash
flow was achieved primarily as the result of significant improvements in
working
capital, despite the fact that factoring decreased by $36 million during
the
quarter. Operations for the first nine months 2007 generated a record-high
cash
flow of $549 million and of $245 million before financing compared to $403
million and $195 million during the first nine months 2006. This year’s strong
cash flow was achieved despite the use of $80 million for the Mando Acquisition
and an $18 million negative impact from our net factoring position.
During
the quarter, capital expenditures, net of $72 million were $5 million less
than
depreciation and amortization and $12 million less than capital expenditures,
net in the same quarter 2006. For the nine-month period the capital
expenditures, net amounted to $228 million while depreciation and amortization
were $236 million compared to $215 million and $223 million,
respectively, during the same period of 2006.
Autoliv
has a
target that working capital should not exceed 10% of annual sales. During
the
quarter, this ratio remained at 10.1% as at the end of previous quarter but
declined from 11.0% a year ago.
In
relation to
days sales outstanding, receivables increased slightly to 70 days from 69
days
at the end of the second quarter but decreased from 83 days a year ago. Days
inventory outstanding increased to 33 from 31 a quarter ago but decreased
from
37 days a year ago.
The
Company uses
the non-GAAP measure “Net debt” as defined in the table below in its
communication with investors regarding its capital structure and as the relevant
metric monitoring its overall debt management. The reconciling items used
to
derive this measure are managed as part of overall debt management. This
non-GAAP measure is a supplemental measure to the GAAP measure of total
debt.
Autoliv’s
policy
is to maintain a net debt that is significantly below 3.0 times EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) and an interest-coverage
ratio significantly above 2.75 times EBITDA. On September 30, these ratios
were
1.6 and 9.9, respectively.
Reconciliation
of “Net debt” to GAAP financial measure
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept
30, 2007
|
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
|
Sept
30, 2006
|
|
|
|
|
|
Short-term
debt
|
|
$ |
330.4
|
|
|
$ |
312.4
|
|
|
$ |
294.1
|
|
|
$ |
118.8
|
|
Long-term
debt
|
|
|
975.7
|
|
|
|
822.3
|
|
|
|
887.7
|
|
|
|
982.8
|
|
Total
debt
|
|
|
1,306.1
|
|
|
|
1,134.7
|
|
|
|
1,181.8
|
|
|
|
1,101.6
|
|
Cash
and
cash equivalents
|
|
|
(160.1) |
|
|
|
(136.1) |
|
|
|
(168.1) |
|
|
|
(131.9) |
|
Debt-related
derivatives
|
|
|
(7.9) |
|
|
|
(6.6) |
|
|
|
(3.3) |
|
|
|
(2.8) |
|
Net
debt
|
|
$ |
1,138.1
|
|
|
$ |
992.0
|
|
|
$ |
1,010.4
|
|
|
$ |
966.9
|
|
During
the quarter, net debt increased
by $146 million to $1,138 million and gross interest-bearing debt by $171
million to $1,306 million mainly due to
stock buybacks and dividends totaling
$191 million. The net debt to capitalization ratio increased to 32% from 29%.
Despite dividends, stock buybacks and the Mando acquisition totaling $428
million, net debt has increased by only $128 million and gross interest-bearing
debt by $124 million since the beginning of the year due to the strong cash
flow. Net debt to capitalization increased to 32% from 29% at the beginning
of
the year and from 28% a year ago.
The
non-GAAP
measure net debt is also used in the non-GAAP measure “Leverage ratio” which
together with the “Interest coverage ratio” constitute the Company’s debt
limitation policy. This policy provides guidance to credit and equity investors
regarding the extent to which the Company would be prepared to leverage its
operations. These measures corresponded, until December 2004, to the financial
covenants in the Company’s Revolving Credit Facility. Although these covenants
no longer exist, the Company believes investors remain interested in these
measures. For details on leverage ratio and interest coverage ratio, refer
to
the tables below that reconcile these two non-GAAP measures to GAAP
measures.
Reconciliation
of “Leverage ratio” to GAAP financial measure
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
|
|
|
|
|
|
Net
debt
2)
|
|
|
$1,138.1
|
|
|
|
$966.9
|
|
Pension
liabilities
|
|
|
96.6
|
|
|
|
58.9
|
|
Net
debt per the policy
|
|
|
$1,234.7
|
|
|
|
$1,025.8
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes 3)
|
|
|
$421.1
|
|
|
|
$488.0
|
|
Plus:
Interest expense, net 1)
3)
|
|
|
49.7
|
|
|
|
34.7
|
|
Depreciation
and amortization of intangibles (incl. impairment write-offs) 3)
|
|
|
316.1
|
|
|
|
297.0
|
|
EBITDA
per the Policy 3)
|
|
|
$786.9
|
|
|
|
$819.7
|
|
|
|
|
|
|
|
|
|
|
Net
debt to EBITDA ratio
|
|
|
1.6
|
|
|
|
1.3
|
|
1)
|
Interest
expense, net, is interest expense less interest
income.
|
2)
|
Net
debt
is short- and long-term debt and debt-related derivatives less
cash and
cash equivalents.
|
Reconciliation
of “Interest coverage ratio” to GAAP financial
measure
(Dollars
in millions)
|
|
|
|
|
|
|
|
September
30
|
|
|
|
2007
|
|
|
2006
|
|
Operating
income 3)
|
|
|
$474.1
|
|
|
|
$519.6
|
|
Amortization
of intangibles (incl. impairment write-offs) 3)
|
|
|
18.3
|
|
|
|
15.5
|
|
Operating
profit per the Policy3)
|
|
|
$492.4
|
|
|
|
$535.1
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net 1)
3)
|
|
|
49.7
|
|
|
|
34.7
|
|
|
|
|
|
|
|
|
|
|
Interest
coverage ratio
|
|
|
9.9
|
|
|
|
15.4
|
|
1)
|
Interest
expense, net, is interest expense less interest
income.
|
During
the
quarter, equity decreased by $83 million to $2,344 million or to $30.88 per
share. Equity decreased by $160 million from share repurchases and by $31
million from dividends. Equity was favorably impacted by $63 million from
net
income, by $42 million from favorable currency effects, and by $3 million
from
the exercise of stock options. Equity decreased the first nine months by
$59
million due to stock repurchases of $257 million and dividends of $91 million.
Equity was positively impacted by $194 million from net income, by $72
million from currency effects, $13 million from effects of stock compensation
and $10 million from the adoption of FIN-48.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does
not have any off-balance sheet arrangements that have, or are reasonably
likely
to have, a material current or future effect on its financial position, results
of operations or cash flows.
Headcount
Total
headcount
(employees plus temporary hourly workers) decreased by 300 during the quarter
and the nine-month period to 41,500. The decrease was due to a reduction
of more
than 600 in high-cost countries.
At
the end of the
quarter, 49% of headcount (and 51% of permanent employees excluding temporaries)
were in low-cost countries compared to 46% (and 49%, respectively) a year
ago
and less than 10% eight years ago, when the reallocation of production started
to accelerate.
Prospects
During
the fourth
quarter of 2007, global light vehicle production is expected to increase
by
nearly 6% due to a 12% growth in the Rest of the World and 20% increase in
Eastern Europe. Autoliv expects its organic sales to grow by more than 2%
and
the Company’s consolidated sales to increase by approximately 8% providing that
the current exchange rates prevail.
During
the fourth
quarter, operating margin will benefit from our restructuring activities
and
other aggressive cost reduction programs, while the effect of higher raw
material prices is expected to level off. Consequently, operating margin
is
expected to improve from the 8.5% recorded in the fourth quarter 2006 to
exceed
9% in this year’s fourth quarter, which is a slight modification of our previous
guidance of “approximately 9%”.
For
the full year
2007, Autoliv also revises its guidance of an expected increase in organic
sales
of “at least 3%” to “close to 4%”. The Company maintains its full year guidance
of an operating margin of close to 7.5% including the cost in the second
quarter
related to legal reserves. On a comparable basis this would imply an operating
margin of “close to 8%” adjusted for the increase in legal reserves in the
second quarter (see Impact on legal reserve increase table above).
The
effective tax
rate is projected to amount to around 33% in line with what was previously
communicated.
OTHER
RECENT EVENTS
Launches
in the 3rd quarter 2007
·
|
BMW’s
new Mini Clubman; Frontal airbags, side airbags,
Inflatable Curtains, steering wheel, seatbelts with pretentioners
and safety electronics
|
·
|
Landwind's new
CV7; Frontal airbags and steering
wheel
|
·
|
Honda’s
new Accord: Side airbags and Inflatable
curtains
|
·
|
Renault’s
new Laguna; Frontal airbags, side airbags,
Inflatable Curtains, steering wheel, seatbelts with pretentioners
and safety electronics
|
·
|
Mercedes
new C-class wagon; Side airbags, Inflatable
curtains and active seatbelts with
motorized pretensioners
|
·
|
Nanjing
Auto’s new TF; Frontal airbags and seatbelts with
pretensioners
|
·
|
Toyotas
new Mark X; Inflatable
curtains
|
·
|
Volkswagen’s
new Tiguan; Frontal airbags, Inflatable
curtains and steering wheel
|
Other
Significant Events
· During
the
quarter, Autoliv repurchased 2,858,595 shares for $160 million at an average
cost of $56.10 per share and during the first nine months 4.5 million shares
for
$257 million at an average cost of $56.71 per share. Under the
existing authorizations, an additional 1.5 million shares can be
repurchased.
· Autoliv
continues
to move manufacturing from high cost countries by closing a U.S. seatbelt
plant
in Madisonville, Kentucky. Currently, the plant has 220 employees after having
moved most of its production to Autoliv’s manufacturing facilities in
Mexico.
· Mr.
Kazuhiko
Sakamoto has been elected to the Autoliv Board of Directors to replace Mr.
Tetsuo Sekiya, who retired at the same meeting. Mr. Sekiya recently turned
73.
· Autoliv
Korea has
received the 2007 Best Labor Management Culture Award from the Korea Ministry
of
Labor. It was the only non-Korean company to receive this award.
· A
U.S. federal
appeals court recently denied Autoliv’s petition for rehearing of a case in
which one of the Company’s wholly-owned subsidiaries was ordered to pay damages
to a former supplier. In early October, Autoliv deposited $36 million with
the
trial court towards payment of the judgment in the case. The amount has been
accrued for in previous quarters.
· In
October,
Autoliv acquired 41% of the shares in its 59% joint venture Autoliv Changchun
Maw Hung Safety Systems for nearly $14 million. This consolidated Chinese
seatbelt company, formed in 2002, will reach almost $50 million in sales
this
year.
· Autoliv
has
installed a state-of-the-art facility in its tech center in Tsukuba, North
of
Tokyo, to support the continued business growth in the important Japanese
market. This $13 million investment and expansion includes an advanced
crash
sled with “pitching capabilities” to better replicate the crash dynamics of
future vehicle designs. As a result, Autoliv will be the only
automotive supplier in the world offering this capability.
The
Company has
declared a quarterly dividend of 39 cents per share for the fourth quarter
2007.
This dividend will be paid on December 6 to shareholders of record as of
November 8, 2007. The ex-date, when the stock trades without the right to
the
dividend, is November 6, 2007.
Autoliv
intends to
publish the quarterly report for the fourth quarter on Thursday January 31,
2008.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
As
of September
30, 2007, the Company’s future contractual obligations, have not changed
significantly from the amounts reported in the 2006 Annual Report on Form
10-K/A
filed with the SEC on February 28, 2007. The adoption of FIN 48 did not have
a
material impact on the table of contractual obligations.
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
of September
30, 2007, there have been no material changes to the information related
to
quantitative and qualitative disclosures about market risk that was provided
in
the Company’s 2006 Annual Report on Form 10-K/A filed with the SEC on February
28, 2007.
ITEM
4.
CONTROLS AND PROCEDURES
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
Autoliv’s
management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as
of the end of the period covered by this report. Based on such evaluation,
the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that as of the end of such period, the Company’s disclosure controls and
procedures are effectively recording, processing, summarizing and reporting,
on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
(b)
|
Changes
in
Internal Control Over Financial
Reporting
|
There
have not
been any changes in the Company’s internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act)
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
ITEM
4T.
CONTROLS AND PROCEDURES
Not
applicable.
PART
II -
OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
Various
claims,
lawsuits and proceedings are pending or threatened against the Company or
its
subsidiaries, covering a range of matters that arise in the ordinary course
of
its business activities with respect to commercial, product liability and
other
matters.
Litigation
is
subject to many uncertainties, and the outcome of any litigation cannot be
assured. After discussions with counsel, it is the opinion of management
that
the litigation to which the Company is currently a party will not have a
material adverse impact on the consolidated financial position of Autoliv.
The
Company may, however, experience material product liability or other losses
in
the future.
The
Company
believes that it is currently adequately insured against product and other
liability risks at levels sufficient to cover potential claims. The level
of
coverage may, however, be insufficient in the future or unavailable on the
market.
In
the second
quarter of 2007, there was a one time increase in the provision for legal
disputes. For additional information, see Legal Disputes under Note 1.11
above.
As
of September
30, 2007, there have been no material changes in the information that was
provided in the Company’s 2006 Annual Report on Form 10-K/A filed with the SEC
on February 28, 2007.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock
repurchase program
During
the third
quarter of 2007, Autoliv repurchased 2,858,595 of its shares for
$160.1 million at an average price of $56.02. Since the repurchasing
program was adopted in 2000, Autoliv has bought back 28.5 million shares
at an
average price of $41.21 per share. Under the existing authorizations, another
1.5 million shares may be repurchased. Below is a summary of Autoliv's common
stock repurchases by month for the quarter ended September 30,
2007:
|
|
Stockholm
Stock Exchange
("SSE")
|
|
|
New
York Stock Exchange
("NYSE")
|
|
|
SSE
+ NYSE
Total
Number of Shares
|
|
|
|
|
|
|
|
Date
|
|
Total
Number of Shares
Purchased
|
|
|
Average
Price in USD
Paid
per Share
|
|
|
Total
Number of Shares
Purchased
|
|
|
Average
Price in USD
Paid
per Share
|
|
|
Purchased
as Part of Publicly
Announced
Plans or Programs
|
|
|
Average
Price in USD
Paid
per Share
|
|
|
Maximum
Number of Shares
That
May Yet Be Purchased Under the
Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1-
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0
|
|
|
|
0.0000
|
|
|
|
0
|
|
|
|
0.0000
|
|
|
|
0
|
|
|
|
0.0000
|
|
|
|
4,350,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
1-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
750,000
|
|
|
|
55.6070
|
|
|
|
1,213,800
|
|
|
|
55.3940
|
|
|
|
1,963,800
|
|
|
|
55.4754
|
|
|
|
2,386,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
1-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
330,000
|
|
|
|
57.1995
|
|
|
|
564,795
|
|
|
|
57.2145
|
|
|
|
894,795
|
|
|
|
57.2089
|
|
|
|
1,492,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,080,000
|
|
|
|
56.0936
|
|
|
|
1,778,595
|
|
|
|
55.9721
|
|
|
|
2,858,595
|
|
|
|
56.0180
|
|
|
|
1,492,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
Announcement
of share buyback program with authorization to buy back 10 million
shares
made on May 9, 2000.
|
2)
|
Announcement
of expansion of existing share buyback program from 10 million
shares to
20 million shares made on April 30, 2003.
|
3)
|
Announcement
of expansion of existing share buyback program from 20 million
shares to
30 million shares made on December 15, 2005.
|
4)
|
The
share buyback program does not have an expiration
date.
|
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
Not
applicable.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
ITEM
5.
OTHER INFORMATION
Not
applicable.
ITEM
6. EXHIBITS
Exhibit
No.
|
Description
|
|
|
3.1
|
Autoliv's
Restated Certificate of Incorporation incorporated herein by reference
to
Exhibit 3.1 to the Registration Statement on Form S-4 (File No.
333-23813,
filing date June 13, 1997) (the "Registration
Statement").
|
|
|
3.2
|
Autoliv's
Restated By-Laws incorporated herein by reference to Exhibit 3.2
to the
Registration Statement.
|
|
|
4.1
|
Rights
Agreement, dated as of December 4, 1997, between Autoliv and First
Chicago
Trust Company of New York incorporated herein by reference to Exhibit
3 to
Autoliv's Registration Statement on Form 8-A (File No. 1-12933,
filing
date December 4, 1997).
|
|
|
10.1
|
Facilities
Agreement, dated November 13, 2000, among Autoliv, Inc. and the
lenders
named therein, as amended by amendment dated November 5, 2001,
as further
amended by amendment dated December 12, 2001, and as further amended
by
amendment dated June 6, 2002, is incorporated herein by reference
to
Exhibit 10.1 on Form 10-K (File No. 1-12933, filing date July 2,
2002).
|
|
|
10.2
|
Autoliv,
Inc. 1997 Stock Incentive Plan, incorporated herein by reference
to
Autoliv's Registration Statement on Form S-8 (File No. 333-26299,
filing
date May 1, 1997).
|
|
|
10.3
|
Amendment
No. 1 to Autoliv, Inc. Stock Incentive Plan, is incorporated herein
by
reference to Exhibit 10.3 on Form 10-K (File No. 1-12933, filing
date July
2, 2002).
|
|
|
10.4
|
Form
of
Employment Agreement between Autoliv, Inc. and its executive officers,
is
incorporated herein by reference to Exhibit 10.3 on Form 10-K (File
No.
1-12933, filing date July 2, 2002).
|
|
|
10.5
|
Form
of
Supplementary Agreement to the Employment Agreement between Autoliv
and
certain of its executive officers, is incorporated herein by reference
to
Exhibit 10.3 on Form 10-K (File No. 1-12933, filing date July 2,
2002).
|
|
|
10.6
|
Employment
Agreement, dated November 11, 1998, between Autoliv, Inc. and Lars
Westerberg, is incorporated herein by reference to Exhibit 10.3
on Form
10-K (File No. 1-12933, filing date July 2, 2002).
|
|
|
10.7
|
Form
of
Severance Agreement between Autoliv and its executive officers,
is
incorporated herein by reference to Exhibit 10.3 on Form 10-K (File
No.
1-12933, filing date July 2, 2002).
|
|
|
10.8
|
Pension
Agreement, dated November 26, 1999, between Autoliv AB and Lars
Westerberg, is incorporated herein by reference to Exhibit 10.3
on Form
10-K (File No. 1-12933, filing date July 2, 2002).
|
|
|
10.9*
|
Form
of
Amendment to Employment Agreement - notice.
|
|
|
10.10*
|
Form
of
Amendment to Employment Agreement - pension.
|
|
|
10.11*
|
Form
of
Agreement - additional pension.
|
|
|
10.12**
|
Amendment
No.2 to the Autoliv, Inc. 1997 Stock Incentive Plan.
|
|
|
10.13***
|
Employment
Agreement, dated March 31, 2007, between Autoliv, Inc. and Jan
Carlson.
|
|
|
10.14***
|
Retirement
Benefits Agreement, dated August 14, 2007, between Autoliv AB and
Jan
Carlson.
|
|
|
11
|
Information
concerning the calculation of Autoliv’s earnings per share is included in
Note 1 of the Consolidated Notes to Financial Statements contained
in the
Company's Annual Report on Form 10-K/A (File No. 1-12933, filing
date
February 28, 2007) and is incorporated herein by
reference.
|
|
|
31.1
***
|
Certification
of the Chief Executive Officer of Autoliv, Inc. pursuant to Rules
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as
amended.
|
|
|
31.2
***
|
Certification
of the Chief Financial Officer of Autoliv, Inc. pursuant to Rules
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as
amended.
|
|
|
32.1***
|
Certification
of the Chief Executive Officer of Autoliv, Inc. pursuant to 18
U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002.
|
|
|
32.2***
|
Certification
of the Chief Financial Officer of Autoliv, Inc. pursuant to 18
U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002.
|
*Filed
in
10-K for the fiscal year ended 2002.
**
Filed in
10-K for the fiscal year ended 2003.
***
Filed
herewith.
|
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.
Date:
October 25,
2007
AUTOLIV,
INC.
(Registrant)
By:
|
/s/
Magnus
Lindquist
|
|
|
|
|
Magnus
Lindquist
|
|
Vice
President
|
|
Chief
Financial Officer
|
|
|
|
(Duly
Authorized Officer and Principal Financial
Officer)
|