a5663091.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 March 31, 2008
Commission File
No.: 1-12933
___AUTOLIV,
INC._____
(Exact name of
registrant as
specified in its
charter)
Delaware
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51-0378542
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(State or
other jurisdic-
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(I.R.S.
Employer Identi-
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tion of
incorporation or
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fication
No.)
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organization)
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World Trade
Center,
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Klarabergsviadukten
70,
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Box
70381,
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SE-107 24 Stockholm,
Sweden
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N/A
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(Address of
principal executive offices)
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(Zip
Code)
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+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,
a non-accelerated filer, or a smaller reporting company.
Large
accelerated filer: [x]
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Accelerated
filer: [ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [ ]
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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 April 18, 2008, there were
72,651,979 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. Such forward-looking statements are those that address activities,
events or developments that Autoliv, Inc. (“Autoliv”, the “Company” or “we”) or
its management believes or anticipates may occur in the future, including
statements relating to industry trends, business opportunities, sales contracts,
sales backlog, ongoing commercial arrangements and discussions, as well as any
statements about future operating performance or financial results.
In some cases,
you can identify these statements by forward-looking words such as “estimates,”
“expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “might,”
“will,” “should,” or the negative of these terms and other comparable
terminology, although not all forward-looking statements are so
identified.
All such
forward-looking statements are based upon our current expectations and various
assumptions, and apply only as of the date of this report. Our expectations and
beliefs are expressed in good faith and we believe there is a reasonable basis
for them. However, there can be no assurance that such forward-looking
statements will materialize or prove to be correct.
Because these
forward-looking statements involve risks and uncertainties, the outcome could
differ materially from those set out in the forward-looking statements for a
variety or reasons, including without limitation, changes in general industry
and market conditions, increased competition, higher raw material costs,
customer losses and changes in regulatory conditions, as well the risks
identified in Item 1A “Risk Factors” in this report. Except for the Company's
ongoing obligation to disclose information under the U.S. federal securities
laws, the Company undertakes no obligation to update publicity any
forward-looking statements whether as a result of new information or future
events.
For any
forward-looking statements contained in this or any other 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 Fair Value
of Financial Instruments
1.12 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)
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Quarter
January-March
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2008
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2007
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Net
sales
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- Airbag
products
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$1,159.4 |
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$1,104.3 |
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- Seatbelt
products
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668.3 |
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594.9 |
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Total
net sales
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1,827.7 |
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1,699.2 |
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Cost of
sales
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(1,478.1) |
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(1,361.8) |
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Gross
profit
|
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349.6 |
|
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337.4 |
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Selling,
general & administrative expenses
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(102.9) |
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(92.3) |
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Research,
development & engineering expenses
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(112.9) |
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(111.6) |
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Amortization
of intangibles
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(6.2) |
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(6.9) |
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Other income
(expense), net
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(0.3) |
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(0.6) |
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Operating
income
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127.3 |
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126.0 |
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Equity in
earnings of affiliates
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1.1 |
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1.3 |
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Interest
income
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1.6 |
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2.0 |
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Interest
expense
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(16.3) |
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(15.1) |
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Other
financial items, net
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(0.2) |
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(1.0) |
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Income
before income taxes
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113.5 |
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113.2 |
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Income
taxes
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(30.0) |
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(37.3) |
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Minority
interests in subsidiaries
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(2.0) |
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(2.7) |
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Net
income
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$81.5 |
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$73.2 |
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Earnings
per share – basic
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$1.11 |
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$0.91 |
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Earnings
per share – diluted
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$1.11 |
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$0.91 |
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Weighted
average number of
shares
outstanding, assuming
dilution
and net of treasury shares
(in
millions)
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73.7 |
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80.3 |
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Number
of shares outstanding,
excluding
dilution and net of
treasury
shares (in millions)
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72.7 |
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79.6 |
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Cash
dividend per share – declared
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$0.39 |
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$0.39 |
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Cash
dividend per share – paid
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$0.39 |
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$0.37 |
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See “Notes to
unaudited consolidated financial statements.”
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars
in millions)
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March
31,
2008
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December
31,
2007
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(unaudited)
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Assets
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Cash &
cash equivalents
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$226.4 |
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$153.8 |
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Receivables
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1,370.9 |
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1,230.7 |
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Inventories
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607.0 |
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561.3 |
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Other
current assets
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174.3 |
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149.4 |
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Total
current assets
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2,378.6 |
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2,095.2 |
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Property,
plant & equipment, net
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1,297.5 |
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1,259.8 |
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Investments
and other non-current assets
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203.1 |
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190.9 |
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Goodwill
assets
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1,617.5 |
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1,613.4 |
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Intangible
assets, net
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142.8 |
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146.1 |
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Total
assets
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$5,639.5 |
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$5,305.4 |
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Liabilities
and shareholders’ equity
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Short-term
debt
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$569.2 |
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$311.9 |
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Accounts
payable
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914.6 |
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834.0 |
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Accrued
expenses
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396.3 |
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315.4 |
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Other
current liabilities
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212.0 |
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202.0 |
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Total
current liabilities
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2,092.1 |
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1,663.3 |
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Long-term
debt
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891.4 |
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1,040.3 |
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Pension
liability
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63.7 |
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63.3 |
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Other
non-current liabilities
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138.3 |
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137.2 |
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Minority
interests in subsidiaries
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57.8 |
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52.2 |
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Shareholders’
equity
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2,396.2 |
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2,349.1 |
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Total
liabilities and shareholders’ equity
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$5,639.5 |
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$5,305.4 |
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See “Notes to
unaudited consolidated financial statements.”
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars
in millions)
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Quarter
January-March
|
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|
2008
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2007
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|
|
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|
|
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Operating
activities
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|
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Net
income
|
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$81.5 |
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$73.2 |
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Depreciation
and amortization
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84.4 |
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80.0 |
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Other
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0.6 |
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|
(0.2) |
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Changes in
operating assets and liabilities
|
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|
(1.6) |
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|
(63.2) |
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Net
cash provided by operating activities
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|
|
164.9 |
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89.8 |
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|
|
|
|
|
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Investing
activities
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|
|
|
|
|
|
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Capital
expenditures
|
|
|
(62.8) |
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|
|
(75.3) |
|
Proceeds
from sale of property, plant and equipment
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|
3.9 |
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|
0.8 |
|
Acquisitions
of businesses and other, net
|
|
|
(6.2) |
|
|
|
(78.0) |
|
Net
cash used in investing activities
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|
(65.1) |
|
|
|
(152.5) |
|
|
|
|
|
|
|
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Financing
activities
|
|
|
|
|
|
|
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Net increase
(decrease) in short-term debt
|
|
|
228.9 |
|
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|
25.2 |
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Issuance of
long-term debt
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|
19.0 |
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|
73.7 |
|
Repayments
and other changes in long-term debt
|
|
|
(191.1) |
|
|
|
- |
|
Dividends
paid
|
|
|
(28.7) |
|
|
|
(29.6) |
|
Shares
repurchased
|
|
|
(63.2) |
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|
(40.2) |
|
Stock
options exercised
|
|
|
0.2 |
|
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3.8 |
|
Other,
net
|
|
|
(0.2) |
|
|
|
1.5 |
|
Net
cash used in financing activities
|
|
|
(35.1) |
|
|
|
34.4 |
|
|
|
|
|
|
|
|
|
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Effect of
exchange rate changes on cash
|
|
|
7.9 |
|
|
|
1.5 |
|
Increase
(decrease) in cash and cash equivalents
|
|
|
72.6 |
|
|
|
(26.8) |
|
|
|
|
|
|
|
|
|
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Cash and
cash equivalents at period-start
|
|
|
153.8 |
|
|
|
168.1 |
|
Cash
and cash equivalents at period-end
|
|
|
$226.4 |
|
|
|
$141.3 |
|
See “Notes to
unaudited consolidated financial statements.”
KEY
RATIOS (UNAUDITED)
(Dollars
in millions, except per share data)
|
|
Quarter
January
– March
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
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Earnings per
share – basic 1)
|
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|
$1.11 |
|
|
|
$0.91 |
|
Earnings per
share – diluted 1)
|
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$1.11 |
|
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|
$0.91 |
|
Equity per
share
|
|
|
$32.96 |
|
|
|
$30.62 |
|
Cash
dividend per share - declared
|
|
|
$0.39 |
|
|
|
$0.39 |
|
Cash
dividend per share – paid
|
|
|
$0.39 |
|
|
|
$0.37 |
|
Operating
working capital 3)
|
|
|
$656 |
|
|
|
$819 |
|
Capital
employed
|
|
|
$3,610 |
|
|
|
$3,570 |
|
Net debt
3)
|
|
|
$1,213 |
|
|
|
$1,133 |
|
Net debt to
capitalization, %3)4)
|
|
|
33 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
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Gross
margin, % 5)
|
|
|
19.1 |
|
|
|
19.9 |
|
Operating
margin, % 6)
|
|
|
7.0 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
Return
on shareholders’ equity, %
|
|
|
13.7 |
|
|
|
12.1 |
|
Return on
capital employed, %
|
|
|
14.4 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
Weighted
average no. of shares in millions 1)2)
|
|
|
73.7 |
|
|
|
80.3 |
|
No. of
shares at period-end in millions 7)
|
|
|
72.7 |
|
|
|
79.6 |
|
No. of
employees at period-end
|
|
|
36,100 |
|
|
|
35,500 |
|
Headcount at
period-end
|
|
|
43,000 |
|
|
|
42,000 |
|
Days
receivables outstanding 8)
|
|
|
67 |
|
|
|
74 |
|
Days
inventory outstanding 9)
|
|
|
33 |
|
|
|
31 |
|
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)
March
31, 2008
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.
The condensed
consolidated balance sheet at December 31, 2007 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.
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, 2007.
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 first
quarter of 2008, the Company sold receivables related to selected customers with
high credit worthiness as a means of saving interest cost. The receivables were
sold to various external financial institutions without recourse. Since the
Company uses the cash received to repay debt, these factoring agreements have
the effect of reducing net debt and accounts receivable. At March 31, 2008 and
December 31, 2007, $131 million and $124 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:
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
Raw
materials
|
|
|
$241.2 |
|
|
|
$214.9 |
|
Work in
progress
|
|
|
238.0 |
|
|
|
227.6 |
|
Finished
products
|
|
|
127.8 |
|
|
|
118.8 |
|
Total
|
|
|
$607.0 |
|
|
|
$561.3 |
|
1.4
Restructuring
2007
In 2007, the
employee-related restructuring provisions mainly related to headcount reductions
in the high-cost countries of North America and Europe, and Australia. The cash
payments mainly related to North America, Europe and Australia plant
consolidation initiated in 2007, 2006 and 2005. 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, 2006 to December 31,
2007.
|
|
Dec.
31
2006
|
|
|
Cash
payments
|
|
|
Provision
|
|
|
Translation
difference
|
|
|
Dec.
31
2007
|
|
Restructuring
-
employee
related
|
|
|
$6.4 |
|
|
|
$(14.4) |
|
|
|
$23.7 |
|
|
|
$1.1 |
|
|
|
$16.8 |
|
During 2007, 647
employees covered by the restructuring reserves left the Company. As of December
31, 2007, 584 employees remained who were covered by the restructuring
reserves.
2008
Q1
The decrease in
the employee-related restructuring provisions in the quarter mainly relates to
cash payments in Europe and USA for restructuring activities initiated in 2007,
2006 and 2005. The provision 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, 2007 to
March 31, 2008.
|
|
Dec.
31
2007
|
|
|
Cash
payments
|
|
|
Provision
|
|
|
Translation
difference
|
|
|
Mar.
31
2008
|
|
Restructuring
-
employee
related
|
|
|
$16.8 |
|
|
|
$(3.0) |
|
|
|
$0.3 |
|
|
|
$0.9 |
|
|
|
$15.0 |
|
During the
quarter, 122 employees covered by the reserves left the Company. As of
March 31, 2008, 473 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. 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 1.12 Contingent Liabilities below.
The table below
summarizes the change in the balance sheet position of the product-related
liabilities for the quarter. The provision in the first quarter of 2008 mainly
relates to recalls.
|
|
Quarter
January-March
|
|
|
|
2008
|
|
|
2007
|
|
Reserve
at beginning of the period
|
|
|
$18.8 |
|
|
|
$22.8 |
|
Provision
|
|
|
5.9 |
|
|
|
0.5 |
|
Cash
payments
|
|
|
(2.6) |
|
|
|
(3.2) |
|
Translation
difference
|
|
|
1.4 |
|
|
|
0.1 |
|
Reserve
at end of the period
|
|
|
$23.5 |
|
|
|
$20.2 |
|
Comprehensive
income includes net income for the year and items charged directly to
equity.
|
|
Quarter
January-March
|
|
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
|
$81.5 |
|
|
|
$73.2 |
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
(0.5) |
|
|
|
0.2 |
|
Fair value
of derivatives
|
|
|
0.2 |
|
|
|
(0.1) |
|
Translation
of foreign operations
|
|
|
55.8 |
|
|
|
16.4 |
|
Other
comprehensive income
|
|
|
55.5 |
|
|
|
16.5 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
$137.0 |
|
|
|
$89.7 |
|
1.7
Business Acquisitions
There have been no
acquisitions during the first quarter 2008.
1.8
New Accounting Pronouncements
The following
accounting pronouncements have been issued and will be effective for the Company
in or after fiscal year 2008:
Statement No. 157,
Fair Value Measurements (“FAS-157”), establishes a framework for measuring fair
value under generally accepted accounting principles in the United States,
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. For non-financial assets and liabilities which are not periodically
recognized or disclosed at fair value, FAS-157 has been deferred one year. The
Company adopted FAS-157 for all financial assets and liabilities required to be
measured at fair value on a recurring basis, prospectively from January 1, 2008.
The application of FAS-157 for financial instruments which are periodically
measured at fair value did not have any significant impact on earnings nor the
financial position.
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 application of FAS-159 did not have any impact on
earnings nor the financial position, because the Company did not elect to use
the fair value option.
Statement No. 141
(Revised), Business Combinations (“FAS-141(R)”), replaces FASB Statement No.
141. FAS-141(R) applies the acquisition method to all transactions and other
events in which on entity obtains control over one or more other businesses,
requires the acquirer to recognize the fair value of all assets and liabilities
acquired, even if less than hundred percent ownership is acquired, and
establishes the acquisition date fair value as measurement date for all assets
and liabilities assumed. The Statement was issued in December 2007 and is
effective prospectively for any acquisitions made after fiscal years beginning
after December 15, 2008.
Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements (“FAS-160”),
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated financial statements. The Statement was
issued in December 2007, and is effective for fiscal years beginning after
December 15, 2008. The application of FAS-160 is not expected to have any
significant impact on earnings nor the financial position.
Statement No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133 (“FAS-161”), requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting. The Statement was issued in March 2008 and is effective
prospectively for fiscal years beginning after November 15, 2008. The
application of FAS-161 will improve the disclosures about the Company’s
derivative and hedging activities.
1.9
Income Taxes
The effective tax
rate for the first three months of 2008 was 26.4%, compared with 33.0% in the
first three months of 2007. The tax rate for the full year 2007 was
33.7%, which included discrete tax costs of 1.8%. During the first quarter of
2008, several subsidiaries recorded adjustments to their estimates of prior year
income tax provisions. These catch up effects in the first quarter caused a 2%
reduction to the effective tax rate for the first quarter 2008. Excluding
discrete items, the 2008 effective tax rate compared to 2007 has been positively
impacted by higher R&D tax credits in France and a lower German tax rate due
to new tax laws, as well as a lower level of losses in start-up companies. The
newly enacted tax law in France resulted in an approximate 2% effective rate
benefit compared to 2007 due to an increase in the level of R&D credits
available. A recent decision of a French tax court has raised the possibility
that a certain portion of expenditures giving rise to the R&D credits may
not qualify. The issue is not fully resolved in France, and could result in a
substantial reduction of the recorded R&D credits from 2005 onwards.
However, we have concluded that there is a sound technical basis to claim the
full amount of the credits, and no tax reserves have been recorded.
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 2008. In
addition, the Company is undergoing tax audits in several non-U.S. jurisdictions
covering multiple years. As of March 31, 2008, as a result of those tax
examinations, the Company currently is not aware of any material proposed income
tax adjustments. The Company expects the completion of certain tax audits in the
near term. It is reasonably possible that the amount of unrecognized benefits
with respect to certain of our unrecognized tax positions could significantly
increase or decrease in some future period or periods. However, at this time, an
estimate of the range of the reasonably possible outcomes is not
possible.
During the first
quarter 2008, the Company recorded an increase of $1.2 million to income tax
reserves for unrecognized tax benefits based on tax positions related to the
current and prior years, including accruing additional interest in 2008 related
to unrecognized tax benefits of prior years. In addition, the Company recorded a
decrease of $1.2 million to income tax reserves for unrecognized tax benefits
based on settlements with taxing authorities. Of the total unrecognized tax
benefits of $48.2 million recorded at March 31, 2008, $25.0 million is
classified as current tax payable and $23.2 million is classified as non-current
tax payable on the balance sheet.
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 three months ended
March 31, 2008 or March 31, 2007.
The Net Periodic
Benefit Cost increased by $2.1 million (excluding payroll tax) during the first
quarter 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 three 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, 2007.
The components of
the total Net Periodic Benefit Cost associated with the Company’s defined
benefit retirement plans are as follows:
|
|
Quarter
January-March
|
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
|
$3.8 |
|
|
|
$4.0 |
|
Interest
cost
|
|
|
3.7 |
|
|
|
3.4 |
|
Expected
return on plan assets
|
|
|
(3.3) |
|
|
|
(2.9) |
|
Amortization
prior service cost (credit)
|
|
|
(0.2) |
|
|
|
- |
|
Amortization
of net (gain) loss
|
|
|
- |
|
|
|
0.5 |
|
Special
termination benefit
|
|
|
- |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
Net
Periodic Benefit Cost
|
|
|
$4.0 |
|
|
|
$7.1 |
|
1.11
Fair Value Financial Instruments
The Company
records derivatives at fair value. Any gains and losses on derivatives recorded
at fair value are reflected in the consolidated statement of income. The degree
of judgment utilized in measuring the fair value of the instruments generally
correlates to the level of pricing observability. Pricing observability is
impacted by a number of factors, including the type of asset or liability,
whether the asset or liability has an established market and the characteristics
specific to the transaction. Derivatives with readily active quoted prices or
for which fair value can be measured from actively quoted prices generally will
have a higher degree of pricing observability and a lesser degree of judgment
utilized in measuring fair value. Conversely, assets rarely traded or not
quoted will generally have less, or no, pricing observability and a higher
degree of judgment utilized in measuring fair value.
Under FAS-157,
there is a hierarchal disclosure framework associated with the level of pricing
observability utilized in measuring assets and liabilities at fair
value. The three broad levels defined by the FAS-157 hierarchy are as
follows:
Level 1 - Quoted
prices are available in active markets for identical assets or liabilities as of
the reported date.
Level 2 - Pricing
inputs are other than quoted prices in active markets, which are either directly
or indirectly observable as of the reported date. The nature of these asset and
liabilities include items for which quoted prices are available but traded less
frequently, and items that are fair valued using other financial instruments,
the parameters of which can be directly observed.
Level 3 - Assets
and liabilities that have little to no pricing observability as of reported
date. These items do not have two-way markets and are measured using
management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or
estimation.
The following
table summarizes the valuation of the Company’s derivatives by the above FAS-157
pricing observability levels:
|
|
|
|
|
Fair
Value Measurements at March 31, 2008
|
|
Description
|
|
Total
Carrying
Amount
in
Statement
of
Financial
Position
March
31,2008
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Using
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant Unobservable Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
$22.0 |
|
|
|
- |
|
|
|
$22.0 |
|
|
|
- |
|
Total
Assets
|
|
|
$22.0 |
|
|
|
- |
|
|
|
$22.0 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
$0.9 |
|
|
|
- |
|
|
|
$0.9 |
|
|
|
- |
|
Total
Liabilities
|
|
|
$0.9 |
|
|
|
- |
|
|
|
$0.9 |
|
|
|
- |
|
1.12
Contingent Liabilities
Product
Warranty and Recalls
Autoliv is exposed
to various claims for damages and compensation if products fail to perform as
expected. Such claims can be made, and result in costs and other losses to the
Company, even where the product is eventually found to have functioned properly.
Where a product (actually or allegedly) fails to perform as expected we face
warranty and recall claims. Where such (actual or alleged) failure results, or
is alleged to result, in bodily injury and/or property damage, we may also face
product-liability claims. There can be no assurance that the Company will not
experience material warranty, recall or product (or other) liability claims or
losses in the future, or that the Company will not incur significant costs to
defend against such claims. The Company may be required to participate in a
recall involving its 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 warranty, recall or product-liability
claim brought against the Company in excess of its insurance may have a material
adverse effect on the Company’s business. 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 the Company
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 the
customers may be material. However, we believe our 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, 2007 to March 31,
2008.
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 various lawsuits to which the Company currently is a party will not have a
material adverse impact on the consolidated financial position of Autoliv, but
the Company cannot provide assurance that Autoliv will not experience material
litigation, product liability or other losses in the future.
Litigation
in France (Autoliv Holding Limited)
In 1997, Autoliv
AB (a wholly-owned subsidiary of Autoliv, Inc.) acquired Marling Industries plc
(“Marling”). At that time, Marling was involved in a lawsuit relating to the
sale in 1992 of a French subsidiary. In May 2006, a French court ruled that
Marling (now named Autoliv Holding Limited) and another entity, then part of the
Marling group, had failed to disclose certain facts in connection with the 1992
sale, and appointed an expert to assess the losses suffered by the plaintiff.
The acquirer of the French subsidiary has made claims for damages of
approximately €40 million (approximately $63 million) but has not yet provided
the court appointed expert with the materials needed to evaluate the claims.
Autoliv has appealed against the May 2006 court decision and believes it has
meritorious grounds for such appeal. In the opinion of the Company’s management,
it is not possible to give any meaningful estimate of any financial impact that
may arise from the claim. While not probable, the final outcome of this
litigation may result in a loss that will have to be recorded by Autoliv, Inc.
No reserves have been accrued for this dispute.
Litigation
in United States (Autoliv ASP, Inc.)
In December 2003,
a U.S. Federal District Court awarded a former supplier of Autoliv ASP Inc. (a
wholly-owned subsidiary of Autoliv Inc.), approximately $27 million plus
pre-judgment interest of approximately $7 million in connection with a
commercial dispute that relates to purchase commitments made in 1995. As a
result of a final court ruling in 2007, after multiple appeals, Autoliv ASP was
held liable to the former supplier and deposited a total of $36.4 million with
the District Court in fulfillment of the award. The incremental cost of the
legal settlement in 2007 of $30.4 million was charged to “other income
(expense), net” in the income statement. On November 14, 2007, the District
Court issued an order to the effect that Autoliv ASP had fully and completely
satisfied the judgment. There remains an open issue as to the calculation of the
pre-judgment interest. The former supplier has sought an additional $4.9 million
that it attributes to pre-judgment interest and on November 15, 2007, filed a
notice of appeal from the District Court’s decision. Although the District Court
denied the former supplier’s original motion seeking the additional pre-judgment
interest, and Autoliv ASP believes it has meritorious grounds to oppose the
appeal, the Court of Appeals may award the supplier some or all of the
additional interest sought. Autoliv has not made any reserves for any additional
interest which could be awarded the former supplier.
The Company
believes that it is currently reasonably insured against significant warranty,
recall and product (as well as other) liability risks, at levels sufficient to
cover potential claims that are reasonably likely to arise in our businesses.
Autoliv cannot be assured that the level of coverage will be sufficient to cover
every possible claim that can arise in our businesses, now or in the future, or
that such coverage always will be available on our current market should we, now
or in the future, wish to extend or increase insurance.
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 2007 Annual Report on Form 10-K/A filed with the SEC on February
22, 2008. 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 29 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 MARCH 31, 2008 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2007
Market
overview
During the
three-month period January through March 2008, global light vehicle production
is estimated to have increased by slightly more than 2% compared to the same
quarter 2007. However, in North America and Western Europe, where Autoliv
derives approximately 70% of its revenues, light vehicle production is estimated
to have dropped by almost 9% and nearly 3%, respectively.
In Europe, where Autoliv
generates more than half of its sales, light vehicle production is estimated to
have risen by nearly 2% due to a 15% increase in Eastern Europe.
In North America, which accounts
for slightly more than one fifth of sales, the drop in light vehicle
production of close to 9% was due to GM, Ford and Chrysler (“the Detroit 3”)
cutting their production by 13%, as an average. GM reduced its production by
17%, partly due to a strike at a supplier. Ford reduced its production by 6% and
Chrysler by 16%. The Asian and European vehicle manufacturers decreased their
production in North America by 1%.
In Japan, which accounts for one
tenth of consolidated sales, light vehicle production increased by close to
6%.
In the Rest of the World, which
accounts for slightly more than a tenth of sales, light vehicle production is
estimated to have grown by 10%.
Consolidated
Sales
The Company has
substantial operations outside the United States and currently more than 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
January-March, 2008
(Dollars
in millions)
|
|
|
|
Europe
|
|
|
North
America
|
|
|
Japan
|
|
|
RoW
|
|
|
Total
|
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
Organic
sales
change
|
|
|
(3.7) |
|
|
|
(34.8) |
|
|
|
(11.0) |
|
|
|
(49.2) |
|
|
|
20.6 |
|
|
|
30.0 |
|
|
|
5.2 |
|
|
|
9.0 |
|
|
|
(2.7) |
|
|
|
(45.0) |
|
Impact
of
acquisitions/
divestments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8.4 |
|
|
|
14.5 |
|
|
|
0.9 |
|
|
|
14.5 |
|
Effect
of
exchange
rates
|
|
|
13.9 |
|
|
|
129.9 |
|
|
|
0.3 |
|
|
|
1.3 |
|
|
|
13.4 |
|
|
|
19.6 |
|
|
|
4.7 |
|
|
|
8.2 |
|
|
|
9.4 |
|
|
|
159.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net
sales
change
|
|
|
10.2 |
|
|
|
95.1 |
|
|
|
(10.7) |
|
|
|
(47.9) |
|
|
|
34.0 |
|
|
|
49.6 |
|
|
|
18.3 |
|
|
|
31.7 |
|
|
|
7.6 |
|
|
|
128.5 |
|
During the
quarter, Autoliv’s consolidated net sales rose by 7.6% to $1,828 million
compared to the first quarter 2007. Currency translation effects boosted sales
by more than 9% while the consolidation resulting from the acquisition in
November 2007 of the remaining shares in Autoliv IFB Private Ltd. in India
(“AIN-acquisition”) added almost 1% to consolidated sales. Excluding these
effects, organic sales (i.e. sales excluding translation currency effects, and
acquisitions/divestitures) declined by 2.7%, in line with
expectation.
The decline in
organic sales was primarily caused by the drops in North American and Western
European light vehicle production. Chrysler’s previously announced cancellations
and production cuts of a number of vehicle models had a negative effect of more
than 1%. Sales were also affected by upcoming model change-overs for the Renault
Megane, the Volkswagen Golf and other important vehicle models for Autoliv.
These effects were partially offset by a 21% organic sales increase in Japan and
a 5% increase in the Rest of the World. Sales of head curtain airbags also
continued to grow organically despite the weaknesses in its major markets in
Western Europe and North America.
Daimler, Nissan,
Toyota, Fiat and AvtoVaz, primarily, had a favorable effect on organic sales due
to new business, higher installation rates of Autoliv’s safety products or
increased vehicle production.
Sales
by Product
Sales of airbag products (including
steering wheels and electronics) increased by 5% to $1,159 million. Excluding
currency effects of 9%, organic sales decreased by 4%, mainly as a result of the
general declines in North American and Western European light vehicle
production, exacerbated by Chrysler’s model cancellations. Pricing pressure,
particularly on frontal airbags, also reduced sales, while sales of curtain
airbags continued to grow organically and organic sales of steering wheels
remained flat, thereby withstanding the market headwinds in North America and
Western Europe.
Sales of seatbelt products (including
Seat Sub-Systems) rose by 12% to $668 million due to currency effects of 11% and
the AIN-acquisition of 2%. Excluding these effects, sales declined organically
by 1% due to the decline of the Sub Seat Systems business. Consequently organic
sales for the core seatbelt business continued to grow by 1% despite the
headwinds from North America and Western Europe. This performance reflects both
the light vehicle production in emerging markets and the increasing demand for
active seatbelts in the established markets.
Sales
by Region
Sales from
Autoliv’s European
companies rose by 10% to $1,029 million due to favorable currency effects
of 14%. Organic sales declined by less than 4%, which was virtually in line with
the 3% decline in light vehicle production in Western Europe where Autoliv
derives 90% of its European revenues. This performance by Autoliv was in spite
of an unfavourable vehicle model mix, partly resulting from the scale-down of
production of Europe’s two best-selling platforms (the Mégane and the Golf) in
preparation for the shift to the upcoming new models. Sales were favorably
impacted by continued growing demand for side curtain airbags and knee airbags,
as well as by strong vehicle production in Eastern Europe. Organic sales were
driven by models such as Audi’s A4; Fiat’s 500; Ford’s Mondeo; Kia’s Cee’d;
Mercedes C-class and Renault’s Laguna.
Sales from
Autoliv’s North American
companies declined by 11% to $398 million compared to the 9% decrease in
the region’s light vehicle production. This difference is due to an unfavourable
vehicle model mix, exacerbated by Chrysler’s cancellations of several important
vehicle models for Autoliv. In seatbelts, Autoliv reached virtually
the same sales as for the same quarter 2007, thereby offsetting the 9% reduction
in North American light vehicle production and increasing market
share.
Sales from
Autoliv’s companies in
Japan jumped by 34% to $196 million. Excluding currency effects of 13%,
sales grew organically by 21% which was much more than the 6% increase in
Japanese light vehicle production. This was due to outperformance in virtually
all product lines, spearheaded by a 62% organic growth for curtain airbags.
Sales were driven by new business launches and/or strong demand for Lexus’s
LX470; Mazda’s Axela and Demio; Nissan’s Rogue; Samsung’s QM5; Mitsubishi’s Outlander and
Toyota’s Hilux, LandCruiser, Vitz, Voxy and Zone.
Sales from
Autoliv’s companies in the Rest
of the World (RoW) rose by 18% to $205 million. The AIN-acquisition in
India added 8% and currency effects added another 5%. Organic sales growth of 5%
was driven by a 12% increase in seatbelts, which was even better than the
Region’s light vehicle production increase of 10%. Sales were particularly
strong in China and Brazil, partially as a result of new business for
Chery’s S; Chrysler’s Sebring; Ford’s Mondeo; Honda’s CRV, Mazda’s Demio,
Nissan’s Qashqai, Skoda’s Octavia and Volkswagen’s Passat and Santana.
Earnings
for the Three-Month Period Ended March 31, 2008
During the
quarter, gross profit improved by 4% or $12 million to $350 million, although
gross margin declined to 19.1% from 19.9% in the first quarter 2007.
Approximately half of this 0.8 percentage point decline was due to the
depreciation of the Turkish Lira and currency transaction effects. There was
also a negative product and regional mix effect. The impact from higher raw
material prices was approximately 0.1 percentage point.
Operating income
increased by 1% or slightly more than $1 million to $127 million due to higher
gross profit. Operating margin declined from 7.4 to 7.0%, slightly better than
the guidance of “close to 7.0%”. Half of the decline in gross margin was offset
by improvements in operating expenses of 0.4 percentage points, primarily due to
improved utilization of research and development resources. R,D&E in
relation to sales declined to 6.2% from 6.6%. Selling, General and
Administrative (S,G&A) expense rose, however, by $11 million to 5.6% of
sales from 5.4%. This increase was mainly due to currency translation effects
and the fact that the Easter holidays fell in the first quarter this year
resulting in fewer sales days than in the first quarter 2007.
During the
quarter, operating income was negatively affected by employee-related expenses
of $0.3 million in connection with restructuring of (mainly textile) operations
in high-cost countries. During the quarter, 122 employees covered by the
restructuring reserves left the Company.
Income before
taxes was unchanged at $113 million. The higher operating income was offset by
higher interest expense net as a result of higher average net debt due to the
share repurchase program and two acquisitions during the last twelve
months.
Net income
increased by 11% or $8 million to $82 million due to a lower effective tax rate
of 26.4% compared to 33.0% for the same quarter 2007. Discrete tax items reduced
the rate by 2 percentage points. The remaining decrease is primarily the result
of higher R&D tax credits in France and a lower German tax rate due to new
tax laws as well as a lower level of losses in start-up companies.
Earnings per share
rose by 22% to $1.11 from $0.91 in the first quarter 2007. The share repurchase
program had a favorable impact of 13 cents and the lower effective tax rate of
10 cents, partially offset by negative currency effects of 2 cents and a decline
in the underlying income of 1 cent . The average number of
shares outstanding decreased by 8% to 73.7 million.
Return on capital employed stood
virtually unchanged at 14% while return on equity improved to 14% from
12%.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
$2,378.6 |
|
|
|
$2,095.2 |
|
|
|
$2,235.1 |
|
Total
current liabilities
|
|
|
(2,092.1) |
|
|
|
(1,663.3) |
|
|
|
(1,631.7) |
|
Working
capital
|
|
|
286.5 |
|
|
|
431.9 |
|
|
|
603.4 |
|
Cash and
cash equivalents
|
|
|
(226.4) |
|
|
|
(153.8) |
|
|
|
(141.3) |
|
Short-term
debt
|
|
|
569.2 |
|
|
|
311.9 |
|
|
|
325.9 |
|
Derivative
asset and liability, current
|
|
|
(1.7) |
|
|
|
(4.4) |
|
|
|
(0.3) |
|
Dividends
payable
|
|
|
28.5 |
|
|
|
28.8 |
|
|
|
31.2 |
|
Operating
working capital
|
|
|
$656.1 |
|
|
|
$614.4 |
|
|
|
$818.9 |
|
The strong cash
flow trend from the fourth quarter 2007 continued and cash flow from operating
activities improved to $165 million compared with $90 million in the first
quarter 2007. Cash flow before financing was $100 million compared to a negative
$63 million due to an acquisition for $80 million in the corresponding quarter
2007. During the latest 12-months, the Company has generated operating cash flow
of $856 million and of $512 million before financing but after acquisitions of
$47 million. Factoring had a negative impact of $3 million on cash flow for the
quarter and a positive effect of $23 million during the twelve month
period.
Capital
expenditures, net, of $59 million during the quarter was $25 million less than
depreciation and amortization of $84 million and $16 million less than capital
expenditures, net, during the same quarter 2007.
Autoliv has a
target that operating working capital should not exceed 10% of sales. During the
quarter, the Company continued to meet this target, although the ratio rose to
9.5% from an unusually low level of 9.1% at the end of 2007. Compared to a year
ago, the ratio improved from 13.0%.
In relation to
days sales outstanding, receivables decreased to 67 days from 74 a year ago but
increased sequentially from 64 days at the end of 2007. Days inventory was 33,
as it was at the end of the previous quarter, but increased from 31 days from 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 leverage ratio that is significantly below 3.0 times and an
interest coverage ratio significantly above 2.75 times. On March 31, these
ratios were 1.5 and 9.5 respectively. Leverage ratio is measured as net debt
(including pension liabilities) in relation to EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) and interest-coverage ratio as operating
income (excluding amortization of intangibles) in relation to interest expense,
net.
Reconciliation of “Net debt” to
GAAP financial measure
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
$569.2 |
|
|
|
$311.9 |
|
|
|
$325.9 |
|
Long-term
debt
|
|
|
891.4 |
|
|
|
1,040.3 |
|
|
|
953.1 |
|
Total
debt
|
|
|
1,460.6 |
|
|
|
1,352.2 |
|
|
|
1,279.0 |
|
Cash and
cash equivalents
|
|
|
(226.4) |
|
|
|
(153.8) |
|
|
|
(141.3) |
|
Debt-related
derivatives
|
|
|
(20.8) |
|
|
|
(16.5) |
|
|
|
(5.0) |
|
Net
debt
|
|
|
$1,213.4 |
|
|
|
$1,181.9 |
|
|
|
$1,132.7 |
|
During the
quarter, net debt increased by $31 million to $1,213 million primarily due to
currency effects, while gross interest-bearing debt increased by $108 million to
$1,461 million. The net debt to capitalization ratio stood unchanged during the
quarter at 33%.
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)
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
Net debt
2)
|
|
|
$1,213.4 |
|
|
|
$1,132.7 |
|
Pension
liabilities
|
|
|
63.7 |
|
|
|
92.2 |
|
Net
debt per the policy
|
|
|
$1,277.1 |
|
|
|
$1,224.9 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes 3)
|
|
|
$446.5 |
|
|
|
$461.5 |
|
Plus:
Interest expense, net 1)
3)
|
|
|
55.1 |
|
|
|
43.3 |
|
Depreciation
and amortization of intangibles (incl. impairment write-offs) 3)
|
|
|
325.2 |
|
|
|
309.6 |
|
|
|
|
|
|
|
|
|
|
EBITDA
per the Policy 3)
|
|
|
$826.8 |
|
|
|
$814.4 |
|
|
|
|
|
|
|
|
|
|
Net
debt to EBITDA ratio
|
|
|
1.5 |
|
|
|
1.5 |
|
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)
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
Operating
income 2)
|
|
|
$503.3 |
|
|
|
$505.5 |
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles (incl. impairment write-offs) 2)
|
|
|
19.6 |
|
|
|
18.2 |
|
Operating
profit per the Policy2)
|
|
|
$522.9 |
|
|
|
$523.7 |
|
|
|
|
|
|
|
|
|
|
Interest
expense, net 1)
2)
|
|
|
55.1 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
Interest
coverage ratio
|
|
|
9.5 |
|
|
|
12.1 |
|
1)
|
Interest
expense, net, is interest expense less interest
income.
|
During the
quarter, equity increased by $47 million to $2,396 million or to $32.96 per share.
Equity increased by $82 million from net income, by $56 million from favorable
currency effects, and by $2 million from the effects of exercise of stock
options. Equity decreased by $63 million from share repurchases, by $29
million from dividends and $1 million from adjustments related to pension
liabilities.
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) amounted to 43,000, an increase of
1,000 during the last 12-month period primarily due to the AIN-acquisition that
added 600. The increase was concentrated in low-cost countries (LCC), while
headcount in high-cost countries (HCC) continued to decline. As a result, 53% of
headcount (and 55% of permanent employees excluding temporaries) were in LCC
compared to 47% (and 49%, respectively) a year ago and less than 10% nine years
ago, when the reallocation program was started. Of total headcount, 16% are
temporary workers.
Prospects
During the second
quarter, global light vehicle production is expected to increase by 1%. However,
in North America and Western Europe the production is expected to continue
to decline; by close to 11% and 4%, respectively. Despite these headwinds from
the largest markets, organic sales are expected to grow by approximately 2%. The
AIN acquisition is expected to add close to 1% and currency effects 11%,
provided that the current exchange rates prevail. Based on these assumptions,
consolidated sales are expected to increase by approximately 14% compared to the
same quarter 2007. Operating margin is expected to improve from the first
quarter and reach at least the 7.7% level achieved on a comparable basis (i.e.
excluding a one-time legal cost) in the second quarter 2007 despite
higher-than-expected raw material prices and other headwinds.
For the full year
2008, Autoliv maintains its guidance of an operating margin in the range of 8.0%
to 8.5%. However, due to the current market situation for commodities and light
vehicle production it is increasingly difficult to predict the impact on Autoliv
of these uncertain factors. Given the continued decline of the U.S. dollar,
consolidated sales for the full year 2008 are now expected to grow by more than
10%, a revision from 7% based on the exchange rates in January. The expected
growth in organic sales remains unchanged at 2%. The projected effective tax
rate for the year is also revised to around 28% from 31% previously
communicated.
OTHER
RECENT EVENTS
Launches
in the 1st quarter 2008
|
·
|
Ford’s new Kuga: Driver
airbag, side airbags, inflatable curtains and seatbelts
|
·
|
Mazda’s new Demio/2:
Steering wheel and safety electronics
|
·
|
Honda’s new Accord:
Side airbags and inflatable curtains
|
·
|
Acura’s new TSX: Side
airbags and inflatable curtains
|
·
|
Nissan’s new Teana:
Side airbags, inflatable curtains and safety
electronics
|
·
|
Infiniti’s New FX:
Passenger airbag and safety electronics
|
·
|
Brilliance’s A1:
Seatbelts
|
·
|
Think’s Nordic: Driver
airbag, passenger airbag and seatbelts with
pretensioners
|
·
|
Citroën’s new Berlingo and
Peugeot’s new Partner: Safety electronics
|
·
|
Renault’s Modus: Safety
electronics
|
·
|
Tata’s new Indica:
Driver airbag, passenger airbag, side airbags, inflatable curtains and
seatbelts with pretensioners
|
·
|
Toyota’s new Crown
Majesta: Passenger airbag
|
·
|
Skoda’s new Superb:
Passenger airbag, inflatable curtains, seatbelts with
pretensioners
|
Other
Significant Events
· During the
quarter, the Company repurchased 1,239,000 shares for $63 million at an average
cost of $50.99 per share. Since the repurchasing program was adopted in 2000,
the Company has bought back 31.8 million shares for $1,363 million at an average
cost of $42.80 per share compared to the share price at the end of the quarter
of $50.20. Under
the existing authorizations, an additional 5.7 million shares can be
repurchased.
· The Company
has appointed Marika Fredriksson as Vice President and Chief Financial Officer
(CFO) as of September 1. She is currently Senior Vice President Finance &
Strategy and CFO of Volvo Construction Equipment in Brussels. She will succeed
Magnus Lindquist who will become partner in a private equity firm on May 15.
During the time until Marika Fredriksson assumes her new position, Mats Wallin
will be acting CFO in parallel with his regular duties as Head of Corporate
Control.
· To increase
capacity Autoliv has completed construction work for a new plant in Guangzhou in
Southern China. The new bigger plant replaces an old leased facility. Phase I of
the plant has a building area of 8,000 square meters (86,100 sq. feet) and
required an investment of $6.5 million, including manufacturing
lines.
· At Toyota’s
Global Supplier Convention in Nagoya Autoliv was honored for its new Inflatable
Curtain design developed for the new Toyota Sequoia. This is the third
consecutive year Autoliv has won a Toyota supplier award.
· Autoliv has
also received an Outstanding Performance Award from General Motors. This was
also the third consecutive year Autoliv was recognized in this way by
GM.
Dividend
and Next Report
A
quarterly dividend of 39 cents per share has been declared for the second
quarter which will be paid on June 5 to shareholders of record as of May 8,
2008. The ex-date, when the stock trades without the right to the dividend is
May 6, 2008.
Autoliv intends to
publish the quarterly report for the second quarter on Tuesday July 22,
2008.
Annual
General Meeting of Shareholders
The Annual General
Meeting of Shareholders will be held in Chicago on May 6, 2008. Shareholders of
record at the close of business on March 7 are entitled to be present and vote
at the Meeting. Notice of the General Meeting was mailed in March to Autoliv's
shareholders.
Shareholders are
urged to vote on-line on the Internet or return their proxy cards even if they
do not plan on attending the Annual General Meeting.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
As of March 31,
2008, the Company’s future contractual obligations, have not changed
significantly from the amounts reported in the 2007 Annual Report on Form 10-K/A
filed with the SEC on February 22, 2008.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31,
2008, 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 2007 Annual Report on Form 10-K/A filed with the SEC on February
22, 2008.
ITEM
4. CONTROLS AND PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures
An evaluation has
been carried out, under the supervision and with the participation of the
Company's management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our 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, as amended (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 effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by the
Company in 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.
As of March 31,
2008, there have been no material changes in the information that was provided
in the Company’s 2007 Annual Report on Form 10-K/A filed with the SEC on
February 22, 2008.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
Stock
repurchase program
During the first
quarter of 2008, Autoliv repurchased 1,239,000 of its shares for
$63.2 million at an average price of $50.91. Since the repurchasing program
was adopted in 2000, Autoliv has bought back 31.8 million shares at an average
price of $42.73 per share. Under the existing authorizations, another 5.7
million shares may be repurchased. Below is a summary of Autoliv's common stock
repurchases by month for the quarter ended March 31, 2008:
|
Stockholm
Stock
Exchange
("SSE")
|
New
York Stock Exchange
("NYSE")
|
SSE
+ NYSE
Total
Number of
Shares
|
|
Maximum
Number
of
Shares
That
May Yet
Be
Purchased
Under
the
Plans
or
Programs
|
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
|
|
|
|
|
|
|
|
|
January
1-
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
0
|
0.0000
|
0
|
0.0000
|
0
|
0.0000
|
6,897,505
|
|
|
|
|
|
|
|
|
February
1-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
349,200
|
51.6603
|
327,700
|
51.5641
|
676,900
|
51.6137
|
6,220,605
|
|
|
|
|
|
|
|
|
March
1-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
255,000
|
50.1493
|
307,100
|
49.9850
|
562,100
|
50.0595
|
5,658,505
|
|
|
|
|
|
|
|
|
Total
|
604,200
|
51.0226
|
634,800
|
50.8001
|
1,239,000
|
50.9086
|
5,658,505
|
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.
|
Announcement
of expansion of existing share buyback program from 30 million shares to
37.5 million shares made on November 8, 2007.
|
5.
|
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 22, 2008) 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 in
10-Q for the third quarter 2007.
**** 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: April 23,
2008
AUTOLIV,
INC.
(Registrant)
By:
|
/s/ Magnus
Lindquist
|
|
|
|
Magnus
Lindquist
|
|
Vice
President
|
|
Chief
Financial Officer
|
|
|
|
(Duly
Authorized Officer and Principal Financial
Officer)
|