Financial Report July - September 2001

Financial ReportJuly - September 2001 · Reported sales down 5% and organic sales down 3% compared to a 6% fall in car production · Income before taxes excl. Unusual Items: $38 million · Loss before taxes incl. Unusual Items: $27 million (Stockholm, Oct. 18, 2001) - Sales of Autoliv Inc. (NYSE: ALV and SSE: ALIV), the worldwide leader in automotive safety systems, continue to perform better than the weak underlying car market. In the third quarter this year, the Company's organic sales declined by 3% to $908 million while light vehicle production in Europe and North America fell by an average of 6%. In order to further reduce the cost level in the wake of the falling car production, the move to low cost countries has been accelerated and a restructuring package implemented. The package is expected to improve operating income for the next year by $20-25 million and earnings per share by nearly $.15. In addition, new rules for goodwill accounting are estimated to increase next year's operating income and earnings per share by $50 million and $.50, respectively. Costs for the restructuring package and other one-time costs ("Unusual Items"), which total $65 million, have been charged to the third quarter earnings. Before these Unusual Items, operating margin in the third quarter declined from 8.3% last year to 5.6% for this year. Income before taxes decreased from $67 million to $38 million and earnings per share from 39 cents to 18 cents. The main reason for the declines is the weak and erratic vehicle production, which not only has reduced Autoliv's operating income but also led to an unusually high effective tax rate. Including the Unusual Items, income before taxes was a loss of $27 million and earnings per share was negative by $.30. Sales The Quarter Consolidated net sales during the three-month period ended September 30, 2001, declined by 5% to $908 million compared to $955 million for the corresponding period 2000. Currency translation effects have reduced reported sales by 2%. Consequently, Autoliv's organic sales (i.e. consolidated sales adjusted for currency effects and acquisitions/divestitures) declined by 3%. This compares favorably with light vehicle production in Autoliv's main markets in Europe and North America which are estimated to have fallen by approximately 6% as an average. Autoliv's relatively strong sales performance was mainly driven by market share gains for passenger airbags in Europe and strong demand for side-impact airbags such as the Inflatable Curtain. Consolidated unit sales for side airbags for chest protection rose by 5% and for head protection by 59% despite the 6% decline in vehicle production in Europe and the U.S. Autoliv's sales were particularly strong in the U.K. and France. In local currencies, sales in Europe rose by 4% although European car production declined by approximately 1%. In U.S. dollars, Autoliv's European sales rose by 1%. In North America, consolidated sales fell by 12% compared to a 10% fall in U.S. light vehicle production due to an unfavorable customer mix. Sales of airbag products (incl. steering wheels) declined by 5% to $646 million from $682 million. Currency effects reduced reported sales by 2%, while acquisitions improved sales by 1%. Consequently, organic sales declined by 4%. The decline is due to the fall in North American vehicle production. In Europe, organic sales of airbags were flat. Sales of seat belt products (incl. seat sub-systems) decreased by 4% to $262 million from $273 million, while organic sales of seat belts were flat as a result of a strong performance in Europe. First Nine Months For the nine-month period January through September, consolidated sales declined by 3% to $3,021 million and organic sales by 2%. Autoliv's airbag sales declined by 4% to $2,134 million, while seat belt sales remained almost flat at $887 million. Organic sales for airbags declined by 5%, while organic sales for seat belts grew by 5%. During the same nine-month period, light vehicle production in Europe and North America fell by 6%. Unusual Items The review of operations that was mentioned in the report for the second quarter has led to a package of restructuring actions. The costs and provisions for this package which are referred to in this report as "Unusual Items", have been charged to the third quarter results. The Unusual Items also include provisions for contractual, warranty and liability issues. The restructuring package mainly includes restructuring costs and asset write-offs of the Seat Sub-System division, costs for moving the U.S. and the Swedish textile operations to Mexico and Poland, and additional costs for the partial integration of a former OEA plant into the main U.S. inflator operations. See also separate press release. The Unusual Items total $65 million. Of the amount, $24 million relates to write-offs of assets (incl. goodwill) and $39 million to provisions - in total $63 million - which have not had any effect on the quarter's cash-flow. The restructuring package is expected to save $20-25 million during the next fiscal year, thereby improving net income for 2002 by almost $15 million and the earnings by nearly $.15 per share. Earnings The Quarter Excluding the Unusual Items reported above, consolidated gross profit during the quarter decreased by 10% to $162 million. Gross margin amounted to 17.9% compared to 18.8% in the third quarter 2000. The decline is explained by the lower sales, and unfavorable product and market mix, as well as by continued pricing pressure. Compared to the three preceding quarters, however, gross margin improved somewhat from 17.7%. Excluding Unusual Items, operating income decreased by 36% to $51 million. Operating margin amounted to 5.6% compared to 8.3% for the corresponding quarter last year. The decline was due to the lower gross profit, and to SG&A and R&D expenditures, which rose compared to the year-ago numbers but remained below the levels reported in the two preceding quarters. Excluding the Unusual Items, income before taxes declined by 42% to $38 million and net income decreased by 56% to 17 million. Net income was negatively impacted by a higher effective tax rate, which rose from 39% in the year-ago quarter to 49%. The higher tax rate reflects the fact that profits have fallen while non-deductible goodwill amortization has remained almost unchanged. It also reflects a $2 million one-time catch- up effect due to the fact that the tax rate assumed for the year's two first quarters was lower than the effective tax rate currently estimated for the full fiscal year. Including Unusual Items, the Company reported a decline in gross profit by 35% to $116 million, an operating loss of $15 million, a loss of $27 million in income before taxes and a net loss of $30 million, which corresponds to $.30 per share compared to earnings of $.39 per share for the year-ago period. First Nine Months Excluding Unusual Items, gross profit during the first nine months of 2001 decreased by 16% to $530 million from $631 million, operating in come declined by 39% to $178 million from $291 million and earnings per share by 52% to $.70 from $1.46. The tax rate was 44% compared to 40% last year. The gross margin declined to 17.6% from 20.3% and the operat ing margin to 5.9% from 9.3% during the same period 2000. Including Unusual Items, operating income amounted to $113 million, income before taxes to $68 million and net income to $21 million or $.22 per share. Cash Flow and Balance SheetDuring the quarter, the operations generated $34 million in cash compared to $47 million during the same quarter of 2000. The trend of higher receivables was broken during the quarter. Net capital expenditures totaled $61 million, which is almost the same amount as in the third quarter last year. Depreciation rose to $51 million from $49 million. The largest capital expenditures were additional production capacity for inflators, initiators and airbag assembly. After operating and investing activities, the operations used $28 million in cash during the quarter and $13 million during the year-ago quarter. Net debt increased during the quarter by $34 million to $1,080 million and gross interest-bearing debt by $37 million to $1,149 million. During the quarter, net debt to capitalization ratio increased from 35% to 37%. The equity has been reduced by the new U.S. accounting principle SFAS 133 and increased by currency translation effects as a result of the weaker U.S. dollar. HeadcountThe total headcount (employees plus temporary hourly workers) decreased by 600 to 32,200 during the quarter. The reduction was more than 900 in high labor-cost countries, while the headcount increased in low labor-cost countries by over 300. Since the beginning of the year, almost 1,300 jobs have been added in low-cost countries at the same time as nearly 1,500 have been reduced in high-cost countries. Significant Events · As mentioned above, a restructuring package has been introduced to improve profitability and offset the effects of the current downturn in light vehicle production. The package is described in a separate press release. · An agreement was reached in July between the European Commission and the vehicle manufacturers to introduce several changes to improve the protection for pedestrians. This "Self Commitment" by the vehicle manufacturers is subject to approval by the European Parliament. In response to the increased demand for pedestrian protection systems that the new requirements will generate, Autoliv has developed an Active Hood and a Pedestrian Protection Airbag, which will help car manufactur ers meet the new test requirements that are expected to become effective in Europe in July 2005 as a result of the agreement between the EU Com mission and the vehicle manufacturers. Prospects Assuming that the current exchange rate for the Euro prevails during the current quarter, Autoliv's sales will be favorably impacted by about 2% during the fourth quarter. Following the terrorist attack in September, car production levels are unusually difficult to predict, but based on the latest market estimates light vehicle production levels in the U.S. and Europe are expected to decline by approximately 8% and 5%, respectively, in the fourth quarter. In July, the Financial Accounting Standards Board (FASB) issued a new Financial Accounting Standard (SFAS 142) which abolishes the requirement for annual amortization of goodwill and introduces a specific "Benchmark Assessment Process" for evaluating whether the value of goodwill has been impaired. The new accounting principle, which will be applicable to Autoliv beginning January 1, 2002, is expected to improve Autoliv's reported annual (both pre-tax and net) income by around $50 million and reduce the Company's effective tax rate to somewhere in the region of 35%. No additional impairment charges are expected under the new statement. Combined with the restructuring package, the new accounting principle is expected to increase the operating income by more than $70 million, thereby improving reported annual earnings per share for the next year by approximately $.65. Dividend and Next ReportA dividend of 11 cents per share will be paid on December 6 to Shareholders of record as of November 8. The ex-date, when the shares will trade without the right to the dividend, is November 6. The next quarterly report for the period October 1 through December 31 will be published on January 24, 2001. "Safe Harbor Statement" Statements in this report that are not statements of historical fact may be forward-looking statements, which involve risks and uncertainties, including - but not limited to - continued fluctuation of foreign currencies, fluctuations in vehicle production schedules for which the company is a supplier, continued uncertainty in program awards and performance, the financial results of companies in which Autoliv has made technology investments, and other factors discussed in Autoliv's filings with the Securities and Exchange Commission. KEY RATIOS P R E S S R E L E A S E Autoliv Implements Restructuring Package (Stockholm, Oct. 18, 2001) - - Autoliv Inc. (NYSE: ALV) - the worldwide leader in automotive safety systems - implements a restructuring program that should reduce costs and improve the Company's capability to counter the current fall in global car production. Starting next year, the package should generate annual cost savings of $20 - 25 million, which corresponds to almost a 15% improvement in Autoliv's pre-tax profit from operations for the latest 12-month period or a nearly $.15 increase in earnings per share. The cost for the package is $65 million, which include restructuring costs, asset write-offs and provisions for, for instance, contractual, warranty and liability issues. The total cost has been charged to the third quarter result that was announced today. Of the $65 million, $24 million relates to asset write-offs and $39 million to provisions - in total $63 million which have no cash-flow effect in the third quarter. Integration of inflator operations The restructuring actions include the integration of seven production lines from Autoliv's inflator plant in Denver, Colorado, with Autoliv's main production and technology center for inflators in Ogden, Utah. Due to this integration, the number of employees in the two operations was reduced by more than 200 people during the third quarter. The full cost saving effect from this element of the action program is expected to materialize before the end of the year. Review of Seat Sub-Systems Division Another key element in the package was a review of the Seat Sub-Systems Division, which has led to a series of actions, such as merging the administrative and engineering departments of the division's two plants, moving the marketing and program management to Autoliv's existing sales and technology center in Gothenburg, Sweden, and the write-off of goodwill and other fixed assets. Accelerated moves to low cost countries The move of Autoliv's textile operations in the U.S. and Sweden to Mexico and Poland has already been announced. The costs for this action have now been taken as a provision in the third quarter. The move of the Swedish operations, which employ 100 people, will be completed before the end of this year. The move of the U.S. textile operations, which have 500 employees, will not be fully completed until the end of the next year. Of the 600 jobs, 500 will be transferred to the low labor- cost countries. Streamlining of Dutch Operations The restructuring package also includes streamlining of Autoliv's operation in the Netherlands by integrating various administration functions with Autoliv's other plants, mainly in Sweden and Germany. Autoliv was recently named to be the supplier of safety systems for also the next car model to be produced at the NedCar plant, which means that Autoliv's Dutch facility will be turned into a coordination center that will continue to support NedCar. The total restructuring package involves more than 800 employees. Inquiries: Lars Westerberg, President & CEO, Tel +46 (8) 587 20 620 Autoliv Inc. develops and manufactures automotive safety systems for all major automotive manufacturers in the world. Together with its joint ventures Autoliv has close to 80 facilities with almost 30,000 employees in more than 30 vehicle-producing countries. In addition, the company has eight technical centers around the world, including 19 test tracks, more than any other automotive safety supplier. Sales in 2000 amounted to US $4.1 billion and net income to US $170 million. The company's shares are listed on the New York Stock Exchange (NYSE: ALV) and its Swedish Depositary Receipts on the OM Stockholm Stock Exchange (SSE: ALIV). ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/18/20011018BIT00580/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/10/18/20011018BIT00580/bit0002.pdf The full report