STOCKHOLM, Sweden, Jan. 24, 2002 (PRIMEZONE) -- Financial Report October -- December 2001
Income before taxes up 37%to $49 million
Earnings per share up 35% to $.27
Positive cash flow and lower net debt
Autoliv Inc. (NYSE:ALV) (SSE:ALIV), the worldwide leader in automotive safety systems reported improved earnings, compared to the fourth quarter 2000, on all levels in the income statement for the quarter ended December 31, 2001, despite a 4% fall in light vehicle production in Europe and North America.
The lower vehicle production reduced Autoliv's sales by 3% to $970 million. However, mainly due to reductions in material costs and headcount, operating income rose by 25% to $61 million, earnings before taxes by 37% to $49 million and net income by 36% to $27 million. Earnings per share improved to $.27 from $.20 during the corresponding quarter 2000.
The Company's intensified focus on cash-flow improvements resulted in a decrease in the accounts receivable and a sizable improvement in cash flow.
The Quarter
Market Overview
During the three-month period October through December 2001, light vehicle production fell in the Triad (i.e. Europe, North America and Japan) by 5% compared to the year-ago quarter.
In Europe, where Autoliv generates half of its revenues, car production is estimated to have declined by 3% due to customers' inventory reductions. Among the vehicle manufacturers, two important Autoliv customers -- BMW and Peugeot/Citroen -- showed the best sales performance.
BMW's sales were helped by the new Mini to which Autoliv is the supplier of the complete safety system.
In North America, which accounts for a third of Autoliv's revenues, light vehicle production fell by 5%. The decline was concentrated in the passenger car segment to which Autoliv currently is more exposed than to the light truck segment. Autoliv's customer mix was thus unfavourable.
In Japan, which accounts for a tenth of the Company's sales, light vehicle production dropped by 7%.
The relatively strong decline in global light vehicle production was partially offset by a continuous strong demand for new safety products, such as side airbags and seat belt pretensioners. An example of this trend is side airbag curtains (such as Autoliv's Inflatable Curtain), which are now installed in more than 15% of all new vehicles - three times as many as a year ago. In Europe the fitment rate for these products is already above 30%. During the last six months, the BMW Mini, Cadillac CTS, Chrysler Grand Cherokee, Dodge Durango, Ford Fiesta, Nissan Primera and the Toyota Camry are some of the vehicles that have started with Inflatable Curtains or other head side airbags from Autoliv.
Sales
Consolidated net sales during the three-month period ended December 31, 2001, declined by 3% to $970 million compared to the corresponding period 2000. The decline in Autoliv's sales was slightly less than the fall in light vehicle production in North America and Europe. The net effect of changes in currency rates and acquisitions/divestitures onsales was insignificant. Unit sales for the Inflatable Curtain rose by 70% and overall products sales in Japan rose rapidly. These achievements offset the effect of the above-mentioned customer and vehicle type-mix issues.
Sales in Europe declined by 5% due to the fall in European car production and lower component sales. Sales in the U.K. performed well. In North America, Autoliv's sales declined at the same rate as light vehicle production, despite the unfavourable customer and vehicle type mix. Sales in the U.S. were driven by passenger airbags and the Inflatable Curtain.
Sales of airbag products (incl. steering wheels) decreased by 3% to $682 million. The organic decline (sales excluding currency effects and changes in the consolidated structure) was 4% or at the same rate as the change in light vehicle production in North America and Europe. Strong sales performance for side curtain airbags, particularly in Japan, and additional business in Korea offset the unfavourable customer and vehicle mixes.
Sales of seat belt products (incl. seat sub-systems) decreased by 4% to $287 million. The organic decline was slightly less than the change in reported sales. Sales were driven by new business in Korea.
Earnings
Despite the weaker sales and vehicle production, Autoliv's earnings improved on all levels. Compared to the fourth quarter 2000, gross profit improved by $15 million or 10%, operating profit by $12 million or 25%, and net income by $7 million or 36%. Earnings per share rose to $.27 from $.20. Gross margin increased to 17.6% from 15.5% and operating margin to 6.3% from 4.9%.
The improvement in gross profit and gross margin is due to the move during the past several years of production to low labor-cost countries, streamlining of overhead costs in established markets, the restructuring program announced in October and a reduction in direct material costs.
Operating expense was almost unchanged but rose in relation to sales to 9.7% from 9.2%. This is explained by the weak vehicle production and the resulting effect on Autoliv's revenues. An increase in SG&A expense due, in part, to expansions in Korea and Japan was offset by lower net expenditures for RD&E. These expenditures were impacted by seasonally high engineering income from customers for crash testing and engineering projects.
The financial net expense decreased to $14 million from $15 million as a result of lower interest rates.
The effective tax rate declined to 40% from 42% for the corresponding quarter 2000. This difference added almost one million to net income and one cent to earnings per share. The lower effective tax rate for the fourth quarter of 2001 reflects the year-end effect of an adjustment in the full-year tax rate.
Currency exchange effects (including both translation and transaction effects) are estimated to have had no significant impact on Autoliv's earnings and margins for the quarter.
Cash Flow and Balance Sheet After three quarters with negative cash generation, operations generated a positive cash flow during the year's last quarter. The surplus was $71 million after investing activities. This improvement mainly reflects Management's increased efforts to control working capital levels. The past years' trend of ever-higher accounts receivable has been broken. Since the peak in June, the receivables have been reduced by $92 million or 10% and are now at the same level as at the beginning of 2001. At the same time, inventories have been kept virtually unchanged.
Net capital expenditures of $58 million were $6 million higher than depreciation due to the need for additional production capacity following the past years' order intake. Major capital expenditures were capacity expansions in Europe for airbags, inflators and steering wheels.
Net debt decreased during the quarter by $57 million to $1,023 million and gross interest-bearing debt decreased by $42 million to $1,107 million.
The net debt to capitalization ratio declined by 2 percentage points during the quarter to 35%. Equity increased by $5 million despite the stronger U.S. dollar and a $4 million effect of the official Argentinean devaluation in early January 2002. Equity was also reduced by the payment of the quarterly dividend of $11 million. The new U.S. accounting principle SFAS 133 had a favourable effect on equity.
Full Year 2001
Sales
Consolidated sales for the 12-month period January through December declined by 3% to $3,991 million. The organic decline in sales was 3%, which should be compared with a 5% drop in light vehicle production during the year.
Reported sales of airbags decreased by 4% to $2,817 million and of seatbelts by 1% to $1,174 million. The organic changes in sales were a decline of 5% for airbags and an increase of 3% for seat belts.
Earnings
In October 2001, Autoliv announced a restructuring package in the wake of falling car production. This package should improve annual operating income by $20-25 million, starting this year. The cost for the package ("Unusual Items"), which totaled $65 million, was charged to the third quarter earnings for 2001.
Excluding these Unusual Items, gross profit for 2001 declined, compared to 2000, by $85 million to $701 million, operating income by $100 million to $239 million, income before taxes by $109 million to $182 million and net income by $74 million to $95 million. Excluding a 48 cent impact of the Unusual Items, earnings amounted to $.97 per share.
Gross margin declined to 17.6% from 19.1% and operating margin to 6.0% from 8.2%. In addition to the 5% reduction in light vehicle production, these changes reflect the effects of high raw material and component prices (particularly during the first six months of the year) and continued pricing pressure.
The effective tax rate rose to 43% for fiscal year 2001 from 40% in 2000. This is explained by the fact that profits have fallen while non-deductible goodwill amortization has remained almost unchanged.
Including the Unusual Items, the Company reported a decline in gross profit of $131 million to $655 million, a decline in operating income of $166 million to $174 million, a decline in income before taxes of $174 million to $117 million and a decline in net income of $121 million to $48 million, corresponding to $.49 per share compared to earnings per share of $1.67 for 2000.
Cash Flow
Cash flow for the year was still negative - by $3 million - but improved significantly compared to the deficit in 2000 of $162 million. Both the deficit in 2001 and in 2000 are explained by acquisitions. Capital expenditures totaled $239 million in 2001 and $217 million in 2000, which was $32 million more than depreciation in 2001 and $15 million more in 2000. The largest capital expenditures during 2001 were airbag inflator capacity in Europe and North America, and airbag assembly capacity in Europe.
Headcount
The total headcount (employees plus temporary hourly workers) decreased by 400 during the quarter and by 600 during the 12-month period to 31,800 at year-end.
In high-cost countries the headcount was reduced by 600 during the quarter and by 2,000 or 8% during the year. However, the headcount increased in low labor-cost countries by 200 during the quarter and by 1,400 during the year. As a result of the move of production to low labor-cost countries, Autoliv currently has 25% of its employees in those countries compared to 20% a year ago.
Prospects
Assuming that the exchange rate as of January 1, 2002 for the Euro prevails, Autoliv's sales will be favourably impacted by about 2% during the current quarter and by almost 1% during the full year.
Due to the reduction over the past six months in light vehicle inventories, customers' inventories are now the lowest in North America since the strike at GM in July 1999. Despite these low inventories, light vehicle production in North America is expected to decrease by 0.5% during the current quarter and by 1% during the full year. In Europe, the decline in vehicle production is projected to be approximately 6% during the first quarter and 3% during the full year.
The Company's sales during this year will also be effected by the consolidation from April 1 of NSK's Asian seat belt business. This will add some $150 million in annual sales with no material short-term effect on net income.
Some component prices have declined, but prices on nylon yarn, plastics and other oil-based commodities are still high. The pricing pressure from the market has therefore to be offset by the restructuring program announced in October and other internal actions. The operating margin in 2002 will also be improved by just over one percentage point by the new SFAS 142 accounting principle that abolishes annual amortization of goodwill. Although this change in principle will have no effect on taxes paid, Autoliv's effective tax rate is expected to decline to around 35%.
It should, however, be pointed out that most of the improvement the Company expects during 2002 is based on the assumption that the global economy will start its recovery in the U.S. in the second half of the year.
Launches during Q3 and Q4
Most product launches take place in connection with introductions of new vehicle models, or major changes in the models. These changes are more frequent during the latter part of the year. Some important new Autoliv programs during the past six months have been:
Aston Martin's new Vanquish: Seat belts
BMW's new Mini: Frontal bags, thorax bags, head side bags, seat
belts and steering wheel
BMW's new 7-series: Frontal bags, seat belts and steering wheel
Cadillac's new CTS: Passenger bag, Inflatable Curtains (ICs) and
thorax bags
Chrysler's Grand Cherokee: ICs, frontal bags upgraded to smart
and seat belts
Dodge's Durango: ICs
Ford's new Fiesta: Frontal bags, steering wheel, ICs, thorax bags
and seat belts
Honda's new CRV: Thorax bags
Hyundai's new Eques: Thorax bags and ICs
Nissan's new Altima: Frontal bags, ICs and thorax bags
Nissan's new Primera: Frontal bags, steering wheel, ICs, thorax
bags and seat belts
Peugeot 206 and 406: Frontal bags upgraded to smart and steering
wheels
Saab 9.5: Upgraded frontal bags, upgraded seat belts and
electronics
Saturn's new Veu: IC and seat belts
Skoda's Superb: Thorax bags and seat belts
Toyota's new Camry: Passenger bag, ICs and thorax bags
Volkswagen's new Polo: Passenger bag, thorax bags and seat belts
Other Significant Events
A restructuring package was announced on October 18 which is
expected to generate annual cost savings, starting in 2002,
in the magnitude of $20-25 million. The package includes
consolidation and streamlining of operations, more moves to
low labor-cost countries, asset write-offs and provisions
for contractual and other issues.
Five of the world's leading automotive safety and automotive
electronics companies have formed a consortium for the
development of an industry standard automotive safety bus
targeted for use in restraint systems. In addition to Autoliv,
this "Safe-by-Wire" Consortium includes Delphi Automotive
Systems, Philips Semiconductors, Special Devices and TRW.
Future safety systems will require numerous safety components
and sensors. By defining a standardized bus interface for the
sensors and restraint components, the wiring in a vehicle will
be substantially simplified to reduce costs.
Autoliv-Mando Corporation in Korea has begun construction of a
new$8.5 million plant for airbags and seatbelts in Sanchuck.
Annual sales for the 65%-owned venture, which currently are about $35 million, are expected to increase to approximately $150 million within three years, both as a result of new business and transfer of existing business from Autoliv's companies in other countries.
The Board of Directors of Autoliv Inc. has increased the number
of directors to nine and elected Mr. James Ringler as new
director to serve until the annual meeting in 2003. Mr. Ringler
is Vice Chairman of Illinois Tool Works Inc (ITW), a $10 billion
diversified global manufacturer of highly engineered components
and industrial systems. He also serves on the boards of the Dow
Chemical Company, FMC Technologies, Inc. and other companies.
Mr. Ringler holds an M.B.A. in finance from the State University
of New York.
Meeting of Stockholders
The Annual General Meeting of Stockholders will be held in Chicago on April 24, 2002. Holders of record at the close of business on February 26, 2002 will be entitled to be present and vote at the Meeting. Notice of the General Meeting, the Annual Report, the Proxy Statement and the Proxy Card are intended to be mailed to Autoliv's stockholders at the end of March. Stockholders are urged to return their proxy cards whether or not they plan to attend the Meeting.
Dividend and Next Report
A dividend of 11 cents per share will be paid on March 7, 2002 to Shareholders of record as of February 7. The ex-date, when the shares will trade without the right to the dividend, is February 5. The next quarterly report for the period January 1 through March 31 will be published on April 18, 2002.
"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, the economic outlook for the Company's markets, fluctuation of foreign currencies, fluctuation 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.
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