*Autoliv holds a 59 percent interest in the capital but does not consolidate because it controls only 50 percent of the voting power
______________________________________________________________________________________ Autoliv typically contributes design and production knowledge to the joint venture, with the local partner providing sales support and manufacturing facilities. Some of these local partners manufacture and sell standardized seat belt systems, and will, through the joint venture with Autoliv, be able to upgrade their technology to meet specific customer demands and/or expand their product offerings. In addition to joint ventures in emerging markets, Autoliv has also, established joint ventures in markets such as France, either to strengthen its sales position or to gain access to the market. Global Operations
Autoliv's joint ventures and foreign subsidiaries may be subject to the usual risks inherent in global operations, including, but not limited to: risks with respect to currency exchange rates; economic and political destabilization; other disruption of markets; restrictive laws and actions of certain governments (such as restrictions on transfers of funds, export duties and quotas, foreign customs and tariffs, and unexpected changes in regulatory environments); difficulty in obtaining distribution and support; nationalization; and the laws and policies of the United States, the European Union, and the World Trade Organization affecting trade, investment and loans; and tax laws. There can be no assurance that these factors will not have a material adverse impact on Autoliv's ability to increase or maintain its international sales or on its results of operations. Patents and Proprietary Technology
Autoliv has developed a considerable amount of proprietary technology related to car occupant restraint systems and relies on a number of patents to protect such technology. Autoliv protects many of its innovations with patents, and vigorously protects and defends its patents, trademarks and know-how against infringement and unauthorized use. At present, Autoliv holds approximately 3,100 patents covering a large number of innovations and product ideas, mainly in the fields of seat belt and airbag technologies. Autoliv utilizes, and has access to, the patents of Autoliv's joint ventures and joint venture partners. These patents expire on various dates during the period 2004 to 2023. The expiration of any single patent is not expected to have a material adverse effect on Autoliv's financial position. Although Autoliv believes that its products and technology do not infringe the proprietary rights of others, there can be no assurance that third parties will not assert infringement claims against Autoliv in the future. There can be no assurance that any patents now owned by Autoliv, will afford protection against competitors that develop similar technology. Dependence on the Automotive Industry
The customers of Autoliv are automobile manufacturers whose production volumes are dependent upon general economic conditions and the level of consumer spending. The volume of car production in Autoliv's most important markets in Europe, North America, and Asia has fluctuated from year to year, and such fluctuations have given rise to fluctuations in the demand for Autoliv's products. Major Customers and Substantial Reliance by Autoliv on Major Customers
The customer base of Autoliv consists of a relatively small number of automobile manufacturers. Although business with any given customer is typically split into several contracts (usually one contract per vehicle model), the loss of all of the business of certain customers could have a material adverse effect on Autoliv. Combined sales to Autoliv's three largest customers represented Ford (incl. Volvo Cars 8%, Mazda etc.) 24%, Renault (incl. Nissan) 14% and General Motors (incl. Opel, Holden, SAAB etc.) 12% of total fiscal 2003 sales and the largest contract less than 4% of total fiscal 2003 sales. Information concerning major customers included in the section titled "Trends and Risks analysis" on page 15 and 16 and Note 18 of the Notes to the Consolidated Financial Statements on page 41 of the Annual Report, and is incorporated herein by reference. Autoliv's Pricing Pressures
As a consequence of the major automobile manufacturers' strong purchasing power, and the competitive pressures on car occupant restraint system suppliers to increase such suppliers' manufacturing capabilities, the unit prices of airbag systems, seat belts and other Autoliv products will likely continue to decline. In addition, similar to other automobile component manufacturers, Autoliv expects that Autoliv and its subsidiaries will, under certain circumstances, quote fixed or maximum prices for long-term supply arrangements. The future profitability of Autoliv will depend upon, among other things, its ability to continue to reduce its per unit costs and maintain a cost structure, internally and with its suppliers, that will enable it to remain cost-competitive. Autoliv's profitability may also be influenced by its success in designing and marketing technological improvements in car occupant restraint systems. Product Warranty and Recalls
Autoliv is exposed to product liability and warranty claims in the event that our products fail to perform as expected and such failure results, or is alleged to result, in bodily injury and/or property damage. We cannot assure that we will not experience any material warranty or product liability losses in the future or that we will not incur significant costs to defend such claims. In addition, if any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. A recall claim or a product liability claim brought against us in excess of our available insurance may have a material adverse effect on our 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 us responsible for some or all or 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 our customers may be material, however, we believe our established reserves are adequate to cover potential warranty settlements. Our warranty reserves are based upon our best estimates of amounts necessary to settle future and existing claims. We regularly evaluate the appropriateness of these reserves, and adjust them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from our recorded estimates. Seasonality and Backlog
Autoliv's business is not subject to significant seasonal fluctuations. There are no material backlogs in Autoliv's business. Certain Regulatory Matters and Developments
The automotive safety industry is subject to substantial regulation, both in the United States and in many other countries, which may affect the demand for Autoliv's products and Autoliv's manufacturing and development costs. These regulations are subject to frequent review by applicable regulatory authorities and other governmental entities, and are subject to change. In the United States, federal legislation requires driver-side and passenger-side airbags in all new passenger cars, effective as of September 1, 1997, and in all new light vehicles (unloaded vehicle weight of 5,500 pounds or less), effective as of September 1, 1998. Changes in regulations could have a material adverse impact on Autoliv's operations and financial condition. Such regulations are subject to a number of factors that are not within the control of Autoliv, including adverse publicity regarding the safety risks of airbags to children and small adults, domestic and foreign political developments, and litigation relating to Autoliv's and its competitors' products. There can be no assurance those regulatory developments or adverse publicity will not adversely affect customer demand for the Company's automotive safety products. Such changes could also result in slower increases, or in decreases, in demand for automotive safety products in other countries. In June 1998 President Clinton signed into law the "Transportation Equity Act for the 21st Century (TEA-21)", the omnibus highway transportation-spending bill passed by Congress. Contained within this bill is a provision that directs the Department of Transportation to initiate a federal rulemaking procedure for the purpose of mandating testing protocols and phase-in schedules for advanced or "smart" restraints. In May 2000, the final regulations (No. NHTSA 00-7013, Notice 1) were issued, requiring 35 % of all light vehicles sold in the United States between September 1, 2003 and August 31, 2004 to be in compliance with the new regulations. 65 % and 100% of all new vehicles in the following model year and the third model year, respectively, are required to be in compliance with the regulations. Although the U.S. National Highway Traffic Safety administration (the "NHTSA") had approved the advanced airbag regulations in May 2000 with an amendment in 2001, the NHTSA published a notice of proposed rulemaking (NPRM) in September 2002, in response to petitions for rulemaking, to reduce the percentage of vehicles that must comply with the advanced air bag requirements during the first year of the first stage, i.e., from September 1, 2003, through August 31, 2004, from 35 % to 20 %. A recent final rule adopts that proposed change. The new regulations are expected to increase the unit price for frontal airbag system, and thereby increase the North American airbag market, but also have ripple effects on other markets. Environmental
Autoliv is subject to the requirements of U.S. federal, state, local and non-U.S. environmental and occupational safety and health laws and regulations. Although it is our intention to comply with all such requirements and regulations, we cannot provide insurance that we are at all times in compliance. Environmental requirements are complex, change and have tended to become more stringent over time. Accordingly, we cannot provide any more that these requirements will not change or become more stringent in the future. Since 1996, Autoliv has had an environmental plan, which is based on Autoliv's environmental policy. According to the plan, the Autoliv plants and units should become certified according to ISO 14001, an international standard for environmental management systems. So far, 48 facilities representing more than 90% of consolidated sales have been certified according to the standard, including all major plants in Europe and North America Autoliv has no pending material environmental related issues. The Company does not incur (or expects to incur) any material costs or capital expenditures for environmental control facilities associated with compliance with Federal, State and local environmental requirements. Additional information relating to the Company's environmental management is included in the section titled "Environment" on page 13 of the Annual Report and is incorporated herein by reference. Employees
At December 31, 2003, Autoliv and its subsidiaries had approximately 32,100 employees. In addition, Autoliv had approximately 4,900 temporary hourly workers. Autoliv considers its labor relations to be good and has not experienced any major strike or other significant labor dispute for many years. Important unions that some of Autoliv's employees belong to are Swedish Metal Workers Union, the Swedish Union of Clerical and Technical Employees in Industry, the Swedish Foremen and Supervisors' Association and the Swedish Association of Graduated Engineers, IG Metall and Textil und Bekleidung in Germany, Amicus in the United Kingdom, the Metal Workers Union in Australia, the Union of Needletraders and Industrial and Textile Employees in the United States, Confederation Generale des Travailleurs in France and Federacion Minerometalurgica, Union General de Trabajadores and Comisiones Obereras in Spain. In Sweden, wages and general working conditions are typically the subject of centrally negotiated collective bargaining agreements. Within the limits established by these agreements, Autoliv's subsidiaries negotiate directly with the local unions representing the employees. In Australia, France and Spain, wages, salaries and general working conditions are negotiated with the local unions. In Germany, wages but not salaries are negotiated with the local unions, while in the United Kingdom and the United States there is far less union involvement in establishing wages, salaries and working conditions than in, for instance, Germany. The terms of the various agreements with unions typically range between 1-3 years. Under Swedish law, Autoliv's subsidiaries must negotiate important changes in operations and working conditions with the unions representing its employees. In other countries (including Germany, Spain and France), negotiations must take place when a company wishes to dismiss employees and under certain other circumstances. Employees in the Netherlands and Germany are represented by legally mandated workers' councils or similar organizations. Twice a year Company Management are conducting a European Employee Council meeting (EEC) to provide employee representative with important information and a forum for exchange of opinions. Available information
The public may read and copy any materials Autoliv files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800- SEC-0330. Further information regarding filings with the Securities and Exchange Commission is included in the section titled "SEC and NYSE filings" of the Annual Report and is incorporated herein by reference (page 2 in the Annual Report). Item 2. PropertiesAutoliv's principal executive offices are located in the World Trade Center, Klarabergsviadukten 70, SE-107 24, Stockholm, Sweden. Autoliv's various businesses operate in a number of production facilities and offices. Autoliv believes its properties to be adequately maintained and suitable for their intended use and its production facilities to have a capacity adequate for its current and foreseeable needs. All of Autoliv's production facilities and offices are owned or leased by operating (either subsidiary or joint venture) companies. AUTOLIV MANUFACTURING FACILITIES |
