Annual Report 1999
2
Contents
3 Summary
4 Letter to Shareholders
6 Autoliv in the World
8 Employees
10 The Market
14 Autoliv's Safety Systems
16 Research and Development
20 Quality
22 Environment
23 Management's Discussion and Analysis
27 Consolidated Statement of Income
28 Consolidated Balance Sheet
29 Consolidated Statement of Cash Flows
30 Notes to Consolidated Financial Statements
38 Report of Independent Auditors
38 Definitions
39 Selected Financial Data
40 Board of Directors
41 Senior Management
42 Shareholder Information
AUTOLIV INC. is a Fortune 500 company and the world's largest automotive safety
supplier with sales to all the leading car manufacturers in the world. The
company's business mission is "to develop, produce and sell systems worldwide
for mitigation of injuries to automobile occupants and avoidance of traffic
accidents". Autoliv develops, manufactures and markets mainly airbags, seat
belts, safety electronics, steering wheels, anti-whiplash systems, seat
components and child seats. Autoliv has over 60 subsidiaries and joint ventures
with more than 22,000 employees in 29 vehicle-producing countries. In addition,
Autoliv has eight technical centers around the world, including 19 crash test
tracks - more than any other automotive safety supplier.
Autoliv's share is listed on the New York Stock Exchange (NYSE: ALV), its
Swedish Depository Receipts on the Stockholm Stock Exchange (SSE: ALIV) and its
stock options on the Chicago Board Options Exchange (CBOE: ALV).
3
S U M M A R Y
Record sales and earnings
Ford and GM announce aggressive installation plans for side curtain airbags
New plants in Turkey, Argentina and Brazil, new technical center in Japan and
new plants in North America for steering wheels and side curtain airbags
Acquisition of Japan's second largest steering wheel manufacturer and of the
dominant seat belt supplier to Russia
First order received in a new area: Rollover protection
4
LETTER TO THE SHAREHOLDERS
Autoliv's current market position is stronger than ever. This position has been
achieved both by determined commitments to research and development in
combination with application engineering with our customers and by major
structural changes in our industry.
Autoliv is today a supplier and development partner of all the leading and most
demanding car manufacturers in the world.
Autoliv will continue to pursue its business mission which is "to develop,
produce and sell systems worldwide for mitigation of injuries to automobile
occupants and avoidance of traffic accidents". The business strategy also
remains the same, which means that Autoliv should:
- -Expand globally
- -Expand product lines
- -Continue to reduce costs
- -Continue to improve quality
GEOGRAPHICAL MARKETS
In Japan, Autoliv has been underrepresented, but lately a number of actions have
been taken to address this situation. In 1998, an airbag assembly company was
acquired. In 1999, a new technical center with an advanced crashtrack was
inaugurated, and in January 2000, Japan's second largest steering wheel company
with a market share exceeding 20% was acquired. On top of this, production of
airbag inflators recently began in a new plant outside Nagoya.
In North America, Autoliv inaugurated another green-field operation. This
factory, close to Windsor in Canada, uses Autoliv's patented technology to weave
bags in one piece without sewing. The new plant, which comes on-stream gradually
during the coming months, is needed for the aggressive installation plans U.S.
car manufacturers have for curtain airbags, a protection both in side collisions
and rollovers. Our new steering wheel facility in Indiana experienced a fast
ramp-up at the end of 1999, and Autoliv's seat beltplant in Mexico was enlarged
in yet another step. In addition, we completed a facility for leather-wrapping
of steering wheels in Mexico.
In South America, Autoliv Argentina moved its seat belt and airbag production
to a new industrial park outside Buenos Aires, and Autoliv Brazil completed a
three-plant complex outside Sao Paulo for seat belt webbing, steering wheels
and seat belts.
In Europe, we acquired close to 50% of Norma in Estonia with an option, which we
exercised at the beginning of this year, to increase Autoliv's holding to 51%.
Norma is the dominant seat belt supplier to Russia. In Europe, we also started
construction of a new seat belt plant in Romania and opened a new plant in
Turkey for seat belts, airbags and steering wheels. In addition we ramped up
production in the new plant in Poland that we started in 1998.
In Asia, Autoliv took the initiative to consolidate Malaysia's four seat belt
and airbag suppliers into one company in which Autoliv now holds 49% of the
shares. In Indonesia, we increased Autoliv's holding to 100%. The Japanese
steering wheel acquisition brought a modern facility in the Philippines into
Autoliv, as well as a joint venture in Taiwan.
PRODUCT DEVELOPMENT
The Autoliv Inflatable Curtain, that was introduced on the world market in 1998,
has received an overwhelming response. As a result, the order backlog amounted
at the end of 1999 to 9 million curtains for delivery already in 2002, the
fastest penetration yet for any new Autoliv product.
In the fall of 1999, Autoliv received its first order for rollover sensors,
including our newly developed algorithm for rollovers i.e. the "soft ware
program" for the electronic control unit (ECU) that triggers the Inflatable
Curtain and the seat belt pretensioners. These products constitute a very
interesting package for the fast developing SUV (sport utility vehicle) market.
This was confirmed at the beginning of this year when Ford announced that they
would equip all their SUVs with a rollover protection system, including an
airbag curtain. GM has made a similar announcement. However, they will not limit
their plans to rollover protection for SUV, but intend to have side airbag
curtains in all their North American vehicles already by 2003.
The federal safety standards in the U.S. will be changed to phase in advanced
airbags. It is still unclear when the change will become effective, but the new
airbag systems could increase our delivery value per vehicle considerably over
the coming years. Our first shipments of these systems are scheduled to start
already before the end of this year.
In another new area, anti-whiplash systems, Volvo has decided to order our
AWS-system for all their cars, following the successful world introduction on
their S-80 model in 1998. In addition, another car manufacturer was added to our
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AWS customer list for shipments in a couple of years.
Much of Autoliv's performance is based on intensive development efforts in close
cooperation with the leading customers. This leads to somewhat higher R&D costs
- - but it also lays the foundation for future sales increases and additional
market share gains.
COST SAVINGS
Although the pricing pressure on airbags has moderated, this is still our
greatest concern and we continue to implement our ambitious cost-saving program.
During 1999, another 1,000 jobs were added in countries with low labor costs. As
a result, Autoliv now has 10% of its 22,600 employees in such countries. The
trend will continue this year, when we will be able to also use Norma in Estonia
as a new sub-supplier to Autoliv's plants in Western Europe.
Even as we move leather-wrapping of steering wheels, sewing of airbag cushions
and other labor-intensive activities to Eastern Europe, Northern Africa and
Mexico, we add new jobs in high-cost countries by developing and introducing new
safety innovations.
Autoliv has reduced the number of inflator families to a third of what we had at
the time of the merger in 1997. At the same time, we continue our existing
standardization programs. Furthermore, we have now closed our plant in Amsterdam
and sold the building. Certain other assets that have become redundant have also
been sold. This focusing on core business will continue.
TARGETS
Autoliv's targets are:
- - Grow long-term sales significantly faster than the world market
- - Provide the company's shareholders with an attractive return on investment
- - Be the most innovative, reliable and cost-efficient global partner in
automotive safety for the automobile manufacturers.
OUTCOME 1999
During 1999, we managed to achieve several of these targets.
Sales expanded by 9% to $3.8 billion which is twice as fast as the estimated
growth of the world market. Acquisitions had very little effect, but currency
exchange rates had a major negative impact due to the stronger U.S. dollar.
Adjusted for this, sales rose by 12%.
Earnings improved by 6% to $1.95 per share. This was achieved despite the
pricing pressure and the stronger U.S. dollar. With the same exchange rates as
in 1998, earnings improved by 10%. The profit improvement was driven by the
strong underlying sales increase, Autoliv's cost saving program and a good
capacity utilization in our plants.
PROSPECTS
Major priorities going forward are further improvements in Autoliv's position in
Japan, and in seat belts and steering wheels in North America as well as a
generally stronger position in electronics and sensors.
In 2000, the underlying market for Autoliv is expected to grow by about 5%,
excluding currency effect and swings in global car production. Autoliv could,
however, outgrow the market by continuing to take market shares, make
acquisitions and by being better positioned in the growth segments of the
market, such as the market for side curtains. This should lead to higher profits
and shareholder value.
Lars Westerberg
President and Chief Executive Officer
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AUTOLIV IN THE WORLD
Autoliv has production facilities and technical centers for automotive safety in
more countries than any other company. This advantage is becoming increasingly
important as the consolidation among car manufacturers continues and the new,
global alliances that are created want to have the same products from the same
supplier all over the world.
ARGENTINA
Employees: 115
Customers: Daimler, Faurecia, Fiat, Ford, GM, Iveco, JCI, Peugeot/Citroen,
Renault, Toyota and Volkswagen
Buenos Aires
AUSTRALIA
Employees: 410
Customers: Daewoo,Ford, Holden, Hyundai, Kia, Mitsubishi and Toyota
Melbourne
BELGIUM
Employees: 5
Customers: Volvo and ECA-seats
Gent
BRAZIL
Employees: 40
Customers:Audi, Ford, GM, Peugeot/Citroen,
Renault, SAS and Volkswagen
Taubat
CANADA
Employees: 145
Customers: Autoliv and other seat belt manufacturers
Collingwood and Tilbury
CHINA
Employees: 160
Customers: Ford, Iveco, Nissan, Peugeot/Citroen, Renault, Volkswagen/Audi and
Volvo
Nanjing, Changchun and Shanghai (joint ventures)
ESTONIA
Employees: 1,120
Customers: AutoVaz, GAZ, GM and Autoliv Sweden
Tallinn
FRANCE
Employees: 4,050
Customers: Peugeot/Citroen, Renault and Autoliv companies
Paris, Gournay-en-Bray, Caudebec, Poitiers, Brest ,Survilliers, Pontoise, Rouen
and Valentigney (joint venture)
GERMANY
Employees: 2,660
Customers: Audi, BMW, Ford, MAN, Mazda, Mercedes Benz, Opel, Porsche,
Volkswagen and Autoliv companies
Elmshorn, Dachau, Braunschweig, Markgroningen, Dobeln and Norderstedt
GREAT BRITAIN
Employees: 2,215
Customers: Aston Martin, Ford, Jaguar, Mazda, Mitsubishi, Nissan, Peugeot/
Citroen, Rolls Royce, Rover, Toyota and Vauxhall
Havant, Milton Keynes and Congleton
HUNGARY
Employees: 480
Customers: BMW, Fasching, GM, DC, MAN, Steyr, Sungwoo, Suzuki, Volkswagen, TRW
and Autoliv companies
Sopronkevesd
INDIA
Employees: 150
Customers: Daewoo, DaimlerChrysler, Ford, GM, Hyundai, Maruti and Volvo
Bangalore and New Delhi (joint venture)
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INDONESIA
Employees: 20
Customers: GM and Mitsubishi
Jakarta
ITALY
Employees: 80
Customers: Fiat
Turin
JAPAN
Employees: 205
Customers: Daihatsu, Honda, Isuzu, Mazda, Mitsubishi, Nissan, Nissan-Diesel,
Subaru, Suzuki and Toyota
Yokohama, Tsukuba, Nagoya, Hiroshima and Taketoyo
KOREA
Employees: 10
Customers: Daewoo, Hyundai, Kia and Sangyong
Seoul; (Licensees in Munmak, Ulsan, and Kyungki-do)
MALAYSIA
Employees: 120
Customers: BMW, Honda, Mitsubishi, Nissan, Perodua, Proton, Toyota and Volvo
Kuala Lumpur (joint ventures)
MEXICO
Employees: 645
Customers: Chrysler, Ford, GM, Volkswagen and Volvo
Toluca
NETHERLANDS
Employees: 500
Customers: Mitsubishi, Saab and Volvo
Landgraaf and Boxtel
NEW ZEALAND
Employees: 5
Customers: Aftermarket
Auckland
PAKISTAN
Employees: 15
Customers: Suzuki and Toyota
Karachi (licensee)
PHILIPPINES
Employees: 430
Customers: Honda, Isuzu, Mitsubishi, Proton and Autoliv Japan
Manila (joint venture and subsidiary)
POLAND
Employees: 285
Customers: Autoliv companies
Olawa
ROMANIA
Employees: 75
Customers: BMW, Dacia, Daewoo and Autoliv companies
Brasov
RUSSIA
Employees: 30
Customers: AutoVaz, GaZ, Moskvich and Autoliv Sweden
Dubna
SOUTH AFRICA
Employees: 210
Customers: Atwood, BMW, Ford and Toyota,
Johannesburg
SPAIN
Employees: 1,170
Customers: Ford, Mercedes Benz, Nissan, Opel, Peugeot/Citroen, Renault, Seat,
Volkswagen and Autoliv companies
Barcelona and Valencia
SWEDEN
Employees: 2,475
Customers: Saab, Scania, Volvo and Autoliv companies
Stockholm, Vargarda, Vaxjo, Hassleholm, Motala and Kungalv
TAIWAN
Employees: 70
Customers:Ford, GM, Honda, Isuzu, Mitsubishi and Nissan
Taipei (joint venture)
THAILAND
Employees: 25
Customers: Volvo and Isuzu
Bangkok
TUNISIA
Employees: 500
Customers: Autoliv companies
El Fahs and Ennadour
TURKEY
Employees: 305
Customers: Dyak Renault, Ford Otosan, Anadolu Isuzu, BMC, Hyundai Assan,
Chrysler, Karsan, MAN, Mercedes Benz, Otokar, Otoyol, and Tofas-Fiat
Gebze
USA
Employees: 6,635
Customers: BMW, Chrysler, Daihatsu, Ford, GM, Honda, Isuzu, Mazda, Mitsubishi,
Nissan, Subaru, Suzuki, Toyota and Autoliv companies
Auburn Hills, Michigan; Brigham City, Ogden and Promontory, Utah; Indianapolis
and Columbia City, Indiana
Note: "Customers" can exclude minor customers.
8
EMPLOYEES
Autoliv's employees are one of the Company's most important assets, but labor
cost is also one of Autoliv's highest expenses. We have therefore implemented
several programs to take advantage of, and further develop, this valuable
resource and make sure that everybody works towards the same goal. In addition,
it is important that Autoliv has enough talented and well-trained people to keep
up its growth momentum.
TRAINING PROGRAMS
Autoliv has several training programs organized both centrally for the whole
group and locally, arranged by each subsidiary.
Autoliv Management Development (AMD) is an international training program for
junior managers. In addition to being a leadership training for these
associates, AMD is aimed at learning more about the Autoliv group and the
functions and companies outside the participants' own working areas. Since the
participants come from different countries and functions, "networking" also
becomes an important result. AMD is held once a year, with the time equally
divided between the U.S. and Europe.
With Autoliv's Manufacturing Development Program junior managers in engineering
and manufacturing are trained in manufacturing. To acquire experience from
several manufacturing technologies, the training is located in several
countries, which also facilitates increased cross-border communications within
the Autoliv group.
Most Autoliv companies, and all the major subsidiaries, organize their own
training courses to further develop their employees. These courses are often
organized under the Autoliv Academy name and encompass such areas as
engineering, computer technology, manufacturing, quality assurance,finance and
administration. Leadership training is also an important part of the Autoliv
Academy.
EXPATRIATES
Several Autoliv employees work outside their own country, because they have a
certain expertise or qualification that is needed at their new Autoliv company.
Within Autoliv Inflators, for instance, Americans work at the division's
European plants and Europeans have moved to the U.S. This kind of interchange
not only improves the transfer of product technologies and manufacturing know-
how, but it also contributes to making Autoliv a very attractive company to work
for.
COORDINATION BY DECENTRALIZATION
Some of Autoliv's decentralization systems have the same favorable "side
effect"; i.e. they contribute to making Autoliv an extra attractive employer in
addition to speeding up decision making.
In purchasing, for instance, the major Autoliv subsidiaries have been appointed
"Global Lead Buyers". This means that a local Autoliv company is responsible for
the purchasing negotiations for a couple of specific components or raw materials
for the entire Autoliv group.
Similarly in engineering, a number of specialists at each major subsidiary have
been assigned global responsibility for the design of all critical components
for specific Autoliv products.
Each major subsidiary is also responsible for supporting Autoliv's start-up
activities in new markets. The responsibilities follow the subsidiaries
customers. This means that Autoliv Germany, for instance, is responsible for
supporting Autoliv China, since Volkswagen is the main western car producer in
China.
Although the main purpose of these decentralization steps is to make the
decision process easier and faster, it also means that employees in subsidiaries
- - at several levels - become directly involved in the global expansion plans of
the Autoliv Group.
This could often be highly motivating for employees involved - and it
contributes to creating a common Autoliv spirit in our companies all over the
world.
EMPLOYEES* BY COUNTRY
USA 6,635
France 3,810
Germany 2,660
Sweden 2,475
Great Britain 2,215
Spain 1,170
Mexico 645
Netherlands 500
Hungary 480
Australia 410
Turkey 305
Poland 285
South Africa 210
Japan 205
Canada 145
Argentina 115
Italy 80
Romania 75
Others 160
Total 22,580
* At year-end in consolidated companies.
9 (PICTURES)
10
THE MARKET
There are no official statistical data on the automotive safety market, but
Autoliv estimates it accounts for almost one third of the global car occupant
restraint market.
The market, which in 1999 exceeded $12 billion (excluding steering wheels), has
grown by an average rate of 12% annually since 1993 (when Autoliv started to
gather data for the whole world). During the beginning of this six-year period
the annual growth rate was 20% compared to 5% during the latter half of the
period. This growth rate is expected to prevail during the year 2000, provided
unchanged currency rates and vehicle production. The growth rate could then
start to increase again as a result of the impending new regulation in the U.S.
on advanced airbags and recently announced aggressive plans by Ford and GM for
curtain airbags (see below).
The most important growth driver was the introduction of new safety technologies
such as frontal airbags in the early 1990s and, currently, side-impact airbags.
Since 1993 these introductions have raised the average delivery value of safety
products per vehicle by almost10 % annually. The rest of the increase, nearly
3%, came from higher global vehicle production. This effect has fluctuated with
the economic cycles in different countries.
Currently, the global average supply value for automotive safety products is
about $225 per vehicle. There is a wide gap, however, between the vast number of
mini cars and the relatively few premium vehicles where the safety content
typically is three to four times higher than in the average car. However, new
safety products, currently only available in cars in the premium segment, are in
the process of migrating also to the lower segments. The supply value is
therefore expected to continue growing.
Safety products are increasingly being sold as systems. Seat belts, airbags and
steering wheels, for instance, are designed to work in combination with each
other. But still the market is often split into its historical segments, i.e.
seat belts (which accounted for 29% of the total market in 1999), airbags (53%)
and safety electronics (19%).
SEATBELTS
The global seat belt market has grown by 3% annually since 1993. Autoliv's seat
belt sales increased during the same period by an average rate of 13%.
The increase (both for the market and Autoliv) stems mainly from introductions
of new seat belt enhancements such as pretensioners, automatic height adjusters
and load limiters. These innovations also tend to raise Autoliv's sales of
complete seat belt systems, since several of the new features are built into the
seat belt retractors.
A pretensioner tightens the belt up to six inches (15 cm) as early as possible
in a crash. It uses a small pyrotechnical charge and is triggered by the same
sensor as the frontal airbags. In 1999, global unit sales of this relatively new
safety feature amounted to almost 45 million. Autoliv accounted for 25 million
of these units and increased its units sales by 8% from 1998.
A load limiter allows the belt to be pulled out slightly, if the load on the
occupant's rib cage becomes excessive. The frontal airbags are used instead to
absorb the excessive energy. This improvement was introduced by Autoliv in 1995.
In 1997, Autoliv alone sold nearly 4 million load limiters, in 1998 nearly 10
million and last year over 14 million.
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The rapid growth for these and other new seat belt technologies is expected to
continue. In the United States, for instance, the introduction of seat belt
pretensioners has just begun and in Europe pretensioners are increasingly being
installed also in rear seats.
In addition, Autoliv has secured new orders in the United States, partly as a
result of the merger in 1997 with Morton ASP. Autoliv's total seat belt sales
are therefore expected to continue to grow faster than the global seat belt
market.
In 1999, Autoliv sold 48 million seat belt systems (excluding sales from joint
ventures and licensees).
FRONTAL AIRBAGS
The world market for frontal airbags grew at an average rate of 27% from 1993
to 1997 when it plateaued at a level over $5 billion. In 1997, the value of the
U.S. market started to decrease due to a very strong pricing pressure. Outside
the U.S., however, the growth continues.
Between 1998 and 1999, the number of frontal airbags sold in the world increased
from about 73 to over 80 million. In 1999, more than four new light vehicles out
of five had a driver airbag and three out of four had also a passenger airbag.
The frontal airbag market could soon start to grow again, because there is
already a demand for more sophisticated systems, such as Autoliv's 4-stage
protection system (see page 18).
More important is an impending change in the U.S. federal safety standards which
will require vehicle manufacterers to phase in "advanced airbags". Although the
new rules will apply to the United States, we expect that many vehicle
manufacturers will offer these upgraded, more valuable systems also in other
countries. (Autoliv's projects for advanced airbags are described on page 18).
In 1999, Autoliv sold 24 million frontal airbags and increased its unit sales by
20% from 1998.
SIDE AIRBAGS
Between 1998 and 1999, the global side airbagsegment in value grew by 35% and
approached one billion dollars. The growth is expected to continue this year.
From now on, however, most of the growth will not be driven by thorax side
airbags for chest protection but come from separate head side-impact airbags
such as Autoliv's Inflatable Curtain and the I.T.S.
This opinion is based on existing orders. In addition, at the beginning of this
year Ford announced that they will begin to install side curtain airbags in all
their sport utility vehicles and GM announced that they would have this product
in all their new North American vehicles from 2003.
Autoliv introduced the world's first thorax side airbag in 1994 and the first
head side airbag in 1997. Last year, the world market increased from 16 million
to 26 million side airbags, half of which were sold by Autoliv.
Despite the rapid growth, the global penetration rates are still estimated to be
only 20% for thorax side airbags and less than 5% for the head side airbags.
With a market share of approximately 50%, Autoliv should be able to benefit
from this potential.
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SAFETY ELECTRONICS
The safety electronics market, which in 1999 exceeded $2 billion, increases
currently by close to 10% per year.
The growth is driven by the fact that more new vehicles are equipped with at
least one airbag system. In addition, the sales price rises as the airbag
electronics are upgraded to be able to handle more safety features such as seat
belt pretensioners and chest side and head side airbags.
No company accounts for more than 20% of the airbag electronics market. Autoliv
is number five in size with approximately 10% of the market.
The market is very fragmented, because both companies specializing in
electronics and Autoliv's traditional competitors in automotive safety develop
airbag electronics.
STEERING WHEELS
In general, the world market for steering wheels is flat at just over one
billion dollars, but upgraded steering wheels for premium vehicles is a growth
area.
In these vehicles, more functions (e.g. radio and telephone controls) are
integrated with the steering wheel, and expensive wood and other materials are
often used for the rim.
The global steering wheel market has undergone a radical consolidation over the
last five years, with eight steering wheel companies being acquired by airbag
companies.
Autoliv started this process in 1995 by making an initial investment in the
French steering wheel company Isodelta. The investment was prompted by
Autoliv's plan to develop driver airbags integrated with the steering wheels.
Following the acquisition of Japan's second largest steering wheel company at
the beginning of 2000, Autoliv now has a global market share of 10%. The market
share is expected to increase as production is ramping up in new plants in the
U.S., Turkey and Brazil.
During 1999, Autoliv's unit sales rose by almost 50% to 2.2 million steering
wheels.
FUTURE MARKETS
The market for anti-whiplash systems is still in its infancy as there is
currently only one competing modern system on the market and other systems,
which are under development, have not been launched yet. Autoliv shipped its
first anti-whiplash system as recently as 1998.
Although anti-whiplash systems may become very common in the future, this
segment of the safety market is not expected to reach the same size in sales
dollars as most of the other automotive safety segments, because the anti-
whiplash systems do not require entirely new products. Instead the systems are
based on modifications to the existing car seats. This could, on the other hand,
make the automakers more willing to install them and lead to a faster increase
in sales.
Rollover protection systems are scheduled to be introduced already later this
year in sport-utility vehicles (SUV), according to a recent announcement by
Ford. Most of these systems (as Autoliv's system on page 19) will use a side
curtain airbag such as Autoliv's Inflatable Curtain. Seat belt pretensioners
will also be included in the systems (to increase the clearance between the
occupant's head and the inner roof). In addition to being the leading global
supplier of both side curtain airbags and pretensioners, Autoliv has secured its
first contract for a new costefficient, electronic rollover sensor and Autoliv's
own algorithms ("software program" for the sensor). As a result, Autoliv is well
positioned to take advantage of this future market.
AUTOLIV'S MARKETS
During 1999, customers in North America accounted for 31% of Autoliv's total
sales compared to 29% in 1998. The European share stood unchanged at 58%,
despite the weakening of the Euro. Due to the economic recession in Japan, sales
in this market declined by about two percentage points to 8%.
The most important individual markets are the United States, Germany, France,
Japan, Spain, Great Britain and Canada. Sweden accounts for less than 5% of
revenues.
In North America, Autoliv accounts for approximately one third of the airbag
product market and 10% of the seat belt market. Autoliv did not sell seat belts
until 1993 in the United States, but now seat belt sales are enjoying steady
growth. In steering wheels, Autoliv started production at the end of 1998. Based
on orders received so far, Autoliv expects its market share to approach 10% in
just a couple of years.
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In Europe, Autoliv's market share is around 50% for airbags and seat belts and
approximately 10% for steering wheels.
In Japan, Autoliv has a strong position in the airbag inflator market with a
share exceeding 40%. For complete airbags, however, the market share is still
less than 10%, because local assembly of these products did not begin until
1998, following the acquisition of a Japanese airbag company. Autoliv now has
over 20% of the market for steering wheels, following the acquisition at the
beginning of 2000 of the second largest steering wheel company in Japan.
In the rest of the world (RoW), Autoliv has achieved market positions of 50% or
more by early establishment of joint ventures or subsidiaries in such countries
as Argentina, Australia, China, India, Malaysia, New Zealand, South Africa and
Turkey.
CUSTOMERS
All major auto manufacturers in the world are customers of Autoliv and
particularly those who have established a reputation for determined efforts in
auto safety.
The largest customer groups during 1999 (in alphabetical order) were BMW/Rover,
DaimlerChrysler, Ford/Volvo/Mazda, General Motors/Opel/Isuzu/Saab, Peugeot/
Citroen, Renault/Nissan, Toyota and Volkswagen/Audi/Seat/Skoda.
No customer group accounts for more than 18% of Autoliv's sales and no contract
for more than 4%. The contracts are typically divided among a car maker's
different car models with each contract usually running as long as that car
model is being produced.
During the development of a new car model (a process requiring several years),
Autoliv often functions as a development partner sharing expertise on new
safety-enhancing products.
The products are typically delivered "just-in-time", often several times a day.
For some customers, Autoliv has also begun to establish "sequence centers"
inside a, or in direct vicinity of the customers' factories. These centers make
final assembly and feed Autoliv's products into the car assembly line in the
right order, i.e. in accordance with the car buyers selections of colors and
optional equipment. Almost every minute a sequence center receives a new order
and already within two to five hours depending on the product the order is
executed and the product delivered.
E-BUSINESS
Almost all car manufacturers use Electronic Data Interchange (EDI) for sending
orders and call-offs and for receiving advanced ship notes. EDI also takes care
of the billing.
As a supplement to EDI, which has been in use for many years, the automotive
industry is quickly expanding its e-business. This will also involve suppliers
in such areas as product development, supply chain management and trading (e.g.
the newly announced Ford AutoXchange and GM TradeXchange systems).
To support this, the car manufacturers have initiated separate automotive
intranets (such as ANX and ENX) to which Autoliv already has connected itself.
We are therefore closely following our customers in their commitment to take
advantage of the opportunities that this new technology could bring about.
Similarly, we are working on web solutions for those of our suppliers who do not
use EDI. The first such web site is already live at Autoliv North America.
THE INDUSTRY
In 1996 and 1997, the number of major suppliers of occupant restraint systems
was reduced from nine to six.
Over the last three years, Autoliv has gained market shares and become the
global market leader. The American publicly-traded company TRW is of almost the
same size as Autoliv in occupant restraint, but altogether TRW is larger.
Other important companies in the auto safety industry are Takata (a privately-
held, Japanese company), Breed (an American company which, in 1999, filed for
Chapter 11 bankruptcy), Delphi (a public American and the world's largest auto
supplier) and Petri (a privately-held, German steering wheel and airbag
company).
Autoliv's competitive strategy is to be a specialist company for automotive
safety within-house expertise for all key components and manufacturing close to
major customers. Autoliv also has more technical centers and crash test
facilities for automotive safety than any other company in the industry. This
gives Autoliv the possibility not only to offer just-in-time supply of products,
but also to provide customers with excellent engineering services and testing
capabilities "just-in-time".
14
AUTOLIV'S SAFETY SYSTEMS
1. NEAR ZONE SENSORS
Will help deploy the airbags and other safety systems in a more precise and
accurate way. Can also be used as a blind-spot detection when changing lanes and
as a parking aid. A joint development project with Celsius-Tech.
2. TRUNK BELT
A safety belt for the luggage compartment. Protects fragile goods and prevents
luggage from penetrating into the passenger compartment in cars with folding
rear seats.
3. SEAT BELT BEAM
A macro-component with three pre-installed 3-point seat belt systems. The beam
facilitates installation of a 3-point seat belt system in the mid-rear seat,
especially in hatchbacks and station wagons. Also provides passengers with
improved side-impact protection.
4. SAFETY REAR SEAT STRUCTURE
A backrest in the form of a strong, specially-designed aluminum structure which
prevents luggage from penetrating into the passenger compartment in a frontal
crash.
5. SELF-INFLATING HEAD RESTRAINT (SIHR)
An anti-whiplash system specially developed for rear-seat occupants (See page
19). Launched 1999.
6. ISOFIX CHILD SEAT
Autoliv's new child seat, which was introduced this year in the new Volvo V70,
is available in two versions; Group 0 for children up to one year and Group 1
for children between one and three years. Isofix is a new global standard for
attaching child seats which should reduce the risk for fasting the seat
incorrectly.
7. INTEGRATED CHILD SEAT
Makes it possible for children to use the car's regular seat belt (which is
better than a separate belt). Since the seat is integrated into the backrest of
the rear seat, it does not take away any space when not used.
8. INFLATABLE CURTAIN (IC)
Introduced in 1998 on Volvo, Mercedes, Toyota and Audi cars. With one Inflatable
Curtain on each side of the vehicle, all vehicle occupants seated on the sides
are afforded improved head protection in side collisions and rollover accidents.
Manufactured using Autoliv's patented one-piece weaving technology.
9. ANTI-WHIPLASH SEAT (AWS)
Introduced in the world market in 1998 in the Volvo S80-car. Reduces
significantly the risk for neck injuries in rear-end collisions.
10. BELT-IN-SEAT (BIS)
Allows the shoulder belt to better wrap around the occupant's body, thereby
increasing the efficiency of the belt system. Also contributes to keeping the
clearance between the head and the roof in rollovers.
11. SEAT FRAMES & SLIDING RAILS
Produced by Autoliv since 1996. Autoliv has developed a unique, stronger
recliner for Belt-In-Seat Systems.
12. THORAX BAGS
Introduced in the world market by Autoliv and Volvo in 1994. Is as efficient in
side impacts as a front airbag in frontal crashes.
13. SEAT BELT SYSTEMS
Produced by Autoliv since 1956. Autoliv today has the most comprehensive
offering and in-house production of all key components and new seat belt
features such as:
14. Automatic height adjusters
24. Load limiters
25. Pretensioners
15. PASSENGER AIRBAG
Reduces fatalities in frontal crashes by approximately 20%. Autoliv has a
complete offering of various systems (full-size bags, face bags, smart bags,
etc.) and a comprehensive offering of airbag inflators, cushions and other key
components.
16. ITS (INFLATABLE TUBULAR STRUCTURE)
The world's first head airbag for side-impact protection. Introduced in 1997 in
cooperation with BMW and the American company Simula.
17. KNEE AIRBAG
First introduced in the world market in 1995 by Autoliv. Protects knees (and
hip) and reduces the risk of submarining. Unlike conventional knee bolsters and
paddings, knee airbags don't take away any leg room.
18. INFLATABLE CARPET (INCA)
An airbag that cushions the impact of an intruding floor panel on an occupant's
feet, ankles and lower legs.
19. DRIVER AIRBAG
Reduces driver fatalities in frontal crashes by 25% for belted drivers. Autoliv
not only develops and assembles various airbag systems (full-size bags, face
bags, gentle bags, smart bags, etc.), but also produces all key components.
20. STEERING WHEEL
Driver airbags are increasingly being integrated with the steering wheel.
21. ELECTRONIC CONTROL UNIT (ECU)
A micro processor which determines, by use of a built-in electronic crash
sensor, if and exactly when the seat belt pretensioners and the airbags should
be deployed.
22. CRASH-ZONE SENSORS
Electronic sensors which help the central ECU pick up the crash pulse at an
early stage. Used particularly in side-impact protection systems where the time
constraints are difficult to meet.
23. COLLISION WARNING SYSTEM
A system under development which should detect likely crashes, warn the driver
and alert the safety systems of the vehicle. The system will also include an
Adaptive Cruise Control which can maintain the vehicle at a constant distance or
time to the vehicle ahead. A joint development project with CelsiusTech.
15 (PICTURE)
16
RESEARCH AND DEVELOPMENT
Autoliv's research and development is based on the company's own tests and
trials and on the expertise that Autoliv's specialists have gathered over many
years. The R&D is also based on the general traffic accident data and insights
in what various human bodyparts can stand under dynamic loading conditions.
Cooperation with leading car manufacturers is instrumental, as well as
cooperation with independent scientists. Autoliv's research is also conducted
in consultation with the Autoliv Technical Advisory Board.
The Group's joint research is concentrated at Autoliv Research in Sweden, while
the corporate development projects are assigned to Autoliv's major technical
centers in France, Germany, Great Britain, Sweden and the United States. In
addition, Autoliv has technical centers in Australia, Japan and Spain, and a
sled test track in India.
CRASH TRACKS
With 19 crash tracks, including eight tracks for full-scale tests, in nine
countries globally, Autoliv has more crash test resources than any other auto
safety company. Proximity for the customers to these centers is an important
means to ensure that Autoliv will be the customers' preferred development
partner in auto safety.
The testing resources are widely used by vehicle manufacturers, other auto
suppliers, safety organizations and authorities.
This means that Autoliv's crash test specialists have excellent opportunities
for gathering expert knowledge from a greater variety of vehicles than many
experts working with a specific manufacturer.
Some of Autoliv's crash test centers perform more than 100 full-scale tests
annually with complete cars and over 1,000 sled tests. A vast number of
mathematical crash simulations are performed on computers in tandem with the
crash tests.
TOTAL SAFETY CONCEPT
The car occupant restraint industry has so far mainly focused on "in-crash
systems" aimed at mitigating the consequences of an accident. However, as part
of Autoliv's Total Safety System concept, the company has recently widened its
scope of safety enhancing areas by starting to develop both "pre-crash systems"
aimed at preventing collisions and "post-crash systems" aimed at increasing the
chances of surviving after a traffic accident has occured.
Autoliv's Total Safety System concept means that the company's safety products
shall be aimed at giving the best possible protection to any occupant in any
type of collision without introducing any significant injury to any occupant in
any position.
17
This means that components and sub-systems must be designed to interact with
each other as one system. Seat belt pretensioners and frontal airbags, for
instance, are tuned to each other via the same electronic control unit to give
the best possible protective effect, and the deployment of the frontal airbags
should preferably be different if an occupant is unbelted.
This is also the way car safety products are being increasingly demanded by
customers: as macro-components.
It is important to fine-tune the current systems so that they provide protection
for all kinds of occupants; for infants as well as for the growing population of
elderly people; for petite women as well as for large males - all of whom can be
sitting in many different positions, with or without a seat belt.
In real life, crashes are almost never just head-on collisions into a solid rock
at one specific speed (as in most tests required by the authorities).
Consequently, future safety systems should be able to do more than just
determine if an accident is a frontal crash, a side impact, a rear-end collision
or a rollover.
An ideal system should also be able to identify the object which the car hits in
a crash; whether it be a small passenger car or a big truck, and it should be
able to determine the closing speed of those vehicles.
The crash severity depends also on the type of crash; if it is an offset,
oblique or head-on crash.
Autoliv's research and development is therefore aimed at improving the
protection for real people in real crashes, and not just protecting test dummies
in crash tests mandated by authorities.
The Autoliv Technical Advisory Board
Autoliv's reaserch is conducted in consultation with The Autoliv Technical
Advisory Board whose external members are internationally recognized scientists
in analyses of traffic safety, crash safety and biomechanics of impact.
Professor Murray Mackay (Chairman), University of Birmingham, U.K.
Professor Hermann Appel, Technical University of Berlin, Germany.
Professor Jeff Crandall, University of Virginia, Charlottesville, USA.
Professor Per Lovsund, Chalmers University of Technology, Gothenburg, Sweden
18
RESEARCH AND DEVELOPMENT, SOME PROJECTS
PRE-CRASH SYSTEMS
FOR ACCIDENT PREVENTION
Autoliv is developing a Collision Warning System (right) in cooperation with the
military high-tech company CelsiusTech. With the radar from Celsius, the system
should also be able to detect imminent crashes, warn the driver and apply the
brakes.
IN-CRASH SYSTEMS
FOR INJURY MITIGATION
A 4-stage protection system (left) is being developed in cooperation with
Renault. The system should offer better protection in high-speed crashes without
making the airbag more aggressive in the frequent, less serious crashes.
In the first stage (which means an impact speed up to approximately 15 km/h),
only the seat belt is used. Between 15 and 25 km/h, the seat belt is tightened
by one of the system's two pretensioners. At impact speeds between 25 and 50
km/h, the first part of the frontal airbags is inflated to 40 liters on the
driver side and to 45 liters on the passenger side. At higher impact speeds, the
seat belt is tightened more vigorously by using both pretensioners. Both stages
of the airbags are also deployed by using both charges in a dual-stage airbag
inflator that forces the tear-seams on the sides of the airbag to rip apart. The
airbags then increase to a total volume of 60 and 100 liters, respectively.
Advanced Airbags (right) are new types of airbags that will be phased in in the
U.S. With ultrasonic sensors (1) and seat position sensors (6), the Autoliv
system can determine how close to the airbag a front seat occupant is. Weight
sensors (2) can determine if there is a child or an adult in the front passenger
seat or if the seat is unoccupied. Buckle switches (3) will detect if an
occupant is belted or not.
With input from these sensors and by using Autoliv's new Smart TM Inflators (4),
the system's electronic control unit (ECU) can adjust the inflation of the
airbag to several parameters, such as the position, weight and size of the
occupant. The system can also include one of Autoliv's new gentle bags, such as
the Umbrella RDS Bag (5).
19
Autoliv's Self-Inflating Head Restraint, SIHR (right) is the world's first anti-
whiplash system specially developed for rear-seat occupants. In rear-end
collisions, air is pressed from a bladder in the backrest to a small bag in the
headrest, which then will be moved forward by up to 2 inches (5 cm). This
reduces, or eliminates completely, a dangerous gap between the occupant's head
and the headrest. As in the AWS (the anti-whiplash system for front-seat
occupants Autoliv introduced in 1998), SIHR does not need a sensor to be
triggered, nor a gas generator for inflation. Instead, the occupant himself
triggers the system and inflates the headrest bag by pushing into the foam of
the seatback as a result of the inertia force in a rear-end collision.
In 1999, Autoliv secured an order in a new area: Rollover protection (below).
This customer will use Autoliv's algorithms (mathe-matical models) for rollovers
to trigger a pop-up safety bar under the right conditions. In rollovers, the
triggering often has to take place even before any of the wheels lose ground
contact.
The rollover protection system that Autoliv develops includes a Belt-In-Seat
system (to maintain the clearance between the occupant's head and the roof),
seat belt pretensioners (to further increase the clearance) and the Inflatable
Curtain (to prevent the occupant's head from hitting the side of the vehicle or
the ground). As many as 80% of those occupants who are - either partially or
entirely - ejected, are killed.
POST-CRASH SYSTEMS
FOR INJURY SURVIVAL
(Below) new vehicles will often have a built-in car telephone and a GPS
satellite navigationsystem. For these vehicles, Autoliv is developing a
redesigned airbag micro processor which will automatically and immediately give
an emergency call center the exact site of the crash.
In the future, this Automatic Mayday System (or Automatic Assistance
Notification System - AANS) should also be able to give information about the
crash severity and the number of occupants from data stored in the airbag
control unit.
20
QUALITY
Autoliv's products face extremely high reliability requirements which ensure
superior quality.
In order to reach such excellent quality levels, Autoliv has for several years
operated an advanced quality management system. This "zero defect policy" system
is based upon preventive principles which, in manufacturing for instance, means
that no defective material, intermediate products or finished products should be
allowed to proceed to the next stage of production. This is accomplished by
installing check points at critical stages in the manufacturing process with
monitoring equipment, such as weight sensors, pressure sensors and computer-
guided cameras.
When a defect is detected, the root cause is identified, corrective actions
taken and the results followed up.
DEVELOPMENT PROCESS
The pursuit of zero defects begins already at the development of a new product.
Bad design causes bad quality. Such inherent defects are also very expensive to
rectify once production has started.
To secure reliable designs, Autoliv follows a systematic plan The Autoliv
Product Development System (APDS) for all projects. This system includes five
tollgates which verify project status during the product development process.
At the first tollgate (No. 0), the concept idea, the feasibility study and the
cost targets are assessed. Before this approval, no development work is allowed
to start.
At the next tollgate (No. 1), the concept is validated and prototypes of the
product analyzed. Products can then be developed and in the following phase the
development of the manufacturing process can be started. The two activities
should be done at the same time and interact with each other.
At the next tollgate (No.2), the prototypes are further validated and the
product design frozen. This makes it possible in the following phase to order
tools, materials and assembly lines, and to manufacture qualification samples.
The manufacturing process is then validated, qualified and in the next tollgate
(No.3), assessed which also includes customer approval.
At the final tollgate (No.4), production is run at full speed to verify the
stability of the manufacturing process. This is a requirement for full-scale
production and commercial shipments.
21
CONTINUOUS IMPROVEMENT
Autoliv's quality improvement efforts do not stop here, however. It is an ever
ongoing process, where Autoliv monitors a vast number of quality indicators and
continuously tries to attain higher levels. These parameters, which have been
identified during the APDS process, are critical for the proper functioning of
the product. They are selected based on both customers' and legal requirements,
and on Autoliv's own standards.
These quality indicators and other parameters are also used for "benchmarking"
Autoliv plants with each other and with industry standards.
Autoliv has also developed a very advanced traceability system. This makes it
possible to trace every product or component from Autoliv and to identify the
date and the batch in which the product (and its sub-components) were produced,
even after several years.
PRODUCT INFORMATION SYSTEM
To assist both APDS and regular engineering work, Autoliv has started an
electronic database, Product Data Management (PDM), which will facilitate
communication and co-operation mainly between Autoliv's eight technical centers
but also with the engineers at the other Autoliv companies in the world.
PDM will make it easier for a global company such as Autoliv to develop new
products in a coordinated way close to the customers. It also makes it easier to
ensure that the product development follows the APDS scheme.
In the PDM system it is possible to globally access product information such as
drawings, relationship between product parts and components, APDS status, test
reports and the important documents on a specific Autoliv product or sub-
component.
CERTIFICATIONS
All wholly-owned Autoliv subsidiaries with direct deliveries to car
manufacturers are certified according to ISO 9000, an international quality
management standard. Most of Autoliv's joint ventures are also ISO 9000-
certified.
Virtually all Autoliv companies in North America and Europe are also certified
according to QS-9000, an automotive quality standard. Virtually all of the
remaining subsidiaries and joint ventures will be certified before the end of
this year.
It is Autoliv's philosophy that quality improvement is a task for every employee
in the Autoliv Group. In addition, almost 4% of the total number of Autoliv
employees work full time with this task.
22
ENVIRONMENT
Since 1996, Autoliv has had an environmental plan which is based on Autoliv's
environmental policy (see below). According to the plan, all Autoliv plants and
units should become certified according to ISO 14001, an international standard
for environmental management systems. So far, close to 50% of Autoliv's plants
have been audited according to the standard, including all major plants in
Europe and North America.
PRODUCT IMPROVEMENT
In Autoliv's case one of the most important ways to reduce the environmental
impact is to reduce the weight of its products. The weight of our products
increases the weight of the vehicle, thereby increasing the gasoline consumption
during the vehicle's lifetime of 10 to 20 years. As a consequence, Autoliv has
systematically improved its products by reducing weight while maintaining, and
often improving, the product's performance.
One such example (See graph) is Autoliv's buckle pretensioner, in which weight
has been reduced by more than 50% since the introduction in the 1980s. With more
than 10 million buckle pretensioners produced every year by Autoliv, the total
annual savings exceed 5,000 tons for this product from this improvement alone.
Other Autoliv products show similar improvements.
In addition, the materials in Autoliv's products are chosen, as far as possible,
to make it easy to recycle the products and to minimize the environmental impact
from the manufacturing process, all the way back to the suppliers.
This is one of the requirements at the toll-gates in Autoliv's Product
Development System (APDS) (See page 20) when a new product is being developed.
IMPROVEMENTS IN MANUFACTURING
The environmental impact from Autoliv's assembly plants is very limited since
the assembly of pre-manufactured components does not use much energy or
chemicals.
Nevertheless, each plant has an environmental plan for continuous improvement
and continuously monitors such parameters as:
Energy consumption (See graph )
Chemical impact index (See graph )
Water consumption
Freight
Use of packaging material
Environmental training status of personnel
ENVIRONMENTAL POLICY
Autoliv companies shall adhere to the following rules and principles with
respect to environmental considerations when fulfilling their main objective
of developing, producing and selling products and systems for mitigation of
injuries to automobile occupants and avoidance of traffic accidents. This
means that Autoliv shall implement its business decisions in an
environmentally responsible and caring manner relative to its employees,
its customers, and the communities and countries where it operates.
Laws and directives from the local authorities in each country shall be
considered as minimum requirements.
Autoliv's environmental activities shall be proactive and aimed at pollution
prevention and continuous improvement.
Products and manufacturing processes shall be energy efficient and their
environmental impact shall be reduced without compromising the safe function of
the product. One of Autoliv's competitive tools shall be to develop such
products.
Autoliv companies shall establish appropriate environmental policies and
environmental management programs for their operations, and update them in
response to new research and the latest findings.
Autoliv companies shall ensure that their employees are appropriately trained
and motivated to apply this policy in their daily work.
Suppliers and sub-contractors shall be influenced to apply the principles of
this environmental policy.
Autoliv companies shall maintain a constructive dialogue with environmental
authorities and other parties concerned.
Regular reviews of the compliance with this policy shall be undertaken.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
Data in this Management's Discussion and Analysis that relates to 1999 and 1998
refers to the new Autoliv Group which was formed on May 1, 1997, by a
combination of Autoliv AB and Automotive Safety Products ("ASP") of Morton
International, Inc. The fiscal year 1997 consists of a four-month period before
the combination with only data related to Autoliv AB with its consolidated
subsidiaries and an eight-month period with the new Autoliv Group, i.e.
including ASP. The combination was treated as the acquisition of ASP by Autoliv
AB for accounting purposes. For pro forma numbers for 1997 refer to the 1997 or
1998 Annual Reports. Selected Financial Data on page 39 of this Annual Report
also contains pro forma information for 1997 and 1996.
Net sales by product group (Millions) Year ended in December 31
1999 1998 1997
Airbag products
(including steering wheels) $2,715 71% $2,417 69% $1,800 66%
Seat belt products
(including seat components) 1,097 29% 1,072 31% 940 34%
Total $3,812 100% $3,489 100% $2,740 100%
YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998
Net sales and Gross profit
As can be seen in the table below, Net sales for 1999 increased by 9%. In
reported dollars, the increase was $323 million.
The financial statement effect in 1999 of acquisitions made during 1999 and 1998
was negligible, while the strengthening of the U.S. dollar, particularly against
the Euro, reduced reported sales by approximately 3%. Despite overall growth of
less than 4% in the worldwide production of light vehicles, Autoliv's sales in
local currencies increased by approximately 12%. Overall, approximately 5
percentage points of the 12% increase in sales came as a result of gains in
market share.
Sales of airbag products were the main beneficiary, in 1999, of a continuing
rollout of new products, such as side-impact airbags and the Inflatable Curtain.
As a result, growth in the sales of airbag products was much stronger than the
increase in sales of seat belt products, although Autoliv's seat belts continued
to gain a larger share of the global market.
Although moderating somewhat, the pressure on unit sales prices in the
automotive components industry continues and reduction of costs remains a major
strategic objective of the Company. Cost control has been achieved by the effect
of product redesigns, product standardization, efficiencies from global
purchasing activities, and continued improvements in manufacturing productivity.
On a full year basis, these cost control efforts were not quite sufficient to
offset the effect of price and product mix.
As a result, the gross margin percentage fell slightly in 1999 to 21.2% from
21.4 % in 1998. The gross margin did, however, increase to 21.7% in the fourth
quarter of 1999. This was the best gross margin achieved since the first quarter
of 1998.
Components of sales increase Airbag Seat belt Total
products products
Underlying sales growth 14 % 6 % 12 %
Impact of acquisitions,
net of divestments -% -% -%
Effect of exchange rates -2 % -4 % -3 %
Reported sales increase 12 % 2 % 9 %
24
Operating income
Operating income in 1999 was $369 million or 9.7% of sales. This compares with
Operating income of $354 million in 1998, which was 10.2 % of sales.
The margin decrease was due to both the decline in gross margin and higher
operating expenses. The increase in operating expenses was the result of a small
increase in the level of both Selling, General and Administrative expenses, as
well as higher R&D spending. SG&A was partly impacted by the cost of upgrading
computer systems prior to year 2000. R&D expenditures rose as a result of the
very strong order intake during the year, higher costs due to the development of
advanced airbags and other strategic projects, as well as from the effect of
consolidating for a full year the former joint venture Autoliv Electronics in
France, which has no sales outside the Autoliv Group.
Autoliv expects the level of R&D spending to continue to increase somewhat, in
order to continue development of new safety products and to meet customer
requirements for the adaptation of existing products.
Interest expense, net
Interest expense, net was $43.5 million in 1999 compared to $48.0 million in
1998. Net debt at December 31, 1999 was $596 million down from $703 million at
December 31, 1998. Strong cash generation more than off-set an increase in
average borrowing rates.
Income taxes
The effective tax rate in 1999 was 40.0% versus 39.6% in 1998. The increase was
primarily due to an unfavorable country mix, which was partially offset by a
higher level of tax incentives and credits in the U.S.
Net income and Earnings per share
Net income was $199.9 million in 1999 compared to $188.3 million in 1998. Return
on sales decreased to 5.2% in 1999 from 5.4% in 1998. Earnings per share were
$1.95 during 1999 compared to $1.84 during 1998, a 6% increase.
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
Net sales and Gross profit
As indicated in the table below, Net sales for 1998 increased by 27%. In
reported dollars, the increase was $749 million.
More than two-thirds of the increase were attributable to the inclusion of ASP
for the entire year in 1998 compared to only eight months in 1997. Other than
ASP, acquisitions contributed approximately $75 million of sales in 1998, a 3%
increase. The balance of the increase was primarily due to underlying growth in
unit sales volumes, net of the effect of decreases in unit prices. Foreign
currency translation had a small negative effect.
In line with the long-term trend in the increasingly global automotive
components industry, unit sales prices are continually under pressure. In
response to this constant price pressure, reduction of costs remains a major
strategic objective of the Company. At the gross profit level, cost control is
achieved by the introduction of more cost-efficient components and designs,
efficiencies from global purchasing contracts, vertical integration through
acquisition of suppliers and continual improvements in manufacturing
productivity. During 1998, the gross margin was maintained at the 21.4% level
achieved in 1997.
Operating income (loss)
Operating income was $354 million in 1998. This compares with an operating loss
of $453 million in 1997. As a result of independent appraisals of the assets and
liabilities of ASP, $732 million was allocated to in-process research &
development as part of the purchase price allocation during 1997. As Autoliv's
policy is to immediately expense research & development costs, this asset was
written off following completion of the acquisition of ASP. Excluding this one-
time write-off, operating income in 1997 was $279.3 million or 10.2% of sales.
This operating margin was maintained in 1998, as both operating expenses as a
percentage of sales and gross margin were unchanged from 1997.
Airbag Seat belt Total
Components of sales increase in 1998 products products
Underlying sales growth 4% 13% 7%
Impact of acquisitions,
net of divestments 31% 3% 21%
Effect of exchange rates -1% -2% -1%
Reported sales increase 34% 14% 27%
25
Interest expense, net
Interest expense, net was $48.0 million in 1998 compared to $33.8 million in
1997. Net debt at December 31, 1998, was $703 million compared to $646 million
at December 31, 1997.
The higher net interest cost in 1998 was a result of carrying the debt assumed
in the acquisition of ASP for a full year in 1998 and additional operational
borrowing requirements. Lower average interest rates somewhat lessened the
impact of the higher borrowing level.
Income taxes
The effective tax rate in 1998 was 39.6%. Excluding the effect of the write-off
of acquired R&D, the effective tax rate in 1997 was 38.9%.
There were a number of offsetting factors which had an impact on the effective
rate in 1998 compared to 1997, such as the effect of having goodwill
amortization in ASP for a full year compared to only eight months in 1997. The
effective rate was also increased by a higher overall non-U.S. effective rate
due to an increase in the basis of taxation in Germany and an unfavorable
country mix.
On the positive side, the amount of losses which could not receive tax benefit
decreased considerably in 1998. There was also a benefit in 1998 from the
utilization of a tax loss carryforward.
Net income (loss) and
Earnings (loss) per share
Net income in 1998 was $188.3 million. The R&D write-off in 1997 caused a net
loss for the year of $579.6 million. Excluding the effect of the write-off of
acquired R&D, net income was $152.7 million in 1997.
Return on sales decreased to 5.4% in 1998 from 5.6% in 1997 (excluding the R&D
write-off). This decrease was due to the effect of net interest expense on the
pre-tax margin and the higher effective tax rate in 1998 compared to 1997.
Earnings per share in 1998 were $1.84. In 1997, Autoliv showed a loss per share
of $6.70 due to the write-off of acquired R&D.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
Operating and Investing activities
Net cash provided by operating activities was $436 million during 1999, $314
million during 1998, and $343 million in 1997. This cash generation was more
than adequate to cover capital expenditures. These expenditures, gross, for
property, plant and equipment were $261 million in 1999, $285 million in 1998,
and $183 million in 1997. Budgeted capital expenditure for 2000 is $285 million.
Capital expenditures as a percentage of sales were 6.8% in 1999, 8.2% in 1998,
and 6.7% in 1997.
Most capital expenditure is allocated to additional manufacturing capacity,
which supports both volume increases and the production of new products. The
level of capital expenditure in 1999 returned to more normal levels after major
expansion in 1998.
During 1999, new plants were completed in Argentina, Canada, Poland, Turkey and
Tunisia. Construction of a new plant was started in Romania. Also in 1999,
construction of a new technical center was completed in Japan. During 1998, new
plants were completed in the U.S. and Brazil.
During 1997, capital expenditures for increased manufacturing capacity included
a new plant in the United Kingdom for production of textile airbags, a new seat
belt plant in Mexico and an extension of the plant in Barcelona, Spain. In
Sweden, the construction of the Autoliv Safety Center, one of the most advanced
of its kind in the world, was completed in 1997. At Elmshorn, in northern
Germany, a crash test facility was completed in 1997, as a complement to
Autoliv's Tech Center in the south of Germany.
Autoliv has continued its expansion through acquisition. Cash (net of cash
acquired) paid for acquisitions was $44 million in 1999, $30 million in 1998 and
$45 million in 1997. Goodwill of $21 million in 1999, $38 million in 1998, and
$38 million in 1997 associated with these acquisitions is being amortized over
10 to 20 years.
During 1999, Autoliv increased its ownership interest in six companies including
the joint venture investments in Indonesia and Japan that became consolidated
subsidiaries. Isodelta, a European steering wheel company, and Autoliv Turkey,
became wholly owned. In addition, Autoliv purchased a 49.5% interest (with an
option to increase to 51% which was exercised in February 2000) in the Estonian
company Norma AS, the dominant seat belt supplier to the Russian vehicle
industry. Autoliv also sold a small non-core company during 1999.
During 1998, Autoliv increased its owner-ship interest in several of its joint
venture investments, in most cases converting the joint ventures, such as
Autoliv-Nokia and Sagem-Autoliv, into wholly-owned subsidiaries.
During 1997, the Company acquired Marling Industries plc, a U.K. supplier of
seat belt webbing. Autoliv also increased its 50% shareholding in Autoliv Slowik
Argentina to 100%.
The Company's acquisition of ASP in 1997 was for shares of Autoliv, Inc. and
thus did not use cash. The transaction, however, generated goodwill of $1,361
million, which is being amortized over a period of 40 years, and additionally
other intangible assets of $270 million, which are being amortized over 7 to 25
years.
Financing activities
Cash generated after operating and investing activities was $181 million in
1999. Net cash and cash equivalents increased by about $9 million in local
currencies but were basically unchanged in U.S. dollars, the effect of exchange
rates reducing cash by about $8 million. Cash used by financing activities of
$172 million, consisted principally of debt reduction and payment of dividends.
As a result of Autoliv's strong cash generation, net debt decreased by $107
million during 1999 to $596 million. Consequently, the net debt to equity ratio
was reduced to 31% compared to 38% at December 31, 1998.
On December 31, 1999, virtually all of Autoliv's long-term debt consisted of
U.S. commercial paper borrowings. Commercial paper borrowings of $438 million
were outstanding at a weighted average interest rate of 6.6%. In addition, short
- -term borrowings, principally in Euros, of $206 million were outstanding at
December 31, 1999. These short-term borrowings carried a weighted average
interest rate of 3.6%. Commercial paper outstanding at December 31, 1999, was
classified as long-term since Autoliv intends to refinance these borrowings on a
long-term basis either through continued commercial paper borrowings or
utilization of the available credit facilities. During 1998, the Company entered
into interest rate swap agreements to reduce the impact of changes in interest
rates on its floating rate debt. These agreements are described in the Notes to
Consolidated Financial Statements.
Autoliv pays regular quarterly dividends. The current dividend is $0.11 per
share each quarter. Total cash dividends of $45.0 million were paid in both 1999
and 1998. At both December 31, 1999, and 1998, there were 102.3 million shares
outstanding.
26
For the foreseeable future, cash flow from operations, together with available
financial resources, are expected to be adequate to fund Autoliv's anticipated
working capital requirements, capital expenditures, acquisition program, and
dividend payments.
YEAR 2000 ISSUE
Autoliv did not experience any disturbances related to the Y2K issue. Neither
the actual turn of the century nor the cost of the Company's Y2K compliance
program resulted in any material effect on Autoliv's results of operations or
financial position.
NEW ACCOUNTING PRONOUNCEMENT
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"). This statement establishes new
standards for the recognition and measurement of derivatives and hedging
activities. Statement 133 is effective for financial statements of all fiscal
quarters for all fiscal years beginning after June 15, 2000, and therefore
Autoliv will adopt the new requirements in 2001. Autoliv has not completed its
review of Statement 133, but does not anticipate that the adoption of this
statement will have a significant effect on the Company's reported financial
position or results of operations.
In September 1999, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on Issue No. 99-5 "Accounting for Pre-Production Costs Related to Long
- -Term Supply Agreements". The consensus adresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. Autoliv does not believe that the implementation of EITF Issue No. 99-5
on a prospective basis of January 1, 2000 will have a significant impact on the
Company's reported financial position or results of operations.
IMPACT OF INFLATION
Inflation generally has not had a significant impact upon the Company's
financial position or results of operations. Inflation is currently expected to
remain low in all of the major countries in which the Company operates.
MARKET RISK
A major portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its products in
several countries and sells the products in mostly these countries, but also in
other markets. As a result, the Company's financial results are affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in any markets in which the Company distributes its products.
The Company's income statement is exposed to the impact of translating the non-
U.S. dollar based operations into U.S. dollars. The income statements of the
non-U.S. operations is translated into U.S. dollars using the average rate of
exchange for the year. During 1999, this currency translation had a negative
impact on sales of approximately three percentage points. Outside the U.S., the
Company's most significant currency is the Euro. The Company has estimated that
a 1% change in the value of the U.S. dollar versus the Euro has approximately a
20 million dollar annual impact on reported U.S. dollar sales. The Company does
not engage in hedging activities to cover the translation exposure.
The Company is engaged in cross-border transactions, both external and internal.
The currency exposure related to such sales or purchase transactions, which
results in receivables or liabilities denominated in non-U.S. currency on an
annual net basis amounts to approximately $250 million. To reduce such
transaction exposure the Company uses foreign exchange contracts for periods of
up to twelve months.
The Company's interest income and expense are impacted by changes in the general
level of Euro and U.S. dollar interest rates. In this regard, changes in Euro
interest rates affect the interest earned on the Company's cash equivalents, and
changes in the U.S. dollar and Euro interest rates affect the interest paid on
its debt. To mitigate the impact of fluctuations in U.S. dollar interest rates,
the Company currently maintains approximately 20% of its debt as fixed rate in
nature by borrowing on a long-term basis or entering into interest rate swap
transactions.
PERSONNEL
The number of employees increased by 1,900 during 1999 to 22,600 at year end.
The increase is mainly due to new production plants, higher production volumes
and transfer of jobs to low-labor cost countries.
Compensation paid to Directors and Senior Management is reported, as for all
public U.S. companies, in the Company's proxy statement which is distributed to
the Company's shareholders.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995:
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting Autoliv's operations, markets, products,
services and prices, and other factors discussed in Autoliv's filings with the
Securities and Exchange Commission.
Selected data in Swedish Kronor 1999 1998 Change
Net sales (million) 31,603 27,736 +13.9%
Income before taxes (million) 2,733 2,484 +10.0%
Net income (million) 1,657 1,497 +10.7%
Earnings per share 16.18 14.63 +10.6%
(Average exchange rates: $1 = SEK 8.29 for 1999 and $1 = SEK 7.95 for 1998)
27
CONSOLIDATED STATEMENT OF INCOME
Years ended December 31
(Dollars and shares in millions, except per share data)
1999 1998 1997 1)
Net sales $3,812.2 $3,488.7 $2,739.6
Cost of sales (3,005.4) (2,741.2) (2,152.6)
Gross profit 806.8 747.5 587.0
Selling, general and
administrative expenses (176.8) (158.5) (131.9)
Research and development
expenses (197.3) (176.2) (136.6)
Write-off of acquired R&D - - (732.3)
Amortization of intangibles,
primarily goodwill (64.1) (61.5) (43.1)
Other income, net - 2.8 3.9
Operating income (loss) 368.6 354.1 (453.0)
Equity in earnings of
affiliates 4.6 6.4 9.5
Interest income 11.3 8.0 5.6
Interest expense (54.8) (56.0) (39.4)
Income (loss) before income
taxes 329.7 312.5 (477.3)
Income taxes Note 4 (132.0) (123.9) (99.1)
Minority interests in
subsidiaries 2.2 (0.3) (3.2)
Net income (loss) $199.9 $188.3 $(579.6)
Earnings (loss) per common share
- - and earnings (loss)per common
share assuming dilution $1.95 $1.84 $(6.70)
Number of shares used in
computing per share amount 102.4 102.3 86.5
Number of shares outstanding 102.3 102.3 102.2
See Notes to Consolidated Financial Statements
1) Autoliv AB and subsidiaries for period on and prior to April 30, 1997;
Autoliv, Inc., for May 1 to December 31, 1997.
For pro forma statement refer to the 1997 annual report.
28
CONSOLIDATED BALANCE SHEET
Years ended December 31
(Dollars in millions) 1999 1998
ASSETS
Cash and cash equivalents $119.2 $118.5
Receivables, net of allowances of $8.9
and $9.5 million, respectively 709.6 664.2
Inventories Note 5 274.0 264.9
Refundable and deferred income
tax benefit Note 4 35.8 43.1
Prepaid expenses 42.9 41.1
Total current assets 1,181.5 1,131.8
Property, plant and equipment,
net Note 7 834.6 868.6
Investments and other
receivables Note 6 34.7 18.6
Intangible assets, net
(primarily goodwill) Note 8 1,595.7 1,649.1
TOTAL ASSETS $3,646.5 $3,668.1
LIABILITIES
Short-term debt $244.5 $192.6
Accounts payable 453.4 457.1
Accrued expenses 291.5 312.4
Other current liabilities 92.5 76.1
Income taxes Note 4 22.7 24.5
Total current liabilities 1,104.6 1,062.7
Long-term debt Note 10 470.4 628.6
Other non-current liabilities 131.5 116.2
Minority interests in subsidiaries 9.0 14.6
Total non-current liabilities and
minority interests 610.9 759.4
SHAREHOLDERS' EQUITY
Common stock (shares outstanding 102.3
million and 102.3 million) 102.3 102.3
Additional paid-in capital 1,941.5 1,940.0
Retained earnings (accumulated deficit) and
accumulated other comprehensive income (loss) (112.8) (196.3)
Total shareholders' equity Note 11 1,931.0 1,846.0
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,646.5 $3,668.1
See Notes to Consolidated Financial Statements
29
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31
(Dollars in millions) 1999 1998 1997 1)
Operating activities
Net income (loss) $199.9 $188.3 $(579.6)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Write-off of acquired R&D - - 732.3
Depreciation and amortization 253.4 228.0 162.6
Deferred income taxes 46.5 38.3 1.4
Undistributed earnings from
affiliated companies 4.6 3.3 (7.8)
Changes in operating assets and
liabilities
Receivables and other assets (63.4) (108.5) 47.0
Inventories (16.1) (52.4) (16.1)
Accounts payable and accrued expenses 12.1 26.1 22.2
Income taxes (0.9) (8.8) (18.6)
Net cash provided by operating
activities 436.1 314.3 343.4
Investing activities
Expenditures for property, plant
and equipment (260.9) (284.8) (182.8)
Acquisition of businesses and
investments in affiliated companies,
net of cash acquired (43.7) (29.5) (44.8)
Other 49.2 5.6 4.2
Net cash used for investing activities (255.4) (308.7) (223.4)
Net cash before financing 180.7 5.6 120.0
Financing activities
Increase/(decrease) in short-term debt 42.7 3.1 108.6
Increase/(decrease) in long-term debt (155.8) 15.6 (163.0)
Increase/(decrease) in minority interest (5.5) 0.2 (10.9)
Dividends paid (45.0) (45.0) (42.9)
Compulsory acquisition of Autoliv AB
shares and options exercised 1.5 1.6 (20.8)
Other, net (9.9) (20.1) 1.5
Net cash (used for) provided by
financing activities (172.0) (44.6) (127.5)
Effect of exchange rate changes on cash (8.0) 5.5 (17.4)
Increase/(decrease) in cash and
cash equivalents 0.7 (33.5) (24.9)
Cash in Morton ASP May 1, 1997 - 45.2
Cash and cash equivalents at
beginning of year 118.5 152.0 131.7
Cash and cash equivalents at
end of year $119.2 $118.5 $152.0
See Notes to Consolidated Financial Statements
1) Autoliv AB and subsidiaries for period on and prior to April 30, 1997;
Autoliv Inc. for May 1 to December 31, 1997.
For pro forma statement refer to the 1997 annual report.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include Autoliv, Inc. and all companies in
which Autoliv, Inc., directly or indirectly, owns more than 50% of the voting
rights (the "Company") and have been prepared in accordance with U.S. GAAP.
All intercompany accounts and transactions within the Company have been
eliminated from the consolidated financial statements.
Investments in affiliated companies in which the Company owns between 20 and 50
percent of the votes at the end of each year are reported according to the
equity method of accounting.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Policies
Translation of non-U.S. Subsidiaries
The balance sheets of non-U.S. subsidiaries are translated using year-end rates
of exchange. Income statements are translated at the average rate of exchange
for the year. Translation differences are reflected as other comprehensive
income in a separate component of shareholders' equity.
Revenue Recognition
Sales of products are recorded as of the actual date of shipment. Sales include
the sales value exclusive of added tax.
Research and Development
Research and development expenses are charged to income as incurred.
Depreciation of Property, Plant and Equipment
The Company provides for depreciation of property, plant and equipment, all of
which are recorded at cost, by annual charges to income, computed under the
straight-line method over their estimated useful lives, ranging from 3 to 40
years.
Amortization of Intangible Assets
Goodwill is amortized on a straight-line basis over periods ranging from 10 to
40 years. Other intangible assets, principally related to technology, are
amortized over 8 to 25 years.
Income Taxes
Current tax liabilities and assets are recognized for the estimated taxes
payable or refundable on the tax returns for the current year. Deferred tax
liabilities or assets are recognized for the estimated future tax effects
attributable to temporary differences and carry-forwards that result from events
that have been recognized in either the financial statements or the tax returns,
but not both. The measurement of current and deferred tax liabilities and assets
is based on provisions of enacted tax laws. Deferred tax assets are reduced, if
necessary, by the amount of any tax benefits that is not expected to be
realized.
Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long lived assets and identifiable
intangible assets for potential impairment on an ongoing basis. The Company
evaluates the carrying value of long-lived assets and identifiable intangible
assets for potential impairment on an ongo-ing basis in accordance with the
provisions of Statements of Financial Accounting Standards No 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.
Earnings per Share
In 1997, the Financial Accounting Standards Board issued Statement 128,
"Earnings per Share". Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
There was no difference between basic and diluted earnings per share in 1999,
1998 and 1997.
Cash Equivalents
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Financial Instruments
The Company utilizes interest rate agreements and foreign exchange contracts to
manage interest rate and foreign currency exposures. The principal objective of
such contracts is to minimize the risks and/or costs associated with financial
and global operating activities. The Company does not utilize financial
instruments for trading or other speculative purposes.
The Company periodically enters into forward exchange contracts with terms of
twelve months or less to hedge anticipated or committed transactions denominated
in foreign currencies and certain receivables and payables.
The purpose of the Company's foreign currency hedging activities is to protect
the company from the risk that the eventual functional currency net cash inflows
resulting from the sale of products to foreign customers and purchases from
foreign suppliers may be adversely affected by changes in exchange rates. As of
December 31, 1999, the Company had no material forward contracts. Gains and
losses were not significant in 1999, 1998 or 1997.
For interest rate instruments, See Note 10.
Receivables and Liabilities in non-U.S. Currency
Receivables and liabilities denominated in non-U.S. currency are converted at
year-end rates of exchange. Transaction gains (losses) reflected in current
income amounted to $(7.9) million in 1999, $2.3 million in 1998 and $(3.8)
million in 1997.
Inventories
Inventories are valued at the lower of cost or market. Cost is computed
according to the first-in, first-out method (FIFO).
Note 2. Significant Business Acquisitions
Acquisition of Morton ASP
On May 1, 1997, Autoliv, Inc. consummated the transactions described in the
Prospectus relating to the following transactions: (i) the exchange by Autoliv,
Inc. (the "Exchange Offer") of one share of Autoliv, Inc. for each share of
Autoliv AB, a Swedish corporation ("Autoliv AB"), which was tendered in the
Exchange Offer and (ii) the merger (the "Merger," and, together with the
Exchange Offer, the "Combination") of Morton International, Inc. ("Morton") into
a wholly-owned subsidiary of Autoliv, Inc. in which Morton (renamed Autoliv ASP,
Inc.) was the surviving corporation and the shareholders of Morton received one
share of Autoliv Inc. for approximately every three shares they owned of Morton.
On April 30, 1997, Morton transferred all of its assets and liabilities other
than those relating exclusively to the Automotive Safety Products Business of
Morton ("ASP") to a newly formed subsidiary of Morton, New Morton International,
Inc. (the "Spin-off"). Prior to May 1, Autoliv, Inc. had no operations.
31
Following the transactions described above, Autoliv, Inc. began conducting
operations May 1, 1997, through its two wholly owned sub-sidiaries - Autoliv AB
and Autoliv ASP Inc.
As of November 30, 1997, 54,391,516 shares of Autoliv AB, representing
approximately 98.9% of the outstanding shares of Autoliv AB had been exchanged
for the same number of shares of Autoliv, Inc. A compulsory acquisition
procedure pursuant to Swedish law was started in July. At December 31, 1997,
Autoliv, Inc. had control of the remaining 608,484 shares in Autoliv AB and in
1998 compensated the previous shareholders in cash for these shares. Pursuant to
the Merger, Morton shareholders received 47,753,108 shares of Autoliv, Inc. As
of December 31, 1998, there were 102.3 million shares issued and outstanding
The Combination has been accounted for as a purchase for financial accounting
purposes in accordance with U.S. generally accepted accounting principles, with
Autoliv treated as the acquirer of ASP. The purchase price for ASP was allocated
to the assets acquired and liabilities assumed based on the estimated fair
values at the date of acquisition as follows:
Purchase Price:
Debt assumed less cash $704.8
Other long-term liabilities assumed 87.2
Stock issued 1) 1,931.3
Merger cost 32.9
2,756.2
Fair market value of assets and liabilities acquired:
Net working capital 25.0
Property, plant and equipment 361.0
Investments and other non-
current assets 2.2
Deferred taxes - non-current 4.7
Intangible assets 270.0
In-process research and development 2) 732.3
Purchase price over fair value of
net assets acquired (goodwill) $1,361.0
1)Based on SEK267.5, the average share price of Autoliv AB on the Stockholm
Stock Exchange during the period of two days prior and two days post
announcement of the combination on September 30, 1996 (or $40.41/share based on
an exchange rate of $1 = SEK 6.62). The issuance of 47.8 million new shares
results in a purchase price for ASP of $1,931.3 million.
2)The In-process research and development was charged to operating expense
immediately after the completion of the acquisition.
The excess of the purchase price over the fair value of net assets acquired has
been recorded as goodwill. Independent appraisals have been used in establishing
the fair market values.
The In-process research and development was charged to income in May 1997, as a
non-tax deductible item. The goodwill amortization is also non-tax deductible.
The estimated life and yearly amortization using the straight-line method are:
Yearly
Intangible Assets Years amortization
Assembled work force 8.0 $1.7
Specific patent technology 7.5 9.1
Common technology 25.0 7.5
Goodwill 40.0 34.0
Total $52.3
Other Acquisitions
On April 1, 1999, Autoliv increased its investment in a Japanese joint venture
from 50% to 60%. On September 30, 1999, a joint venture interest in Indonesia
was increased from 50% to 100%. These two companies, which have annual sales of
approximately $11 million, are now consolidated. On January 31, 1999, Autoliv
exercised its option to increase the Company's holding from 51% to 66% in the
French airbag inflator company Livbag with its initiator manufacturing
subsidiary, N.C.S. SA. At the same time, Autoliv obtained the right to acquire,
and the minority owner the right to sell, the remaining Livbag shares in two
steps by the years 2001 and 2003. On June 30, 1999, Autoliv purchased the
remaining 23.25% interest it did not already own in IsoDelta, a European
steering wheel company. On September 30, the Company increased its ownership
interest in Autoliv Turkey from 90% to 100%. On February 28, 1999, Autoliv also
increased its interest in a Philippine company from 60% to 75%. In addition, on
October 19, 1999, Autoliv purchased a 49.5% interest in the Estonian company
Norma AS, the dominant seat belt supplier to the Russian vehicle industry, and
received an option to increase its Norma holding to 51%, which we exercised at
the beginning of this year. Autoliv also sold a small textile company during
1999.
Effective January 1, and October 1, 1998, the Company acquired the remaining 50%
of the shares in Autoliv-Nokia and the remaining 50% in Sagem-Autoliv, two joint
ventures for electronics. Autoliv's 49% interest in Autoflug South Africa was
increased to 100% as of July 1, while the interest in Autoliv Cankor in Turkey
was increased from 50% to 90% as of April 1. In addition, the assets of STC,
Japan, were acquired. Annual external sales of these companies, including
Autoliv Thailand and Autoliv Philippines in which Autoliv's holdings now exceed
50%, are approximately $65 million.
Effective October 1, 1997, the Company purchased Marling Industries plc. In its
last full fiscal year prior to the acquisition, ending March 31, 1997, Marling
Industries plc had sales of approximately $100 million. In May 1997, the Company
increased its 50% share-holding in Autoliv Slowik Argentina to 100%. Autoliv
Argentina has yearly sales of less than $20 million.
The acquisitions have been accounted for using the purchase method of
accounting, and accordingly the results of operations of the entities have been
consolidated since the respective dates of acquisition. Investments in which the
Company previously owned between 20-50% prior to these acquisitions were
accounted for using the equity method. The total purchase price of these
acquisitions amounted to $53 million in 1999, $42 million in 1998 and $49
million in 1997. Goodwill of $21 million, $38 million and 38 million,
respectively, associated with these acquisitions is being amortized over 10 to
20 years.
Note 3. Fair Values of Financial Instruments
The following methods were used by the Company to estimate its fair value
disclosures for financial instruments.
Current Assets and Liabilities
The carrying amount reported in the balance sheet for current assets and
liabilities approximates their fair value because of the short maturity of these
items.
Long-Term Debt and Other Non-Current Liabilities
The carrying amount reported in the balance sheet for long-term debt and other
non-current liabilities approximates their fair value because these instruments
bear rates consistent with current market interestrates. The interest rate swaps
specified in Note 10, however, had a net present value of $1.6 million at
December 31, 1999.
32
Note 4. Income Taxes
Income statement
1999 1998 1997
Income (loss) before income taxes
United States $149.1 $124.6 $(655.4)
Non-U.S. 180.6 187.9 178.1
Total $329.7 $312.5 $(477.3)
Provision for income taxes
Current
U.S. federal $14.1 $12.7 $26.1
Non-U.S. 64.5 64.9 66.8
U.S. state and local 6.9 8.0 4.8
Deferred
U.S. federal 28.9 26.7 4.7
Non-U.S. 11.1 7.1 (5.4)
U.S. state and local 6.5 4.5 2.1
Total income taxes $132.0 $123.9 $99.1
Effective income tax rate
% 1999 1998 1997
U.S. federal income tax rate 35.0 35.0 35.0
Goodwill amortization 4.7 4.8 3.8
Net operating loss
carryforwards (2.2) (2.5) -
Non-utilized operating losses 3.2 0.9 4.1
Foreign tax rate variances 1.9 0.8 (2.1)
State taxes, net of federal
benefit 2.6 2.6 1.8
Earnings of equity investments (0.5) (0.7) (1.3)
Export sales incentives (2.0) (1.2) (1.1)
Tax credits (0.8) (0.3) (0.4)
Other net (1.9) 0.2 (0.9)
Effective income tax rate 40.0 39.6 38.9 1)
1)The effective income tax rate in 1997 is computed as the ratio of reported
income taxes to the income before income taxes which would result if the non-
deductible $732.3 million write-off of R&D were added back to the reported loss
before income taxes.
Balance sheet
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. On December 31, 1999, the
Company had net operating loss carry-forwards of approximately $65 million.
Approximately $39 million of these loss carry-forwards have no expiration date.
The balance expire on various dates through 2010. Valuation allowances have been
established which partially offset the related deferred assets due to the
uncertainty of realizing the benefit of certain of the loss carry-forwards.
Deferred taxes
December 31 1999 1998
Assets
Loss contracts $14.9 $33.3
Accruals and reserves 50.2 53.6
Costs capitalized for tax 2.8 11.0
Pensions 14.4 11.6
Future tax benefits,
principally NOL's 29.3 30.6
Other temporary differences 3.1 2.3
114.7 142.4
Valuation allowance (18.6) (22.6)
Total 96.1 119.8
Liabilities
Acquired intangibles (87.5) (94.7)
Property, plant and equipment ( 8.5) 1.5
Statutory tax allowances (12.1) (12.4)
Other temporary differences (52.9) (29.2)
Total (161.0) (134.8)
Net deferred tax asset
(liability) $(64.9) $(15.0)
Deferred income taxes have not been provided on approximately $450 million of
undistributed earnings of foreign subsidiary companies, which are considered to
be permanently reinvested. These earnings, for the most part, would not be
subject to withholding taxes, either upon distribution to intermediate holding
companies or upon distribution to the U.S. In addition, U.S. income taxes on
foreign earnings which might be remitted would be substantially offset by
foreign tax credits.
Note 5. Inventories
December 31 1999 1998
Raw material $154.3 $157.0
Finished products 80.1 69.8
Work in progress 39.6 38.1
Total $274.0 $264.9
Note 6. Investments and other receivables
The Company has invested in about ten affiliated companies where the ownership
is 20-50%. These are accounted for under the equity method. Total investment was
$28 million, $17 million, and $33 million, at December 31, 1999, 1998 and 1997,
respectively.
Note 7. Property, Plant and Equipment
December 31 1999 1998
Land and land improvements $49.9 $41.9
Machinery and equipment 1,160.3 1,163.9
Buildings 348.1 352.7
Construction in progress 86.1 115.9
1,644.4 1,674.4
Less accumulated depreciation (809.8) (805.8)
Net $834.6 $868.6
Depreciation included in 1999 1998 1997
Cost of goods sold $162.4 $138.6 $98.9
Selling, general and
administrative expense 9.6 9.9 9.0
Research and development
expense 17.3 18.0 11.3
Total $189.3 $166.5 $119.2
Note 8. Intangible Assets
December 31 1999 1998
Goodwill $1,489.6 $1,479.4
Other intangible assets
from acquisitions 310.7 312.7
1,800.3 1,792.1
Less accumulated amortization (204.6) (143.0)
Net $1,595.7 $1,649.1
33
Note 9. Debt and Credit Agreements
The Company has credit facilities with a number of banks that typically manage
the group's cash pools. In addition, the Company's subsidiaries have credit
agreements principally in the form of over-draft facilities with a number of
local banks. Total available facilities as of December 31, 1999, amounted to
$540 million, of which $206 million was utilized. The weighted average interest
rate on short-term borrowings outstanding at December 31, 1999, and 1998 was
3.6% and 5.0% respectively. The decrease is mainly related to a shift from USD
borrowing to EUR borrowing which better matches the Company's income streams.
The aggregate amount of unused lines of credit on December 31, 1999 was $334
million.
Average net debt and interest expense, net
1999 1998 1997
Average interest bearing debt $782.0 $869.0 $809 1)
Average net debt 674.0 682.0 660 1)
Interest expense, net $43.5 $48.0 $48.8 2)
Interest expense net/average
net debt 6.5% 7.0% 7.4%
1)Average debt for the last three quarters of 1997.
2) Pro forma for calculation purpose.
Note 10. Long-Term Debt
December 31 1999 1998
Long-term debt $470.4 $628.6
In 1999, virtually all of the Company's long-term debts consisted of U.S
commercial paper borrowings. On December 31, 1999, commercial paper borrowings
of $438.0 million were outstanding at a weighted average rate of 6.6%. Other
long-term debts of $32.4 million on December 31, 1999, and $29.9 million on
December 31, 1998, consisted of unsecured medium term bank borrowings primarily
in Europe due to various yearly installments through 2014. The loans essentially
carry floating interest based on various indices and ranged from 3.7% to 15.5%
at December 31, 1999.
On December 31, 1998, the principal part of the Company's long-term debts
consisted of U.S. commercial paper borrowings of $348.7 at a weighted average
rate of 5.7% and $250.0 of borrowings at a weighted average of 5.3% under a
revolving credit agreement.
The Company's principal U.S. subsidiary (the "U.S. subsidiary") has an $850.0
million revolving credit facility with a group of banks expiring in April, 2002.
This facility supports the Company's commercial paper borrowings and is
available for other corporate purposes. The amount available for borrowings is
reduced by the outstanding commercial paper. Borrowings are unsecured and bear
interest, at the U.S. Subsidiary's option, at various rates based on the base
rate or adjusted EuroDollar rate.
The U.S. Subsidiary pays a facility fee based on the unused aggregate loan
exposure of all lenders. Borrowings are prepayable at any time and are due at
expiration. The facility is subject to financial covenants requiring the U.S.
Subsidiary to maintain certain levels of cash flow and an interest coverage
ratio, as well as a limitation on in-debtedness and dividends.
The U.S. Subsidiary was in compliance with these covenants on December 31, 1999.
These covenants do not impair the ability of Autoliv, Inc. to make regular
quarterly dividend payments or to meet other expected cash commitments.
Commercial paper borrowings outstanding on December 1999 are classified as long-
term, because the Company intends to refinance these borrowings on a long-term
basis either through continued commercial paper borrowings or utilization of the
available credit facilities.
The U.S. Subsidiary has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating rate debt. The swap
agreements are contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreements without the exchange of the
underlying notional amounts. The notional amounts of interest rate agreements
are used to measure interest to be paid or received and do not represent the
amount of exposure to credit loss. The differential paid or received on interest
rate agreements is recognized as an adjustment to interest expense.
As of December 31, 1999, the U.S. Subsidiary had entered into interest rate swap
agreements with certain lenders providing bank financing. The agreement
effectively fixed the interest rate on floating rate debt at a rate of 5.9% for
a notional principal amount of $60.0 million through December 2002, and 5.9% for
a notional principal amount of $75.0 million through June 2003.
Interest Rate Sensitivity
Fair value on
Principal (notional) amount by expected maturity December 31
Average interest rate 2000 2001 2002 2003 2004 Thereafter Total 1999
Overdraft/Other
short-term debt 206.2 206.2 206.2
Average interest rate % 3.6
Commercial paper 1) 438.0 438.0 438.0
Average interest rate % 6.6
Long-term debt,
including current portion 2)
Primarily variable rate 47.1 5.5 5.1 3.8 3.4 5.8 70.7 70.7
Average interest rate % 3)
Total debt 714.9
Interest rate swap
Pay fixed/receive
variable 60.0 75.0 135.0 1.6
Pay rate % 5.9 5.9
Receive rate % 5.1 5.1
1)Classified as long-term since refinancing on a long-term basis is intended.
2)Primarily denominated in Euro currencies.
3)Principally based on Libor plus 0.25%.
34
Note 11. Shareholders' Equity
Other
Number Compre- Total
of shares hensive share-
(in Share Paid in income Retained holders'
millions) capital capital (loss) earnings equity
Balance -
December 31, 1996 55.0 $70.8 $60.0 $43.5 $284.2 $458.5
Dividend April, 1997 (20.4) (20.4)
Net income Jan 1 -
April 30, 1997 38.5 38.5
Difference par value
in Autoliv AB exchange (15.8) 15.8
New issue and conversion
of Morton shares 47.7 47.7 1,883.6 1,931.3
Compulsory acquisition
Autoliv AB shares (0.6) (0.6) (21.3) (21.9)
Translation differences (0.6) (45.7) (46.3)
Balance -
Creation May 1 102.1) $102.1 $1,937.5 $(2.2) $302.3 $2,339.7
Stock options exercised 0.1 0.1 1.0 1.1
Dividend May 1 -Dec 31 (22.4) (22.4)
Translation differences 3.8 3.8
Net income (loss)
May 1 - Dec 31, 1997 (618.2) (618.2)
Balance -
December 31, 1997 102.2) $102.2 $1,938.5 $1.6 $(338.3) $1.704.0
Stock options exercised 0.1 0.1 1.5 1.6
Dividend 1998 (45.0) (45.0)
Translation differences (2.9) (2.9)
Net income 1998 188.3 188.3
Balance -
December 31, 1998 102.3 $102.3 $1,940.0 $(1.3) $(195.0) $1.846.0
Stock options exercised 1.5 1.5
Dividend 1999 (45.0) (45.0)
Translation differences (71.4) (71.4)
Net income 1999 199.9 199.9
Balance -
December 31, 1999 102.3 $102.3 $1,941.5 $(72.7) $(40.1) $1,931.0
The comprehensive income (loss) for 1999, 1998 and 1997 was $128.5, $185.4 and
$(622.2), respectively.
Shareholder Rights Plan
Autoliv, Inc. has a shareholder rights plan under which each share-holder of
record as of November 6, 1997, received one right for each share of Autoliv,
Inc. common stock held. Each right entitles the registered holder, upon the
occurrence of certain events, to buy one one-hundredth of a share of Series A
Junior Participating Preferred Stock with a par value of $1 at a price of $150,
subject to adjustment.
Initially the rights will be attached to all Common Stock Certificates
representing shares then outstanding and upon the occurrence of certain events
the rights will separate from the Common Stock, and each holder of a right will
have the right to receive, upon exercise, common stock (or in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the right.
Autoliv, Inc. may redeem the rights in whole at a price of one cent per right.
Note 12. Supplemental Cash Flow Information
Cash payments during the years 1999, 1998 and 1997 included interest paid of
$37, $48 and $35 million, respectively, and income taxes paid of $80, $113, and
$95 million, respectively.
Note 13. Stock Incentive Plan
Under the Autoliv, Inc. 1997 Stock Incentive Plan (the "Plan") adopted by the
company, and amended in 1999, awards have been made to selected executive
officers of the Company located in Sweden in the form of Stock Appreciaton
Rights ("SAR's") and to selected officers of Autoliv ASP Inc. (the "officers")
and other key employees in the form of stock options. Upon consummation of the
transactions described in Note 2, options which had previously been awarded to
the officers were converted, under the Plan, into options for shares of Autoliv,
Inc. (the "converted options"). Other than the exercise prices of the converted
options, which were adjusted to reflect Autoliv, Inc.'s share price, all terms
and conditions are the same. During 1997, 52,250 SAR's were granted. The market
price of Autoliv, Inc.'s shares was $35.75 at that time. During 1998, the SAR's
were converted into stock options under the Plan. All options and rights granted
during 1999, 1998 and 1997 are for 10 year terms, have an exercise price equal
to the stock market price on the date of grant, and become exercisable after one
year of continued employment following the grant date. In addition, during 1997,
the Company awarded 31,000 shares of Autoliv, Inc. common stock to certain key
employees. The employees received these shares after one year of employment
subsequent to the grant date. In December 1999, 387,390 options were granted and
are reflected as outstanding on December 31, 1999. These options were granted as
part of 2000 compensation for key employees. The Plan provides for the issuance
of up to 2,800,000 common shares (following expansion by the 1999 AGM) through
the exercise of options awarded under the Plan.
35
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized in the Company's financial
statements. Had compensation cost for the Company's stock option plan been
determined based on the fair value of such awards at the grant date, consistent
with the methods of Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation", the Company's total and per share net
income would have been as follows:
1999 1998 1997
Net income (loss)
As reported $199.9 $188.3 $(579.6)
Pro forma 196.1 184.9 (580.1)
Earnings (loss) per share
As reported $1.95 $1.84 $(6.70)
Pro forma 1.92 1.81 (6.71)
The weighted average fair value of options granted during 1999, 1998 and 1997
was estimated at $9.69, $10.41 and $15.02, respectively, using the Black-
Scholes option-pricing model based on the following assumptions:
1999 1998 1997
Risk-free interest rate 5.8% 5.0% 5.5%
Dividend yield 1.5% 1.2% 1.5%
Expected life in years 5.0 5.0 10.0
Expected volatility 30.0% 30.0% 30.0%
Information related to the Company's stock option plan during the period 1997
to 1999 is as follows:
Number of Weighted average
Shares exercise price
Outstanding at Jan. 1, 1997 0 $0.00
Converted options 285,055 26.27
Granted 28,200 35.75
Exercised (109,405) 28.72
Cancelled 0 -
Outstanding at Dec. 31, 1997 203,850 26.27
Converted SAR's 52,250 35.75
Granted 570,365 33.26
Exercised (34,881) 22.01
Cancelled (18,868) 32.62
Outstanding at Dec. 31, 1998 772,716 32.11
Granted 437,290 30.52
Exercised (70,619) 26.41
Cancelled (8,650) 32.86
Outstanding at Dec. 31, 1999 1,130,737 $31.84
Options exercisable Dec. 31, 1997 175,650 $24.75
Options exercisable Dec. 31, 1998 213,601 $28.98
Options exercisable Dec. 31, 1999 693,447 $32.68
The following summarizes information about stock options outstanding on December
31, 1999:
Weighted average
Range of exercise Number remaining contract Weighted average
prices outstanding life (in years) exercise price
$15.26 - $15.58 16,844 2.05 $15.41
$24.38 - $29.37 436,531 9.36 29.01
$30.23 - $40.62 677,362 8.42 34.08
1,130,137 8.69 $31.84
All of the above options are exercisable except those granted during 1999.
Note 14. Contingent Liabilities
The Company is subject to claims and legal proceedings that arise in the
ordinary course of business, principally related to alleged defects in products
manufactured by the Group. The Company diligently defends itself in such actions
and, in addition, carries insurance coverage to the extent reasonably available
against insurable risks. The Company believes, based on currently available
information, that the resolution of outstanding claims, after taking into
account available insurance coverage, should not have a material effect on the
Group's financial position or results of operations.
As part of the combination in 1997 between Autoliv AB and the automotive safety
business of Morton International, Inc., Morton spun-off its salt and chemical
businesses into a new company which we here refer to as "New Morton". New Morton
has, as part of the Distribution Agreement, assumed all obligations other than
those directly related to the automotive safety business and has expressly
indemnified Autoliv ASP, Inc. (the former Morton International, Inc.) against
any such liabilities, including historical environmental liabilities, related to
non-automotive safety business.
Note 15. Lease Commitments
The Company leases certain offices, manufacturing and research buildings,
machinery, automobiles and data processing and other equipment. Such operating
leases, some of which are non-cancellable and in many cases include renewals,
expire at various dates. The Company pays most maintenance, insurance and tax
expenses relating to leased assets. Rental expense for operating leases was $8.8
million for 1999, $9.1 million for 1998 and $11.0 million for 1997.
At December 31, 1999, future minimum lease payments for non-cancellable
operating leases total $53.7 million and are payable as follows (in millions):
2000: $11.3; 2001: $9.3; 2002: $7.7; 2003: $5.3; 2004: $3.9; 2005 and
thereafter: $16.2.
36
Note 16. Retirement Plans
Pensions Substantially all of the Company's non-U.S. employees are covered by
government sponsored pension and welfare programs. Under the terms of the
programs, the Company makes periodic payments to various government agencies.
In addition, in certain countries the Company sponsors defined contribution
plans. Contributions to these defined contribution plans for the years ended
December 31, 1999, 1998, and 1997 were $6.9 million, $5.7 million and $5.1
million, respectively.
The Company has noncontributory defined benefit pension plans covering most U.S.
employees. 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 funding policy for U.S. plans is to contribute amounts sufficient to meet
the minimum funding requirements of the Employee Retirement Income Security Act
of 1974, as amended, plus any additional amounts which may be determined to be
appropriate.
The components of net benefit cost associated with U.S. non-contributory defined
benefit retirement plans are as follows:
1999 1998
Service cost $6.2 $5.5
Interest cost 3.9 3.1
Expected return on plan assets (3.4) (2.8)
Amortization of unrecognized net loss - 0.1
Benefit cost $6.7 $5.9
The changes in benefit obligations and plan assets for the U.S. non-contributory
defined benefit plans for the periods ended December 31, are as follows:
1999 1998
Projected benefit obligation at
beginning of year $56.5 $44.6
Service cost 6.2 5.5
Interest cost 3.9 3.1
Plan amendments 3.4 -
Actuarial (gain) loss (2.9) 4.2
Benefit payments (1.9) (0.9)
Project benefit obligation at year end 65.2 56.5
Fair value of plan assets at
beginning of year 43.3 33.0
Actual return on plan assets 7.2 8.3
Company contributions 0.1 2.9
Benefit payments (2.0) (0.9)
Fair value of plan assets at year end 48.6 43.3
Funded status of the plan (16.6) (13.2)
Unrecognized net actuarial (loss) gain (5.6) 1.2
Unrecognized prior service cost 3.4 -
Accrued retirement benefit cost
recognized in the balance sheet $(18.8) $(12.0)
The weighted averages of assumptions used by the non-contributory defined
benefit plan are as follows:
% 1999 1998
Discount rate 7.50 6.75
Rate of increases in compensation level 5.25 4.75
Expected long-term rate of return
on assets 9.50 9.50
The assets of the U.S. plans are invested primarily in equities and bonds.
Postretirement Benefits Other than Pensions
The Company currently provides postretirement health care and life insurance
benefits to most of its U.S. retirees. In general, the terms of the plans
provide that U.S. employees who retire after attaining age 55, with five years
of service, are eligible for continued health care and life insurance coverage.
Dependent health care and life insurance coverage are also available. Most
retirees contribute toward the cost of health care coverage with the
contributions generally varying based on service. In June 1993, a provision was
adopted which caps the level of the Company's subsidy at the amount in effect as
of the year 2000 for most U.S. employees who retire after December 31, 1992.
At present, there is no prefunding of the postretirement benefits recognized
under FASB Statement No. 106. The changes in benefit obligations and plan assets
for the U.S. postretirement benefit plan as of December 31 are as follows:
1999 1998
Projected benefit obligation at
beginning of year $11.0 $9.2
Service cost 0.8 0.9
Interest cost 0.6 0.6
Actuarial losses (3.0) 0.4
Benefit payments (0.1) (0.1)
Project benefit obligation at year end 9.3 11.0
Fair value of plan assets at
beginning of year - -
Company contributions 0.1 0.1
Benefit payments (0.1) (0.1)
Fair value of plan assets at year end - -
Funded status of the plan (9.3) (11.0)
Unrecognized net actuarial (gain) loss (1.8) 1.3
Accrued postretirement benefit cost
recognized in the balance sheet $(11.1) $(9.7)
For measurement purposes, the assumed annual rate of increase of per capita cost
of health care benefits was 8.5% for 1999 and assumed to grade to 6.5% in 2001
and remain constant thereafter. The health care cost trend rate to be used in
2000 is 7.5%. As noted above, for U.S. employees retiring after December 31,
1992, the Company's policy is to increase retiree contributions so that the
annual per capita cost contribution remains constant at the level incurred in
the year 2000.
The weighted average discount rate used in determining the accumulated post
retirement benefit obligation was 7.5% at December 31, 1999, and 6.8% at
December 31, 1998. The rate of increase of compensation levels assumed was 5.3%
for 1999 and 4.8% for 1998.
A one percent increase in the annual health care cost trend rates would have
increased the Company's accumulated postretirement benefit obligation at
December 31, 1999, by approximately $0.1 million and increased postretirement
benefit expense for 1999 by $4.4 million.
The components of net benefit cost associated with postretirement benefit plan
are as follows:
Period Ended December 31 1999 1998
Service cost $0.8 $0.9
Interest cost 0.6 0.6
Benefit cost $1.4 $1.5
37
Note 17. Segment Information
Autoliv, Inc. is a United States registered company providing advanced
technology products for the automotive market. Airbag modules, seat belts and
inflators for airbags are supplied to all major European, U.S. and Asian
automobile manufacturers. The Company's revenues are generated by sales to the
automotive industry, which is made up of a relatively small number of customers.
A significant disruption in the industry, a significant change in demand or
pricing or a dramatic change in technology could have a material effect on the
Company. Sales to individual customers representing 10% or more of net sales in
1999: 18%, 15%, 14% and 13%, respectively, 1998: 14%, 13%, and 12%,
respectively, in 1997: 14% and 11%, respectively.
The seat belts and airbags are considered as integrated systems that should
function together under common electronic control systems for the protection of
occupants in light vehicles.
The Company has adopted Statement 131 "Disclosures about Segments of an
Enterprise and Related Information" and concluded that its operating segments
meet the criteria stated in Statement 131 for aggregation for reporting
purposes into a single operating segment.
Note 18. Enterprise Wide Disclosures
1999 1998 1997
Net sales
United States $1,381 $1,350 $1,008
Europe 2,212 2,027 1,618
Other regions 219 112 114
Total $3,812 $3,489 $2,740
Long-lived assets
United States $1,848 $1,919 $1,933
Europe 544 569 503
Other regions 73 48 20
Total $2,465 $2,536 $2,456
The Company's operations are located primarily in Europe and the United States.
Exports from the United States to other regions amounted to approximately $558
million in 1999. The long-lived assets in the United States include $1,463
million of intangible assets from the acquisition of ASP. The Company has
attributed net sales to the geographic area based on the location of the entity
selling the final product.
The sales by product group are
1999 1998 1997
Airbags and associated products 1) $2,715 $2,417 $1,800
Seat belts and associated products 2) 1,097 1,072 940
$3,812 $3,489 $2,740
1) includes sales of steering wheels
2) includes sales of seat components
Note 19. Quarterly Financial Data (unaudited)
Q1 Q2 Q3 Q4 Year
1999
Net sales $935.4 $977.0 $873.8 $1,026.0 $3,812.2
Gross profit 191.2 209.2 184.2 222.2 806.8
Income before taxes 72.9 86.5 71.8 98.5 329.7
Net income 44.1 51.2 43.2 61.4 199.9
Earnings per share $0.43 $0.50 $0.42 $0.60 $1.95
1998
Net sales $837.9 $877.9 $804.4 $968.5 $3,488.7
Gross profit 182.8 193.0 162.9 208.8 747.5
Income before taxes 70.7 84.3 64.0 93.5 312.5
Net income 42.4 50.6 37.8 57.5 188.3
Earnings per share $0.41 $0.50 $0.37 $0.56 $1.84
Foreign Exchange Rates (unaudited)
The balance sheets of non-U.S. subsidiaries have been converted into dollars
using the year-end rate of exchange. Income statements have been converted
using the average rate of exchange for the year. The rates for the most
important currencies are:
1999 1998 1997
1999 Year 1998 Year 1997 Year
Average end Average end Average end
EUR (prior to
1998-12-31 ECU) 1.065 1.005 1.123 1.172 1.126 1.105
AUD 0.644 0.653 0.630 0.612 0.727 0.655
DEM 0.544 0.514 0.569 0.599 0.567 0.559
ESP/1000 6.400 6.037 6.703 7.037 6.715 6.601
FRF 0.162 0.153 0.170 0.179 0.169 0.167
GBP 1.616 1.618 1.656 1.676 1.641 1.667
NLG 0.483 0.456 0.505 0.532 0.503 0.496
SEK 0.121 0.117 0.126 0.124 0.129 0.127
JPY/1000 8.799 9.790 7.675 8.680 8.327 7.700
The Euro is the most representive currency for Autoliv in Europe. The Euro, at
average rates, translated into 5.2% less dollars in 1999 compared to 1998. From
year end 1998 to year end 1999 the Euro decreased by 14,3% compared to the
dollar.
38
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Autoliv, Inc.
We have audited the accompanying consolidated balance sheets of Autoliv, Inc.
and subsidiaries as of December 31, 1999, and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Autoliv, Inc. and
subsidiaries on December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young AB
Torbjorn Hanson
Stockholm, Sweden
January 27, 2000
DEFINITIONS
Gross margin
Gross profit relative to sales.
Operating margin
Operating income relative to sales.
Pretax margin
Income before taxes relative to sales.
Return on capital employed
Income before financial items relative to average capital employed.
Return on shareholders' equity
Net income relative to average shareholders'equity.
Equity ratio
Shareholders' equity relative to total assets.
Net debt equity ratio
Net debt relative to shareholders's equity.
Interest coverage ratio
Income before taxes, plus interest expense, relative to interest expense.
Net debt
Short and long-term interest bearing liabilities less cash and cash equivalents.
Capital employed
Total shareholders'equity and net debt.
Capital expenditures
Investments in property, plant and equipment.
Earnings (loss) per share
Net income (loss) relative to average number of shares assuming dilution (see
page 27).
39
SELECTED FINANCIAL DATA
Autoliv Inc Autoliv AB 1)
1999 1998 1997 1996 1997 2) 1996 1995
(Dollars in millions, Pro Pro
except per share data) Forma Forma
Sales and Income
Net sales $3,812 $3,489 $3,257 $3,204 $2,740 $1,735 $1,432
Operating income (loss) 369 354 356 346 (453)3) 163 129
Income (loss) before
taxes 330 312 317 300 (477)3) 171 142
Net income (loss) 200 188 185 174 (580)3) 113 91
Financial Position
Current assets
excluding cash 1,062 1,013 822 819 822 509 400
Property, plant and
equipment 835 869 727 693 727 322 198
Intangible assets
(mainly goodwill) 1,596 1,649 1,694 1,593 1,694 64 7
Non-interest bearing
liabilities 860 870 813 705 813 484 410
Capital employed 2,527 2,549 2,350 2,325 2,350 402 257
Net debt/(cash) 596 703 646 704 646 (56) (113)
Shareholders'equity 1,931 1,846 1,704 1,621 1,704 458 379
Total assets 3,647 3,668 3,430 3,254 3,430 1,054 837
Long-term debt 470 629 612 763 612 13 15
Per share data
(adjusted for 2:1 split
in 1996)
Earnings (loss)
per share 1.95 1.84 1.81 1.69 (6.70)4)2.06 1.66
Equity per share 18.9 18.0 16.7 15.8 16.7 8.3 6.9
Dividend per share 0.44 0.44 0.42 0.41 0.42 0.41 0.32
Number of shares
outstanding (million) 102.3 102.3 102.2 102.8 102.2 55.0 55.0
Ratios
Gross margin (%) 21.2 21.4 22.1 21.2 21.4 20.0 19.7
Operating margin (%) 9.7 10.2 10.9 10.8 10.2 5) 9.4 9.0
Pretax margin (%) 8.6 9.0 9.7 9.4 9.3 5) 9.8 9.9
Return on capital
employed (%) 14.6 14.4 15.4 15.0 12.3 5) 42.4 52.0
Return on shareholders'
equity (%) 10.6 10.6 11.1 10.7 9.2 5) 27.1 28.0
Equity ratio (%) 53.0 50.3 49.7 49.8 49.7 43.5 45.2
Net debt equity
ratio (%) 30.9 38.1 37.9 43.4 37.9 (12.4) (29.8)
Interest coverage ratio 7.0 6.6 6.7 6.5 7.5 5) 32.8 54.0
Other data
Seat belt sales incl.
seat components 1,097 1,072 940 917 940 917 750
Airbag sales, incl.
steering wheels 2,715 2,417 2,317 2,287 1,800 818 682
Net cash provided by
operations 436 314 441 352 343 159 160
Capital expenditures 261 285 216 270 183 148 99
Net cash after
operating and investing
activities 181 6 180 14 128 (52) 12
Number of employees,
December 31 22,580 20,670 17,840 15,330 17,840 9,000 6,670
1) Data in Swedish Kronor are converted to dollars at average or year-end rates.
2) Including ASP from May 1, 1997.
3) Includes a one-time write-off of acquired R&D of $732 million.
4) Weighted average number of shares used in computing per share amount: 86.5
million.
5) Before one-time item, the write-off of acquired R&D of $732 million.
40
BOARD OF DIRECTORS
GUNNAR BARK 1
Chairman
Former President & Chief Executive Officer.
Born 1939
Director since 1982
Elected until 2000
Chairman of Allgon AB, Spring Board Venture Capital AB and Calix AB.
M.Sc., Honorary Doctor.
Shares: 25,000
Options: 126,450
PER-OLOF ARONSON 1, 2, 3
Born 1930
Director since 1994
Elected until 2001
Former President and Chief Executive Officer of Granges AB. Vice Chairman of
SAPA AB.
Graduate Engineer
Shares: 4,831
WILHELM KULL 1
Born 1936
Director since 1997
Elected until 2002
Vice President IT,
Former Chief Financial Officer
MBA
Options: 37,405
WALTER KUNERTH 1,3
Born 1940
Director since 1998
Elected until 2001
Senior Advisor to Lazard & Co.
Former Member of Siemens' Corporate Executive Board and President of Siemens'
Automotive Systems Group. Chairman of the Supervisory Board of Basler AG,
Goetz AG and Suspa Compart GmbH and member of Gildemeister AG
M.Sc., Honorary Professor
Shares: 298
S. JAY STEWART 1,2,3
Born 1938
Director since 1989
Elected until 2002
Former Chairman and Chief Executive Officer of Morton International Inc.,
Director of Household International Inc.
B.Sc. and MBA
Shares: 69,318
ROGER W. STONE 1,2
Born 1935
Director since 1989
Elected until 2002
Former President and Chief Executive Officer of Smurfit-Stone Container
Corporation. Director of McDonald's Corporation and Option Care Inc.
B.Sc.
Shares: 2,365
PER WELIN 1,2,3
Born 1936
Director since 1995
Elected until 2000
Chairman of L-E Lundberg-foretagen AB.
Director of Allgon AB, Holmen AB and NCC AB.
Techn. Lic., MBA.
Shares: 831
LARS WESTERBERG 1
President & Chief Executive Officer
Born 1948
Director since 1999
Elected until 2001
Director of SAPA AB and Angpanneforeningen
M.Sc., MBA.
Shares: 19,000
Options: 45,000
1. Nomination Committee
2. Compensation Committee
3. Audit Committee
"Director since" includes time as Director of Autoliv AB and Morton
International, Inc.
For information on options, refer to Note 13 on page 34 and for the work of the
Board to the proxy statement which is distributed to Autoliv's shareholders with
this annual report.
41
SENIOR MANAGEMENT
LARS WESTERBERG
President & Chief Executive Officer
Born 1948.
Employed 1999
Shares: 19,000
Options: 45,000
LEIF BERNTSSON
Vice President Quality
Born 1955.
Employed 1988.
Shares: 200
Options: 26,290
HANS BIORCK
Vice President Chief Financial Officer
Born 1951.
Employed 1998.
Options: 14,570
DR. YNGVE HALAND
Vice President Research
Associate Professor
Born 1945.
Employed 1984.
Options: 17,975
CLAES HUMBLA
Vice President Human Resources
Born 1940.
Employed 1989.
Options: 26,590
WILHELM KULL
Vice President Information Technology
Born 1936.
Employed 1975.
Options: 37,405
BENOIT MARSAUD
Vice President Manufacturing
Born 1952.
Employed 1980.
Options: 16,820
MATS ODMAN
Director Corporate Communications
Born 1950.
Employed 1994.
Shares: 400
Options: 17,675
JAN OLSSON
Vice President Engineering
Born 1954.
Employed 1987.
Options: 14,525
HANS-GORAN PERSSON
Vice President Purchasing
Born 1946.
Employed 1999
Options: 7,450
JORGEN SVENSSON
Vice President Legal Affairs, General Counsel and Secretary
Born 1962.
Employed 1989
Options: 26,290
"Employed" refers also to the first year of employment with the Autoliv AB
Group.
For information on options, refer to Note 13 on page 34.
42
SHAREHOLDER INFORMATION
Autoliv Inc., is incorporated in Delaware, USA. The company's common stock is
listed on the New York Stock Exchange, NYSE (symbol ALV) and its Swedish
Depositary Receipts (SDR) listed on the Stockholm Stock Exchange, SSE (symbol
ALIV). Options in Autoliv's securities are also listed on the Chicago Board
Options Exchange, CBOE (symbol ALV).
Trading in the Autoliv securities began on NYSE on May 1, 1997, (when the stock
closed at $35.50) and on the SSE on May 2 (when the depositaries closed at
SEK274).
During 1999, nine million Autoliv shares were traded in New York and 111 million
Autoliv SDR's were traded for a total turnover of SEK31 billion ($3.7 billion)
in Stockholm. This means that Autoliv's SDR's were the 20th most highly traded
security, accounting for 1.2% of the trading volume on the SSE. The SDR's closed
at SEK 295 on the year's first trading day and at SEK 248 on the last trading
day. The highest price paid was SEK345 (on April 22) and the lowest SEK 232 (on
December 14).
SHARES AND NUMBER OF SHARES
The number of shares outstanding was 102.3 million on December 31, 1999, and
could increase to 103.4 million if all outstanding options are exercised. The
options have exercise prices ranging from $15.26 to $40.62, see Note 13 on page
34. The options are held by more than 300 key employees globally in the Group.
Autoliv has adopted a Shareholder Rights Plan designed to encourage third
parties interested in acquiring the company to negotiate with the Board to
preserve the best interest of all Autoliv shareholders, see page 34, Note 11.
DIVIDEND
If possible, dividends are paid on the first Thursday in the last month of each
quarter (March, June, September and December). The record date is usually one
month earlier and the ex-date typically two days before the record date.
Quarterly dividends are declared separately by the Board, announced in press
releases and published on Autoliv's home page on the Internet. The latest
dividend declared amounted to 11 cents per share.
In lieu of receiving dividends by checks through the mail, holders of Autoliv
shares or depositaries may have dividends deposited electronically into a
checking or savings account on the payment day. This service is offered at no
cost. For more information, please call EquiServe at +1(800)446-2617 for
holders of common stock and VPC (Swedish Securities Register Center) at
+46(8)402-9000 for holders of Swedish depositary shares.
SHAREHOLDERS
Autoliv estimates that one third of the shares in the Company are held in the
U.S. and more than 40% in Sweden. Most of the remaining shares are held in the
U.K and central Europe. The number of shareholders is estimated to exceed
60,000. The largest shareholders, known to the Company, are shown below.
GENERALMEETING OF SHAREHOLDERS
Autoliv's next Annual General Meeting of Shareholders will be held on Thursday,
May 4, 2000, at Bank One, One Bank One Plaza, 57th floor, Chicago, Illinois
60602, USA.
Shareholders are urged to return their proxies whether or not they plan to
attend the meeting.
THE LARGEST SHAREHOLDERS*
Number Percentage of
of shares sharecapital
Robur Funds, Sweden 6,291,000 6.1
Franklin/Tempelton Investment
Counsel, U.S. 4,208,354 4.1
Handelsbanken Funds, Sweden 3,838,270 3.8
SPP (Insurance company), Sweden 3,525,100 3.5
SEB Funds, Sweden 2,938,265 2.9
4th AP-fonden (pension fund), Sweden 2,320,000 2.3
AMF Pensions, Sweden 2,196,400 2.1
Skandia (insurance group), Sweden 2,055,798 2.0
Management as a group 121,810 0.1
60,000 other shareholders 74,838,518 73.1
Total December 31, 1999. 102,333,515 100.0
* Known to the Company
INVESTOR REQUESTS
North America
Autoliv ASP, Inc.
1320 Pacific Drive,
Auburn Hills, MI 48326-1569, USA;
Tel.+1 (248) 475-0409, Fax +1 (248) 475-9838
barry.murphy@autolivasp.com
Rest of the world
Autoliv Inc.
Box 70381, SE-107 24, Stockholm,
Sweden,
Tel +46 (8) 58 72 06 23, Fax +46 (8) 411 70 25
mats.odman@autoliv.com
43
STOCK TRANSFER AGENT & REGISTRAR
EquiServe
P.O. Box 250
Jersey City, New Jersey 07303-2500
+1 (800) 446-2617 (within the U.S.)
+1-(201) 324-0498 (outside the U.S.)
+1-(201) 222-4955 (Hearing Impaired)
Internet: http://www.equiserve.com
EquiServe performs the following functions over the telephone, when a
shareholder identifies his or her account by providing a taxpayer
identification number, registration of the securities and the address of
record: information rearding stock transfer requirements; address changes;
replacement of dividend checks; duplicate 1099 forms and W-9 tax certification
forms; transcripts of shareholder accounts; and information regarding the Direct
Deposit of Dividends.
Other requests for information should be mailed to the address above for the
Stock Transfer Agent and Registrar.
New York Stockholm Declared
SHARE PRICE (US$) (SEK) dividends
AND DIVIDENDS High Low High Low US$ SEK
1st quarter, 1998 34 1/2 27 3/4 282 224 0,11 0,75
2nd quarter, 1998 34 7/8 29 5/16 272 231 0,11 0,71
3rd quarter, 1998 35 27 1/2 281 219 0,11 0,78
4th quarter, 1998 37 1/4 24 7/16 304 190 0,11 0,76
1st quarter, 1999 41 1/2 36 1/2 329 280 0,11 0,88
2nd quarter, 1999 40 1/4 30 1/4 345 256 0,11 0,94
3rd quarter, 1999 38 29 1/4 315 249 0,11 0,92
4th quarter, 1999 37 1/2 27 13/16 310 232 0,11 0,92
ANALYSES
The following banks and securities brokers follow Autoliv on a regular basis.
ABG
Aros
Alfred Berg
BG Bank
Carnegie
Cazenove
Cheuvreux de Virieux
Credit Suisse First Boston
Den Danske Bank
Deutsche Bank
Donaldson, Lufkin & Jenrette
Dresdner Kleinwort Benson
Enskilda Securities
Fischer Partners
Goldman Sachs
Handelsbanken
J P Morgan
Merita-Nordbanken
Morgan Stanley
Ohmans
Olde
Pensers Fondkommission
SwedBank
Warburg Dillon Read
FINANCIAL INFORMATION FOR 2000
January-March April 19, 2000
April-June July 20, 2000
July-September October 19, 2000
October-December January 25, 2001
Annual Report March 2001
These reports, news releases, proxy statements and other general information on
Autoliv published in English and Swedish and can be obtained without charge upon
request from Autoliv at the addresses given on page 42.
The filings with the Securities & Exchange Commission (SEC) of Autoliv's annual
10-K report and quarterly 10-Q reports can also be obtained from the company at
the same addresses, but only in English.
All the documents are also available on Autoliv's home page on the Internet
http://www.autoliv.com.
44
AUTOLIV INC., BOX 70381, SE-107 24 STOCKHOLM, SWEDEN
WORLD TRADE CENTER, KLARABERGSVIADUKTEN 70, SECTION E
TEL: +46 (8) 587 206 00; FAX: +46 (8) 411 70 25
WWW.AUTOLIV.COM, INFO@AUTOLIV.COM