AUTOLIV, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are dollars in millions, except for per share amounts)
June 30, 2004
1. Basis of Presentation
The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management all adjustments considered necessary for a fair presentation have been
included in the financial statements. All such adjustments are of a normal recurring nature.
The consolidated balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements.
Statements in this report that are not of historical fact are forward-looking statements, which involve risks and uncertainties
that could affect the actual results of Autoliv Inc. ("Autoliv" or the "Company"). A description of the important factors that
could cause Autoliv's actual results to differ materially from the forward-looking statements contained in this report may be found
in Autoliv's reports filed with the Securities and Exchange Commission (the "SEC").
For further information, refer to the consolidated financial statements, footnotes and definitions thereto included in the Autoliv,
Inc. annual report on Form 10-K for the year ended December 31, 2003.
The filings with the SEC of Autoliv's annual report, annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements,
management certifications, current reports on Form 8-K and other documents can also be obtained free of charge from Autoliv at the
Company's address. These documents are also available at the SEC's web site at www.sec.gov and at www.autoliv.com.
2. Inventories
Inventories are stated at lower of cost (principally FIFO) or market. The components of inventories were as follows:
June 30, 2004
Dec. 31, 2003
Raw material
$167.0
$186.7
Work in progress
153.4
157.0
Finished products
95.2
108.3
$415.6
$452.0
3. Restructuring
2003
In 2003 employee related restructuring provisions of $5.9 million were made for severance costs related to plant
consolidation in Europe. The provision has been charged against "Other income and expense" in the income statement in the
fourth quarter of 2003. The table below summarizes the change in the balance sheet position of the restructuring reserves
from December 31, 2002 to December 31, 2003.
Dec 31
Cash
Change in
Translation
Dec 31
2002
payments
reserve
difference
2003
Restructuring - Employee related
$12.5
$(10.2)
$3.2
$0.6
$6.1
Contractual losses
0.3
(0.3)
-
Liability
18.4
0.5
0.5
19.4
Total reserve
$31.2
$(10.2)
$3.4
$1.1
$25.5
During 2003, 1,038 employees were terminated or left voluntarily. As part of the restructuring activities in Europe, for which
provisions were made in the fourth quarter of 2003, 110 employees are expected to be severed. Therefore, at December 31, 2003,
a decrease of 112 employees remained as part of the restructuring activities covered by the reserves.
2004
Q1
In the first quarter of 2004 restructuring provisions of $1 million were made for severance costs associated with plant closure
in The Netherlands. These severance provisions have been charged against "Other income and expense" in the income statement in
the first quarter of 2004. The table below summarizes the change in the balance sheet position of the restructuring reserves
from December 31, 2003 to March 31, 2004.
Dec 31
Cash
Change in
Translation
March 31
2003
payments
reserve
difference
2004
Restructuring - Employee related
$6.1
$(0.3)
$1.0
$(0.2)
$6.6
Liability
19.4
1.4
(0.2)
20.6
Total reserve
$25.5
$(0.3)
$2.4
$(0.4)
$27.2
48 employees are expected to be severed because of the plant closure in The Netherlands, for which provision was made in the first
quarter of 2004. During the first quarter 2004, five employees left the Company. As of March 31, 2004 a decrease of 155 employees
remained to be covered by the restructuring reserves.
Q2
In the second quarter of 2004 restructuring provisions of $1.4 million were made for severance costs associated with plant closure
in the Netherlands and for plant consolidation costs in Europe. These severance provisions have been charged against "Other income
and expense" in the income statement in the second quarter of 2004. The change in liability is mainly related to release of
customer dispute provisions. The table below summarizes the change in the balance sheet position of the restructuring reserves
from March 31, 2004 to June 30, 2004.
March 31
Cash
Change in
Translation
June 30
2004
payments
reserve
difference
2004
Restructuring - Employee related
$6.6
$(0.7)
$1.4
-
$7.3
Liability
20.6
(4.0)
-
16.6
Total reserve
$27.2
$(0.7)
($2.6)
-
$23.9
During the second quarter 2004, 18 employees left the Company. As of June 30,
2004 a decrease of 137 employees remains to be covered by the restructuring reserves.
4. Comprehensive Income
Comprehensive income includes net income for the year and items charged directly to equity.
Comprehensive income
Quarter April - June,
First 6 months,
2004
2003
2004
2003
Net income
$89.2
$73.0
$165.6
$124.8
Minimum pension liability
-
(0.1)
-
Fair value of derivatives
5.2
6.4
3.7
9.1
Translation of foreign operations
(8.6)
56.4
(31.9)
70.2
Other Comprehensive income
(3.4)
62.8
(28.3)
79.3
Comprehensive income
$85.8
$135.8
$137.3
$204.1
5. Stock Repurchase Program
In February 2004, Autoliv re-initiated its stock repurchasing program and bought 400 thousand shares for $18 million until the
blocking period started in the middle of March. After the blocking period, Autoliv has bought another 1 million shares for $41
million until the blocking period started in the middle of June. Since the repurchasing program was adopted in 2000, Autoliv
has bought back 9.6 million shares at an average price of $24.57. Under the existing authorizations, another 10.4 million
shares could be repurchased.
Stockholm Stock Exchange ("SSE")
New York Stock Exchange ("NYSE")
SSE + NYSE
(a)Total No. of
(b)Average Price in USD
(a)Total No. of
(b)Average Price in USD
(c)Total No. of
(b)Average Price in USD
(d)Maximum No. of Shares
Shares Purchased
Paid per Share
Shares Purchased
Paid per Share as Part
Shares Purchased
Paid per Share
that may yet be Purchased
Date
of Publicity
Announced Plans or Programs
under the Plans or Programs
April 1-
April 30
Total
0
0.0000
0
0.0000
0
0.0000
11,450,362
May 1-
May 31
Total
293,800
39.8876
189,100
39.9634
482,900
39.9173
10,967,462
June 1-
June 30
Total
282,000
41.6605
244,100
41.8859
526,100
41.7651
10,441,362
Total
575,800
40.7558
433,200
41.0467
1,009,000
40.8807
10,441,362
1) Announcement of share buy back program with authorization to buy back 10 million shares made on the 9th May of 2000.
2) Announcement of expansion of existing share buy back program from 10 million shares to 20 million shares made on the
30th of April 2003.
3) The share buy back program does not have an expiration date.
6. Stock Incentive Plan
Had compensation costs for all of the Company's stock-based compensation awards been determined based on the fair value of
such awards at the grant date, consistent with the methods of FAS-123 Accounting for Stock-Based Compensation, the Company's
total and per share net income would have been as follows:
Quarter April - June
First 6 months
2004
2003
2004
2003
Net income as reported
$89.2
$73.0
$165.6
$124.8
Add:Compensation under fair value method included in Net
income, net of tax
0.4
0.4
0.8
0.7
Deduct:Compensation under fair value
method for all awards, net of tax
(1.2)
(0.9)
(2.4)
(1.7)
Net income pro-forma
$88.4
$72.5
$164.0
$123.8
Earnings per share:
As reported
$.94
$.77
$1.74
$1.31
Pro-forma
$.93
$.76
$1.72
$1.30
7. New Accounting Pronouncements
Statement No.132
Employers' Disclosures about Pensions and Other Postretirement Benefits
was issued in December
2003. It has been revised to improve financial statement disclosures for defined-benefit plans. FAS-132 is effective for
financial statements issued for fiscal years or interim periods ending after December 15, 2003. Disclosure of information
about foreign plans and estimated future benefit payments is effective for fiscal years ending after June 15, 2004.
8. Retirement Plans
Effective December 31, 2003 Autoliv adopted SFAS No.132, the Disclosures about Pensions and Other Postretirement Benefits.
This standard requires the disclosure of the components of net periodic benefit cost recognized during interim periods.
The Company has non-contributory defined benefit pension plans covering most U.S. employees. Benefits are based on an
average of the employee's earnings in the years proceeding 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 Company has
frozen participation in the ASP, Inc., non-contributory defined benefit pension plan for all employees hired after December
31, 2003.
The Company's main non-U.S. defined benefit plan is the U.K plan. The Company has frozen participation in the U.K. defined
benefit plan for all employees hired after April 30, 2003.
The Net Periodic Benefit Costs related to Other Post-retirement Benefits were not significant to the Consolidated Financial
Statements of the Company for the three months ended June 30, 2004.
For further information on Pension Plans and Other Post-retirement Benefits, see Note 17 to the Consolidated Financial
Statements of the Company included in the Company's Annual Report for the year ended December 31, 2003.
The components of net benefit cost associated with non-contributory defined benefit retirement plans are as follows:
Pension Benefits
Quarter April - June
First 6 months
2004
2003
2004
2003
Service cost
$3.4
$3.1
$6.9
$6.3
Interest cost
2.1
1.9
4.2
3.8
Expected return on plan assets
(1.6)
(1.2)
(3.3)
(2.4)
Amortization of prior service cost
0.2
0.1
0.5
0.2
Amortization of net (gain) loss
0.1
0.3
0.1
0.6
Net periodic benefit cost
$4.2
$4.2
$8.4
$8.5
9. Contingent Liabilities
Legal Proceedings
Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of
matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other
matters.
Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel,
it is the opinion of management that the litigation to which the Company is currently a party will not have a material adverse
impact on the consolidated financial position of Autoliv, but the Company cannot provide assurance that Autoliv will not experience
any material product liability or other losses in the future.
In December 2003, a U.S. Federal District Court awarded a supplier of Autoliv ASP, Inc. approximately $27 million plus interest of
$5.8 million in connection with a commercial dispute. Autoliv intends to appeal the verdict as soon as possible. While legal
proceedings are subject to inherent uncertainty, Autoliv believes that it has valid grounds for appeal which would result in a new
trial and that it is possible that the judgment could be eliminated or substantially altered. Consequently, in the opinion of the
Company's management, it is not possible to determine the final outcome of this litigation at this time. It cannot be assured that
the final outcome of this litigation will not result in a loss that will have to be recorded by the Company.
The Company believes that it is currently adequately insured against product and other liability risks, at levels sufficient to
cover potential claims, but Autoliv cannot be assured that the level of coverage will be sufficient in the future or that such
coverage will be available on the market.
Product Warranty and Recalls
Autoliv is exposed to product liability and warranty claims in the event that our products fail to perform as expected and such
failure results, or is alleged to result, in bodily injury and/or property damage. We cannot assure that we will not experience any
material warranty or product liability losses in the future or that we will not incur significant costs to defend such claims. In
addition, if any of our products are or are alleged to be defective, Autoliv may be required to participate in a recall involving such
products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to
its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly
functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product
liability claims. A recall claim or a product liability claim brought against Autoliv in excess of our available insurance may have a
material adverse effect on our business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee
or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle
manufacturer may attempt to hold us responsible for some or all or of the repair or replacement costs of defective products under
new vehicle warranties, when the product supplied did not perform as represented. Accordingly the future costs of warranty claims
by our customers may be material, however, we believe our established reserves are adequate to cover potential warranty settlements.
The Company's warranty reserves are based upon our best estimates of amounts necessary to settle future and existing claims. The
Company regularly evaluate the appropriateness of these reserves, and adjust them when appropriate. However, the final amounts
determined to be due related to these matters could differ materially from our recorded estimates.
At December 31, 2003 the reserve for product related performance issues (recall, warranties and product liability) amounted to
$52.0 million. At March 31, 2004 the corresponding reserve was $51.5 million. At June 30, 2004 the reserve amounts to $51.7 million.
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