Autoliv, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; interim financial statements are unaudited. Autoliv supplies automotive safety systems, including airbags, seatbelts, safety electronics, radar and night-vision systems.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net sales | $2,108.6 million | $1,720.8 million | +22.5% |
| Organic sales growth | 14.1% | — | Acquisitions added 5.9%; currency added 2.5% |
| Gross profit / margin | $466.0 million / 22.1% | $383.5 million / 22.3% | Profit +21%; margin down 0.2 percentage points |
| Operating income / margin | $254.8 million / 12.1% | $195.4 million / 11.4% | Income +30% |
| Net income attributable to Autoliv | $181.5 million | $126.5 million | +44% |
| Diluted EPS | $1.93 | $1.39 | +39% |
| Cash from operations | $141.4 million | $148.9 million | Down $7.5 million |
| Capital expenditures | $82.2 million | $38.1 million | Up $44.1 million |
| Cash and cash equivalents | $605.2 million | $587.7 million at Dec. 31, 2010 | Up $17.5 million |
| Total debt / net debt | $747.0 million / $129.4 million | $724.8 million / $127.1 million at Dec. 31, 2010 | Net debt up $2.3 million |
The effective tax rate was 23.9%, versus 28.5% a year earlier; discrete tax items reduced the current-quarter rate by 3.2 percentage points. Management reported record quarterly gross profit, operating income, pretax income and net income. Higher raw-material prices reduced gross margin by almost one percentage point, while operating margin benefited from higher sales and lower restructuring needs.
Liquidity, debt and balance-sheet developments
- At March 31, 2011, current assets were $3,024.6 million and current liabilities were $2,047.8 million. The filing reports operating working capital of $512.9 million, up from $388.4 million at year-end.
- Operating cash flow was lower year over year, while capital spending increased substantially. Cash flow from investing activities was negative $78.2 million; financing activities used $18.7 million, including $35.6 million of dividends paid.
- Net debt was $129.4 million, compared with $127.1 million at year-end and $619.3 million a year earlier. Management attributed the quarterly increase principally to $36 million of negative currency effects and $36 million of dividend payments.
- Leverage under the company’s policy was 0.1 times and interest coverage was 14.8 times. The company’s stated policy is to keep leverage significantly below 3.0 times and interest coverage significantly above 2.75 times.
- After quarter-end, Autoliv entered into a $1.1 billion multicurrency revolving credit facility maturing in April 2016, with possible two-year extensions subject to lender approval. It has no financial covenants; borrowing is floating-rate. The facility refinances the existing credit facility.
Changes versus the prior-year quarter
- Reported sales rose 22.5%; organic sales increased 14.1%. Sales growth was led by the Americas (organic growth 27.0%), China (22.6%) and Europe (11.1%). Japan organic sales declined 14.7%.
- Airbag-product sales increased 23%, seatbelt sales rose slightly more than 19%, and active-safety sales increased 93%, primarily from radar and night-vision demand.
- Operating income grew faster than sales, and operating margin improved by 0.7 percentage points. Gross margin nevertheless edged down amid raw-material inflation.
- Diluted EPS increased to $1.93 from $1.39, despite a 3% increase in diluted weighted-average shares. Lower taxes aided EPS; the filing estimates discrete tax benefits added $0.08 per share.
- Operating cash flow declined modestly and capital expenditures more than doubled. Cash at quarter-end was substantially higher than the $302.3 million reported at March 31, 2010.
Outlook, commentary and risks
- Q2 2011: Management expected organic sales to be flat year over year, with currency adding slightly more than 8% and acquisitions less than 1%; consolidated sales were expected to rise about 9%, with operating margin around 9%. Management emphasized that the outlook was unusually uncertain because Japanese component availability could lead customers to alter production plans.
- Full-year 2011: Based on then-current assumptions, management indicated organic sales growth of about 8%, consolidated sales growth of about 15% (including acquisitions expected to add 2%), and an operating margin around 11.5%. The margin outlook carried increased risk; raw-material costs and the uncertain recovery in vehicle production could affect results. The projected tax rate for the remainder of the year was around 28%, excluding discrete items.
- Japan disruption: The March earthquake and tsunami disrupted automotive supply chains and reduced Autoliv’s Q1 organic sales by slightly more than $30 million. One of Autoliv’s four Japanese plants sustained minor damage and returned to operation, but customer production was constrained by shortages of other components. The company said the impact on its operations and global vehicle production remained difficult to predict.
- Contingencies: Autoliv disclosed a DOJ antitrust investigation and said it was cooperating; it could not estimate the investigation’s ultimate impact. Former employees of its closed French NPC plant asserted claims, including approximately €11 million in aggregate alleged damages. SEVA asserted intellectual-property claims and indicated it may seek €22 million; Autoliv disputed the claims and had recorded no provision. The company also faces ordinary-course litigation and product warranty, recall and liability exposures.
- Product-related liabilities were $39.1 million at quarter-end. Management considered established warranty reserves adequate, but cautioned that actual costs could differ materially and insurance may not cover every possible claim.
- Other risk factors include raw-material and energy costs, foreign-exchange movements, customer and supplier dependence, vehicle-production changes, competition, recalls, litigation, tax assessments and execution of restructuring programs. Management stated that restructuring was not expected to adversely affect liquidity.
- The quarterly dividend was increased to $0.43 per share, payable June 2, 2011. The filing also described continued manufacturing-capacity expansion in China and acquisitions of camera-based forward-looking system technology from Hella.
Most important facts for investors to verify
- Whether Japanese supply-chain disruptions and vehicle-production recovery match the assumptions underpinning Q2 and full-year guidance.
- Whether raw-material inflation, pricing and product mix preserve the expected full-year operating margin.
- Whether higher capital spending and working-capital needs affect cash generation as sales grow.
- Developments in the DOJ investigation, French employee claims and SEVA intellectual-property dispute, including any change to estimated exposure or reserves.
- Progress on the new revolving credit facility, dividend payments and the 2012 equity-unit settlement and remarketing requirements.
- Whether the reported tax-rate benefit is largely nonrecurring; the filing identifies discrete tax items and unresolved tax audits, including an IRS review and possible future changes in unrecognized tax benefits.