Autoliv, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are primarily with Q1 2012. Autoliv develops and supplies automotive safety products, including airbags, seatbelts, safety electronics, radar and vision systems.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $2,135 million | $2,179 million |
| Gross profit / margin | $414 million / 19.4% | $441 million / 20.2% |
| Operating income / margin | $182 million / 8.5% | $153 million / 7.0% |
| Net income attributable to controlling interest | $123.5 million | $100.5 million |
| Diluted EPS | $1.29 | $1.07 |
| Cash flow from operations | $140.8 million | $98.0 million |
| Capital expenditures | $88.0 million | $79.5 million |
- Reported sales fell 2%; organic sales declined slightly less than 1%, reflecting a small divestiture and negative currency effects. China and active safety products were growth areas; Europe and Japan were weaker.
- Operating cash flow less net cash used in investing activities was $54.7 million, versus $19.2 million in Q1 2012. Capital expenditures were 4.0% of sales.
- Cash and cash equivalents were $990.5 million at March 31, 2013. Total debt was $633.1 million; net cash, a non-GAAP measure, was $373.1 million, up from $360.8 million at year-end 2012.
- Current assets were $3,449 million and current liabilities $1,944 million. Operating working capital, a non-GAAP measure, was $633 million, compared with $591 million a year earlier. Receivables outstanding were 73 days, versus 70 days a year earlier.
- The declared quarterly dividend was $0.50 per share, compared with $0.47 in Q1 2012.
Material changes and management commentary
- Gross margin declined 0.8 percentage points, attributed mainly to weaker sales in Europe and Japan, European inefficiencies and adverse currency transaction effects.
- Operating income rose $29 million. Management attributed the improvement principally to about $59 million lower costs for capacity alignment and antitrust investigations compared with Q1 2012. These costs were about $4 million in Q1 2013, versus an impact equivalent to 3.0 percentage points of sales in Q1 2012.
- Organic sales increased 24.4% in China, including 45% growth with domestic Chinese vehicle manufacturers. Active safety sales rose 33%, mainly from radar programs. European sales fell 9% and Japanese sales fell 29% on a reported basis.
- Management said Q1 sales were better than expected, helped by stronger-than-expected vehicle production in China and Europe and favorable product/customer mix.
Outlook, risks and contingencies
- For Q2 2013, management expected consolidated and organic sales growth of approximately 3% and an operating margin around 8.5%, excluding capacity-alignment and antitrust costs.
- For full-year 2013, the sales-growth indication was raised to 2%–4% from 1%–3%; the operating-margin indication remained around 9%, with adverse transaction-currency effects cited. Management expected $25–$50 million in capacity-alignment costs, an effective tax rate around 27% excluding discrete items, operating cash flow of about $0.7 billion and capital expenditures around 4.5% of sales.
- The DOJ matter had been resolved through a 2012 guilty plea by a subsidiary and payment of a $14.5 million fine. European Commission antitrust proceedings remained pending; management said a material adverse effect on operating results and cash flows was probable when resolved or estimable, but no loss provision was recorded because the amount and timing could not be estimated. Canadian and Korean investigations and antitrust class actions also remained unresolved; the company said losses in the civil antitrust cases were probable but could not be estimated and recorded no provision.
- A securities class action was filed on April 17, 2013, after quarter-end, alleging misrepresentations related to antitrust conduct and prior results. Autoliv denied wrongdoing and said it would defend the case.
- Product-related reserves were $36.0 million at quarter-end, with Q1 provisions mainly related to recall issues. The filing cautions that warranty, recall, product-liability and intellectual-property claims could exceed reserves or insurance coverage.
- Restructuring reserves were $70.6 million, mainly for European headcount reductions. Management did not expect the programs to materially adversely affect liquidity.
Important facts for investors to verify
- Whether the improved sales outlook translates into sustained organic growth, particularly in Europe and Japan, and whether China and active safety growth continues.
- Whether adverse currency effects and lower gross margins pressure the full-year operating-margin outlook.
- Developments, potential financial exposure and timing of the antitrust investigations and related litigation, as well as the post-quarter securities lawsuit.
- Adequacy of product-liability and recall reserves and insurance, given Q1 recall-related provisions.
- Working-capital and receivables trends, capital spending and whether forecast operating cash flow is achieved.