AUTOLIV INC annual report, FY2011

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Business context and reporting period

Autoliv, Inc. filed this Form 10-K for the fiscal year ended December 31, 2011. It supplies automotive safety systems, including airbags, seatbelts, restraint electronics, steering wheels, and active safety products. The company reported one segment for financial-reporting purposes and operated approximately 79 production facilities in 27 countries.

Financial performance and key metrics

  • 2011 sales were approximately $8.2 billion. Product mix was approximately 65% airbags and related products, 33% seatbelts and related products, and 2% active safety and related products.
  • Research, development and engineering expense was $441 million in 2011, compared with $361 million in 2010 and $322 million in 2009.
  • Debt outstanding at December 31, 2011 was $666 million, including $400 million of privately placed debt issued in 2007.
  • Direct materials were approximately 54% of 2011 net sales; roughly half of direct-material cost was raw materials.
  • The supplied filing text refers to the Annual Report for the income statement, balance sheet and cash-flow statements, but does not provide their values. Net income, cash flow, margins, cash balances, liquidity ratios and year-over-year sales growth therefore are not clear from the provided text.

Changes versus prior periods

  • R&D expense rose by $80 million from 2010 to 2011 and by $39 million from 2009 to 2010.
  • The filing does not provide comparable 2010 and 2011 revenue, profit or cash-flow amounts in the supplied text, so changes in those measures cannot be assessed here.
  • Autoliv reported approximately 38,500 employees and 9,400 temporary personnel at year-end 2011.

Outlook, risks, contingencies and unusual items

  • The supplied text contains no quantified financial guidance. Management identifies vehicle-production cycles, customer pricing pressure, product mix, raw-material costs, supply-chain interruptions, foreign exchange, and customer concentration as important risks. The five largest customers represented 55% of 2011 sales; the largest contract was less than 4% of sales and expired in 2015.
  • DOJ and European Commission antitrust investigations were ongoing. The company stated that a material adverse impact on operating results and cash flows was probable once related liabilities became estimable or the investigations were resolved, but it could not estimate a loss range or timing and recorded no provision at year-end.
  • Other disclosed claims included former employees’ claims connected with the closure of the French NPC plant, totaling €11 million (approximately $14 million), and a patent dispute in which SEVA indicated it may seek €22 million (approximately $28 million). Autoliv disputed the SEVA allegations and had made no provision for them.
  • Autoliv reported $12 million of debt-extinguishment costs in 2010 related to exchanges of equity units. Approximately 4.3 million equity units remained outstanding; their purchase contracts were scheduled to settle on April 30, 2012, and the company intended to remarket the related notes before March 31, 2012.
  • The company cited product liability, warranty and recall exposure, and stated that actual claims could exceed reserves or insurance. It also noted that credit facilities matured in 2012, 2014 and 2016 and that the debt associated with equity units was expected to be remarketed in 2012.

Important facts for investors to verify

  1. Review the incorporated Annual Report financial statements for 2011 and 2010 revenue, operating and net income, margins, cash flow, cash and liquidity, and debt maturities.
  2. Track developments, potential liabilities and any subsequent provisions related to the DOJ and EC antitrust investigations.
  3. Assess the 2012 equity-unit remarketing and settlement, and the availability and renewal of credit facilities.
  4. Monitor customer concentration, pricing and raw-material cost trends, vehicle-production exposure, and any material product recalls or warranty claims.
  5. Check the status and potential financial impact of the NPC employee claims and SEVA patent dispute.