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, share repurchase program and dividend payments.
Cash provided by operating activities was $680 million in 2004, $529 million in 2003 and $509 million in 2002.
Working capital requirements decreased during 2004, despite higher sales. Working capital was $481 million or 7.8% of sales at December 31, 2004, compared to $535 million or 10.1% of sales at December 31, 2003. The Company has set a target that working capital should not exceed 10% of sales.
Days receivables outstanding decreased to 73 at December 31, 2004 from 77 at December 31, 2003. Days inventory outstanding was 31 both at December 31, 2004, and one year earlier.
See Notes 10 and 11 to the Consolidated Financial Statements included herein for information concerning cash payments associated with reserves.
Cash generated by operating activities continues to be more than adequate to cover capital expenditures. These expenditures, gross, for property, plant and equipment were $324 million in 2004, $258 million in 2003, and $228 million in 2002. Capital expenditures as a percentage of sales were 5.3% in 2004, 4.9% in 2003, and 5.1% in 2002.
Driven by demand for the Inflatable Curtain, major capital expenditures in 2004, 2003 and 2002 were made for additional manufacturing capacity.
Capital expenditures for 2005 are expected to range from $340 million to $380 million.
The Company from time to time makes strategic acquisitions. Cash (net of cash acquired) paid for acquisitions was $1 million in 2004 and $29 million in 2003. Goodwill of $11 million and $15 million, respectively, were associated with these acquisitions.
In 2004, there were no major acquisitions but the Company started on April 1 to consolidate its joint venture in Taiwan, following an amendment to the ownership agreement that gave the Company the controlling position. Autoliv’s interest remains 59% in the joint venture that has nearly $17 million in sales.
Similarly, as of October 1, the Company started to consolidate its joint venture in Nanjing, China, following a change in the ownership agreement. Autoliv’s interest in the joint venture that has nearly $30 million in annual sales remains 50%. As of December 31, 2004, the Chinese airbag company Autoliv (Shanghai) Vehicle Safety Systems is wholly owned, following an agreement to purchase the remaining 40% of the shares.
In 2003, the most significant transactions were the purchase of the remaining 17% of the Livbag operations and the acquisition of the remaining 60% interest in NSK’s Asian seat belt operations. Both operations are now wholly-owned. The Company accounted for its initial 40% investment in the NSK operations under the equity method. Following the acquisition in April of the remaining 60%, these operations were consolidated. The NSK operations had annual sales of approximately $150 million.
In April 2002, the Company acquired the restraint electronics business of Visteon Corporation. The acquired operations had $150 million in annual sales.
In addition, throughout the three years ended December 31, 2004, the Company was involved in several other relatively small acquisition/disposition transactions. See Note 2 to the Consolidated Financial Statements.
Cash generated after operating and investing activities was $377 million in 2004. Cash and cash equivalents increased by $136 million. Cash used in financing activities was $261 million. The Company’s net debt (i.e. short and long-term debt and debt-related derivatives less cash and cash equivalents) decreased by $186 million during 2004 to $599 million.
The net-debt-to-capitalization ratio was reduced to 18% at December 31, 2004 from 24% at December 31, 2003.
The weighted average interest rate on the $828 million of debt outstanding (including debt-related derivatives) at December 31, 2004, was approximately 4.7%. See Treasury Activities.
The Company has reserves for taxes that may become payable in future periods as a result of tax audits. See Note 4 to the Consolidated Financial Statements included herein for additional information.
At any given time, the Company is undergoing tax audits in several tax jurisdictions and covering multiple years. Ultimate outcomes are uncertain but could, in future periods, have a significant impact on the Company’s cash flows.
Based on currently available information, the Company is not able, at this time, to determine if it is reasonably possible that the final outcome of tax examinations will result in a materially different outcome than assumed in its tax reserves.
The Company has large non-contributory defined benefit pension plans covering most U.S. employees, although the Company has frozen participation in the Autoliv ASP, Inc., Pension Plan for all employees hired after December 31, 2003. The Company’s non-U.S. employees are also covered by pension arrangements. See Note 18 to the Consolidated Financial Statements included herein for further information about retirement plans.
The Company’s balance sheet liability for its U.S. plans was $25 million at December 31, 2004. At December 31, 2004, the U.S. plans had an unrecognized net actuarial loss of $18 million. The amortization of this loss is expected to increase pension expense by $0.7 million per year over the ten-year estimated remaining service lives of the plan participants.
Pension expense associated with these plans was $12 million in 2004 and is expected to be around $12 million also in 2005.
The Company expects to contribute approximately $14 million to the plans in 2005 and is currently projecting a funding level of around $8 million in the years thereafter.
Autoliv pays regular quarterly dividends. In October 2004, the Company declared an increase in the quarterly dividend per share from 20 cents to 25 cents to be payable in March 2005. Another increase to 30 cents per share was declared in February 2005 for the dividend payable in June 2005. Total cash dividends of $70 million were paid in 2004 and $51 million were paid in 2003.
During 2004, equity increased by $234 million to $2,636 million. Net income added $326 million, currency effects from translating local currencies into U.S. dollars added $107 million, exercises of stock options $13 million and changes in the market value of cash flow hedges $5 million. Equity was reduced due to repurchases of shares by $144 million, dividend payments of $70 million and by $3 million primarily related to pension costs.
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.
However, increases in the prices of raw materials, particularly steel and petroleum- based materials, began to have an impact in 2004.