Annual Report 2002

ANNUAL REPORT 2002 In 2002, only four of the vehicles tested achieved five stars in Euro- NCAP, Europe’s leading crash test program. Autoliv is the only safety system company which is a supplier to all four vehicles. From top: Renault’s Vel Satis and Mégane, Saab 9-3 and Mercedes E-class. 3 Summary Our vision is to substantially reduce traffic accidents, fatalities and injuries. 4 Letter to Shareholders Our mission is to create, manufacture and sell state- 6 Creating Shareholder Value of-the-art automotive safety systems. 8 Autoliv’s Safety Systems Our strategy is to be the vehicle manufacturers’ first- choice supplier through: • Technological leadership 10 Research, Development & Engineering • Complete system capabilities • Highest-value safety system solutions 12 R,D&E Projects • Cost efficiency • Quality excellence 14 Autoliv around the World • Global presence • Highest level of service and commitment • Dedicated and motivated employees 16 Human Resources Our values are: 17 Environment Life We have a passion for saving lives. Customers We are dedicated to creating 18 Quality satisfaction for our customers and value for the driving public. 19 Management’s Discussion and Analysis Employees We are committed to the development of people’s skills, knowledge 28 Consolidated Statements of Income and potential. Innovation We are driven for innovation and 29 Consolidated Balance Sheets continuous improvement. Ethics We adhere to the highest level of 30 Consolidated Statements of Cash Flows ethical and social behavior. Culture We are founded on global thinking 31 Consolidated Statements of Shareholders’ Equity and local actions. 32 Notes to Consolidated Financial Statements Autoliv Inc., which is a Fortune 500 company, is the 42 Report of Independent Auditors world’s largest automotive safety supplier with sales to all the leading car manufacturers in the world. The 42 Definitions Company develops, markets and manufactures airbags, seat belts, safety electronics, steering wheels, anti-whiplash systems, seat components 43 Selected Financial Data and child seats. Autoliv has 80 subsidiaries and joint ventures in 30 44 Board of Directors vehicle-producing countries with over 30,000 employees. In addition, Autoliv has technical centers 45 Senior Management in nine countries with 20 crash test tracks – more than any other automotive safety supplier. Autoliv’s shares are listed on the New York Stock 46 Shareholder Information Exchange (NYSE: ALV) and its Swedish Depository Receipts on the Stockholm Stock Exchange (SSE: ALIV). Summary NET SALES • Record sales; up 11% 5,000 US$ (million) +11% +8% -3% • Record cash flow from operations; up 91% 4,000 +9% +7% • Recovery in earnings per share; up 23% 3,000 • Raised declared dividend; up 18% 2,000 1,000 • Reactivated share repurchase program 0 • Record order intake 1998 1999 2000 2001 2002 Consolidated sales Global light vehicle production • World’s first anti-sliding bag Over the last five years, Autoliv’s sales have grown by an average of 6%, compared to an average increase in global light vehicle production of 1%. In 2002, consolidated sales rose by 11%. Autoliv’s organic growth • Market breakthrough; Electronics was 6% compared to a 2% increase in global light vehicle production. operations added in the U.S. EARNINGS PER SHARE 2.5 US$ 2.41 2.26 2.16 2.0 1.95 1.84 1.84 1.67 1.5 1.49 1.0 0.5 .49 0.0 1998 1999 2000 2001 2002 Reported Comparable basis (pro forma) Earnings per share recovered after a drop caused by a combination of pricing pressure, peaking component prices and falling vehicle production. The recovery in 2002 to $1.84 corresponds to an improvement from 2001 of 23% on a comparable basis (i.e. excluding Unusual Items in 2001 and using the same accounting principles for all years). CASH FLOW 600 US$ (million) 509 500 436 400 314 300 266 266 200 100 0 1998 1999 2000 2001 2002 Autoliv is the exclusive safety system supplier to both the U.S. “Truck of the Year” – the Volvo Capex Net cash flow XC90 (above) – and the European “Car of the Year” – the new Renault Mégane (page 8). The XC90 features Autoliv's smart frontal airbags, side thorax bags, side curtain bags, and Both cash flow from operations and cash flow after investments hit record seat belts with pretensioners, load limiters and automatic height adjusters. It also features highs in 2002 of $509 million and $269 million, respectively. Although cash Autoliv's seat structures with anti-whiplash systems and – in the mid-rear seat – a Belt-in- flow from operations has varied, the internal cash generation every year has Seat system. been enough to cover capital expenditures. The net cash flow in 2002 was used for acquisitions ($22 million), dividends ($43 million), share buy-backs Autoliv also manufactures the optional products: the emergency phone system, the fold- ($30 million) and reduction of debt ($159 million). able third-row seat structure and the child safety seats. 2002 Autoliv — Driven for Life 3 Letter to Shareholders was a successful year for $269 million after capital expenditures lead our industry into its next technical 2002 Autoliv for many reasons. and acquisitions. The net cash flow generation: active safety. We will also corresponds to 14% of Autoliv’s mar- focus on traffic accidents and car We achieved record-breaking sales • ket capitalization at the end of 2002. occupant groups that have not yet of $4.4 billion, an increase of 11%. Although this cash flow yield may not been properly addressed, such as pe- Excluding acquisitions and currency be sustainable long-term, it certainly destrians and the growing population effects, organic growth was 6%. Global contributes to Autoliv’s target of being of the elderly. vehicle production increased by an attractive investment for the stock We see so many opportunities within approximately 2% and the supply value market. automotive safety that we have no of safety systems per vehicle at need to expand in other areas outside approximately the same rate. Hence, Net debt was further reduced and • our core business. Funds and re- Autoliv achieved its target to outgrow amounted to 29% in relation to total sources that Autoliv does not need for the global market. capitalization, creating a comfortable its core business are better returned to distance to the 40% cap in Autoliv’s shareholders, allowing us to focus on • Costs were contained and, in relation to gearing policy (see page 27). sales, reduced. This was partly a result of what we do best. the restructuring program announced in • Due to Autoliv’s strong cash flow and Autoliv will remain the vehicle manu- October 2001 and the continuing move of strong balance sheet, the Board has facturers’ first-choice supplier partner production to low-labor-cost countries. In decided not only to raise the dividend mainly by offering: 2002, we created 1,900 jobs there (see by 18%, but also to reactivate Autoliv’s - Technical leadership graph). Currently, Autoliv has 30% of its share repurchase program. The first - Complete system capabilities employees in these countries, compared time the higher quarterly dividend will - Cost efficiency to less than 10% four years ago. Conse- be paid is in March. The share buy- - Quality excellence quently, Autoliv is on track to reach the backs started during the fourth quarter - Global presence 35% target we have set for the Company. 2002, when 1.6% of the shares out- - Dedicated and motivated employees standing were repurchased for nearly • Return on equity has improved on a $30 million. Implementation year-over-year basis for each quarter During 2002, we implemented this Order intake during 2002 was also a during 2002. The average return on • strategy in several ways. record high. The real difference com- equity for the year exceeded 9%. Technical leadership was evidenced pared to previous years was the strong by the introductions of the world’s first • The five-year trend of increasing levels order intake from Asian car manufac- anti-sliding bag (see page 9) and smart of working capital was broken. This turers. Their orders reached the level of seat belt system with adaptive load lim- reduction was achieved despite the the contracts received from Autoliv’s iters. In addition, we increased the num- higher sales and the move to low-labor- traditional customers in Europe. cost countries. In relation to annual ber of patent applications by 50% (see Vision sales, working capital was reduced from page 10). We also drove the Night Vision 11.0% at the beginning of the year to We intend to remain the industry leader, and Pedestrian Protection projects (see 8.7% at the end. This was in compliance but with an even stronger leadership pages 12 and 13) closer to completion. with our target that working capital position. We plan to expand in markets The system capabilities of Autoliv should not exceed 10% of sales. where there is still plenty of room for were strengthened by the acquisition market share gains such as in Asia. of Visteon Restraint Electronics. Autoliv • Cash flow hit record highs of $509 Along with staying in the technical fore- now offers the same capability in North million before investing activities, and front of passive restraints we plan to America to deliver complete airbag 4 2002 Autoliv — Driven for Life Letter to Shareholders PROFITABILITY 12 % 10.8 10 9.4 9.0 8.2 8.3 8.4 8 7.1 6.4 6 4 2 0 Q1 Q2 Q3 Q4 2001 (Excl. Unusual Items in the 3rd quarter and adjusted for new accounting principles) systems, including electronics that we Outlook for 2003 2002 already offer in Europe. Furthermore, For the full year 2003, light vehicle pro- During each quarter of 2002, the return on share- Autoliv’s system capabilities were ev- duction is expected to show a modest holders’ equity improved on a year-over-year basis and reached 10.8% during the second quarter com- idenced in the EuroNCAP tests, decrease of 2-4%.

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