Autoliv, Earnings Call NUGGETS: Tax Rate Drivers, Antitrust Investigation

On Friday, Autoliv, Inc. (NYSE:ALV) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Tax Rate Drivers

Brett Hoselton – KeyBanc: I wanted to ask you two thoughts here. First of all, just on the quarter the tax rate was a little bit higher than we had anticipated and my question here is, was there anything unusual impacting the tax rate that might have driven it a little bit higher and then what’s your expectation going forward for the remainder of the year?

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Mats Wallin – VP, Finance and CFO: If you look now into the quarter here the tax rate has been impacted by that we see more earnings relatively in high tax countries like U.S. and Japan, and so, that has driven up the tax rate in the quarter due to that mix effect. That mix effect will also have an impact on the full year projection. We guided before around 27% for the remainder of the year, now we see around 28% for the remainder of the year, for the same reason, that we see relatively more earnings in the U.S. and in Japan.

Brett Hoselton – KeyBanc: Looking at your margin guidance for 2012 it looks like a slight revision here from 10% to 11% range previously to kind of in the range around 10%. I view that as somewhat of a reduction in your guidance. My question is, is that directionally how we should be thinking about it and in your mind what are the primary one or two drivers for that?

Jan Carlson – President and CEO: I think the key driver for this is the lower light vehicle production resulting in the lower organic sales for us. We will have lower organic sales for second half of approximately $90 million compared to what we thought in April and if you just take the effect out of this, this would imply a lower operating margin for the second half. We communicated last quarter approximately 11% for second half and we’re down now to between 10% and 10.5% depending on uncertainty.

Antitrust Investigation

Pat Nolan – Deutsche Bank: This is actually (Pat Nolan) on for Rod. Two questions, first can you just discuss what you are seeing as far as pricing and commercial agreements in the European market they spend some stock by some of your competitors that you have price givebacks the timing has been pushed out a little bit or actually pricing has gotten a little bit worse. Also if you could just comment if there is any update on the antitrust investigations.

Jan Carlson – President and CEO: Regarding pricing we really see no difference we had approximately 3% price balance which is in the mid-point of the range of 2% to 4% for the quarter, for second quarter. So really no difference whether easing up or getting worse I would say right now. On the antitrust investigation as you know the U.S. part, the DOJ part are not only expected to behind us however that investigation is still ongoing from DOJ side to some and many of our competitors. From an Autoliv perspective we are still under the investigation from the European Commission as you know. I have no comments I can share with you on that one whether from a financial perspective or from a timing perspective.

Pat Nolan – Deutsche Bank: Just one follow-up, do we expect the legal fees to kind of continue at this kind of 5 million rate until we reach a resolution on the European side?

Jan Carlson – President and CEO: We focused very hard when we had this investigation to really cooperate and to emphasize a very strong activity in the beginning of it. So we front loaded our activities quite a bit here and that also resulted we would think to some extend that we came out earlier than many of the others. We should look to the legal cost, the sort of the lawyers’ fees to somewhat go down from herein onwards.

Pat Nolan – Deutsche Bank: Just one last question, working capital line, much better performance this quarter versus first quarter. What kind of range should we be expecting on the full year basis?

Mats Wallin – VP, Finance and CFO: We have said that the target capital is to be less than the 10% of sales and now we are see in the second quarter 6.7%. We have to remember that in that number we also have provisions for restructuring and capacity alignment of $6 million to $7 million reducing the working capital. They will be paid out over time and over the years. We also had a in the working capital the DoJ accrual of $14.5 million also reducing the working capital and that has been paid off now in July. So, if you would take out restructuring and the DoJ, the working capital would be around 7.6% of sales if you look into the second quarter.

Pat Nolan – Deutsche Bank: We should expect that to move closer to 10% by yearend?

Mats Wallin – VP, Finance and CFO: The target is to be less than 10%. You know how (difficult is) working capital, it can vary from quarter-to-quarter, but this is the level we have at least for the second quarter.

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