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AUTOLIV INC - Quarter Report: 2023 June (Form 10-Q)

10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2023

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from  to

 

Commission File No.: 001-12933

 

AUTOLIV, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

51-0378542

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

Klarabergsviadukten 70, Section B7

 

 

Box 70381,

 

 

Stockholm, Sweden

 

SE-107 24

(Address of principal executive offices)

 

(Zip Code)

+46 8 587 20 600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $1.00 per share)

 

ALV

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes: ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: No: ☒

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of July 13, 2023, there were 85,376,775 shares of common stock of Autoliv, Inc., par value $1.00 per share, outstanding.

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments that Autoliv, Inc. (“Autoliv,” the “Company” or “we”) or its management believes or anticipates may occur in the future. All forward-looking statements are based upon our current expectations, various assumptions and/or data available from third parties. Our expectations and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that such forward-looking statements will materialize or prove to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements.

In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,” “could,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain such words.

Because these forward-looking statements involve risks and uncertainties, the outcome could differ materially from those set out in the forward-looking statements for a variety of reasons, including without limitation: general economic conditions, including inflation; changes in light vehicle production; fluctuation in vehicle production schedules for which the Company is a supplier; global supply chain disruptions, including port, transportation and distribution delays or interruptions; supply chain disruptions and component shortages specific to the automotive industry or the Company; disruptions and impacts relating to the ongoing war between Russia and Ukraine; changes in general industry and market conditions or regional growth or decline; changes in and the successful execution of our capacity alignments: restructuring, cost reduction and efficiency initiatives and the market reaction thereto; loss of business from increased competition; higher raw material, fuel and energy costs; changes in consumer and customer preferences for end products; customer losses; changes in regulatory conditions; customer bankruptcies, consolidations or restructuring or divestiture of customer brands; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; component shortages; market acceptance of our new products; costs or difficulties related to the integration of any new or acquired businesses and technologies; continued uncertainty in pricing and other negotiations with customers; successful integration of acquisitions and operations of joint ventures; successful implementation of strategic partnerships and collaborations; our ability to be awarded new business; product liability, warranty and recall claims and investigations and other litigation, civil judgements or financial penalties and customer reactions thereto; higher expenses for our pension and other postretirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of pending or future litigation or infringement claims and the availability of insurance with respect to such matters; our ability to protect our intellectual property rights; negative impacts of antitrust investigations or other governmental investigations and associated litigation relating to the conduct of our business; tax assessments by governmental authorities and changes in our effective tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; our ability to meet our sustainability targets, goals and commitments; political conditions; dependence on and relationships with customers and suppliers; and other risks and uncertainties identified in Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023.

For any forward-looking statements contained in this or any other document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we assume no obligation to update publicly or revise any forward-looking statements in light of new information or future events, except as required by law.

2


 

 

INDEX

 

 

 

 

PART I - FINANCIAL INFORMATION

4

 

 

 

ITEM 1. FINANCIAL STATEMENTS

4

 

 

 

1.

Basis of Presentation

9

2.

New Accounting Standards

10

3.

Fair Value Measurements

11

4.

Income Taxes

14

5.

Inventories

14

6.

Restructuring

15

7.

Product-Related Liabilities

15

8.

Retirement Plans

16

9.

Contingent Liabilities

17

10.

Stock Incentive Plan

19

11.

Earnings Per Share

19

12.

Revenue Disaggregation

20

13.

Subsequent Events

20

 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

35

ITEM 4. CONTROLS AND PROCEDURES

35

PART II - OTHER INFORMATION

36

ITEM 1. LEGAL PROCEEDINGS

36

ITEM 1A. RISK FACTORS

36

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

36

ITEM 4. MINE SAFETY DISCLOSURES

36

ITEM 5. OTHER INFORMATION

36

ITEM 6. EXHIBITS

37

 

3


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in millions, except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

2,635

 

 

$

2,081

 

 

$

5,127

 

 

$

4,206

 

Cost of sales

 

 

(2,188

)

 

 

(1,755

)

 

 

(4,301

)

 

 

(3,591

)

Gross profit

 

 

447

 

 

 

326

 

 

 

826

 

 

 

614

 

Selling, general and administrative expenses

 

 

(129

)

 

 

(112

)

 

 

(261

)

 

 

(227

)

Research, development and engineering expenses, net

 

 

(120

)

 

 

(112

)

 

 

(237

)

 

 

(219

)

Amortization of intangibles

 

 

(0

)

 

 

(0

)

 

 

(1

)

 

 

(2

)

Other income (expense), net1)

 

 

(103

)

 

 

22

 

 

 

(107

)

 

 

92

 

Operating income

 

 

94

 

 

 

124

 

 

 

221

 

 

 

258

 

Income from equity method investment

 

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

Interest income

 

 

6

 

 

 

1

 

 

 

8

 

 

 

2

 

Interest expense

 

 

(25

)

 

 

(13

)

 

 

(45

)

 

 

(26

)

Other non-operating items, net

 

 

7

 

 

 

5

 

 

 

5

 

 

 

1

 

Income before income taxes

 

 

83

 

 

 

117

 

 

 

191

 

 

 

237

 

Income tax expense

 

 

(30

)

 

 

(38

)

 

 

(64

)

 

 

(74

)

Net income2)

 

 

53

 

 

 

79

 

 

 

127

 

 

 

163

 

Less: Net income attributable to non-controlling interest

 

 

0

 

 

 

0

 

 

 

1

 

 

 

1

 

Net income attributable to controlling interest

 

$

53

 

 

$

79

 

 

$

127

 

 

$

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share – basic

 

$

0.61

 

 

$

0.91

 

 

$

1.48

 

 

$

1.86

 

Net earnings per share – diluted

 

$

0.61

 

 

$

0.91

 

 

$

1.47

 

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, net of
   treasury shares (in millions)

 

 

85.6

 

 

 

87.2

 

 

 

85.9

 

 

 

87.2

 

Weighted average number of shares outstanding,
   assuming dilution and net of treasury
   shares (in millions)

 

 

85.8

 

 

 

87.3

 

 

 

86.0

 

 

 

87.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend per share – declared

 

$

0.66

 

 

$

0.64

 

 

$

1.32

 

 

$

1.28

 

Cash dividend per share – paid

 

$

0.66

 

 

$

0.64

 

 

$

1.32

 

 

$

1.28

 

1) The three months period ending June 30, 2022, includes a gain of $21 million from a patent litigation settlement. The six months period ending June 30, 2022, includes a gain on sale of property of $80 million in Japan in the first quarter of 2022 and a gain of $21 million from a patent litigation settlement in the second quarter of 2022.

2) For the three months period ended June 30, 2023 and June 30, 2022, the aggregate transaction gain (loss) included in net income for the period were $(10) million and $(9) million, respectively. For the six months period ended June 30, 2023 and June 30, 2022, the aggregate transaction gain (loss) included in net income for the period were $(15) million and $(15) million, respectively.

 

 

 

 

 

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

4


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in millions)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

53

 

 

$

79

 

 

$

127

 

 

$

163

 

Other comprehensive income before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Change in cumulative translation adjustments

 

 

(46

)

 

 

(121

)

 

 

(10

)

 

 

(115

)

Net change in unrealized components of defined benefit plans

 

 

5

 

 

 

3

 

 

 

5

 

 

 

15

 

Other comprehensive income, before tax

 

 

(40

)

 

 

(118

)

 

 

(5

)

 

 

(100

)

Tax effect allocated to other comprehensive income

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(5

)

Other comprehensive income, net of tax

 

 

(41

)

 

 

(118

)

 

 

(6

)

 

 

(104

)

Comprehensive income

 

 

12

 

 

 

(40

)

 

 

122

 

 

 

58

 

Less: Comprehensive income attributable to
   non-controlling interest

 

 

(0

)

 

 

(1

)

 

 

0

 

 

 

(0

)

Comprehensive income attributable to
   controlling interest

 

$

12

 

 

$

(40

)

 

$

121

 

 

$

58

 

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

5


 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

 

 

 

As of

 

 

 

June 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

475

 

 

$

594

 

Receivables, net

 

 

2,189

 

 

 

1,907

 

Inventories, net

 

 

947

 

 

 

969

 

Prepaid expenses and accrued income

 

 

166

 

 

 

160

 

Other current assets

 

 

120

 

 

 

84

 

Total current assets

 

 

3,898

 

 

 

3,714

 

Property, plant and equipment, net

 

 

2,047

 

 

 

1,960

 

Operating lease right-of-use assets

 

 

149

 

 

 

160

 

Goodwill

 

 

1,375

 

 

 

1,375

 

Intangible assets, net

 

 

6

 

 

 

7

 

Other non-current assets

 

 

484

 

 

 

502

 

Total assets

 

 

7,959

 

 

 

7,717

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

Short-term debt

 

 

481

 

 

 

711

 

Accounts payable

 

 

1,844

 

 

 

1,693

 

Accrued expenses

 

 

1,122

 

 

 

915

 

Operating lease liabilities - current

 

 

35

 

 

 

39

 

Other current liabilities

 

 

274

 

 

 

283

 

Total current liabilities

 

 

3,756

 

 

 

3,642

 

Long-term debt

 

 

1,290

 

 

 

1,054

 

Pension liability

 

 

152

 

 

 

154

 

Operating lease liabilities - non-current

 

 

113

 

 

 

119

 

Other non-current liabilities

 

 

91

 

 

 

121

 

Total non-current liabilities

 

 

1,645

 

 

 

1,450

 

Common stock

 

 

90

 

 

 

91

 

Additional paid-in capital

 

 

1,096

 

 

 

1,113

 

Retained earnings

 

 

2,260

 

 

 

2,310

 

Accumulated other comprehensive loss

 

 

(527

)

 

 

(522

)

Treasury stock

 

 

(374

)

 

 

(379

)

Total controlling interest's equity

 

 

2,545

 

 

 

2,613

 

Non-controlling interest

 

 

13

 

 

 

13

 

Total equity

 

 

2,557

 

 

 

2,626

 

Total liabilities and equity

 

$

7,959

 

 

$

7,717

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

6


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in millions)

 

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net income

 

$

127

 

 

$

163

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

186

 

 

 

186

 

Gain on divestiture of property

 

 

 

 

 

(80

)

Other, net

 

 

(8

)

 

 

7

 

Net change in operating assets and liabilities

 

 

28

 

 

 

(257

)

Net cash provided by operating activities

 

 

334

 

 

 

19

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(268

)

 

 

(254

)

Proceeds from sale of property, plant and equipment

 

 

1

 

 

 

98

 

Net cash used in investing activities

 

 

(267

)

 

 

(156

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Net increase (decrease) in short-term debt

 

 

5

 

 

 

(277

)

Proceeds from long-term debt

 

 

556

 

 

 

269

 

Repayment of long-term debt

 

 

(533

)

 

 

(302

)

Dividends paid

 

 

(113

)

 

 

(112

)

Stock repurchased

 

 

(82

)

 

 

(40

)

Common stock options exercised

 

 

0

 

 

 

0

 

Dividend paid to non-controlling interest

 

 

(1

)

 

 

 

Net cash used in financing activities

 

 

(168

)

 

 

(462

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(17

)

 

 

(43

)

Net decrease in cash and cash equivalents

 

 

(119

)

 

 

(642

)

Cash and cash equivalents at beginning of period

 

 

594

 

 

 

969

 

Cash and cash equivalents at end of period

 

$

475

 

 

$

327

 

 

See Notes to unaudited Condensed Consolidated Financial Statements.

7


 

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (UNAUDITED) (Dollars in millions)

 

 

 

 

 

Common
stock

 

 

Additional
paid-in
capital

 

 

Retained
earnings

 

 

Accumulated
other
comprehensive
loss

 

 

Treasury
stock

 

 

Total
controlling
interest's
equity

 

 

Non-
controlling
interest

 

 

Total
equity

 

Balances at December 31, 2022

$

91

 

 

$

1,113

 

 

$

2,310

 

 

$

(522

)

 

$

(379

)

 

$

2,613

 

 

$

13

 

 

$

2,626

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

74

 

 

 

0

 

 

 

74

 

Foreign currency translation
   adjustment

 

 

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

36

 

 

 

0

 

 

 

36

 

Pension liability

 

 

 

 

 

 

 

 

 

 

(0

)

 

 

 

 

 

(0

)

 

 

 

 

 

(0

)

Total Comprehensive Income

 

 

 

 

 

 

 

74

 

 

 

35

 

 

 

 

 

 

110

 

 

 

0

 

 

 

110

 

Stock repurchased and retired

 

(0

)

 

 

(9

)

 

 

(33

)

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

 

 

 

3

 

Cash dividends declared

 

 

 

 

 

 

 

(57

)

 

 

 

 

 

 

 

 

(57

)

 

 

 

 

 

(57

)

Balances at March 31, 2023

$

91

 

 

$

1,105

 

 

$

2,295

 

 

$

(487

)

 

$

(376

)

 

$

2,627

 

 

$

14

 

 

$

2,641

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

 

 

0

 

 

 

53

 

Foreign currency translation
   adjustment

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

 

 

 

(45

)

 

 

(1

)

 

 

(46

)

Pension liability

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Total Comprehensive Income

 

 

 

 

 

 

 

53

 

 

 

(41

)

 

 

 

 

 

12

 

 

 

(0

)

 

 

12

 

Stock repurchased and retired

 

(0

)

 

 

(9

)

 

 

(31

)

 

 

 

 

 

 

 

 

(41

)

 

 

 

 

 

(41

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

 

 

 

3

 

Cash dividends declared

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Dividends paid to non-controlling interest
   on subsidiary shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

(1

)

 

 

(1

)

Balances at June 30, 2023

$

90

 

 

$

1,096

 

 

$

2,260

 

 

$

(527

)

 

$

(374

)

 

$

2,545

 

 

$

13

 

 

$

2,557

 

 

 

Common
stock

 

 

Additional
paid-in
capital

 

 

Retained
earnings

 

 

Accumulated
other
comprehensive
loss

 

 

Treasury
stock

 

 

Total
controlling
interest's
equity

 

 

Non-
controlling
interest

 

 

Total
equity

 

Balances at December 31, 2021

$

103

 

 

$

1,329

 

 

$

2,742

 

 

$

(408

)

 

$

(1,133

)

 

$

2,633

 

 

$

15

 

 

$

2,648

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

 

 

0

 

 

 

83

 

Foreign currency translation
  adjustment

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

 

 

0

 

 

 

6

 

Pension liability

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Total Comprehensive Income

 

 

 

 

 

 

 

83

 

 

 

14

 

 

 

 

 

 

97

 

 

 

0

 

 

 

98

 

Retired and repurchased shared

 

(0

)

 

 

(4

)

 

 

(13

)

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

Cash dividends declared

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Balances at March 31, 2022

$

103

 

 

$

1,325

 

 

$

2,755

 

 

$

(393

)

 

$

(1,131

)

 

$

2,659

 

 

$

15

 

 

$

2,674

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Net income

 

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

79

 

 

 

0

 

 

 

79

 

       Foreign currency translation
         adjustment

 

 

 

 

 

 

 

 

 

 

(121

)

 

 

 

 

 

(121

)

 

 

(1

)

 

 

(122

)

      Pension liability

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Total Comprehensive Loss

 

 

 

 

 

 

 

79

 

 

 

(119

)

 

 

 

 

 

(40

)

 

 

(1

)

 

 

(40

)

Retired and repurchased shared

 

(0

)

 

 

(6

)

 

 

(16

)

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

(22

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

Cash dividends declared

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Balances at June 30, 2022

$

102

 

 

$

1,319

 

 

$

2,762

 

 

$

(512

)

 

$

(1,128

)

 

$

2,544

 

 

$

15

 

 

$

2,558

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

8


 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are presented in millions of dollars, except for per share amounts)

June 30, 2023

1. BASIS OF PRESENTATION

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as the prior year audited consolidated financial statements and all adjustments considered necessary for a fair presentation have been included in the consolidated financial statements. All such adjustments are of a normal recurring nature. The results for the interim period are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending December 31, 2023.

The Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements.

The Company has one reportable segment, which includes Autoliv’s airbag and seatbelt products and components.

Certain amounts in the condensed consolidated financial statements and associated notes may not reconcile due to rounding. All percentages have been calculated using unrounded amounts. Certain amounts in prior periods have been reclassified to conform to current year presentation.

Statements in this report that are not of historical fact are forward-looking statements that involve risks and uncertainties that could affect the actual results of the Company. A description of the important factors that could cause Autoliv’s actual results to differ materially from the forward-looking statements contained in this report may be found in this report and Autoliv’s other reports filed with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial statements, footnotes and definitions thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023.

 

9


 

2. NEW ACCOUNTING STANDARDS

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”).

 

Adoption of new accounting standards

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50), Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. During the fiscal year of adoption, the information on the key terms of the programs and the balance sheet presentation of the program obligations, which are annual disclosure requirements, should be disclosed in each interim period. The amendments in this update should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on roll-forward information, which should be applied prospectively.

The Company adopted ASU 2022-04 as of January 1, 2023. The Company has an agreement with an external payment service provider to facilitate the payments to certain suppliers. The outstanding obligations confirmed towards the external payment service provider are recorded in Accounts Payable in the Condensed Consolidated Balance Sheet until payment has been effected. The Company has undertaken to make sure the payment is effected on the original invoice maturity date. The payment terms range between 30 days and 165 days, with a weighted average of 130 days.

The roll-forward of the Company's outstanding obligations confirmed as valid under its supplier finance program for the six months period ended June 30, 2023 is as follows (dollars in millions):

 

 

 

As of

 

 

 

June 30, 2023

 

Confirmed obligations outstanding at beginning of the period

 

$

314

 

Invoices confirmed during the period

 

 

680

 

Confirmed invoices paid during the period

 

 

(661

)

Confirmed obligations outstanding at end of the period1)

 

$

333

 

1) Amount of obligations confirmed under the program that remains unpaid by the Company is reported as Accounts Payable in the Condensed Consolidated Balance Sheet.

Accounting standards issued but not yet adopted

None.

 

10


 

3. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and other current financial assets and liabilities approximate their fair value because of the short-term maturity of these instruments.

The Company uses derivative financial instruments (“derivatives”) as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest rates and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. All derivatives are recognized in the consolidated financial statements at fair value. For certain derivatives, hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although each hedge is entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest rates and foreign exchange rates.

The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by several factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Instruments with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

All the Company’s derivatives are classified as Level 2 financial instruments in the fair value hierarchy. Level 2 pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (“ISDA agreements”) with all derivative counterparties, the fair values in the tables below and in the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 have been presented on a gross basis. According to the ISDA agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company chose not to offset are presented below.

Derivatives designated as hedging instruments

There were no derivatives designated as hedging instruments as of June 30, 2023 or December 31, 2022 related to the Company's operations.

 

11


 

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding as of June 30, 2023 and December 31, 2022 were foreign exchange swaps.

For the three months period ended June 30, 2023 and June 30, 2022, the gains (losses) recognized in other non-operating items, net were $13 million and $(23) million, respectively, for derivative instruments not designated as hedging instruments. For the six months period ended June 30, 2023 and 2022, the gains (losses) recognized in other non-operating items, net were $8 million and $(14) million, respectively. The realized part of the losses referred to above is reported under financing activities in the statement of cash flows.

For the three and six months periods ended June 30, 2023 and June 30, 2022, the gains (losses) recognized as interest expense were immaterial.

The tables below present information about the Company’s derivative financial assets and liabilities measured at fair value on a recurring basis (dollars in millions).

 

 

 

As of

 

 

 

 

June 30, 2023

 

 

 

December 31, 2022

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

 

Fair Value Measurements

 

 

Description

 

Nominal
volume

 

 

Derivative
asset
(Other
current assets)

 

 

Derivative
liability
(Other
current
liabilities)

 

 

 

Nominal
volume

 

 

Derivative
asset
(Other
current assets)

 

 

Derivative
liability
(Other
current
liabilities)

 

 

Derivatives not designated as hedging
   instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange swaps, less
   than 6 months

 

$

1,710

 

1)

$

10

 

2)

$

8

 

3)

 

$

2,616

 

4)

$

22

 

5)

$

15

 

6)

Total derivatives not designated
   as hedging instruments

 

$

1,710

 

 

$

10

 

 

$

8

 

 

 

$

2,616

 

 

$

22

 

 

$

15

 

 

1) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,710 million.

2) Net amount after deducting for offsetting swaps under ISDA agreements is $10 million.

3) Net amount after deducting for offsetting swaps under ISDA agreements is $8 million.

4) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $2,616 million.

5) Net amount after deducting for offsetting swaps under ISDA agreements is $22 million.

6) Net amount after deducting for offsetting swaps under ISDA agreements is $15 million.

 

 

12


 

Fair Value of Debt

The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy.

During the first quarter of 2023, the Company issued a five-year €500 million Eurobond. These notes were issued as green bonds. In the second quarter of 2023, the Company repaid the €500 million for the five-year Eurobond that matured in June 2023.

The fair value and carrying value of debt is summarized in the table below (dollars in millions).

 

 

 

As of

 

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

Carrying
value
1)

 

 

Fair
value

 

 

Carrying
value
1)

 

 

Fair
value

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

1,013

 

 

$

984

 

 

$

767

 

 

$

735

 

Loans

 

 

276

 

 

 

283

 

 

 

287

 

 

 

292

 

Other long-term debt

 

 

1

 

 

 

1

 

 

 

 

 

 

 

Total long-term debt

 

 

1,290

 

 

 

1,268

 

 

 

1,054

 

 

 

1,027

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

 

 

 

 

 

 

 

 

 

Short-term portion of long-term debt

 

 

297

 

 

 

289

 

 

 

533

 

 

 

527

 

Overdrafts and other short-term debt

 

 

184

 

 

 

184

 

 

 

178

 

 

 

178

 

Total short-term debt

 

$

481

 

 

$

473

 

 

$

711

 

 

$

705

 

1) Debt as reported in balance sheet.

Assets and liabilities measured at fair value on a nonrecurring basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a nonrecurring basis, including certain long-lived assets, including equity method investments, goodwill and other intangible assets, typically as it relates to impairment.

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets.

For the three and six months periods ended June 30, 2023 and June 30, 2022, the Company did not record any material impairment charges on its long-lived assets for its operations.

 

 

13


 

 

4. INCOME TAXES

The effective tax rate for the three months period ended June 30, 2023 was 35.8% compared to 32.2% for the three months period ended June 30, 2022. Discrete tax items, net for the three months period ended June 30, 2023 had a favorable impact of 4.5%. Discrete tax items, net for the three months period ended June 30, 2022 had an unfavorable impact of 1.5%.

The effective tax rate for the six months period ended June 30, 2023 was 33.4% compared to 31.3% for the six months period ended June 30, 2022. Discrete tax items, net for the six months period ended June 30, 2023 had a favorable impact of 1.5%. Discrete tax items, net for the six months period ended June 30, 2022 had an unfavorable impact of 1.0%.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and non-U.S. jurisdictions. At any given time, the Company is undergoing tax audits in several tax jurisdictions covering multiple years. The Company is no longer subject to income tax examination by the U.S. federal income tax authorities for years prior to 2015. With few exceptions, the Company is no longer subject to income tax examination by U.S. state or local tax authorities or by non-U.S. tax authorities for years before 2012.

As of June 30, 2023, the Company is not aware of any proposed income tax adjustments resulting from tax examinations that would have a material impact on the Company’s condensed consolidated financial statements. The conclusion of such audits could result in additional increases or decreases to unrecognized tax benefits in some future period or periods.

During the six months period ended June 30, 2023, the Company recorded a net increase of $6 million to income tax reserves for unrecognized tax benefits based on tax positions related to the current year, including accruing additional interest related to unrecognized tax benefits from prior years. Of the total unrecognized tax benefits of $52 million recorded as of June 30, 2023, $15 million is classified as current tax payable within Other current liabilities and $37 million is classified as non-current tax payable within Other non-current liabilities on the Condensed Consolidated Balance Sheet.

5. INVENTORIES

Inventories are stated at the lower of cost (“FIFO”) and net realizable value. The components of inventories were as follows (dollars in millions):

 

 

 

As of

 

 

 

June 30, 2023

 

 

December 31, 2022

 

Raw materials

 

$

436

 

 

$

445

 

Work in progress

 

 

333

 

 

 

350

 

Finished products

 

 

267

 

 

 

265

 

Inventories

 

 

1,035

 

 

 

1,060

 

Inventory valuation reserve

 

 

(89

)

 

 

(91

)

Total inventories, net of reserve

 

$

947

 

 

$

969

 

 

 

14


 

6. RESTRUCTURING

As of June 30, 2023, approximately $105 million out of the $127 million in total reserve balance can be attributed to footprint optimization activities in Europe, mainly Germany and the United Kingdom (UK), initiated in the second quarter of 2023. These activities are expected to be concluded during 2024 and 2025.

The provision charge for the three and six months periods ended June 30, 2023 mainly relate to restructuring activities in Germany and the UK. The cash payments for the three months period ended June 30, 2022 related to restructuring activities in Europe and Asia. The majority of the cash payments for the six months period ended June 30, 2022 mainly related to footprint optimization activities in Asia.

The table below summarizes the change in the balance sheet position of the employee-related restructuring reserves (dollars in millions). The restructuring reserve balances are included within Accrued expenses in the Condensed Consolidated Balance Sheets. The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Income. Restructuring costs other than employee related costs are immaterial for all periods presented.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Reserve at beginning of the period

 

$

29

 

 

$

58

 

 

$

32

 

 

$

88

 

Provision - charge

 

 

107

 

 

 

0

 

 

 

110

 

 

 

12

 

Provision - reversal

 

 

(0

)

 

 

(0

)

 

 

(0

)

 

 

(0

)

Cash payments

 

 

(9

)

 

 

(9

)

 

 

(15

)

 

 

(50

)

Translation difference

 

 

(0

)

 

 

(4

)

 

 

0

 

 

 

(5

)

Reserve at end of the period

 

$

127

 

 

$

45

 

 

$

127

 

 

$

45

 

 

7. PRODUCT-RELATED LIABILITIES

The Company is exposed to product liability and warranty claims in the event that the Company’s products fail to perform as represented and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company has reserves for product risks. Such reserves are related to product performance issues, including recalls, product liability and warranty issues. For further explanation, see Note 9. Contingent Liabilities below.

For the three and six months periods ended June 30, 2023, provisions and cash payments primarily relate to warranty related issues. For the three and six months periods ended June 30, 2022, provisions and cash payments primarily related to warranty related issues. As of June 30, 2023, the reserve for product related liabilities mainly relate to recall related issues.

The table below summarizes the change in the balance sheet position of the product-related liabilities (dollars in millions). The reserve for product related liabilities is included in accrued expenses and Other non-current liabilities on the Condensed Consolidated Balance Sheets. A majority of the Company’s product-related liabilities as of June 30, 2023 are covered by insurance. Insurance receivables are included within Other current assets and Other non-current assets on the Condensed Consolidated Balance Sheets. As of June 30, 2023, the Company had total insurance receivables of $169 million.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Reserve at beginning of the period

 

$

141

 

 

$

150

 

 

$

145

 

 

$

144

 

Change in reserve

 

 

42

 

 

 

2

 

 

 

43

 

 

 

12

 

Cash payments

 

 

(4

)

 

 

(5

)

 

 

(9

)

 

 

(8

)

Translation difference

 

 

(0

)

 

 

(2

)

 

 

(0

)

 

 

(2

)

Reserve at end of the period

 

$

178

 

 

$

145

 

 

$

178

 

 

$

145

 

 

15


 

8. RETIREMENT PLANS

The components of total Net Periodic Benefit Cost associated with the Company’s defined benefit retirement plans are as follows (dollars in millions):

 

U.S. Plans

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest cost

 

$

3

 

 

$

4

 

 

 

6

 

 

 

6

 

Expected return on plan assets

 

 

(3

)

 

 

0

 

 

 

(5

)

 

 

(4

)

Settlement loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1

 

Net periodic benefit cost

 

$

0

 

 

$

4

 

 

$

1

 

 

$

3

 

Non-U.S. Plans

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Service cost

 

$

3

 

 

$

2

 

 

$

5

 

 

$

5

 

Interest cost

 

 

3

 

 

 

2

 

 

 

5

 

 

 

3

 

Expected return on plan assets

 

 

0

 

 

 

(1

)

 

 

(1

)

 

 

(1

)

Settlement/curtailment gain

 

 

0

 

 

 

(4

)

 

 

0

 

 

 

(5

)

Net periodic benefit cost (gain)

 

$

6

 

 

$

(1

)

 

$

9

 

 

$

2

 

 

The Service cost component in the table above is reported among other employee compensation costs in the Consolidated Statements of Income. The remaining components - Interest cost, Expected return on plan assets, Amortization of actuarial loss, Settlement loss (gain) and Curtailment gain - are reported as Other non-operating items, net in the Consolidated Statements of Income.

 

Settlement accounting has been triggered for the primary U.S. pension plan in the second quarter of 2023 because the lump-sum payments made during the quarter exceeded the sum of Service cost and Interest cost for this U.S. plan. Due to the settlement accounting, the obligation and plan assets for the primary U.S. plan have been re-measured as of June 30, 2023, which resulted in an immaterial change in the net pension liability compared to December 31, 2022. The discount rate used to determine the U.S. net periodic benefit cost because of the re-measurement was changed from 5.09% to 5.32% in the second quarter of 2023. The expected long-term rate of return on plan asset is unchanged at 5.05%.

 

16


 

9. CONTINGENT LIABILITIES

Legal Proceedings

Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters. Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel, and with the exception of losses resulting from the antitrust proceedings described below, it is the opinion of management that the various legal proceedings and investigations to which the Company currently is a party will not have a material adverse impact on the consolidated financial position of Autoliv, but the Company cannot provide assurance that Autoliv will not experience material litigation, product liability or other losses in the future.

ANTITRUST MATTERS

Authorities in several jurisdictions have conducted broad, and in some cases, long-running investigations of suspected anti-competitive behavior among parts suppliers in the global automotive vehicle industry. These investigations included, but are not limited to, the products that the Company sells. In addition to concluded matters, authorities of other countries with significant light vehicle manufacturing or sales may initiate similar investigations.

PRODUCT WARRANTY, RECALLS AND INTELLECTUAL PROPERTY

Autoliv is exposed to various claims for damages and compensation if its products fail to perform as expected. Such claims can be made, and result in costs and other losses to the Company, even where the product is eventually found to have functioned properly. Where a product (actually or allegedly) fails to perform as expected or is defective, the Company may face warranty and recall claims. Where such (actual or alleged) failure or defect results, or is alleged to result, in bodily injury and/or property damage, the Company may also face product liability and other claims. There can be no assurance that the Company will not experience material warranty, recall or product (or other) liability claims or losses in the future, or that the Company will not incur significant costs to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Government safety regulators may also play a role in warranty and recall practices. Recall decisions regarding the Company’s products may require a significant amount of judgment by us, our customers and safety regulators and are influenced by a variety of factors. Once a recall has been made, the cost of a recall is also subject to a significant amount of judgment and discussions between the Company and its customers. A warranty, recall or product-liability claim brought against the Company in excess of its insurance may have a material adverse effect on the Company’s business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some, or all, of the repair or replacement costs of products when the product supplied did not perform as represented by us or expected by the customer in either a warranty or a recall situation. Accordingly, the future costs of warranty or recall claims by the customers may be material. However, the Company believes its established reserves are adequate. Autoliv’s warranty reserves are based upon the Company’s best estimates of amounts necessary to settle future and existing claims. The Company regularly evaluates the adequacy of these reserves, and adjusts them when appropriate. However, the final amounts actually due related to these matters could differ materially from the Company’s recorded estimates.

In addition, as vehicle manufacturers increasingly use global platforms and procedures, quality performance evaluations are also conducted on a global basis. Any one or more quality, warranty or other recall issue(s) (including those affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures such as a temporary or prolonged suspension of new orders, which may have a material impact on the Company’s results of operations.

The Company maintains a program of insurance, which may include commercial insurance, self-insurance, or a combination of both approaches, for potential recall and product liability claims in amounts and on terms that it believes are reasonable and prudent based on our prior claims experience. The Company’s insurance policies generally include coverage of the costs of a recall, although costs related to replacement parts are generally not covered. In addition, a number of the agreements entered into by the Company, including the Spin-off Agreements, require Autoliv to indemnify the other parties for certain claims. Autoliv cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in our businesses or with respect to other obligations, now or in the future, or that such coverage always will be available should we, now or in the future, wish to extend, increase or otherwise adjust our insurance.

 

17


 

Product Liability:

On September 18, 2014, Jamie Andrews filed a wrongful death products liability suit against several Autoliv entities stemming from a fatal car accident in 2013 where the plaintiff’s husband was fatally injured. The lawsuit alleges that Autoliv should be liable for a defectively-designed driver seatbelt. The case was removed to the United States District Court for the Northern District of Georgia. The suit originally included Bosch and Mazda entities as well, but these entities were dismissed pursuant to confidential settlement agreements with the plaintiff, and all of the Autoliv entities except Autoliv Japan Ltd. were also dismissed. On January 10, 2017, the District Court entered an order granting summary judgment in favor of Autoliv, concluding that Autoliv was not actively involved in the design of Mr. Andrews’s seatbelt and, therefore, should not be liable for plaintiff’s claims as a matter of law. However, on appeal, the Eleventh Circuit Court of Appeals reversed the decision, holding that, under Georgia’s products liability statute, Autoliv could be liable for a design defect associated with the seatbelt, regardless of its level of involvement in the seatbelt’s ultimate design, because Autoliv manufactured it. On October 4, 2021, the case proceeded to a bench trial before the United States District Court for the Northern District of Georgia. On December 31, 2021, the District Court entered a Final Order and Judgment concluding that Mr. Andrews’s seatbelt was defectively designed and Autoliv was strictly liable for the design. In doing so, the District Court concluded that Mr. Andrews had incurred $27,019,343 in compensatory damages, but only ordered Autoliv to pay 50 percent of that amount, $13,509,671 after finding that 50 percent of the fault for Mr. Andrews’s damages should be apportioned to Mazda. The Court declined to apportion any fault for Mr. Andrews’s damages to Mr. Andrews or Bosch. The District Court also entered an award of punitive damages against Autoliv in the amount of $100,000,000. Subsequently, on September 30, 2022, the District Court awarded pre-judgment interest on the compensatory damages award of approximately $4,734,350. The Company believes the District Court's verdict was in error, including the grossly high punitive damages award, and appealed the verdict. Ms. Andrews also initiated a cross-appeal. The Company determined that a loss with respect to this litigation is probable and in the fourth quarter of 2021 accrued $14 million pursuant to ASC 450. The Company accrued an additional $5 million for the pre-judgement interest in the third quarter of 2022. On July 18, 2023, the Company, without admitting any liability, executed settlement agreements and resolved the lawsuit with all interested parties. The final amount by which the product liability accrual exceeds the product liability insurance receivable is $8 million and includes self-insurance retention costs and deductibles.

In June 2023, several Autoliv subsidiaries were named as defendants in a class action lawsuit filed in the United States District Court for the Eastern District of Michigan by David Anderson, et al. These subsidiaries were also named defendants in a class action filed in the Western District of Tennessee in September 2022 but have not yet been served. The plaintiffs in these lawsuits (the "ARC Inflator Class Action") generally allege that the defendants have violated various state competition, warranty, and trade practice laws relating to ARC inflators included in airbag modules that the defendants allegedly supplied after Autoliv acquired certain Delphi assets (the "Delphi Acquisition") in December 2009. The Company denies these allegations. Autoliv is not aware of any performance issues regarding ARC inflators included with its airbags at the directions of its customers that it shipped following the Delphi Acquisition. The Company has determined pursuant to ASC 450 that a loss is reasonably possible with respect to the ARC Inflator Class Action. However, the Company continues to evaluate this matter, no accrual has been made, and no estimated range of potential loss can be determined at this time. The Company cannot predict the ultimate outcome of the ARC Inflator Class Action.

 

 

 

18


 

Specific Recalls:

In the fourth quarter of 2020, the Company was made aware of a potential recall by American Honda Motor Co. and the recall of approximately 449,000 vehicles relating to the malfunction of front seat belt buckles was announced on March 9, 2023 (the “Honda Buckle Recall”). The Company determined pursuant to ASC 450 that a loss with respect to the Honda Buckle Recall is probable and accrued an amount that is reflected in the total product liability accrual in the fourth quarter of 2020 and increased the accrual in the fourth quarter of 2021. The amount by which the product liability accrual exceeds the product liability insurance receivable with respect to the Honda Buckle Recall is $27 million and includes self-insurance retention costs and deductibles. The ultimate loss to the Company of the Honda Buckle Recall could be materially different from the amount the Company has accrued.

Volvo Car USA, LLC (together with its affiliates, “Volvo”) has recalled approximately 762,000 vehicles relating to the malfunction of inflators produced by ZF (the “ZF Inflator Recall”). The recalled ZF inflators were included in airbag modules supplied by the Company only to Volvo. The recall commenced in November 2020 and later expanded in September 2021. Because the Company’s airbags were involved with the ZF Inflator Recall, the Company has determined pursuant to ASC 450 that a loss is reasonably possible with respect to the ZF Inflator Recall. The Company continues to evaluate this matter with Volvo and ZF and no accrual has been made. Although the Company currently estimates a range of $0 to $43 million with respect to this potential loss, the Company anticipates that any losses net of insurance claims and claims against ZF will be immaterial.

Intellectual Property:

In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company does seek to procure the necessary rights to utilize intellectual property rights associated with its products, it may fail to do so. Where the Company so fails, the Company may be exposed to material claims from the owners of such rights. Where the Company has sold products which infringe upon such rights, its customers may be entitled to be indemnified by the Company for the claims they suffer as a result thereof. Such claims could be material.

The table in Note 7 above summarizes the change in the balance sheet position of the product-related liabilities.

10. STOCK INCENTIVE PLAN

Eligible employees and non-employee directors of the Company participate in the Autoliv, Inc.1997 Stock Incentive Plan, as amended, (“the Plan”), and receive Autoliv stock-based awards which include restricted stock units (“RSUs”) and performance stock units (“PSUs”) and in the past included stock options.

For the three and six months periods ended June 30, 2023, the Company recorded approximately $5 million and $8 million, respectively, in stock-based compensation expense related to RSUs and PSUs. For the three and six months periods ended June 30, 2022, the Company recorded approximately $3 million and $5 million, respectively, in stock-based compensation expense related to RSUs and PSUs.

During the three and six months periods ended June 30, 2023, approximately 20 thousand and 112 thousand shares of common stock from the treasury stock were utilized by the Plan. During the three and six months periods ended June 30, 2022, approximately 16 thousand and 138 thousand shares, respectively, of common stock from the treasury stock were utilized by the Plan.

11. EARNINGS PER SHARE

 

The computation of basic and diluted earnings per share is set forth in the table below. Anti-dilutive shares outstanding were immaterial for all periods presented below.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions, except per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to controlling interest

 

$

53

 

 

$

79

 

 

$

127

 

 

$

162

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic: Weighted average common stock

 

 

85.6

 

 

 

87.2

 

 

 

85.9

 

 

 

87.2

 

Add: Weighted average stock options/share awards

 

 

0.1

 

 

 

0.1

 

 

 

0.2

 

 

 

0.2

 

Diluted weighted average common stock:

 

 

85.8

 

 

 

87.3

 

 

 

86.0

 

 

 

87.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share - basic

 

$

0.61

 

 

$

0.91

 

 

$

1.48

 

 

$

1.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share - diluted

 

$

0.61

 

 

$

0.91

 

 

$

1.47

 

 

$

1.85

 

 

19


 

12. REVENUE DISAGGREGATION

 

The Company’s disaggregated revenue for the three and six months periods ended June 30, 2023 and June 30, 2022 were as follows (dollars in millions).

 

Net Sales by Products

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Airbags, Steering Wheels and Other1)

 

$

1,757

 

 

$

1,336

 

 

$

3,430

 

 

$

2,716

 

Seatbelt Products1)

 

 

878

 

 

 

746

 

 

 

1,698

 

 

 

1,489

 

Total net sales

 

$

2,635

 

 

$

2,081

 

 

$

5,127

 

 

$

4,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales by Region

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

China

 

$

497

 

 

$

363

 

 

$

950

 

 

$

810

 

Asia, excl. China

 

 

471

 

 

 

369

 

 

 

954

 

 

 

779

 

Americas

 

 

916

 

 

 

738

 

 

 

1,747

 

 

 

1,431

 

Europe

 

 

751

 

 

 

611

 

 

 

1,476

 

 

 

1,186

 

Total net sales

 

$

2,635

 

 

$

2,081

 

 

$

5,127

 

 

$

4,206

 

1) Including Corporate and other sales.

Contract Balances

Contract assets relate to the Company's rights to consideration for work completed but not billed (generally in conjunction with contracts for which revenue is recognized over time) at the reporting date on production parts and is included in Other current assets in the Condensed Consolidated Balance Sheet. The contract assets are reclassified into the receivables balance when the rights to receive payments become unconditional. The net change in the contract assets balance, reflecting the adjustments needed to align revenue recognition for work completed but not billed, for the three and six months periods ended June 30, 2023 and June 30, 2022, were not material in any period.

 

13. SUBSEQUENT EVENTS

There were no reportable events subsequent to June 30, 2023.

20


 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the United States Securities and Exchange Commission (the “SEC”) on February 16, 2023. Unless otherwise noted, all dollar amounts are in millions.

Autoliv, Inc. (“Autoliv” or the “Company”) is a Delaware corporation with its principal executive offices in Stockholm, Sweden. The Company functions as a holding corporation and owns two principal operating subsidiaries, Autoliv AB and Autoliv ASP, Inc.

Through its operating subsidiaries, Autoliv is a supplier of automotive safety systems with a broad range of product offerings, including modules and components for passenger and driver airbags, side airbags, curtain airbags, seatbelts, steering wheels and pedestrian protection systems.

Autoliv’s filings with the SEC, including this Quarterly Report on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, proxy statements and all of our other reports and statements, and amendments thereto, are available free of charge on our corporate website at www.autoliv.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC (generally the same day as the filing).

 

The primary exchange market for Autoliv’s securities is the New York Stock Exchange ("NYSE") where Autoliv’s common stock trades under the symbol “ALV”. Autoliv’s Swedish Depositary Receipts ("SDRs") are traded on Nasdaq Stockholm’s list for large market cap companies under the symbol “ALIV SDB”. Options in SDRs trade on Nasdaq Stockholm under the name “Autoliv SDB”. Options in Autoliv shares are traded on Nasdaq OMX PHLX and on NYSE Amex Options under the symbol “ALV”.

 

Autoliv’s fiscal year ends on December 31.

Non-U.S. GAAP financial measures

Some of the following discussions refer to non-U.S. GAAP financial measures: see reconciliations for “Organic sales”, “Trade working capital”, “Free cash flow”, “Net debt”, “Leverage ratio”, “Adjusted operating income”, “Adjusted operating margin” and “Adjusted earnings per share, diluted” provided below. Management believes that these non-U.S. GAAP financial measures provide supplemental information to investors regarding the performance of the Company’s business and assist investors in analyzing trends in the Company's business. Additional descriptions regarding management’s use of these financial measures are included below. Investors should consider these non-U.S. GAAP financial measures in addition to, rather than as substitutes for, financial reporting measures prepared in accordance with U.S. GAAP. These historical non-U.S. GAAP financial measures have been identified as applicable in each section of this report with a tabular presentation reconciling them to the most directly comparable U.S. GAAP financial measures. It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies.

 

 

21


 

EXECUTIVE OVERVIEW

During the quarter, we took further steps towards our full year indications that support our medium term targets. First, we achieved new second quarter records for sales, adjusted operating income and operating cash flow since the Veoneer spin-off in 2018. Second, we achieved the price compensations from customers we planned for. Third, to secure our medium and long term competitiveness, we announced the acceleration of our structural cost reductions. Last week, we announced the first step towards the necessary optimization of our cost structure to the market environment. This first step is expected to reduce costs by around $25 million in 2024, increasing to around $55 million in 2025 and to reach around $75 million when fully completed. Further actions will be announced as plans materialize.

We generated an organic growth of 27%, growing 11pp faster than LVP due to successful product launches and price compensation achievements. The strong volume growth combined with price compensations, cost saving activities and lower premium freight costs enabled us to improve adjusted operating income by 71%, despite substantial inflationary pressure and FX headwinds.

The Company is pleased that we delivered an adjusted RoCE of more than 20%. We delivered strong operating and free cash flow in the quarter, driven by an improved adjusted operating income and reversal of the negative working capital effects from the first quarter, in line with our previous indication. This contributed to an improved leverage ratio which supports our share repurchase ambitions.

We saw continued improvement in call-off volatility in the quarter but still higher volatility than pre-pandemic levels. We believe this reflects an improving global supply chain environment for both our customers and suppliers. Except for two isolated supply chain disruptions in Europe and Americas in the quarter, Autoliv's supply chain showed sequential improvement.

We reiterate our full year indications. Looking to the second half of the year, we expect the adjusted operating margin to be back-end loaded due to normal seasonality between the third and fourth quarters and the expected closing of price negotiations. The steps we took in the second quarter support our confidence in sequentially improving adjusted operating margin, which should allow us to deliver a substantial full year increase in operating cash flow and adjusted operating income.

Financial highlights in the three months period ended June 30, 2023

Change figures below compare to the same period of the previous year, except when stated otherwise.

 

$2,635 million net sales

27% net sales increase

27% organic sales increase (Non-U.S. GAAP measure, see reconciliation table below)

3.6% operating margin

8.0% adjusted operating margin (Non-U.S. GAAP measure, see reconciliation table below)

$0.61 EPS, 32% decrease

$1.93 adjusted EPS (Non-U.S. GAAP measure, see reconciliation table below), 115% increase

 

 

Key business developments in the three months period ended June 30, 2023

Change figures below compare to the same period of the previous year, except when stated otherwise.

Sales increased organically (Non-U.S. GAAP measure, see reconciliation table below) by 27%, which was 11pp better than global LVP growth of 15.5% (S&P Global July 2023). We outperformed significantly in all regions, mainly due to new product launches and higher prices.
Profitability improved substantially, positively impacted by price increases, organic growth and our cost reduction activities. Operating income was $94 million and operating margin was 3.6%. Adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) improved from $124 million to $212 million and adjusted operating margin (Non-U.S. GAAP measure, see reconciliation table below) increased from 6.0% to 8.0%, despite inflationary pressure, adverse FX effects and two isolated supply chain disruptions. Return on capital employed was 9.5% and adjusted return on capital employed (Non-U.S. GAAP measure, see reconciliation table below) was 21.0%.
Operating cash flow increased from negative $51 million to $379 million, driven mainly by improved adjusted operating income and positive working capital effects. Free cash flow (Non-U.S. GAAP measure, see reconciliation table below) increased to $255 million from negative $190 million. The leverage ratio (Non-U.S. GAAP measure, see reconciliation table below) improved from 1.6x in the first quarter 2023 to 1.3x, impacted by lower net debt and higher adjusted EBITDA. A dividend of $0.66 per share was paid, and 0.48 million shares were repurchased and retired in the quarter.

 

 

22


 

Business and market condition update

Supply Chain

Global light vehicle production growth year-over-year was 15.5% (according to S&P Global July 2023) mainly due to supply chain disruptions easing and the impact on Q2 2022 LVP from the Covid-19 shutdowns in China. Apart from several isolated supply chain disruptions in Europe and Americas in the quarter, we saw continued gradual improvement in call-off volatility as supply chains are less strained. However, volatility is still significantly higher than pre-pandemic levels, and low customer demand visibility and changes to customer call-offs with short notice still had a negative impact on our production efficiency and profitability in the quarter. We expect the current industry-wide supply chain disruptions to gradually fade in the second half of 2023, but not enough to return to pre-pandemic levels of efficiency.

Inflation

In Q2 2023, cost pressures from labor, logistics, utilities and other items had a negative impact on our profitability. Most of the inflationary cost pressure was offset by customer price and other compensations in the quarter. Raw material cost inflation and its impact on our profitability was limited in Q2 2023. We expect the raw material price changes in 2023 will largely be reflected in price changes in our products, albeit with delays of several months. We also expect continued cost pressure from broad based inflation relating to labor, logistics, utilities and other items, especially in Europe. We continue to execute on productivity and cost reduction activities to offset these cost pressures, and we continue to have challenging discussions with our customers on non-raw material cost inflation.

Other matters

In July 2023, we executed settlement agreements, without admitting liability, that resolved the previously disclosed Andrews wrongful death product liability litigation with all interested parties. The Company's out-of-pocket costs, including self-insurance retention costs and deductibles for the settlement, is $8 million. See below for the reconciliation of non-U.S. GAAP measures tables.

 

23


 

RESULTS OF OPERATIONS

Overview

The following table shows some of the key ratios management uses internally to analyze the Company's current and future financial performance and core operations as well as to identify trends in the Company’s financial conditions and results of operations. The Company has provided this information to investors to assist in meaningful comparisons of past and present operating results and to assist in highlighting the results of ongoing core operations. These ratios are more fully explained below and should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K and the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

The Company's management uses the Return on capital employed (ROCE) and Return on total equity (ROE) measures for purposes of comparing its financial performance with the financial performance of other companies in the industry and providing useful information regarding the factors and trends affecting the Company’s business. As used by the Company, ROCE is annualized operating income and income from equity method investments relative to average capital employed. The Company believes ROCE is a useful indicator of long-term performance both absolute and relative to the Company's peers as it allows for a comparison of the profitability of the Company’s capital employed in its business relative to that of its peers.

ROE is the ratio of annualized income (loss) relative to average total equity for the periods presented. The Company’s management believes that ROE is a useful indicator of how well management creates value for its shareholders through its operating activities and its capital management.

KEY RATIOS

(Dollars in millions, except per share data)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

or As of June 30,

 

 

or As of June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Trade working capital1)

 

1,292

 

 

 

1,379

 

 

 

1,292

 

 

 

1,379

 

Trade working capital relative to sales, %2)

 

 

12.3

%

 

 

16.6

%

 

 

12.3

%

 

 

16.6

%

Receivables outstanding relative to sales, %3)

 

20.8

%

 

 

21.4

%

 

 

20.8

%

 

 

21.4

%

Inventory outstanding relative to sales, %4)

 

9.0

%

 

 

10.8

%

 

 

9.0

%

 

 

10.8

%

Payables outstanding relative to sales, %5)

 

 

17.5

%

 

 

15.7

%

 

 

17.5

%

 

 

15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin, %6)

 

17.0

%

 

 

15.7

%

 

 

16.1

%

 

 

14.6

%

Operating margin, %7)

 

3.6

%

 

 

6.0

%

 

 

4.3

%

 

 

6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed8)

 

3,856

 

 

 

3,876

 

 

 

3,856

 

 

 

3,876

 

Net debt9)

 

1,299

 

 

 

1,318

 

 

 

1,299

 

 

 

1,318

 

Return on total equity, %10)

 

8.2

%

 

 

12.1

%

 

 

9.8

%

 

 

12.4

%

Return on capital employed, %11)

 

9.5

%

 

 

13.1

%

 

 

11.4

%

 

 

13.8

%

 

 

 

 

 

 

 

 

 

 

 

Headcount at period-end12)

 

71,200

 

 

 

64,700

 

 

 

71,200

 

 

 

64,700

 

1) Outstanding receivables and outstanding inventory less outstanding payables. See calculation of this non-U.S. GAAP measure in the table below.

2) Outstanding receivables and outstanding inventory less outstanding payables relative to annualized quarterly sales.

3) Outstanding receivables relative to annualized quarterly sales.

4) Outstanding inventory relative to annualized quarterly sales.

5) Outstanding payables relative to annualized quarterly sales.

6) Gross profit relative to sales.

7) Operating income relative to sales.

8) Total equity and net debt.

9) Net debt adjusted for pension liabilities in relation to EBITDA. See tabular presentation reconciling this non-U.S. GAAP measure to U.S. GAAP below.

10) Net income relative to average total equity.

11) Operating income and income from equity method investments, relative to average capital employed.

12) Employees plus temporary, hourly personnel.

 

 

 

24


 

three months period ended June 30, 2023 COMPARED WITH three months period ended June 30, 2022

 

 

Consolidated Sales Development

(dollars in millions)

 

 

 

Three Months Ended June 30,

 

 

 

 

 

Components of change in net sales

 

 

 

2023

 

 

2022

 

 

Reported
change

 

 

Currency
effects
1)

 

 

Organic 3)

 

Airbags, Steering Wheels and Other2)

 

$

1,757

 

 

$

1,336

 

 

 

32

%

 

 

(0.2

)%

 

 

32

%

Seatbelt products 2)

 

 

878

 

 

 

746

 

 

 

18

%

 

 

0.5

%

 

 

17

%

Total

 

$

2,635

 

 

$

2,081

 

 

 

27

%

 

 

0.0

%

 

 

27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

968

 

 

$

732

 

 

 

32

%

 

 

(5.0

)%

 

 

37

%

Whereof: China

 

 

497

 

 

 

363

 

 

 

37

%

 

 

(5.7

)%

 

 

43

%

Asia excl. China

 

 

471

 

 

 

369

 

 

 

28

%

 

 

(4.3

)%

 

 

32

%

Americas

 

 

916

 

 

 

738

 

 

 

24

%

 

 

3.1

%

 

 

21

%

Europe

 

 

751

 

 

 

611

 

 

 

23

%

 

 

2.3

%

 

 

21

%

Total

 

$

2,635

 

 

$

2,081

 

 

 

27

%

 

 

0.0

%

 

 

27

%

1) Effects from currency translations.

2) Including Corporate and Other sales.

3) Non-U.S. GAAP measure.

Sales by product - Airbags, Steering Wheels and Other

Sales for all major product categories increased organically (Non-U.S. GAAP measure, see reconciliation table above) in the quarter. The largest contributor to the increase was inflatable curtains and steering wheels, followed by side airbags and passenger airbags.

Sales by product - Seatbelts

The main contributor to Seatbelt products organic sales growth (Non-U.S. GAAP measure, see reconciliation table above) was Europe, followed by China and Americas.

Sales by region

Our global organic sales (Non-U.S. GAAP measure, see reconciliation table above) increased by 27% compared to the global LVP increase of 15.5% (according to S&P Global, July 2023). The 11pp outperformance was driven by new product launches and price increases.

Autoliv outperformed LVP by 23pp in China, by 18pp in Asia excl. China, by 7pp in Americas and by 6pp in Europe.

Second quarter of 2023 organic growth1)

 

 

Americas

 

Europe

 

China

 

Asia excl. China

 

Global

Autoliv

 

21%

 

21%

 

43%

 

32%

 

27%

Main growth drivers

 

Honda, GM

 

VW, Stellantis, BMW

 

Honda, GM, Lixiang

 

Toyota, Hyundai, Subaru

 

Honda, Toyota, GM

Main decline drivers

 

BMW, Ford, VW

 

 

Nissan, Renault

 

Renault, KG Mobility

 

1) Non-U.S. GAAP measure.

 

 

Light Vehicle Production Development

Change second quarter of 2023 versus second quarter of 2022

 

 

Americas

 

Europe

 

China

 

Asia excl. China

 

Global

LVP1)

 

14 %

 

14 %

 

19 %

 

14 %

 

16 %

1) Source: S&P Global, July 2023.

25


 

Earnings

 

 

 

Three Months Ended June 30,

 

 

 

 

(Dollars in millions, except per share data)

 

2023

 

 

2022

 

 

Change

 

Net Sales

 

$

2,635

 

 

$

2,081

 

 

 

27

%

Gross profit

 

 

447

 

 

 

326

 

 

 

37

%

% of sales

 

 

17.0

%

 

 

15.7

%

 

 

1.3

pp

S, G&A

 

 

(129

)

 

 

(112

)

 

 

15

%

% of sales

 

 

(4.9

)%

 

 

(5.4

)%

 

 

0.5

pp

R, D&E, net

 

 

(120

)

 

 

(112

)

 

 

7.3

%

% of sales

 

 

(4.6

)%

 

 

(5.4

)%

 

 

0.8

pp

Amortization of Intangibles

 

 

(0

)

 

 

(0

)

 

 

24

%

Other income (expense), net

 

 

(103

)

 

 

22

 

 

n/a

 

Operating income

 

 

94

 

 

 

124

 

 

 

(24

)%

% of sales

 

 

3.6

%

 

 

6.0

%

 

 

(2.4)pp

 

Adjusted operating income1)

 

 

212

 

 

 

124

 

 

 

71

%

% of sales

 

 

8.0

%

 

 

6.0

%

 

 

2.1

pp

Financial and non-operating items, net

 

 

(11

)

 

 

(7

)

 

 

65

%

Income before taxes

 

 

83

 

 

 

117

 

 

 

(30

)%

Income taxes

 

 

(30

)

 

 

(38

)

 

 

(22

)%

Tax rate

 

 

35.8

%

 

 

32.2

%

 

 

3.5

pp

Net income

 

 

53

 

 

 

79

 

 

 

(33

)%

Earnings per share, diluted2)

 

 

0.61

 

 

 

0.91

 

 

 

(32

)%

Adjusted earnings per share, diluted1,2)

 

 

1.93

 

 

 

0.90

 

 

 

115

%

1) Non-U.S. GAAP measure, excluding effects from capacity alignment, antitrust related matters and the Andrews litigation settlement.

2) Assuming dilution, when applicable, and net of treasury shares.

 

Second quarter of 2023 development

Gross profit increased by $121 million and the gross margin increased by 1.3pp compared to the same quarter 2022. The gross profit increase was primarily driven by price increases, volume growth and lower costs for premium freight. This was partly offset by increased costs for personnel related to volume growth and wage inflation, as well as adverse effects from unfavorable exchange rates and energy costs.

S,G&A costs increased by $17 million compared to the prior year, mainly due to increased costs for personnel and projects. S,G&A costs in relation to sales decreased from 5.4% to 4.9%.

R,D&E, net costs increased by around $8 million compared to the prior year, mainly due to higher costs for personnel. R,D&E, net, in relation to sales decreased from 5.4% to 4.6%.

Other income (expense), net was negative $103 million compared to $22 million in the prior year. The prior year was positively impacted by $21 million from a patent litigation settlement while Q2 2023 was negatively impacted by around $109 million in accruals for capacity alignments

Operating income decreased by $30 million compared to the same period in 2022, mainly as a consequence of accruals for capacity alignments and the higher costs for S,G&A and R,D&E, net, partly offset by the higher gross profit.

Adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) increased by $88 million compared to the prior year, mainly due to higher gross profit, partly offset by the higher costs for S,G&A and R,D&E, net.

Financial and non-operating items, net, was negative $11 million compared to negative $7 million a year earlier, mainly due to increased interest expense as an effect of higher debt and higher interest rates.

Income before taxes decreased by $35 million compared to the prior year, mainly due to the lower operating income.

Tax rate was 35.8% compared to 32.2% in the same period last year. Discrete tax items, net, decreased the tax rate this quarter by 4.5pp. Discrete tax items increased the tax rate by 1.5pp in the same period last year.

Earnings per share, diluted decreased by $0.29 compared to a year earlier. The main driver were $1.32 from capacity alignments and other adjustments, partly offset by $0.69 from higher adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) and $0.35 from taxes.

 

 

26


 

 

SIX MONTHS PERIOD ENDED JUNE 30, 2023 COMPARED WITH SIX MONTHS PERIOD ENDED JUNE 30, 2022

 

Consolidated Sales Development

(dollars in millions)

 

 

Six Months Ended June 30,

 

 

 

 

 

Components of change in net sales

 

 

 

2023

 

 

2022

 

 

Reported
change

 

 

Currency
effects
1)

 

 

Organic 3)

 

Airbags, Steering Wheels and Other2)

 

$

3,430

 

 

$

2,716

 

 

 

26

%

 

 

(2.0

)%

 

 

28

%

Seatbelt products 2)

 

 

1,698

 

 

 

1,489

 

 

 

14

%

 

 

(1.5

)%

 

 

16

%

Total

 

$

5,127

 

 

$

4,206

 

 

 

22

%

 

 

(1.8

)%

 

 

24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

1,904

 

 

$

1,589

 

 

 

20

%

 

 

(6.5

)%

 

 

26

%

Whereof: China

 

 

950

 

 

 

810

 

 

 

17

%

 

 

(6.6

)%

 

 

24

%

Asia excl. China

 

 

954

 

 

 

779

 

 

 

22

%

 

 

(6.5

)%

 

 

29

%

Americas

 

 

1,747

 

 

 

1,431

 

 

 

22

%

 

 

2.8

%

 

 

19

%

Europe

 

 

1,476

 

 

 

1,186

 

 

 

24

%

 

 

(1.1

)%

 

 

26

%

Total

 

$

5,127

 

 

$

4,206

 

 

 

22

%

 

 

(1.8

)%

 

 

24

%

1) Effects from currency translations.

2) Including Corporate and Other sales.

3) Non-U.S. GAAP measure.

 

Sales by product - Airbags, Steering Wheels and Other

Sales for all major product categories increased organically (Non-U.S. GAAP measure, see reconciliation table above) in the quarter. The largest contributor to the increase was inflatable curtains and steering wheels, followed by side airbags and passenger airbags.

 

Sales by product - Seatbelts

The main contributor to Seatbelt products organic sales growth (Non-U.S. GAAP measure, see reconciliation table above) was Europe, followed by Americas, Asia excl. China, and China.

 

Sales by region

Our global organic sales (Non-U.S. GAAP measure, see reconciliation table above) increased by 24% compared to the global LVP increase of 11.3% (according to S&P Global, July 2023). The 12pp outperformance was driven by new product launches and price increases.

Autoliv outperformed LVP by around 17pp in China, by 15pp in Asia excl. China, by 9pp in Europe, and by 7pp in Americas.

First six months 2023 organic growth1)

 

 

Americas

 

Europe

 

China

 

Asia excl. China

 

Global

Autoliv

 

19%

 

26%

 

24%

 

29%

 

24%

Main growth drivers

 

Honda, GM, Nissan

 

VW, Stellantis, Renault

 

Honda, Lixiang, BYD

 

Toyota, Hyundai, Subaru

 

Honda, Toyota, Hyundai

Main decline drivers

 

Ford, BMW

 

Mitsubishi

 

Nissan, Renault, Xpeng

 

Renault, KG Mobility

 

Ford, Xpeng

1) Non-U.S. GAAP measure.

 

 

Light Vehicle Production Development

Change first six months of 2023 versus first six months of 2022

 

Americas

 

Europe

 

China

 

Asia excl. China

 

Global

LVP1)

 

12 %

 

16 %

 

6.7 %

 

14 %

 

11 %

1) Source: S&P Global, July 2023.

 

27


 

Earnings

 

 

Six Months Ended June 30,

 

 

 

 

(Dollars in millions, except per share data)

 

2023

 

 

2022

 

 

Change

 

Net Sales

 

$

5,127

 

 

$

4,206

 

 

 

22

%

Gross profit

 

 

826

 

 

 

614

 

 

 

34

%

% of sales

 

 

16.1

%

 

 

14.6

%

 

 

1.5

pp

S, G&A

 

 

(261

)

 

 

(227

)

 

 

15

%

% of sales

 

 

(5.1

)%

 

 

(5.4

)%

 

 

0.3

pp

R, D&E, net

 

 

(237

)

 

 

(219

)

 

 

8.0

%

% of sales

 

 

(4.6

)%

 

 

(5.2

)%

 

 

0.6

pp

Amortization of Intangibles

 

 

(1

)

 

 

(2

)

 

 

(50

)%

Other income (expense), net

 

 

(107

)

 

 

92

 

 

n/a

 

Operating income

 

 

221

 

 

 

258

 

 

 

(15

)%

% of sales

 

 

4.3

%

 

 

6.1

%

 

 

(1.8)pp

 

Adjusted operating income1)

 

 

343

 

 

 

192

 

 

 

79

%

% of sales

 

 

6.7

%

 

 

4.6

%

 

 

2.1

pp

Financial and non-operating items, net

 

 

(29

)

 

 

(22

)

 

 

35

%

Income before taxes

 

 

191

 

 

 

237

 

 

 

(19

)%

Income taxes

 

 

(64

)

 

 

(74

)

 

 

(14

)%

Tax rate

 

 

33.4

%

 

 

31.3

%

 

 

2.1

pp

Net income

 

 

127

 

 

 

163

 

 

 

(22

)%

Earnings per share, diluted2)

 

 

1.47

 

 

 

1.85

 

 

 

(20

)%

Adjusted earnings per share, diluted1,2)

 

 

2.82

 

 

 

1.36

 

 

 

107

%

1) Non-U.S. GAAP measure, excluding effects from capacity alignment, antitrust related matters, the Andrews litigation settlement, and gain on sale of property in the first quarter of 2022.

2) Assuming dilution, when applicable, and net of treasury shares.

 

First six months 2023 development

 

Gross profit increased by $212 million and the gross margin increased by 1.5pp compared to the same period 2022. The gross profit increase was primarily driven by price increases, volume growth and lower costs for premium freight. This was partly offset by increased costs for personnel related to higher volumes and wage inflation as well as adverse effects from higher costs for raw materials, unfavorable FX effects and higher costs for energy.

S,G&A costs increased by $33 million compared to the prior year, mainly due to increased costs for personnel and projects, partly offset by positive currency translation effects. S,G&A costs in relation to sales decreased from 5.4% to 5.1%.

R,D&E, net costs increased by around $18 million compared to the prior year, mainly due to higher costs for personnel, partly offset by positive currency translation effects. R,D&E, net, in relation to sales decreased from 5.2% to 4.6%.

Other income (expense), net was negative $107 million compared to $92 million in the prior year. The prior year was positively impacted by around an $80 million gain from the sale of a property in Japan and around $20 million from a patent litigation settlement, partly offset by around $10 million in capacity alignment provision for the closure of a plant in South Korea while first half 2023 was negatively impacted by around $112 million in accruals for capacity alignments.

Operating income decreased by $37 million compared to the same period in 2022, mainly as a consequence of the changes in Other income (expense) and the higher costs for S,G&A and R,D&E, net, partly offset by the higher gross profit.

Adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) increased by $151 million compared to the prior year, mainly due to higher gross profit, partly offset by the higher costs for S,G&A and R,D&E, net.

Financial and non-operating items, net, was negative $29 million compared to negative $22 million a year earlier, mainly due to increased interest expense as an effect of higher debt and higher interest rates.

Income before taxes decreased by $45 million compared to the prior year, mainly due to the lower operating income and increased interest expense.

Tax rate was 33.4% compared to 31.3% in the same period last year. Discrete tax items, net, decreased the tax rate in this year by 1.5pp. Discrete tax items increased the tax rate by 1.0pp in the same period last year.

Earnings per share, diluted decreased by $0.38 compared to a year earlier. The main drivers were $1.83 from capacity alignments and other adjustments, partly offset by $1.20 from higher adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) and $0.29 from taxes.

 

 

 

 

28


 

 

LIQUIDITY AND CAPITAL RESOURCES

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial position, results of operations or cash flows. The Company’s future contractual obligations have not changed materially from the amounts reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023.

 

Second quarter of 2023 development

Trade working capital (Non-U.S. GAAP measure, see calculation table below) decreased by $87 million compared to the same period last year, where the main drivers were $541 million in higher accounts payable partly offset by $410 million in higher receivables and $44 million in higher inventories. Compared to Q1 2023, trade working capital was reduced by $117 million, driven by $161 million in higher accounts payable and $39 million in lower inventories partly offset by $83 million in higher receivables.

Operating cash flow improved by $430 million to $379 million compared to the same period last year, mainly due to improved adjusted operating income and a reversal of the negative working capital effects from the first quarter 2023.

Capital expenditure, net decreased by $14 million compared to the same period the previous year. Capital expenditure, net in relation to sales was 4.7% vs. 6.7% a year earlier.

Free cash flow (Non-U.S. GAAP measure, see calculation table below) was $255 million, compared to negative $190 million in the same period prior year. The improvement was due to the higher operating cash flow and lower capital expenditure, net.

Cash conversion (Non-U.S. GAAP measure) defined as free cash flow (Non-U.S. GAAP measure, see calculation table below) in relation to net income, was 481% in the period, positively impacted by significant capacity alignment accruals in the quarter.

Net debt (Non-U.S. GAAP measure, see reconciliation table below) was $1,299 million as of June 30, 2023, which was $19 million lower than a year earlier.

Liquidity position. As of June 30, 2023, our cash balance was around $0.5 billion, and including committed, unused loan facilities, our liquidity position was around $1.6 billion.

Leverage ratio (Non-U.S. GAAP measure, see calculation table below). As of June 30, 2023, the Company had a leverage ratio of 1.3x compared to 1.7x as of June 30, 2022, as the net debt (Non-U.S. GAAP measure, see reconciliation table below) decreased and the 12 months trailing adjusted EBITDA (Non-U.S. GAAP measure, see reconciliation table below) increased.

Total equity decreased by $1 million compared to June 30, 2022. This was mainly due to $226 million in dividend payment and stock repurchases of $157 million as well as $30 million in adverse currency translation effects, partly offset by $390 million from net income.

 

First six months of 2023 development

Operating cash flow increased by $315 million compared to the same period last year to $334 million, mainly due to higher adjusted operating income and positive working capital effects.

Capital expenditure, net increased by $112 million, mainly due to the impact on the prior year of $95 million from the sale of property, plant and equipment. Capital expenditure, net in relation to sales was 5.2% vs. 3.7% a year earlier.

Free cash flow (Non-U.S. GAAP measure, see reconciliation table below) was $66 million, compared to negative $137 million in the same period prior year. The improvement was due to the higher operating cash flow partly offset by higher capital expenditure, net.

Cash conversion (Non-U.S. GAAP measure, see reconciliation table below) defined as free cash flow (Non-U.S. GAAP measure, see reconciliation table below) in relation to net income, was 52% in the period.

NON-U.S. GAAP MEASURES

The Company believes that comparability between periods is improved through the exclusion of certain items. To assist investors in understanding the operating performance of Autoliv's business, it is useful to consider certain U.S. GAAP measures exclusive of these items.

With respect to the Andrews litigation settlement, the Company has treated this specific settlement as a non-recurring charge because of the unique nature of the lawsuit, including the facts and legal issues involved.

Accordingly, the tables below reconcile from U.S. GAAP to the equivalent non-U.S. GAAP measure.

29


 

Reconciliation of U.S. GAAP financial measures to “Adjusted operating income”, “Adjusted operating margin” and “Adjusted Earnings per share, diluted”

(Dollars in millions, except per share data)

 

 

 

Three Months Ended June 30, 2023

 

 

Three Months Ended June 30, 2022

 

 

 

Reported
U.S.
GAAP

 

 

Adjustments1)

 

 

Non-U.S.
GAAP

 

 

Reported
U.S.
GAAP

 

 

Adjustments1)

 

 

Non-U.S.
GAAP

 

Operating income

 

$

94

 

 

$

118

 

 

$

212

 

 

$

124

 

 

$

0

 

 

$

124

 

Operating margin, %

 

 

3.6

%

 

 

4.5

%

 

 

8.0

%

 

 

6.0

%

 

 

0.0

%

 

 

6.0

%

Earnings per share, diluted

 

$

0.61

 

 

$

1.31

 

 

$

1.93

 

 

$

0.91

 

 

$

(0.00

)

 

$

0.90

 

1) Effects from capacity alignment, antitrust related matters and the Andrews litigation settlement.

 

 

 

 

Six Months Ended June 30, 2023

 

 

Six Months Ended June 30, 2022

 

 

 

Reported
U.S.
GAAP

 

 

Adjustments1)

 

 

Non-U.S.
GAAP

 

 

Reported
U.S.
GAAP

 

 

Adjustments1)

 

 

Non-U.S.
GAAP

 

Operating income

 

$

221

 

 

$

122

 

 

$

343

 

 

$

258

 

 

$

(66

)

 

$

192

 

Operating margin, %

 

 

4.3

%

 

 

2.4

%

 

 

6.7

%

 

 

6.1

%

 

 

(1.6

)%

 

 

4.6

%

Earnings per share, diluted

 

$

1.47

 

 

$

1.35

 

 

$

2.82

 

 

$

1.85

 

 

$

(0.49

)

 

$

1.36

 

1) Effects from capacity alignments, antitrust related matters and the Andrews litigation settlement, including gain on sale of property in the first quarter of 2022.

Items included in Non-U.S. GAAP adjustments

(Dollars in millions, except per share data)

 

 

 

Three Months Ended June 30, 2023

 

 

Three Months Ended June 30, 2022

 

 

 

Millions

 

 

Per share

 

 

Millions

 

 

Per share

 

Capacity alignments

 

$

109

 

 

$

1.26

 

 

$

0

 

 

$

0.00

 

The Andrews litigation settlement

 

 

8

 

 

 

0.09

 

 

 

 

 

 

 

Antitrust related matters

 

 

1

 

 

 

0.01

 

 

 

 

 

 

 

Total adjustments to operating income

 

 

118

 

 

 

1.36

 

 

 

0

 

 

 

0.00

 

Tax on non-U.S. GAAP adjustments1)

 

 

(5

)

 

 

(0.06

)

 

 

0

 

 

 

0.00

 

Total adjustments to net income

 

$

113

 

 

$

1.30

 

 

$

0

 

 

$

0.00

 

1) The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s).

 

 

 

Six Months Ended June 30, 2023

 

 

Six Months Ended June 30, 2022

 

 

 

Millions

 

 

Per share

 

 

Millions

 

 

Per share

 

Capacity alignments1)

 

$

112

 

 

$

1.29

 

 

$

(66

)

 

$

(0.76

)

The Andrews litigation settlement

 

 

8

 

 

 

0.09

 

 

 

 

 

 

 

Antitrust related matters

 

 

2

 

 

 

0.02

 

 

 

 

 

 

 

Total adjustments to operating income

 

 

122

 

 

 

1.41

 

 

 

(66

)

 

 

(0.76

)

Tax on non-U.S. GAAP adjustments2)

 

 

(6

)

 

 

(0.07

)

 

 

23

 

 

 

0.27

 

Total adjustments to net income

 

$

116

 

 

$

1.34

 

 

$

(43

)

 

$

(0.49

)

1) Whereof gain on sale of property of $80 million in first quarter of 2022.

2) The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s).

 

The Company uses the non-U.S. GAAP measure “Trade working capital,” as defined in the table below, in its communications with investors and for management’s review of the development of the trade working capital cash generation from operations. The reconciling items used to derive this measure are, by contrast, managed as part of the Company’s overall cash and debt management, but they are not part of the responsibilities of day-to-day operations’ management.

Calculation of “Trade working capital”

(Dollars in millions)

 

 

June 30, 2023

 

 

March 31, 2023

 

 

June 30, 2022

 

Receivables, net

 

$

2,189

 

 

$

2,106

 

 

$

1,779

 

Inventories, net

 

 

947

 

 

 

986

 

 

 

903

 

Accounts payable

 

 

(1,844

)

 

 

(1,683

)

 

 

(1,303

)

Trade working capital

 

$

1,292

 

 

$

1,409

 

 

$

1,379

 

 

30


 

Management uses the non-U.S GAAP measure "Net debt" to analyze the amount of debt the Company can incur under its debt policy. Management believes that this policy also provides guidance to credit and equity investors regarding the extent to which the Company would be prepared to leverage its operations. The Company, from time to time enters into “debt-related derivatives” (DRDs) as a part of its debt management and as part of efficiently managing the Company’s overall cost of funds. Creditors and credit rating agencies use net debt adjusted for DRDs in their analyses of the Company’s debt, therefore the Company provides this non-U.S. GAAP measure. DRDs are fair value adjustments to the carrying value of the underlying debt. Also included in the DRDs is the unamortized fair value adjustment related to a discontinued fair value hedge that will be amortized over the remaining life of the debt. By adjusting for DRDs, the total financial liability of net debt is disclosed without grossing debt up with currency or interest fair values.

Reconciliation of U.S. GAAP financial measure to “Net debt”

(Dollars in millions)

 

 

June 30, 2023

 

 

March 31, 2023

 

 

June 30, 2022

 

Short-term debt

 

$

481

 

 

$

577

 

 

$

559

 

Long-term debt

 

 

1,290

 

 

 

1,601

 

 

 

1,060

 

Total debt

 

 

1,771

 

 

 

2,179

 

 

 

1,619

 

Cash and cash equivalents

 

 

(475

)

 

 

(713

)

 

 

(327

)

Debt issuance cost/Debt-related derivatives, net

 

 

4

 

 

 

12

 

 

 

26

 

Net debt

 

$

1,299

 

 

$

1,477

 

 

$

1,318

 

 

The non-U.S. GAAP measure “Net debt” is also used in the non-U.S. GAAP measure “Leverage ratio”. Management uses the non-U.S. GAAP measure “Leverage Ratio” to analyze the amount of debt the Company can incur under its debt policy. Management believes that this policy also provides guidance to credit and equity investors regarding the extent to which the Company would be prepared to leverage its operations. The Company's long-term target for the leverage ratio (sum of net debt plus pension liabilities divided by EBITDA) is 1.0x with the aim to operate within the range of 0.5x to 1.5x. For details and calculation of leverage ratio, refer to the table below.

Calculation of “Leverage ratio”

(Dollars in millions)

 

 

June 30, 2023

 

 

March 31, 2023

 

 

June 30, 2022

 

Net debt1)

 

$

1,299

 

 

$

1,477

 

 

$

1,318

 

Pension liabilities

 

 

152

 

 

 

159

 

 

 

155

 

Debt per the Policy

 

 

1,451

 

 

 

1,636

 

 

 

1,473

 

 

 

 

 

 

 

 

 

 

 

Net income2)

 

 

390

 

 

 

416

 

 

 

338

 

Income taxes 2)

 

 

168

 

 

 

176

 

 

 

143

 

Interest expense, net2,3)

 

 

67

 

 

 

60

 

 

 

51

 

Other non-operating items, net2)

 

 

1

 

 

 

4

 

 

 

2

 

Income from equity method investments2)

 

 

(4

)

 

 

(4

)

 

 

(3

)

Depreciation and amortization of intangibles2)

 

 

363

 

 

 

359

 

 

 

381

 

Capacity alignments, antitrust related matters and the Andrews litigation settlement2)

 

 

127

 

 

 

10

 

 

 

(59

)

EBITDA per the Policy (Adjusted EBITDA)

 

$

1,112

 

 

$

1,021

 

 

$

854

 

Leverage ratio

 

 

1.3

 

 

 

1.6

 

 

 

1.7

 

1) Net debt (non-U.S. GAAP measure) is short- and long-term debt and debt-related derivatives, less cash and cash equivalents.

2) Latest 12-months.

3) Interest expense, net including cost for extinguishment of debt, if any, less interest income.

31


 

 

 

Management uses the non-U.S. GAAP measure free cash flow to analyze the amount of cash flow being generated by the Company’s operations after capital expenditure, net. This measure indicates the Company’s cash flow generation level that enables strategic value creation options such as dividends or acquisitions. For details on the calculation of free cash flow, see the table below.

 

Calculation of “Free Cash Flow”

(Dollars in millions)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

$

53

 

 

$

79

 

 

$

127

 

 

$

163

 

Changes in operating working capital

 

230

 

 

 

(239

)

 

 

28

 

 

 

(257

)

Depreciation and amortization

 

94

 

 

 

90

 

 

 

186

 

 

 

186

 

Gain on divestiture of property

 

 

 

 

 

 

 

 

 

 

 

(80

)

Other, net

 

2

 

 

 

19

 

 

 

(8

)

 

 

7

 

Operating cash flow

 

 

379

 

 

 

(51

)

 

 

334

 

 

 

19

 

Capital expenditure, net

 

(124

)

 

 

(139

)

 

 

(267

)

 

 

(156

)

Free cash flow1)

$

255

 

 

$

(190

)

 

$

66

 

 

$

(137

)

Cash conversion2)

 

 

481

%

 

n/a

 

 

 

52

%

 

n/a

 

1) Operating cash flow less Capital expenditures, net.

 

 

 

 

 

 

 

 

 

 

 

 

2) Free cash flow relative to Net income.

 

 

 

 

 

 

 

 

 

 

 

 

Headcount

 

 

June 30, 2023

 

 

March 31, 2023

 

 

June 30, 2022

 

Total headcount

 

 

71,200

 

 

 

71,300

 

 

 

64,700

 

Whereof:

 

 

 

 

 

 

 

 

 

Direct personnel in manufacturing

 

 

52,600

 

 

 

52,700

 

 

 

46,500

 

Indirect personnel

 

 

18,600

 

 

 

18,600

 

 

 

18,200

 

Temporary personnel

 

 

11

%

 

 

11

%

 

 

9.6

%

 

At June 30, 2023, total headcount increased by 6,500 compared to a year earlier. The indirect workforce increased by 2% while the direct workforce increased by 13%, reflecting that sales grew organically by 27% in the second quarter compared to a year earlier.

Compared to March 31, 2023, total headcount was virtually unchanged. Our headcount reductions announced on July 13, 2023 is not yet reflected in the totals.
 

 

 

 

32


 

Full year 2023 indications

 

The Company's outlook indications for 2023 are mainly based on its customer call-offs, a full year 2023 global LVP growth of around 4%, that the Company achieves its targeted cost compensation effects and that customer call-off volatility is reduced.

 

Financial measure

 

Full year indication

Organic sales growth

 

Around 15%

Foreign currency impact on net sales

 

Around 1% positive

Adjusted operating margin 1)

 

Around 8.5%-9%

Tax rate 2)

 

Around 32%

Operating cash flow 3)

 

Around $900 million

Capital expenditures, net % of sales

 

Around 6%

1) Excluding effects from capacity alignments, antitrust related matters, the Andrews litigation settlement and other discrete items.

2) Excluding unusual tax items.

3) Excluding unusual items.

This report includes content supplied by S&P Global; Copyright © Light Vehicle Production Forecast, July 2023. All rights reserved.

 

The forward-looking non-U.S. GAAP financial measures above are provided on a non-U.S. GAAP basis. The Company has not provided a U.S. GAAP reconciliation of these measures because items that impact these measures, such as costs and gains related to capacity alignments and antitrust matters, cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and the Company is unable to determine the probable significance of the unavailable information.

Other recent events

Key launches in the six months period ended June 30, 2023

Kia EV9: Side Airbags, Head/Inflatable Curtain Airbags, Front Center Airbag
Hyundai MUFASA: Driver/Passenger Airbags, Side Airbags, Head/Inflatable Curtain Airbags, Steering Wheel
Zeekr-X: Driver/Passenger Airbags, Side Airbags, Head/Inflatable Curtain Airbags, Seatbelts
Nio ES6: Driver/Passenger Airbags, Side Airbags, Head/Inflatable Curtain Airbags, Front Center Airbag, Seatbelts
WEY Blue Mountain: Driver/Passenger Airbags, Steering Wheel, Seatbelts
Mercedes E-class: Driver/Passenger Airbags, Side Airbags, Head/Inflatable Curtain Airbags, Steering Wheel
Ford Mustang: Driver/Passenger Airbags, Side Airbags, Steering Wheel, Seatbelts
Toyota Alphard: Driver/Passenger Airbags, Head/Inflatable Curtain Airbags, Seatbelts
VW ID.7: Driver/Passenger Airbags, Side Airbags, Steering Wheel, Front Center Airbag, Seatbelts, Pedestrian Airbag

 

33


 

Other Items

On May 2, 2023, Autoliv announced that it presented several new safety solutions at the Shanghai Automobile Industry Exhibition 2023. The new safety solutions include an integrated cockpit, a zero-gravity seat, and the Star steering wheel. The new products are designed to provide safety, comfort, and an improved driving experience.
On May 19, 2023, Autoliv announced that Autoliv China and NIO Inc., a leading electric vehicle company based in China, signed a strategic cooperation framework agreement. The collaboration includes several new safety technologies for electric vehicles with an overarching focus on sustainable solutions.
On May 24, 2023, Autoliv announced that Petra Albuschus will join the company as Executive Vice President, Human Resources and Sustainability and will become a member of the Autoliv Executive Management Team. She will succeed Per Ericson who will retire. Ms. Albuschus joins Autoliv from Swedish retail company ICA Gruppen AB where she serves as Chief Human Resources Officer and a member of the ICA Gruppen executive management team. Over her career, Ms. Albuschus has accumulated valuable leadership and logistics experience from ICA Gruppen and from Procter & Gamble. Ms. Albuschus is expected to begin her employment with Autoliv no later than November 15, 2023.
On May 30, 2023, Autoliv announced that it has appointed Magnus Jarlegren, then Executive Vice President, Operations, as the next President Autoliv Europe effective June 1, 2023. Mr. Jarlegren brings extensive experience from leading development and change management in global operations and driving operational excellence, leading the step change of the Autoliv Production System and plant improvement.
On June 2, 2023, Autoliv announced that it will launch its first motorcycle airbag in 2025. The first new motorcycle safety product to reach the market will be the bag-on-bike airbag, with production beginning in Q1 2025. The bag-on-bike airbag can significantly reduce the risk of serious injury for powered two-wheeler riders in frontal crashes.
On June 8, 2023, Autoliv announced it is accelerating its global structural cost reductions, particularly within its European operations. These actions support Autoliv's medium- and long-term financial targets. The accelerated structural cost reduction initiatives include further optimization of the Company’s geographic footprint and organizational structure, including a substantial reduction of its total direct and indirect workforce by up to 11%.
On June 12, 2023, Autoliv hosted an Investor Day where Autoliv management outlined the Company's strategy, growth opportunities, financial plans and targets as well as its contribution to sustainable mobility.
On July 13, 2023, Autoliv announced its aims to close sites in Elmshorn, Germany and Congleton, United Kingdom, as part of its global structural cost reduction initiatives.
In Q2 2023, Autoliv repurchased and retired 0.48 million shares of common stock at an average price of $85.20 per share under the Autoliv 2022-2024 stock purchase program.

34


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2023, there have been no material changes to the information related to quantitative and qualitative disclosures about market risk that were provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023.

ITEM 4. CONTROLS AND PROCEDURES

(a)
Evaluation of Disclosure Controls and Procedures

An evaluation has been carried out, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.

(b)
Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

35


 

PART II - OTHER INFORMATION

In the ordinary course of our business, we are subject to legal proceedings brought by or against us and our subsidiaries.

See Part I, Item 1, "Financial Statements, Note 9 Contingent Liabilities" of this Quarterly Report on Form 10-Q for a summary of certain ongoing legal proceedings. Such information is incorporated into this Part II, Item 1—"Legal Proceedings" by reference.

ITEM 1A. RISK FACTORS

As of June 30, 2023, there have been no material changes to the risk factors that were previously disclosed in Item 1A in the Company’s Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock repurchase program

The following table provides information with respect to common stock repurchases by the Company during the three months period ended June 30, 2023.

 

 

 

New York Stock Exchange (NYSE)

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased (1)

 

 

Average Price Paid per Share (USD) (2)

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)

 

 

Maximum Number of Shares that Yet May Be Purchased Under the Plans or Programs (3)

 

April 1-30, 2023

 

 

17,400

 

 

$

86.22

 

 

 

1,908,131

 

 

 

15,091,869

 

May 1-31, 2023

 

 

388,275

 

 

$

85.00

 

 

 

2,296,406

 

 

 

14,703,594

 

June 1-30, 2023

 

 

69,617

 

 

$

86.20

 

 

 

2,366,023

 

 

 

14,633,977

 

(1) The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. For accounting purposes, shares repurchased under our stock repurchase programs are recorded based upon the settlement date of the applicable trade.

(2) Average price paid per share includes costs associated with the repurchases.

(3) On November 16, 2021, the Company announced that its Board of Directors approved a new stock repurchase program that authorizes the Company to repurchase up to $1.5 billion or up to 17 million common shares, whichever comes first, between January 2022 and the end of 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

 

During the three months period ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

36


 

ITEM 6. EXHIBITS

 

Exhibit No.

 

Description

 

 

 

  3.1

 

Autoliv’s Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 22, 2015).

 

 

 

  3.2

 

Autoliv’s Third Restated By-Laws, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-12933, filing date December 18, 2015).

 

 

 

  4.1

 

Indenture, dated March 30, 2009, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to Autoliv’s Registration Statement on Form 8-A (File No. 001-12933, filing date March 30, 2009).

 

 

 

  4.2

 

Second Supplemental Indenture (including Form of Global Note), dated March 15, 2012, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).

 

 

 

  4.3

 

Form of Note Purchase and Guaranty Agreement dated April 23, 2014, among Autoliv ASP, Inc., Autoliv, Inc. and the purchasers named therein, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 25, 2014).

 

 

 

  4.4

 

Amendment and Waiver 2014 Note Purchase and Guaranty Agreement, dated May 24, 2018, among Autoliv, Inc., Autoliv ASP, Inc. and the noteholders named therein, incorporated herein by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

 

 

 

  4.5

 

General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc. representing common shares in Autoliv, Inc., effective as of May 30, 2018, with Skandinaviska Enskilda Banken AB (publ) serving as a custodian, incorporated herein by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

 

 

 

  4.6

 

Agency Agreement dated June 26, 2018 among Autoliv, Inc., Autoliv ASP, Inc. and HSBC Bank PLC, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

 

 

 

  4.7

 

Amended and Restated Agency Agreement, dated February 22, 2022, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.14 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 22, 2022).

 

 

 

  4.8

 

Base Listing Particulars Agreement, dated February 17, 2023, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 16, 2023).

 

 

 

  4.9

 

Amended and Restated Programme Agreement, dated February 17, 2023, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No. 001-12933, filing date March 16, 2023).

 

 

 

10.1*+

 

Employment Agreement, dated May 17, 2023, by and between Autoliv, Inc. and Petra Albuschus.

 

 

 

10.2*+

 

Amendment No. 1, dated June 1, 2023, to the Employment Agreement, dated February 15, 2019, by and between Autoliv, Inc. and Magnus Jarlegren.

 

 

 

10.3*+

 

Mutual Separation Agreement, dated July 10, 2023, by and between Autoliv, Inc. and Frithjof Oldorff.

 

 

 

10.4*+

 

Autoliv, Inc. Non-Employee Director Compensation Policy effective May 1, 2023.

 

 

 

10.5*+

 

Form of Non-Employee Director Restricted Stock Units Grant Agreement (2023) to be used under the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated.

 

 

 

31.1*

 

Certification of the Chief Executive Officer of Autoliv, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

 

 

 

31.2*

 

Certification of the Chief Financial Officer of Autoliv, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

 

 

 

32.1*

 

Certification of the Chief Executive Officer of Autoliv, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Certification of the Chief Financial Officer of Autoliv, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

37


 

101.INS*

 

Inline XBRL Instance Document – The instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

104*

 

Cover Page Interactive Data File (embedded within the inline XBRL document).

 

 

 

* Filed herewith.

+ Management contract or compensatory plan.

 

38


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 21, 2023

AUTOLIV, INC.

(Registrant)

 

By:

 

/s/ Fredrik Westin

 

 

Fredrik Westin

 

 

Chief Financial Officer

 

 

(Duly Authorized Officer and Principal Financial Officer)

 

39