AUTOLIV INC - Quarter Report: 2023 June (Form 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.

 

 

 

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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.

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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

 

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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.

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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.

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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.

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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.

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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.

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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

 

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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.

 

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

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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.

 

 

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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.

 

 

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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.

 

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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.

 

 

 

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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.

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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.

 

 

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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.

 

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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.

 

 

 

 

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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.

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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

 

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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.

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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.
 

 

 

 

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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

 

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Other Items

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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

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.

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.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

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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.

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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.

 

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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)

 

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