AUTOLIV INC - Quarter Report: 2023 September (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 September 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 October 16, 2023, there were 84,148,332 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	10
2.	New Accounting Standards	11
3.	Fair Value Measurements	12
4.	Income Taxes	15
5.	Inventories	15
6.	Restructuring	16
7.	Product-Related Liabilities	16
8.	Retirement Plans	17
9.	Contingent Liabilities	18
10.	Stock Incentive Plan	19
11.	Earnings Per Share	20
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		34
ITEM 4. CONTROLS AND PROCEDURES		34
PART II - OTHER INFORMATION		35
ITEM 1. LEGAL PROCEEDINGS		35
ITEM 1A. RISK FACTORS		35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		35
ITEM 4. MINE SAFETY DISCLOSURES		35
ITEM 5. OTHER INFORMATION		35
ITEM 6. EXHIBITS		36

 

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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 September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net sales		$	2,596			$	2,302			$	7,724			$	6,507
Cost of sales			(2,131	)			(1,918	)			(6,432	)			(5,510	)
Gross profit			465				383				1,291				998
Selling, general and administrative expenses			(118	)			(105	)			(379	)			(333	)
Research, development and engineering expenses, net			(107	)			(106	)			(343	)			(325	)
Amortization of intangibles			(1	)			(0	)			(1	)			(2	)
Other income (expense), net1)			(8	)			(1	)			(115	)			91
Operating income			232				171				453				429
Income from equity method investment			1				1				4				3
Interest income			3				2				10				4
Interest expense			(24	)			(15	)			(68	)			(41	)
Other non-operating items, net			(11	)			(6	)			(6	)			(5	)
Income before income taxes			201				153				393				389
Income tax expense			(67	)			(47	)			(131	)			(121	)
Net income2)			134				106				262				268
Less: Net income attributable to non-controlling interest			1				1				1				1
Net income attributable to controlling interest		$	134			$	105			$	261			$	267
Net earnings per share – basic		$	1.58			$	1.21			$	3.05			$	3.06
Net earnings per share – diluted		$	1.57			$	1.21			$	3.04			$	3.06
Weighted average number of shares outstanding, net of    treasury shares (in millions)			84.9				87.0				85.5				87.2
Weighted average number of shares outstanding,    assuming dilution and net of treasury    shares (in millions)			85.0				87.2				85.7				87.4
Cash dividend per share – declared		$	0.66			$	0.64			$	1.98			$	1.92
Cash dividend per share – paid		$	0.66			$	0.64			$	1.98			$	1.92

1) The nine months period ending September 30, 2022, includes a gain on sale of property of $80 million in Japan and a gain of $21 million from a patent litigation settlement.

2) For the three months periods ended September 30, 2023 and 2022, the aggregate transaction gain (loss) included in net income for the period were $(16) million and $(11) million, respectively. For the nine months periods ended September 30, 2023 and 2022, the aggregate transaction gain (loss) included in net income for the period were $(31) million and $(26) 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 September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net income		$	134			$	106			$	262			$	268
Other comprehensive income (loss) before tax:
Change in cumulative translation adjustments			(33	)			(98	)			(43	)			(214	)
Net change in unrealized components of defined benefit plans			1				(1	)			6				14
Other comprehensive (loss), before tax			(32	)			(99	)			(37	)			(200	)
Tax effect allocated to other comprehensive income (loss)			(0	)			0				(1	)			(4	)
Other comprehensive (loss), net of tax			(32	)			(99	)			(38	)			(203	)
Comprehensive income			102				7				223				65
Less: Comprehensive income (loss) attributable to    non-controlling interest			0				0				0				(0	)
Comprehensive income attributable to    controlling interest		$	101			$	7			$	223			$	65

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

 

		As of
		September 30, 2023				December 31, 2022
Assets
Cash and cash equivalents		$	475			$	594
Receivables, net			2,179				1,907
Inventories, net			982				969
Prepaid expenses and accrued income			180				160
Other current assets			63				84
Total current assets			3,879				3,714
Property, plant and equipment, net			2,067				1,960
Operating lease right-of-use assets			162				160
Goodwill			1,372				1,375
Intangible assets, net			6				7
Other non-current assets			500				502
Total assets			7,987				7,717
Liabilities and equity
Short-term debt			590				711
Accounts payable			1,858				1,693
Accrued expenses			1,093				915
Operating lease liabilities - current			37				39
Other current liabilities			274				283
Total current liabilities			3,851				3,642
Long-term debt			1,277				1,054
Pension liability			152				154
Operating lease liabilities - non-current			125				119
Other non-current liabilities			96				121
Total non-current liabilities			1,649				1,450
Common stock			89				91
Additional paid-in capital			1,072				1,113
Retained earnings			2,242				2,310
Accumulated other comprehensive loss			(560	)			(522	)
Treasury stock			(371	)			(379	)
Total controlling interest's equity			2,473				2,613
Non-controlling interest			13				13
Total equity			2,486				2,626
Total liabilities and equity		$	7,987			$	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)

 

		Nine Months Ended September 30,
		2023				2022
Operating activities
Net income		$	262			$	268
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			281				273
Gain on divestiture of property			—				(80	)
Other, net			1				(44	)
Net change in operating assets and liabilities			(8	)			(168	)
Net cash provided by operating activities			535				251
Investing activities
Expenditures for property, plant and equipment			(420	)			(418	)
Proceeds from sale of property, plant and equipment			1				98
Net cash used in investing activities			(419	)			(319	)
Financing activities
Net increase (decrease) in short-term debt			115				(110	)
Proceeds from long-term debt			557				251
Repayment of long-term debt			(533	)			(302	)
Dividends paid			(169	)			(167	)
Stock repurchased			(202	)			(60	)
Common stock options exercised			1				0
Dividend paid to non-controlling interest			(1	)			(1	)
Net cash used in financing activities			(232	)			(389	)
Effect of exchange rate changes on cash and cash equivalents			(3	)			(28	)
Net decrease in cash and cash equivalents			(119	)			(486	)
Cash and cash equivalents at beginning of period			594				969
Cash and cash equivalents at end of period		$	475			$	483

 

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
Dividends paid to non-controlling interest    on subsidiary shares																						0				(1	)			(1	)
Cash dividends declared										(56	)											(56	)							(56	)
Balances at June 30, 2023	$	90			$	1,096			$	2,260			$	(527	)		$	(374	)		$	2,545			$	13			$	2,557
Comprehensive Income:
Net income										134												134				1				134
Foreign currency translation          adjustment														(33	)							(33	)			(0	)			(33	)
Pension liability														1								1								1
Total Comprehensive Income		—				—				134				(32	)			—				101				0				102
Stock repurchased and retired		(1	)			(23	)			(95	)											(120	)							(120	)
Stock-based compensation																		3				3								3
Dividends paid to non-controlling interest    on subsidiary shares																										—				—
Cash dividends declared										(56	)											(56	)							(56	)
Balances at September 30, 2023	$	89			$	1,072			$	2,242			$	(560	)		$	(371	)		$	2,473			$	13			$	2,486

 

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	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
Comprehensive Income:
Net income										105												105				1				106
Foreign currency translation         adjustment														(98	)							(98	)			(1	)			(99	)
Pension liability														(1	)							(1	)							(1	)
Total Comprehensive Income (loss)		—				—				105				(98	)			—				7				0				7
Retired and repurchased shared		(0	)			(4	)			(15	)											(20	)							(20	)
Stock-based compensation																		3				3								3
Dividends paid to non-controlling   interest on subsidiary shares																										(1	)			(1	)
Cash dividends declared										(56	)											(56	)							(56	)
Balances at September 30, 2022	$	102			$	1,315			$	2,797			$	(610	)		$	(1,125	)		$	2,478			$	13			$	2,491

 

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)

September 30, 2023

 

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There were no reportable events subsequent to September 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

Our performance in the third quarter was very encouraging. Our organic sales growth continued to significantly outperform LVP and the adjusted operating income was a new third quarter record since the spin-off in 2018.

We are pleased that our strong performance in the third quarter was broad based, with improvements in several key areas - both year-over-year and sequentially - including gross and operating margin, labor efficiency and SG&A and RD&E costs in relation to sales. Cash flow was strong, and the debt leverage remained well within our target range while maintaining our dividend and almost tripling the number of shares repurchased compared to the second quarter.

We continue to work hard to secure a strong medium- and long-term competitive position. In the quarter, we detailed a large part of our structural cost reduction intentions of reducing our indirect workforce by up to 2,000. In addition, the ongoing reorganization of our global functions and European operations is expected to lead to a reduced normalized tax rate. It is also encouraging for our medium- and long-term potential that we continue to improve our position in China with the fast-growing domestic OEMs. In the first nine months, we increased our sales to this group by more than 50% year over year.

We increase our full year sales indication to reflect that LVP has developed better than expected, even with the UAW strike in the U.S. We have continued to see an improvement of supply chain stability throughout the year, with reduced customer call off volatility. However, the improvement is slower than we had expected, as it deteriorated somewhat in Europe in the third quarter. This, together with the higher sales and adverse foreign currency exchange development, means that we expect a fourth quarter adjusted operating margin (Non-U.S. GAAP measure) improvement year-over-year of around 1.5-2pp, in line with the previously communicated improvement pattern of around 2pp each quarter throughout 2023.

Our performance in the first nine months and the outlook for the final quarter of the year makes us confident that we will deliver a substantial full year increase in sales, operating cash flow and adjusted operating income. Together with the advancement of our structural cost reduction activities, the improving position with fast growing OEMs, the continued gradual improvement of supply chain stability, and the development of inflation compensation, we have a solid foundation for a continued strong development in the years to come, that support our medium-term targets.

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

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

 

$2,596 million net sales

13% net sales increase

11% organic sales growth (Non-U.S. GAAP measure, see reconciliation table below)

8.9% operating margin

9.4% adjusted operating margin (Non-U.S. GAAP measure, see reconciliation table below)

$1.57 EPS, 30% increase

$1.66 adjusted EPS (Non-U.S. GAAP measure, see reconciliation table below), 35% increase

 

 

Key business developments in the three months period ended September 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 for the third quarter 2023

Supply Chain

Global light vehicle production growth year-over-year was 3.8% (according to S&P Global October 2023) in the third quarter, with all major regions growing except China. We saw continued gradual improvement in call-off volatility as supply chains are less strained compared to a year earlier. 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 continue to fade in the fourth quarter of 2023, but not enough to return to pre-pandemic levels of efficiency by year-end.

Inflation

In Q3 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 negligible in Q3 2023. We expect the raw material price changes in 2023 to be largely 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

Autoliv expects its tax rate for full year 2023 to be lower than previously anticipated. The full year tax rate is now projected to be around 20% for full year 2023. This is due to the ongoing reorganization of our global functions and European operations, which is expected to lead to a reduced tax rate for 2023. These changes are also expected to reduce the normalized tax rate to be within a range of around 25-30% from 2024 onward.

The UAW strike has had negligible impact on our sales and profitability in the third quarter, with around $2 million in lost sales. We estimate that the current strike actions, as known as of October 19, 2023 by UAW are currently negatively impacting our weekly sales by around $6 million.

In June 2023, Autoliv communicated a cost reduction framework which included the intention of reducing our indirect headcount by up to 2,000. We announced more details on these initiatives on July 13, 2023 and followed up with another announcement with details on October 5, 2023. Based on the intended work force reductions in these announcements, we estimate that the annual cost reductions will amount to around $35 million in 2024, $65 million in 2025 and reaching $85 million when fully implemented. We expect to announce further details, as plans materialize further.

We expect 2024 to be an important step towards our medium-term target of 12% adjusted operating margin (Non-U.S. GAAP measure). We intend, as usual, to come back with a full year indication in connection with our fourth quarter earnings release in January next year.

 

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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								Nine Months Ended
		or As of September 30,								or As of September 30,
		2023				2022				2023				2022
Trade working capital1)			1,303				1,314				1,303				1,314
Trade working capital relative to sales, %2)			12.5	%			14.3	%			12.5	%			14.3	%
Receivables outstanding relative to sales, %3)			21.0	%			20.6	%			21.0	%			20.6	%
Inventory outstanding relative to sales, %4)			9.5	%			10.0	%			9.5	%			10.0	%
Payables outstanding relative to sales, %5)			17.9	%			16.3	%			17.9	%			16.3	%
Gross margin, %6)			17.9	%			16.7	%			16.7	%			15.3	%
Operating margin, %7)			8.9	%			7.4	%			5.9	%			6.6	%
Capital employed8)			3,861				3,779				3,861				3,779
Net debt9)			1,375				1,288				1,375				1,288
Return on total equity, %10)			21.3	%			16.8	%			13.5	%			13.8	%
Return on capital employed, %11)			24.2	%			18.0	%			15.6	%			15.3	%
Headcount at period-end12)			71,200				67,800				71,200				67,800

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

 

 

Consolidated Sales Development

(dollars in millions)

 

		Three Months Ended September 30,												Components of change in net sales
		2023				2022				Reported change				Currency effects 1)				Organic 3)
Airbags, Steering Wheels and Other2)		$	1,761			$	1,510				17	%			1.9	%			15	%
Seatbelt products and Other2)			835				792				5.5	%			2.9	%			2.6	%
Total		$	2,596			$	2,302				13	%			2.2	%			11	%
Asia		$	1,033			$	955				8.1	%			(3.7	)%			12	%
Whereof: China			538				537				0.1	%			(5.4	)%			5.6	%
Asia excl. China			495				418				18	%			(1.5	)%			20	%
Americas			918				794				16	%			5.0	%			11	%
Europe			646				552				17	%			8.4	%			8.5	%
Total		$	2,596			$	2,302				13	%			2.2	%			11	%

1) Effects from currency translations.

2) Including Corporate 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) in the quarter. The largest contributor to the increase was steering wheels, followed by inflatable curtains, side airbags, and passenger airbags.

Sales by product - Seatbelts and Other

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

Sales by region

Our global organic sales (Non-U.S. GAAP measure, see reconciliation table below) increased by 11% compared to the global LVP increase of 3.8% (according to S&P Global, October 2023). The 7pp outperformance was mainly driven by price increases and new product launches.

Autoliv organic sales growth outperformed LVP growth by 15pp in Asia excl. China, by 6pp in China, by 3pp in Americas and by 2pp in Europe.

Third quarter of 2023 organic growth1)

		Americas		Europe		China		Asia excl. China		Global
Autoliv		11%		8.5%		5.6%		20%		11%
Main growth drivers		Mercedes, Nissan, Honda		Mercedes, BMW		Lixiang, GWM, Chery		Toyota, Hyundai, Subaru		Honda, Toyota, Mercedes
Main decline drivers		BMW, Ford, Stellantis		Volvo, Ford, VW		VW, Nissan, GM		Renault, Bodrin, Stellantis		VW, Renault, Ford

1) Non-U.S. GAAP measure.

 

 

Light Vehicle Production Development

Change third quarter of 2023 versus third quarter of 2022

 

		Americas		Europe		China		Asia excl. China		Global
LVP1)		7.9 %		6.5 %		(0.6)%		4.5 %		3.8 %

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

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Earnings

 

		Three Months Ended September 30,
(Dollars in millions, except per share data)		2023				2022				Change
Net Sales		$	2,596			$	2,302				13	%
Gross profit			465				383				21	%
% of sales			17.9	%			16.7	%			1.3	pp
S, G&A			(118	)			(105	)			12	%
% of sales			(4.6	)%			(4.6	)%			0.0	pp
R, D&E, net			(107	)			(106	)			1.0	%
% of sales			(4.1	)%			(4.6	)%			0.5	pp
Amortization of Intangibles			(1	)			(0	)			28	%
Other income (expense), net			(8	)			(1	)			756	%
Operating income			232				171				36	%
% of sales			8.9	%			7.4	%			1.5	pp
Adjusted operating income1)			243				173				40	%
% of sales			9.4	%			7.5	%			1.8	pp
Financial and non-operating items, net			(30	)			(18	)			68	%
Income before taxes			201				153				32	%
Income taxes			(67	)			(47	)			43	%
Tax rate			33.4	%			30.8	%			2.6	pp
Net income			134				106				27	%
Earnings per share, diluted2)			1.57				1.21				30	%
Adjusted earnings per share, diluted1,2)			1.66				1.23				35	%

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

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

 

Third quarter of 2023 financial development

Gross profit increased by $82 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, lower costs for material and premium freight. This was partly offset by increased costs for personnel related to volume growth and wage inflation.

S,G&A costs increased by $13 million compared to the prior year, mainly due to increased costs for personnel as well as adverse foreign currency translation effects. S,G&A costs in relation to sales was unchanged at 4.6%.

R,D&E, net costs was almost unchanged compared to the prior year, as higher costs for personnel and adverse foreign currency translation effects were almost offset by higher engineering income. R,D&E, net, in relation to sales decreased from 4.6% to 4.1%.

Other income (expense), net was negative $8 million compared to negative $1 million in the same period last year. The difference was mainly related to higher capacity alignment accruals in the third quarter of 2023.

Operating income increased by $61 million compared to the same period in 2022, mainly due to the increase in gross profit, partly offset by higher costs for S,G&A.

Adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) increased by $70 million compared to the prior year, mainly due to higher gross profit, partly offset by the higher costs for S,G&A.

Financial and non-operating items, net, was negative $30 million compared to negative $18 million a year earlier. The difference was mainly due to increased interest expense as an effect of higher debt and higher interest rates and foreign currency revaluation effects.

Income before taxes increased by $49 million compared to the prior year, mainly due to the increase in operating income, partly offset by a larger Financial and non-operating items, net.

Tax rate was 33.4% compared to 30.8% in the same period last year. Discrete tax items, net, increased the tax rate this quarter by 0.2pp. Discrete tax items increased the tax rate by 1.4pp in the same period last year.

Earnings per share, diluted increased by $0.36 compared to a year earlier. The main drivers were $0.49 from operating income partly offset by $0.10 from financial items.

 

 

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nine months period ended September 30, 2023 COMPARED WITH nine months period ended September 30, 2022

 

Consolidated Sales Development

(dollars in millions)

		Nine Months Ended September 30,												Components of change in net sales
		2023				2022				Reported change				Currency effects 1)				Organic 3)
Airbags, Steering Wheels and Other2)		$	5,191			$	4,226				23	%			(0.6	)%			23	%
Seatbelt products and Other2)			2,533				2,281				11	%			(0.0	)%			11	%
Total		$	7,724			$	6,507				19	%			(0.4	)%			19	%
Asia		$	2,937			$	2,544				15	%			(5.5	)%			21	%
Whereof: China			1,488				1,347				10	%			(6.1	)%			17	%
Asia excl. China			1,449				1,197				21	%			(4.7	)%			26	%
Americas			2,665				2,225				20	%			3.6	%			16	%
Europe			2,122				1,738				22	%			2.0	%			20	%
Total		$	7,724			$	6,507				19	%			(0.4	)%			19	%

1) Effects from currency translations.

2) Including Corporate 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) in the first nine months. The largest contributor to the increase was inflatable curtains and steering wheels, followed by side airbags and passenger airbags.

 

Sales by product - Seatbelts and Other

The main contributor to Seatbelt Products organic sales growth (Non-U.S. GAAP measure) 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 below) increased by 19% compared to the global LVP increase of 9.1% (according to S&P Global, October 2023). The 10pp outperformance was mainly driven by new product launches and price increases.

Autoliv outperformed LVP by around 15pp in Asia excl. China, by 12pp in China, by 6pp in Europe and in Americas.

First nine months 2023 organic growth1)

		Americas		Europe		China		Asia excl. China		Global
Autoliv		16%		20%		17%		26%		19%
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, VW, Renault		Renault, KG Mobility, Stellantis		Ford

1) Non-U.S. GAAP measure.

 

 

Light Vehicle Production Development

Change first nine months of 2023 versus first nine months of 2022

		Americas		Europe		China		Asia excl. China		Global
LVP1)		11 %		14 %		4.5 %		11 %		9.1 %

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

 

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Earnings

		Nine Months Ended September 30,
(Dollars in millions, except per share data)		2023				2022				Change
Net Sales		$	7,724			$	6,507				19	%
Gross profit			1,291				998				29	%
% of sales			16.7	%			15.3	%			1.4	pp
S, G&A			(379	)			(333	)			14	%
% of sales			(4.9	)%			(5.1	)%			0.2	pp
R, D&E, net			(343	)			(325	)			5.7	%
% of sales			(4.4	)%			(5.0	)%			0.5	pp
Amortization of Intangibles			(1	)			(2	)			(36	)%
Other income (expense), net			(115	)			91			n/a
Operating income			453				429				5.5	%
% of sales			5.9	%			6.6	%			(0.7)pp
Adjusted operating income1)			586				365				60	%
% of sales			7.6	%			5.6	%			2.0	pp
Financial and non-operating items, net			(60	)			(40	)			50	%
Income before taxes			393				389				0.9	%
Income taxes			(131	)			(121	)			8.5	%
Tax rate			33.4	%			31.1	%			2.3	pp
Net income			262				268				(2.5	)%
Earnings per share, diluted2)			3.04				3.06				(0.5	)%
Adjusted earnings per share, diluted1,2)			4.48				2.58				73	%

1) Non-U.S. GAAP measure, excluding effects from capacity alignments, 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 nine months 2023 financial development

Gross profit increased by $294 million, and the gross margin increased by 1.4pp compared to the same period in 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 foreign currency translation and higher costs for energy.

S,G&A costs increased by $46 million compared to the prior year, mainly due to increased costs for personnel projects. S,G&A costs in relation to sales decreased from 5.1% to 4.9%.

R,D&E, net costs increased by around $19 million compared to the prior year, mainly due to higher costs for personnel. R,D&E, net, in relation to sales decreased from 5.0% to 4.4%.

Other income (expense), net was negative $115 million compared to positive $91 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 provisions for the closure of a plant in South Korea while the first nine months of 2023 was negatively impacted by around $105 million in accruals for capacity alignments.

Operating income increased by $24 million compared to the same period in 2022, mainly due to higher gross profit, partly offset by the changes in Other income (expense), net and the higher costs for S,G&A and R,D&E, net.

Adjusted operating income (Non-U.S. GAAP measure, see reconciliation table below) increased by $221 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 $60 million compared to negative $40 million a year earlier, mainly due to increased interest expense as an effect of higher debt and higher interest rates.

Income before taxes increased by $3 million compared to the prior year, mainly due to the higher operating income partly offset by the increased interest expense.

Tax rate was 33.4% compared to 31.1% in the same period last year. Discrete tax items, net, decreased the tax rate this year by 0.6pp. Discrete tax items increased the tax rate by 1.2pp in the same period last year.

Earnings per share, diluted decreased by $0.02 compared to a year earlier. The main drivers behind the decrease were $0.17 from financial items and $0.14 from lower operating income, partly offset by $0.23 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.

 

Third quarter of 2023 development

Trade working capital (Non-U.S. GAAP measure, see calculation table below) decreased by $11 million compared to the same period last year, where the main drivers were $354 million in higher accounts payable partly offset by $286 million in higher receivables and $58 million in higher inventories. Compared to the second quarter of 2023, trade working capital increased by $11 million, driven by $35 million in higher inventories, partly offset by $14 million in higher accounts payable and $10 million in lower receivables.

Operating cash flow decreased by $30 million to $202 million compared to the same period last year, mainly due to less favorable working capital effects partly offset by higher net income.

Capital expenditure, net decreased by $12 million compared to the same period the previous year. Capital expenditure, net in relation to sales was 5.8% vs. 7.1% a year earlier.

Free cash flow (Non-U.S. GAAP measure, see calculation table below) was $50 million compared to $68 million in the same period prior year. The decrease was mainly due to the lower operating cash flow partly offset by 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 37% in the period.

Net debt (Non-U.S. GAAP measure, see reconciliation table below) was $1,375 million as of September 30, 2023, which was $87 million higher than a year earlier.

Liquidity position. As of September 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 September 30, 2023, the Company had a leverage ratio of 1.3x compared to 1.6x as of September 30, 2022, as the 12 months trailing adjusted EBITDA (Non-U.S. GAAP measure) increased more than the net debt (Non-U.S. GAAP measure) increased.

Total equity decreased by $5 million compared to September 30, 2022. This was mainly due to $226 million in dividend payment and stock repurchases of $257 million partly offset by $418 million from net income and $36 million in positive currency translation effects.

 

First nine months of 2023 development

Operating cash flow increased by $285 million compared to the same period last year to $535 million, mainly due to higher adjusted operating income and less negative working capital effects.

Capital expenditure, net increased by $99 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 5.4% vs. 4.9% the prior year period.

Free cash flow (Non-U.S. GAAP measure, see reconciliation table below) was $117 million, compared to negative $69 million in the same period last 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 45% 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 September 30, 2023												Three Months Ended September 30, 2022
		Reported U.S. GAAP				Adjustments1)				Non-U.S. GAAP				Reported U.S. GAAP				Adjustments1)				Non-U.S. GAAP
Operating income		$	232			$	11			$	243			$	171			$	2			$	173
Operating margin, %			8.9	%			0.4	%			9.4	%			7.4	%			0.1	%			7.5	%
Earnings per share, diluted		$	1.57			$	0.09			$	1.66			$	1.21			$	0.02			$	1.23

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

 

 

		Nine Months Ended September 30, 2023												Nine Months Ended September 30, 2022
		Reported U.S. GAAP				Adjustments1)				Non-U.S. GAAP				Reported U.S. GAAP				Adjustments1)				Non-U.S. GAAP
Operating income		$	453			$	133			$	586			$	429			$	(64	)		$	365
Operating margin, %			5.9	%			1.7	%			7.6	%			6.6	%			(1.0	)%			5.6	%
Earnings per share, diluted		$	3.04			$	1.44			$	4.48			$	3.06			$	(0.47	)		$	2.58

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 September 30, 2023								Three Months Ended September 30, 2022
		Millions				Per share				Millions				Per share
Capacity alignments		$	10			$	0.12			$	2			$	0.02
The Andrews litigation settlement			(0	)			(0.00	)			—				—
Antitrust related matters			1				0.01				—				—
Total adjustments to operating income			11				0.13				2				0.02
Tax on non-U.S. GAAP adjustments1)			(3	)			(0.04	)			(0	)			(0.01	)
Total adjustments to net income		$	8			$	0.09			$	2			$	0.02

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

 

		Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
		Millions				Per share				Millions				Per share
Capacity alignments1)		$	122			$	1.42			$	(64	)		$	(0.73	)
The Andrews litigation settlement			8				0.09				—				—
Antitrust related matters			3				0.04				—				—
Total adjustments to operating income			133				1.55				(64	)			(0.73	)
Tax on non-U.S. GAAP adjustments2)			(10	)			(0.11	)			23				0.26
Total adjustments to net income		$	123			$	1.44			$	(41	)		$	(0.47	)

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)

 

		September 30, 2023				June 30, 2023				September 30, 2022
Receivables, net		$	2,179			$	2,189			$	1,893
Inventories, net			982				947				924
Accounts payable			(1,858	)			(1,844	)			(1,503	)
Trade working capital		$	1,303			$	1,292			$	1,314

 

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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)

 

		September 30, 2023				June 30, 2023				September 30, 2022
Short-term debt		$	590			$	481			$	692
Long-term debt			1,277				1,290				1,037
Total debt			1,867				1,771				1,729
Cash and cash equivalents			(475	)			(475	)			(483	)
Debt issuance cost/Debt-related derivatives, net			(17	)			4				42
Net debt		$	1,375			$	1,299			$	1,288

 

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)

 

		September 30, 2023				June 30, 2023				September 30, 2022
Net debt1)		$	1,375			$	1,299			$	1,477
Pension liabilities			152				152				159
Debt per the Policy			1,527				1,451				1,636
Net income2)			418				390				416
Income taxes 2)			188				168				176
Interest expense, net2,3)			75				67				60
Other non-operating items, net2)			5				1				4
Income from equity method investments2)			(4	)			(4	)			(4	)
Depreciation and amortization of intangibles2)			371				363				359
Capacity alignments, antitrust related matters and the Andrews litigation settlement2)			136				127				10
EBITDA per the Policy (Adjusted EBITDA)		$	1,189			$	1,112			$	1,021
Leverage ratio			1.3				1.3				1.6

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. Management uses the non-U.S. GAAP measure “cash conversion” to analyze the proportion of net income that is converted into free cash flow. The measure is a tool to evaluate how efficiently the Company utilizes its resources. For details on cash conversion, see the table below.

 

Calculation of “Free Cash Flow”

(Dollars in millions)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net income		$	134			$	106			$	262			$	268
Changes in operating working capital			(36	)			89				(8	)			(168	)
Depreciation and amortization			95				87				281				273
Gain on divestiture of property			—				—				—				(80	)
Other, net			9				(51	)			1				(44	)
Operating cash flow			202				232				535				251
Capital expenditure, net			(151	)			(164	)			(419	)			(319	)
Free cash flow1)		$	50			$	68			$	117			$	(69	)
Cash conversion2)			37	%			64	%			45	%		n/a
1) Operating cash flow less Capital expenditures, net.
2) Free cash flow relative to Net income.

Headcount

 

		September 30, 2023				June 30, 2023				September 30, 2022
Total headcount			71,200				71,200				67,800
Whereof:
Direct personnel in manufacturing			52,900				52,600				49,600
Indirect personnel			18,200				18,600				18,300
Temporary personnel			11	%			11	%			11	%

 

At September 30, 2023, total headcount increased by 3,400 compared to a year earlier. The indirect workforce decreased by 1% while the direct workforce increased by 7%, reflecting that sales grew organically by 11% in the third quarter compared to a year earlier.

Compared to June 30, 2023, total headcount was unchanged, with a 1% increase in direct headcount and 2% decrease in indirect headcount.
 

 

Full year 2023 indications

Our outlook indications for 2023 are mainly based on our customer call-offs, a full year 2023 global LVP growth of around 7%, achievement of our targeted cost compensation effects, and a reduction of customer call-off volatility. Our full year 2023 indications are also based on the assumption that the UAW strike is not prolonged beyond what is included in the S&P Global October outlook.

 

Financial measure		Full year indication
Organic sales growth		Around 17%
Foreign currency impact on net sales		Around 1% positive
Adjusted operating margin 1)		Around 8.5%-9%
Tax rate 2)		Around 20%
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, October 2023. All rights reserved.

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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 nine months period ended September 30, 2023

 

Other Items

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 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 September 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 September 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)
July 1-31, 2023			96,900			$	100.42				2,462,923				14,537,077
August 1-31, 2023			773,175			$	96.45				3,236,098				13,763,902
September 1-30, 2023			363,793			$	98.12				3,599,891				13,400,109

(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 September 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+*		Amendment No. 1 to Employment Agreement, dated October 1, 2023, by and between Autoliv, Inc. and Colin Naughton.
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.
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.

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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: October 20, 2023

AUTOLIV, INC.

(Registrant)

 

By:		/s/ Fredrik Westin
		Fredrik Westin
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

 

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