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 March 31,September 30, 2020
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.) |
|
|
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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 April 20,October 15, 2020, there were 87,315,66087,337,501 shares of common stock of Autoliv, Inc., par value $1.00 per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments that Autoliv, Inc. (“Autoliv,” the “Company” or “we”) or its management believes or anticipates may occur in the future. All forward-looking statements are based upon our current expectations, various assumptions and/or data available from third parties. Our expectations and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that such forward-looking statements will materialize or prove to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements.
In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,” “could,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain such words.
Because these forward-looking statements involve risks and uncertainties, the outcome could differ materially from those set out in the forward-looking statements for a variety of reasons, including without limitation: general economic conditions; the impacts of the coronavirus (COVID-19) pandemic on the Company’s financial condition, business operations, operating costs, liquidity and liquidity;competition; changes in light vehicle production; fluctuation in vehicle production schedules for which the Company is a supplier; changes in general industry and market conditions or regional growth or decline; changes in and the successful execution of our capacity alignment: restructuring and 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 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 and customer reactions thereto (including the resolution of the Toyota Recall); 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; 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; 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, 2019 filed with the SEC on February 21, 2020.
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.
INDEX | INDEX |
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| 4 |
| 4 | |||
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| 4 |
| 4 | |||
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1. |
| 9 |
| 9 | ||
2. |
| 9 |
| 9 | ||
3. |
| 10 |
| 10 | ||
4. |
| 12 |
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5. |
| 12 |
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6. |
| 12 |
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7. |
| 13 |
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8. |
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9. |
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11. |
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12. |
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13. |
| 16 |
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14. |
| 16 |
| 17 | ||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| 17 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| 18 |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| 27 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| 30 |
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| 27 |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| 28 | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| 33 |
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| 28 |
| 33 | |||
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| 28 |
| 33 | |||
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| 28 |
| 33 | |||
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| 29 |
| 34 |
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in millions, except per share data)
|
| Three months ended March 31 |
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Net sales |
| $ | 1,845.8 |
|
| $ | 2,174.0 |
|
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
Cost of sales |
|
| (1,514.8 | ) |
|
| (1,795.2 | ) |
|
| (1,637.5 | ) |
|
| (1,648.6 | ) |
|
| (4,185.5 | ) |
|
| (5,198.8 | ) |
Gross profit |
|
| 331.0 |
|
|
| 378.8 |
|
|
| 399.7 |
|
|
| 379.1 |
|
|
| 745.1 |
|
|
| 1,157.6 |
|
Selling, general and administrative expenses |
|
| (93.5 | ) |
|
| (101.4 | ) |
|
| (91.7 | ) |
|
| (97.7 | ) |
|
| (283.7 | ) |
|
| (300.2 | ) |
Research, development and engineering expenses, net |
|
| (102.6 | ) |
|
| (107.4 | ) |
|
| (101.6 | ) |
|
| (99.1 | ) |
|
| (292.2 | ) |
|
| (323.5 | ) |
Amortization of intangibles |
|
| (2.7 | ) |
|
| (2.8 | ) |
|
| (2.4 | ) |
|
| (2.9 | ) |
|
| (7.5 | ) |
|
| (8.6 | ) |
Other income (expense), net |
|
| 2.1 |
|
|
| 6.0 |
|
|
| (29.5 | ) |
|
| (25.6 | ) |
|
| (86.4 | ) |
|
| (28.8 | ) |
Operating income |
|
| 134.3 |
|
|
| 173.2 |
|
|
| 174.5 |
|
|
| 153.8 |
|
|
| 75.3 |
|
|
| 496.5 |
|
Income from equity method investment |
|
| 0.3 |
|
|
| 1.0 |
|
|
| 0.7 |
|
|
| 0.4 |
|
|
| 1.0 |
|
|
| 1.6 |
|
Interest income |
|
| 1.1 |
|
|
| 1.0 |
|
|
| 1.1 |
|
|
| 0.7 |
|
|
| 3.7 |
|
|
| 2.7 |
|
Interest expense |
|
| (16.3 | ) |
|
| (18.0 | ) |
|
| (21.2 | ) |
|
| (17.1 | ) |
|
| (53.3 | ) |
|
| (52.6 | ) |
Other non-operating items, net |
|
| (8.1 | ) |
|
| (3.6 | ) |
|
| (6.6 | ) |
|
| (3.4 | ) |
|
| (13.4 | ) |
|
| (9.4 | ) |
Income before income taxes |
|
| 111.3 |
|
|
| 153.6 |
|
|
| 148.5 |
|
|
| 134.4 |
|
|
| 13.3 |
|
|
| 438.8 |
|
Income tax expense |
|
| (36.4 | ) |
|
| (42.1 | ) |
|
| (49.7 | ) |
|
| (48.4 | ) |
|
| (13.9 | ) |
|
| (131.9 | ) |
Net income |
|
| 74.9 |
|
|
| 111.5 |
| ||||||||||||||||
Net income (loss) |
|
| 98.8 |
|
|
| 86.0 |
|
|
| (0.6 | ) |
|
| 306.9 |
| ||||||||
Less: Net income attributable to non-controlling interest |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.5 |
|
|
| 0.6 |
|
|
| 1.0 |
|
|
| 1.0 |
|
Net income attributable to controlling interest |
| $ | 74.8 |
|
| $ | 111.4 |
| ||||||||||||||||
Net income (loss) attributable to controlling interest |
| $ | 98.3 |
|
| $ | 85.4 |
|
| $ | (1.6 | ) |
| $ | 305.9 |
| ||||||||
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Earnings per share – basic 1) |
| $ | 0.86 |
|
| $ | 1.28 |
| ||||||||||||||||
Earnings per share – diluted 1) |
| $ | 0.86 |
|
| $ | 1.27 |
| ||||||||||||||||
Net earnings (loss) per share – basic 1) |
| $ | 1.13 |
|
| $ | 0.98 |
|
| $ | (0.02 | ) |
| $ | 3.51 |
| ||||||||
Net earnings (loss) per share – diluted 1) |
| $ | 1.12 |
|
| $ | 0.98 |
|
| $ | (0.02 | ) |
| $ | 3.50 |
| ||||||||
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Weighted average number of shares outstanding, net of treasury shares (in millions) |
|
| 87.3 |
|
|
| 87.2 |
|
|
| 87.3 |
|
|
| 87.2 |
|
|
| 87.3 |
|
|
| 87.2 |
|
Weighted average number of shares outstanding, assuming dilution and net of treasury shares (in millions) |
|
| 87.4 |
|
|
| 87.4 |
|
|
| 87.5 |
|
|
| 87.3 |
|
|
| 87.3 |
|
|
| 87.4 |
|
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Cash dividend per share – declared 2) |
| $ | 0.62 |
|
| $ | 0.62 |
|
| $ | — |
|
| $ | 0.62 |
|
| $ | 0.62 |
|
| $ | 1.86 |
|
Cash dividend per share – paid |
| $ | 0.62 |
|
| $ | 0.62 |
|
| $ | — |
|
| $ | 0.62 |
|
| $ | 0.62 |
|
| $ | 1.86 |
|
1) | Participating share awards with the right to receive dividend equivalents are (under the two-class method) excluded from the earnings per share calculation (see Note 11 to the unaudited condensed consolidated financial statements). |
2) | On February 20, the Company declared a dividend of $0.62 per share for the second quarter of 2020. On April 2, 2020, the Company |
See Notes to the unaudited Condensed Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in millions)
|
| Three months ended March 31 |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net income |
| $ | 74.9 |
|
| $ | 111.5 |
|
Other comprehensive (loss) income before tax: |
|
|
|
|
|
|
|
|
Change in cumulative translation adjustments |
|
| (101.8 | ) |
|
| 20.8 |
|
Net change in unrealized components of defined benefit plans |
|
| 0.9 |
|
|
| 0.1 |
|
Other comprehensive (loss) income, before tax |
|
| (100.9 | ) |
|
| 20.9 |
|
Tax effect allocated to other comprehensive loss |
|
| (0.3 | ) |
|
| (0.0 | ) |
Other comprehensive (loss) income, net of tax |
|
| (101.2 | ) |
|
| 20.9 |
|
Comprehensive (loss) income |
|
| (26.3 | ) |
|
| 132.4 |
|
Less: Comprehensive (loss) income attributable to non-controlling interest |
|
| (0.1 | ) |
|
| 0.4 |
|
Comprehensive (loss) income attributable to controlling interest |
| $ | (26.2 | ) |
| $ | 132.0 |
|
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net income (loss) |
| $ | 98.8 |
|
| $ | 86.0 |
|
| $ | (0.6 | ) |
| $ | 306.9 |
|
Other comprehensive income (loss) before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cumulative translation adjustments |
|
| 56.1 |
|
|
| (71.6 | ) |
|
| (19.1 | ) |
|
| (44.7 | ) |
Net change in unrealized components of defined benefit plans |
|
| 1.7 |
|
|
| 0.0 |
|
|
| 5.7 |
|
|
| 0.1 |
|
Other comprehensive income (loss), before tax |
|
| 57.8 |
|
|
| (71.6 | ) |
|
| (13.4 | ) |
|
| (44.6 | ) |
Tax effect allocated to other comprehensive loss |
|
| (0.6 | ) |
|
| 0.0 |
|
|
| (1.8 | ) |
|
| 0.0 |
|
Other comprehensive income (loss), net of tax |
|
| 57.2 |
|
|
| (71.6 | ) |
|
| (15.2 | ) |
|
| (44.6 | ) |
Comprehensive income (loss) |
|
| 156.0 |
|
|
| 14.4 |
|
|
| (15.8 | ) |
|
| 262.3 |
|
Less: Comprehensive income attributable to non-controlling interest |
|
| 1.0 |
|
|
| 0.1 |
|
|
| 1.3 |
|
|
| 0.6 |
|
Comprehensive income (loss) attributable to controlling interest |
| $ | 155.0 |
|
| $ | 14.3 |
|
| $ | (17.1 | ) |
| $ | 261.7 |
|
See Notes to the unaudited Condensed Consolidated Financial Statements.
5
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in millions)
|
| As of |
|
| As of |
| ||||||||||
|
| March 31, 2020 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 907.2 |
|
| $ | 444.7 |
|
| $ | 1,476.5 |
|
| $ | 444.7 |
|
Receivables, net |
|
| 1,428.1 |
|
|
| 1,626.7 |
|
|
| 1,615.7 |
|
|
| 1,626.7 |
|
Inventories, net |
|
| 771.6 |
|
|
| 740.9 |
|
|
| 713.8 |
|
|
| 740.9 |
|
Other current assets |
|
| 200.1 |
|
|
| 189.8 |
|
|
| 230.5 |
|
|
| 189.8 |
|
Total current assets |
|
| 3,307.0 |
|
|
| 3,002.1 |
|
|
| 4,036.5 |
|
|
| 3,002.1 |
|
Property, plant and equipment, net |
|
| 1,749.5 |
|
|
| 1,815.7 |
|
|
| 1,779.1 |
|
|
| 1,815.7 |
|
Investments and other non-current assets |
|
| 367.1 |
|
|
| 386.4 |
|
|
| 475.6 |
|
|
| 386.4 |
|
Operating lease right-of-use assets |
|
| 148.5 |
|
|
| 156.8 |
|
|
| 137.3 |
|
|
| 156.8 |
|
Goodwill |
|
| 1,382.4 |
|
|
| 1,387.9 |
|
|
| 1,389.6 |
|
|
| 1,387.9 |
|
Intangible assets, net |
|
| 19.4 |
|
|
| 22.3 |
|
|
| 15.3 |
|
|
| 22.3 |
|
Total assets |
| $ | 6,973.9 |
|
| $ | 6,771.2 |
|
| $ | 7,833.4 |
|
| $ | 6,771.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
| $ | 318.8 |
|
| $ | 368.1 |
| ||||||||
Short-term debt 1) |
| $ | 1,025.5 |
|
| $ | 368.1 |
| ||||||||
Accounts payable |
|
| 862.5 |
|
|
| 950.6 |
|
|
| 912.4 |
|
|
| 950.6 |
|
Accrued expenses |
|
| 807.2 |
|
|
| 824.7 |
|
|
| 1,011.0 |
|
|
| 824.7 |
|
Operating lease liabilities - current |
|
| 35.9 |
|
|
| 37.8 |
|
|
| 35.9 |
|
|
| 37.8 |
|
Other current liabilities |
|
| 201.8 |
|
|
| 229.0 |
|
|
| 236.5 |
|
|
| 229.0 |
|
Total current liabilities |
|
| 2,226.2 |
|
|
| 2,410.2 |
|
|
| 3,221.3 |
|
|
| 2,410.2 |
|
Long-term debt |
|
| 2,209.4 |
|
|
| 1,726.1 |
| ||||||||
Long-term debt 1) |
|
| 2,007.1 |
|
|
| 1,726.1 |
| ||||||||
Pension liability |
|
| 231.8 |
|
|
| 240.2 |
|
|
| 239.2 |
|
|
| 240.2 |
|
Operating lease liabilities - non-current |
|
| 113.4 |
|
|
| 119.4 |
|
|
| 102.0 |
|
|
| 119.4 |
|
Other non-current liabilities |
|
| 149.0 |
|
|
| 152.9 |
|
|
| 150.5 |
|
|
| 152.9 |
|
Total non-current liabilities |
|
| 2,703.6 |
|
|
| 2,238.6 |
|
|
| 2,498.8 |
|
|
| 2,238.6 |
|
Common stock |
|
| 102.8 |
|
|
| 102.8 |
|
|
| 102.8 |
|
|
| 102.8 |
|
Additional paid-in capital |
|
| 1,329.3 |
|
|
| 1,329.3 |
|
|
| 1,329.3 |
|
|
| 1,329.3 |
|
Retained earnings |
|
| 2,304.7 |
|
|
| 2,283.5 |
|
|
| 2,282.8 |
|
|
| 2,283.5 |
|
Accumulated other comprehensive loss |
|
| (549.9 | ) |
|
| (448.9 | ) |
|
| (464.4 | ) |
|
| (448.9 | ) |
Treasury stock |
|
| (1,155.9 | ) |
|
| (1,157.5 | ) |
|
| (1,150.7 | ) |
|
| (1,157.5 | ) |
Total controlling interest's equity |
|
| 2,031.0 |
|
|
| 2,109.2 |
|
|
| 2,099.8 |
|
|
| 2,109.2 |
|
Non-controlling interest |
|
| 13.1 |
|
|
| 13.2 |
|
|
| 13.5 |
|
|
| 13.2 |
|
Total equity |
|
| 2,044.1 |
|
|
| 2,122.4 |
|
|
| 2,113.3 |
|
|
| 2,122.4 |
|
Total liabilities and equity |
| $ | 6,973.9 |
|
| $ | 6,771.2 |
|
| $ | 7,833.4 |
|
| $ | 6,771.2 |
|
1) | As of September 30, 2020, $600 million of the revolving credit facility loan was classified as short-term debt since it was repaid on October 2, 2020. See also Note 3 – Fair value measurements. |
See Notes to the unaudited condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
|
| Three months ended March 31 |
|
| Nine months ended September 30 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 74.9 |
|
| $ | 111.5 |
| ||||||||
Adjustments (non-cash items) to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net (loss) income |
| $ | (0.6 | ) |
| $ | 306.9 |
| ||||||||
Adjustments, non-cash items, to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 88.8 |
|
|
| 90.1 |
|
|
| 268.1 |
|
|
| 260.1 |
|
EC antitrust, change in legal provision |
|
| — |
|
|
| (6.8 | ) | ||||||||
Net change in: |
|
|
|
|
|
|
|
| ||||||||
Deferred income taxes |
|
| (82.4 | ) |
|
| 2.4 |
| ||||||||
Other non-cash items, net |
|
| (1.0 | ) |
|
| 0.8 |
| ||||||||
Increase (decrease) in operating capital: |
|
|
|
|
|
|
|
| ||||||||
EC antitrust payment |
|
| — |
|
|
| (203.0 | ) | ||||||||
Net change in operating assets and liabilities |
|
| (18.9 | ) |
|
| (37.1 | ) |
|
| 163.2 |
|
|
| (37.8 | ) |
Other, net |
|
| 11.0 |
|
|
| (4.0 | ) |
|
| 32.7 |
|
|
| (1.0 | ) |
Net cash provided by operating activities |
|
| 155.8 |
|
|
| 153.7 |
|
|
| 380.0 |
|
|
| 328.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
| (89.1 | ) |
|
| (108.4 | ) |
|
| (231.5 | ) |
|
| (360.0 | ) |
Proceeds from sale of property, plant and equipment |
|
| 0.9 |
|
|
| 0.4 |
|
|
| 3.0 |
|
|
| 1.9 |
|
Net cash used in investing activities |
|
| (88.2 | ) |
|
| (108.0 | ) |
|
| (228.5 | ) |
|
| (358.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in short-term debt |
|
| (26.9 | ) |
|
| (173.1 | ) | ||||||||
Increase of long-term debt |
|
| 500.0 |
|
|
| — |
| ||||||||
Net decrease in short-term debt 1) |
|
| (197.7 | ) |
|
| (309.4 | ) | ||||||||
Increase of long-term debt 1) |
|
| 1,720.1 |
|
|
| 243.5 |
| ||||||||
Repayment of long-term debt |
|
| (629.5 | ) |
|
| — |
| ||||||||
Debt issuance cost |
|
| — |
|
|
| (0.3 | ) | ||||||||
Dividends paid |
|
| (54.1 | ) |
|
| (54.3 | ) |
|
| (54.1 | ) |
|
| (162.7 | ) |
Dividends paid to non-controlling interest |
|
| (1.0 | ) |
|
| (1.1 | ) | ||||||||
Common stock options exercised |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.3 |
|
Net cash provided by (used in) financing activities |
|
| 419.2 |
|
|
| (227.3 | ) |
|
| 838.0 |
|
|
| (229.7 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (24.3 | ) |
|
| 2.4 |
|
|
| 42.3 |
|
|
| (22.0 | ) |
Increase (decrease) in cash and cash equivalents |
|
| 462.5 |
|
|
| (179.2 | ) |
|
| 1,031.8 |
|
|
| (281.4 | ) |
Cash and cash equivalents at beginning of period |
|
| 444.7 |
|
|
| 615.8 |
|
|
| 444.7 |
|
|
| 615.8 |
|
Cash and cash equivalents at end of period |
| $ | 907.2 |
|
| $ | 436.6 |
|
| $ | 1,476.5 |
|
| $ | 334.4 |
|
1) | As of September 30, 2020, $600 million of the revolving credit facility loan was classified as short-term debt in the Balance Sheet since it was repaid on October 2, 2020. See also Note 3 – Fair value measurements. |
See Notes to unaudited condensed consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF TOTAL EQUITY (UNAUDITED)
(Dollars in millions)
| Common stock |
|
| Additional paid-in capital |
|
| Retained earnings |
|
| Accumulated other comprehensive loss |
|
| Treasury stock |
|
| Total controlling interest's equity |
|
| Non- controlling interest |
|
| Total equity |
| 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, 2019 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,283.5 |
|
| $ | (448.9 | ) |
| $ | (1,157.5 | ) |
| $ | 2,109.2 |
|
| $ | 13.2 |
|
| $ | 2,122.4 |
| $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,283.5 |
|
| $ | (448.9 | ) |
| $ | (1,157.5 | ) |
| $ | 2,109.2 |
|
| $ | 13.2 |
|
| $ | 2,122.4 |
|
Comprehensive Income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
| 74.8 |
|
|
| — |
|
|
|
|
|
|
| 74.8 |
|
|
| 0.1 |
|
|
| 74.9 |
| |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| (101.6 | ) |
|
|
|
|
|
| (101.6 | ) |
|
| (0.2 | ) |
|
| (101.8 | ) | |||||||||||||||||||||||||||||||
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 0.6 |
|
|
|
|
|
|
| 0.6 |
|
|
| — |
|
|
| 0.6 |
| |||||||||||||||||||||||||||||||
Total Comprehensive Income (loss) |
| — |
|
|
| — |
|
| 74.8 |
|
|
| (101.0 | ) |
|
| — |
|
|
| (26.2 | ) |
|
| (0.1 | ) |
|
| (26.3 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
| |||||||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
| (53.6 | ) |
|
| — |
|
|
|
|
|
|
| (53.6 | ) |
|
| — |
|
|
| (53.6 | ) | |||||||||||||||||||||||||||||||
Balances at March 31, 2020 |
| 102.8 |
|
|
| 1,329.3 |
|
|
| 2,304.7 |
|
|
| (549.9 | ) |
|
| (1,155.9 | ) |
|
| 2,031.0 |
|
|
| 13.1 |
|
|
| 2,044.1 |
| |||||||||||||||||||||||||||||||
Comprehensive Income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
|
| (174.7 | ) |
|
| — |
|
|
|
|
|
|
| (174.7 | ) |
|
| 0.4 |
|
|
| (174.3 | ) | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| 26.6 |
|
|
|
|
|
|
| 26.6 |
|
|
| 0.0 |
|
|
| 26.6 |
| |||||||||||||||||||||||||||||||
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 2.2 |
|
|
|
|
|
|
| 2.2 |
|
|
| — |
|
|
| 2.2 |
| |||||||||||||||||||||||||||||||
Total Comprehensive Income (loss) |
| — |
|
|
| — |
|
|
| (174.7 | ) |
|
| 28.8 |
|
|
| — |
|
|
| (145.9 | ) |
|
| 0.4 |
|
|
| (145.5 | ) | |||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| 2.2 |
|
|
| — |
|
|
| 2.2 |
| |||||||||||||||||||||||||||||||
Cash dividends declared1) |
|
|
|
|
|
|
|
|
| 54.2 |
|
|
| — |
|
|
|
|
|
|
| 54.2 |
|
|
| — |
|
|
| 54.2 |
| |||||||||||||||||||||||||||||||
Balances at June 30, 2020 |
| 102.8 |
|
|
| 1,329.3 |
|
|
| 2,184.2 |
|
|
| (521.1 | ) |
|
| (1,153.7 | ) |
|
| 1,941.5 |
|
|
| 13.5 |
|
|
| 1,955.0 |
| |||||||||||||||||||||||||||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
| 74.8 |
|
|
| — |
|
|
|
|
|
|
| 74.8 |
|
|
| 0.1 |
|
|
| 74.9 |
|
|
|
|
|
|
|
|
|
| 98.3 |
|
|
| — |
|
|
|
|
|
|
| 98.3 |
|
|
| 0.5 |
|
|
| 98.8 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| (101.6 | ) |
|
|
|
|
|
| (101.6 | ) |
|
| (0.2 | ) |
|
| (101.8 | ) |
|
|
|
|
|
|
|
|
| — |
|
|
| 55.6 |
|
|
|
|
|
|
| 55.6 |
|
|
| 0.5 |
|
|
| 56.1 |
|
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 0.6 |
|
|
|
|
|
|
| 0.6 |
|
|
| — |
|
|
| 0.6 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 1.1 |
|
|
|
|
|
|
| 1.1 |
|
|
|
|
|
|
| 1.1 |
|
Total Comprehensive Income |
| — |
|
|
| — |
|
| 74.8 |
|
|
| (101.0 | ) |
|
| — |
|
|
| (26.2 | ) |
|
| (0.1 | ) |
|
| (26.3 | ) |
| — |
|
|
| — |
|
|
| 98.3 |
|
|
| 56.7 |
|
|
| — |
|
|
| 155.0 |
|
|
| 1.0 |
|
|
| 156.0 |
| |
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 3.0 |
|
|
| 3.0 |
|
|
| — |
|
|
| 3.0 |
|
Cash dividends declared 1) |
|
|
|
|
|
|
|
|
| (53.6 | ) |
|
| — |
|
|
|
|
|
|
| (53.6 | ) |
|
| — |
|
|
| (53.6 | ) | |||||||||||||||||||||||||||||||
Balances at March 31, 2020 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,304.7 |
|
| $ | (549.9 | ) |
| $ | (1,155.9 | ) |
| $ | 2,031.0 |
|
| $ | 13.1 |
|
| $ | 2,044.1 |
| |||||||||||||||||||||||||||||||
Dividends paid to non-controlling interest on subsidiary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.0 | ) |
|
| (1.0 | ) | |||||||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
| 0.1 |
|
|
|
|
|
|
|
|
|
|
| 0.1 |
|
|
|
|
|
|
| 0.1 |
| |||||||||||||||||||||||||||||||
Other |
|
|
|
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
|
|
|
|
| 0.2 |
|
|
|
|
|
|
| 0.2 |
| |||||||||||||||||||||||||||||||
Balances at September 30, 2020 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,282.8 |
|
| $ | (464.4 | ) |
| $ | (1,150.7 | ) |
| $ | 2,099.8 |
|
| $ | 13.5 |
|
| $ | 2,113.3 |
|
1) |
|
| Common stock |
|
| Additional paid-in capital |
|
| Retained earnings |
|
| Accumulated other comprehensive loss |
|
| Treasury stock |
|
| Total controlling interest's equity |
|
| Non- controlling interest |
|
| Total equity |
| 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, 2018 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,041.8 |
|
| $ | (423.2 | ) |
| $ | (1,167.0 | ) |
| $ | 1,883.7 |
|
| $ | 13.1 |
|
| $ | 1,896.8 |
| $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,041.8 |
|
| $ | (423.2 | ) |
| $ | (1,167.0 | ) |
| $ | 1,883.7 |
|
| $ | 13.1 |
|
| $ | 1,896.8 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
| 111.4 |
|
|
| — |
|
|
|
|
|
|
| 111.4 |
|
|
| 0.1 |
|
|
| 111.5 |
|
|
|
|
|
|
|
|
|
| 111.4 |
|
|
| — |
|
|
|
|
|
|
| 111.4 |
|
|
| 0.1 |
|
|
| 111.5 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| 20.5 |
|
|
|
|
|
|
| 20.5 |
|
|
| 0.3 |
|
|
| 20.8 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 20.5 |
|
|
|
|
|
|
| 20.5 |
|
|
| 0.3 |
|
|
| 20.8 |
|
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 0.1 |
|
|
|
|
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 0.1 |
|
|
|
|
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
Total Comprehensive Income |
| — |
|
|
| — |
|
| 111.4 |
|
| 20.6 |
|
|
| — |
|
|
| 132.0 |
|
|
| 0.4 |
|
|
| 132.4 |
|
| — |
|
|
| — |
|
| 111.4 |
|
| 20.6 |
|
|
| — |
|
|
| 132.0 |
|
|
| 0.4 |
|
|
| 132.4 |
| ||||
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
| (54.3 | ) |
|
| — |
|
|
|
|
|
|
| (54.3 | ) |
|
| — |
|
|
| (54.3 | ) |
|
|
|
|
|
|
|
|
| (54.3 | ) |
|
| — |
|
|
|
|
|
|
| (54.3 | ) |
|
| — |
|
|
| (54.3 | ) |
Distribution to Veoneer |
|
|
|
|
|
|
|
|
| (2.5 | ) |
|
| — |
|
|
|
|
|
|
| (2.5 | ) |
|
| — |
|
|
| (2.5 | ) |
|
|
|
|
|
|
|
|
| (2.5 | ) |
|
| — |
|
|
|
|
|
|
| (2.5 | ) |
|
| — |
|
|
| (2.5 | ) |
Balances at March 31, 2019 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,096.4 |
|
| $ | (402.6 | ) |
| $ | (1,165.4 | ) |
| $ | 1,960.5 |
|
| $ | 13.5 |
|
| $ | 1,974.0 |
|
| 102.8 |
|
|
| 1,329.3 |
|
|
| 2,096.4 |
|
|
| (402.6 | ) |
|
| (1,165.4 | ) |
|
| 1,960.5 |
|
|
| 13.5 |
|
|
| 1,974.0 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
| 109.1 |
|
|
| — |
|
|
|
|
|
|
| 109.1 |
|
|
| 0.3 |
|
|
| 109.4 |
| |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| 6.3 |
|
|
|
|
|
|
| 6.3 |
|
|
| (0.2 | ) |
|
| 6.1 |
| |||||||||||||||||||||||||||||||
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 0.0 |
|
|
|
|
|
|
| 0.0 |
|
|
| — |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||
Total Comprehensive Income |
| — |
|
|
| — |
|
|
| 109.1 |
|
|
| 6.3 |
|
|
| — |
|
|
| 115.4 |
|
|
| 0.1 |
|
|
| 115.5 |
| |||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 2.6 |
|
|
| 2.6 |
|
|
| — |
|
|
| 2.6 |
| |||||||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
| (54.2 | ) |
|
| — |
|
|
|
|
|
|
| (54.2 | ) |
|
| — |
|
|
| (54.2 | ) | |||||||||||||||||||||||||||||||
Distribution to Veoneer |
|
|
|
|
|
|
|
|
| (0.2 | ) |
|
| — |
|
|
|
|
|
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) | |||||||||||||||||||||||||||||||
Balances at June 30, 2019 |
| 102.8 |
|
|
| 1,329.3 |
|
|
| 2,151.1 |
|
|
| (396.3 | ) |
|
| (1,162.8 | ) |
|
| 2,024.1 |
|
|
| 13.6 |
|
|
| 2,037.7 |
| |||||||||||||||||||||||||||||||
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
| 85.4 |
|
|
| — |
|
|
|
|
|
|
| 85.4 |
|
|
| 0.6 |
|
|
| 86.0 |
| |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
| — |
|
|
| (71.1 | ) |
|
|
|
|
|
| (71.1 | ) |
|
| (0.5 | ) |
|
| (71.6 | ) | |||||||||||||||||||||||||||||||
Pension liability |
|
|
|
|
|
|
|
|
| — |
|
|
| 0.0 |
|
|
|
|
|
|
| 0.0 |
|
|
| — |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||
Total Comprehensive Income (loss) |
| — |
|
|
| — |
|
|
| 85.4 |
|
|
| (71.1 | ) |
|
| — |
|
|
| 14.3 |
|
|
| 0.1 |
|
|
| 14.4 |
| |||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 2.5 |
|
|
| 2.5 |
|
|
| — |
|
|
| 2.5 |
| |||||||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
| (54.2 | ) |
|
| — |
|
|
|
|
|
|
| (54.2 | ) |
|
| — |
|
|
| (54.2 | ) | |||||||||||||||||||||||||||||||
Dividends paid to non-controlling interest on subsidiary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.1 | ) |
|
| (1.1 | ) | |||||||||||||||||||||||||||||||
Balances at September 30, 2019 | $ | 102.8 |
|
| $ | 1,329.3 |
|
| $ | 2,182.3 |
|
| $ | (467.4 | ) |
| $ | (1,160.3 | ) |
| $ | 1,986.7 |
|
| $ | 12.6 |
|
| $ | 1,999.3 |
|
See Notes to the unaudited Condensed Consolidated Financial Statements.
8
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are presented in millions of dollars, except for per share amounts)
March 31,September 30, 2020
1. BASIS OF PRESENTATION
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as the prior year audited consolidated financial statements and all adjustments considered necessary for a fair presentation have been included in the consolidated financial statements. All such adjustments are of a normal recurring nature. The results for the interim period are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending December 31, 2020.
The Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements.
The Company has 1 reportable segment, formerly its Passive Safety segment, which includes Autoliv’s airbag and seatbelt products and components. The operating results of the operating segment are regularly reviewed by the Company’s chief operating decision maker to assess the performance of the individual operating segment and make decisions about resources to be allocated to the operating segment.
Statements in this report that are not of historical fact are forward-looking statements that involve risks and uncertainties that could affect the actual results of the Company. A description of the important factors that could cause Autoliv’s actual results to differ materially from the forward-looking statements contained in this report may be found in this report and Autoliv’s other reports filed with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial statements, footnotes and definitions thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020.
2. NEW ACCOUNTING STANDARDS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated financial statements.
Adoption of New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held and enhanced disclosures. The Company’s financial assets in the scope of ASU 2016-13 mainly consists of short-term trade receivables. Historically, the Company’s actual credit losses have not been material. In addition to continuing to individually assess overdue customer balances for expected credit losses, the Company has implemented a new methodology that reflects the expected credit losses on receivables considering both historical experience as well as forward looking assumptions. The method calculates the expected credit loss for a group of customers by using the customer groups’ average short-term default rates based on officially published credit ratings and the Company’s historical experience. These default rates are considered the Company’s best estimate of the customer’s ability to pay. The Company will regularly reassess the customer group’s and the applied customer group’s default rates by using its best judgement when considering changes in customer’s credit ratings, customer’s historical payments and loss experience, current market and economic conditions and the Company’s expectations of future market and economic conditions. ASU 2016-13 was adopted prospectively by the Company on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40), Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018-15. The amendments in ASU 2018-15 are effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those annual years. The amendments in ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 prospectively as of January 1, 2020 and the impact to ouron the consolidated financial statements has not been material through September 30, 2020. The future impact of ASU 2018-15 will depend on the nature of ourthe Company’s future cloud computing arrangements.
9
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which simplifysimplifies the accounting for income taxes. ASU 2019-12 is effective for public business entities for annual periods beginning after December 15, 2020, and early adoption is permitted. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluatingplans to adopt ASU 2019-12 as of January 1, 2021. The Company has concluded that the impact of our pending adoption of ASU 2019-12 will not have a material impact on the Company’s consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and other current financial assets and liabilities approximate their fair value because of the short-term maturity of these instruments.
The Company uses derivative financial instruments (“derivatives”) as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest rates and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. All derivatives are recognized in the consolidated financial statements at fair value. For certain derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest rates and foreign exchange rates.
The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by several factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Instruments with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.
All the Company’s derivatives are classified as Level 2 financial instruments in the fair value hierarchy. Level 2 pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
The tables below present information about the Company’s derivative financial assets and liabilities measured at fair value on a recurring basis (dollars in millions). The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the Condensed Consolidated Balance Sheets at March 31,September 30, 2020 and December 31, 2019 have been presented on a gross basis. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company chose not to offset are presented below.
Derivatives designated as hedging instruments
There were 0 derivatives designated as hedging instruments as of March 31,September 30, 2020 and December 31, 2019 related to the operations.
Derivatives not designated as hedging instruments
Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding at March 31,September 30, 2020 and December 31, 2019 were foreign exchange swaps.
10
For the three months periodmonth periods ended March 31,September 30, 2020 and March 31,September 30, 2019, the gains and losses recognized in other non-operating items, net were a loss of $8.5$17.7 million and a loss of $3.2$9.5 million, respectively, for derivative instruments not designated as hedging instruments. For the nine month periods ended September 30, 2020 and September 30, 2019, the gains and losses recognized in other non-operating items, net were a loss of $19.4 million and a loss of $6.9 million, respectively, for derivative instruments not designated as hedging instruments.
10
For the three months periodand nine month periods ended March 31,September 30, 2020 and March 31,September 30, 2019, the gains and losses recognized as interest expense were immaterial.
|
| March 31, 2020 |
|
|
| September 30, 2020 |
|
|
| December 31, 2019 |
|
| |||||||||||||||||||||||||||
|
|
|
|
|
| Fair Value Measurements |
|
|
|
|
|
|
| Fair Value Measurements |
|
|
|
|
|
|
| Fair Value Measurements |
|
| |||||||||||||||
Description |
| Nominal volume |
|
| Derivative asset (Other current assets) |
|
| Derivative liability (Other current liabilities) |
|
|
| Nominal volume |
|
| Derivative asset (Other current assets) |
|
| Derivative liability (Other current liabilities) |
|
|
| Nominal volume |
|
| Derivative asset (Other current assets) |
|
| Derivative liability (Other current liabilities) |
|
| |||||||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange swaps, less than 6 months |
| $ | 661.0 |
| 1) | $ | 3.3 |
| 2) | $ | 7.7 |
| 3) |
| $ | 840.2 |
| 1) | $ | 5.7 |
| 2) | $ | 20.9 |
| 3) |
| $ | 934.2 |
| 4) | $ | 6.0 |
| 5) | $ | 1.8 |
| 6) |
Total derivatives not designated as hedging instruments |
| $ | 661.0 |
|
| $ | 3.3 |
|
| $ | 7.7 |
|
|
| $ | 840.2 |
|
| $ | 5.7 |
|
| $ | 20.9 |
|
|
| $ | 934.2 |
|
| $ | 6.0 |
|
| $ | 1.8 |
|
|
1) | Net nominal amount after deducting for offsetting swaps under ISDA agreements is |
2) | Net amount after deducting for offsetting swaps under ISDA agreements is |
3) | Net amount after deducting for offsetting swaps under ISDA agreements is |
|
| December 31, 2019 |
|
| |||||||||
|
|
|
|
|
| Fair Value Measurements |
|
| |||||
Description |
| Nominal volume |
|
| Derivative asset (Other current assets) |
|
| Derivative liability (Other current liabilities) |
|
| |||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange swaps, less than 6 months |
| $ | 934.2 |
| 1) | $ | 6.0 |
| 2) | $ | 1.8 |
| 3) |
Total derivatives not designated as hedging instruments |
| $ | 934.2 |
|
| $ | 6.0 |
|
| $ | 1.8 |
|
|
| Net nominal amount after deducting for offsetting swaps under ISDA agreements is $860.6 million. |
| Net amount after deducting for offsetting swaps under ISDA agreements is $5.8 million. |
| Net amount after deducting for offsetting swaps under ISDA agreements is $1.6 million. |
Fair Value of Debt
The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy.
The fair value and carrying value of debt is summarized in the table below (dollars in millions).
|
| March 31, 2020 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| Carrying value1) |
|
| Fair value |
|
| Carrying value1) |
|
| Fair value |
|
| Carrying value1) |
|
| Fair value |
|
| Carrying value1) |
|
| Fair value |
| ||||||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
| $ | 1,589.0 |
|
| $ | 1,584.5 |
|
| $ | 1,597.5 |
|
| $ | 1,671.1 |
|
| $ | 1,347.4 |
|
| $ | 1,443.5 |
|
| $ | 1,597.5 |
|
| $ | 1,671.1 |
|
Loans |
|
| 620.4 |
|
|
| 617.1 |
|
|
| 128.6 |
|
|
| 128.6 |
|
|
| 659.7 |
|
|
| 675.8 |
|
|
| 128.6 |
|
|
| 128.6 |
|
Total |
| $ | 2,209.4 |
|
| $ | 2,201.6 |
|
| $ | 1,726.1 |
|
| $ | 1,799.7 |
|
| $ | 2,007.1 |
|
| $ | 2,119.3 |
|
| $ | 1,726.1 |
|
| $ | 1,799.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 125.5 |
|
| $ | 125.5 |
|
| $ | 230.7 |
|
| $ | 230.7 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 230.7 |
|
| $ | 230.7 |
|
Short-term portion of long-term debt |
|
| 110.3 |
|
|
| 110.2 |
|
|
| 112.0 |
|
|
| 112.1 |
| ||||||||||||||||
Short-term portion of long-term debt 2) |
|
| 991.8 |
|
|
| 998.2 |
|
|
| 112.0 |
|
|
| 112.1 |
| ||||||||||||||||
Overdrafts and other short-term debt |
|
| 83.0 |
|
|
| 83.0 |
|
|
| 25.4 |
|
|
| 25.3 |
|
|
| 33.7 |
|
|
| 33.7 |
|
|
| 25.4 |
|
|
| 25.3 |
|
Total |
| $ | 318.8 |
|
| $ | 318.7 |
|
| $ | 368.1 |
|
| $ | 368.1 |
|
| $ | 1,025.5 |
|
| $ | 1,031.9 |
|
| $ | 368.1 |
|
| $ | 368.1 |
|
1) | Debt as reported in balance sheet. |
2) | Including $600 million revolving credit facility loan that was repaid on October 2, 2020. |
11
Assets and liabilities measured at fair value on a nonrecurring basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a nonrecurring basis including certain long-lived assets, including equity method investments, goodwill and other intangible assets, typically as it relates to impairment.
11
The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets.
For the three and nine month periodperiods ended March 31,September 30, 2020 and March 31,September 30, 2019, the Company did 0t record any material impairment charges on its long-lived assets for its operations.
4. INCOME TAXES
The effective tax rate in the firstthird quarter of 2020 was 32.7%33.5% compared to 27.4%36.0% in the same quarter of 2019. Discrete tax items, net in the firstthird quarter of 2020 had an unfavorablea favorable impact of 0.5%9.9%. In the firstthird quarter of 2019, discrete tax items, net had an unfavorable impact of 0.5%0.2%. The effective tax rate for the first nine months of 2020 was 104.4% compared to 30.1% in the same period of 2019. The year to date 2020 tax rate was negatively impacted by unfavorable country mix and capacity alignment costs giving rise to losses with no tax benefit against a low level of reported pre-tax income. Discrete tax items, net for the first nine months of 2020 had a favorable impact of 187.5%, principally from one-time tax benefits recorded as a result of final U.S. tax regulations issued in the third quarter of 2020 against a low level of reported pre-tax income. In the same period of 2019, discrete tax items, net had a favorable impact of 0.2%.
The Company files income tax returns in the United StatesU.S. federal jurisdiction, and various states and non-U.S. jurisdictions. At any given time, the Company is undergoing tax audits in several tax jurisdictions covering multiple years. The Company is no longer subject to income tax examination by the U.S. federal income tax authorities for years prior to 2015. With few exceptions, the Company is no longer subject to income tax examination by U.S. state or local tax authorities or by non-U.S. tax authorities for years before 2010.
As of March 31,September 30, 2020, the Company is not aware of any proposed income tax adjustments resulting from tax examinations that would have a material impact on the Company’s condensed consolidated financial statements. The conclusion of such audits could result in additional increases or decreases to unrecognized tax benefits in some future period or periods.
During the first threenine months of 2020, the Company recorded a net increase of $1.7$1.1 million to income tax reserves for unrecognized tax benefits based on tax positions related to the current year, including accruing additional interest related to unrecognized tax benefits offrom prior years. Of the total unrecognized tax benefits of $67.0$69.4 million recorded at March 31,September 30, 2020, $1.8 million is classified as current tax payable within Other current liabilities and $65.2$67.6 million is classified as non-current tax payable within Other non-current liabilities on the Condensed Consolidated Balance Sheet.
5. INVENTORIES
Inventories are stated at the lower of cost (FIFO) and net realizable value. The components of inventories were as follows (dollars in millions):
|
| As of |
|
| As of |
| ||||||||||
|
| March 31, 2020 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Raw materials |
| $ | 374.9 |
|
| $ | 366.3 |
|
| $ | 354.3 |
|
| $ | 366.3 |
|
Work in progress |
|
| 271.6 |
|
|
| 257.4 |
|
|
| 266.0 |
|
|
| 257.4 |
|
Finished products |
|
| 205.3 |
|
|
| 200.4 |
|
|
| 182.9 |
|
|
| 200.4 |
|
Inventories |
|
| 851.8 |
|
|
| 824.1 |
|
|
| 803.2 |
|
|
| 824.1 |
|
Inventory valuation reserve |
|
| (80.2 | ) |
|
| (83.2 | ) |
|
| (89.4 | ) |
|
| (83.2 | ) |
Total inventories, net of reserve |
| $ | 771.6 |
|
| $ | 740.9 |
|
| $ | 713.8 |
|
| $ | 740.9 |
|
6. RESTRUCTURING
The provisionsCompany recorded restructuring charges in the three monthsmonth period ended March 31,September 30, 2020, of $1.7 million mainly relaterelated to footprint optimization activities in Europe. The Company recorded restructuring charges in the nine month period ended September 30, 2020, mainly related to the structural efficiency program initiated in the second quarter of 2019 and is expected to be concluded2020 in the secondAmericas and Europe and footprint optimization activities in Europe in the third quarter of 2020. For the three months periodand nine month periods ended March 31,September 30, 2020, cash payments of $4.4 million mainly relate to the structural efficiency program initiated in 2019.
As of March 31,September 30, 2020, approximately $48$60 million out of the $52.1$122.9 million in total reserve balance can be attributed to the structural efficiency program. The remaining balance relates to older restructuring programs, primarilyprogram initiated in Western Europe, whichthe second quarter of 2020. This program is expected to be settledconcluded in 2021. Approximately $29 million of the balance can be attributed to footprint optimization activities in Europe in the third quarter of 2020. This program is expected to be concluded in 2023. The remaining balance mainly relates to the structural efficiency program initiated in 2019, whereof the main part is expected to be concluded in 2020.
12
The table below summarizes the change in the balance sheet position of the employee related restructuring reserves (dollars in millions). The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Income. Restructuring costs other than employee related costs are immaterial for all periods presented.
|
| Three months ended March 31 |
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Reserve at beginning of the period |
| $ | 56.1 |
|
| $ | 33.4 |
|
| $ | 99.6 |
|
| $ | 40.3 |
|
| $ | 56.1 |
|
| $ | 33.4 |
|
Provision - charge |
|
| 1.7 |
|
|
| 0.8 |
|
|
| 32.8 |
|
|
| 27.7 |
|
|
| 103.7 |
|
|
| 41.4 |
|
Provision - reversal |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (2.0 | ) |
|
| (0.2 | ) |
|
| (9.4 | ) |
|
| (0.3 | ) |
Cash payments |
|
| (4.4 | ) |
|
| (5.1 | ) |
|
| (11.6 | ) |
|
| (15.2 | ) |
|
| (32.0 | ) |
|
| (21.7 | ) |
Translation difference |
|
| (1.2 | ) |
|
| (0.5 | ) |
|
| 4.1 |
|
|
| (1.8 | ) |
|
| 4.5 |
|
|
| (2.0 | ) |
Reserve at end of the period |
| $ | 52.1 |
|
| $ | 28.5 |
|
| $ | 122.9 |
|
| $ | 50.8 |
|
| $ | 122.9 |
|
| $ | 50.8 |
|
7. PRODUCT-RELATED LIABILITIES
The Company is exposed to product liability and warranty claims in the event that the Company’s products fail to perform as represented and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company has reserves for product risks. Such reserves are related to product performance issues, including recalls, product liability and warranty issues. For further explanation, see Note 9. Contingent Liabilities below.
For the three months periodand nine month periods ended March 31,September 30, 2020 and March 31,September 30, 2019, provisions and cash paid primarily relate to recall and warranty related issues. The decrease in the reserve balance as of March 31,September 30, 2020 compared to the priorbeginning of the year was mainly due to cash payments.
Pursuant to the Spin-Off Agreements,agreements entered into in connection with the spin-off of Veoneer, Inc. on June 29, 2018 (collectively, the “Spin-off Agreements”), Autoliv is also required to indemnify Veoneer for recalls related to certain qualified Electronics products. At March 31,September 30, 2020, the indemnification liabilities are approximately $7$5 million included within Accrued expenses on the Condensed Consolidated Balance Sheets.
The table below summarizes the change in the balance sheet position of the product-related liabilities (dollars in millions). Insurance receivables are included within Other current assets and Investments and other non-current assets on the Condensed Consolidated Balance Sheets.
|
| Three months ended March 31 |
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Reserve at beginning of the period |
| $ | 72.1 |
|
| $ | 62.2 |
|
| $ | 57.9 |
|
| $ | 55.9 |
|
| $ | 72.1 |
|
| $ | 62.2 |
|
Change in reserve |
|
| 2.4 |
|
|
| 2.9 |
|
|
| 5.3 |
|
|
| 9.4 |
|
|
| 16.0 |
|
|
| 17.5 |
|
Cash payments |
|
| (20.3 | ) |
|
| (4.4 | ) |
|
| (6.3 | ) |
|
| (10.5 | ) |
|
| (30.8 | ) |
|
| (24.8 | ) |
Translation difference |
|
| (0.7 | ) |
|
| (0.2 | ) |
|
| 0.7 |
|
|
| (0.6 | ) |
|
| 0.3 |
|
|
| (0.7 | ) |
Reserve at end of the period |
| $ | 53.5 |
|
| $ | 60.5 |
|
| $ | 57.6 |
|
| $ | 54.2 |
|
| $ | 57.6 |
|
| $ | 54.2 |
|
8. RETIREMENT PLANS
The components of total Net Periodic Benefit Cost associated with the Company’s defined benefit retirement plans are as follows (dollars in millions):
|
| Three months ended March 31 |
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Service cost |
| $ | 5.2 |
|
| $ | 4.5 |
|
| $ | 4.3 |
|
| $ | 4.5 |
|
| $ | 14.8 |
|
| $ | 13.5 |
|
Interest cost |
|
| 4.8 |
|
|
| 5.2 |
|
|
| 4.4 |
|
|
| 5.1 |
|
|
| 13.9 |
|
|
| 15.4 |
|
Expected return on plan assets |
|
| (4.5 | ) |
|
| (3.9 | ) |
|
| (4.6 | ) |
|
| (3.9 | ) |
|
| (13.5 | ) |
|
| (11.6 | ) |
Amortization of prior service cost |
|
| (0.4 | ) |
|
| 0.1 |
| ||||||||||||||||
Amortization of prior service (credit) cost |
|
| (0.4 | ) |
|
| 0.1 |
|
|
| (1.3 | ) |
|
| 0.3 |
| ||||||||
Amortization of actuarial loss |
|
| 1.2 |
|
|
| 0.6 |
|
|
| 1.4 |
|
|
| 0.6 |
|
|
| 3.7 |
|
|
| 1.8 |
|
Settlement loss |
|
| 4.2 |
|
|
| — |
|
|
| 4.2 |
|
|
| — |
| ||||||||
Net Periodic Benefit Cost |
| $ | 6.3 |
|
| $ | 6.5 |
|
| $ | 9.3 |
|
| $ | 6.4 |
|
| $ | 21.8 |
|
| $ | 19.4 |
|
The settlement loss in the third quarter of 2020 relates to the US qualified pension plan and was triggered by lump-sum payments for the nine month period ended September 30, 2020 in excess of the total of annual service costs and interest costs. The Service cost and Amortization of prior service cost components in the table above are reported in Operating Income in the Consolidated Statements of Income. The remaining components - Interest cost, Expected return on plan assets, and Amortization of actuarial loss and Settlement loss - are reported as Other non-operating items, net in the Consolidated Statements of Income.
13
9. CONTINGENT LIABILITIES
Legal Proceedings
Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters. Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel, and with the exception of losses resulting from the antitrust proceedings described below, it is the opinion of management that the various legal proceedings and investigations to which the Company currently is a party will not have a material adverse impact on the consolidated financial position of Autoliv, but the Company cannot provide assurance that Autoliv will not experience material litigation, product liability or other losses in the future.
ANTITRUST MATTERS
Authorities in several jurisdictions have conducted broad, and in some cases, long-running investigations of suspected anti-competitive behavior among parts suppliers in the global automotive vehicle industry. These investigations included, but are not limited to, the products that the Company sells. In addition to concluded matters, authorities of other countries with significant light vehicle manufacturing or sales may initiate similar investigations.
European Commission (“EC”) Investigations:
In June 2011, representatives of the European Commission (“EC”), the European antitrust authority, visited 2 facilities of a Company subsidiary in Germany to gather information for an investigation of anti-competitive behavior among suppliers of occupant safety systems.
In November 2017, the EC concluded a discrete portion of its investigation, and in 2018 the Company paid a fine of €8.1 million (approximately $9.7 million) with respect to this portion of the EC’s overall investigation. while it continued the more significant portion of its investigation.
In March 2019, the EC completed the remaining portion of the investigation, and in 2019 the Company paid a fine of €179 million (approximately $203 million).
PRODUCT WARRANTY, RECALLS AND INTELLECTUAL PROPERTY
Autoliv is exposed to various claims for damages and compensation if its products fail to perform as expected. Such claims can be made, and result in costs and other losses to the Company, even where the product is eventually found to have functioned properly. Where a product (actually or allegedly) fails to perform as expected or is defective, the Company may face warranty and recall claims. Where such (actual or alleged) failure or defect results, or is alleged to result, in bodily injury and/or property damage, the Company may also face product liability and other claims. There can be no assurance that the Company will not experience material warranty, recall or product (or other) liability claims or losses in the future, or that the Company will not incur significant costs to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Government safety regulators may also play a role in warranty and recall practices. A warranty, recall or product-liability claim brought against the Company in excess of its insurance may have a material adverse effect on the Company’s business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some, or all, of the repair or replacement costs of products when the product supplied did not perform as represented by us or expected by the customer. Accordingly, the future costs of warranty claims by the customers may be material. However, the Company believes its established reserves are adequate. Autoliv’s warranty reserves are based upon the Company’s best estimates of amounts necessary to settle future and existing claims. The Company regularly evaluates the adequacy of these reserves, and adjusts them when appropriate. However, the final amounts actually due related to these matters could differ materially from the Company’s recorded estimates.
In addition, as vehicle manufacturers increasingly use global platforms and procedures, quality performance evaluations are also conducted on a global basis. Any one or more quality, warranty or other recall issue(s) (including those affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures such as a temporary or prolonged suspension of new orders, which may have a material impact on the Company’s results of operations.
The Company carries insurance for potential recall and product liability claims at coverage levels based on our prior claims experience. In addition, a number of the agreements entered into by the Company, including the Spin-off Agreements, require Autoliv to indemnify the other parties for certain claims. Autoliv cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in our businesses or with respect to other obligations, now or in the future, or that such coverage always will be available should we, now or in the future, wish to extend, increase or otherwise adjust our insurance.
14
Toyota Recall: On June 29, 2016, the Company announced that it is cooperating with Toyota Motor Corp. in its recall of approximately 1.4 million vehicles equipped with a certain model of the Company’s side curtain airbag (the “Toyota Recall”). The Company continues to cooperate with Toyota regarding the analysis of the root cause of the issue and potential liability and indemnification obligations of the parties. If the Company is obligated to indemnify Toyota for any of the costs associated with the Toyota Recall, the Company expects that its insurance will generally cover such costs and liabilities. The Company’s insurance policies generally include coverage of the costs of a recall, although costs related to replacement parts are generally not covered.
The Company has determined pursuant to ASC 450 that a loss with respect to this issue is probable and therefore has accrued an immaterial amount related to potential costs for replacement parts. The ultimate costs to the Company of the Toyota Recall could be materially different from the amount the Company has accrued. However, the Company continues to believe that the Company’s loss, net of expected insurance recoveries, will be less than $20 million. The main variables affecting the ultimate cost for the Company include: the determination of proportionate responsibility (if any) among Toyota, the Company, and any relevant sub-suppliers; the ultimate number of vehicles repaired; the cost of repair per vehicle; and the actual recoveries from sub-suppliers and insurers.
Intellectual Property: In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company does seek to procure the necessary rights to utilize intellectual property rights associated with its products, it may fail to do so. Where the Company so fails, the Company may be exposed to material claims from the owners of such rights. Where the Company has sold products which infringe upon such rights, its customers may be entitled to be indemnified by the Company for the claims they suffer as a result thereof. Such claims could be material.
The table in Note 7. Product-Related Liabilities above summarizes the change in the balance sheet position of the product related liabilities.
10. STOCK INCENTIVE PLAN
Eligible employees and non-employee directors of the Company participate in the Autoliv, Inc.1997 Stock Incentive Plan, as amended and received Autoliv stock-based awards which include stock options (SOs), restricted stock units (RSUs) and performance shares (PSs).
TheFor the three and nine month periods ended September 30, 2020, the Company recorded approximately $1.7$3.0 million and $7.1 million, respectively, in stock-based compensation expense related to RSUs and PSs. During the three and nine month periods ended September 30, 2019, the Company recorded $2.0 million and $5.6 million, respectively, of stock-based compensation expense related to RSUs and PSs for the three months period ended March 31, 2020. PSs.
During the three months periodmonth periods ended March 31,September 30, 2020 and September 30, 2019, approximately 6 thousand and 2 thousand shares of common stock from the Company recorded $1.1 milliontreasury stock, respectively, were utilized by the Plan. During the nine month periods ended September 30, 2020 and September 30, 2019, approximately 92 thousand and 90 thousand shares of stock-based compensation expense in operations related to RSUs and PSs.common stock from the treasury stock were utilized by the Plan.
11. EARNINGS PER SHARE
For the three months periodmonth periods ended March 31,September 30, 2020 and March 31,September 30, 2019, approximately 116 thousand0.0 million and 54 thousand shares,0.1 million awards, respectively, were excluded from the computation of the diluted EPS, since the inclusion of these awards would be antidilutive.
During For the three monthsnine month period ended March 31,September 30, 2020, and March 31,shares in the diluted loss per share calculation represent basic shares due to the net loss. For the nine month period ended September 30, 2019, approximately 70 thousand and 77 thousand shares of common stock0.1 million awards were excluded from the treasury stock, respectively, were utilized bycomputation of the Plan.diluted EPS, since the inclusion of these awards would be antidilutive.
15
The computation of basic and diluted EPS under the two-class method werewas as follows:
(In millions, except per share amounts) |
| Three months ended March 31 |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Numerator: |
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Net income attributable to controlling interest |
| $ | 74.8 |
|
| $ | 111.4 |
|
Participating share awards with dividend equivalent rights |
|
| 0.0 |
|
|
| 0.0 |
|
Net income applicable to common shareholders |
|
| 74.8 |
|
|
| 111.4 |
|
Earnings allocated to participating share awards1) |
|
| 0.0 |
|
|
| 0.0 |
|
Net income attributable to common shareholders |
| $ | 74.8 |
|
| $ | 111.4 |
|
Denominator: 1) |
|
|
|
|
|
|
|
|
Basic: Weighted average common stock |
|
| 87.3 |
|
|
| 87.2 |
|
Add: Weighted average stock options/share awards |
|
| 0.1 |
|
|
| 0.2 |
|
Diluted: |
|
| 87.4 |
|
|
| 87.4 |
|
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | 0.86 |
|
| $ | 1.28 |
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
| $ | 0.86 |
|
| $ | 1.27 |
|
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||
(In millions, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling interest |
| $ | 98.3 |
|
| $ | 85.4 |
|
| $ | (1.6 | ) |
| $ | 305.9 |
|
Participating share awards with dividend equivalent rights |
| - |
|
| - |
|
| - |
|
| - |
| ||||
Net income applicable to common shareholders |
|
| 98.3 |
|
|
| 85.4 |
|
|
| (1.6 | ) |
|
| 305.9 |
|
Earnings allocated to participating share awards1) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
Net income attributable to common shareholders |
| $ | 98.3 |
|
| $ | 85.4 |
|
| $ | (1.6 | ) |
| $ | 305.9 |
|
Denominator: 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Weighted average common stock |
|
| 87.3 |
|
|
| 87.2 |
|
|
| 87.3 |
|
|
| 87.2 |
|
Add: Weighted average stock options/ share awards |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.0 |
|
|
| 0.2 |
|
Diluted: 2) |
|
| 87.5 |
|
|
| 87.3 |
|
|
| 87.3 |
|
|
| 87.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share - basic |
| $ | 1.13 |
|
| $ | 0.98 |
|
| $ | (0.02 | ) |
| $ | 3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share - diluted2) |
| $ | 1.12 |
|
| $ | 0.98 |
|
| $ | (0.02 | ) |
| $ | 3.50 |
|
1) | The Company’s unvested RSUs and |
2) | The number of shares in the diluted loss per share calculation for the nine month period ended September 30, 2020 is the same as the number of shares used in the basic loss per share calculation due to the net loss. |
15
12. RELATED PARTY TRANSACTIONS
The Company purchases finished goods from Veoneer. For the three months periodmonth periods ended March 31,September 30, 2020 and March 31,September 30, 2019, related party purchases from Veoneer amounted to $18$19 million and $18$17 million, respectively. For the nine month periods ended September 30, 2020 and September 30, 2019 related party purchases from Veoneer amounted to $48 million and $54 million, respectively.
Amounts due to and due from related party as of March 31,September 30, 2020 and December 31, 2019, were as follows:
|
| As of |
| |||||
Related party (Dollars in millions) |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Related party receivables1) |
| $ | 1.5 |
|
| $ | 2.8 |
|
Related party payables2) |
|
| 15.1 |
|
|
| 9.7 |
|
Related party accrued expenses3) |
|
| 6.9 |
|
|
| 7.7 |
|
|
|
|
|
|
|
|
|
|
1) Included in Receivables, net in the Condensed Consolidated Balance Sheet. |
|
|
|
|
|
|
|
|
2) Included in Accounts payable in the Condensed Consolidated Balance Sheet. |
|
|
|
|
|
|
|
|
3) Included in Accrued expenses in the Condensed Consolidated Balance Sheet. |
|
|
|
|
|
|
|
|
|
| As of |
| |||||
(Dollars in millions) |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Related party receivables1) |
| $ | 1.1 |
|
| $ | 2.8 |
|
Related party payables2) |
|
| 23.9 |
|
|
| 9.7 |
|
Related party accrued expenses3) |
|
| 5.6 |
|
|
| 7.7 |
|
1) | Included in Receivables, net in the Condensed Consolidated Balance Sheet. |
2) | Included in Accounts payable in the Condensed Consolidated Balance Sheet. |
3) | Included in Accrued expenses in the Condensed Consolidated Balance Sheet. |
16
13. REVENUE DISAGGREGATION
The Company’s disaggregated revenue for the three months period March 31,and nine month periods ended September 30, 2020 and March 31,September 30, 2019, were as follows.
|
| Three months ended March 31 |
| |||||||||||||||||||||
Net Sales by Products (Dollars in millions) |
| 2020 |
|
| 2019 |
| ||||||||||||||||||
Net Sales by Products |
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||||||||||
(Dollars in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Airbag Products and Other1) |
| $ | 1,202.2 |
|
| $ | 1,447.7 |
|
| $ | 1,331.6 |
|
| $ | 1,349.3 |
|
| $ | 3,187.5 |
|
| $ | 4,232.7 |
|
Seatbelt Products1) |
|
| 643.6 |
|
|
| 726.3 |
|
|
| 705.6 |
|
|
| 678.4 |
|
|
| 1,743.1 |
|
|
| 2,123.7 |
|
Total net sales |
| $ | 1,845.8 |
|
| $ | 2,174.0 |
|
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
1) Including Corporate and other sales. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31 |
| |||||||||||||||||||||
Net Sales by Region (Dollars in millions) |
| 2020 |
|
| 2019 |
| ||||||||||||||||||
Net Sales by Region |
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||||||||||
(Dollars in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
China |
| $ | 425.2 |
|
| $ | 381.7 |
|
| $ | 989.1 |
|
| $ | 1,061.7 |
| ||||||||
Japan |
|
| 180.3 |
|
|
| 202.4 |
|
|
| 487.9 |
|
|
| 601.6 |
| ||||||||
Rest of Asia |
|
| 200.7 |
|
|
| 193.6 |
|
|
| 514.2 |
|
|
| 622.8 |
| ||||||||
Americas |
|
| 672.2 |
|
|
| 743.1 |
|
|
| 693.3 |
|
|
| 713.1 |
|
|
| 1,578.9 |
|
|
| 2,214.2 |
|
Europe |
|
| 576.4 |
|
|
| 680.2 |
|
|
| 537.7 |
|
|
| 536.9 |
|
|
| 1,360.5 |
|
|
| 1,856.1 |
|
Japan |
|
| 203.0 |
|
|
| 208.1 |
| ||||||||||||||||
China |
|
| 197.5 |
|
|
| 330.4 |
| ||||||||||||||||
Rest of Asia |
|
| 196.7 |
|
|
| 212.2 |
| ||||||||||||||||
Total net sales |
| $ | 1,845.8 |
|
| $ | 2,174.0 |
|
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
Contract balances
Contract assets relate to the Company's rights to consideration for work completed but not billed (generally in conjunction with contracts for which revenue is recognized over time) at the reporting date on production parts and is included in Other current assets onin the Condensed Consolidated Balance Sheet. The contract assets are reclassified into the receivables balance when the rights to receive payments become unconditional. The net change in the contract assets balance, reflecting the adjustments needed to align revenue recognition for work completed but not billed, for the three months periodand nine month periods ended March 31,September 30, 2020 and March 31,September 30, 2019 were not material.
14. SUBSEQUENT EVENTS
The following non-adjustingThere were no reportable events subsequent events arose after March 31, 2020 as part of the Company’s response to the auto industry downturn caused by the COVID-19 pandemic.
The Company announced on April 2, 2020 that the dividend declared on February 20, 2020 (scheduled for payment on June 4, 2020) was cancelled. The accrued dividend in the March 31, 2020 balance sheet of $54 million (as other current liabilities) has been released to retained earnings on April 2, 2020. This resulted in an increase in equity of $54 million and a decrease in other current liabilities of $54 million on April 2,September 30, 2020.
The Company announced on April 2, 2020 that it had drawn down $600 million of cash on its existing credit line. This resulted in an increase in cash and cash equivalents and short-term debt of $600 million on April 2, 2020.
1617
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, 2019 filed with the United States Securities and Exchange Commission (the “SEC”) on February 21, 2020. 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 and steering wheels. Autoliv is also a supplier of anti-whiplash systems, pedestrian protection systems and child seats.
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.
EXECUTIVE OVERVIEW
The Company is proud of the way it handled the COVID-19 crisis. The worst demand decline on record in the second quarter was followed by a faster than expected recovery in the third quarter, with its challenges of managing the supply chain in a safe and efficient way. The quarter started weak and volatile but gradually grew stronger and more stable and the Company managed to record higher sales, higher profits and higher cash flow compared to the third quarter 2019. The third quarter outcome reflects the Company’s efforts to come out of the crisis as a stronger company. The adjusted operating margin was the second highest for a third quarter in the past 10 years, the operating cash flow and free cash flow are the highest the Company has recorded in a third quarter and the Company’s net debt is the lowest since the spin-off of Veoneer. The strong performance was a result of good operational execution, effects of the Company’s Structural Efficiency Programs and crisis management in the second quarter leading to cost reductions which, although of a more temporary nature, still supported the Company’s third quarter performance.
The Company achieved a strong first quarter despiteCompany’s sales outperformed organically (non-U.S. GAAP measure) the sharp decline inglobal light vehicle production and is satisfiedby almost 5%, with its sales outperformance margins and especially the strong cash flow and cash conversion. The task forcein all major regions. Backed by recent product launches, the Company setexpects a further pick up of outperformance in the fourth quarter, supporting a full year outperformance of around 6pp. As expected, order intake activity was slow in the third quarter, but the Company expects a very busy fourth quarter.
Although it is important to managerealize that the situationCOVID-19 crisis is not behind us, and global uncertainty persists, business stability and visibility have nevertheless improved, which allows the Company to provide a full year guidance.
The Company’s Structural Efficiency Programs are on track and delivering savings. As part of the Company’s footprint optimization ambitions, the Company decided to close one plant in China was expanded to global scaleGermany and the Company acted promptlywill continue with timely cost reduction actions to offset much offurther footprint optimization. With the headwinds from weak LVP.
The current situation is more challenging than in the first quarter, as customer closures are now affecting most of the Company’s operations, for an unknown period of time, compared to a more limited scope in the first quarter. The Company has withdrawn its full year 2020 indication until the effects of the COVID-19 pandemic can be better assessed.
The Company has undertaken a number of actions to manage the evolving situation, including adjusting production and work week hours, reducing or suspending investments and spending that are not critical for daily operations. The Company has also accelerated cost saving initiatives, furloughed personnel, often in government supported programs, and reduced compensation for executive officers and board members.
Furthermore, the Company has intensified working capital control through strict inventory control, careful monitoring of receivables and close collaboration with our suppliers. In addition, the Company has strengthened its liquidity position as it cancelled the second quarter dividend, suspended future dividends and drawn fully on its revolving credit facility.
The Company is ensuring it has an adequate cost structure that supports its profitability targets, regardless of what level of LVP that will be the new normal, post COVID-19 pandemic.
The strategic initiatives and structural improvement projects the Company outlined at its 2019 Capital Markets Day remain key priorities, although some projects may be delayed by a few quarters.
While managing a sharp LVP decline in most regions, the Company is also preparing to restart and ramp up. The Company is coordinating with its customers and suppliers to make the necessary preparations. The health and safety of Autoliv employees as the Company’s employees remain its top priorities andfirst priority, the Company is upgrading protective measures and equipment as part ofcontinues with more activities to further improve efficiency, optimizing the Company’s preparations.
The Company has seen significant recovery in demandfootprint and production in China since restarting in mid-February and all ofimplementing the strategic initiatives outlined last year to support next year being a solid stepping stone on the journey to the Company’s plants in China are now operating at normal levels.
While preparing for the worst and hoping for the best, the Company remains focused on quality and safety.
2022-24 targets.
Financial highlights in the firstthird quarter of 2020
$1,846m2,037 million net sales
13%0.4% organic sales declinegrowth (Non-U.S. GAAP measure, see reconciliation table below)
7.3%8.6% operating margin
10.1% adjusted operating margin (Non-U.S. GAAP measure)
18
$0.861.12 EPS - a decreasean increase of 32%$0.14
17$1.48 adjusted EPS (Non-U.S. GAAP measure) - an increase of $0.18
Key business developments in the firstthird quarter of 2020
• | Organic sales |
• |
|
• |
|
COVID-19 Pandemic Related Business Update
The COVID-19 pandemic has upended the automotive industry and customer projects for 2020. Autoliv is navigating the same challenges as other companies are facing in managing and forecasting the overall impact the pandemic will have on the automotive industry this year.In this environment, on April 2, 2020, the Company withdrew its previously issued 2020 guidance until the effectsFirst nine months of the pandemic can be better assessed.
First quarter 2020
The COVID-19 pandemic in the first quarter had a substantial impact on ourthe Company’s operations in the first quarter, particularly in China, where our customer’smost of its customers’ plants were closed for several weeks in February and operated at low levels in March. In Europe and North America, sales declined substantially in the second half of March as the pandemic led to customer plant closures. GlobalA large number of customer plants were closed in April and parts of May, followed by a ramp-up in June. According to IHS, global light vehicle production (LVP) declined by 24% in the first quarternine months of 2020 compared to Q1 2019 according to IHS, with LVP declining by almost 50% in China, by around 20% in Europe, and by 11% in North America. Although our organic sales (Non-U.S. GAAP measure) outperformedvs. the LVP decline by 11pp,same period the 24%prior year. The decline in global LVP and the slow and volatile restart and ramp-up had a significant impact on ourthe Company’s sales and profitability in Q1 2020.
the first six months of 2020 while it managed to achieve improvements in sales, profitability and cash flow in the third quarter as its cost reduction initiatives and positive sales development more than offset the 4% global LVP decline in the third quarter.
Liquidity and management actions undertaken to manage this challenging period
During the challengingfirst six months ahead
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter 2020,
The situation Autoliv undertook a number of actions to support employee health and safety, corporate liquidity, cash flow and profitability. Actions included introducing a Smart Start Playbook for safe re-start and ramp-up, investing in employee safety equipment and re-designing production lines and work places as necessary. Other initiatives included drawing on the Revolving Credit Facility (which is currently more challenging than it was in Q1,now fully repaid), withdrawing full year guidance (now provided again), extensive use of furloughing (very limited use today), reducing headcount, sharply reducing capital expenditures, close monitoring of working capital, reducing or suspending discretionary spending and accelerated cost savings initiatives, cancelling the dividend and suspending future dividends, although the Board of Directors will review such suspension on a quarterly basis. Direct COVID-19 related costs, such as customer closures are now affecting the majority of our operations, for an uncertain period of time, compared to a more limited scopepersonal protective equipment, temporary supplier support and premium freight, were around $10 million in the firstsecond quarter and around $5 million in the third quarter. With a higher safety content perSupport from governments in connection with furloughing, short-term work weeks and similar activities was around $25 million in the second quarter and around $10 million in the third quarter.
Current situation
In all regions, the automotive industry, including Autoliv, are in different stages of ramp-up of operations. Visibility and predictability of customer demand has improved but is still limited, particularly regarding the sustainability of current demand levels, including the effects on LVP of inventory build-ups, government vehicle subsidies and the risks of another wave of COVID-19 infections in North America and Europe,one or more of the regional mix will have a negative impact on sales in Q2. It is currently not possible to estimateregions where the market in Q2 with a reasonable degree of certainty. However, IHS outlook dated April 16, indicates a Q2 global LVP decline of 45%. A decline of such magnitude, should it come true, would have a significant impact on our sales and we do not expect to be able to fully offset the lower sales with cost reduction activities while also planning for production restarts. We therefore expect the LVP decline in Q2 to have a more substantial impact on our profitability and cash flow than the decline in Q1.
Next stepCompany operates or has customers or suppliers.
While we continue to focus on furtherhealth and safety and cost reduction actions,optimization, we are planning and preparing to restart and rampramping up production in close coordination with our customers and suppliers. Although the situation remains fluid and visibility is limited, belowBelow is a summary of our current view of our three most important regions.
18
China: OEMs are gradually returning to previousLVP was above pre-crisis production levels and the China Passenger Car Association reported that retail sales were 14% above last year’s level in the second weekand third quarter. IHS forecasting 5% year-over-year decline in LVP in the fourth quarter, the decrease mainly a result of April. However, the situation remains fluid, and we expect OEMs will be adjusting production according to inventory levels and demand. Additionally, production disruptionshigh LVP in other regions, which supply components to automakers in China, may slow down the recovery in China.Q4 2019.
Europe: A numberLVP development has improved gradually from second quarter’s year-over-year decline of European automotive plants have recently restarted or60% to a 8% decline in the third quarter according to IHS, which forecasts around 1% year-over-year decline in LVP in the fourth quarter.
19
North America: LVP development has improved gradually from second quarter’s year-over-year decline of 68% to unchanged in the third quarter according to IHS, which forecasts around 1% year-over-year decline in LVP in the fourth quarter. Inventory levels are preparing to restart production after more than a month of coronavirus-related shutdowns. The production rate will likely be volatile, with reduced shifts to adapt to uncertain demand development and component availability.still low in North America.
North America: In the US and Canada, most OEMs plan to resume production by early May. There is significant uncertainty around the return dates for their plants in Mexico, due to the stay-at-home measures in Mexico.
We are deeply focused on the safety of our employees, customers and suppliers when re-starting. We have therefore developed a Smart Start Playbook that outlines processes to raise awareness of new health protocols and to support execution in a challenging situation. This includes recommendations based on guidelines from the World Health Organization and lessons-learned from our recent ramp-up in China. We will provide personal protection equipment, such as masks and visors, and redesign some production environments, such as setting up protective screens.
Non-U.S. GAAP financial measures
Some of the following discussions refer to non-U.S. GAAP financial measures: see reconciliations for "Organic sales", "Operating working capital", "Net debt", “Leverage ratio”, “Adjusted operating income”, “Adjusted operating margin” and “Adjusted EPS” 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.
19
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. We have 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 our Annual Report on Form 10-K and the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
KEY RATIOS
(Dollars in millions, except per share data)
|
| Three months ended |
|
| Three months ended |
|
| Nine months ended |
| |||||||||||||||
|
| or as of March 31 |
|
| or as of September 30 |
|
| or as of September 30 |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Total parent shareholders’ equity per share |
| $ | 23.26 |
|
| $ | 22.48 |
|
| $ | 24.05 |
|
| $ | 22.78 |
|
| $ | 24.05 |
|
| $ | 22.78 |
|
Capital employed 1) |
|
| 3,674 |
|
|
| 3,581 |
|
|
| 3,686 |
|
|
| 3,781 |
|
|
| 3,686 |
|
|
| 3,781 |
|
Net debt 2) |
|
| 1,630 |
|
|
| 1,607 |
|
|
| 1,573 |
|
|
| 1,781 |
|
|
| 1,573 |
|
|
| 1,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital 2) |
|
| 551 |
|
|
| 633 |
|
|
| 379 |
|
|
| 620 |
|
|
| 379 |
|
|
| 620 |
|
Operating working capital relative to sales, % 10) |
|
| 6.7 |
|
|
| 7.4 |
|
|
| 5.3 |
|
|
| 7.2 |
|
|
| 5.3 |
|
|
| 7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin, % 3) |
|
| 17.9 |
|
|
| 17.4 |
|
|
| 19.6 |
|
|
| 18.7 |
|
|
| 15.1 |
|
|
| 18.2 |
|
Operating margin, % 4) |
|
| 7.3 |
|
|
| 8.0 |
|
|
| 8.6 |
|
|
| 7.6 |
|
|
| 1.5 |
|
|
| 7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on total equity, % 5) |
|
| 14.4 |
|
|
| 23.0 |
|
|
| 19.4 |
|
|
| 17.1 |
|
|
| 0.0 |
|
|
| 20.7 |
|
Return on capital employed, % 6) |
|
| 14.5 |
|
|
| 19.6 |
|
|
| 18.7 |
|
|
| 16.2 |
|
|
| 2.7 |
|
|
| 18.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount at period-end 7) |
|
| 65,500 |
|
|
| 66,900 |
|
|
| 65,300 |
|
|
| 64,900 |
|
|
| 65,300 |
|
|
| 64,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days receivables outstanding 8) |
|
| 71 |
|
|
| 74 |
|
|
| 73 |
|
|
| 75 |
|
|
| 90 |
|
|
| 72 |
|
Days inventory outstanding 9) |
|
| 42 |
|
|
| 35 |
|
|
| 36 |
|
|
| 37 |
|
|
| 45 |
|
|
| 35 |
|
1) | Total equity and net debt. |
2) | See tabular presentation reconciling this non-U.S. GAAP measure to U.S. GAAP below under the heading “Liquidity and Sources of Capital”. |
3) | Gross profit relative to sales. |
4) | Operating income relative to sales. |
5) | Net income (loss) relative to average total equity. |
6) | Operating income and income from equity method investments, relative to average capital employed. |
7) | Employees plus temporary, hourly personnel. |
8) | Outstanding receivables relative to average daily sales. |
9) | Outstanding inventory relative to average daily sales. |
10) | Latest 12 months of net sales. For 2019 excluding EC antitrust non-cash provision. |
20
THREE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2020 COMPARED WITH THREE MONTHS ENDED MARCH 31,SEPEMBER 30, 2019
Consolidated Sales
| First quarter |
|
|
|
|
|
| Components of change in net sales |
|
| Three months ended September 30 |
|
|
|
|
|
| Components of change in net sales |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| Reported change |
|
| Currency effects 1) |
|
| Organic 3) |
|
| 2020 |
|
| 2019 |
|
| Reported change |
|
| Currency effects 1) |
|
| Organic 3) |
| ||||||||||
Airbags and other 2) | $ | 1,202.2 |
|
| $ | 1,447.7 |
|
|
| (17.0 | )% |
|
| (1.9 | )% |
|
| (15.1 | )% |
| $ | 1,331.6 |
|
| $ | 1,349.3 |
|
|
| (1.3 | )% |
|
| (0.1 | )% |
|
| (1.2 | )% |
Seatbelts 2) |
| 643.6 |
|
|
| 726.3 |
|
|
| (11.4 | )% |
|
| (2.6 | )% |
|
| (8.8 | )% |
|
| 705.6 |
|
|
| 678.4 |
|
|
| 4.0 | % |
|
| 0.3 | % |
|
| 3.7 | % |
Total | $ | 1,845.8 |
|
| $ | 2,174.0 |
|
|
| (15.1 | )% |
|
| (2.1 | )% |
|
| (13.0 | )% |
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
|
| 0.5 | % |
|
| 0.1 | % |
|
| 0.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia | $ | 597.2 |
|
| $ | 750.7 |
|
|
| (20.4 | )% |
|
| (1.9 | )% |
|
| (18.5 | )% |
| $ | 806.2 |
|
| $ | 777.7 |
|
|
| 3.7 | % |
|
| 0.4 | % |
|
| 3.3 | % |
Whereof: China |
| 197.5 |
|
|
| 330.4 |
|
|
| (40.2 | )% |
|
| (3.3 | )% |
|
| (36.9 | )% |
|
| 425.2 |
|
|
| 381.7 |
|
|
| 11.4 | % |
|
| 1.0 | % |
|
| 10.4 | % |
Japan |
| 203.0 |
|
|
| 208.1 |
|
|
| (2.5 | )% |
|
| 1.1 | % |
|
| (3.6 | )% |
|
| 180.3 |
|
|
| 202.4 |
|
|
| (10.9 | )% |
|
| 0.9 | % |
|
| (11.8 | )% |
Rest of Asia |
| 196.7 |
|
|
| 212.2 |
|
|
| (7.3 | )% |
|
| (2.8 | )% |
|
| (4.5 | )% |
|
| 200.7 |
|
|
| 193.6 |
|
|
| 3.7 | % |
|
| (1.4 | )% |
|
| 5.1 | % |
Americas |
| 672.2 |
|
|
| 743.1 |
|
|
| (9.5 | )% |
|
| (1.3 | )% |
|
| (8.2 | )% |
|
| 693.3 |
|
|
| 713.1 |
|
|
| (2.8 | )% |
|
| (4.0 | )% |
|
| 1.2 | % |
Europe |
| 576.4 |
|
|
| 680.2 |
|
|
| (15.3 | )% |
|
| (3.0 | )% |
|
| (12.3 | )% |
|
| 537.7 |
|
|
| 536.9 |
|
|
| 0.1 | % |
|
| 4.9 | % |
|
| (4.8 | )% |
Total | $ | 1,845.8 |
|
| $ | 2,174.0 |
|
|
| (15.1 | )% |
|
| (2.1 | )% |
|
| (13.0 | )% |
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
|
| 0.5 | % |
|
| 0.1 | % |
|
| 0.4 | % |
| Effects from currency translations. |
2) | Including Corporate and Other sales. |
3) | Non-U.S. GAAP |
Sales by Product
product - Airbags
Airbag sales organic decline (Non-U.S. GAAP measure) was across all main product categories except kneeSales of side airbags which grew organically by 7%. The main decline drivers wereincreased slightly, mainly from most types of side airbags in South Korea and inflatable curtains steering wheels,and chest airbags in China. Sales of frontal airbags decreased slightly, due to weak sales of passenger airbags in Japan and ASEAN. Sales of inflators, and driver airbags.including inflator replacements, decreased by around $20 million.
Sales by product - Seatbelts
Seatbelt sales organic declinegrowth (Non-U.S. GAAP measure) was mainly driven byreflects positive development with pretensioner seatbelts, especially in North America, China and Japan. Europe and to some degree in India, partly offset by growth in Japan and North America.was the only large region with organic seatbelt sales decline.
Sales by Region
TheOur global organic sales decline (Non-U.S. GAAP measure) of 13% was around 11pp better thanincreased by 0.4% compared to the LVP decline of around 24% according4.3% (according to IHS. The overall sales decline was driven byIHS). Sales increased organically in China, followed byRest of Asia and Americas and decreased in Europe and North America. The only areas withJapan. Our organic growth were ASEAN and South America. Our change in sales development outperformed LVP organically in all major regions - by more than 12ppalmost 6pp in China,Americas, by 8ppalmost 3pp in Europe and by aroundalmost 2pp in North America and by more than 4pp in Japan. In South America, we grew organically by 7%, outperforming LVP by 24pp, while we outperformed LVP organically by almost 14pp in Rest of Asia.
China.
Q1 2020 Organic growth1) |
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
| ||||||||||||||||||||||||||||||
Q3 2020 Organic growth1) |
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
| ||||||||||||||||||||||||||||||
Autoliv |
|
| (8.2 | )% |
|
| (12.3 | )% |
|
| (36.9 | )% |
|
| (3.6 | )% |
|
| (4.5 | )% |
|
| (13.0 | )% |
|
| 1.2 | % |
|
| (4.8 | )% |
|
| 10.4 | % |
|
| (11.8 | )% |
|
| 5.1 | % |
|
| 0.4 | % |
Main growth drivers |
| Tesla, Subaru |
|
| PSA |
|
| BYD, GM |
|
| Honda, Suzuki, Subaru |
|
| Mitsubishi, GM, Nissan |
|
| Tesla, Subaru, Suzuki, BYD, PSA |
|
| Tesla, Toyota, VW |
|
| PSA, Toyota |
|
| GM, VW, Honda |
|
| Suzuki, Toyota, Honda |
|
| Hyundai/Kia, GM, Tata |
|
| Toyota, Tesla, GM, VW |
| ||||||||||||
Main decline drivers |
| Inflators, Honda, FCA, Ford |
|
| Daimler, VW, Renault, Ford |
|
| VW, Great Wall, Nissan, Honda, Geely, Hyundai/Kia |
|
| Mitsubishi, Toyota, Mazda, Inflators |
|
| Hyundai/Kia, Toyota, Isuza, Mahindra |
|
| Daimler, VW, Honda, Inflators, Hyundai/Kia, Great Wall, Ford |
|
| Inflators, Nissan, FCA |
|
| Daimler, Renault, BMW |
|
| Daimler, Nissan, Mitsubishi |
|
| Mitsubishi, Nissan, Mazda |
|
| Mitsubishi, Toyota |
|
| Mitsubishi, Nissan, Daimler, Inflators |
|
1) | Non-U.S. GAAP measure. |
21
Light Vehicle Production Development
Change vs. same quarter last year
|
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
|
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
| ||||||||||||
LVP1) |
|
| (12.0 | )% |
|
| (20.5 | )% |
|
| (49.3 | )% |
|
| (7.9 | )% |
|
| (18.0 | )% |
|
| (24.4 | )% |
|
| (4.3 | )% |
|
| (7.6 | )% |
|
| 8.7 | % |
|
| (11.8 | )% |
|
| (16.8 | )% |
|
| (4.3 | )% |
1) Source: IHS April 16, 2020. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
1) Source: IHS October 2020. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Earnings
|
| Three months ended March 31 |
|
|
|
|
|
| Three months ended September 30 |
|
|
|
|
| ||||||||||
(Dollars in millions, except per share data) |
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Net Sales |
| $ | 1,845.8 |
|
| $ | 2,174.0 |
|
|
| (15.1 | )% |
| $ | 2,037.2 |
|
| $ | 2,027.7 |
|
|
| 0.5 | % |
Gross profit |
|
| 331.0 |
|
|
| 378.8 |
|
|
| (12.6 | )% |
|
| 399.7 |
|
|
| 379.1 |
|
|
| 5.4 | % |
% of sales |
|
| 17.9 | % |
|
| 17.4 | % |
|
| 0.5 | pp |
|
| 19.6 | % |
|
| 18.7 | % |
|
| 0.9 | pp |
S, G&A |
|
| (93.5 | ) |
|
| (101.4 | ) |
|
| (7.8 | )% |
|
| (91.7 | ) |
|
| (97.7 | ) |
|
| (6.1 | )% |
% of sales |
|
| (5.1 | )% |
|
| (4.7 | )% |
|
| 0.4 | pp |
|
| (4.5 | )% |
|
| (4.8 | )% |
|
| (0.3 | )pp |
R, D&E, net |
|
| (102.6 | ) |
|
| (107.4 | ) |
|
| (4.5 | )% |
|
| (101.6 | ) |
|
| (99.1 | ) |
|
| 2.5 | % |
% of sales |
|
| (5.6 | )% |
|
| (4.9 | )% |
|
| 0.7 | pp |
|
| (5.0 | )% |
|
| (4.9 | )% |
|
| 0.1 | pp |
Amortization of Intangibles |
|
| (2.4 | ) |
|
| (2.9 | ) |
|
| (17.2 | )% | ||||||||||||
Other income (expense), net |
|
| 2.1 |
|
|
| 6.0 |
|
|
| (65.0 | )% |
|
| (29.5 | ) |
|
| (25.6 | ) |
|
| 15.2 | % |
Operating income |
|
| 134.3 |
|
|
| 173.2 |
|
|
| (22.5 | )% |
|
| 174.5 |
|
|
| 153.8 |
|
|
| 13.5 | % |
% of sales |
|
| 7.3 | % |
|
| 8.0 | % |
|
| 0.7 | pp |
|
| 8.6 | % |
|
| 7.6 | % |
|
| 1.0 | pp |
Adjusted operating income1) |
|
| 135.9 |
|
|
| 166.4 |
|
|
| (18.3 | )% |
|
| 205.6 |
|
|
| 182.5 |
|
|
| 12.7 | % |
% of sales |
|
| 7.4 | % |
|
| 7.7 | % |
|
| (0.3 | )pp |
|
| 10.1 | % |
|
| 9.0 | % |
|
| 1.1 | pp |
Financial and non-operating items, net |
|
| (23.0 | ) |
|
| (19.6 | ) |
|
| 17.3 | % |
|
| (26.0 | ) |
|
| (19.4 | ) |
|
| 34.0 | % |
Income before taxes |
|
| 111.3 |
|
|
| 153.6 |
|
|
| (27.5 | )% |
|
| 148.5 |
|
|
| 134.4 |
|
|
| 10.5 | % |
Tax rate |
|
| 32.7 | % |
|
| 27.4 | % |
|
| 5.3 | pp |
|
| 33.5 | % |
|
| 36.0 | % |
|
| (2.5 | )pp |
Net income |
|
| 74.9 |
|
|
| 111.5 |
|
|
| (32.8 | )% |
|
| 98.8 |
|
|
| 86.0 |
|
|
| 14.9 | % |
Earnings per share, diluted2) |
|
| 0.86 |
|
|
| 1.27 |
|
|
| 32.3 | % |
|
| 1.12 |
|
|
| 0.98 |
|
|
| 14.3 | % |
Adjusted earnings per share, diluted1),2) |
|
| 0.88 |
|
|
| 1.20 |
|
|
| (26.7 | )% |
|
| 1.48 |
|
|
| 1.30 |
|
|
| 13.8 | % |
1) | Non-U.S. GAAP measure, excluding costs for capacity alignment and antitrust related |
2) | Assuming dilution, when applicable, and net of treasury shares. Participating share awards with right to receive dividend equivalents are under the two-class method excluded from the EPS calculation. |
FirstThird quarter 2020 development
Gross profit decreasedincreased by $48$21 million and the gross margin increased by 0.5pp0.9pp compared to the same quarter 2019. The gross margin improved despite lower sales and lower utilization of our assets from the decline in LVP, as itincrease was positively impactedprimarily driven by the absence of costs related to the social unrest in Mexico in 2020, savings from indirectlabor and direct workforce adjustments, lower raw material costs and positive currency effects. Although gross margin improved, the lower sales led to a decline in gross profit.materiel productivity.
S,G&A declined by $8$6 million, or 6%, compared to the prior year, mainly due to positive year over year effects from changes in currency exchange rates, legal fees andlower costs for personnel, costs.including consultants.
R,D&E, net declinedcosts increased by $5$3 million compared to the prior year, mainly due to positive year over year effectsas reduced personnel costs was more than offset by negative effect from lower personnel costsengineering income and changes in currency exchange rates, partly offset by lower engineering income.miscellaneous items.
Other income (expense), net declined by $4was negative $30 million, comparedmainly relating to a year earlier, mainly due to that first quarter 2019 was positively impacted by $6.8 millionrestructuring activities in release of EC antitrust provision.Europe.
Operating income decreasedincreased by $39$21 million compared to the same period in 2019, as a consequence of the higher gross profit and lower costs for S,G&A being partly offset by higher costs in Other income (expense), net and R,D&E, net.
Adjusted operating income (Non-U.S. GAAP measure) increased by $23 million compared to the prior year, mainly due to the higher gross profit and lower costs for S,G&A being partly offset by higher costs for R,D&E, net.
Financial and non-operating items, net costs were $7 million higher vs. Q3 2019, mainly as a result of higher interest expense due to higher debt and higher pension related expenses.
Income before taxes increased by $14 million compared to the prior year, mainly due to the higher operating income.
Tax rate was 33.5%, compared to 36.0% in the same quarter last year, impacted by losses without tax benefit and an unfavorable country mix.
Earnings per share, diluted increased by $0.14 compared to a year earlier, where the main drivers were $0.17 from higher adjusted operating income (Non-U.S. GAAP measure) and $0.06 from lower tax partly offset by $0.04 in higher capacity alignment accruals and $0.05 from higher costs for financial items.
22
NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2019
Consolidated Sales
|
| Nine months ended September 30 |
|
|
|
|
|
| Components of change in net sales |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Reported change |
|
| Currency effects 1) |
|
| Organic 3) |
| |||||
Airbags and other 2) |
| $ | 3,187.5 |
|
| $ | 4,232.7 |
|
|
| (24.7 | )% |
|
| (1.8 | )% |
|
| (22.9 | )% |
Seatbelts 2) |
|
| 1,743.1 |
|
|
| 2,123.7 |
|
|
| (17.9 | )% |
|
| (2.1 | )% |
|
| (15.8 | )% |
Total |
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
|
| (22.4 | )% |
|
| (1.9 | )% |
|
| (20.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
| $ | 1,991.2 |
|
| $ | 2,286.1 |
|
|
| (12.9 | )% |
|
| (1.3 | )% |
|
| (11.6 | )% |
Whereof: China |
|
| 989.1 |
|
|
| 1,061.7 |
|
|
| (6.8 | )% |
|
| (1.8 | )% |
|
| (5.0 | )% |
Japan |
|
| 487.9 |
|
|
| 601.6 |
|
|
| (18.9 | )% |
|
| 1.4 | % |
|
| (20.3 | )% |
Rest of Asia |
|
| 514.2 |
|
|
| 622.8 |
|
|
| (17.4 | )% |
|
| (2.9 | )% |
|
| (14.5 | )% |
Americas |
|
| 1,578.9 |
|
|
| 2,214.2 |
|
|
| (28.7 | )% |
|
| (3.5 | )% |
|
| (25.2 | )% |
Europe |
|
| 1,360.5 |
|
|
| 1,856.1 |
|
|
| (26.7 | )% |
|
| (0.8 | )% |
|
| (25.9 | )% |
Total |
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
|
| (22.4 | )% |
|
| (1.9 | )% |
|
| (20.5 | )% |
1) | Effects from currency translations. |
2) | Including Corporate and Other sales. |
3) | Non-U.S. GAAP measure. |
Sales by Product - Airbags
Sales of all our airbag products except textiles declined organically (Non-U.S. GAAP measure) by between 17% and 58% in the first nine months of the year, reflecting the 23.9% decline in LVP. Textiles increased by 51%, reflecting new sales of textiles for manufacturing of personal protection equipment. Inflator sales declined organically (Non-U.S. GAAP measure) by around 58%.
Sales by Product - Seatbelts
Japan showed a slight organic seatbelt sales growth (Non-U.S. GAAP measure), while all other regions showed organic sales declines between 5% and 31%.
Sales by Region
The global organic sales (Non-U.S. GAAP measure) decline of 20.5% was 3.4pp better than LVP (according to IHS). Sales declined organically in all regions. The largest organic sales decline drivers were Americas and Europe, followed by Japan, Rest of Asia and China. Our organic sales (Non-U.S. GAAP measure) development outperformed LVP in all regions - by 5.5pp in China, by 4.3pp in Americas and by 3.6pp in Europe.
First nine months 2020 Organic growth1) |
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
| ||||||
Autoliv |
|
| (25.2 | )% |
|
| (25.9 | )% |
|
| (5.0 | )% |
|
| (20.3 | )% |
|
| (14.5 | )% |
|
| (20.5 | )% |
Main growth drivers |
| Tesla, Mazda |
|
| Inflators |
|
| GM, Ford, Toyota |
|
| Suzuki, Honda |
|
| GM, Renault |
|
| Tesla |
| ||||||
Main decline drivers |
| FCA, Honda, Nissan, Inflators |
|
| Daimler, VW, Renault, BMW |
|
| Nissan, Great Wall, Inflators |
|
| Mitsubishi, Nissan, Mazda |
|
| Mitsubishi, Suzuki, Toyota |
|
| FCA, Nissan, Daimler, Honda, Inflators |
|
Light Vehicle Production Development
Change vs. same period last year
|
| Americas |
|
| Europe |
|
| China |
|
| Japan |
|
| Rest of Asia |
|
| Global |
| ||||||
LVP1) |
|
| (29.5 | )% |
|
| (29.5 | )% |
|
| (10.5 | )% |
|
| (21.9 | )% |
|
| (31.3 | )% |
|
| (23.9 | )% |
1) Source: IHS October 2020. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Earnings
|
| Nine months ended September 30 |
|
|
|
|
| |||||
(Dollars in millions, except per share data) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net Sales |
| $ | 4,930.6 |
|
| $ | 6,356.4 |
|
|
| (22.4 | )% |
Gross profit |
|
| 745.1 |
|
|
| 1,157.6 |
|
|
| (35.6 | )% |
% of sales |
|
| 15.1 | % |
|
| 18.2 | % |
|
| (3.1 | )pp |
S, G&A |
|
| (283.7 | ) |
|
| (300.2 | ) |
|
| (5.5 | )% |
% of sales |
|
| (5.8 | )% |
|
| (4.7 | )% |
|
| 1.1 | pp |
R, D&E, net |
|
| (292.2 | ) |
|
| (323.5 | ) |
|
| (9.7 | )% |
% of sales |
|
| (5.9 | )% |
|
| (5.1 | )% |
|
| 0.8 | pp |
Amortization of Intangibles |
|
| (7.5 | ) |
|
| (8.6 | ) |
|
| (12.8 | )% |
Other income (expense), net |
|
| (86.4 | ) |
|
| (28.8 | ) |
|
| 200.0 | % |
Operating income |
|
| 75.3 |
|
|
| 496.5 |
|
|
| (84.8 | )% |
% of sales |
|
| 1.5 | % |
|
| 7.8 | % |
|
| (6.3 | )pp |
Adjusted operating income1) |
|
| 170.2 |
|
|
| 532.1 |
|
|
| (68.0 | )% |
% of sales |
|
| 3.5 | % |
|
| 8.4 | % |
|
| (4.9 | )pp |
Financial and non-operating items, net |
|
| (62.0 | ) |
|
| (57.7 | ) |
|
| 7.5 | % |
Income before taxes |
|
| 13.3 |
|
|
| 438.8 |
|
|
| (97.0 | )% |
Tax rate |
|
| 104.4 | % |
|
| 30.1 | % |
|
| 74.3 | pp |
Net (loss) income |
|
| (0.6 | ) |
|
| 306.9 |
|
|
| (100.2 | )% |
(Loss) earnings per share, diluted2) |
|
| (0.02 | ) |
|
| 3.50 |
|
|
| (100.6 | )% |
Adjusted earnings per share, diluted1),2) |
|
| 0.95 |
|
|
| 3.87 |
|
|
| (75.5 | )% |
1) | Non-U.S. GAAP measure, excluding costs for capacity alignment and antitrust related matters and in 2019 separation of our business segments. |
2) | Assuming dilution, when applicable, and net of treasury shares. Participating share awards with right to receive dividend equivalents are under the two-class method excluded from the EPS calculation. |
First nine months 2020 development
Gross profit declined by $413 million and the gross margin declined by 3.1pp compared to the same period 2019. The gross margin decline was primarily driven by lower sales and lower utilization of our assets from the decline in LVP. The sharp sales decline followed by a volatile restart and ramp-up with limited visibility and predictability had a significant effect on our gross margin, despite significant reductions in costs for material and labor.
S,G&A decreased by $17 million, or by 6%, mainly due to lower personnel costs.
R,D&E, net declined by $31 million, or by 10%, mainly due to positive year-over-year effects from lower personnel costs due to reduced headcount and furloughing.
Other income (expense), net costs increased by $58 million compared to a year earlier, mainly due to higher accruals for restructuring activities in the first nine months of 2020 compared to a year earlier. The accruals are mainly related to future reductions of our indirect workforce.
Operating income decreased by $421 million, mainly as a consequence of the declines in gross profit and other income (expense), net, being partly offset by lower costs for S,G&A and R,D&E, net.
Adjusted operating income (Non-U.S.(Non-U.S. GAAP measure, see reconciliation table below) measure) decreased by around $30$362 million, compared to the prior year, mainly due to the lower gross profit, partly offset by lower costs for S,G&A and R,D&E, net.
Financial and non-operating items, net was $3costs were $4 million higher costs than a year earlier, mainly due to losses onunfavorable effects of exchange rate fluctuations in the first quarter 2020.changes and higher pension related expenses.
Income before taxes decreased by $42$426 million, compared to the prior year, mainly due to theas a consequence of lower operating income.
Tax rate of 32.7% was 5.3pp higher than in the same quarter104.4%, compared to 30.1% last year, primarily due toimpacted by unfavorable country mix.mix and losses without tax benefit.
Earnings per share, diluted decreased by 41 cents compared to a year earlier,$3.52 where the main drivers were 53 cents$2.89 from lower adjusted operating income and 5 cents$0.60 from higher financial and non-operating items, partly offset by 16 cents from lower overall tax.capacity alignment accruals.
2224
LIQUIDITY AND SOURCES OF CAPITAL
FirstThird quarter 2020 development
Operating working capital (Non-U.S.(Non-U.S. GAAP measure, see reconciliation table below)measure) was 6.7%5.3% of sales compared to 7.4%7.2% of sales a year earlier, mainly due to loweras a consequence of more positive effects from accounts receivable.receivables, inventories and various accruals vs. the prior year. The Company targets that operating working capital in relation to the last 12-month sales should not exceed 10%.
Cash from operating activitiesOperating cash flow was $156$352 million, compared to $154$195 million a year earlier, as the lower netearlier. The improvement was mainly due to more positive effects from changes in accounts payable and accrued expenses, inventories and income was more thantaxes partly offset by positivemore negative effect from deferred income taxesreceivables and favorable impact from net changes in operatingother assets and liabilities.vs. the prior year.
Capital expenditure, net of $88 million was $20 million38% lower than a year earlier, reflecting the ambitionour efforts to limitreduce capital investments.expenditure to support cash flow. Capital expenditure, net in relation to sales was 4.8%3.8% vs. 5.0%6.0% a year earlier.
Cash from operating activities lessFree cash used in investing activitiesflow (Non-U.S. GAAP measure) amounted to $68$276 million, compared to $46$73 million a year earlier. The increase of $22 million was mainly 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) in relation to net income, was 279%, driven by the high level of free cash flow.
Net debt (Non-U.S.(Non-U.S. GAAP measure, see reconciliation table below) amounted to $1,630measure) was $1,573 million as of March 31,September 30, 2020, which was $22$208 million higherlower than a year earlier and $20$265 million lower compared to December 31, 2019.June 30, 2020.
Liquidity position.position At March 31,September 30, 2020, ourthe cash balance was around $0.9$1.5 billion, and including committed, unused loan facilities, our liquidity position was around $1.5 billion after drawing fully on our$2.0 billion. On October 2, 2020, the Revolving Credit Facility on April 2, 2020. Debtwas fully repaid through a $600 million payment. Remaining debt maturing in 2020 is around $318$117 million, with another $275 million maturing in 2021.
Leverage ratio (Non-U.S.(Non-U.S. GAAP measure, see reconciliation table below)measure) Autoliv’s policy is to maintain a leverage ratio commensurate with a strong investment grade credit rating. The Company measures its leverage ratio as net debt (Non-U.S. GAAP measure) adjusted for pension liabilities in relation to adjusted EBITDA (Non-U.S. GAAP measure, see calculation below)measure). The long-term target is to maintain a leverage ratio of around 1x within a range of 0.5x to 1.5x. As of March 31,September 30, 2020, the Company had a leverage ratio of 1.7x,2.4x, compared to 1.6x1.8x at March 31, 2019. The increase is due toSeptember 30, 2019 as a lower net debt was more than offset by a lower adjusted 12 month trailing EBITDA in the current period compared tovs. a year earlier. Compared to December 31, 2019,At June 30, 2020, the leverage ratio is unchanged.was 2.9x.
Total equity increased by $70$114 million compared to March 31,September 30, 2019 mainly due to $425$155 million in net income and $28 million from positive foreign exchange effects, partly offset by $217$55 million in dividends, $120dividends.
First nine months 2020 development
Operating cash flow was $380 million compared to $328 million a year earlier. The improvement was primarily a result of more positive effects from changes in exchange ratesworking capital in 2020 and $27the EC antitrust payment of $203 million from pension liability adjustments. Asin Q2 2019, partly offset by a lower net income in 2020.
Capital expenditure, net of $229 million was 36% lower than a year earlier, reflecting efforts to reduce capital expenditure to support cash flow. Capital expenditure, net in relation to sales was 4.6% compared to 5.6% in the Company canceledsame period 2019.
Free cash flow (Non-U.S. GAAP measure) amounted to $152 million compared to $30 million negative a year earlier, where the previously announced second quarter dividendimprovement 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) in April 2020, $54 million has been reclassified backrelation to total equitynet income, was not meaningful in April 2020the first half year as net income was close to zero.
2325
Non-U.S. GAAP measures
Reconciliation of U.S. GAAP financial measures to “Adjusted operating income”, “Adjusted operating margin” and “Adjusted EPS”
(Dollars in millions, except per share data)
|
| Three months ended March 31, 2020 |
|
| Three months ended March 31, 2019 |
|
| Three months ended September 30, 2020 |
|
| Three months ended September 30, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
| ||||||||||||
Operating income |
| $ | 134.3 |
|
| $ | 1.6 |
|
| $ | 135.9 |
|
| $ | 173.2 |
|
| $ | (6.8 | ) |
| $ | 166.4 |
|
| $ | 174.5 |
|
| $ | 31.1 |
|
| $ | 205.6 |
|
| $ | 153.8 |
|
| $ | 28.7 |
|
| $ | 182.5 |
|
Operating margin, % |
|
| 7.3 |
|
|
| 0.1 |
|
|
| 7.4 |
|
|
| 8.0 |
|
|
| (0.3 | ) |
|
| 7.7 |
|
|
| 8.6 |
|
|
| 1.5 |
|
|
| 10.1 |
|
|
| 7.6 |
|
|
| 1.4 |
|
|
| 9.0 |
|
EPS, diluted |
|
| 0.86 |
|
|
| 0.02 |
|
|
| 0.88 |
|
|
| 1.27 |
|
|
| (0.07 | ) |
|
| 1.20 |
| ||||||||||||||||||||||||
Earnings per share, diluted |
|
| 1.12 |
|
|
| 0.36 |
|
|
| 1.48 |
|
|
| 0.98 |
|
|
| 0.32 |
|
|
| 1.30 |
|
1) | Including costs for capacity alignment and antitrust related |
|
| Nine months ended September 30, 2020 |
|
| Nine months ended September 30, 2019 |
| ||||||||||||||||||
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
|
| Reported U.S. GAAP |
|
| Adjustments1) |
|
| Non-U.S. GAAP |
| ||||||
Operating income |
| $ | 75.3 |
|
| $ | 94.9 |
|
| $ | 170.2 |
|
| $ | 496.5 |
|
| $ | 35.6 |
|
| $ | 532.1 |
|
Operating margin, % |
|
| 1.5 |
|
|
| 2.0 |
|
|
| 3.5 |
|
|
| 7.8 |
|
|
| 0.6 |
|
|
| 8.4 |
|
(Loss) earnings per share, diluted |
|
| (0.02 | ) |
|
| 0.97 |
|
|
| 0.95 |
|
|
| 3.50 |
|
|
| 0.37 |
|
|
| 3.87 |
|
1) | Including costs for capacity alignment and antitrust related matters and in 2019 separation of our business segments. |
Items included in Non-U.S. GAAP adjustments
(Dollars in millions, except per share data)
|
| Three months ended March 31, 2020 |
|
| Three months ended March 31, 2019 |
|
| Three months ended September 30, 2020 |
|
| Three months ended September 30, 2019 |
| ||||||||||||||||||||
|
| Millions |
|
| Per share |
|
| Millions |
|
| Per share |
|
| Millions |
|
| Per share |
|
| Millions |
|
| Per share |
| ||||||||
Capacity alignment |
| $ | 1.6 |
|
| $ | 0.02 |
|
| $ | (0.1 | ) |
| $ | (0.00 | ) |
| $ | 30.9 |
|
| $ | 0.36 |
|
| $ | 27.4 |
|
| $ | 0.31 |
|
Antitrust related matters |
|
| 0.0 |
|
|
| 0.00 |
|
|
| (6.7 | ) |
|
| (0.07 | ) |
|
| 0.2 |
|
|
| 0.00 |
|
|
| 0.1 |
|
|
| 0.00 |
|
Separation costs |
|
| – |
|
|
| – |
|
|
| 1.2 |
|
|
| 0.01 |
| ||||||||||||||||
Total adjustments to operating income |
|
| 1.6 |
|
|
| 0.02 |
|
| $ | (6.8 | ) |
|
| (0.07 | ) |
| $ | 31.1 |
|
| $ | 0.36 |
|
| $ | 28.7 |
|
| $ | 0.32 |
|
Tax on non-U.S. GAAP adjustments1) |
|
| 0.0 |
|
|
| 0.00 |
|
|
| 0.0 |
|
|
| 0.00 |
|
|
| 0.0 |
|
|
| 0.00 |
|
|
| (0.4 | ) |
|
| 0.00 |
|
Total adjustments to net income |
| $ | 1.6 |
|
| $ | 0.02 |
|
| $ | (6.8 | ) |
| $ | (0.07 | ) |
|
| 31.1 |
|
|
| 0.36 |
|
|
| 28.3 |
|
|
| 0.32 |
|
1) | The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s). |
|
| Nine months ended September 30, 2020 |
|
| Nine months ended September 30, 2019 |
| ||||||||||
|
| Millions |
|
| Per share |
|
| Millions |
|
| Per share |
| ||||
Capacity alignment |
| $ | 94.4 |
|
| $ | 1.08 |
|
| $ | 40.5 |
|
| $ | 0.46 |
|
Antitrust related matters |
|
| 0.5 |
|
|
| 0.01 |
|
|
| (6.1 | ) |
|
| (0.07 | ) |
Separation Costs |
|
| – |
|
|
| – |
|
|
| 1.2 |
|
|
| 0.01 |
|
Total adjustments to operating income |
|
| 94.9 |
|
|
| 1.09 |
|
|
| 35.6 |
|
|
| 0.40 |
|
Tax on non-U.S. GAAP adjustments1) |
|
| (9.9 | ) |
|
| (0.12 | ) |
|
| (3.0 | ) |
|
| (0.03 | ) |
Total adjustments to net income |
| $ | 85.0 |
|
| $ | 0.97 |
|
| $ | 32.6 |
|
| $ | 0.37 |
|
1) | 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 “Operating working capital,” as defined in the table below, in its communications with investors and for management’s review of the development of the 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. The historical periods in the table have been restated to only reflect continuing operations.
26
Reconciliation of U.S. GAAP financial measure to “Operating working capital”
(Dollars in millions)
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| December 31, 2019 |
| ||||||
Total current assets |
| $ | 3,307.0 |
|
| $ | 3,111.1 |
|
| $ | 3,002.1 |
|
| $ | 4,036.5 |
|
| $ | 2,908.8 |
|
| $ | 3,002.1 |
|
Total current liabilities 1) |
|
| (2,226.2 | ) |
|
| (2,535.3 | ) |
|
| (2,410.2 | ) | ||||||||||||
Total current liabilities |
|
| (3,221.3 | ) |
|
| (2,304.8 | ) |
|
| (2,410.2 | ) | ||||||||||||
Working capital |
|
| 1,080.8 |
|
|
| 575.8 |
|
|
| 591.9 |
|
|
| 815.2 |
|
|
| 604.0 |
|
|
| 591.9 |
|
Cash and cash equivalents |
|
| (907.2 | ) |
|
| (436.6 | ) |
|
| (444.7 | ) |
|
| (1,476.5 | ) |
|
| (334.4 | ) |
|
| (444.7 | ) |
Short-term debt |
|
| 318.8 |
|
|
| 437.6 |
|
|
| 368.1 |
|
|
| 1,025.5 |
|
|
| 289.9 |
|
|
| 368.1 |
|
Derivative (asset) and liability, current |
|
| 4.4 |
|
|
| 2.4 |
|
|
| (4.2 | ) |
|
| 15.1 |
|
|
| 5.9 |
|
|
| (4.2 | ) |
Dividends payable 2) |
|
| 54.1 |
|
|
| 54.0 |
|
|
| 54.1 |
| ||||||||||||
Dividends payable 1) |
|
| – |
|
|
| 54.1 |
|
|
| 54.1 |
| ||||||||||||
Operating working capital |
| $ | 550.9 |
|
| $ | 633.2 |
|
| $ | 565.2 |
|
| $ | 379.3 |
|
| $ | 619.5 |
|
| $ | 565.2 |
|
1) | On April 2, 2020, the Company canceled its declared dividend for the second quarter of 2020 and no additional dividends have been declared in 2020. |
1) March 31, 2019 excluding the EC antitrust accrual.
2) As of April 2, 2020, the dividend payable in Mar 31, 2020 has been cancelled.
24
Reconciliation of U.S. GAAP financial measure to “Net debt”
(Dollars in millions)
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| December 31, 2019 |
| ||||||
Short-term debt |
| $ | 318.8 |
|
| $ | 437.6 |
|
| $ | 368.1 |
|
| $ | 1,025.5 |
|
| $ | 289.9 |
|
| $ | 368.1 |
|
Long-term debt |
|
| 2,209.4 |
|
|
| 1,598.1 |
|
|
| 1,726.1 |
|
|
| 2,007.1 |
|
|
| 1,815.1 |
|
|
| 1,726.1 |
|
Total debt |
|
| 2,528.2 |
|
|
| 2,035.7 |
|
|
| 2,094.2 |
|
|
| 3,032.6 |
|
|
| 2,105.0 |
|
|
| 2,094.2 |
|
Cash and cash equivalents |
|
| (907.2 | ) |
|
| (436.6 | ) |
|
| (444.7 | ) |
|
| (1,476.5 | ) |
|
| (334.4 | ) |
|
| (444.7 | ) |
Debt issuance cost/Debt-related derivatives, net |
|
| 8.5 |
|
|
| 8.1 |
|
|
| 0.3 |
|
|
| 17.0 |
|
|
| 10.7 |
|
|
| 0.3 |
|
Net debt |
| $ | 1,629.5 |
|
| $ | 1,607.2 |
|
| $ | 1,649.8 |
|
| $ | 1,573.1 |
|
| $ | 1,781.3 |
|
| $ | 1,649.8 |
|
The non-U.S. GAAP measure net debt is also used in the non-U.S. GAAP measure “Leverage ratio”. Management uses this measure 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. For details on leverage ratio refer to the table.
Calculation of “Leverage ratio”
(Dollars in millions)
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| December 31, 2019 |
| ||||||
Net debt1) |
| $ | 1,629.5 |
|
| $ | 1,607.2 |
|
| $ | 1,649.8 |
|
| $ | 1,573.1 |
|
| $ | 1,781.3 |
|
| $ | 1,649.8 |
|
Pension liabilities |
|
| 231.8 |
|
|
| 200.4 |
|
|
| 240.2 |
|
|
| 239.2 |
|
|
| 199.9 |
|
|
| 240.2 |
|
Debt per the Policy |
|
| 1,861.3 |
|
|
| 1,807.6 |
|
|
| 1,890.0 |
|
|
| 1,812.3 |
|
|
| 1,981.2 |
|
|
| 1,890.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income2) |
|
| 426.2 |
|
|
| 172.8 |
|
|
| 462.8 |
|
|
| 155.3 |
|
|
| 216.1 |
|
|
| 462.8 |
|
Less; Net loss from discontinued operations2) |
|
| – |
|
|
| 157.1 |
|
|
| – |
|
|
| – |
|
|
| (2.0 | ) |
|
| – |
|
Net income continuing operations2) |
|
| 426.2 |
|
|
| 329.9 |
|
|
| 462.8 |
|
|
| 155.3 |
|
|
| 214.1 |
|
|
| 462.8 |
|
Income taxes 2) |
|
| 179.9 |
|
|
| 207.2 |
|
|
| 185.6 |
|
|
| 67.6 |
|
|
| 226.8 |
|
|
| 185.6 |
|
Interest expense, net2,3) |
|
| 64.1 |
|
|
| 64.3 |
|
|
| 65.9 |
|
|
| 65.6 |
|
|
| 67.0 |
|
|
| 65.9 |
|
Depreciation and amortization of intangibles2) |
|
| 349.3 |
|
|
| 350.1 |
|
|
| 350.6 |
|
|
| 358.6 |
|
|
| 348.8 |
|
|
| 350.6 |
|
Antitrust related matters, capacity alignment and separation costs2, 4) |
|
| 57.0 |
|
|
| 205.7 |
|
|
| 48.6 |
| ||||||||||||
Antitrust related matters, capacity alignment and separation costs2 |
|
| 107.8 |
|
|
| 254.5 |
|
|
| 48.6 |
| ||||||||||||
EBITDA per the Policy |
| $ | 1,076.5 |
|
| $ | 1,157.2 |
|
| $ | 1,113.5 |
|
| $ | 754.9 |
|
| $ | 1,111.2 |
|
| $ | 1,113.5 |
|
Leverage ratio |
|
| 1.7 |
|
|
| 1.6 |
|
|
| 1.7 |
|
|
| 2.4 |
|
|
| 1.8 |
|
|
| 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 is interest expense including cost for extinguishment of debt, if any, less interest income. |
|
|
27
Headcount
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| June 30, 2020 |
|
| September 30, 2019 |
| ||||||
Headcount |
|
| 65,500 |
|
|
| 66,900 |
|
|
| 65,200 |
|
|
| 65,300 |
|
|
| 61,800 |
|
|
| 64,900 |
|
Whereof: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct workers in manufacturing |
|
| 71 | % |
|
| 71 | % |
|
| 71 | % |
|
| 72 | % |
|
| 70 | % |
|
| 71 | % |
Best cost countries |
|
| 81 | % |
|
| 80 | % |
|
| 81 | % |
|
| 81 | % |
|
| 81 | % |
|
| 80 | % |
Temporary personnel |
|
| 8 | % |
|
| 12 | % |
|
| 10 | % |
|
| 9 | % |
|
| 6 | % |
|
| 9 | % |
Compared to December 31, 2019,June 30, 2020, total headcount (permanent employees and temporary personnel) increased by approximately 300.3,522. The increase in the quarter iswas driven by an increase inof around 9% of the direct workforce while thereflecting a sharp increase in light vehicle production compared to second quarter 2020. The indirect workforce is unchanged. Our operations in China are currently operating at normal levels while OEM plant closures in other regions, notably Europe and North America, were initiated mid-March and those effects are not reflected indecreased by around 2%, reflecting our headcount as of March 31, 2020. Our initial responses to manage the demand declines in Europe and Americas involve mainly furloughing employees and shorter work weeks which impacts wage and salary costs but not the overall headcount.Structural Efficiency Programs. Compared to a year ago, total headcount decreasedincreased by 1,400, with close to 70%0.6%, driven by an increase of around 3% of the direct workforce and a reduction being inof 4% of the directindirect workforce.
OutlookFull year 2020 indications
No full yearThe Company’s organic sales growth and adjusted operating margin outlook indications for 2020 indications will be provided until effects of COVID-19 pandemic can be better assessed.reflect continuing uncertainty in the automotive markets and are mainly based on our customer call-offs and light vehicle production according to IHS.
Financial measure | Full year indication | |
Net sales growth | Around (14.5)% | |
Organic sales growth | Around (13)% | |
Adjusted operating margin1) | Around 6.0% | |
R,D&E, net % of sales | Above 2019 level | |
Tax rate 2) | Around 40% | |
Operating cash flow 2) | Below 2019 level | |
Capex, net % of sales | Below 2019 level | |
Leverage ratio at year-end | Above target range | |
1) Excluding costs for capacity alignments and antitrust related matters. | ||
2)Excluding unusual items. 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 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 Autoliv is unable to determine the probable significance of the unavailable information. |
OFF-BALANCE SHEET ARRANGEMENTS
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.
25
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
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, 2019 filed with the SEC on February 21, 2020.
28
OTHER RECENT EVENTS
Key launches in the FirstThird Quarter of 2020
Below are some of the key models which were launched in the first quarter of 2020.
Toyota Yaris: Side airbags, Head/Inflatable Curtain airbags and Seatbelts.
Suzuki Hustler: Steering Wheel, Driver/Passenger airbags, Side airbags, Head/Inflatable Curtain airbags and Seatbelts.
Audi A3: Steering Wheel, Driver/Passenger airbags, Front Center Airbag and Seatbelts.
Genesis GV80: Driver/Passenger airbags, Knee Airbag, Side airbags, Head/Inflatable Curtain airbags and Front Center Airbag.
Lynk & Co 05: Steering Wheel, Driver/Passenger airbags, Side airbags, Head/Inflatable Curtain airbags and Seatbelts.
Tesla Model Y: Driver/Passenger airbags, Knee Airbag, Side airbags, Head/Inflatable Curtain airbags and Seatbelts.
Genesis G80: Steering Wheel, Driver/Passenger airbags, Knee Airbag, Side airbags, Head/Inflatable Curtain airbags and Front Center Airbag.
Cadillac CT4: Steering Wheel, Driver/Passenger airbags, Side airbags, Head/Inflatable Curtain airbags and Seatbelts.
Polestar 2: Driver/Passenger airbags, Knee Airbag, Side airbags and Head/Inflatable Curtain airbags.
Other Items
• |
|
• |
|
• |
|
• | Citroen C4: Steering Wheel, Driver/Passenger Airbags, Side Airbags, Head/Inflatable Curtain Airbags and Seatbelts. |
• | Hyundai Tucson: Driver/Passenger Airbags, Head/Inflatable Curtain Airbags and Seatbelts. |
• | Nissan Rogue/X-Trail: Driver/Passenger Airbags, Knee Airbag and Front Center Airbag. |
• | Ford F-150: Driver/Passenger Airbags, Side Airbags and Head/Inflatable Curtain Airbags. |
• | Ford Bronco: Driver/Passenger Airbags, Knee Airbag, Side Airbags and Seatbelts. |
• | Ford Mustang Mach-E: Driver/Passenger Airbags, Knee Airbag, Side Airbags and Seatbelts. |
Other Items
• | On |
• | On |
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Next Report
Autoliv intends to publish the quarterly earnings report for the second quarter of 2020 on Friday, July 17, 2020.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31,September 30, 2020, there have been no material changes to the information related to quantitative and qualitative disclosures about market risk that was provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures |
An evaluation has been carried out, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.
(b) | Changes in Internal Control over Financial Reporting |
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
27The Company’s ability to maintain an effective internal control environment has not been impacted by the COVID-19 pandemic. The Company is continually monitoring and assessing the COVID-19 pandemic on the its internal controls to minimize the impact on their design and operating effectiveness.
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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 129 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
Except foras set forth below,as of March 31,September 30, 2020, 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, 2019 filed with the SEC on February 21, 2020.
We face risks related to the novel coronavirus (COVID-19) pandemic that could adversely affecthave, and are expected to continue to have, an adverse impact on our business and financial performance
The COVID-19 pandemic has created significant volatility in the global economy and led to significant reduced economic activity and employment and has disrupted, and may continue to disrupt, the global automotive industry and customer sales, production volumes and purchases of light vehicles by end-consumers. The spread of COVID-19 has created a disruptionalso caused disruptions in the manufacturing, delivery and overall supply chainchains of automobile manufacturers and suppliers. Global light vehicle production has decreased significantly and some vehicle manufacturers have slowed down, completely shutdown manufacturing operations for a period of time and/or restarted production in some countries and regions, including the United States and Europe.regions. As a result, we have modified our production schedules and have experienced, and may continue to experience, delays in the production and distribution of our products and the loss ofa decline in sales to our customers. WhenAs production resumes by us and our customers, production volumes have been and may continue to be volatile and we will likely needvolatile. We have also taken protective measures to modify our production environment to ensure the health and safety of our workers. If we are unsuccessful in managing the re-start ofworkers which has had an impact on our production, our results of operations may be materially impacted.productivity. Additionally, Ifif the global economic effects caused by the pandemic continue or increase, overall customer demand may continue to decrease, which could have a material and adverse effect on our business, results of operation,operations and financial condition. In addition, if a significant portion of our workforce or our customers’ workforce areis affected by COVID-19 either directly or due to government closures or otherwise, associated work stoppages or facility closures would halt or delay production.
The full extent of the effect of the pandemic on us, our customers, our supply chain and our business will depend on future developments, which are highly uncertain and cannot be assessed at this time although we expect our full year 2020 resultspredicted with confidence, including the duration and severity of operations to be adversely affected.the outbreak or subsequent outbreaks. We may continue to experience the effects of the pandemic even after it has waned, and our business, results of operations and financial condition could continue to be affected. In particular, if COVID-19 continues to spread or re-emerges, particularly in the United States, Europe and China, where our operations are most concentrated, resulting in a prolonged period of travel, commercial, social and other similar restrictions, we could experience, among other things:
• | Adverse impacts on our operations and financial results caused by government and regulatory measures to contain or mitigate the spread of the virus, temporary closures of our facilities or the facilities of our customers or suppliers, which could impact our ability to timely meet our customers’ orders or negatively impact our supply chain; |
• | The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and external business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties including bankruptcy or default; |
• | Disruptions or restrictions on our employees’ ability to work effectively, due to illness, quarantines, travel bans, shelter-in-place orders or other limitations; |
• | Interruptions to the operations of our business if the health of our executives, management personnel and other employees are affected, particularly if a significant number of individuals are impacted; |
• | Any accident, COVID-19 illness, or injury to our employees could result in litigation, manufacturing delays and harm to our reputation, which could negatively affect our business, results of operations and financial condition; |
• | Changes in prices of tooling and services may be impacted by worldwide demand and by the ongoing COVID-19 pandemic. Such price increases could materially increase our operating costs and adversely affect our profit margin; |
• | Governments and regulators may choose to delay new automobile safety regulations which could impact the average global content of passive safety systems per light vehicle in the near term; |
• | Some of our competitors are (or may be) owned by a governmental entity and/or receive various forms of governmental aid or support, which we may not be eligible for, and which may put us at a competitive disadvantage; |
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• | Increased cybersecurity and privacy risks and risks related to the reliability of technology to support remote operations; |
• | Sudden and/or severe declines in the market price of our common stock; and |
• | Costs incurred and revenues lost during and from the effects of the COVID-19 pandemic likely will not be recoverable. |
In addition to the risks specifically described above, the impact of COVID-19 is likely to implicate and exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.
You should not anticipate or expect the payment of cash dividends on our common stock
Our dividend policy is subject to the discretion of our Board of Directors and depends upon a number of factors, including our earnings, financial condition, cash and capital needs, indebtedness and leverage, and general economic or business conditions. On April 2, 2020 our Board of Directors suspended our quarterly dividend after determining that a suspension was necessary in light of the evolving global COVID-19 pandemic, decline in global LVP, the uncertainty surrounding the recession at that time and the inherent risk of customer defaults. There can be no assurance that our Board of Directors will declare dividends in the future.
Our business is exposed to risks inherent in international operations
We currently conduct operations in various countries and jurisdictions, including locating certain of our manufacturing and distribution facilities internationally, which subjects us to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Some of these countries are considered growth markets and emerging markets. International sales and operations, especially in growth markets, subject us to certain risks inherent in doing business abroad, including:
• | exposure to local economic conditions; |
• | unexpected changes in laws, regulations, trade, or monetary or fiscal policy, including interest rates, foreign currency exchange rates, and changes in the rate of inflation in the emerging markets and countries in which we do business; |
• | foreign tax consequences; |
• | inability to collect, or delays in collecting, value-added taxes and/or other receivables associated with remittances and other payments by subsidiaries; |
• | exposure to local political turmoil and challenging labor conditions; |
• | changes in general economic and political conditions in countries where we operate, particularly in emerging markets; |
• | expropriation and nationalization; |
• | enforcing legal agreements or collecting receivables through foreign legal systems; |
• | wage inflation in growth markets; |
• | currency controls, including lack of liquidity in foreign currency due to governmental restrictions, trade protection policies and currency controls, which may create difficulty in repatriating profits or making other remittances; |
• | compliance with the requirements of an increasing body of applicable anti-bribery laws; |
• | reduced intellectual property protection in various markets; |
• | investment restrictions or requirements; and |
• | the imposition of product tariffs and the burden of complying with a wide variety of international and U.S. export laws. |
The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. The Organization for Economic Co-operation and Development (“OECD”) continues its base erosion and profit shifting (“BEPS”) project begun in 2015 with new proposals for a global minimum tax, further development of a coordinated set of rules for taxation and the allocation of taxing rights between jurisdictions. These proposals, if adopted by countries in which we operate, could result in changes to tax policies, including transfer pricing policies, that could ultimately impact our tax liabilities. The timing or impact of these proposals and recommendations is unclear at this point. Changes in tax laws or policies by the U.S. or foreign jurisdictions could result in a higher effective tax rate on our worldwide earnings, and any such change could have a material adverse effect on our business prospects, cash flows, operating results and financial condition.
Our international operations also depend upon favorable trade relations between the U.S. and those foreign countries in which our customers and suppliers have operations. The current U.S. presidential administration has created uncertainty about the future relationship between the U.S. and certain of its trading partners, including with respect to the trade policies and agreements, treaties, government regulations and tariffs that could apply to trade between the U.S. and other nations. These developments may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the U.S. It could also impact importing certain foreign-produced vehicles into the U.S. Similarly, the political situations in certain countries, specifically Brazil, China, France, Russia,
32
Turkey, and the United Kingdom, make it difficult to predict the near-term stability of trade costs with these nations. Meanwhile, the U.S. presidential election in November 2020 could result in a shift in U.S. trade policy that is impossible to predict at this time. Changes in national policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our cash flows, operating results and financial condition.
Increasing our manufacturing footprint in the growth markets and our business relationships with automotive manufacturers in these markets are particularly important elements of our strategy. As a result, our exposure to the risks described above may be greater in the future, and our exposure to risks associated with developing countries, such as the risk of political upheaval and reliability of local infrastructure, may increase.
Significant changes to international trade policy, including the recently enacted USMCA could adversely affect our financial performance
In October 2018, the U.S., Mexico and Canada agreed to a trade deal that would replace NAFTA known as The United States Mexico Canada Agreement (“USMCA”). The USMCA has been ratified by Mexico, the U.S. and Canada. The USMCA was entered into on July 1, 2020. As adopted, the USMCA changes the automotive rules of origin that dictate what percentage of an automobile must be built from parts that originated from countries in the North American region. Reflective of the automotive industry, our vehicle parts manufacturing facilities in the U.S., Mexico and Canada are highly dependent on duty-free trade within the USMCA free trade region. As a result of these policy changes and other proposals of the Trump Administration, there may be greater restrictions and economic disincentives on international trade. New tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries. Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, including our industry and the global demand for our products and, as a result, could negatively impact our financial performance.
Our business in Asia is subject to aggressive competition and is sensitive to economic and market conditions
We operate in the automotive supply market throughout Asia including the highly competitive markets in China, Korea, and India. In each of these markets we face competition from both international and smaller domestic manufacturers. Due to the significance of the Asian markets for our profit and growth, we are exposed to risks in China, Korea, and India. We anticipate that additional competitors, both international and domestic, may seek to enter the Chinese, Korean, and/or Indian markets resulting in increased competition. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. There have been periods of increased market volatility and moderation in the levels of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced. Our business in Asia is sensitive to economic and market conditions that drive automotive sales volumes in China, Korea, and India and may be impacted if there are reductions in vehicle demand in those markets. If we are unable to maintain our position in these Asian markets, the pace of growth slows, or vehicle sales in these markets decrease, our business prospects, operating results and financial condition could be materially adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock repurchase program
During the quarter ended March 31,September 30, 2020, the Company made no stock repurchases. The Company is authorized to purchase up to 47.5 million shares of common stock under its stock repurchase program, which was first approved by the board of directors of the Company on May 9, 2000. Under the existing authorization, 2,986,288 shares may be repurchased. The stock repurchase program does not have an expiration date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
Exhibit No. |
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Exhibit No. | Description | |
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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. |
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101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* |
| Cover Page Interactive Data File (embedded within the inline XBRL document). |
* | Filed herewith. |
+ | Management contract or compensatory plan. |
3035
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: April 24,October 23, 2020
AUTOLIV, INC.
(Registrant)
By: |
| /s/ Fredrik Westin |
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| Fredrik Westin |
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| Chief Financial Officer |
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| (Duly Authorized Officer and Principal Financial Officer) |
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