AUTOLIV, INC. 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 endedDecember 31, 2019 filed with theUnited States Securities and Exchange Commission (the "SEC") onFebruary 21, 2020 . Unless otherwise noted, all dollar amounts are in millions.Autoliv, Inc. ("Autoliv" or the "Company") is aDelaware corporation with its principal executive offices inStockholm, Sweden . The Company functions as a holding corporation and owns two principal operating subsidiaries,Autoliv AB andAutoliv ASP, Inc.
Through its operating subsidiaries,
Autoliv's filings with theSEC , 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 theSEC (generally the same day as the filing). The primary exchange market forAutoliv's securities is theNew York Stock Exchange (NYSE) whereAutoliv'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 inAutoliv shares are traded onNasdaq OMX PHLX and on NYSE Amex Options under the symbol "ALV".
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 ofVeoneer . 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's sales outperformed organically (non-U.S. GAAP measure) the global light vehicle production by almost 5%, with outperformance in all major regions. Backed by recent product launches, the Company expects 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 realize that the COVID-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 inGermany and the Company will continue with further footprint optimization. With the health and safety ofAutoliv employees as the Company's first priority, the Company continues with more activities to further improve efficiency, optimizing the Company's footprint and implementing the strategic initiatives outlined last year to support next year being a solid stepping stone on the journey to the Company's 2022-24 targets.
Financial highlights in the third quarter of 2020
0.4% organic sales growth (Non-
8.6% operating margin
10.1% adjusted operating margin (Non-
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Key business developments in the third quarter of 2020
• Organic sales (Non-
than the change in global light vehicle production. Organically, all major
regions developed better than LVP. Sales in
8.7% growth in LVP. Sales in
of 4.3%. In
Customer sourcing activity was, as expected, low in the quarter, with more
than half of planned sourcing for the year expected in the fourth quarter.
First nine months order intake supports a prolonged period of outgrowth.
• Profitability improved as demand recovered and our cost reduction activities
progressed according to plan. Adjusted operating margin (Non-
measure) improved both vs. Q2 2020 and Q3 2019. The gross margin improved by
0.9pp compared to Q3 2019. Indirect workforce was reduced by around 4% vs. Q3
2019 and by around 2% vs. Q2 2020.
• Strong cash flow and strengthened balance sheet. Operating cash flow of
million and free cash flow (Non-
significantly above Q3 2019 levels. Net debt (Non-
vs. a year earlier and the debt leverage ratio (Non-
improved vs. 2.9x in Q2 2020, although still higher than the 1.8x in Q3 2019.
As of
for us to draw on as needed.
COVID-19 Pandemic Related Business Update
First nine months of 2020
The COVID-19 pandemic had a substantial impact on the Company's operations in the first quarter, particularly inChina , where most of its customers' plants were closed for several weeks in February and operated at low levels in March. InEurope andNorth America , sales declined substantially in the second half of March as the pandemic led to customer plant closures. A 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 nine months of 2020 vs. the same period the prior year. The decline in global LVP and the slow and volatile restart and ramp-up had a significant impact on the Company's sales and profitability in 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 first six months of 2020,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 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 personal protective equipment, temporary supplier support and premium freight, were around$10 million in the second quarter and around$5 million in the third quarter. Support 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, includingAutoliv , 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 one or more of the regions where the Company operates or has customers or suppliers. While we continue to focus on health and safety and cost optimization, we are ramping up production in coordination with our customers and suppliers. Below is a summary of our current view of our three most important regions.
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Non-
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 withU.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 comparableU.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.
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 Nine months ended
or as of September 30 or as of September 30
2020 2019 2020 2019
Total parent shareholders' equity per
share $ 24.05 $ 22.78 $ 24.05 $ 22.78
Capital employed 1) 3,686 3,781 3,686 3,781
Net debt 2) 1,573 1,781 1,573 1,781
Operating working capital 2) 379 620 379 620
Operating working capital relative to
sales, % 10) 5.3 7.2 5.3 7.2
Gross margin, % 3) 19.6 18.7 15.1 18.2
Operating margin, % 4) 8.6 7.6 1.5 7.8
Return on total equity, % 5) 19.4 17.1 0.0 20.7
Return on capital employed, % 6) 18.7 16.2 2.7 18.0
Headcount at period-end 7) 65,300 64,900 65,300 64,900
Days receivables outstanding 8) 73 75 90 72 Days inventory outstanding 9) 36 37 45 35 1) Total equity and net debt.
2) See tabular presentation reconciling this non-
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.
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THREE MONTHS ENDEDSEPTEMBER 30, 2020 COMPARED WITH THREE MONTHS ENDED SEPEMBER 30, 2019 Consolidated Sales Three months ended Components of change in September 30 net sales Reported Currency 2020 2019 change effects 1) Organic 3)
Airbags and other 2)$ 1,331.6 $ 1,349.3 (1.3 )% (0.1 )% (1.2 )% Seatbelts 2) 705.6 678.4 4.0 % 0.3 % 3.7 % Total$ 2,037.2 $ 2,027.7 0.5 % 0.1 % 0.4 % Asia$ 806.2 $ 777.7 3.7 % 0.4 % 3.3 % Whereof: China 425.2 381.7 11.4 % 1.0 % 10.4 % Japan 180.3 202.4 (10.9 )% 0.9 % (11.8 )% Rest of Asia 200.7 193.6 3.7 % (1.4 )% 5.1 % Americas 693.3 713.1 (2.8 )% (4.0 )% 1.2 % Europe 537.7 536.9 0.1 % 4.9 % (4.8 )% Total$ 2,037.2 $ 2,027.7 0.5 % 0.1 % 0.4 %
1) Effects from currency translations.
2) Including Corporate and Other sales.
3) Non-U.S. GAAP measure. Sales by product - Airbags Sales of side airbags increased slightly, mainly from most types of side airbags inSouth Korea and inflatable curtains and chest airbags inChina . Sales of frontal airbags decreased slightly, due to weak sales of passenger airbags inJapan andASEAN . Sales of inflators, including inflator replacements, decreased by around$20 million .
Sales by product - Seatbelts
Seatbelt sales organic growth (Non-U.S. GAAP measure) mainly reflects positive development with pretensioner seatbelts, especially inNorth America ,China andJapan .Europe was the only large region with organic seatbelt sales decline. Sales by Region Our global organic sales (Non-U.S. GAAP measure) increased by 0.4% compared to the LVP decline of 4.3% (according to IHS). Sales increased organically inChina , Rest ofAsia andAmericas and decreased inEurope andJapan . Our organic sales development outperformed LVP in all major regions - by almost 6pp inAmericas , by almost 3pp inEurope and by almost 2pp inChina . Rest of Q3 2020 Organic growth1) Americas Europe China Japan Asia Global Autoliv 1.2 % (4.8 )% 10.4 % (11.8 )% 5.1 % 0.4 % Tesla, Toyota, PSA, Toyota GM, VW, Honda Suzuki, Hyundai/Kia, GM, Toyota, Main growth drivers VW Toyota, Honda Tata Tesla, GM, VW Daimler, Mitsubishi, Inflators, Daimler, Nissan, Mitsubishi, Mitsubishi, Nissan, Nissan, FCA Renault, BMW Mitsubishi Nissan, Mazda Toyota Daimler, Main decline drivers Inflators 1) Non-U.S. GAAP measure.
Change vs. same quarter last year
Rest of
Americas Europe China Japan Asia Global
LVP1) (4.3 )% (7.6 )% 8.7 % (11.8 )% (16.8 )% (4.3 )%
1) Source: IHS October 2020 .
21
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Earnings
Three months ended September 30
(Dollars in millions, except per share data) 2020 2019 Change
Net Sales $ 2,037.2 $ 2,027.7 0.5 %
Gross profit 399.7 379.1 5.4 %
% of sales 19.6 % 18.7 % 0.9 pp
S, G&A (91.7 ) (97.7 ) (6.1 )%
% of sales (4.5 )% (4.8 )% (0.3 )pp
R, D&E, net (101.6 ) (99.1 ) 2.5 %
% of sales (5.0 )% (4.9 )% 0.1 pp
Amortization of Intangibles (2.4 ) (2.9 ) (17.2 )%
Other income (expense), net (29.5 ) (25.6 ) 15.2 %
Operating income 174.5 153.8 13.5 %
% of sales 8.6 % 7.6 % 1.0 pp
Adjusted operating income1) 205.6 182.5 12.7 %
% of sales 10.1 % 9.0 % 1.1 pp
Financial and non-operating items, net (26.0 ) (19.4 ) 34.0 %
Income before taxes 148.5 134.4 10.5 %
Tax rate 33.5 % 36.0 % (2.5 )pp
Net income 98.8 86.0 14.9 %
Earnings per share, diluted2) 1.12 0.98 14.3 %
Adjusted earnings per share, diluted1),2) 1.48 1.30 13.8 %
1) Non-
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.
Third quarter 2020 development
Gross profit increased by
S,G&A declined by
R,D&E, net costs increased by$3 million compared to the prior year, as reduced personnel costs was more than offset by negative effect from lower engineering income and miscellaneous items.
Other income (expense), net was negative
Operating income increased by
Adjusted operating income (Non-
Financial and non-operating items, net costs were
Income before taxes increased by
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$0.05 from higher costs for financial items. 22
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NINE MONTHS ENDEDSEPTEMBER 30, 2020 COMPARED WITH NINE MONTHS ENDEDSEPTEMBER 30, 2019 Consolidated Sales Nine months ended Components of change in September 30 net sales Reported Currency 2020 2019 change effects 1) Organic 3)
Airbags and other 2)$ 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
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 wereAmericas andEurope , followed byJapan , Rest ofAsia andChina . Our organic sales (Non-U.S. GAAP measure) development outperformed LVP in all regions - by 5.5pp inChina , by 4.3pp inAmericas and by 3.6pp inEurope . Rest of First nine months 2020 Organic growth1) Americas Europe China Japan Asia Global Autoliv (25.2 )% (25.9 )% (5.0 )% (20.3 )% (14.5 )% (20.5 )% Main growth drivers Tesla, Mazda Inflators GM, Ford, Suzuki, Honda GM, Renault Tesla Toyota FCA, Honda, Daimler, VW, Nissan, Great Mitsubishi, Mitsubishi, FCA, Nissan, Main decline drivers Nissan, Renault, BMW Wall, Nissan, Mazda Suzuki, Toyota Daimler, Honda, Inflators Inflators Inflators
Change vs. same period last year
Rest of
Americas Europe China Japan Asia Global
LVP1) (29.5 )% (29.5 )% (10.5 )% (21.9 )% (31.3 )% (23.9 )%
1) Source: IHS October 2020 .
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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-
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
R,D&E, net declined by
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
Adjusted operating income (Non-U.S. GAAP measure) decreased by$362 million , 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 costs were$4 million higher than a year earlier, mainly due to unfavorable effects of exchange rate changes and higher pension related expenses.
Income before taxes decreased by
Tax rate was 104.4%, compared to 30.1% last year, impacted by unfavorable country mix and losses without tax benefit.
Earnings per share, diluted decreased by$3.52 where the main drivers were$2.89 from lower adjusted operating income and$0.60 from higher capacity alignment accruals. 24
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LIQUIDITY AND SOURCES OF CAPITAL
Third quarter 2020 development
Operating working capital (Non-U.S. GAAP measure) was 5.3% of sales compared to 7.2% of sales a year earlier, mainly as a consequence of more positive effects from accounts 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%. Operating cash flow was$352 million , compared to$195 million a year earlier. The improvement was mainly due to more positive effects from changes in accounts payable and accrued expenses, inventories and income taxes partly offset by more negative effect from receivables and other assets vs. the prior year.
Capital expenditure, net was 38% lower than a year earlier, reflecting our efforts to reduce capital expenditure to support cash flow. Capital expenditure, net in relation to sales was 3.8% vs. 6.0% a year earlier.
Free cash flow (Non-U.S. GAAP measure) amounted to$276 million , compared to$73 million a year earlier. The increase 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 relation to net income, was 279%, driven by the high level of free cash flow. Net debt (Non-U.S. GAAP measure) was$1,573 million as ofSeptember 30, 2020 , which was$208 million lower than a year earlier and$265 million lower compared toJune 30, 2020 . Liquidity position AtSeptember 30, 2020 , the cash balance was$1.5 billion , and including committed, unused loan facilities, our liquidity position was$2.0 billion . OnOctober 2, 2020 , the Revolving Credit Facility was fully repaid through a$600 million payment. Remaining debt maturing in 2020 is$117 million , with another$275 million maturing in 2021. Leverage ratio (Non-U.S. GAAP 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). The long-term target is to maintain a leverage ratio of around 1x within a range of 0.5x to 1.5x. As ofSeptember 30, 2020 , the Company had a leverage ratio of 2.4x, compared to 1.8x atSeptember 30, 2019 as a lower net debt was more than offset by a lower adjusted 12 month trailing EBITDA vs. a year earlier. AtJune 30, 2020 , the leverage ratio was 2.9x. Total equity increased by$114 million compared toSeptember 30, 2019 mainly due to$155 million in net income and$28 million from positive foreign exchange effects, partly offset by$55 million in dividends.
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 working capital in 2020 and the EC antitrust payment of$203 million in Q2 2019, partly offset by a lower net income in 2020.
Capital expenditure, net of
Free cash flow (Non-U.S. GAAP measure) amounted to$152 million compared to$30 million negative a year earlier, where the improvement was due to the higher operating cash flow and lower capital expenditure, net. Cash conversion (Non-U.S. GAAP measure) defined as free cash flow (Non-U.S. GAAP measure) in relation to net income, was not meaningful in the first half year as net income was close to zero. 25
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Non-
Reconciliation ofU.S. GAAP financial measures to "Adjusted operating income", "Adjusted operating margin" and "Adjusted EPS" (Dollars in millions, except per share data) Three months ended September 30, 2020 Three months ended September 30, 2019 Reported Reported U.S. Non-U.S. U.S. Non-U.S. GAAP Adjustments1) GAAP GAAP Adjustments1) GAAP Operating income$ 174.5 $ 31.1$ 205.6 $ 153.8 $ 28.7$ 182.5 Operating margin, % 8.6 1.5 10.1 7.6 1.4 9.0 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 matters and in
2019 separation of our business segments.
Nine months ended September 30, 2020 Nine months ended September 30, 2019
Reported Reported
U.S. Non-U.S. U.S. Non-U.S.
GAAP Adjustments1) GAAP GAAP Adjustments1) 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 Three months ended
September 30, 2020 September 30, 2019
Millions Per share Millions Per share
Capacity alignment $ 30.9 $ 0.36 $ 27.4 $ 0.31
Antitrust related matters 0.2 0.00 0.1 0.00
Separation costs - - 1.2 0.01
Total adjustments to operating income
0.0 0.00 (0.4 ) 0.00
Total adjustments to net income 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 Nine months ended
September 30, 2020 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
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Reconciliation ofU.S. GAAP financial measure to "Operating working capital" (Dollars in millions) September September 30, 2020 30, 2019 December 31, 2019 Total current assets$ 4,036.5 $ 2,908.8 $ 3,002.1 Total current liabilities (3,221.3 ) (2,304.8 ) (2,410.2 ) Working capital 815.2 604.0 591.9 Cash and cash equivalents (1,476.5 ) (334.4 ) (444.7 ) Short-term debt 1,025.5 289.9 368.1 Derivative (asset) and liability, current 15.1 5.9 (4.2 ) Dividends payable 1) - 54.1 54.1 Operating working capital$ 379.3 $ 619.5 $ 565.2
1) On
quarter of 2020 and no additional dividends have been declared in 2020.
Reconciliation of U.S. GAAP financial measure to "Net debt"
(Dollars in millions)
September September
30, 2020 30, 2019 December 31, 2019
Short-term debt $ 1,025.5 $ 289.9 $ 368.1
Long-term debt 2,007.1 1,815.1 1,726.1
Total debt 3,032.6 2,105.0 2,094.2
Cash and cash equivalents (1,476.5 ) (334.4 ) (444.7 )
Debt issuance cost/Debt-related
derivatives, net 17.0 10.7 0.3
Net debt $ 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)
September September
30, 2020 30, 2019 December 31, 2019
Net debt1) $ 1,573.1 $ 1,781.3 $ 1,649.8
Pension liabilities 239.2 199.9 240.2
Debt per the Policy 1,812.3 1,981.2 1,890.0
Net income2) 155.3 216.1 462.8
Less; Net loss from discontinued
operations2) - (2.0 ) -
Net income continuing operations2) 155.3 214.1 462.8
Income taxes 2) 67.6 226.8 185.6
Interest expense, net2,3) 65.6 67.0 65.9
Depreciation and amortization of
intangibles2) 358.6 348.8 350.6
Antitrust related matters, capacity
alignment and
separation costs2 107.8 254.5 48.6
EBITDA per the Policy $ 754.9 $ 1,111.2 $ 1,113.5
Leverage ratio 2.4 1.8 1.7
1) Net debt (non-
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
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Headcount
September September
30, 2020 June 30, 2020 30, 2019
Headcount 65,300 61,800 64,900
Whereof:
Direct workers in manufacturing 72 % 70 % 71 %
Best cost countries 81 % 81 % 80 %
Temporary personnel 9 % 6 % 9 %
Compared to June 30, 2020 , total headcount (permanent employees and temporary
personnel) increased by 3,522. The increase in the quarter was driven by an
increase of around 9% of the direct workforce reflecting a sharp increase in
light vehicle production compared to second quarter 2020. The indirect workforce
decreased by around 2%, reflecting our Structural Efficiency Programs. Compared
to a year ago, total headcount increased by 0.6%, driven by an increase of
around 3% of the direct workforce and a reduction of 4% of the indirect
workforce.
Full year 2020 indications
The Company's organic sales growth and adjusted operating margin outlook
indications for 2020 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 margin 1) 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 aU.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 andAutoliv 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.
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 endedDecember 31, 2019 filed with theSEC onFebruary 21, 2020 . 28
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OTHER RECENT EVENTS
Key launches in the Third Quarter of 2020
• Cadillac Escalade: Steering Wheel and Driver/Passenger Airbags.
• Mercedes S-Class: Steering Wheel, Driver/Passenger Airbags, Bag In Belt and
Pyrotechnical Safety Switch.
• VW ID.3: Steering Wheel, Driver/Passenger Airbags and Seatbelts.
• 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
independent member to its Board of Directors.
accountant that has held CFO positions in Newmont Mining Corporation and
Cliffs Natural Resources and currently serves on the board of directors of
Albemarle Corporation, Exelon Corporation and Graphic Packaging Holding Company.
• On
position of President,
Team. The promotion is expected to be effective on
Murray, current President of Autoliv Asia, has chosen to return to the United
States after a multi-decade career in
leading large-scale operations and driving positive results for nearly two
decades. He began his career at
Sales, Engineering and Operations leadership roles in several of
locations inAsia . Colin will relocate fromThailand toJapan , where the Autoliv Asia Division is headquartered. 29
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