10-Q 1 alv-20220331.htm 10-Q 10-Q
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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, 2022

or

 

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

 

For the transition period from  to

 

Commission File No.: 001-12933

 

AUTOLIV, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

51-0378542

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

Klarabergsviadukten 70, Section B7

 

 

Box 70381,

 

 

Stockholm, Sweden

 

SE-107 24

(Address of principal executive offices)

 

(Zip Code)

+46 8 587 20 600

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value $1.00 per share)

 

ALV

 

New York Stock Exchange

 

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

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

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

Yes: No: ☒

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of April 18, 2022, there were 87,344,108 shares of common stock of Autoliv, Inc., par value $1.00 per share, outstanding.

 

 

 


 

FORWARD-LOOKING STATEMENTS

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

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

Because these forward-looking statements involve risks and uncertainties, the outcome could differ materially from those set out in the forward-looking statements for a variety of reasons, including without limitation: general economic conditions, including inflation; the impacts of the coronavirus (COVID-19) pandemic on the Company’s financial condition, business operations, operating costs, liquidity, competition and the global economy; disruptions and impacts relating to the ongoing conflict between Russia and Ukraine; changes in light vehicle production; fluctuation in vehicle production schedules for which the Company is a supplier; global supply chain disruptions, including port, transportation and distribution delays or interruptions; supply chain disruptions and component shortages impacting the Company or the automotive industry; 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, civil judgements or financial penalties and customer reactions thereto; higher expenses for our pension and other postretirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of pending or future litigation or infringement claims and the availability of insurance with respect to such matters; our ability to protect our intellectual property rights; negative impacts of antitrust investigations or other governmental investigations and associated litigation relating to the conduct of our business; tax assessments by governmental authorities and changes in our effective tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; our ability to meet our sustainability targets, goals and commitments; political conditions; dependence on and relationships with customers and suppliers; and other risks and uncertainties identified in Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.

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

2


 

 

INDEX

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

4

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

4

 

 

 

1.

Basis of Presentation

 

9

2.

New Accounting Standards

 

9

3.

Fair Value Measurements

 

10

4.

Income Taxes

 

13

5.

Inventories

 

13

6.

Restructuring

 

14

7.

Product-Related Liabilities

 

14

8.

Retirement Plans

 

15

9.

Contingent Liabilities

 

16

10.

Stock Incentive Plan

 

19

11.

Earnings Per Share

 

19

12.

Related Party Transactions

 

19

13.

Revenue Disaggregation

 

20

14.

Subsequent Events

 

20

 

 

 

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

 

21

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

31

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

31

 

 

 

PART II - OTHER INFORMATION

 

32

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

32

 

 

 

ITEM 1A. RISK FACTORS

 

32

 

 

 

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

 

33

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

33

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

33

 

 

 

ITEM 5. OTHER INFORMATION

 

33

 

 

 

ITEM 6. EXHIBITS

 

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,

 

 

 

2022

 

 

2021

 

Net sales

 

$

2,124

 

 

$

2,242

 

Cost of sales

 

 

(1,836

)

 

 

(1,784

)

Gross profit

 

 

288

 

 

 

458

 

Selling, general and administrative expenses

 

 

(115

)

 

 

(108

)

Research, development and engineering expenses, net

 

 

(107

)

 

 

(107

)

Amortization of intangibles

 

 

(1

)

 

 

(3

)

Other income (expense), net1)

 

 

70

 

 

 

(4

)

Operating income

 

 

134

 

 

 

237

 

Income from equity method investment

 

 

1

 

 

 

2

 

Interest income

 

 

1

 

 

 

1

 

Interest expense

 

 

(13

)

 

 

(16

)

Other non-operating items, net

 

 

(4

)

 

 

(6

)

Income before income taxes

 

 

119

 

 

 

217

 

Income tax expense

 

 

(36

)

 

 

(60

)

Net income

 

 

83

 

 

 

157

 

Less: Net income attributable to non-controlling interest

 

 

0

 

 

 

0

 

Net income attributable to controlling interest

 

$

83

 

 

$

157

 

 

 

 

 

 

 

 

Net earnings per share – basic2)

 

$

0.95

 

 

$

1.79

 

Net earnings per share – diluted2)

 

$

0.94

 

 

$

1.79

 

 

 

 

 

 

 

 

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

 

 

87.5

 

 

 

87.4

 

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

 

 

87.8

 

 

 

87.6

 

 

 

 

 

 

 

 

Cash dividend per share – declared

 

$

0.64

 

 

$

 

Cash dividend per share – paid

 

$

0.64

 

 

$

 

 

1) Including gain on sale of property of $80 million in March 2022 as part of the manufacturing footprint optimization program in Japan.

2) 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).

 

 

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

4


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

83

 

 

$

157

 

Other comprehensive income (loss) before tax:

 

 

 

 

 

 

Change in cumulative translation adjustments

 

 

6

 

 

 

(64

)

Net change in unrealized components of defined benefit plans

 

 

12

 

 

 

1

 

Other comprehensive income (loss), before tax

 

 

18

 

 

 

(63

)

Tax effect allocated to other comprehensive loss

 

 

(4

)

 

 

0

 

Other comprehensive income (loss), net of tax

 

 

14

 

 

 

(63

)

Comprehensive income

 

 

98

 

 

 

94

 

Less: Comprehensive income attributable to
   non-controlling interest

 

 

0

 

 

 

0

 

Comprehensive income attributable to
   controlling interest

 

$

97

 

 

$

94

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

5


 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

 

 

 

As of

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

938

 

 

$

969

 

Receivables, net

 

 

1,824

 

 

 

1,699

 

Inventories, net

 

 

913

 

 

 

777

 

Prepaid expenses and accrued income

 

 

170

 

 

 

164

 

Other current assets

 

 

79

 

 

 

65

 

Total current assets

 

 

3,923

 

 

 

3,675

 

Property, plant and equipment, net

 

 

1,853

 

 

 

1,855

 

Operating lease right-of-use assets

 

 

126

 

 

 

132

 

Goodwill

 

 

1,384

 

 

 

1,387

 

Intangible assets, net

 

 

7

 

 

 

8

 

Other non-current assets

 

 

476

 

 

 

481

 

Total assets

 

 

7,769

 

 

 

7,537

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

Short-term debt

 

 

347

 

 

 

346

 

Accounts payable

 

 

1,385

 

 

 

1,144

 

Accrued expenses

 

 

1,050

 

 

 

996

 

Operating lease liabilities - current

 

 

38

 

 

 

38

 

Other current liabilities

 

 

253

 

 

 

297

 

Total current liabilities

 

 

3,073

 

 

 

2,821

 

Long-term debt

 

 

1,647

 

 

 

1,662

 

Pension liability

 

 

172

 

 

 

197

 

Operating lease liabilities - non-current

 

 

87

 

 

 

94

 

Other non-current liabilities

 

 

116

 

 

 

115

 

Total non-current liabilities

 

 

2,022

 

 

 

2,067

 

Common stock

 

 

103

 

 

 

103

 

Additional paid-in capital

 

 

1,325

 

 

 

1,329

 

Retained earnings

 

 

2,755

 

 

 

2,742

 

Accumulated other comprehensive loss

 

 

(393

)

 

 

(408

)

Treasury stock

 

 

(1,131

)

 

 

(1,133

)

Total controlling interest's equity

 

 

2,659

 

 

 

2,633

 

Non-controlling interest

 

 

15

 

 

 

15

 

Total equity

 

 

2,674

 

 

 

2,648

 

Total liabilities and equity

 

$

7,769

 

 

$

7,537

 

 

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,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net income

 

$

83

 

 

$

157

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

95

 

 

 

99

 

Gain on divestiture of property

 

 

(80

)

 

 

 

Deferred income taxes

 

 

1

 

 

 

8

 

Other, net

 

 

(12

)

 

 

11

 

Net change in operating assets and liabilities

 

 

(18

)

 

 

(89

)

Net cash provided by operating activities

 

 

70

 

 

 

186

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(112

)

 

 

(94

)

Proceeds from sale of property, plant and equipment

 

 

95

 

 

 

1

 

Net cash used in investing activities

 

 

(17

)

 

 

(93

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Net increase in short-term debt

 

 

9

 

 

 

47

 

Decrease in long-term debt

 

 

(10

)

 

 

(26

)

Dividends paid

 

 

(56

)

 

 

 

Stock repurchased

 

 

(18

)

 

 

 

Common stock options exercised

 

 

0

 

 

 

1

 

Net cash (used in) provided by financing activities

 

 

(74

)

 

 

22

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(11

)

 

 

(39

)

(Decrease) increase in cash and cash equivalents

 

 

(31

)

 

 

76

 

Cash and cash equivalents at beginning of period

 

 

969

 

 

 

1,178

 

Cash and cash equivalents at end of period

 

$

938

 

 

$

1,254

 

 

See Notes to unaudited condensed consolidated financial statements.

7


 

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

 

 

Common
stock

 

 

Additional
paid-in
capital

 

 

Retained
earnings

 

 

Accumulated
other
comprehensive
loss

 

 

Treasury
stock

 

 

Total
controlling
interest's
equity

 

 

Non-
controlling
interest

 

 

Total
equity

 

Balances at December 31, 2021

$

103

 

 

$

1,329

 

 

$

2,742

 

 

$

(408

)

 

$

(1,133

)

 

$

2,633

 

 

$

15

 

 

$

2,648

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

 

 

0

 

 

 

83

 

Foreign currency translation
   adjustment

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

 

 

0

 

 

 

6

 

Pension liability

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Total Comprehensive Income

 

 

 

 

 

 

 

83

 

 

 

14

 

 

 

 

 

 

97

 

 

 

0

 

 

 

98

 

Stock repurchased and retired

 

(0

)

 

 

(4

)

 

 

(13

)

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

Cash Dividends

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Balances at March 31, 2022

$

103

 

 

$

1,325

 

 

$

2,755

 

 

$

(393

)

 

$

(1,131

)

 

$

2,659

 

 

$

15

 

 

$

2,674

 

 

 

 

 

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, 2020

$

103

 

 

$

1,329

 

 

$

2,471

 

 

$

(347

)

 

$

(1,147

)

 

$

2,409

 

 

$

14

 

 

$

2,423

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

157

 

 

 

0

 

 

 

157

 

Foreign currency translation
  adjustment

 

 

 

 

 

 

 

 

 

 

(64

)

 

 

 

 

 

(64

)

 

 

(0

)

 

 

(64

)

Pension liability

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total Comprehensive Income

 

 

 

 

 

 

 

157

 

 

 

(63

)

 

 

 

 

 

94

 

 

 

0

 

 

 

94

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Balances at March 31, 2021

$

103

 

 

$

1,329

 

 

$

2,628

 

 

$

(410

)

 

$

(1,143

)

 

$

2,507

 

 

$

14

 

 

$

2,521

 

 

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, 2022

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, 2022.

The Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements.

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

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

Statements in this report that are not of historical fact are forward-looking statements that involve risks and uncertainties that could affect the actual results of the Company. A description of the important factors that could cause Autoliv’s actual results to differ materially from the forward-looking statements contained in this report may be found in this report and Autoliv’s other reports filed with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial statements, footnotes and definitions thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.

2. NEW ACCOUNTING STANDARDS

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

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

None that had or are expected to have a material impact on the Company.

Accounting standards issued but not yet adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance, which increases the transparency of government assistance, including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for business entities for annual periods beginning after December 15, 2021, and early adoption is permitted. The amendments in this Update should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company believes that the pending adoption of ASU 2021-10 will have a minor impact on the disclosures to the consolidated financial statements.

9


 

3. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

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

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

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

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

The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (“ISDA agreements”) with all derivative counterparties, the fair values in the tables below and in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 have been presented on a gross basis. According to the ISDA agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company chose not to offset are presented below.

Derivatives designated as hedging instruments

There were no derivatives designated as hedging instruments as of March 31, 2022 or December 31, 2021 related to the operations.

 

10


 

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding as of March 31, 2022 and December 31, 2021 were foreign exchange swaps.

For the three months period ended March 31, 2022 and 2021, the gains (losses) recognized in other non-operating items, net were $9 million and $(58) million, respectively, for derivative instruments not designated as hedging instruments. The realized part of the losses referred to above is reported under financing activities in the statement of cash flows.

For the three months period ended March 31, 2022 and 2021, the gains (losses) recognized as interest expense were immaterial.

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

 

 

As of

 

 

 

 

March 31, 2022

 

 

 

December 31, 2021

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

 

Fair Value Measurements

 

 

Description

 

Nominal
volume

 

 

Derivative
asset
(Other
current assets)

 

 

Derivative
liability
(Other
current
liabilities)

 

 

 

Nominal
volume

 

 

Derivative
asset
(Other
current assets)

 

 

Derivative
liability
(Other
current
liabilities)

 

 

Derivatives not designated as hedging
   instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange swaps, less
   than 6 months

 

$

1,228

 

1)

$

10

 

2)

$

9

 

3)

 

$

1,348

 

4)

$

5

 

5)

$

16

 

6)

Total derivatives not designated
   as hedging instruments

 

$

1,228

 

 

$

10

 

 

$

9

 

 

 

$

1,348

 

 

$

5

 

 

$

16

 

 

 

1) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,228 million.

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

3) Net amount after deducting for offsetting swaps under ISDA agreements is $9 million.

4) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,326 million.

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

6) Net amount after deducting for offsetting swaps under ISDA agreements is $16 million.

11


 

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).

 

 

 

As of

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Carrying
value
1)

 

 

Fair
value

 

 

Carrying
value
1)

 

 

Fair
value

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

1,323

 

 

$

1,351

 

 

$

1,330

 

 

$

1,400

 

Loans

 

 

324

 

 

 

336

 

 

 

332

 

 

 

347

 

Total long-term debt

 

 

1,647

 

 

 

1,687

 

 

 

1,662

 

 

 

1,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

 

 

 

 

 

 

 

 

 

Short-term portion of long-term debt

 

 

324

 

 

 

325

 

 

 

332

 

 

 

333

 

Overdrafts and other short-term debt

 

 

23

 

 

 

23

 

 

 

14

 

 

 

14

 

Total short-term debt

 

$

347

 

 

$

348

 

 

$

346

 

 

$

348

 

 

1) Debt as reported in balance sheet.

Assets and liabilities measured at fair value on a nonrecurring basis

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

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

For the three months period ended March 31, 2022 and 2021, the Company did not record any material impairment charges on its long-lived assets for its operations.

 

 

12