Company Quick10K Filing
Autoliv
Price77.92 EPS2
Shares87 P/E32
MCap6,810 P/FCF21
Net Debt1,576 EBIT399
TEV8,387 TEV/EBIT21
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-04-23
10-K 2020-12-31 Filed 2021-02-19
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10-K 2011-12-31 Filed 2012-02-23
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10-K 2010-12-31 Filed 2011-02-23
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10-K 2009-12-31 Filed 2010-02-19
8-K 2021-02-19
8-K 2021-01-26
8-K 2020-12-08
8-K 2020-10-23
8-K 2020-10-01
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8-K 2020-07-17
8-K 2020-05-28
8-K 2020-05-07
8-K 2020-04-24
8-K 2020-04-02
8-K 2020-03-18
8-K 2020-02-25
8-K 2020-02-20
8-K 2020-01-28
8-K 2020-01-23
8-K 2019-11-26
8-K 2019-11-19
8-K 2019-11-08
8-K 2019-10-25
8-K 2019-09-18
8-K 2019-08-19
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8-K 2019-05-07
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8-K 2019-04-12
8-K 2019-04-11
8-K 2019-03-01
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8-K 2019-01-10
8-K 2018-12-06
8-K 2018-11-08
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8-K 2018-09-19
8-K 2018-08-15
8-K 2018-07-27
8-K 2018-06-27
8-K 2018-06-21
8-K 2018-06-08
8-K 2018-05-30
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8-K 2018-05-08
8-K 2018-04-27
8-K 2018-04-26
8-K 2018-03-26
8-K 2018-03-02
8-K 2018-02-14
8-K 2018-01-30

ALV 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-4.13 alv-ex413_274.htm
EX-4.14 alv-ex414_272.htm
EX-4.15 alv-ex415_273.htm
EX-10.1 alv-ex101_32.htm
EX-10.2 alv-ex102_185.htm
EX-10.3 alv-ex103_270.htm
EX-10.4 alv-ex104_271.htm
EX-10.5 alv-ex105_380.htm
EX-31.1 alv-ex311_10.htm
EX-31.2 alv-ex312_8.htm
EX-32.1 alv-ex321_6.htm
EX-32.2 alv-ex322_7.htm

Autoliv Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
2.92.31.71.10.5-0.12012201420172020
Rev, G Profit, Net Income
1.00.70.40.2-0.1-0.42012201420172020
Ops, Inv, Fin

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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, 2021

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 19, 2021, there were 87,422,350 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, competition and the global economy; changes in light vehicle production; fluctuation in vehicle production schedules for which the Company is a supplier; 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 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; 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, 2020 filed with the SEC on February 19, 2021.

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

 

12

5.        

Inventories

 

12

6.       

Restructuring

 

12

7.     

Product-Related Liabilities

 

13

8.     

Retirement Plans

 

13

9.     

Contingent Liabilities

 

14

10.     

Stock Incentive Plan

 

15

11.     

Earnings Per Share

 

15

12.     

Related Party Transactions

 

16

13.

Revenue Disaggregation

 

16

14.     

Subsequent Events

 

16

 

 

 

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

 

17

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

25

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

25

 

 

 

PART II - OTHER INFORMATION

 

26

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

26

 

 

 

ITEM 1A. RISK FACTORS

 

26

 

 

 

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

 

26

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

26

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

26

 

 

 

ITEM 5. OTHER INFORMATION

 

26

 

 

 

ITEM 6. EXHIBITS

 

27

 

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

 

 

 

2021

 

 

2020

 

Net sales

 

$

2,242

 

 

$

1,846

 

Cost of sales

 

 

(1,784

)

 

 

(1,515

)

Gross profit

 

 

458

 

 

 

331

 

Selling, general and administrative expenses

 

 

(108

)

 

 

(93

)

Research, development and engineering expenses, net

 

 

(107

)

 

 

(103

)

Amortization of intangibles

 

 

(3

)

 

 

(3

)

Other income (expense), net

 

 

(4

)

 

 

2

 

Operating income

 

 

237

 

 

 

134

 

Income from equity method investment

 

 

2

 

 

 

0

 

Interest income

 

 

1

 

 

 

1

 

Interest expense

 

 

(16

)

 

 

(16

)

Other non-operating items, net

 

 

(6

)

 

 

(8

)

Income before income taxes

 

 

217

 

 

 

111

 

Income tax expense

 

 

(60

)

 

 

(36

)

Net income

 

 

157

 

 

 

75

 

Less: Net income attributable to non-controlling interest

 

 

0

 

 

 

0

 

Net income attributable to controlling interest

 

$

157

 

 

$

75

 

 

 

 

 

 

 

 

 

 

Net earnings per share  –  basic 1)

 

$

1.79

 

 

$

0.86

 

Net earnings per share  –  diluted 1)

 

$

1.79

 

 

$

0.86

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, net of

   treasury shares (in millions)

 

 

87.4

 

 

 

87.3

 

Weighted average number of shares outstanding,

   assuming dilution and net of treasury

   shares (in millions)

 

 

87.6

 

 

 

87.4

 

 

 

 

 

 

 

 

 

 

Cash dividend per share – declared 2)

 

$

 

 

$

0.62

 

Cash dividend per share – paid

 

$

 

 

$

0.62

 

 

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)

As earlier communicated, on April 2, 2020, the Company announced it canceled its declared dividend for the second quarter of 2020.

 

 

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in millions)

 

 

 

Three months ended March 31

 

 

 

2021

 

 

2020

 

Net income

 

$

157

 

 

$

75

 

Other comprehensive income (loss) before tax:

 

 

 

 

 

 

 

 

Change in cumulative translation adjustments

 

 

(64

)

 

 

(102

)

Net change in unrealized components of defined benefit plans

 

 

1

 

 

 

1

 

Other comprehensive loss, before tax

 

 

(63

)

 

 

(101

)

Tax effect allocated to other comprehensive loss

 

 

0

 

 

 

0

 

Other comprehensive loss, net of tax

 

 

(63

)

 

 

(101

)

Comprehensive income (loss)

 

 

94

 

 

 

(26

)

Less: Comprehensive income attributable to

   non-controlling interest

 

 

0

 

 

 

0

 

Comprehensive income (loss) attributable to

   controlling interest

 

$

94

 

 

$

(26

)

 

See Notes to the unaudited Condensed Consolidated Financial Statements.

5


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

 

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,254

 

 

$

1,178

 

Receivables, net

 

 

1,846

 

 

 

1,822

 

Inventories, net

 

 

856

 

 

 

798

 

Prepaid expenses and accrued income

 

 

183

 

 

 

164

 

Other current assets

 

 

260

 

 

 

307

 

Total current assets

 

 

4,399

 

 

 

4,269

 

Property, plant and equipment, net

 

 

1,810

 

 

 

1,869

 

Operating lease right-of-use assets

 

 

137

 

 

 

141

 

Goodwill

 

 

1,392

 

 

 

1,398

 

Intangible assets, net

 

 

14

 

 

 

14

 

Other non-current assets

 

 

457

 

 

 

466

 

Total assets

 

$

8,210

 

 

$

8,157

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

Short-term debt

 

$

291

 

 

$

302

 

Accounts payable

 

 

1,215

 

 

 

1,254

 

Accrued expenses

 

 

1,323

 

 

 

1,270

 

Operating lease liabilities - current

 

 

38

 

 

 

37

 

Other current liabilities

 

 

321

 

 

 

284

 

Total current liabilities

 

 

3,188

 

 

 

3,147

 

Long-term debt

 

 

2,039

 

 

 

2,110

 

Pension liability

 

 

239

 

 

 

248

 

Operating lease liabilities - non-current

 

 

100

 

 

 

103

 

Other non-current liabilities

 

 

123

 

 

 

126

 

Total non-current liabilities

 

 

2,501

 

 

 

2,587

 

Common stock

 

 

103

 

 

 

103

 

Additional paid-in capital

 

 

1,329

 

 

 

1,329

 

Retained earnings

 

 

2,628

 

 

 

2,471

 

Accumulated other comprehensive loss

 

 

(410

)

 

 

(347

)

Treasury stock

 

 

(1,143

)

 

 

(1,147

)

Total controlling interest's equity

 

 

2,507

 

 

 

2,409

 

Non-controlling interest

 

 

14

 

 

 

14

 

Total equity

 

 

2,521

 

 

 

2,423

 

Total liabilities and equity

 

$

8,210

 

 

$

8,157

 

 

 

 

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

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

157

 

 

$

75

 

Adjustments to reconcile net income to cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

99

 

 

 

89

 

Other, net

 

 

19

 

 

 

11

 

Change in operating working capital:

 

 

 

 

 

 

 

 

Net change in operating assets and liabilities

 

 

(89

)

 

 

(19

)

Net cash provided by operating activities

 

 

186

 

 

 

156

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(94

)

 

 

(89

)

Proceeds from sale of property, plant and equipment

 

 

1

 

 

 

1

 

Net cash used in investing activities

 

 

(93

)

 

 

(88

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Net increase (decrease) in short-term debt

 

 

47

 

 

 

(27

)

Issuance of long-term debt

 

 

 

 

 

500

 

Decrease in long-term debt

 

 

(26

)

 

 

 

Dividends paid

 

 

 

 

 

(54

)

Common stock options exercised

 

 

1

 

 

 

0

 

Net cash provided by financing activities

 

 

22

 

 

 

419

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(39

)

 

 

(24

)

Increase in cash and cash equivalents

 

 

76

 

 

 

463

 

Cash and cash equivalents at beginning of period

 

 

1,178

 

 

 

445

 

Cash and cash equivalents at end of period

 

$

1,254

 

 

$

907

 

 

 

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, 2020

$

103

 

 

$

1,329

 

 

$

2,471

 

 

$

(347

)

 

$

(1,147

)

 

$

2,409

 

 

$

14

 

 

$

2,423

 

Comprehensive Income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

 

 

157

 

 

 

0

 

 

 

157

 

Foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(64

)

 

 

 

 

 

 

(64

)

 

 

0

 

 

 

(64

)

Pension liability

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total Comprehensive Income (loss)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

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

$

103

 

 

$

1,329

 

 

$

2,284

 

 

$

(449

)

 

$

(1,158

)

 

$

2,109

 

 

$

13

 

 

$

2,122

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

0

 

 

 

75

 

Foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(102

)

 

 

 

 

 

 

(102

)

 

 

(0

)

 

 

(102

)

Pension liability

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

1

 

Total Comprehensive Income

 

 

 

 

 

 

75

 

 

 

(101

)

 

 

 

 

 

(26

)

 

 

(0

)

 

 

(26

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

2

 

Cash dividends declared 1)

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

(54

)

Balances at March 31, 2020

 

103

 

 

 

1,329

 

 

 

2,305

 

 

 

(550

)

 

 

(1,156

)

 

 

2,031

 

 

 

13

 

 

 

2,044

 

 

1)

Reversal of canceled dividend declared for the second quarter of 2020 which was announced by the Company on April 2, 2020.

 

 

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, 2021

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, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 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, 2020, filed with the SEC on February 19, 2021.

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

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which simplifies 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 adopted ASU 2019-12 prospectively as of January 1, 2021 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Accounting standards issued but not yet adopted

None that are expected to have an impact on the Company.

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 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, 2021 and December 31, 2020 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 no derivatives designated as hedging instruments as of March 31, 2021 and December 31, 2020 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, 2021 and December 31, 2020 were foreign exchange swaps.

For the three month periods ended March 31, 2021 and March 31, 2020, the gains and losses recognized in other non-operating items, net were a loss of $58 million and a loss of $9 million, respectively, for derivative instruments not designated as hedging instruments.

For the three month periods ended March 31, 2021 and March 31, 2020, the gains and losses recognized as interest expense were immaterial.

 

 

 

March 31, 2021

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

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

 

$

1,531

 

1)

$

1

 

2)

$

37

 

3)

 

$

1,463

 

4)

$

25

 

5)

$

3

 

6)

Total derivatives not designated

   as hedging instruments

 

$

1,531

 

 

$