EDGAR 10-K Filing

Company CIK: 1034670
Filing Year: 2021
Filename: 1034670_10-K_2021_0001564590-21-006803.json

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ITEM 1. BUSINESS
Item 1. Business
General
Autoliv, Inc. (“Autoliv”, the “Company” or “we”) is a Delaware corporation with its principal executive offices in Stockholm, Sweden. The Company functions as a holding corporation and owns two principal subsidiaries, Autoliv AB and Autoliv ASP, Inc. Our fiscal year ends on December 31.
Business
Autoliv is a leading developer, manufacturer and supplier of safety systems to the automotive industry with a broad range of product offerings, primarily passive safety systems.
Passive safety systems are primarily meant to improve vehicle safety. Passive safety systems include modules and components for frontal-impact airbag protection systems, side-impact airbag protection systems, seatbelts, steering wheels, inflator technologies, battery cable cutters and protection systems for vulnerable road users such as pedestrians and cyclists.
Including joint venture operations, Autoliv has approximately 65 production facilities in 25 countries and its customers include the world’s largest car manufacturers. Autoliv’s sales in 2020 were $7.4 billion, approximately 65% of which consisted of airbag and steering wheel products and approximately 35% of which consisted of seatbelt products. Our business is conducted in the following geographical regions: Europe, the Americas, China, Japan and the Rest of Asia (ROA).
Autoliv’s head office is located in Stockholm, Sweden, where we currently employ approximately 70 people. At December 31, 2020, Autoliv had approximately 61,000 employees worldwide, and a total headcount of approximately 68,000, which includes 7,000 temporary personnel.
Additional information required by this Item 1 regarding developments in the Company’s business during 2020 is contained under Item 7 in this Annual Report.
Reportable Segment
Upon completion of the spin-off of its former Electronics segment on June 29, 2018, Autoliv concluded that it has one reportable segment based on the way the Company evaluates its financial performance and manages its operations. Autoliv’s remaining business is comprised of passive safety products - principally airbags (including steering wheels and inflators) and seatbelts. For more information regarding the Company’s segment reporting, see Note 1 to the Consolidated Financial Statements in this Annual Report.
Products, Market and Competition
Products
Saving more lives on the road is a key health priority as our world population grows and develops. However, population expansion in growth markets and the rise of megacities creates new complexities. To meet this challenge, we develop automotive safety solutions that work in real life situations.
Our safety systems such as seatbelts and airbags substantially mitigate human consequences of traffic accidents.
The airbag module is designed to inflate extremely rapidly then quickly deflate during a collision or impact. It consists of the container, airbag cushion and an inflator. The purpose of the airbag is to provide the occupants a cushioning and restraint during a crash event to prevent any impact or impact-caused injuries between the occupant and the interior of the vehicle.
Seatbelts can reduce the overall risk of serious injuries in frontal crashes by as much as 60% due to advanced seatbelt technologies such as pretensioners and load limiters.
Autoliv also manufactures steering wheels that are crafted to ensure they meet safety requirements and are functional as well as stylish.
Market and Competition
Consumer research clearly shows that consumers want safe vehicles, and several significant trends are likely to have a positive influence on overall safety content per vehicle. These include:
1)
Society becoming increasingly focused on Vision Zero, which includes a goal of reducing traffic fatalities and their associated costs;
2)
Demographic trends of increased urbanization, aging driver populations and increased safety focus in growth markets;
3)
Evolving government regulations and test rating systems to improve the safety of vehicles in various markets, such as the updated Euro New Car Assessment Program (NCAP), China NCAP and USNCAP; and
4)
The trend towards autonomous driving vehicles will add new demands, and to provide protection of occupants in new seating positions, regardless of how a driver or other passenger are seated, will require new and more complex solutions.
The automotive safety market is driven by two primary factors: light vehicle production (LVP) and content per vehicle (CPV).
The first growth driver, LVP, has increased at an average annual growth rate of around 1.3% since the start of Autoliv in 1997 despite the substantial drop in LVP in 2020 due to the COVID-19 pandemic. LVP is forecasted to grow to close to 88 million by 2023 from approximately 72 million in 2020, as the market is expected to recover from the effects of the COVID-19 pandemic, according to IHS Markit.
Unlike LVP, where Autoliv can only aim to be on the best-selling platforms, Autoliv can influence CPV more directly by continuously developing and introducing new technologies with higher value-added features. Over the long term, this increases average safety CPV and has caused our markets to grow faster than the LVP.
Since 1997, the Company’s sales compound annual growth rate (CAGR) for passive safety has been 4.4% compared to the market rate of around 1.9% which includes an LVP growth of around 1.3%. Our outperformance is a result of a steady flow of new passive safety technologies, strong focus on quality and a superior global footprint both in products and engineering. This has enabled Autoliv to increase its market share from 27% in 1997 to 42% in 2020.
In the Developed Markets (Western Europe, North America, Japan and South Korea) the CPV is around $300. CPV growth in these regions will mainly come from new safety systems such as active seatbelts, knee airbags and front-center airbags along with improved protection for pedestrians and rear-seat occupants like bag-in-belt or more advanced seatbelts.
In our Growth Markets (all markets other than the Developed Markets), we see great opportunities for CPV growth from more airbags and advanced seatbelt products. Average CPV in our Growth Markets is around $190, approximately $110 less than in the Developed Markets.
As a result of higher installation rates of airbags, more advanced seatbelt products and more complex steering wheels, CPV is expected to increase at a similar pace in both Developed and Growth markets over the next 3-4 years. LVP in Growth Markets is expected to increase faster than in the Developed Markets during the same period. Despite a negative LVP mix effect from higher growth in low CPV markets, the annual passive safety market (seatbelts and airbags, including steering wheels), is expected to grow from around $17 billion in 2020 to more than $23 billion over the next 3-4 years, based on the current macro-economic outlook and our internal market intelligence and estimates. The highest growth rate is expected in steering wheels, where Autoliv has a global market share of around 37%, generated by the trend toward higher-value steering wheels with leather and additional features.
In seatbelts, Autoliv has reached a global market share of around 44%, primarily due to being the technology leader with several important innovations such as pretensioners and active seatbelts. Our strong market position is also a reflection of our superior global footprint. Seatbelts are the primary life-saving safety product and are also an important requirement in low-end vehicles for the Growth Markets. This provides us with an excellent opportunity to benefit from the expected growth in this segment of the market.
The market for airbags, where Autoliv has a market share of around 42%, is expected to grow mainly as result of higher installation rates of inflatable curtains, side airbags and knee airbags. Additionally, the new front center airbag is expected to start to contribute to the market growth.
Our competitors
Autoliv is the clear market leader in passive safety with an estimated global market share of 42%.
ZF, our largest competitor, is a global leader in driveline and chassis technology as well as in passive safety technologies, and is one of the largest global automotive suppliers.
Our second largest competitor is U.S.-based Joyson Safety Systems (JSS). JSS is a Chinese owned company and is the result of the merger between Key Safety Systems (KSS) and Takata Corporation after KSS acquired Takata in 2018.
In Japan, Brazil, South Korea and China there are a number of local suppliers that have close ties with the domestic vehicle manufacturers. For example, Toyota uses “keiretsu” (in-house) suppliers Tokai Rika for seatbelts and Toyoda Gosei for airbags and steering wheels. These suppliers generally receive most of the Toyota business in Japan, in the same way, Mobis, a major supplier to Hyundai/Kia in South Korea, generally receives a significant part of their business.
Other competitors include Nihon Plast and Ashimori of Japan, Jinheng of China, Samsong in South Korea and Chris Cintos de Seguranca in South America. Collectively, these competitors account for the majority of the remaining market share in passive safety.
Additional information concerning our products, markets and competition is included in the “Risks and Risk Management” section under Item 7 of this Annual Report.
Manufacturing and Production
See “Item 2. Properties” for a description of Autoliv’s principal properties. The component factories manufacture inflators, propellant, initiators, textile cushions, webbing, pressed steel parts, springs and overmoulded steel parts used in seatbelt and airbag assembly and steering wheels. The assembly factories source components from a number of parties, including Autoliv’s own component factories, and assemble complete restraint systems for “just-in-time” delivery to customers. The products manufactured by Autoliv’s consolidated subsidiaries in 2020 consisted of approximately 126 million complete seatbelt systems (of which approximately 80 million were fitted with pretensioners), approximately 87 million side airbags (including curtain airbags and front center airbags), approximately 49 million frontal airbags, approximately 0.5 million other airbags and approximately 17 million steering wheels.
Autoliv’s “just-in-time” delivery system is designed to accommodate the specific requirements of each customer for low levels of inventory and rapid stock delivery service. “Just-in-time” deliveries require final assembly or, at least, distribution centers in geographic areas close to customers to facilitate rapid delivery. The fact that the major automobile manufacturers are continually expanding their production activities into more countries and require the same or similar safety systems as those produced in Europe, Japan or the U.S. increases the importance for suppliers to have assembly capacity in several countries. Consolidation among our customers also supports this trend.
Autoliv’s assembly operations generally are not constrained by capacity considerations unless there is a disruption in the supply of raw materials and components. When dramatic shifts in LVP occur, Autoliv can generally adjust capacity in response to any changes in demand within a few days by adding or removing work shifts and within a few months by adding or removing standardized production and assembly lines. Most of Autoliv’s assembly factories can make sufficient space available to accommodate additional production lines to satisfy foreseeable increases in capacity. As a result, Autoliv can usually adjust its manufacturing capacity faster than its customers can adjust their capacity as a result of fluctuations in the general demand for vehicles or in the demand for a specific vehicle model, provided that customers promptly notify Autoliv when they become aware of such changes in demand.
When dramatic shifts in LVP occur or when there is a shift in regional LVP, the capacity adjustments can take more time and be more costly. Additionally, when there is significant demand for a given product due to a major recall of a competitor’s product, like certain of our customers have experienced, capacity adjustments may take time.
We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production. For more information, see Item 1A - “Risk Factors” in this Annual Report.
Quality Management
Autoliv believes that superior quality is a prerequisite to being considered a leading global supplier of automotive safety systems and is key to our financial performance, because quality excellence is critical for winning new orders, preventing recalls and maintaining low scrap rates. Autoliv has for many years emphasized a “zero-defect” proactive quality policy and continues to strive to improve its working methods. This means that Autoliv’s products are expected to always meet performance expectations and be delivered to its customers at the right times and in the right amounts. Furthermore, we believe our continued quality improvements further enhance our reputation among our customers, employees and governmental authorities.
Although quality has always been paramount in the automotive industry, especially for safety products, automobile manufacturers have become increasingly focused on quality with even less tolerance for any deviations. This intensified focus on quality is partially due to an increase in the number of vehicle recalls for a variety of reasons (not just safety), including a few high-profile vehicle recalls. This trend is likely to continue as automobile manufacturers introduce even stricter quality requirements and regulating agencies and other authorities increase the level of scrutiny given to vehicle safety issues. We have not been immune to the recalls that have been impacting the automotive industry.
We continue to drive our quality initiative called “Q5” which was initiated in the summer of 2010. It is an integral part of our strategy of shaping a proactive quality culture of zero defects. It is called “Q5” because it addresses quality in five dimensions: products, customers, growth, behavior and suppliers. The goal of Q5 is to firmly tie together quality with value within all of our processes and for all of our employees, thereby leading to the best value for our customers. Since 2010, we have continually expanded this quality initiative to provide additional skills training to more employees and suppliers. These activities have significantly improved our quality performance.
In our pursuit of excellence in quality, we have developed a chain of four “defense lines” against potential quality issues. These defense lines consist of: 1) robust product designs, 2) flawless components from suppliers and our own in-house component companies, 3) manufacturing flawless products with a system for verifying that our products conform with specifications and 4) an advanced traceability system in the event of a recall.
Our pursuit of quality excellence extends from the earliest phases of product development to the proper disposal of a product following many years of use in a vehicle. Autoliv’s comprehensive Autoliv Product Development System includes several key check points during the process of developing new products that are designed to ensure that such products are well-built and have no hidden defects. Through this process, we work closely with our suppliers and customers to set clear standards that help to ensure robust component design and lowest cost for function in order to proactively prevent problems and ensure we deliver only the best designs to the market.
The Autoliv Production System (“APS”), based on the goals of improving quality and efficiency, is at the core of Autoliv’s manufacturing philosophy. APS integrates essential quality elements, such as mistake proofing, statistical process control and operator involvement, into the manufacturing processes so all Autoliv associates are aware of and understand the critical connection between themselves and our lifesaving products. This “zero-defect” principle extends beyond Autoliv to the entire supplier base. All of our suppliers must accept the strict quality standards in the global Autoliv Supplier Manual, which defines our quality requirements and focuses on preventing bad parts from being produced by our suppliers and helps eliminate defective intermediate products in our assembly lines as early as possible. In
addition, Autoliv’s One Product One Process (“1P1P”) initiative is our strategy for developing and managing standardization of both core products and customer-specific features, leading not only to improved quality, but also greater cost efficiency and more efficient supply chain management.
IATF 16949:2016 is one of the automotive industry’s most widely used international standards for quality management. All of our facilities that ship products to OEMs are regularly certified according to the International Automotive Task Force (IATF) standards.
Environmental and Safety Regulations
For information on how environmental and safety regulations impact our business, see “Risk Factors - ‘Our business may be adversely affected by laws or regulations, including environmental, occupational health and safety or other governmental regulations’ and ‘Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market’” in Item 1A and “Risks and Risk Management” in Item 7 of this Annual Report.
Raw Materials
Approximately 50% of our sales comes from direct material purchased from external suppliers. Autoliv mainly purchases manufactured components and raw materials for its operations. We take several actions to mitigate raw material fluctuations, such as competitive sourcing and looking for alternative materials.
For information on the sources and availability of raw materials, see “Risk Factors - ‘Changes in the source, cost, availability of and regulations pertaining to raw materials and components may adversely affect our profit margins’” in Item 1A of this Annual Report.
Intellectual Property
We have developed a considerable amount of proprietary technology related to automotive safety systems and rely on many patents to protect such technology. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve. For information on our use of intellectual property and its importance to us, see “Risk Factors - ‘If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired’” in Item 1A of this Annual Report.
Backlog
Autoliv has frame contracts with automobile manufacturers and such contracts are typically entered into up to three years before the start of production of the relevant car model or platform and provide for a term covering the life of such car model or platform including service parts after a vehicle model is no longer produced. However, typically these contracts do not provide minimum quantities, firm prices or exclusivity but instead permit the automobile manufacturer to resource the relevant products at given intervals (or at any time) from other suppliers.
Dependence on Customers
In 2020, our top five customers represented around 53% of our annual sales and our top ten customers represented around 81% of our annual sales. This reflects the concentration of manufacturers in the automotive industry. The five largest OEMs in 2020 accounted for around 51% of global LVP and the ten largest OEMs accounted for around 75% of global LVP. A delivery contract is typically for the lifetime of a vehicle model, which is normally between five and seven years depending on customer platform sourcing preferences and strategies.
Customer
% of Autoliv
Sales
% of Global
LVP1)
Renault/Nissan/Mitsubishi
%
%
VW
%
%
Stellantis
%
%
Honda
%
%
Hyundai/Kia
%
%
Toyota
%
%
Ford
%
%
General Motors
%
%
BMW
%
%
Daimler
%
%
1)
Source: IHS Markit
Customer sales trends
Asian vehicle producers have steadily become more important to Autoliv, and now represent around 47% of our global sales compared to 40% five years ago. The largest increase comes from Japanese OEMs that represented 26% of our global sales five years ago but now accounts for 34% of our global sales in 2020. This is a result of our stronger market position based on our local presence in Japan. European based brands accounted for 31% of our global sales in 2020. The U.S. based OEMs (including Tesla and Chrysler) accounted
for 21% of our global sales. The local Chinese OEMs as a group accounted for around 4% of our global sales in 2020, with Great Wall representing 2%. The fastest growing customer from 2019 to 2020 was Tesla, followed by General Motors.
For information on our dependence on customers, see “Risk Factors - ‘Our business could be materially and adversely affected if we lost any of our largest customers or if they were unable to pay their invoices’” in Item 1A of this Annual Report and “Dependence on Customers” under the section “Risks and Risk Management” in Item 7 of this Annual Report and Note 21 to the Consolidated Financial Statements.
Research, Development and Engineering, net (R,D&E)
No single customer project accounted for more than 5.5% of Autoliv’s total R,D&E, net spending during 2020. To fuel Autoliv’s product portfolio, additional expertise is brought in-house via technology partnerships and licensing agreements.
During 2020, gross expenditures for Research, Development and Application Engineering (R,D&E) amounted to $557 million compared to $605 million in 2019. Of these amounts, $181 million in 2020 and $199 million in 2019 were related to customer-funded engineering projects and crash tests. Net of this income, R,D&E expenditures decreased in 2020 compared to 2019 by 7.4% to 375 million. Of the R,D&E, net expense in 2020, 82% was for projects and programs for which we have customer orders, typically related to vehicle models in development. The remaining 18% was not only for completely new innovations but also for improvements of existing products, standardization and cost reduction projects that will yield greater benefits over time.
Regulatory Costs
The fitting of seatbelts in most types of motor vehicles is mandatory in almost all countries and many countries have strict laws regarding the use of seatbelts while in vehicles. In addition, most developed countries require that seats in intercity buses and commercial vehicles be fitted with seatbelts. In the U.S., federal legislation requires frontal airbags on the driver-side and the passenger-side of all new passenger cars since 1998 and in all sport utility vehicles, pickup trucks, and vans since 1999.
For information concerning the material effects on our business relating to our compliance with government safety regulations, see “Risk Factors - ‘Our business may be adversely affected by laws or regulations, including environmental, occupational health and safety or other governmental regulations’ and ‘Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market’” in Item 1A of this Annual Report and in Item 7 under the section “Risks and Risk Management” of this Annual Report.
Human Resources
Our drive for excellence is what makes us the world’s leading supplier of automotive safety systems. From the earliest stages of product development to sales and design to the final delivery of the finished product our employees are driven by our passion to save more lives.
The successful execution of our strategies relies on our ability to shape a quality and performance-oriented culture, and to adapt quickly to sudden shifts in our circumstances, as illustrated by the COVID-19 crisis. A turbulent external environment presents many challenges but also opportunities. As we move forward we strive to respond with agility to new possibilities to grow and improve our business whilst delivering with excellence to our customers. We build a winning team by focusing on creating a work environment that attracts, retains, and engages our employees. We take great pride in working together to provide lifesaving solutions for mobility and society, and are always looking for new team members who share this passion. For additional information, see our Sustainability Report 2021 available at our corporate website at www.autoliv.com.
Development of our employees
We offer a collaborative work environment where we tackle challenges and achieve great things together. Supporting the development of our employees is essential in a highly competitive and rapidly changing environment. An important cornerstone of each employee’s growth is the ongoing dialogue between the team member and manager, which is summarized during an annual Performance and Development Dialogue (PDD). During 2020, 99% of targeted employees conducted a PDD with their managers. To provide opportunities for professional and personal growth of our employees, we have a multitude of development channels, including technical and specialist career paths, international assignments and other such programs. We promote continuous development on the job every day, and more than 1,500 employees attended at least one training program this year, despite restrictions related to COVID-19.
Health and Safety
We are committed to providing a work environment that promotes the health, safety and welfare of our employees. Each Autoliv facility implements our health and safety management system, which is supported by leadership teams. The implementation of the system is monitored through internal and external audits. During 2020 our main focus has been the health and safety of our employees during the Covid-19 pandemic.
Diversity
We value diversity and different backgrounds and experiences among our employees. Our workforce reflects the diversity of the countries and cultures in which we operate. At the end of 2020, 47% of our workforce and 22% of our senior management positions were filled by women.
We have operations in 27 different countries, with 28% of our workforce located in Asia, 32% in the Americas and 40% in Europe (including Africa, Russia and Turkey).
Labor rights
We offer fair terms and conditions of employment. Our values, Code of Conduct, talent development strategies and employment policies support the principles in the United Nations Universal Declaration of Human Rights, and the International Labor Organization’s Fundamental Principles and Labor Standards.
Autoliv considers its relationship with its personnel to be good. While there have been a small number of minor labor disputes during the year, such disputes have not had a significant or lasting impact on our relationship with our employees, customer perception of our employee practices or our business results.
Major unions to which some of Autoliv’s employees belong in Europe include: IG Metall in Germany; Unite the union in the United Kingdom; Confédération Générale des Travailleurs (CGT), Confédération Française Démocratique du Travail (CFDT), Confédération Française de l’Encadrement Confédération Générale des cadres (CFE-CGC), Force Ouvrière (FO), Confédération Française des Travailleurs Chrétiens (CFTC), Solidaires, Unitaires, Démocratiques (SUD) and Conféderation Autonome du Travail (CAT) in France; Union General de Trabajadores (UGT), Union Sindical Obrera (USO), Comisiones Obereras (CCOO) and Confederacion General de Trabajadores (CGT) in Spain; IF Metall, Unionen, Sveriges Ingenjörer and Ledarna in Sweden; Industriaal- ja Metallitöötajate Ametiühingute Liit (IMTAL) in Estonia; Vasas Szakszervezeti Szövetség (Hungarian Metallworkers‘ Federation) in Hungary; Samorządny NiezaleĪny Związek Zawodowy Pracowników and Zakáadowa Organizacja Związkowa NSZZ SolidarnoĞü in Poland; Union Générale des Travailleurs Tunisiens (UGTT) and Union des travailleurs Tunisiens (UTT) in Tunisia and Türk Metal Sendikasi in Turkey.
In addition, Autoliv’s employees in other regions are represented by the following unions: Unifor in Canada; Sindicato de Jornaleros y Obreros Industriales y de la Industria Maquiladora de H.Matamoros, Tamaulipas (CTM); Sindicato Nacional de Trabajadores de la Industria Metalúrgica y Similares (CTM); Sindicato Industrial de Trabajadores de la Pequeña y Mediana Industria, Talleres, Maquiladoras, Negociaciones Mercantiles y Comercios, Similares, Anexos y Conexos del Estado de Querétaro (CTM); “Nueva Cultura Laboral” “de trabajadores de la fabricación, manufactura, ensamble de autopartes mecánicas y eléctricas y componentes de la industria Automotriz (CROC) in Mexico; Sindicato dos Metalúrgicos de Taubaté e Região in Brazil; Autoliv India Employees Association, Bangalore in India; the Korean Metal Workers Union (FKTU) in Korea; Autoliv Japan Roudou Kumiai in Japan and Federasi Perjuangan Buruh Indonesia (FPBI) in Indonesia.
In many European countries, Canada, Mexico, Brazil and Korea, wages, salaries and general working conditions are negotiated with local unions and/or are subject to centrally negotiated collective bargaining agreements. The terms of our various agreements with unions typically range between 1-3 years. Some of our subsidiaries in Europe, Canada, Mexico, Brazil and Korea must negotiate with the applicable local unions with respect to important changes in operations, working and employment conditions. Twice a year, members of the Company’s management conduct a meeting with the European Works Council (EWC) to provide employee representatives with important information about the Company and a forum for the exchange of ideas and opinions.
In many Asia Pacific countries, the central or regional governments provide guidance each year for salary adjustments or statutory minimum wage for workers.
Autoliv’s employees may join associations in accordance with local legislation and rules, although the level of unionization varies significantly throughout our operations.
Well-balanced Workforce
The table below show Autoliv’s well-balance workforce by age, group and gender in % at the end of 2020.
% of Men
Age group
% of Women
3%
>60
1%
5%
51-60
4%
9%
41-50
10%
16%
31-40
15%
18%
21-30
15%
2%
<20
2%
As of December 31, 2019, Autoliv and its subsidiaries had approximately 59,000 employees and approximately 6,000 temporary personnel for a total of 68,0000 personnel.
Key Performance Indicators (KPI)
The table below reflects certain KPIs on which the Company is particularly focused on with respect to the management of its workforce.
KPI
% of Autoliv facilities certified (OHSAS 18001 or ISO 45001)
Incident rate1)
0.48
0.57
Severity rate2)
4.26
5.82
Zero injuries facilities3)
% women in workforce
% women in senior management positions
% PDD rate4)
Close to 100
No. of employees attended at least one training program5)
1,500
4,000
1) Number of reportable injuries per 200,000 employee hours of exposure.
2) Total days away from work due to a work-related reportable injury and/or illness per 200,000 employee hours of exposure.
3) Number of facilities with zero injuries.
4) Percentage of total employees participating in Autoliv's annual Performance and Development Dialogue (PDD).
5) Lower no. of employees attended training programs during 2020 due to COVID-19 restrictions.
Available information
We file or furnish with the United States Securities and Exchange Commission (the “SEC”) periodic reports and amendments thereto, which include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information. Such reports, amendments, proxy statements and other information are made available free of charge on our corporate website at www.autoliv.com and are available as soon as reasonably practicable after they are electronically filed with the SEC. Our Corporate Governance Guidelines, committee charters, code of conduct and other documents governing the Company are also available on our corporate website at www.autoliv.com. The SEC maintains an internet site that contains reports, proxy statements and other information at www.sec.gov. Hard copies of the above-mentioned documents can be obtained free of charge from the Company by contacting us at: Autoliv, Inc., P.O. Box 70381, SE-107 24, Stockholm, Sweden.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Our business, financial condition, operating results and cash flows may be impacted by a number of factors. A discussion of the risks associated with these material risk factors is included below.
RISKS RELATED TO COVID-19
We face risks related to the novel coronavirus (COVID-19) pandemic that have, and are expected to continue to have, an adverse impact on our business and financial performance
The COVID-19 pandemic has created significant volatility in the global economy and led to significant reduced economic activity and employment and has disrupted, and may continue to disrupt, the global automotive industry and customer sales, production volumes and purchases of light vehicles by end-consumers. The spread of COVID-19 has also caused disruptions in the manufacturing, delivery and overall supply chains of automobile manufacturers and suppliers. Global light vehicle production has been very volatile. Light vehicle production has decreased significantly for certain periods in 2020 while some vehicle manufacturers have slowed or completely shut down manufacturing operations for a period of time and then restarted or ramped up production in some countries and regions. This may continue As a result, we have modified our production schedules and have experienced, and may continue to experience, delays in the production and distribution of our products and a decline in sales to our customers. As production resumes by us and our customers, production volumes have been and may continue to be volatile. We have also taken protective measures to modify our production environment to ensure the health and safety of our workers which has had an impact on our productivity. Additionally, if the global economic effects caused by the pandemic continue or increase, overall customer demand may decrease, which could have a material and adverse effect on our business, results of operations and financial condition. In addition, if a significant portion of our workforce or our customers’ workforce is affected by COVID-19 either directly or due to government closures or otherwise, associated work stoppages or facility closures would halt or delay production. The full extent of the effect of the pandemic on us, our customers, our supply chain or the global supply chain and our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, subsequent outbreaks or the extent of any recession resulting from the pandemic. We may continue to experience the effects of the pandemic even after it has waned, and our business, results of operations and financial condition could continue to be affected. In particular, if COVID-19 continues to spread or re-emerges, particularly in the United States, Europe and China, where our operations are most concentrated, resulting in a prolonged period of travel, commercial, social and other similar restrictions, we could experience, among other things: Adverse impacts on our operations and financial results caused by government and regulatory measures to contain or mitigate the spread of the virus, temporary closures of our facilities or the facilities of our customers or suppliers, which could impact our ability to timely meet our customers’ orders or negatively impact our supply chain; The failure of third parties on which we rely or on which our customers rely, including our suppliers, customers, contractors, commercial banks and external business partners, to meet their respective obligations to the Company, or significant disruptions in their
ability to do so, which may be caused by their own financial or operational difficulties including bankruptcy or default; Disruptions or restrictions on our employees’ ability to work effectively, due to illness, quarantines, travel bans, shelter-in-place orders or other limitations; Interruptions to the operations of our business if the health of our executives, management personnel and other employees are affected, particularly if a significant number of individuals are impacted; Any accident, COVID-19 illness, or injury to our employees could result in litigation, manufacturing delays and harm to our reputation, which could negatively affect our business, results of operations and financial condition; Changes in prices of tooling and services may be impacted by worldwide demand and by the ongoing COVID-19 pandemic. Such price increases could materially increase our operating costs and adversely affect our profit margin; Governments and regulators may choose to delay new automobile safety regulations which could impact the average global content of passive safety systems per light vehicle in the near term; Some of our competitors are (or may be) owned by a governmental entity and/or receive various forms of governmental aid or support, which we may not be eligible for, and which may put us at a competitive disadvantage; Increased cybersecurity and privacy risks and risks related to the reliability of technology to support remote operations; Sudden and/or severe declines in the market price of our common stock; and Costs incurred and revenues lost during and from the effects of the COVID-19 pandemic likely will not be recoverable. In addition to the risks specifically described above, the impact of COVID-19 is likely to implicate and exacerbate other risks disclosed in this Item 1A.
RISKS RELATED TO OUR INDUSTRY
The cyclical nature of automotive sales and production can adversely affect our business. Our business is directly related to light vehicle production (“LVP”) in the global market and by our customers, and automotive sales and LVP are the most important drivers for our sales
Automotive sales and production are highly cyclical and can be affected by general or regional economic or industry conditions, the level of consumer demand, recalls and other safety issues, labor relations issues, technological changes, fuel prices and availability, vehicle safety regulations and other regulatory requirements, governmental initiatives, trade agreements, political volatility, especially in energy producing countries and growth markets, changes in interest rate levels and credit availability and other factors. Some regions around the world may at various times be more particularly impacted by these factors than other regions. Economic declines that result in a significant reduction in automotive sales and production by our customers have in the past had, and may in the future have, a material adverse effect on our business, results of operations and financial condition. Our sales are also affected by inventory levels of our customers. We cannot predict when our customers will decide to either increase or reduce inventory levels or whether new inventory levels will approximate historical inventory levels. This may exacerbate variability in our order intake and, as a result, our revenues and financial condition. Uncertainty regarding inventory levels may be exacerbated by consumer financing programs initiated or terminated by our customers or governments as such changes may affect the timing of their sales. Changes in automotive sales and LVP and/or customers’ inventory levels will have an impact on our long-term targets, earnings guidance and estimates. In addition, we base our growth projections in part on business awards, or order intake, made by our customers. However, actual production orders from our customers may not approximate the awarded business or our estimated order intake. Any significant reduction in automotive sales and/or LVP by our customers, whether due to general economic conditions or any other factors relevant to sales or LVP, could have a material adverse effect on our business, results of operations and financial condition.
Growth rates in safety content per vehicle, which can be impacted by changes in consumer trends and political decisions, could affect our results in the future
The average global content of passive safety systems per light vehicle increased 2020 to around $245. Vehicles produced in different markets may have various passive safety content values. For example, in developed markets such as Western Europe and North America, the premium segment has an average passive safety content values of around $360 per vehicle, whereas in growth markets such as China and India the average passive safety content per vehicle is approximately $200 and $88, respectively. Due to the majority of the growth in global LVP over time being concentrated in growth markets the operating results may be impacted if the passive safety content per vehicle remains low and if the penetration of more advanced automotive safety systems does not increase in these regions. As passive safety content per vehicle is also an indicator of our sales development, should these trends continue, the average value of passive safety systems per vehicle could decline.
We operate in a highly competitive market
The market for occupant restraint systems is highly competitive and continues to consolidate. We compete with a number of other companies that produce and sell similar products. Among other factors, our products compete on the basis of price, quality, manufacturing and distribution capability, design and performance, technological innovation, delivery and service. Some of our competitors are subsidiaries (or divisions, units or similar) of companies that are larger and have greater financial and other resources than us. Some of our competitors may also have a “preferred status” as a result of special relationships or ownership interests with certain customers. Our ability to compete successfully depends, in large part, on our success in continuing to innovate and manufacture products that have commercial success with consumers, differentiating our products from those of our competitors, continuing to deliver quality products in the time frames required by our customers, and maintaining best-cost production. We continue to invest in technology and innovation which we believe will be critical to our long-term growth. Our ability to maintain and improve existing products, while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging technologies will be a significant factor in our ability to remain competitive. If we are unsuccessful or are less successful than our competitors in predicting the course of market development, developing innovative products, processes, and/or use of materials or adapting to new technologies or evolving regulatory, industry or customer requirements, we may be placed at a competitive disadvantage. For example, the focus of the automotive industry on the development of advanced driver assistance technologies, with the goal of developing and introducing autonomous vehicles, and increase in consumer preferences for mobility on demand services may create demand for new and innovative products in response to OEM and consumer preferences and our success in providing such products will be critical for our long-term growth. Similarly, the demand for our products historically has tracked LVP and a future evolution of the automotive industry to autonomous vehicles and mobility on demand services may lead to a future reduction in annual global LVP. Our competitive environment continues to change, including increased competition from entrants outside the traditional automotive industry, creating uncertainty about the future competitive landscape. Given the competitive nature of our business, the amount of awards we are awarded relative to our peers may decrease over time. The inability to compete successfully
could have a material adverse effect on our business, results of operations and financial condition.
The discontinuation, lack of commercial success, or loss of business with respect to a particular vehicle model for which we are a significant supplier could reduce our sales and harm our business
A number of our customer contracts generally require us to supply a customer’s annual requirements for a particular vehicle model and assembly facilities, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model, which is generally four to seven years. These contracts are often subject to renegotiation, sometimes as frequent as on an annual basis, which may affect product pricing, and generally may be terminated by our customers at any time. Therefore, the discontinuation of, the loss of business with respect to, or a lack of commercial success of a particular vehicle model or brand for which we are a significant supplier could reduce our sales and harm our business prospects, operating results, cash flows, or financial condition.
RISKS RELATED TO OUR BUSINESS
We may incur material losses and costs as a result of product liability, warranty and recall claims that may be brought against us or our customers
We face risks related to product liability claims, warranty claims and recalls in the event that any of our products actually or allegedly are defective, fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/or property damage. For example, we are cooperating with Toyota Motor Corp. with respect to its voluntary safety recall of approximately 1.4 million vehicles that are equipped with a certain model of our side curtain airbags (the “Toyota Recall”). We may not be able to anticipate all of the possible performance or reliability problems that could arise with our products after they are released to the market. Additionally, increasing regulation and reporting requirements regarding potentially defective products, particularly in the U.S., may increase the possibility that we become involved in additional product liability or recall investigations or claims. See - “Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market”. Although we currently carry product liability and product recall insurance in excess of our self-insured amounts, no assurance can be made that such insurance will provide adequate coverage against potential claims, such insurance is available or will continue to be available in the appropriate markets, or that we will be able to obtain such insurance on acceptable terms in the future as the cost of such insurance has risen in recent years and the cost of our self-insurance program has risen as well. Although we have invested and will continue to invest in our engineering, design, and quality infrastructure, we cannot give any assurance that our products will not suffer from defects or other deficiencies or that we will not experience material warranty claims or additional product recalls. In the future, we could experience additional material warranty or product liability losses and incur significant costs to process and defend these claims. A successful claim brought against us in excess of available insurance coverage, if any, or a requirement to participate in any product recall, could have a material adverse effect on our operating results, cash flows or financial condition. The Toyota Recall and any additional future recalls from this customer or other customers could result in costs not covered by insurance in excess of our self-insurance, further government inquiries, litigation and reputational harm and could divert management’s attention away from other matters. The main variables affecting the costs of a recall are the number of vehicles ultimately determined to be affected by the issue, the cost per vehicle associated with a recall, the determination of proportionate responsibility among the customer, the Company, and any relevant sub-suppliers, and actual insurance recoveries. Every vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers, and the performance and remedial requirements vary between jurisdictions. Due to recall activity in the automotive industry over the past decade, some vehicle manufactures have become even more sensitive to product recall risks. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Product recalls in our industry, even when they do not involve our products, can harm the reputations of our customers, competitors, and us, particularly if those recalls cause consumers to question the safety or reliability of products similar to those we produce. In addition, with global platforms and procedures, vehicle manufacturers are increasingly evaluating our quality performance on a global basis; any one or more quality, warranty or other recall issue(s) (including issues affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures which may have a severe impact on our operations, such as a global, temporary or prolonged suspension of new orders. In addition, as our products more frequently use global designs and are based on or utilize the same or similar parts, components or solutions, there is a risk that the number of vehicles affected globally by a failure or defect will increase significantly with a corresponding increase in our costs. A warranty, recall or product liability claim brought against us in excess of our available insurance may have a material adverse effect on our business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold us responsible for some or the entire repair or replacement costs of defective products under new vehicle warranties, when the product supplied did not perform as represented. Accordingly, the future costs of warranty claims by our customers may be material. However, the final amounts determined to be due related to these matters could differ materially from our recorded warranty estimates and our business prospects, operating results, cash flows or financial condition may be materially impacted as a result. In addition, as we adopt new technology, we face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights. We cannot assure that we will not experience any material warranty, product liability or intellectual property claim losses in the future or that we will not incur significant costs to defend such claims. See “If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired”.
Escalating pricing pressures from our customers may adversely affect our business
The automotive industry continues to experience aggressive pricing pressure from customers. This trend is partly attributable to the major automobile manufacturers’ strong purchasing power. As with other automotive component manufacturers, we are often expected to quote fixed prices or are forced to accept prices with annual price reduction commitments for long-term sales arrangements or discounted reimbursements for engineering work. Price reductions have impacted our sales and profit margins and are expected to continue to do so in the future. Our future profitability will depend upon, among other things, our ability to continuously reduce our cost per unit and maintain our cost structure, enabling us to remain cost-competitive. Our profitability is also influenced by our success in designing and marketing technological improvements in automotive safety systems, which helps us offset price reductions by our customers. If we are unable to offset continued price reductions through improved operating efficiencies and reduced expenditures, these price reductions may have a
material adverse effect on our business prospects, operating results, cash flows or financial condition.
We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production
We, as with other component manufactures in the automotive industry, ship our products to customer vehicle assembly facilities throughout the world on a “just-in-time” basis in order for our customers to maintain low inventory levels. Our suppliers (external suppliers as well as our own production sites) use a similar method in providing raw materials to us. However, this “just-in-time” method makes the logistics supply chain in our industry very complex and vulnerable to disruption. Disruptions in our supply chain may result for many reasons, including closures of one of our own or one of our suppliers’ facilities or critical manufacturing lines due to strikes or other labor disputes, mechanical failures, electrical outages, fires, explosions, critical pollution levels, critical health and safety and other working conditions issues (including epidemics and pandemics, such as the coronavirus (COVID-19)), natural disasters political upheaval, as well as logistical complications due to labor disruptions, weather or natural disasters, acts of terrorism, mechanical failures and legislation or regulation regarding the transport of hazardous goods. In particular, if the current coronavirus outbreak continues and results in a prolonged period of travel, commercial and other similar restrictions, particularly to and from China, we and our customers and suppliers could experience supply chain and production disruptions. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted. Additionally, we may experience disruptions if there are delays in customs processing, including if we are unable to obtain government authorization to export or import certain materials, including materials that may be viewed as dangerous such as the propellant used for our inflators. As we continue to expand in growth markets, the risk of such disruptions is heightened. The unavailability of even a single small subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production of that product, possibly for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach our customer. Also, similar difficulties for other suppliers may force our customers to halt production, which may in turn impact our sales shipments to such customers. When we fail to timely deliver, we may have to absorb our own costs for identifying and resolving the ultimate problem as well as expeditiously producing and shipping replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight. If we are the cause of a customer being forced to halt production, the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be very significant and may include consequential losses such as lost profits. Where a customer halts production because of another supplier failing to deliver on time, we may not be fully compensated, if at all. Thus, any such supply chain disruptions could severely impact our operations and/or those of our customers and force us to halt production for prolonged periods of time which could expose us to material claims for compensation and have a material adverse effect on our business prospects, operating results, or financial condition.
Adverse developments affecting one or more of our major suppliers could harm our profitability
Any significant disruption in our supplier relationships, particularly relationships with single-source suppliers, could harm our profitability. Furthermore, some of our suppliers may not be able to sufficiently manage the currency commodity cost volatility and/or sharply changing volumes while still performing as we expect. For example, recalls or field actions from our customers can stress the capacity of our supply chain and may inhibit our ability to timely deliver order volumes. Over time, more of our suppliers are located in growth markets. As such, there is an increased risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we try to make contingency plans for such risks.
Changes in the source, cost, availability of and regulations pertaining to raw materials and components may adversely affect our profit margins
Our business uses a broad range of raw materials and components in the manufacture of our products, nearly all of which are generally available from a number of qualified suppliers. Our industry may be affected from time to time by limited supplies or price fluctuations of certain key components and materials. Strong worldwide demand for certain raw materials has had a significant impact on prices and short-term availability in recent years. Such price increases could materially increase our operating costs and materially and adversely affect our profit margin, as direct material costs amounted to approximately 49% of our net sales in 2020, of which approximately half is the raw material cost portion. Commercial negotiations with our customers and suppliers may not always offset all of the adverse impact of higher raw material, energy and commodity costs. Even where we are able to pass price increases along to our customer, there may be a lapse of time before we are able to do so such that we must absorb the cost increase. In addition, no assurances can be given that the magnitude and duration of such cost increases or any future cost increases could not have a larger adverse impact on our profitability and consolidated financial position than currently anticipated. Additionally, the SEC requires companies that manufacture products containing certain minerals and their derivatives that are known as “conflict minerals”, originating from the Democratic Republic of Congo or adjoining countries to diligence and report the source of such materials. There are significant resources associated with complying with these requirements, including diligence efforts to determine the sources of conflict minerals used in our products and potential changes to our processes or supplies as a consequence of such diligence efforts. As there may be only a limited number of suppliers able to offer certified “conflict free” conflict minerals, there can be no assurance that we will be able to obtain necessary conflict free minerals from such suppliers in sufficient quantities or at competitive prices. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all minerals used in our products through the procedures we may implement. Furthermore, our customers are also increasingly requiring us to track sustainable sources of certain raw materials, which also requires additional diligence efforts and there can be no assurance that we will be able to obtain these minerals in a cost-efficient and sustainable manner. Accordingly, these rules and customer requirements may adversely affect our business prospects, operating results, cash flows or financial condition.
Our business could be materially and adversely affected if we lost any of our largest customers or if they were unable to pay their invoices
We are dependent on a few large customers with strong purchasing power. This is the result of customer consolidation in the last few decades. In 2020, our top five customers represented around 53% of our consolidated sales. Our largest contract accounted for around 2% of our total fiscal 2020 sales. Although business with any given customer is typically split into several contracts (either on the basis of one contract per vehicle model or on a broader platform basis), the loss of business from any of our major customers (whether by lower overall demand for vehicles, cancellation of existing contracts or the failure to award us new business) could have a material adverse effect on our business, results of operations and financial condition. Similarly, further consolidation of our customers in the future could make us more reliant upon a smaller group of customers for a significant portion of our consolidated sales and negatively impact our bargaining power when contracting with such customers. Customers may put us on a “new business hold,” which would limit our ability to quote or be awarded all or part of their future vehicle contracts if quality or other issues arise in the vehicles for which we were a supplier. Such new business holds range in length and scope and are generally accompanied by a certain set of remedial conditions that must be met before we are eligible to bid for new business. Meeting any such conditions within the prescribed timeframe may require additional Company resources. A failure to satisfy any such conditions may have a material adverse impact on our financial results in the long term. There is a risk that one or more of our major customers may be unable to pay our invoices as they become due or that a customer will simply refuse to make such payments given its financial difficulties. If a major customer would enter into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against us legally enforcing its obligations, it is likely, absent special relief such as having a “preferred status”, that we will be forced to record a substantial loss. Additional information concerning our major customers is included in Note 21 of the Consolidated Financial Statements in this Annual Report.
Our inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial performance
To compete effectively in the automotive supply industry, we must be able to launch new products to meet our customers’ timing, performance and quality standards. At times, we face an uneven number of launches, and some launches for various reasons, may have shortened launch lead times. We cannot provide assurance that we will be able to install and certify the equipment needed to produce products for new programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production for such new programs will not impact production rates or other operational efficiency measures at our facilities. In addition, we cannot provide assurance that our customers will execute on schedule the launch of their new product programs, for which we might supply products. Additionally, as a Tier 1 supplier, we must effectively coordinate the activities of numerous suppliers in order to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative technologies, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, the sales related to these new programs generally are dependent upon the timing and success of the introduction of new vehicles by the Company’s customers. Our inability to effectively manage the timing, quality and costs of these new program launches could adversely affect our business prospects, operating results, cash flows or financial condition.
Changes in our product mix may impact our financial performance
We sell products that have varying profit margins. Our financial performance can be impacted depending on the mix of products we sell during a given period. Our earnings guidance and estimates assume a certain geographic sales mix as well as a product sales mix. If actual results vary significantly from this projected geographic and product mix of sales, our operating results and financial condition could be negatively impacted.
We are involved from time to time in legal proceedings and our business may suffer as a result of adverse outcomes of current or future legal proceedings
We are, from time to time, involved in litigation, regulatory proceedings and commercial or contractual disputes that may be significant. These matters may include, without limitation, disputes with our suppliers and customers, intellectual property claims, shareholder litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, antitrust, customs and VAT disputes and employment and tax issues. In such matters, government agencies or private parties may seek to recover from us very large, indeterminate amounts in penalties or monetary damages (including, in some cases, treble or punitive damages) or seek to limit our operations in some way. The possibility exists that claims may be asserted against us and their magnitude may remain unknown for long periods of time. These types of lawsuits could require a significant amount of management’s time and attention and a substantial legal liability or adverse regulatory outcome and the substantial expenses to defend the litigation or regulatory proceedings may have a material adverse effect on our customer relationships, business prospects, reputation, operating results, cash flows and financial condition. No assurances can be given that such proceedings and claims will not have a material adverse impact on our profitability and consolidated financial position or that our established reserves or our available insurance will mitigate such impact.
We may be subject to civil antitrust litigation civil antitrust litigation that could negatively impact our business
The Company may be subject to civil antitrust lawsuits in the future in countries that permit such civil claims, including lawsuits or other actions by our customers. The Company was previously the subject of any investigation by the European Commission (“EC”) regarding possible anti-competitive behavior among certain suppliers to the automotive vehicle industry. The Company paid a fine to resolve these matters in 2019. As a result of the outcome of the EC investigation, we are and we could be subject to subsequent civil disputes with non-governmental third parties and civil or stockholder litigation stemming from the same facts and circumstances underlying the EC investigation. These types of lawsuits require significant management time and attention and could result in significant expenses as well as unfavorable outcomes that could have a material adverse impact on our customer relationships, business prospects, reputation, operating results, cash flows or financial condition, and our insurance may not mitigate such impact. See Note 18 to the Consolidated Financial Statements in this Annual Report.
We may have exposure to greater than anticipated tax liabilities
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions. Our determination of our tax liability is always subject to audit and review by applicable domestic and foreign tax authorities, and we are currently undergoing a number of investigations, audits and reviews by taxing authorities throughout the world. Any adverse outcome of any such audit or review could have a negative effect on our business and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient. In addition, our future income taxes could be adversely affected by earnings being lower than anticipated (or by the incurrence of losses) in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or changes in tax laws, regulations or accounting principles, as well as certain discrete items.
Work stoppages, slow-downs or other labor issues at our customers’ facilities or at our facilities could adversely affect our operations
Because the automotive industry relies heavily on “just-in-time” delivery of components during the assembly and manufacture of vehicles, a work stoppage or slow-down at one or more of the Company’s facilities could have material adverse effects on our business. Similarly, if any of our customers were to experience a work stoppage or slow-down, that customer may halt or limit the purchase of our products. Similarly, a work stoppage or slow-down at another supplier could interrupt production at one of our customers’ facilities which would have the same effect. While labor contract negotiations at our facilities historically have rarely resulted in work stoppages, no assurances can be given that we will be able to negotiate acceptable contracts with these unions or that our failure to do so will not result in work stoppages. A work stoppage or other labor disruption at one or more of our facilities or our customers’ facilities could cause us to shut down production facilities supplying these products, which could have a material adverse effect on our business, results of operations and financial condition.
Our ability to operate our company effectively could be impaired if we fail to attract and retain executive officers and other key personnel
Our ability to operate our business and implement our strategies effectively depends, in part, on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract, develop and retain other qualified personnel, particularly engineers and other employees with software and technical expertise. The loss of the services of any of our executive officers or other key employees or the failure to attract, develop or retain other qualified personnel could have a material adverse effect on our business.
Restructuring and efficiency initiatives and capacity alignments are complex and difficult and at any time additional restructuring steps may be necessary, possibly on short notice and at significant cost
Our restructuring and efficiency initiatives and capacity alignments include efforts to adjust our manufacturing capacity and cost structure to meet current and projected operational and market requirements, including plant closures, transfer of sourcing to best cost countries, consolidation of our supplier base and standardization of products, to reduce our overhead costs and consolidate our operational centers. The successful implementation of our restructuring activities and capacity alignments will involve sourcing, logistics, technology and employment arrangements. Because these restructuring and efficiency initiatives and capacity alignments can be complex, there may be difficulties or delays in the implementation of any such initiatives and capacity alignments or they may not be immediately effective, resulting in an adverse material impact on our performance. In addition, there is a risk that inflation, high-turnover rates and increased competition may reduce the efficiencies now available in best-cost countries to levels that no longer allow for cost-beneficial restructuring opportunities. Therefore, there can be no assurances that any future restructurings or capacity alignments will be completed as planned or achieve the desired results.
A prolonged recession and/or a downturn in our industry could result in us having insufficient funds to continue our operations and external financing may not be available to us or available only on materially different terms than what has historically been available
Our ability to generate cash from our operations is highly dependent on automotive sales and LVP, the global economy and the economies of our important markets. If LVP were to remain on low levels for an extended period of time, we would experience a significantly negative cash flow. Similarly, if cash losses for customer defaults rise sharply, we would experience a negative cash flow. Such negative cash flow could result in our having insufficient funds to continue our operations unless we can procure external financing, which may not be possible. Our access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors. Our ability to obtain unsecured funding at a reasonable cost is dependent on our credit ratings or our perceived creditworthiness. Our current credit rating could be lowered as a result of us experiencing significant negative cash flows, increasing our indebtedness and leverage, or a dire financial outlook, which may affect our ability to procure financing. We may also for the same, or other reasons, find it difficult to secure new long-term credit facilities, at reasonable terms, when our principal credit facility expires in 2023. Further, even our existing unutilized credit facilities may not be available to us as agreed, or only at additional cost, if participating banks are unable to raise the necessary funds, where, for instance, financial markets are not functioning as expected or one or more banks in our principal credit facility syndicate were to default. As a result, we cannot assure you that we will continue to have sufficient liquidity to meet our operating needs. In the event that we do not have sufficient external financing we may be required to seek additional capital, sell assets, reduce or cut back our operating activities or otherwise alter our business strategy. Information concerning our credit facilities and other financings are included in Item 7 in this Annual Report in the section headed “Treasury Activities” and in Note 14 to the Consolidated Financial Statements in this Annual Report.
Our indebtedness may harm our financial condition and results of operations
As of December 31, 2020, we have outstanding debt of $2.4 billion. We may incur additional debt for a variety of reasons. Although our significant credit facilities and debt agreements do not have any financial covenants, our level of indebtedness will have several important effects on our future operations, including, without limitation: a portion of our cash flows from operations will be dedicated to the payment of any interest or could be used for amortization required with respect to outstanding indebtedness; increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, acquisitions, capital expenditures, general corporate and other purposes may be limited; and potential future tightening of the availability of capital both from financial institutions and the debt markets may have an adverse effect on our ability to access additional capital.
Governmental restrictions may impact our business adversely
Some of our customers are (or may be) owned by a governmental entity, receive various forms of governmental aid or support or are subject to governmental influence in other forms, which may impact us as a supplier to these customers. As a result, they may be required to partner with local entities or procure components from local suppliers to achieve a specific local content or be subject to other restrictions regarding localized content or ownership. The nature and form of any such restrictions or protections, whatever their basis, is very difficult to predict as is their potential impact. However, they are likely to be based on political rather than economical or operational considerations and may materially impact our business.
Impairment charges relating to our assets, goodwill and other intangible assets could adversely affect our financial performance
We periodically review the carrying value of our assets, goodwill and other intangible assets for impairment indicators. If one or more of our customers’ facilities cease production or decrease their production volumes, the assets we carry related to our facilities serving such customers may decrease in value because we may no longer be able to utilize or realize them as intended. Where such decreases are significant, such impairments may have a material adverse impact on our financial results. We monitor the various factors that impact the valuation of our goodwill and other intangible assets, including expected future cash flow levels, global economic conditions, market price for our stock, and trends with our customers. Impairment of goodwill and other identifiable intangible assets may result from, among other things, deterioration in our performance and especially the cash flow performance of these goodwill assets, adverse market conditions and adverse changes in applicable laws or regulations. If there are changes in these circumstances or the other variables associated with the estimates, judgments and assumptions relating to the valuation of goodwill, when assessing the valuation of our goodwill items, we may determine that it is appropriate to write down a portion of our goodwill or intangible assets and record related non-cash impairment charges. In the event that we determine that we are required to write-down a portion of our goodwill items and other intangible assets and thereby record related non-cash impairment charges, our financial condition and operating results would be adversely affected. For additional information, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Significant Accounting Policies and Critical Accounting Estimates - Goodwill and Intangibles”.
We face risks related to our defined benefit pension plans and employee benefit plans, including the need for additional funding as well as higher costs and liabilities
Our defined benefit pension plans and employee benefit plans may require additional funding or give rise to higher related costs and liabilities which, in some circumstances, could reach material amounts and negatively affect our operating results. We are required to make certain year-end assumptions regarding our pension plans. Our pension obligations are dependent on several factors, including factors outside our control such as changes in interest rates, the market performance of the diversified investments underlying the pension plans, actuarial data and adjustments and an increase in the minimum funding requirements or other regulatory changes governing the plans. Adverse equity market conditions and volatility in the credit market may have an unfavorable impact on the value of our pension assets and our future estimated pension liabilities. Internal factors such as an adjustment to the level of benefits provided under the plans may also lead to an increase in our pension liability. If these or other internal and external risks were to occur, alone or in combination, our required contributions to the plans and the costs and net liabilities associated with the plans could increase substantially and have a material effect on our business. Information concerning our benefit plans is included in Note 19 of the Consolidated Financial Statements in this Annual Report.
You should not anticipate or expect the payment of cash dividends on our common stock
Our dividend policy is subject to the discretion of our Board of Directors and depends upon a number of factors, including our earnings, financial condition, cash and capital needs, indebtedness and leverage, and general economic or business conditions. On April 2, 2020 our Board of Directors suspended our quarterly dividend after determining that a suspension was necessary in light of the evolving global COVID-19 pandemic, decline in global LVP, the uncertainty surrounding the recession at that time and the inherent risk of customer defaults. There can be no assurance that our Board of Directors will declare dividends in the future.
Cybersecurity incidents or other damage to our technology infrastructure could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and operating results
We rely extensively on information technology (“IT”) networks and systems, our global data centers and services provided over the internet to process, transmit and store electronic information, and to manage or support a variety of business processes or activities across our facilities worldwide. The secure operation of our IT networks and systems and the proper processing and maintenance of this information are critical to our business operations. We have been, and likely will continue to be, subject to cyber-attacks. To date we have seen no material impact on our business from these attacks or events. Although we seek to deploy comprehensive security measures to prevent, detect, address and mitigate these threats, there has been an increased level of activity, and an associated level of sophistication, in cyber-attacks against large multinational companies. The ever-evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our respective systems and processes and overall security environment, as well as those of any companies we acquire. There is no guarantee that these measures will be adequate to safeguard against all data
security breaches, system compromises or misuses of data. Our security measures may be breached due to human or technological error, employee malfeasance, system malfunctions or attacks from uncoordinated individuals or sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Disruptions and attacks on our IT systems or the systems of third parties storing our data or employee malfeasance or human or technological error could result in the misappropriation, loss, destruction or corruption of our critical data and confidential or proprietary information, personal information of our employees, the leakage of our or our customers’ confidential information, improper use of our systems and networks, production downtimes and both internal and external supply shortages, which could have an adverse effect on our results of operations. It may also result in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. The potential consequences of a material cybersecurity incident include reputational damage, theft of intellectual property, litigation with third parties, diminution in the value of our investment in research, development and engineering, diversion of the attention of management away from the operation of our business and increased cybersecurity protection and remediation costs, legal claims and liability, regulatory scrutiny, sanctions, fines or penalties (which may not be covered by our insurance policies), negative publicity, release of sensitive and/or confidential information, increases in operating expenses, or lost revenues which in turn could adversely affect our competitiveness and results of operations. To the extent that any disruption or security breach results in a misappropriation, loss, destruction or corruption of our customer’s information, it could affect our relationships with our customers, create significant expense for us to investigate and remediate damage, lead to claims against the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could result in additional costs. Furthermore, our technology systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunication failures. We continuously seek to maintain a robust program of information security and controls, however, any future significant compromise or breach of our data security, whether external or internal, or misuse of customer, associate, supplier or Company data, could result in significant costs, lost sales, fines, lawsuits, and damage to our reputation.
Third parties that maintain certain of our confidential and proprietary information could experience a cybersecurity incident
We rely on third parties to provide or maintain some of our IT systems, data centers and related services and do not exercise direct control over these systems. Despite the implementation of security measures at third party locations, these IT systems, data centers and cloud services are also vulnerable to security breaches or other disruptions. Additionally, we and certain of our third-party vendors, collect and store personal information in connection with human resources operations and other aspects of our business. While we obtain assurances that any third parties we provide data to will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by us or by third parties may be compromised and expose us to liability for such breach.
Global climate change could negatively affect our business
More regional and/or national requirements to reduce or mitigate the effects of greenhouse gas emissions may adversely impact our business. Today there is a lack of consistent climate legislation which results in economic and regulatory uncertainty. Any future regulations aimed at mitigating climate change may negatively impact the demand for certain of our customer’s products which could in turn impact demand for our products and impact our results of operations. The costs of compliance and any changes to our operations mandated by new or amended laws, may be significant. We may also face unexpected delays in obtaining permits and approvals required by such laws in connection with our manufacturing facilities, which would hinder our operation of these facilities. Furthermore, any violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of our operations. The manifestations of climate change, such as extreme weather conditions or more frequent extreme weather events could disrupt our operations, damage our facilities, disrupt our supply chain, including our customers or suppliers, or make it harder or more difficult to obtain raw materials necessary for the manufacturing of our products. As a result, severe weather or a natural disaster that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, could have a material adverse effect on our operating results, cash flows or financial condition.
RISKS RELATED TO INTERNATIONAL OPERATIONS
Our business is exposed to risks inherent in international operations
We currently conduct operations in various countries and jurisdictions, including locating certain of our manufacturing and distribution facilities internationally, which subjects us to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Some of these countries are considered growth markets and emerging markets. International sales and operations, especially in growth markets, subject us to certain risks inherent in doing business abroad, including: exposure to local economic conditions; unexpected changes in laws, regulations, trade, or monetary or fiscal policy, including interest rates, foreign currency exchange rates, and changes in the rate of inflation in the emerging markets and countries in which we do business; foreign tax consequences; inability to collect, or delays in collecting, value-added taxes and/or other receivables associated with remittances and other payments by subsidiaries; exposure to local political turmoil and challenging labor conditions; changes in general economic and political conditions in countries where we operate, particularly in emerging markets; expropriation and nationalization; enforcing legal agreements or collecting receivables through foreign legal systems; wage inflation in growth markets; currency controls, including lack of liquidity in foreign currency due to governmental restrictions, trade protection policies and currency controls, which may create difficulty in repatriating profits or making other remittances; compliance with the requirements of an increasing body of applicable anti-bribery laws; reduced intellectual property protection in various markets; investment restrictions or requirements; and the imposition of product tariffs and the burden of complying with a wide variety of international and U.S. export laws. The Company is subject to taxation in the U.S. and
numerous foreign jurisdictions. The Organization for Economic Co-operation and Development (“OECD”) continues its base erosion and profit shifting (“BEPS”) project begun in 2015 with new proposals for a global minimum tax, further development of a coordinated set of rules for taxation and the allocation of taxing rights between jurisdictions. These proposals, if adopted by countries in which we operate, could result in changes to tax policies, including transfer pricing policies, that could ultimately impact our tax liabilities. The timing or impact of these proposals and recommendations is unclear at this point. Changes in tax laws or policies by the U.S. or foreign jurisdictions could result in a higher effective tax rate on our worldwide earnings, and any such change could have a material adverse effect on our business prospects, cash flows, operating results and financial condition. Our international operations also depend upon favorable trade relations between the U.S. and those foreign countries in which our customers and suppliers have operations. The current U.S. presidential administration has created uncertainty about the future relationship between the U.S. and certain of its trading partners, including with respect to the trade policies and agreements, treaties, government regulations and tariffs that could apply to trade between the U.S. and other nations. These developments may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the U.S. It could also impact importing certain foreign-produced vehicles into the U.S. Similarly, the political situations in certain countries, specifically Brazil, China, France, Russia, Turkey, and the United Kingdom, make it difficult to predict the near-term stability of trade costs with these nations. Meanwhile, the U.S. presidential election in November 2020 could result in a shift in U.S. trade policy that is impossible to predict at this time. Changes in national policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our cash flows, operating results and financial condition. Increasing our manufacturing footprint in the growth markets and our business relationships with automotive manufacturers in these markets are particularly important elements of our strategy. As a result, our exposure to the risks described above may be greater in the future, and our exposure to risks associated with developing countries, such as the risk of political upheaval and reliability of local infrastructure, may increase.
The exit of the United Kingdom from membership in the European Union may adversely affect our business and profitability
The exit of the United Kingdom (“U.K.”) from the European Union (“EU”) (“Brexit”) could adversely affect European and worldwide economic and market conditions and contribute to instability in global financial and foreign exchange markets, including increased volatility in interest rates and foreign exchange rates. Despite the final agreement between the U.K. and the EU, it remains difficult to predict the impact Brexit will have on international trade. We conduct business in the U.K. and several EU nations and the taxation policies of the U.K. and the EU nations may change as a result of Brexit, which could adversely impact our tax positions. We may be required to comply with regulatory requirements in the United Kingdom that are in addition to, or inconsistent with, the regulatory requirements of the EU. The effects of Brexit could adversely affect our business prospects, operating results, cash flows and financial condition.
Significant changes to international trade policy, including the recently enacted USMCA could adversely affect our financial performance
In October 2018, the U.S., Mexico and Canada agreed to a trade deal that would replace NAFTA known as The United States Mexico Canada Agreement (“USMCA”). The USMCA has been ratified by Mexico, the U.S. and Canada. The USMCA was entered into on July 1, 2020. As adopted, the USMCA changes the automotive rules of origin that dictate what percentage of an automobile must be built from parts that originated from countries in the North American region. Reflective of the automotive industry, our vehicle parts manufacturing facilities in the U.S., Mexico and Canada are highly dependent on duty-free trade within the USMCA free trade region. As a result of these policy changes, there may be greater restrictions and economic disincentives on international trade. New tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries. Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, including our industry and the global demand for our products and, as a result, could negatively impact our financial performance.
Our foreign operations may subject us to risks relating to laws governing international relations
Due to our global operations, we are subject to many laws governing international relations (including, but not limited to, the Foreign Corrupt Practices Act, and other anti-bribery regulations in foreign jurisdictions where we do business), which prohibit improper payments to government officials and restrict where and how we can do business, what information or products we can supply to certain countries and what information we can provide to authorities in governmental authorities. We also export components and products that are subject to certain trade-related U.S. laws, including the U.S. Export Administration Act and various economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control. Although we have procedures and policies in place that should mitigate the risk of violating these laws, there is no guarantee that they will be sufficiently effective. If and when we acquire new businesses, we may not be able to ensure that the pre-existing controls and procedures meant to prevent violations of these laws were effective, and violations may occur if we are unable to timely implement corrective and effective controls and procedures when integrating newly acquired businesses. Any allegations of noncompliance with these laws could harm our reputation, divert management attention and result in significant expenses, and could therefore materially harm our business prospects, operating results and financial condition.
Our business in Asia is subject to aggressive competition and is sensitive to economic and market conditions
We operate in the automotive supply market throughout Asia including the highly competitive markets in China, Korea, and India. In each of these markets we face competition from both international and smaller domestic manufacturers. Due to the significance of the Asian markets for our profit and growth, we are exposed to risks in China, Korea, and India. We anticipate that additional competitors, both international and domestic, may seek to enter the Chinese, Korean, and/or Indian markets resulting in increased competition. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. There have been periods of increased market volatility and moderation in the levels of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced. Our business in Asia is sensitive to economic and market conditions that drive automotive sales volumes in China, Korea, and India and may be impacted if there are reductions in vehicle demand in those markets. If we are unable to maintain our position in these Asian markets, the pace of growth slows, or vehicle sales in these markets decrease, our business prospects, operating results and financial condition could be materially adversely affected.
Global integration may result in additional risks
Because of our efforts to manage costs by integrating our operations globally, we face the additional risk that, should any of the other risks discussed herein materialize, the negative effects could be more pronounced. For example, while supply delays of a component have typically only affected a few customer vehicle models, such a delay could now affect several vehicle models of several customers in several geographic areas. Similarly, any recall or warranty issue we face due to a product defect or failure is now more likely to involve a larger number of units in several geographic areas.
Exchange rate risks
As a result of our global presence, a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. We are therefore subject to foreign currency risks and foreign exchange exposure. Such risks and exposures include: transaction exposure, which arises because the cost of a product originates in one currency and the product is sold in another currency; revaluation effects, which arise from valuation of assets denominated in other currencies than the reporting currency of each unit; translation exposure in the income statement, which arises when the income statements of non-U.S. subsidiaries are translated into U.S. dollars; translation exposure in the balance sheet, which arises when the balance sheets of non-U.S. subsidiaries are translated into U.S. dollars; and changes in the reported U.S. dollar amounts of cash flows. We cannot predict exchange rate volatility or the extent of its impact on our future financial results. We typically denominate foreign transactions in foreign currencies to achieve a natural hedge. However, a natural hedge cannot be achieved for all our currency flows; therefore, a net transaction exposure remains within the group. The net exposure can be significant and creates a transaction exposure risk for the Company. The Company does not hedge translation exposure. However, we do engage in foreign exchange rate hedging from time to time related to foreign currency transactions.
RISKS RELATED TO ACQUISITIONS
We face risks in connection with acquisitions and joint ventures
Our growth has been enhanced through strategic opportunities, including acquisitions of businesses, products and technologies, and joint development agreements that we believe will complement our business. We regularly evaluate acquisition opportunities, frequently engage in acquisition discussions, conduct due diligence activities in connection with possible acquisitions, and, where appropriate, engage in acquisition negotiations. We may not be able to successfully identify suitable acquisition and joint venture candidates or complete transactions on acceptable terms, integrate acquired operations into our existing operations or expand into new markets. Our failure to identify suitable strategic opportunities may restrict our ability to grow our business. These strategic opportunities also involve numerous additional risks to us and our investors, including: risks related to retaining acquired management and employees; difficulties in integrating acquired technologies, products, operations, services and personnel with our existing businesses; diversion of our management’s attention from other business concerns; assumption of contingent liabilities; adverse financial impacts from the amortization of expenses related to intangible assets; adverse financial impacts from potential impairment of goodwill; incurrence of indebtedness; and potential adverse financial impacts. In the future, we may pursue acquisitions of businesses or products that are complementary to our business but for which we have historically had little or no direct experience. These transactions can involve significant challenges and risks as well as significant time and resources that may divert management’s attention from other business activities. If we fail to adequately manage these risks, the acquisitions may not result in revenue growth, operational synergies or service or technology enhancements, which could adversely affect our financial condition.
RISKS RELATED TO INTELLECTUAL PROPERTY
If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired
We have developed a considerable amount of proprietary technology related to automotive safety systems and rely on a number of patents to protect such technology. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve. At present, we hold more than 6,000 patents covering a large number of innovations and product ideas, mainly in the fields of seatbelt and airbag technologies. In addition to our in-house research and development efforts, we seek to acquire rights to new intellectual property through corporate acquisitions, asset acquisitions, licensing and joint venture arrangements. Our patents and licenses expire on various dates during the period from 2021 to 2039. We do not expect the expiration of any single patent or license to have a material adverse effect on our business, operating results and financial condition. Developments or assertions by or against us relating to intellectual property rights could negatively impact our business. We primarily protect our innovations with patents and vigorously protect and defend our patents, trademarks and know-how against infringement and unauthorized use. If we are not able to protect our intellectual property and our proprietary rights and technology, we could lose those rights and incur substantial costs policing and defending those rights. We also generate license revenue from these patents, which we may lose if we do not adequately protect our intellectual property and proprietary rights. Our means of protecting our intellectual property, proprietary rights and technology may not be adequate, and our competitors may independently develop technologies that are similar or superior to our proprietary technologies, duplicate our technologies, or design around the patents we own or license. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the U.S. and we may encounter significant problems in protecting and defending our intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
We may not be able to protect our proprietary technology and intellectual property rights, which could result in the loss of our rights or increased costs.
Although we believe that our products and technology do not infringe the proprietary rights of others, third parties may assert infringement claims against us in the future. Additionally, we license from third parties proprietary technology covered by patents, and we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Such licenses may also be non-exclusive, meaning our competition may also be able to access such technology. Further, we expect to continue to expand our products and services and expand into new businesses, including through acquisitions, joint ventures and joint development agreements, which could increase our exposure to patent and other intellectual property claims from competitors and other parties. If claims alleging patent, copyright or trademark infringement are brought against us and are successfully prosecuted against us, they could result in substantial costs. If a successful claim is made against us and we fail to develop non-infringing technology, our business, operating results and financial condition could be materially adversely affected. In addition, certain of our products utilize components that are developed by third parties and licensed to us. If claims alleging patent, copyright or trademark infringement are brought against such licensors and successfully prosecuted, they could result in substantial costs, and we may not be able to replace the functions provided by these licensors. Alternate sources for the technology currently licensed to us may not be available in a timely manner, may not provide the same functions as currently provided or may be more expensive than products currently used. We may develop proprietary information through our in-house research and development efforts, consulting arrangements or research collaborations with other entities or organizations. We may seek to protect this proprietary information by entering into confidentiality agreements or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, scientific advisors and other third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information.
We may not be able to respond quickly enough to changes in technology and technological risks and to develop our intellectual property into commercially viable products
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive to our customers. We currently license certain proprietary technology to third parties and, if such technology becomes obsolete or less attractive, those licensees could terminate our license agreements, which could adversely affect our results of operations. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly. As part of our business strategy, we may from time to time seek to acquire businesses or assets that provide us with additional intellectual property. We may experience problems integrating acquired technologies into our existing technologies and products, and such acquired intellectual property may be subject to known or contingent liabilities such as infringement claims.
Some of our products and technologies may use “open source” software, which may restrict how we use or distribute our products or require that we release the source code of certain products subject to those licenses
Some of our products and technologies may incorporate software licensed under so-called “open source” licenses. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Additionally, open source licenses typically require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source license. If we combine our proprietary software in such ways with open source software, we could be required to release the source code of our proprietary software. We take steps to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses; therefore the manner in which these licenses may be interpreted and enforced is subject to some uncertainty.
RISKS RELATED TO GOVERNMENT REGULATIONS AND TAXES
Our business may be adversely affected by laws or regulations, including environmental, occupational health and safety or other governmental regulations
We are subject to various federal, state, local and foreign laws and regulations, including those related to the requirements of environmental, occupational health and safety, financial and other matters. We cannot predict the substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new laws or regulations or changes in existing laws or regulations, or the interpretations thereof, could increase the costs of doing business for us or our customers or suppliers or restrict our actions and adversely affect our business prospects, operating results, cash flows or financial condition. Our operations are subject to environmental and safety laws and regulations governing, among other things, emissions to air, discharges to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. The operation of automotive parts manufacturing facilities entails risks in these areas, and we cannot assure that we will not incur material costs or liabilities as a result. Additionally, environmental laws, regulations, and permits and the enforcement thereof change frequently and have tended to become increasingly stringent over time, which may necessitate substantial capital expenditures or operating costs or may require changes of production processes. Although we have no known pending material environmental issues, there is no assurance that we will not be adversely impacted by any environmental costs, liabilities or claims in the future either under present laws and regulations or those that may be adopted or imposed in the future. Our costs, liabilities, and obligations relating to environmental matters may have a material adverse
effect on our business, operating results, cash flows, or financial condition. Our facilities in the U.S. are subject to regulation by the Occupational Safety and Health Administration (“OSHA”), which regulates the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that we maintain information about hazardous materials used or produced in our operations and that we provide this information to employees, state and local governmental authorities and local residents. We are also subject to occupational safety regulations in other countries. Our failure to comply with government occupational safety regulations, including OSHA requirements, or general industry standards relating to employee health and safety, keep adequate records or monitor occupational exposure to regulated substances could expose us to liability, enforcement, and fines and penalties, and could have a material adverse effect on our business, operating results, cash flows, or financial condition. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or injury to one of our employees could occur in one of our facilities. Any accident or injury to our employees could result in litigation, manufacturing delays and harm to our reputation, which could negatively affect our business, operating results and financial condition.
Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market
Government vehicle safety regulations are a key driver in our business. Historically, these regulations have imposed ever more stringent safety regulations for vehicles. Safety regulations have a positive impact on driver awareness and acceptance of automotive safety products and technology. These more stringent safety regulations often require vehicles to have more safety content per vehicle and more advanced safety products, which has thus been a driver of growth in our business. However, these regulations are subject to change based on a number of factors that are not within our control, including new scientific or medical data, adverse publicity regarding the industry recalls and safety risks of airbags or seatbelts (for instance, to children and small adults), domestic and foreign political developments or considerations, and litigation relating to our products and our competitors’ products. Changes in government regulations in response to these and other considerations could have a severe impact on our business. Although we believe that over time safety will continue to be a regulatory priority, if government priorities shift and we are unable to adapt to changing regulations, our business may suffer material adverse effects. The regulatory obligation of complying with safety regulations could increase as federal and local regulators impose more stringent compliance and reporting requirements in response to product recalls and safety issues in our industry. We are subject to existing stringent requirements under the National Traffic and Motor Vehicle Safety Act of 1966 (the “Vehicle Safety Act”), including a duty to report, subject to strict timing requirements, safety defects with our products. The Vehicle Safety Act imposes potentially significant civil penalties for violations including the failure to comply with such reporting actions. We are also subject to the existing U.S. Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, which requires equipment manufacturers, such as Autoliv, to comply with “Early Warning” requirements by reporting certain information to the National Highway Traffic Safety Administration (“NHTSA”) such as: information related to defects or reports of injury related to our products. TREAD imposes criminal liability for violating such requirements if a defect subsequently causes death or bodily injury. In addition, the Vehicle Safety Act authorizes NHTSA to require a manufacturer to recall and repair vehicles that contain safety defects or fail to comply with U.S. federal motor vehicle safety standards. Sales into foreign countries may be subject to similar regulations. Due to the record recall of airbag inflators of one of our competitors, NHTSA has become more active in requesting information from suppliers and vehicle manufactures regarding potential product defects and we expect that to continue or increase under the new U.S. presidential administration. For example, in connection with the Toyota Recall, we, in connection with Toyota, have informed NHTSA of the reported incidents and Toyota has discussed with NHTSA what action it will take to address the issue.
Negative or unexpected tax developments could adversely affect our effective tax rate, operating results and financial condition
Changes in, or changes in the application of, U.S. or foreign tax laws, regulations or accounting principles with respect to matters such as tax base, tax rates, transfer pricing, dividends and restrictions on certain forms of tax relief or limitations on favorable tax treatment could affect the carrying value of our deferred tax assets and/or our effective tax rate. Our annual tax rate is based on our income and the tax laws in the jurisdictions in which we operate. Because of our global operations we face uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions. Although we believe that our tax estimates are reasonable, the final determination of our tax liability may be different from what is reflected in our historical income tax provisions and accruals. We are regularly examined by tax authorities around the world and in a number of jurisdictions, we are currently under examination, which inherently creates uncertainty. Although we periodically assess the likelihood of adverse outcomes, negative or unexpected results from one or more of such reviews and audits, including any related interest or penalties imposed by governmental authorities, could increase our effective tax rate and adversely impact our operating results, cash flows or financial condition. The effective tax rates used for interim reporting are based on our projected full-year geographic earnings mix and take into account projected tax costs on intercompany dividends from lower tier subsidiaries. Changes in currency exchange rates, earnings mix among taxing jurisdictions, or the ability of our subsidiaries to pay dividends could impact our reported effective tax rates, or cause fluctuations in the tax rate from quarter to quarter. Certain anti-trust judgements or settlements may not be tax deductible, which could have a material negative impact to our annual tax rate. A number of other factors may also increase our effective tax rate, which could have an adverse impact on our profitability and operating results. Due to our numerous foreign operations, our tax rate may be impacted by our global mix of earnings if our pre-tax income is lower than anticipated in countries with lower statutory tax rates and/or is higher than anticipated in countries with higher statutory tax rates. Based on U.S. regulatory rules, we do not record current or deferred tax liabilities on permanent investments in our foreign subsidiaries and our foreign earnings that are indefinitely reinvested. See Note 6 to the Consolidated Financial Statements in this Annual Report.
We may not be able to fully realize our deferred tax assets
We currently carry deferred tax assets, net of valuation allowances, resulting from deductible temporary differences and tax loss carry-forwards, both of which will reduce taxable income in the future. However, deferred tax assets may only be realized against taxable income. The amount of our deferred tax assets could be reduced, from time to time, due to adverse changes in our operations or in estimates of future taxable income from operations during the carry-forward period as a result of a deterioration in market conditions or other circumstances. Any such reduction would adversely affect our income in the period of the adjustment. Additional information on our deferred tax assets is included in Note 6 to the Consolidated Financial Statements in this Annual Report.
RISKS RELATED TO THE SEPARATION OF VEONEER
We could incur significant liability if the separation is determined to be a taxable transaction
We have received an opinion of outside counsel to the effect that, for U.S. federal income tax purposes, the separation should qualify, for both Autoliv and its stockholders, as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the U.S. Internal Revenue Code of 1986, as amended. The opinion is based on and relies on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of Autoliv and Veoneer, including those relating to the past and future conduct of Autoliv and Veoneer. If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, reliance on the opinion may be affected. An opinion of outside counsel represents their legal judgment but is not binding on the IRS or any court. Accordingly, there can be no assurance that the IRS will not challenge the conclusions reflected in the opinion or that a court would not sustain such a challenge.
Potential indemnification obligations to Veoneer or a refusal of Veoneer to indemnify us pursuant to the agreements executed in connection with the internal reorganization and spin-off could materially adversely affect us
The transaction agreements we entered into with Veoneer in connection with the internal reorganization and the spin-off provide for cross-indemnities that require Autoliv and Veoneer to bear financial responsibility for each company’s business prior to the internal reorganization or spin-off, as applicable, and to indemnify the other party in connection with a breach of such party of the transaction agreements; provided, however, certain warranty, recall and product liabilities for electronics products manufactured prior to the completion of the internal reorganization have been retained by us and we will indemnify Veoneer for any losses associated with such warranty, recall or product liabilities pursuant to the distribution agreement entered into as part of the spin-off. Any indemnities that we are required to provide to Veoneer may be significant and could negatively affect our business. In addition, there can be no assurance that the indemnities from Veoneer will be sufficient to protect us against the full amount of any potential liabilities. Even if we do succeed in recovering from Veoneer any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. In addition, each of these risks could have a material adverse effect on our business, operating results and financial condition.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
Autoliv’s principal executive offices are located at Klarabergsviadukten 70, Section B7, SE-111 64, Stockholm, Sweden. Autoliv’s various businesses operate in a number of production facilities and offices. Autoliv believes that its properties are adequately maintained and suitable for their intended use and that the Company’s production facilities have adequate capacity for the Company’s current and foreseeable needs. All of Autoliv’s production facilities and offices are owned or leased by operating (either subsidiary or joint venture) companies.
AUTOLIV MANUFACTURING FACILITIES
Country/Company
Location of Facility
Items produced at Facility
Owned/Leased
Brazil
Autoliv do Brasil Ltda.
Taubaté
Seatbelts, airbags, steering wheels and seatbelt webbing
Owned
Canada
Autoliv Canada, Inc.
Tilbury
Airbag cushions
Owned
VOA Canada, Inc.
Collingwood
Seatbelt webbing
Owned
China
Autoliv (Baoding) Vehicle Safety Systems Co., Ltd
Baoding
Airbags
Leased
Autoliv (Changchun) Vehicle Safety Systems Co., Ltd.
Changchun
Airbags and seatbelts
Owned
Autoliv (China) Steering Wheel Co., Ltd.
Fengxian/Shanghai
Steering wheels
Owned
Autoliv (Guangzhou) Vehicle Safety Systems Co., Ltd.
Guangzhou
Airbags and seatbelts
Owned
Autoliv (Nanjing) Vehicle Safety Systems Co., Ltd.
Nanjing
Seatbelts
Owned
Autoliv Shenda (Nanjing) Automotive Components Co., Ltd.
Nanjing
Seatbelt webbing
Owned
Autoliv (Shanghai) Vehicle Safety Systems Co., Ltd.
Shanghai
Airbags
Owned
Autoliv Shenda (Tai Cang) Automotive Safety Systems Co., Ltd.
Shanghai
Seatbelt webbing
Owned
Autoliv (Jiangsu) Automotive Safety Components Co., Ltd.
Jintan
Propellant, Airbag initiators and Airbag inflators
Owned
Autoliv (China) Automotive Safety Systems Co., Ltd.
Nantong
Airbag cushions
Owned
Mei-An Autoliv Co., Ltd.
Taipei
Seatbelts and airbags
Leased
Estonia
AS Norma
Tallinn
Seatbelts and belt components
Owned
France
Autoliv France SNC
Gournay-en-Bray
Seatbelts and airbags
Owned
Autoliv Isodelta SAS
Chiré-en-Montreuil
Steering wheels and covers
Owned
Livbag SAS
Pont-de-Buis
Airbag inflators
Owned
N.C.S. Pyrotechnie et Technologies SAS
Survilliers
Airbag initiators and seatbelt micro gas generators
Owned
Germany
Autoliv B.V. & Co. KG
Elmshorn
Seatbelts
Owned
Hungary
Autoliv Kft.
Sopronkövesd
Seatbelts
Owned
India
Autoliv India Private Ltd.
Bangalore
Seatbelts, airbags and steering wheels
Leased
Mysore
Seatbelt webbing
Owned
Delhi
Seatbelts, airbags and steering wheels
Leased
Chennai
Airbags, Seatbelts
Leased
Indonesia
P.T. Autoliv Indonesia
Jakarta
Seatbelts and steering wheels
Owned
Japan
Autoliv Japan Ltd.
Atsugi
Steering wheels
Owned
Hiroshima
Airbags and steering wheels
Owned
Taketoyo
Airbag inflators
Owned
Tsukuba
Airbags and seatbelts
Owned
Malaysia
Autoliv-Hirotako Sdn Bhd
Kuala Lumpur
Seatbelts, airbags and steering wheels
Owned
Mexico
Autoliv Mexico East S.A. de C.V.
Matamoros
Steering wheels
Owned
Autoliv Mexico S.A. de C.V.
Lerma
Seatbelts
Owned
Autoliv Safety Technology de
Tijuana
Seatbelts
Leased
Mexico S.A. de C.V.
Querétaro
Airbag cushions
Leased
Autoliv Steering Wheels Mexico S. de R.L. de C.V.
Querétaro
Airbags
Leased
Philippines
Autoliv Cebu Safety Manufacturing, Inc.
Cebu
Steering wheels
Owned
Poland
Autoliv Poland Sp. zo.o.
Olawa
Airbag cushions
Owned
Jelcz-Laskowice
Airbags and seatbelts
Owned
Romania
Autoliv Romania S.R.L.
Brasov
Seatbelts, seatbelt webbing, airbags, airbag inflators, springs for retractors and seatbelt components
Owned
Lugoj
Airbag cushions
Owned
Resita
Airbag cushions
Leased
Sfantu Georghe
Steering wheels
Owned
Onesti
Steering wheels
Leased
Rovinari
Seatbelts
Owned
Russia
OOO Autoliv
Togliatti
Airbags, seatbelts and steering wheels
Leased
South Africa
Autoliv Southern Africa (Pty) Ltd.
Krügersdorp
Seatbelts and airbags
Owned
South Korea
Autoliv Corporation
Hwasung
Airbags
Owned
Wonju
Seatbelts
Owned
Spain
Autoliv BKI S.A.U.
Valencia
Airbags
Owned
Sweden
Autoliv Sverige AB
Vårgårda
Airbag inflators
Owned
Thailand
Autoliv Thailand Ltd.
Chonburi
Seatbelts
Owned
Chonburi
Airbags, airbag cushions, steering wheels
Leased
Tunisia
SWT1 SARL
El Fahs
Leather wrapping of steering wheels
Owned & Leased
ASW3 SARL
Nadhour
PU Molding and Leather wrapping of steering wheels
Owned
Turkey
Autoliv Cankor Otomotiv Emniyet Sistemleri Sanayi Ve Ticaret A.S.
Gebze-Kocaeli
Seatbelts
Owned
Autoliv Cankor Otomotiv Emniyet Sistemleri Sanayi Ve Ticaret A.S. Gebze-Subesi
Gebze-Kocaeli
Airbags, Steering wheels and Seatbelt components
Leased
United Kingdom
Airbags International Ltd
Congleton
Airbag cushions
Owned
USA
Autoliv ASP, Inc.
Brigham City
Airbag inflators
Owned
Ogden
Airbags
Owned
Ogden
Airbags and service parts
Leased
Promontory
Propellant
Owned
Tremonton
Airbag initiators and seatbelt micro gas generators
Owned
AUTOLIV TECHNICAL CENTERS AND CRASH TEST TRACKS
Country/Company
Location
Product(s) supported
China
Autoliv (Shanghai) Vehicle Safety System Technical Center Co., Ltd.
Shanghai
Airbags and seatbelts customer applications and platform development with full-scale test laboratory
France
Autoliv France SNC
Gournay-en-Bray
Airbags and seatbelts customer applications and platform development with full-scale test laboratory
Livbag SAS
Pont-de-Buis
Inflator and pyrotechnic development
Germany
Autoliv B.V. & Co. KG
Dachau
Customer applications and platform development, airbags with full-scale test laboratory
Elmshorn
Seatbelts with full-scale test laboratory
India
Autoliv India Private Ltd.
Bangalore
Airbags and seatbelts with sled testing
Japan
Autoliv Japan Ltd.
Tsukuba
Airbags and seatbelts customer applications and platform development with sled test laboratory
Poland
Autoliv Poland Sp. zo.o.
Olawa
Airbags applications and platform development
Romania
Autoliv Romania S.R.L.
Brasov
Seatbelts with sled test laboratory
South Korea
Autoliv Corporation
Seoul
Airbags and seatbelts customer applications and platform development with sled test laboratory
Sweden
Autoliv Development AB
Vårgårda
Research center
Autoliv Sverige AB
Vårgårda
Airbags customer applications and platform development with full-scale test laboratory and Inflator development
USA
Autoliv ASP, Inc.
Auburn Hills
Airbags, steering wheels, and seatbelts customer applications and platform development with full-scale test laboratory
Ogden
Airbags, inflators and pyrotechnics customer applications and platform development

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
In the ordinary course of our business, we are subject to legal proceedings brought by or against us and our subsidiaries.
See Note 18 to the Consolidated Financial Statements in this Annual Report for a summary of certain ongoing legal proceedings. Such information is incorporated into this Part I, Item 3 - “Legal Proceedings” by reference.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Shareholder information
The primary exchange market for Autoliv’s securities is the New York Stock Exchange (NYSE) where Autoliv’s common stock trades under the symbol “ALV”. Autoliv’s Swedish Depositary Receipts (SDRs) are traded on NASDAQ Stockholm’s list for large market cap companies under the symbol “ALIV SDB”. Options in SDRs trade on Nasdaq Stockholm under the name “Autoliv SDB”. Options in Autoliv shares are traded on NASDAQ OMX PHLX and on NYSE Amex Options under the symbol “ALV”.
Share price information*
* For all periods before the distribution date of Veoneer on June 29, 2018, the Autoliv share prices are adjusted by a factor of 72.04%.
Number of shares
During 2020, the weighted average number of shares outstanding (excluding dilution and treasury shares) increased to 87.3 million from 87.2 million in 2019. The weighted average number of shares outstanding for the full year 2020, assuming dilution, increased to 87.5 from 87.4 million in 2019.
Stock options (if exercised) and granted Restricted Stock Units (RSUs) and Performance Shares (PSs) could increase the number of shares outstanding by 0.5 million shares in the aggregate. Combined, this would add 0.6% to the number of shares outstanding. On December 31, 2020, 3.0 million shares were available for repurchase pursuant to the stock repurchase program authorized by the Board of Directors in 2014. On December 31, 2020, the Company had 15.4 million treasury shares.
Shareholders
As of the end of 2020 around 20% of Autoliv’s securities were held by U.S.-based shareholders and close to 57% by Sweden-based shareholders. Most of the remaining Autoliv securities were held in the U.K., Switzerland, Norway, France and Denmark.
Dividends
If declared by the Board of Directors, quarterly dividends are usually paid on the first Thursday in the last month of each quarter. Declared dividends are announced in press releases and published on Autoliv’s corporate website. Autoliv has a history of paying quarterly cash dividends; however, on April 2, 2020, our Board of Directors suspended our quarterly dividend after determining that a suspension was necessary in light of the evolving global COVID-19 pandemic, decline in global LVP, the uncertainty surrounding the recession at that time and the inherent risk of customer defaults. The Board revisits dividends on a quarterly basis. There can be no assurance that our Board of Directors will declare dividends in the future. See Autoliv’s corporate website for additional details regarding historical dividends.
Stock incentive plan
Autoliv employees participate in the Autoliv, Inc. 1997 Stock Incentive Plan, as amended (the “Stock Incentive Plan”) and receive Autoliv stock-based awards from time to time. In connection with the spin-off, each outstanding Autoliv stock-based award as of June 29, 2018 was converted to stock awards that have underlying shares of both Autoliv and Veoneer common stock (see Note 17 to the Consolidated Financial Statements in this Annual Report). Additional information regarding the securities authorized for issuance under the Stock Incentive Plan is included in Item 12 of this Annual Report.
Autoliv has adopted a Stock Ownership Policy for Executives requiring the Company’s Chief Executive Officer (CEO) to accumulate and hold the number of Autoliv shares having a value of twice his annual base salary. For other executives, the minimum requirement is, over time, a holding equal to each executive’s annual base salary.
Stock repurchase program
Autoliv initiated its repurchase program in 2000 with 10 million shares and has subsequently increased the total authorization four times between 2000 and 2014 to 47.5 million shares. Such purchases may be made from time to time on the open market or otherwise at the discretion of management. There is no expiration date for the share repurchase authorization to provide management flexibility in the Company’s repurchases.
In total, Autoliv repurchased 44.5 million shares between May 2000 and December 31, 2017 for cash of $2,498 million, including commissions. No repurchases were made during 2019 or 2020. Autoliv has made no share repurchases since June 30, 2017. The maximum number of shares that may still be purchased under the stock repurchase program amounted to 2,986,288 shares at December 31, 2020.
Of the total number of repurchased shares, 23.6 million shares were utilized for the equity units offering during 2009-2012. In addition, approximately 5.5 million shares have been utilized by the Stock Incentive Plan. At December 31, 2020, 15.4 million of the repurchased shares remain in treasury stock.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
Selected financial data for the last five fiscal years ended December 31 for the Continuing Operations, unless noted, is summarized in the table below.
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Sales and Income
Net sales
$
7,447
$
8,548
$
8,678
$
8,137
$
7,922
Operating income4)
Income before income taxes4)
Net income attributable to controlling interest4)
Financial Position
Current assets excluding cash
3,091
2,557
2,670
2,598
2,269
Property, plant and equipment, net
1,869
1,816
1,690
1,609
1,329
Intangible assets (primarily goodwill)
1,412
1,410
1,423
1,440
1,430
Non-interest bearing liabilities
3,182
2,397
2,595
2,418
2,154
Capital employed5)
3,637
3,772
3,516
4,538
4,225
Net debt6, 8)
1,214
1,650
1,619
Total equity5)
2,423
2,122
1,897
4,169
3,926
Total assets
8,157
6,771
6,722
6,947
6,565
Long-term debt6)
2,110
1,726
1,609
1,311
1,313
Share data
Earnings per share (US$) - basic4)
2.14
5.29
4.32
6.70
6.33
Earnings per share (US$) - assuming dilution4)
2.14
5.29
4.31
6.68
6.32
Total parent shareholders’ equity per share (US$)5)
27.56
24.19
21.63
46.38
41.69
Cash dividends paid per share (US$)
0.62
2.48
2.46
2.38
2.30
Cash dividends declared per share (US$)
-
2.48
2.48
2.40
2.32
Share repurchases
-
-
-
-
Number of shares outstanding (million)2)
87.4
87.2
87.1
87.0
88.2
Ratios
Gross margin (%)
16.7
18.5
19.7
20.6
20.6
Operating margin (%)4)
5.1
8.5
7.9
10.6
10.5
Pretax margin (%)4)
3.9
7.6
7.1
9.7
9.9
Return on capital employed (%)7)
n/a
n/a
Return on total equity (%)4, 7)
n/a
n/a
Total equity ratio (%)5)
Days receivables outstanding
Days inventory outstanding
Other data
Airbag sales3)
4,824
5,676
5,699
5,342
5,256
Seatbelt sales
2,623
2,872
2,980
2,794
2,665
Capital expenditures, net
Net cash provided by operating activities1)
Net cash used in investing activities1)
(340
)
(476
)
(628
)
(697
)
(726
)
Net cash (used in) provided by financing activities1)
(338
)
(245
)
(566
)
(200
)
Number of employees, December 31
61,000
58,900
57,700
56,700
55,800
1)
Including Discontinued Operations for comparable years 2016-2018.
2)
At year end, excluding dilution and net of treasury shares.
3)
Including steering wheels, inflators and initiators.
4)
Including antitrust provision expense of $210 million in 2018.
5)
Impacted by the distribution of Veoneer on June 29, 2018 of approximately $2 billion recorded as a reduction of equity.
6)
The increase in debt in 2018 is primarily driven by our capitalization of Veoneer of approximately $1 billion prior to the distribution to the shareholders.
7)
The Company has decided not to recalculate prior periods since the distribution of Veoneer had a significant impact on total equity and capital employed making the comparison less meaningful.
8)
See section Non-U.S. GAAP Performance Measures in Item 7.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Important Trends
The discussions and analysis in this section are focused on the Company’s results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019. Discussions of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 21, 2020.
Autoliv, Inc. (the “Company”) provides automotive safety systems to the automotive industry with a broad range of product offerings, primarily passive safety systems. In the two-year period ended December 31, 2020, a number of factors have influenced the Company’s results of operations. The most notable factors have been:
•
Substantial decline in global light vehicle production
•
COVID-19 pandemic
•
Growth of safety content per vehicle
•
High order intake share maintained
•
Strategic initiatives
•
Continued focus on operational excellence and quality
20201)
20191)
YEARS ENDED DEC. 31 (DOLLARS IN MILLIONS, EXCEPT EPS)
Reported
change
Reported
change
Global light vehicle production (in thousands)
71,573
(17
)
%
85,862
(6
)
%
Consolidated net sales
$
7,447
(13
)
%
$
8,548
(1
)
%
Operating income3)
(47
)
%
%
Operating margin, %3)
5.1
(3.4
)
pp
8.5
0.6
pp
Net income attributable to controlling interest3)
(60
)
%
%
Earnings per share2)
2.14
(60
)
%
5.29
%
Net cash provided by operating activities3)
%
%
Return on capital employed, %
10.4
(9.3
)
pp
19.7
2.9
pp
1)
Reported figures impacted by costs for capacity alignments, antitrust related matters and for 2019 by separation costs. See section Items affecting comparability and Notes 3, 12 and 18 to the Consolidated Financial Statements included herein.
2)
Assuming dilution and net of treasury shares.
3)
Including EC antitrust payment of $203 million in 2019.
COVID-19 PANDEMIC
The COVID-19 pandemic had a substantial impact on our operations in the first half year of 2020. In the first quarter the impact was focused on China, where most of our customers’ plants were closed for several weeks in February and operated at low levels in March. In Europe and North America, sales declined substantially in the second half of March as the pandemic led to customer plant closures. A large number of customer plants were closed in April and parts of May, followed by a ramp-up in June. The decline in global LVP and the slow and volatile restart and ramp-up had a significant impact on our sales and profitability in the first six months of 2020. In the second half of the year, we managed to achieve improvements in sales, profitability and cash flow as our cost reduction initiatives and positive sales development more than offset the 0.4% global LVP year over year decline in the second half of the year. According to IHS Markit, global light vehicle production declined by 17% in 2020 vs. 2019.
There were a number of 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 our Revolving Credit Facility (which is now fully repaid), withdrawing full year guidance (now provided again), extensive use of furloughing, reducing headcount, sharply reducing capital expenditures, close monitoring of working capital, reducing or suspending discretionary spending, and accelerating 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 was around $10 million in the second quarter, around $5 million in the third quarter and around $5 million in the fourth quarter. Support from governments in connection with furloughing, short-term work weeks, and other similar activities was around $25 million in the second quarter, around $10 million in the third quarter, and around $2 million in the fourth quarter.
In all regions, the automotive industry, including Autoliv, is 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 we operate or have customers or suppliers. Although we are not directly affected by current semiconductor supply issues highlighted in December 2020 and January and early February 2021 by several OEMs, it could potentially have a negative impact on LVP in the first half of 2021. We believe some of the production that might be lost in the first half of the year could be recovered in the second
half of the year. While we continue to focus on health and safety and cost optimization, we are adjusting our production in coordination with our customers and suppliers.
GROWTH IMPACTED BY LIGHT VEHICLE PRODUCTION, SAFETY CONTENT PER VEHICLE AND HIGH ORDER INTAKE
The most important driver for Autoliv’s sales is the light vehicle production (LVP). During the past ten years LVP has shown year-over-year growth with the exception of the past three years. During 2020 we experienced deterioration of market conditions as a consequence of the COVID-19 pandemic, resulting in declines of LVP in all regions. The most significant decline in LVP, came in Americas and Europe declining more than 20% with Asia declining more than 10%. Full-year 2020 global LVP declined by around 17%. This came after a 6% decline in 2019.
Light Vehicle Production1)
Change '20 vs ´19
(000´)
units
% global
(000´)
units
% global
(000´)
units
%
Americas
14,184
%
18,343
%
(4,159
)
(23
)%
North America
11,955
%
15,085
%
(3,130
)
(21
)%
South America
2,229
%
3,258
%
(1,029
)
(32
)%
Europe
16,461
%
20,994
%
(4,533
)
(22
)%
Asia
39,257
%
44,550
%
(5,293
)
(12
)%
China
22,130
%
23,292
%
(1,162
)
(5
)%
Japan
7,593
%
9,024
%
(1,431
)
(16
)%
South Korea
3,476
%
3,879
%
(403
)
(10
)%
India
3,199
%
4,168
%
(969
)
(23
)%
Other Asia
2,859
%
4,187
%
(1,328
)
(32
)%
Other
1,671
%
1,975
%
(304
)
(15
)%
Global Total
71,573
85,862
(14,289
)
(17
)%
1) Source: IHS Markit
Chinese LVP, the world’s largest automotive market, declined by 1.2 million units or by 5% from 2019 to 2020. In Europe, an important market for automotive safety systems, LVP decreased by 22% or by approximately 4.5 million light vehicles during the same period. In North America, LVP declined by 21% or 3.1 million light vehicles.
Europe’s share of global LVP has declined to 23% from 24% and Americas share declined to 20% from 21%, while China’s share increased from 27% to 31%. Japan’s share was unchanged at 11%.
Due to more stringent crash ratings, by institutes such as Euro NCAP; and increasing consumer demand for more safety in emerging markets, we see vehicle manufacturers installing more airbags and more advanced seatbelt systems in vehicles. This generally takes place when new models are introduced. The safety standards of vehicles are increasing in China, India and other growth markets such as Brazil, partially due to new regulations and crash test rating programs. For example, the Indian government has decided on a new traffic regulation that mandates more rigid crash test standards for light vehicles. This should eventually lead to a higher installation rate of airbags and more advanced seatbelts, impacting CPV positively, partly offset by negative effects from continued pricing pressure from vehicle manufacturers. The trend of increasing CPV was negatively impacted in 2020 by the unfavorable regional CPV mix development, as the decline in LVP was more pronounced in markets with high average safety content per vehicle (CPV) such as North America and Western Europe, where the CPV is approximately $350 and $270, respectively. In 2020, currency translation effects impacted global CPV positively. The average global safety CPV (airbags, pedestrian safety, seatbelts and steering wheels) amounted to $245 in 2020.
The more stringent crash ratings and consumer demand for more safety should enable the global automotive safety market to grow faster than the global LVP during the next three years.
The past five years’ high order intake share have resulted in our sales development outperforming the underlying light vehicle production significantly in the past three years. In 2020, our organic sales development outpaced global LVP by around 5 percentage points, due to increased safety content per vehicle and as an effect of recent years high order intake share.
WELL BALANCED GLOBAL FOOTPRINT
Autoliv’s regional sales mix continues to be balanced with 28% of sales in Europe, 31% in the Americas and 41% in Asia in 2020, compared to 29%, 34% and 37%, respectively, in 2019. In Asia, our sales in the important Chinese market increased to 21% of total sales in 2020, partly a reflection of the Chinese market being less effected by the pandemic.
The balanced regional sales mix has been achieved through timely investments and strengthening of technical and support capabilities in growth markets.
We estimate that our sales to Electric Vehicles (EV) and Plug-in Hybrid Electric Vehicles (PHEV) accounted for around 10% of our total sales in 2020.
CONTINUED STRONG ORDER INTAKE SHARE
Building on a strong base, including supplying products to around 1,200 vehicle models and around 100 car brands, Autoliv recorded a high order intake share during the past six-year period, winning around 45% or more of available orders. Our share of order intake in prior years is above our sales market share in 2020 of around 42%. The lead time from order intake to start of production is typically 18-36 months. During this period the products are engineered into the vehicle to provide the expected protection for occupants in case of a crash and to meet legal and regulatory requirements, as well as other requirements from the vehicle manufacturer. This investment in new products is the main reason for the high level of RD&E expenses, net. Additionally, we have to build up production capacity, in the form of new lines, to meet future product launches.
Our order intake share for 2020 continued on a high level. We estimate that we booked around 45% of available order value in 2020, making 2020 the sixth consecutive year of order intake share which is higher than our sales market share. The estimated life-time sales for all orders booked in 2020 is around $10 billion, compared to $11 billion in 2019. New order intake is defined as the sales value of awards for future business, received within that year. The life time value is calculated using detailed assumptions of price and volumes over the years of production and the exchange rates prevailing at the time of receiving the order.
Due to the lead time from order to start of production, 2017 was the first year that the increased level of order intake began to impact our sales. Over the last two years, sales have substantially outperformed the change in global LVP. In 2020 and 2019 the outperformance was around 5 pp and 7 pp, respectively. During 2020, growth was positively affected through recent launches of several new models, including Honda Fit, Toyota Yaris, Buick Encore and Chevrolet Trailblazer, Peugeot 208 and 2008, Genesis G80 and Opel Corsa.
STRATEGIC INITIATIVES
As market weakness has continued in 2020, we stepped up the cost improvement actions and launched a second Structural Efficiency Program, including targeting a reduction of our indirect workforce by approximately 850 more workers. The cost for Structural Efficiency Program 1 and 2 are estimated to be approximately $52 million and $65 million respectively. The first program was fully implemented in 2020 and the second program is expected to be fully implemented by early 2021. Annualized savings is estimated to be around $65 million each for the two programs.
In addition to the Structural Efficiency Programs, we made a provision of around $35 million in 2020 for footprint optimization in Europe, involving planned plant closures in Germany and Sweden.
The costs for restructuring activities in 2020 amounted to $99 million compared to $54 million in 2019.
The Structural Efficiency Programs are expected to have a payback period of around 1 year, after cash-out. As of December 31, 2020, we have $126 million reserved in our balance sheet related to restructuring (see Note 12 to the Consolidated Financial Statements included herein).
With more than 200 improvement projects being evaluated, we have set a high pace in the planning and implementation of strategic initiatives and structural improvements. These initiatives are key drivers to our medium-term target and building the foundation to continue to create shareholder value.
IMPROVED EFFICIENCIES THROUGH OPERATIONAL EXCELLENCE
Pricing pressure is an inherent part of the automotive supplier business. Price reductions are generally higher on newer products with strong volume growth compared to older products, where both the possibilities to re-design the product to reduce costs and market growth are less. Price reductions can also depend on the business cycle. For the period 2019-2020, we estimate the average reduction of our market prices to have been in the range of 2-4% annually. As described below, to meet these price reductions, we have implemented several programs and taken actions to address our cost structure.
Our productivity improvement target is to achieve at least 5% savings per year. To meet this target, Autoliv has developed a set of strategies to reduce costs in manufacturing:
•
Autoliv production system (APS) is based on lean manufacturing methodology which aims to continuously increase output with less resources. APS provides the target conditions and tools to achieve the delivery of goods and services at the right time, in the right amount, at the required quality and at the lowest cost possible to all our customers.
•
Our One Product One Process (1P1P) strategy focuses on product and process standardization and reducing cost and complexity. The 1P1P strategy, combined with initiatives to reduce costs for components from external suppliers, ensures that we continuously optimize our supply base footprint, consolidate purchase volumes to fewer suppliers, improve productivity in our supply chain, standardize components and redesign our products.
•
Strategic Initiatives including Automation, Digitalization, Supply Chain Management Effectiveness and RD&E Effectiveness.
Our continuous improvement strategies have enabled productivity improvement at or above our target of 5% over the last years, except 2018 and 2020. 2018 due to a sharp increase in launch activities. Excluding impact from Force Majeure situation in our plant in Mexico, we came back to around historical performance during 2019. This was achieved despite the increased launch activities also impacted us during 2019. In 2020, the sharp deterioration of light vehicle production in the first half year and the sharp recovery in the second half year limited productivity improvement opportunities.
We foresee opportunities for further productivity on gains from increasing use of automation in our assembly for lean manufacturing processes. Additionally, automated cells typically perform the manufacturing process with reduced variability. This results in greater control and consistency of product quality.
Reducing labor costs to offset the price erosion on our products is achieved through continuously implementing productivity improvement programs, optimizing our production footprint and instituting restructuring and capacity alignment activities.
These initiatives, in combination with our restructuring activities, investment in vertical integration and several other actions, are in place to offset the market price erosion.
FOCUS ON QUALITY
The number of vehicle recalls in the automotive industry has risen sharply in recent years. Starting in 2015, Takata’s airbag inflators recall generated a record number of recalls in the automotive industry. We expect overall recall numbers to remain high for years to come and, although we strive for the highest quality in our processes, it cannot be ruled out that we may also be adversely impacted by a future recall.
Quality has been and always will be our number one priority, and we continue to sharpen our focus in this area. We now hold a market share of around 42% in while we have been involved in 2% of recalls in the industry since 2010; an important indicator that we are delivering on our quality strategy. For more information see product warranty and recalls in Note 13 to the Consolidated Financial Statements in this Annual Report.
CHANGES IN COMPETITIVE LANDSCAPE
During the past six years, we experienced significant changes in our competitive landscape. In 2015, TRW, a key competitor in passive safety, was acquired by German group ZF Friedrichshafen. Combined, the new company is the second largest passive safety supplier globally. In 2016, Key Safety Systems (“KSS”) was acquired by Ningbo Joyson Electronic Corp. Beginning in 2014, Takata, our largest competitor at the time, experienced severe issues and recalls related to malfunctioning airbag inflators, leading the company to file for bankruptcy protection in the U.S. and Japan. In 2018, Joyson substantially acquired all of Takata's global assets and operations and combined it with KSS, forming the new company JSS. Combined, the new company is the third largest passive safety supplier globally.
CAPITAL STRUCTURE
The Company’s net debt stood at $1,214 million on December 31, 2020. This was a decrease of $436 million compared to December 31, 2019. Total interest bearing debt at December 31, 2020 amounted to $2,411 million, an increase of $317 million compared to December 31, 2019.
Cash flow from operations was $849 million in 2020 and $641 million in 2019. Capital expenditures, net amounted to $340 million in 2020 and $476 million in 2019. During the two-year period 2019-2020, the Company paid dividends of $271 million. In 2020, the Company paid dividends of $54 million in the first quarter and then suspended the dividends due to the COVID-19 pandemic
It is the Company’s policy to maintain a financial leverage commensurate with a “strong investment grade credit rating”. The long-term target is to have a leverage ratio (see section Non-U.S. GAAP Performance Measures) of around 1.0 and to be within the range of 0.5 to 1.5. At December 31, 2020, the current leverage ratio is 1.8. The Company monitors its capital structure and the financial markets closely and intends to maintain a high level of financial flexibility while being shareholder friendly.
As part of the adjustment of the capital structure, the Company historically has repurchased shares of its common stock. During 2020 and 2019, the Company did not repurchase any shares. At December 31, 2020, the remaining number of shares authorized by the board of directors for repurchase is approximately 3.0 million shares.
CURRENCY IMPACTS
The Company is exposed to around 50 currency pairs, with exposures in excess of $1 million each. We are monitoring our currency exposure but do not hedge currency flows. Rather we strive to have sales and costs in the same currency to reduce the transaction exposure risk. The total net transaction exposure in 2020 was approximately $2.2 billion or 25% of sales. The 5 largest exposures in 2020 were USD/MXN (sell USD), USD/CAD (sell USD), EUR/RON (sell EUR), USD/KRW (buy USD) and EUR/CNY (buy EUR) which combined amounted to a net transaction exposure of around $1.2 billion. Approximately three quarters of our sales are denominated in currencies other than U.S. dollars, which is leading to currency translation effects.
Outlook for 2021
Our outlook indications for 2021 reflect continuing uncertainty in the automotive markets and are mainly based on our customer call-offs and LVP according to IHS Markit.
Financial measure
Full year indication
Net sales growth
Around 25%
Organic sales growth
Around 20%
Adjusted operating margin 1)
Around 10%
R,D&E, net % of sales
Around 4.5
Tax rate 2)
Around 30%
Operating cash flow3)
Similar level as 2020
Capital expenditures, net % of sales
Below 6%
Leverage ratio at year end
Within target range
1)
Excluding costs for capacity alignments and anti-trust related matters.
2)
Excluding unusual tax items.
3)
Excluding unusual items.
The forward-looking non-U.S. GAAP financial measures above are provided on a non-U.S. GAAP basis. Autoliv has not provided a U.S. GAAP reconciliation of these measures because items that impact these measures, such as costs related to capacity alignments and antitrust matters cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and Autoliv is unable to determine the probable significance of the unavailable information.
Significant Legal Matters
See Item 3. Legal Proceedings and Note 18 Contingent Liabilities to the Consolidated Financial Statements in this Annual Report.
Year Ended December 31, 2020 Versus 2019
Sales by Product
Components of Change in Net Sales
(MUSD)
(MUSD)
Reported
change
Currency effects1)
Organic
Airbags products and Other2)
$
4,824
$
5,676
(15.0
)%
(0.8
)%
(14.2
)%
Seatbelt products2)
2,623
2,872
(8.6
)%
(0.9
)%
(7.7
)%
Total
$
7,447
$
8,548
(12.9
)%
(0.9
)%
(12.0
)%
1)
Effects from currency translations.
2)
Including Corporate and Other sales.
Consolidated net sales decreased by 12.9% compared to full year 2019. Excluding negative currency translation effects of 0.9%, the organic sales decrease (see section Non-U.S. GAAP Performance Measures) was 12.0%.
Sales of all our airbag products except textiles declined organically (see section Non-U.S. GAAP Performance Measures) by between 11% and 53% (depending on the region) for the full year, reflecting the 16.8% decline in LVP. Textiles increased by 66%, reflecting new sales of textiles for manufacturing of personal protection equipment. Sales of replacement inflators decreased by around $85 million to $57 million.
Seatbelt sales declined organically (see section Non-U.S. GAAP Performance Measures) by 7.7%. Japan showed a slight organic seatbelt sales growth, while all other regions showed organic sales declines between 1% and 21%. Sales of more advanced and higher value-added seatbelts declined significantly less than total seatbelts sales did and grew strongly in China and Japan.
Sales by Region
Components of Change in Net Sales
(MUSD)
(MUSD)
Reported
change
Currency effects1)
Organic
Asia
$
3,043
$
3,177
(4.2
)%
(0.0
)%
(4.2
)%
Whereof: China
1,541
1,525
1.0
%
0.0
%
1.0
%
Japan
(9.6
)%
1.9
%
(11.5
)%
Rest of Asia
(8.5
)%
(2.0
)%
(6.5
)%
Americas
2,337
2,907
(19.6
)%
(3.3
)%
(16.3
)%
Europe
2,067
2,464
(16.1
)%
0.9
%
(17.0
)%
Global
$
7,447
$
8,548
(12.9
)%
(0.9
)%
(12.0
)%
1)
Effects from currency translations.
For the full year 2020, Autoliv’s sales decreased organically (see section Non-U.S. GAAP Performance Measures) by 12.0% compared to full year 2019, around 5pp better than LVP (according to IHS Markit). Sales declined organically in all regions except China. Our organic sales development outperformed LVP in all regions - by around 7pp in Americas, 6pp in China, and 5pp in Europe.
2020 Organic growth1)
Americas
Europe
China
Japan
Rest of
Asia
Global
Autoliv
(16.3
)%
(17.0
)%
1.0
%
(11.5
)%
(6.5
)%
(12.0
)%
Main growth drivers
Tesla,
Mazda
Toyota,
PSA
GM,
Ford,
Toyota
Honda,
Suzuki,
Toyota
GM,
Renault,
Nissan
Tesla,
GM,
Suzuki
Main decline drivers
FCA,
Honda,
Nissan
Daimler,
Renault,
VW
Nissan,
Geely,
Daimler
Mitsubishi,
Nissan,
Mazda
Mitsubishi,
Toyota,
Suzuki
Nissan,
FCA,
Daimler
1) Non-U.S. GAAP Measure
Years ended December 31
(Dollars in millions, except per share data)
Change
Net Sales
$
7,447.4
$
8,547.6
(12.9
)%
Gross profit
1,246.9
1,584.4
(21.3
)%
% of sales
16.7
%
18.5
%
(1.8
)pp
S,G&A
(389.2
)
(398.9
)
(2.4
)%
% of sales
(5.2
)%
(4.7
)%
0.5
pp
R,D&E net
(375.5
)
(405.5
)
(7.4
)%
% of sales
(5.0
)%
(4.7
)%
0.3
pp
Other income (expense), net
(90.1
)
(42.7
)
111.0
%
Operating income
382.1
725.8
(47.4
)%
% of sales
5.1
%
8.5
%
(3.4
)pp
Adjusted operating income
481.6
774.4
(37.8
)%
% of sales
6.5
%
9.1
%
(2.6
)pp
Financial and non-operating items, net
(90.9
)
(77.4
)
17.4
%
Income before taxes
291.2
648.4
(55.1
)%
Tax rate
35.3
%
28.6
%
6.7
pp
Net income
188.3
462.8
(59.3
)%
Earnings per share, diluted1, 2)
2.14
5.29
(59.5
)%
Adjusted earnings per share, diluted1, 2)
3.15
5.72
(44.9
)%
1)
Assuming dilution and net of treasury shares.
2)
Participating share awards with right to receive dividend equivalents are (under the two-class method) excluded from the EPS calculation.
GROSS PROFIT
Gross profit declined by $338 million and the gross margin declined by 1.8pp compared to full year 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.
OPERATING INCOME
Operating income decreased by $344 million, mainly as a consequence of the declines in gross profit and higher costs in other income (expense), net, partially offset by lower costs for S,G&A and R,D&E, net. Selling, General and Administrative (S,G&A) expenses decreased by $10 million, or by 2.4%, mainly due to lower personnel costs. Research, Development & Engineering (R,D&E) expenses, net declined by $30 million, or by 7.4%, mainly due to positive year over year effects from lower personnel costs partially offset by lower engineering income. Other income (expense), net expense increased by $47 million compared to the previous year, mainly due to higher costs for capacity alignments.
FINANCIAL AND NON-OPERATING ITEMS, NET
Financial and non-operating items, net, costs were $14 million higher than the previous year, mainly due to unfavorable effects of exchange rate changes and higher pension related expenses.
INCOME TAXES
Tax rate was 35.3%, compared to 28.6% in 2019, impacted by unfavorable country mix and losses without tax benefit.
NET INCOME AND EARNINGS PER SHARE
Net income decreased by $275 million compared to 2019 primarily driven by the lower gross profit and operating income as noted above.
Earnings per share, diluted, decreased by $3.15 where the main drivers were $2.36 from lower adjusted operating income, $0.58 from mainly higher accruals for restructuring activities, $0.11 from financial items and $0.10 from higher taxes.(see section Non-U.S. GAAP Performance Measures).
The weighted average number of shares outstanding assuming dilution in 2020 was 87.5 million compared to 87.4 million in 2019.
Non-U.S. GAAP Performance Measures
In this annual report we sometimes refer to non-U.S. GAAP measures that we and securities analysts use in measuring Autoliv’s performance.
We believe that these measures assist investors and management in analyzing trends in the Company’s business for the reasons given below. Investors should not consider these non-U.S. GAAP measures as substitutes for, but rather as additions to, financial reporting measures prepared in accordance with U.S. GAAP.
These non-U.S. GAAP measures have been identified, as applicable, in each section of this annual report with tabular presentations provided below, reconciling them to U.S. GAAP.
It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies.
ORGANIC SALES
We analyze the Company’s sales trends and performance as changes in “organic sales growth” or “organic sales decline”, because the Company currently generates approximately three quarters of net sales in currencies other than the reporting currency (i.e. U.S. dollars) and currency rates have proven to be rather volatile. We also use organic sales to reflect the fact that historically the Company has made several acquisitions and divestitures.
Organic sales present the increase or decrease in the overall U.S. dollar net sales on a comparable basis, allowing separate discussions of the impact of acquisitions/divestitures and exchange rates.
The following tabular reconciliation presents changes in “organic sales growth” as reconciled to the change in total U.S. GAAP net sales.
COMPONENTS IN SALES INCREASE/DECREASE (DOLLARS IN MILLIONS)
China
Japan
RoA1)
Americas
Europe
Total
2020 VS. 2019
%
$
%
$
%
$
%
$
%
$
%
$
Reported change
1.0
$
15.6
(9.6
)
$
(77.4
)
(8.5
)
$
(71.8
)
(19.6
)
$
(570.1
)
(16.1
)
$
(396.5
)
(12.9
)
$
(1,100.2
)
Currency effects2)
0.0
1.0
1.9
16.1
(2.0
)
(17.2
)
(3.3
)
(97.5
)
0.9
23.1
(0.9
)
(74.5
)
Organic change
1.0
14.6
(11.5
)
(93.5
)
(6.5
)
(54.6
)
(16.3
)
(472.6
)
(17.0
)
(419.6
)
(12.0
)
(1,025.7
)
1)
Rest of Asia.
2)
Effects from currency translations.
RECONCILIATION OF U.S. GAAP MEASURE TO “OPERATING WORKING CAPITAL” (DOLLARS IN MILLIONS)
DECEMBER 31
Total current assets
$
4,269.0
$
3,002.1
Total current liabilities
(3,146.9
)
(2,410.2
)
Working capital
1,122.1
591.9
Cash and cash equivalents
(1,178.2
)
(444.7
)
Short-term debt
301.8
368.1
Derivative (asset) and liability, current
(22.6
)
(4.2
)
Dividends payable
-
54.1
Operating working capital
$
223.1
$
565.2
RECONCILIATION OF U.S. GAAP MEASURE TO “NET DEBT” (DOLLARS IN MILLIONS)
DECEMBER 31
Short-term debt
$
301.8
$
368.1
$
620.7
$
19.7
$
216.3
Long-term debt
2,109.6
1,726.1
1,609.0
1,310.7
1,312.5
Total debt
2,411.4
2,094.2
2,229.7
1,330.4
1,528.8
Cash and cash equivalents
(1,178.2
)
(444.7
)
(615.8
)
(959.5
)
(1,226.7
)
Debt issuance cost/Debt-related derivatives, net
(19.0
)
0.3
4.9
(2.5
)
(3.4
)
Net debt
$
1,214.2
$
1,649.8
$
1,618.8
$
368.4
$
298.7
OPERATING WORKING CAPITAL
Due to the need to optimize cash generation to create value for our shareholders, management focuses on operationally derived working capital as defined in the table above.
The reconciling items used to derive this measure are, by contrast, managed as part of our overall management of cash and debt, but they are not part of the responsibilities of day-to-day operations management.
NET DEBT
As part of efficiently managing the Company’s overall cost of funds, we routinely enter into “debt-related derivatives” (DRD) as part of our debt management.
Creditors and credit rating agencies use net debt adjusted for DRD in their analyses of the Company’s debt and therefore we provide this non-U.S. GAAP measure. DRD are fair value adjustments to the carrying value of the underlying debt. Also included in the DRD is the unamortized fair value adjustment related to discontinued fair value hedges, which will be amortized over the remaining life of the debt. By adjusting for DRD, the total financial liability of net debt is disclosed without grossing debt up with currency or interest fair values.
ADJUSTED OPERATING INCOME AND OPERATING MARGIN AND ADJUSTED EPS
Adjusted operating margin and adjusted EPS are non-GAAP measures our management uses to evaluate our business, because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that are non-operational or non-recurring in nature (such as costs related to capacity alignments, costs related to antitrust matters, separation costs and for EPS unusual tax items) and that we do not believe are indicative of our core operating performance and underlying business trends. Adjusted operating margin and adjusted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. GAAP, including operating margin and EPS.
ITEMS AFFECTING COMPARABILITY
(DOLLARS IN MILLIONS, EXCEPT EPS)
Reported
Adjust-
ments1)
Non-
U.S.
GAAP
Reported
Adjust-
ments1)
Non-
U.S.
GAAP
Operating income
$
$
$
$
$
$
Operating margin, %
5.1
1.4
6.5
8.5
0.6
9.1
Income before taxes from
$
$
$
$
$
$
Net income attributable to controlling
interest
$
$
$
$
$
$
Capital employed
$
3,637
$
$
3,725
$
3,772
$
$
3,810
Return on capital employed, % 2)
10.4
2.5
12.9
19.7
1.2
20.9
Return on total equity, % 3)
8.8
3.9
12.7
23.1
1.7
24.8
Earnings per share, diluted 4, 5)
$
2.14
$
1.01
$
3.15
$
5.29
$
0.43
$
5.72
Total parent shareholders' equity per share
$
27.56
$
1.01
$
28.57
$
24.19
$
0.43
$
24.62
1)
Including costs for capacity alignments, antitrust related matters and in 2019 separation of our business segments. See table below for a disaggregation of these costs.
2)
Operating income and income from equity method investments, relative to average capital employed.
3)
Net Income relative to average total equity.
4)
Assuming dilution and net of treasury shares.
5)
Participating share awards with right to receive dividend equivalents are (under the two-class method) excluded from the EPS calculation.
Items included in Non-GAAP adjustments
Full Year 2020
Full Year 2019
Adjustment
Millions
Adjustment
Per share
Adjustment
Millions
Adjustment
Per share
Capacity alignment
$
98.8
$
1.13
$
53.6
$
0.61
Antitrust related matters
$
0.7
0.01
$
(6.2
)
(0.07
)
Separation costs
-
-
$
1.2
0.01
Total adjustments to Operating income
$
99.5
$
1.14
$
48.6
$
0.55
Tax on Non-U.S. GAAP adjustments1)
$
(11.1
)
(0.13
)
$
(10.6
)
(0.12
)
Total adjustments to Net Income
$
88.4
$
1.01
$
38.0
$
0.43
Weighted average number of shares outstanding
- diluted2)
87.5
87.4
Adjustment Return on capital employed
$
99.5
$
48.6
Adjustment Return on capital employed, %
2.5
1.2
Adjustment Return on total equity
$
88.4
$
38.0
Adjustment Return on total equity, %
3.9
1.7
1)
The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s).
2)
Annualized average number of outstanding shares.
Liquidity, Capital Resources and Financial Position
Years ended December 31
(DOLLARS IN MILLIONS)
Net cash provided by operating activities
$
$
Net cash used in investing activities
(340
)
(476
)
Net cash provided by (used in) financing activities
(338
)
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
(171
)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
1,178
$
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash flow from operations, together with available financial resources and credit facilities, are expected to be sufficient to fund the Company’s anticipated working capital requirements, capital expenditures and future dividend payments.
Cash provided by operating activities was $849 million in 2020 compared to $641 million in 2019. The net increase compared to previous year was primarily due to the effects of COVID-19 resulting in increases to Accounts Payable and Accrued Expenses offset by the year over year increase in Receivables and other assets.
While management of cash and debt is important to the overall business, it is not part of the operational management’s day-to-day responsibilities. We therefore focus on operationally derived working capital (see section Non-U.S. GAAP Performance Measures) and have set a policy that the operating working capital should not exceed 10% of the last 12-month net sales.
At December 31, 2020, operating working capital (see section Non-U.S. GAAP Performance Measures) amounted to $223 million corresponding to 3.0% of net sales compared to $565 million and 6.6%, respectively, at December 31, 2019.
Days receivables outstanding (see Glossary and Definitions for definition) were 86 at December 31, 2020, compared to 70 in 2019. Factoring agreements did not have any material effect on days receivables outstanding for 2020 or 2019.
Days inventory outstanding (see Glossary and Definitions for definition) were 42 at December 31, 2020, compared to 35 in 2019.
NET CASH USED IN INVESTING ACTIVITIES
In 2020 and 2019 cash used in investing activities amounted to $340 million and $476 million, respectively. Our investing activities primarily consists of investments in property, plant and equipment, net of cash.
CAPITAL EXPENDITURES
Cash generated by operating activities continued to sufficiently cover capital expenditures for property, plant and equipment.
Capital expenditures, net was $340 million in 2020 and $476 million in 2019. The reduction of close to 30% was a result of suspended or delayed investments. In relation to net sales, capital expenditures, net was 4.6% in 2020 and 5.6% in 2019.
Depreciation and amortization totaled $371 million in 2020 compared to $351 million in 2019.
During the years 2020 and 2019, a majority of our investments were for production capacity to support new product launches and automation projects for improved efficiency. Major investments were mainly made in Europe, North America, China and Japan.
In 2020, investments in Europe were mainly related to new product launches and capacity increases. In North America, the investments were mainly related to capacity expansions, as well as a new technical center. In China, investments were made to support revenue growth and to expand capacity and capabilities of textile production. In addition, we made large investments in Asia to increase manufacturing capacity to support new product launches, as well as a new facility in India to increase capacity to support demand.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Cash provided by (used in) financing activities amounted to $160 million and $(338) million for the years 2020 and 2019, respectively. In 2020 and 2019, the net issuance of debt amounted to $215 million and $(121) million, respectively.
In 2020, the Company paid dividends of $54 million in the first quarter and then suspended the dividends due to the COVID-19 pandemic for the remaining quarters. In 2019, the Company paid dividends of $217 million and made a $203 million payment relating to the EC antitrust investigation.
INCOME TAXES
The Company has reserves for taxes that may become payable in future periods as a result of tax audits. At any given time, the Company is undergoing tax audits covering multiple years in several tax jurisdictions. Ultimate outcomes are uncertain but could, in future periods,
have a significant impact on the Company’s cash flows. See discussions of income taxes under Significant Accounting Policies in this section, Note 2 and Note 6 to the Consolidated Financial Statements included herein.
PENSION ARRANGEMENTS
The Company has defined benefit pension plans covering nearly half of the U.S. employees. In a prior year, the Company froze participation in the U.S. plans to exclude employees hired after December 31, 2003. Many of the Company’s non-U.S. employees are also covered by pension arrangements.
At December 31, 2020, the Company’s pension liability (i.e. the actual funded status) for its U.S. and non-U.S. plans was $248 million compared to $240 million one year earlier. The plans had a net unamortized actuarial loss of $107 million recorded in Accumulated Other Comprehensive (Loss) Income in the Consolidated Statement of Equity at December 31, 2020, compared to $115 million at December 31, 2019. The decrease in the actuarial loss was mainly due to a decrease in the discount rate for the U.S. plans. The amortization of this loss is expected to be $4 million in 2021.
The liability increase in 2020 of $8 million was mainly due to the decrease in discount rates, partly offset by plan settlement in US. The liability increase in 2019 of $42 million was mainly due to the decrease in discount rates.
Pension expense associated with the defined benefit plans was $33 million in 2020 and $27 million in 2019, and is expected to be $20 million in 2021. The $6 million increase in 2020 pension expense was mainly due to plan settlement in US. The increase in pension expense in 2019 of $7 million was mainly due to a prior year decrease in discount rates.
The Company contributed $26 million to its defined benefit plans in 2020 and $17 million in 2019. The Company expects to contribute $21 million to these plans in 2021 and is currently projecting a yearly funding at approximately the same level in the subsequent years.
For further information about retirement plans see Note 19 to the Consolidated Financial Statements included herein.
SHAREHOLDER RETURNS
Total cash dividends paid were $54 million in 2020 and $217 million in 2019. The Company cancelled its dividends from the second quarter 2020 due to the COVID-19 pandemic. The Board of Directors has declared no dividend for both the first and second quarter of 2021.
EQUITY
During 2020, total equity increased by $301 million to $2,423 million. This was mainly due to $188 million in net income and $97 million from positive foreign exchange effects.
During 2019, total equity increased by $226 million to $2,122 million. This was mainly due to a net income of $463 million, partly offset by $217 million for dividends to shareholders.
IMPACT OF INFLATION AND RAW MATERIAL PRICES
Inflation has generally not had a significant impact on the Company’s financial position or results of operations. In many growth markets, inflation is relatively high, especially labor inflation. We have managed to offset this negative effect mainly by labor productivity improvements. We are continuously looking at efficiency improvements, however no assurance can be given that this will continue to be possible going forward.
The Company has experienced tailwind from raw material prices in 2020. COVID-19 caused raw material market prices to decrease in first half of 2020, followed by a surge in prices in the second half of 2020. This surge was connected to the ramp-up in the automotive industry during the second half of 2020. Due to the nature of Autoliv’s raw material contracts with certain suppliers, this results in a time lag for raw material price impacts for certain raw materials. Therefore, Autoliv has not yet experienced the full impact of the raw material price increases that began in the second half of 2020.
PERSONNEL
Total headcount (permanent employees and temporary personnel) has risen by 4.6% from the beginning of 2019 to 68,200 at the end of 2020. This reflects the strong order intake we have recognized in past years, which drive the need for additional manufacturing.
During 2020, headcount increased by 3,000 people, compared to the 1,500 decrease during 2019. During 2020, indirect headcount decreased by 800 people or 4.5%, mostly related to the structural efficiency programs.
At the end of 2020, 82% of total headcount was in Best Cost Country compared to 81% at the end of 2019. Furthermore, 74% of total headcount at December 31, 2020 was direct workers in manufacturing compared to 71% at the end of 2019, while 11% of total headcount at December 31, 2020 were temporary employees, compared to 10% at the end of 2019.
Compensation to directors and executive officers is reported, as is customary for U.S. public companies, in Autoliv’s proxy statement, which will be available to shareholders in March 2021.
Treasury Activities
CREDIT ARRANGEMENTS
In December 2020, the Company repaid the €100 million of 18-month floating rate notes under its EMTN program. It was originally issued in June 2019 and carried a coupon of 3M Euribor +0.50%.
In June 2020, the Company repaid its 3-year loan from Swedish Export Credit Corporation of SEK 1,200 million in advance which carried a floating interest rate of 3M STIBOR +0.54%. At the same time, the Company utilized its new SEK 6,000 million facility with Swedish Export Credit Corporation which was signed in May 2020. The SEK 6,000 million facility was utilized in two different loans. One SEK 3,000 million loan maturing in 2022 carrying a floating interest rate of 3M STIBOR +1,35% and one SEK 3,000 million loan maturing in 2025 carrying a floating interest rate of 3M STIBOR +1,85%.
In June 2018, the Company priced and issued 5-year notes for a total of €500 million in the Eurobond market. The notes carry a coupon of 0.75%.
In July 2016, the Company refinanced its existing revolving credit facility (RCF) of $1,100 million. The facility, syndicated among 14 banks, originally maturing in July 2021 with two extension options, each for an additional year. The extension options have been used by the Company and the maturity date for the facility has been extended to July 2023. The Company pays a commitment fee on the undrawn amount of 0.1%, representing 35% of the applicable margin, which is 0.375% (given the Company’s rating of “BBB” from S&P Global Ratings at May 28, 2020). Borrowings under the facility are unsecured and bear interest based on the relevant LIBOR or IBOR rate.
At December 31, 2020, the Company’s unutilized long-term credit facilities were $1,100 million, represented by the RCF. This facility is not subject to any financial covenants nor is any other substantial financing of Autoliv. The Company had a net debt position (see section Non-U.S. GAAP Performance Measures) at December 31, 2020 and 2019 of $1,214 million and $1,650 million, respectively.
In 2014, the Company issued and sold long-term debt securities in a U.S. Private Placement pursuant to a Note Purchase and Guaranty Agreement dated April 23, 2014, by and among Autoliv ASP Inc., the Company and the purchasers listed therein. As of December 31, 2020, $1,042 million remains outstanding from the 2014 issuance. See Note 12 to the Consolidated Financial Statements included herein for additional information.
During 2020 and 2019, the Company sold receivables and discounted notes related to selected customers. These factoring arrangements increase cash while reducing accounts receivable and customer risks. At December 31, 2020, the Company had received $161 million for sold receivables without recourse and discounted notes with a discount cost of $3 million during the year, compared to $163 million at December 31, 2019 with a discount cost of $3 million recorded in Other non-operating items, net.
In May 2020, Autoliv’s long-term credit rating was downgraded from BBB+ to BBB by S&P Global Ratings with stable outlook on the rating. The company aims to maintain a strong investment grade credit rating.
NUMBER OF SHARES
At December 31, 2020, 87.4 million shares were outstanding (net of 15.4 million treasury shares), a 0.2% increase from 87.2 million one year earlier.
The number of shares outstanding is expected to increase by 0.5 million when all Restricted Stock Units (RSU) and Performance Shares (PSs) vest and if all stock options (SOs) to key employees are exercised, see Note 17 to the Consolidated Financial Statements included herein.
In total, Autoliv has repurchased 44.5 million shares under its stock repurchase program between May 2000 and December 2020 for cash of $2,498 million, including commissions. The average cost per share for all repurchased shares to date is $56.13. Purchases can be made from time to time as market and business conditions warrant in open market, negotiated or block transactions. There is no expiration date for the repurchase program in order to provide management flexibility in the Company’s share repurchases. No stock repurchases were made in 2020.
Contractual Obligations and Commitments
AGGREGATE CONTRACTUAL OBLIGATIONS1)
Payments due by Period
(DOLLARS IN MILLIONS)
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Debt obligations
$
2,387
$
$
$
$
Fixed-interest obligations
Operating lease obligations
Pension contribution requirements2)
-
-
-
Other non-current liabilities reflected on the balance sheet
-
Total
$
2,781
$
$
1,114
$
$
1)
Excludes contingent liabilities arising from litigation, arbitration, regulatory actions or income taxes.
2)
Expected contributions for funded and unfunded defined benefit plans exclude payments beyond 2020.
Contractual obligations include debt, lease and purchase obligations that are enforceable and legally binding on the Company. Non-controlling interest and restructuring obligations are not included in this table. The major employee obligations as a result of restructuring are disclosed in Note 12 to Consolidated Financial Statements included herein.
Debt obligations: For material contractual provisions, see Note 14 to the Consolidated Financial Statements included herein.
Fixed-interest obligations: These obligations include interest on debt and credit agreements relating to periods after December 31, 2020, excluding fees on the revolving credit facility and interest on debts with no defined amortization plan.
Operating lease obligations: These obligations represent the payment obligations (undiscounted cash flows) under leases classified as operating leases. The Company leases certain offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment. Such operating leases, some of which are non-cancelable and include renewals, expire on various dates. Capital lease obligations are not material. See Note 4 to the Consolidated Financial Statements included herein.
Unconditional purchase obligations: There are no unconditional purchase obligations other than short-term obligations related to inventory, services, tooling, and property, plant and equipment purchased in the ordinary course of business.
Purchase agreements with suppliers entered into in the ordinary course of business do not generally include fixed quantities. Quantities and delivery dates are established in “call off plans” accessible electronically for all customers and suppliers involved. Communicated “call off plans” for production material from suppliers are normally reflected in equivalent commitments from Autoliv customers.
Pension contribution requirements: The Company sponsors defined benefit plans that cover a significant portion of our U.S. employees and certain non-U.S. employees. The pension plans in the U.S. are funded in conformity with the minimum funding requirements of the Pension Protection Act of 2006. Funding for our pension plans in other countries is based upon plan provisions, actuarial recommendations and/or statutory requirements.
In 2021, the expected contribution to all plans, including direct payments to retirees, is $21 million, of which the major contribution is $13 million for our U.S. pension plans. Due to volatility associated with future changes in interest rates and plan asset returns, the Company cannot predict with reasonable reliability the timing and amounts of future funding requirements, and therefore the above excludes payments beyond 2021. We may elect to make contributions in excess of the minimum funding requirements for the U.S. plans in response to investment performance and changes in interest rates, or when we believe that it is financially advantageous to do so and based on other capital requirements. See Note 19 to the Consolidated Financial Statements included herein.
Other non-current liabilities reflected on the balance sheet: These consist mainly of local governmental liabilities.
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.
Risks and Risk Management
The Company is exposed to several categories of risks. They can broadly be categorized as operational risks, strategic risks and financial risks. Some of the major risks in each category are described below. There are also other risks that could have a material effect on the Company’s results and financial position, and the description below is not complete but should be read in conjunction with the discussion of risks described in Item 1A above, which contains a description of our material risks.
As described below, the Company has taken several mitigating actions, applied numerous strategies, adopted policies, and introduced control and reporting systems to reduce and mitigate these risks. In addition, the Company from time to time identifies and evaluates emerging or changing risks to the Company in order to ensure that identified risks and related risk management are updated in this fast-moving environment.
Operational Risks
LIGHT VEHICLE PRODUCTION
Around 30% of Autoliv’s costs are fixed; therefore, short-term earnings are dependent on sales volumes and highly dependent on capacity utilization in the Company’s plants.
Global LVP is an indicator of the Company’s sales development. Ultimately, however, sales are determined by the production levels for the individual vehicle models for which Autoliv is a supplier (see Dependence on Customers). The Company’s sales are split over several hundred contracts covering almost 1,200 vehicle models. This moderates the effect of changes in vehicle demand of individual countries and regions as well as production issues. The risk of fluctuating sales has also been mitigated by Autoliv’s rapid expansion in Asia and other growth markets, which has reduced the Company’s former high dependence on sales in Europe to a diversified mix with Europe, the Americas and Asia each accounting for roughly 30% to 40% of our 2020 total sales.
It is the Company’s strategy to reduce the risk of fluctuating LVP by using a high number of temporary employees instead of permanent employees in direct production. During 2020 and 2019, the level of temporary employees in relation to total headcount in direct production was 13% and 11%, respectively. To reduce the potential impact of unusual fluctuations in the production of vehicle models supplied by the Company such as during the financial crisis of 2008 and 2009 and the Covid-19 pandemic in 2020- it is also necessary for the Company to be prepared to quickly adapt the level of permanent employees as well as fixed cost production capacity.
PRICING PRESSURE
Pricing pressure from customers is an inherent part of the automotive components business. The extent of price reductions varies from year to year and takes the form of one time give backs, reductions in direct sales prices or discounted reimbursements for engineering work.
In response, Autoliv is continuously engaged in efforts to reduce costs and to provide customers added value by developing new products. Generally, the speed by which these cost-reduction programs generate results will, to a large extent, determine the future profitability of the Company. The various cost-reduction programs are, to a considerable extent, interrelated. This interrelationship makes it difficult to isolate the impact of costs on any single program, therefore, we monitor key measures such as costs in relation to sales and productivity.
COMPONENT COSTS
The cost of direct materials was approximately 50% of sales in 2020.
The main raw materials being used as input material for Autoliv operations are steel, textiles, plastic and non-ferrous metals. We still see effects coming from the import tariffs imposed by the United States and other countries, on steel and aluminum products. These import tariffs are impacting the raw material market and creating pricing and availability uncertainties.
We take several actions to mitigate raw material price increases, such as competitive sourcing and exploring alternative materials.
LEGAL
The Company is involved from time to time in regulatory, commercial and contractual legal proceedings that may be significant, and the Company’s business may suffer as a result of adverse outcomes of current or future legal proceedings. These claims may include, without limitation, commercial or contractual disputes, including disputes with the Company’s suppliers and customers, intellectual property matters, alleged violations of laws, rules or regulations, governmental investigations, personal injury claims, product liability claims, environmental issues, tax and customs matters, and employment matters.
A substantial legal liability or adverse regulatory outcome and the substantial cost to defend the litigation or regulatory proceedings may have an adverse effect on the Company’s business, operating results, financial condition, cash flows and reputation.
No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s profitability and consolidated financial position, or that reserves or insurance will mitigate such impact. See Note 18 to the Consolidated Financial Statements included herein and Item 3 - Legal Proceedings.
PRODUCT WARRANTY AND RECALLS
If our products are alleged to fail to perform as expected or are defective, the Company may be exposed to various claims for damages and compensation. Such claims may result in costs and other losses to the Company even where the relevant product is eventually found to have functioned properly. If a product (actually or allegedly) fails to perform as expected or is defective, we may face warranty and recall claims. If such actual or alleged failure or defect results, or is alleged to result, in bodily injury and/or property damage, we may also face product liability and other claims. The Company may experience material warranty, recall, product or other liability claims or losses in the future, and the Company may incur significant cost to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. Government safety regulators also have policies and practices with respect to recalls. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. In addition, with global platforms and procedures, vehicle manufacturers are increasingly evaluating our quality performance on a global basis. Any one or more quality, warranty or other recall issue(s), including the ones affecting few units and/or having a small financial impact, may cause a vehicle manufacturer to implement measures which may have a severe impact on the Company’s operations, such as a temporary or prolonged suspension of new orders or the Company’s ability to bid for new business.
In addition, over time, there is a risk that the number of vehicles affected by a failure or defect will increase significantly (as would the Company’s costs), since our products often use global designs and are increasingly based on or utilize the same or similar parts, components or solutions.
Although quality has always been a central focus in the automotive industry, especially for safety products, our customers and regulators have become increasingly attentive to quality with even less tolerance for any deviations, which has resulted in an increase in the number of automotive recalls. This trend is likely to continue as automobile manufacturers introduce even stricter quality requirements and regulating agencies and other authorities increase the level of scrutiny given to vehicle safety issues. A warranty recall or a product liability claim brought against the Company in excess of the Company’s insurance may have a material adverse effect on its business and/or financial results. Vehicle manufacturers are also increasingly requiring their external suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties when the product supplied did not perform as represented. Additionally, a customer may not allow us to bid for expiring or new business until certain remedial steps have been taken. Accordingly, the future costs of warranty claims by the Company’s customers may be material.
The Company’s warranty reserves are based upon management’s best estimates of amounts necessary to settle future and existing claims. Management regularly evaluates the appropriateness of these reserves and adjusts them when we believe it is appropriate to do so. However, the final amounts determined to be due could differ materially from the Company’s recorded estimates. We believe our established reserves are adequate to cover potential warranty settlements typically seen in our business.
The Company’s strategy is to follow a stringent procedure when developing new products and technologies and to apply a proactive “zero-defect” quality policy (see section Quality Management). In addition, the Company maintains a program of insurance, which may include commercial insurance, self-insurance, or a combination of both approaches, for potential recall and product liability claims in amounts and on terms that it believes are reasonable and prudent based on our prior claims experience. However, such insurance may not be sufficient to cover every possible claim that can arise in the Company’s businesses, now or in the future, or may not always will be available should the Company, now or in the future, wish to extend, renew, increase or otherwise adjust such insurance. In recent years, the cost of recall and product liability insurance as well as the Company’s level of self-insurance and deductibles has increased. Management’s decision regarding what insurance to procure is also impacted by the cost for such insurance. As a result, the Company may face material losses in excess of the insurance coverage procured. A substantial recall or liability in excess of coverage levels could therefore have a material adverse effect on the Company.
ENVIRONMENTAL
Most of the Company’s manufacturing processes consist of the assembly of components. As a result, the environmental impact from the Company’s plants is generally modest. While the Company’s businesses from time to time are subject to environmental investigations, there are no material environmental-related cases pending against the Company. Therefore, Autoliv does not incur (or expect to incur) any material costs or capital expenditures associated with maintaining facilities compliant with U.S. or non-U.S. environmental requirements. To reduce environmental risk, the Company has implemented an environmental management system in all plants globally and has adopted an environmental policy (see corporate website www.autoliv.com).
Autoliv is subject to a number of environmental and occupational health and safety laws and regulations. Such requirements are complex and are generally becoming more stringent over time. There can be no assurance that these requirements will not change in the future, or that we will at all times be in compliance with all such requirements and regulations, despite our intention to be. The Company may also find itself subject, possibly due to changes in legislation or other regulation, to environmental liabilities based on the activities of its predecessor entities or of businesses acquired. Such liability could be based on activities which are not related to the Company’s current activities.
TRADE
Autoliv is subject to various international trade regulations and regimes and changes in these regimes could lead to increased compliance costs and costs of raw materials and other components. In addition, political conditions leading to trade conflicts and the imposition of tariffs or other trade barriers between countries in which we do business could increase our costs of doing business.
Strategic Risks
REGULATIONS
In addition to vehicle production, the Company’s market is driven by the safety content per vehicle, which is affected by new regulations and new vehicle rating programs, in addition to consumer demand for new safety technologies.
The most important regulations are the seatbelt installation laws that exist in all vehicle-producing countries. Many countries also have strict enforcement laws on the wearing of seatbelts. Another significant vehicle safety regulation is the U.S. federal law that, since 1997, requires frontal airbags for both the driver and the front-seat passenger in all new vehicles sold in the U.S.
In 2007, the U.S. adopted new regulations for head impact and enhanced thorax protection in side impact crashes, which now have been fully phased-in. China introduced a vehicle rating program in 2006, and Latin America introduced a similar program in 2010 followed by ASEAN NCAP in Southeast Asia in 2011, and Global NCAP that is rating vehicles sold in emerging markets (like India). The United States upgraded its vehicle rating program in 2010 and Europe upgraded the Euro NCAP rating system during 2018. Euro NCAP has initiated the next upgrade, which will be fully implemented by 2025. Japan and South Korea are continuously upgrading their respective vehicle rating programs, JNCAP and KNCAP respectively. India requires frontal airbags for the driver from July 2019, and will require passenger airbags from 2021 for all new passenger vehicles (M1). Vehicles with automated driving systems (ADS) are expected to provide additional opportunities through integration of protective safety systems with ADAS technologies, as well as new vehicle interior layouts and seating configurations. There are also other plans for improved automotive safety, both in these countries and others that could affect the Company’s market. However, there can be no assurance that changes in regulations will not adversely affect the demand for the Company’s products or, at least, result in a slower increase in the demand for them.
DEPENDENCE ON CUSTOMERS
In 2020, the five largest vehicle manufacturers accounted for around 51% of global LVP and the ten largest manufacturers for around 75%.
As a result of this highly consolidated market, the Company is dependent on a relatively small number of customers with strong purchasing power.
In 2020, the Company’s five largest customers accounted for around 53% of revenues and the ten largest customers for around 81% of revenues. For a list of the largest customers, see Note 21 Segment Information to the Consolidated Financial Statements included herein.
Our largest customer contract accounted for around 2% of sales in 2020. Although business with every major customer is split into at least several contracts (usually one contract per vehicle platform) and although the customer base has become more balanced and diversified as a result of Autoliv’s significant expansion in China and other rapidly-growing markets, the loss of all business from a major customer (whether by a cancellation of existing contracts or not awarding Autoliv new business), the consolidation of one or more major customers or a bankruptcy of a major customer could have a material adverse effect on the Company. In addition, a quality issue, shortcomings in our service to a customer or uncompetitive prices or products could result in the customer not awarding us new business, which will gradually have a negative impact on our sales when current contracts start to expire.
CUSTOMER PAYMENT RISK
Another risk related to our customers is the risk that one or more of our customers will be unable to pay their invoices that become due. We seek to limit this customer payment risk by invoicing our major customers through their local subsidiaries in each country, even for global contracts. By invoicing this way, we attempt to avoid having the receivables with a multinational customer group exposed to the risk that a bankruptcy or similar event in one country would put all receivables with such customer group at risk. In each country, we also monitor invoices becoming overdue.
Even so, if a major customer is unable to fulfill its payment obligations, it is likely that we would be forced to record a substantial loss on such receivables.
DEPENDENCE ON SUPPLIERS
Autoliv relies on internal and/or external suppliers in order to meet its delivery commitments to the customers. In some cases, suppliers are dictated by the customers based on very specific qualification requirements. Autoliv supply chain organization is reviewing sourcing risks and actively working on mitigating related supply chain risks.
Autoliv’s ambition is to maintain an optimal number of suppliers in all significant component technologies.
NEW COMPETITION
Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. OEMs rigorously evaluate suppliers on the basis of product quality, price, reliability and delivery as well as engineering capabilities, technical expertise, product innovation, financial viability, application of lean principles, operational flexibility, customer service and overall management. To maintain our competitiveness and position as a market leader, it is important to focus on all of these aspects of supplier evaluation and selection.
Although the market for occupant restraint systems has undergone a significant consolidation during the past ten years, the passive safety market remains very competitive. It cannot be excluded that additional competitors, both global and local, will seek to enter the market or grow beyond their current Keiretsu group or traditional customer base. Particularly in China, South Korea and Japan there are numerous small domestic competitors often supplying just one OEM group
PATENTS AND PROPRIETARY TECHNOLOGY
The Company’s strategy is to protect its innovations with patents, and to vigorously protect and defend its patents, trademarks and know-how against infringement and unauthorized use. At the end of 2020, the Company held more than 6,300 patents and patents applications. These patents expire on various dates during the period from 2021 to 2040. The expiration of any single patent is not expected to have a material adverse effect on the Company’s financial results.
Although the Company believes that its products and technology do not infringe upon the proprietary rights of others, there can be no assurance that third parties will not assert infringement claims against the Company in the future. Also, there can be no assurance that any patent now owned by the Company will afford protection against competitors that develop similar technology. As the Company continues to expand its products and expand into new businesses, it will increase its exposure to intellectual property claims.
Financial Risks
The Company is exposed to financial risks through its operations. To reduce the financial risks and to take advantage of economies of scale, the Company has a central treasury department supporting operations and management. The treasury department handles external financial transactions and functions as the Company’s in-house bank for its subsidiaries.
The Board of Directors monitors compliance with the financial risk policy on an on-going basis. For information about specific financial risks, see Item 7A - Quantitative and Qualitative Disclosures about Market Risk.
Significant Accounting Policies and Critical Accounting Estimates
NEW ACCOUNTING STANDARDS
The Company has considered all applicable recently issued accounting standards. The Company has summarized in Note 2 to the Consolidated Financial Statements each of the recently issued accounting standards and stated the impact or whether management is continuing to assess the impact.
The Company adopted the new standard for measurement of credit losses (Topic 326) on January 1, 2020. The adoption did not have a material impact on the consolidated financial statements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included herein. Senior management has discussed the development and selection of critical accounting estimates and disclosures with the Audit Committee of the Board of Directors. The application of accounting policies necessarily requires judgments and the use of estimates by a Company’s management. Actual results could differ from these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, and management’s evaluation of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. The Company considers an accounting estimate to be critical if:
•
It requires management to make assumptions about matters that were uncertain at the time of the estimate, and
•
Changes in the estimate or different estimates that could have been selected would have had a material impact on our financial condition or results of operations. The accounting estimates that require management’s most significant judgments
include the estimation of variable considerations, estimations associated with purchase price allocations regarding business combinations, assessment of recoverability of goodwill and intangible assets, estimation of pension benefit obligations based on actuarial assumptions, estimation of accruals for warranty and recalls , restructuring charges, uncertain tax positions, valuation allowances and legal proceedings.
The Company has summarized its critical accounting policies requiring judgment below. These might change over time based on the current facts and circumstances.
REVENUE RECOGNITION
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in a contract with a customer, adjusted for any variable consideration (i.e. price concessions) and estimated at contract inception. The estimated amount of variable consideration that will be received by the Company are based on historical experience and trends, management´s understanding of the status of negotiations with customers and anticipated future pricing strategies. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer.
In addition, from time to time, the Company may make payments to customers in connection with ongoing and future business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments unless the payment concession can be clearly linked to the future business award. If the payments are capitalized, the amounts are amortized to revenue as the related goods are transferred.
INVENTORY RESERVES
Inventories are evaluated based on individual or, in some cases, groups of inventory items. Reserves are established to reduce the value of inventories to the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period.
There can be no assurance that the amount ultimately realized for inventories will not be materially different than that assumed in the calculation of the reserves.
GOODWILL
The Company performs an annual impairment test of goodwill in the fourth quarter of each year following the Company’s annual forecasting process. In October 2020 the Company compared the fair value of its goodwill to its carrying value and there were no impairments.
RECALL PROVISIONS AND WARRANTY OBLIGATIONS
The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably estimate costs. Recall costs are costs incurred when the customer decides to formally recall a product due to a known or suspected safety concern. Product recall costs are estimated based on the expected cost of replacing the product and the customer´s cost of carrying out the recall, which is affected by the number of vehicles subject to recall and the cost of labor and materials to remove and replace the defective product. In some cases, portions of the product recall costs are reimbursed by an insurance company. Actual costs incurred could differ from the amounts estimated, requiring adjustments to these reserves in future periods. It is possible that changes in our assumptions or future product recall issues could materially affect our financial position, results of operations or cash flows.
Estimating warranty obligations requires the Company to forecast the resolution of existing claims and expected future claims on products sold. The Company bases the estimate on historical trends of units sold and payment amounts, combined with our current understanding of the status of existing claims and discussions with our customers. These estimates are re-evaluated on an ongoing basis. Actual warranty obligations could differ from the amounts estimated requiring adjustments to existing reserves in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing these estimates, changes in our assumptions could materially affect our results of operations.
RESTRUCTURING PROVISIONS
The Company defines restructuring expense to include costs directly associated with capacity alignment programs, plus exit or disposal activities. Estimates of restructuring charges are based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a time frame such that significant changes to the exit plan are not likely.
Due to inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.
DEFINED BENEFIT PENSION PLANS
The Company has defined benefit pension plans in eleven countries. The most significant plans exist in the U.S. These plans represent approximately 60% of the Company’s total pension benefit obligation. See Note 19 to the Consolidated Financial Statements included herein.
The Company, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected benefit obligation and annual pension expense. For the U.S. plans, the assumptions used for calculating the 2020 pension expense were a discount rate of 3.25%, expected rate of increase in compensation levels of 2.65%, and an expected long-term rate of return on plan assets of 5.05%.
The assumptions used in calculating the U.S. benefit obligations disclosed as of December 31, 2020 were a discount rate of 2.35% and an expected age-based rate of increase in compensation levels of 2.65%. The discount rate for the U.S. plans has been set based on the rates of return of high-quality fixed-income investments currently available at the measurement date and are expected to be available during the period the benefits will be paid. The expected rate of increase in compensation levels and long-term return on plan assets are determined based on a number of factors and must take into account long-term expectations and reflect the financial environment in the respective local markets. At December 31, 2020, 42% of the U.S. plan assets were invested in equities, which is in-line with the target of 40%.
The table below illustrates the sensitivity of the U.S. net periodic benefit cost and projected U.S. benefit obligation to a 1pp change in the discount rate, decrease in return on plan assets and increase in compensation levels for the U.S. plans (in millions). The use of actuarial assumptions is an area of management’s estimate.
Assumption
(in millions)
Change
2020 net
periodic
benefit
cost increase
(decrease)
2020 projected
benefit
obligation
increase
(decrease)
Discount rate
1pp increase
$
(0
)
$
(40
)
Discount rate
1pp decrease
Compensation levels
1pp increase
Return on plan assets
1pp decrease
n/a
INCOME TAXES
Significant judgment is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions.
Although the Company believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. See also the discussion of reserves for uncertain tax positions, and the determinations of valuation allowances on our deferred tax assets in Note 6, Income Taxes.
CONTINGENT LIABILITIES
Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability or other matters.
The Company diligently defends itself in such matters and, in addition, carries insurance coverage to the extent reasonably available against insurable risks.
The Company records liabilities for claims, lawsuits and proceedings when they are probable and it is possible to reasonably estimate the cost of such liabilities. Legal costs expected to be incurred in connection with a loss contingency are expensed as such costs are incurred.
A loss contingency is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued management evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See also Note 2 to the Consolidated Financial Statements of this Annual Report included with this Form 10-K for information about how these risks are quantified.
CURRENCY RISKS
1. Transaction Exposure and Revaluation effects
Transaction exposure arises because the cost of a product originates in one currency and the product is sold in another currency. Revaluation effects come from valuation of assets denominated in other currencies than the reporting currency of each unit.
The Company’s net transaction exposure for 2020 was approximately $2.2 billion. The four largest net exposures are U.S. dollars (sell) against the Mexican Peso, Romanian Lei (buy) against the Euro, U.S. dollars (buy) against Korean Won, USD (sell) against Canadian dollar. Together these currencies accounted for approximately 50% of the Company’s net currency transaction exposure.
Since the Company can only effectively hedge these currency flows in the short term, periodic hedging would only reduce the impact of fluctuations temporarily. Over time, periodic hedging would postpone but not reduce the impact of fluctuations. In addition, the net exposure is limited to only around one quarter of net sales and is made up of around 50 different currency pairs with exposures of more than $1 million each. Autoliv generally does not hedge these flows.
2. Translation Exposure in the Income Statement and Balance Sheet
Another effect of exchange rate fluctuations arises when the income statements of non-U.S. subsidiaries are translated into U.S. dollars. Outside the U.S., the Company’s most significant currency is the Euro. We estimate that 29% of the Company’s net sales will be denominated in Euro or other European currencies during 2021, while 22% of net sales is estimated to be denominated in U.S. dollars.
The Company estimates that a 1% increase in the value of the U.S. dollar versus European currencies will decrease reported U.S. dollar annual net sales in 2021 by $25 million or by 0.3% while operating income for 2021 will decline by approximately 0.3% or by about $3 million, assuming reported corporate average margin.
The Company’s policy is not to hedge this type of translation exposure.
A translation exposure also arises when the balance sheets of non-U.S. subsidiaries are translated into U.S. dollars. The policy of the Company is to finance major subsidiaries in the country’s local currency and to minimize the amounts held by subsidiaries in foreign currency accounts.
Consequently, changes in currency rates relating to funding and foreign currency accounts normally have a small impact on the Company’s income.
In 2020 and 2019, the impact from the Company’s currency exposure were not material.
INTEREST RATE RISK
Interest rate risk refers to the risk that interest rate changes will affect the Company’s borrowing costs. Autoliv’s interest rate risk policy states that the average interest rate fixing period should be minimum 1 year and maximum 5 years.
At December 31, 2020, the average interest rate fixing period for the Company’s outstanding debt was 2.4 years, and at December 31, 2019, the average interest rate fixing period for the Company’s outstanding debt was 3.4 years.
Given the Company’s current capital structure, we estimate that a one-percentage point interest rate increase would decrease net interest expense by approximately $4.2 million, both in 2021 and 2022. This is based on the capital structure at the end of 2020 when the gross fixed-rate debt was $1,651 million while the Company had a net debt position of $1,214 million (see section Non-U.S. GAAP Performance Measures). Thus, a change in the interest rate environment would not have a notable impact on the Company’s interest expense. As of December 31, 2020, the Company had $1,178 million in cash and cash equivalents of which the majority were subject to a floating interest rate. Taking the cash and cash equivalents of $1,178 million (which is primarily subject to floating interest rates) minus the portion of debt carrying floating interest rates, we estimated that a one-percentage point interest rate increase would decrease net interest expense by approximately $4.2 million, both in 2021 and 2022.
Fixed interest rate debt is achieved both by issuing fixed rate notes and through interest rate swaps. The most notable debt carrying fixed interest rates is the $1.0 billion U.S. private placement notes issued in 2014 and in June 2018, the Company issued €500 million of 5-year notes in the Eurobond market, see Note 14 to the Consolidated Financial Statements included herein.
Given the Company’s capital structure at December 31, 2019, we estimated that a one-percentage point interest rate increase would increase net interest expense by approximately $0.5 million. This was based on the capital structure at the end of 2019 when the gross fixed-rate debt was $1,598 million while the Company had a net debt position of $1,650 million. As of December 31, 2019, the Company had $445 million in cash and cash equivalents of which the majority were subject to a floating interest rate. Taking the cash and cash equivalents of $445 million (which is primarily subject to floating interest rates) minus the portion of debt carrying floating interest rates, we estimated that a one-percentage point interest rate increase would increase net interest expense by approximately $0.5 million.
As the Company had more cash and cash equivalents at the end of 2020 of which the majority were subject to a floating interest rate, we estimated that a one-percentage point interest rate increase would decrease net interest expense.
FINANCING RISK
Financing risk refers to the risk that it will be difficult and/or expensive to finance new or existing debt to meet the financing needs of the Autoliv Group.
The management of the financing risk ensures access to funding in a cost-efficient way by diversification of funding sources and debt maturities.
Autoliv has diversified its long-term funding sources by issuing notes in the USPP and Eurobond markets, and by signing a long-term credit agreement with 14 banks. The Company also has a lending facility with the Swedish Export Credit Corporation. The Company also has established programs for short-term issuance of commercial paper in the Swedish and US markets and short-term credit agreements, e.g. bank overdrafts and money market loans.
To ensure diversification of debt maturities, no more than 20% of the Autoliv Group’s total debt may mature the next 12 months, unless such maturities (in excess of 20%) are covered by unutilized committed credit facilities with maturity in excess of 12 months. Per December 31, 2020, 13% corresponding to $302million of the Autoliv Group’s total debt had maturity less than 12 months. This amount was fully covered by unutilized committed credit facilities with maturity in excess of 12 months.
CAPITAL STRUCTURE AND CREDIT RATING
The overall objective relating to Autoliv’s target capital structure and credit rating is to provide the Company with sufficient flexibility to manage the inherent risks and cyclicality in Autoliv’s business and allow the Company to realize strategic opportunities and fund growth initiatives while creating shareholder value.
Autoliv is committed to maintain a “strong investment grade credit rating”. As of December 31, 2020, the Company had a long-term credit rating from S&P Global Ratings (“S&P”) of BBB.
The amount of interest-bearing debt held impacts the future financial flexibility as well as the credit rating. Management uses the non-U.S. GAAP measure “Leverage Ratio” to analyze the amount of debt the Company can incur under its debt policy. Management believes that this policy also provides guidance to credit and equity investors regarding the extent to which the Company would be prepared to leverage its operations. Autoliv’s long-term target for the leverage ratio (sum of net debt plus pension liabilities divided by EBITDA) is 1.0x with the aim to operate within the range of 0.5x to 1.5x. At December 31, 2020, the leverage ratio (non-U.S. GAAP measure, see calculation table below) was 1.8. For details and calculation of leverage ratio, refer to the table below.
CALCULATION OF LEVERAGE RATIO (DOLLARS IN MILLIONS)
December 31, 2020
December 31, 2019
Net debt1)
$
1,214.2
$
1,649.8
Pension liabilities
248.2
240.2
Debt per the Policy
1,462.4
1,890.0
Net income2)
188.3
462.8
Income taxes2)
102.9
185.6
Interest expense, net2,3)
68.4
65.9
Depreciation and amortization of intangibles2)
370.9
350.6
Antitrust related matters and capacity alignments and separation costs2)
99.5
48.6
EBITDA per the Policy (Adjusted EBITDA)
$
830.0
$
1,113.5
Leverage ratio
1.8
1.7
1)
Net debt is short- and long-term debt and debt-related derivatives less cash and cash equivalents (non-U.S. GAAP measure).
2)
Latest 12 months.
3)
Interest expense, net is interest expense including cost for extinguishment of debt, if any, less interest income.
CREDIT RISK IN FINANCIAL MARKETS
Credit risk refers to the risk of a financial counterparty being unable to fulfill an agreed-upon obligation.
In the Company’s financial operations, credit risk arises when cash is deposited with banks and when entering into forward exchange agreements, swap contracts or other financial instruments.
The policy of the Company is to work with banks that have a high credit rating and that participate in Autoliv’s financing.
To further reduce credit risk, deposits and financial instruments can only be entered into with core banks up to a calculated risk amount of $150 million per bank for banks rated A- or above and up to $50 million for banks rated BBB+. In addition, deposits can be made in U.S. and Swedish government short-term notes and certain AAA rated money market funds, as approved by the Company’s Board of Directors. At year-end 2020, the Company held $392 million in AAA rated money market funds.
IMPAIRMENT RISK
Impairment risk refers to the risk that the Company will write down a material amount of its goodwill of close to $1.4 billion as of December 31, 2020. This risk is assessed at least annually in the fourth quarter each year when the Company performs its impairment testing.
In 2020 the company performed a quantitative impairment testing by calculating the fair value of its goodwill. The estimated fair market value of goodwill is determined by the discounted cash flow method. The Company discounts projected operating cash flows using its weighted average cost of capital. Estimating the fair value requires the Company to make judgments about appropriate discount rates, growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows.
It has been concluded that presently the Company is not “at risk” of failing the goodwill impairment test. However, there can be no assurance that goodwill will not be impaired due to future significant declines in LVP, due to our technologies or products becoming obsolete or for any other reason. We could also acquire companies where goodwill could turn out to be less resilient to deteriorations in external conditions. See also discussion under Goodwill and Intangible Assets in Note 2 and Note 11 to the Consolidated Financial Statements included herein.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The Consolidated Balance Sheets of Autoliv as of December 31, 2020 and 2019 and the Consolidated Statements of Income, Comprehensive Income, Cash Flows and Total Equity for each of the three years in the period ended December 31, 2020, the Notes to the Consolidated Financial Statements, and the Reports of the Independent Registered Public Accounting Firm are included below.
All of the schedules specified under Regulation S-X to be provided by Autoliv have been omitted either because they are not applicable, are not required or the information required is included in the financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Autoliv, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Autoliv, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, total equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue recognition - Variable consideration
Description of the
Matter
As discussed in Note 2 to the consolidated financial statements, the Company measures revenue based on consideration specified in a contract with a customer, adjusted for any variable consideration. Variability in consideration typically results from price concessions. The estimated amount of variable consideration that will be received by the Company is based on assumptions that include historical experience and trends, management’s assessment of the probable outcome of its negotiations with customers and anticipated future pricing strategies. Estimating variable consideration to be received requires significant judgments by management that affect the amount of revenue recorded in the financial statements.
Auditing the amount of variable consideration expected to be received was complex because of the uncertainty inherent in the factors discussed above that management uses in its calculations.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls related to variable consideration, including controls related to management’s review of ongoing negotiations with customers.
To test the estimated amount of variable consideration expected to be received, our audit procedures included, among others, evaluating the Company’s estimation methodology and testing the significant factors used in the calculations, as discussed above. These procedures included obtaining information from management and sales department representatives who were responsible for negotiations with customers to assess the reasonableness of assumptions related to variable considerations relative to current negotiations. We evaluated the Company’s ability to estimate by comparing actual results to previous estimates and judgments made by management. We also performed journal entry testing focused on unusual and manual entries affecting revenue and on entries that could be indicative of price concessions that may not have been considered in the Company’s assumptions and calculations.
Product recalls
Description of the
Matter
As discussed in Notes 2 and 13 to the consolidated financial statements, the Company is exposed to product liability claims in the event its products fail to perform as represented and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably estimate costs. Actual costs incurred could differ from the amounts estimated, requiring adjustments to these reserves in future periods. Provisions for product recalls are estimated based on the expected cost of replacing the product and the customer’s cost of carrying out the recall, which is affected by the number of vehicles subject to recall and the cost of labor and materials to remove and replace the defective product.
Auditing the product recall liabilities was complex due to the uncertainty inherent in the assumptions and estimates management uses to calculate these liability balances. These significant assumptions and estimates include the nature, likelihood, timing, and anticipated cost of known and potential claims.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s product recall process, including controls related to management’s review of the estimation calculations and significant assumptions discussed above.
To test product recall liabilities, our audit procedures included, among others, evaluating the Company’s estimation methodology and testing the significant assumptions discussed above. We obtained information from Company personnel who are responsible for monitoring the status of product recalls with customers to assess the reasonableness of assumptions used. We evaluated the Company’s ability to estimate by comparing actual results to previous estimates and judgments made by management. We also obtained letters from the Company’s external legal counsel addressing material claims against the Company, if any, and examined relevant third-party automotive safety regulatory information to identify potential unrecorded product recall liabilities.
/s/ Ernst & Young AB
We have served as the Company´s auditor since 1984.
Stockholm, Sweden
February 19, 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Autoliv, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Autoliv, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Autoliv, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, total equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young AB
Stockholm, Sweden
February 19, 2021
Consolidated Statements of Income
Years ended December 31
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales
Note 21
$
7,447.4
$
8,547.6
$
8,678.2
Cost of sales
(6,200.5
)
(6,963.2
)
(6,966.9
)
Gross profit
1,246.9
1,584.4
1,711.3
Selling, general and administrative expenses
(389.2
)
(398.9
)
(390.3
)
Research, development and engineering expenses, net
(375.5
)
(405.5
)
(412.6
)
Amortization of intangibles
Note 11
(10.0
)
(11.5
)
(11.3
)
Other income (expense), net
Notes 12, 18
(90.1
)
(42.7
)
(211.1
)
Operating income
382.1
725.8
686.0
Income from equity method investment
Note 9
2.3
2.0
3.6
Interest income
4.6
3.6
6.9
Interest expense
Note 14
(73.0
)
(69.5
)
(66.1
)
Other non-operating items, net
(24.8
)
(13.5
)
(18.0
)
Income from continuing operations before income taxes
291.2
648.4
612.4
Income tax expense
Note 6
(102.9
)
(185.6
)
(234.9
)
Income from continuing operations
188.3
462.8
377.5
Loss from discontinued operations, net of income taxes
Note 3
-
-
(193.8
)
Net income
188.3
462.8
183.7
Less: Net income from continuing operations attributable to
non-controlling interest
1.4
1.3
1.6
Less: Net loss from discontinued operations attributable to
non-controlling interest
-
-
(8.3
)
Net income attributable to controlling interest
$
186.9
$
461.5
$
190.4
Amounts attributable to controlling interest:
Net income from continuing operations
$
186.9
$
461.5
$
375.9
Net loss from discontinued operations
-
-
(185.5
)
Net income attributable to controlling interest
$
186.9
$
461.5
$
190.4
Earnings per share continuing operations - basic1)
$
2.14
$
5.29
$
4.32
Loss per share discontinuing operations - basic1)
-
-
(2.13
)
Basic earnings per share
$
2.14
$
5.29
$
2.19
Earnings per share continuing operations - diluted 1)
$
2.14
$
5.29
$
4.31
Loss per share discontinuing operations - diluted 1)
-
-
(2.13
)
Diluted earnings per share
$
2.14
$
5.29
$
2.18
Weighted average number of shares outstanding, net of
treasury shares (in millions)
87.3
87.2
87.1
Weighted average number of shares outstanding, assuming
dilution and net of treasury shares (in millions)
87.5
87.4
87.3
Cash dividend per share - declared
$
-
$
2.48
$
2.48
Cash dividend per share - paid
$
0.62
$
2.48
$
2.46
See Notes to the Consolidated Financial Statements.
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 22 in this Annual Report).
Consolidated Statements of Comprehensive Income
Years ended December 31
(DOLLARS IN MILLIONS)
Net income
$
188.3
$
462.8
$
183.7
Other comprehensive income (loss) before tax:
Change in cumulative translation adjustments
96.9
2.0
(150.2
)
Net change in cash flow hedges
-
-
0.9
Net change in unrealized components of defined benefit plans
7.5
(34.6
)
14.2
Other comprehensive income (loss), before tax
104.4
(32.6
)
(135.1
)
Tax effect allocated to other comprehensive income (loss)
(1.5
)
6.8
(4.1
)
Other comprehensive income (loss), net of tax
102.9
(25.8
)
(139.2
)
Comprehensive income
291.2
437.0
44.5
Less: Comprehensive income (loss) attributable to non-controlling interest
2.3
1.2
(7.4
)
Comprehensive income attributable to controlling interest
$
288.9
$
435.8
$
51.9
See Notes to the Consolidated Financial Statements.
Consolidated Balance Sheets
At December 31
(DOLLARS AND SHARES IN MILLIONS)
Assets
Cash and cash equivalents
$
1,178.2
$
444.7
Receivables, net
Note 7
1,819.6
1,623.9
Inventories, net
Note 8
798.3
740.9
Income tax receivable
44.2
26.8
Prepaid expenses
163.6
134.6
Related party receivable
Note 20
2.0
2.8
Other current assets
Note 13, 18
263.1
28.4
Total current assets
4,269.0
3,002.1
Property, plant and equipment, net
Note 10
1,869.1
1,815.7
Operating lease right-of-use assets
Note 4
140.8
156.8
Goodwill
Note 11
1,398.1
1,387.9
Intangible assets, net
Note 11
13.6
22.3
Other non-current assets
Note 9, 18
466.2
386.4
Total assets
$
8,156.8
$
6,771.2
Liabilities and equity
Short-term debt
Note 14
$
301.8
$
368.1
Accounts payable
1,226.7
941.0
Accrued expenses
Notes 12, 13
1,259.7
816.9
Related party liabilities
Note 20
37.5
17.4
Income tax payable
97.3
38.8
Operating lease liabilities, current
Note 4
37.3
37.8
Other current liabilities
186.6
190.2
Total current liabilities
3,146.9
2,410.2
Long-term debt
Note 14
2,109.6
1,726.1
Pension liability
Note 19
248.2
240.2
Operating lease liabilities, non-current
Note 4
103.3
119.4
Other non-current liabilities
125.7
152.9
Total non-current liabilities
2,586.8
2,238.6
Commitments and contingencies
Note 18
Common stock1)
102.8
102.8
Additional paid-in capital
1,329.3
1,329.3
Retained earnings
2,471.1
2,283.5
Accumulated other comprehensive loss
Note 15
(346.9
)
(448.9
)
Treasury stock (15.4 and 15.6 shares, respectively)
(1,147.4
)
(1,157.5
)
Total controlling interest’s equity
2,408.9
2,109.2
Non-controlling interest
14.2
13.2
Total equity
2,423.1
2,122.4
Total liabilities and equity
$
8,156.8
$
6,771.2
1)
Number of shares: 350 million authorized, 102.8 million issued for both years, and 87.4 and 87.2 million outstanding, net of treasury shares, for 2020 and 2019, respectively.
See Notes to the Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Years ended December 31
(DOLLARS IN MILLIONS)
Operating activities
Net income from continuing operations
$
188.3
$
462.8
$
377.5
Net loss from discontinued operations
-
-
(193.8
)
Adjustments (non-cash items) to reconcile net income to cash provided by
operating activities:
Depreciation and amortization
370.9
350.6
397.1
EC antitrust non-cash provision
-
-
210.0
Deferred income taxes
(23.9
)
(16.0
)
3.0
Loss from equity method investments, net of dividends
0.0
4.0
31.9
Net change in operating capital:
EC antitrust payment
-
(203.0
)
-
Receivables and other assets, gross
(414.7
)
25.4
(48.4
)
Inventories, gross
(34.0
)
15.4
(123.9
)
Accounts payable and accrued expenses
671.7
35.7
(37.8
)
Income taxes
53.5
(29.3
)
(19.2
)
Other, net
37.1
(4.9
)
(5.8
)
Net cash provided by operating activities
848.9
640.7
590.6
Investing activities
Expenditures for property, plant and equipment
(343.5
)
(483.4
)
(560.0
)
Proceeds from sale of property, plant and equipment
3.9
7.3
5.2
Acquisition of businesses and interest in affiliates, net of cash acquired
-
-
(72.0
)
Other
-
-
(0.9
)
Net cash used in investing activities
(339.6
)
(476.1
)
(627.7
)
Financing activities
Net (decrease) increase in short-term debt
(239.9
)
(364.1
)
355.4
Increase in long-term debt
1,177.1
243.5
582.2
Repayment of long-term debt
(722.5
)
-
-
Debt issuance costs
-
(0.3
)
(2.6
)
Dividends paid to non-controlling interest
(1.3
)
(1.1
)
(2.1
)
Dividends paid
(54.1
)
(217.0
)
(214.3
)
Common stock options exercised
0.8
0.9
8.2
Capital contribution to Veoneer
-
-
(971.8
)
Net cash provided by (used in) financing activities
160.1
(338.1
)
(245.0
)
Effect of exchange rate changes on cash and cash equivalents
64.1
2.4
(61.6
)
Increase (decrease) in cash and cash equivalents
733.5
(171.1
)
(343.7
)
Cash and cash equivalents at beginning of year
444.7
615.8
959.5
Cash and cash equivalents at end of year
$
1,178.2
$
444.7
$
615.8
See Notes to the Consolidated Financial Statements.
Consolidated Statements of Total Equity
Accumulated
Additional
other com-
Total parent
Non-
(DOLLARS AND SHARES
Number of
Common
paid in
Retained
prehensive
Treasury
shareholders’
controlling
Total
IN MILLIONS)
shares
stock
capital
earnings
(loss) income
stock
equity
interest
equity1)
Balance at December 31, 2017
102.8
$
102.8
$
1,329.3
$
4,079.2
$
(287.5
)
$
(1,188.7
)
$
4,035.1
$
134.3
$
4,169.4
Comprehensive Income:
Net income
190.4
190.4
(6.7
)
183.7
Net change in cash flow hedges
0.9
0.9
0.9
Foreign currency translation
(149.5
)
(149.5
)
(0.7
)
(150.2
)
Pension liability
10.1
10.1
10.1
Adjustment due to adoption of
ASU 2018-02
10.2
(10.2
)
-
-
Total Comprehensive Income
51.9
(7.4
)
44.5
Stock-based compensation
21.7
21.7
21.7
Cash dividends declared
(216.7
)
(216.7
)
(216.7
)
Dividends paid to non-controlling
interest on subsidiary shares
(2.2
)
(2.2
)
Adjustment due to adoption of
ASU 2014-09
3.3
3.3
3.3
Distribution of Veoneer
(2,024.3
)
13.0
(2,011.3
)
(111.6
)
(2,122.9
)
Other
(0.3
)
(0.3
)
(0.3
)
Balance at December 31, 2018
102.8
$
102.8
$
1,329.3
$
2,041.8
$
(423.2
)
$
(1,167.0
)
$
1,883.7
$
13.1
$
1,896.8
Comprehensive Income:
Net income
461.5
461.5
1.3
462.8
Foreign currency translation
2.1
2.1
(0.1
)
2.0
Pension liability
(27.8
)
(27.8
)
(27.8
)
Total Comprehensive Income
435.8
1.2
437.0
Stock-based compensation
9.5
9.5
9.5
Cash dividends declared
(217.1
)
(217.1
)
(217.1
)
Dividends paid to non-controlling
interest on subsidiary shares
(1.1
)
(1.1
)
Distribution of Veoneer
(2.7
)
(2.7
)
(2.7
)
Balance at December 31, 2019
102.8
$
102.8
$
1,329.3
$
2,283.5
$
(448.9
)
$
(1,157.5
)
$
2,109.2
$
13.2
$
2,122.4
Comprehensive Income:
Net income
186.9
186.9
1.4
188.3
Foreign currency translation
96.0
96.0
0.9
96.9
Pension liability
6.0
6.0
6.0
Total Comprehensive Income
288.9
2.3
291.2
Stock-based compensation
0.7
10.1
10.8
10.8
Cash dividends declared
-
-
Dividends paid to non-controlling
interest on subsidiary shares
(1.3
)
(1.3
)
Balance at December 31, 2020
102.8
$
102.8
$
1,329.3
$
2,471.1
$
(346.9
)
$
(1,147.4
)
$
2,408.9
$
14.2
$
2,423.1
1)
See Note 15 for further details - includes tax effects where applicable.
See Notes to the Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. Basis of Presentation
NATURE OF OPERATIONS
Through its operating subsidiaries, Autoliv is a leading developer, manufacturer and supplier of safety systems to the automotive industry. The Company has a broad range of product offerings, primarily passive safety systems, including modules and components for passenger and driver airbags, side airbags, curtain airbags, seatbelts and steering wheels. The Company is also a supplier of anti-whiplash systems and pedestrian protection systems.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with United States (U.S.) Generally Accepted Accounting Principles (GAAP) and include Autoliv, Inc. and all companies over which Autoliv, Inc. directly or indirectly exercises control, which as a general rule means that the Company owns more than 50% of the voting rights.
Consolidation is also required when the Company has both the power to direct the activities of a variable interest entity (VIE) and the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE.
All intercompany accounts and transactions within the Company have been eliminated from the consolidated financial statements.
Investments in affiliated companies in which the Company exercises significant influence over the operations and financial policies, but does not control, are reported using the equity method of accounting. Generally, the Company owns between 20-50% of such investments.
DISCONTINUED OPERATIONS
On June 29, 2018 (the “Distribution Date”), Autoliv completed the spin-off of its former Electronics segment (the “spin-off”) through the distribution of all of the issued and outstanding stock of Veoneer, Inc. (“Veoneer”).
In accordance with U.S. GAAP, the financial position and results of operations of the Electronics business are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The cash flows and comprehensive income related to the Electronics business have not been segregated and are included in the Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all comparison periods presented. With the exception of Note 3, the Notes to the Consolidated Financial Statements reflect the continuing operations of Autoliv. See Note 3, Discontinued Operations, below for additional information regarding discontinued operations.
Responsibility for certain product, warranty and recall liabilities for Electronics products manufactured prior to April 1, 2018 was retained by Autoliv as provided in the Distribution Agreement between Autoliv and Veoneer.
Certain amounts in prior year’s consolidated financial statements and related footnotes thereto have been reclassified, unless otherwise noted, to conform with the current year presentation as a result of the spin-off of Veoneer.
SEGMENT REPORTING
Prior to the spin-off, Autoliv had two reportable operating segments: Passive Safety and Electronics. After completion of the spin-off, Autoliv’s remaining business is comprised of passive safety products - principally airbags (including steering wheels and inflators) and seatbelts. In addition, as of August 1, 2019, Autoliv implemented a new organizational structure which has been considered when evaluating the operating and reportable segments in the Company after the spin-off.
In accordance with ASC 280, Segment Reporting, the operating segments are determined based on the information provided to the Chief Operating Decision Maker (CODM) on a regular basis and used for the purpose of assessing performance and allocating resources within the Company. The CEO is deemed to be the CODM of Autoliv since he is the person who makes all major decisions on how to allocate the resources and assess the performance of the Company for both strategic and operational initiatives.
ASC 280 indicates that a component is an operating segment if it meets the following criteria:
•
It engages in business activities from which it may earn revenues and incur expenses.
•
Its operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance.
•
Its discrete financial information is available.
The Company as a whole has met the definition of an operating segment as it engages in business activities from which it may earn revenues and incur expenses, the consolidated operating results are regularly reviewed by the CEO/CODM to allocate resources and assess performance, and discrete financial information is available. Additionally, as Autoliv supplies customers on a global basis it also manages the business on a global basis. Therefore, based on the above analysis, we have concluded that the Company is the single operating and reportable segment under ASC 280, Segment Reporting.
For more information on our segment, see Note 21.
2. Summary of Significant Accounting Policies
BUSINESS COMBINATIONS
Transactions in which the Company obtains control of a business are accounted for according to the acquisition method as described in ASC 805, Business Combinations. The assets acquired and liabilities assumed are recognized and measured at their fair values as of the date control is obtained. Acquisition related costs in connection with a business combination are expensed as incurred. Contingent consideration is recognized and measured at fair value at the acquisition date and until paid is re-measured on a recurring basis and classified as a liability.
EQUITY METHOD INVESTMENT
Investments accounted for under the equity method, means that a proportional share of the equity method investment’s net income increases the investment, and a proportional share of losses and payment of dividends decreases it. In the Consolidated Statements of Net Income, the proportional share of the net income (loss) is reported as Income from equity method investment.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. The accounting estimates that require management’s most significant judgments include the estimation of variable consideration for our contracts with customers, valuation of stock based payments, assessment of recoverability of goodwill and intangible assets, estimation of pension benefit obligations based on actuarial assumptions, estimation of accruals for warranty and recalls, restructuring charges, uncertain tax positions, valuation allowances and legal proceedings. Actual results could differ from those estimates.
REVENUE RECOGNITION
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in a contract with a customer, adjusted for any variable consideration (i.e. price concessions) and estimated at contract inception. The estimated amount of variable consideration that will be received by the Company is based on historical experience and trends, management´s understanding of the status of negotiations with customers and anticipated future pricing strategies. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer.
In addition, from time to time, the Company may make payments to customers in connection with ongoing and future business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments unless the payment can be clearly linked to the future business. If the payments are capitalized, the amounts are amortized to revenue as the related goods are transferred.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight before control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.
Nature of goods and services
The Company generates revenue from the sale of parts, which includes airbag and seatbelt products and components, to original equipment manufacturers (“OEMs”).
The Company accounts for individual products separately if they are distinct (i.e., if a product is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration for each of the products, including any price concessions, is based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost-plus margin approach.
The Company recognizes revenue for parts primarily at a point in time.
For parts with revenue recognized at a point in time, the Company recognizes revenue upon shipment to the customers and transfer of title and risk of loss under standard commercial terms (typically FOB shipping point). There are certain contracts where the criteria to recognize revenue over time have been met (e.g., there is no alternative use to the Company and the Company has an enforceable right to payment). In such cases, at period end, the Company recognizes revenue and a related asset and associated cost of goods sold and inventory. However, the financial impact of these contracts is immaterial considering the very short production cycles and limited inventory days on hand. The contract balances with customers, included in other current assets, amounted to $19.5 million as of December 31, 2020.
The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e. price concessions). Customers typically pay for the parts based on customary business practices.
GOVERNMENT GRANTS
Generally, the Company receives grants related to assets or grants related to income. The Company account for government grants as follows depending on which category the grants fall into.
Government grants connected to Capital Expenditure are offset against the capitalized costs of the asset in the balance sheet when: a) all performance obligations connected to the government grant have been fulfilled; and b) the cash has been received.
Other government grants including those reimbursing expenses are recognized in the profit and loss when: a) all performance obligations connected to the government grant have been fulfilled; and b) the cash has been received.
When the cash has been received but there are outstanding performance obligations connected to the government grants received, the cash received is recognized as other payables and offset against the capitalized costs when the outstanding performance obligations are fulfilled.
RESEARCH, DEVELOPMENT AND ENGINEERING, NET (R,D&E)
Research and development and most engineering expenses are expensed as incurred. These expenses are reported net of expense reimbursements from contracts to perform engineering design and product development fulfillment activities related to the production of parts. For the years 2020, 2019 and 2018 total reimbursements from customers were $181 million, $199 million and $192 million, respectively.
Certain engineering expenses related to long-term supply arrangements are capitalized when defined criteria, such as the existence of a contractual guarantee for reimbursement, are met. The aggregate amount of such assets is not significant in any period presented.
Tooling is generally agreed upon as a separate contract or a separate component of an engineering contract, as a pre-production project. Capitalization of tooling costs is made only when the specific criteria for capitalization of customer funded tooling is met or the criteria for capitalization as Property, Plant & Equipment (P,P&E) for tools owned by the Company are fulfilled. Depreciation on the Company’s own tooling is recognized in the Consolidated Statements of Income as Cost of sales.
STOCK BASED COMPENSATION
The compensation costs for all of the Company’s stock-based compensation awards are determined based on the fair value method as defined in ASC 718, Compensation - Stock Compensation. The Company records the compensation expense for awards under the Stock Incentive Plan, including Restricted Stock Units (RSUs), Performance Shares (PSs) and stock options (SOs), over the respective vesting period. For further details, see Note 17.
INCOME TAXES
Current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current year. In certain circumstances, payments or refunds may extend beyond twelve months, in such cases amounts would be classified as non-current taxes payable or receivable. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences and carryforwards that result from events that have been recognized in either the financial statements or the tax returns, but not both. The measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws. Deferred tax assets are reduced by the amount of any tax benefits that are not expected to be realized. A valuation allowance is recognized if, based on the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Evaluation of the realizability of deferred tax assets is subject to significant judgment requiring careful consideration of all facts and circumstances. The Company classifies deferred tax assets and liabilities as non-current in the Consolidated Balance Sheet. Tax assets and liabilities are not offset unless attributable to the same tax jurisdiction and netting is possible according to law and, as it relates to payables and receivables, expected to take place in the same period.
Tax benefits associated with tax positions taken in the Company’s income tax returns are initially recognized when it is more likely than not that those tax positions will be sustained upon examination by the relevant taxing authorities. The Company’s evaluation of its tax benefits is based on the probability of the tax position being upheld if challenged by the taxing authorities (including through negotiation, appeals, settlement and litigation). Whenever a tax position does not meet the initial recognition criteria, the tax benefit is subsequently recognized if there is a substantive change in the facts and circumstances that cause a change in judgment concerning the sustainability of the tax position upon examination by the relevant taxing authorities. In cases where tax benefits meet the initial recognition criterion, the Company continues, in subsequent periods, to assess its ability to sustain those positions. A previously recognized tax benefit is derecognized when it is no longer more likely than not that the tax position would be sustained upon examination. Liabilities for unrecognized tax benefits are classified as non-current unless the payment of the liability is expected to be made within the next 12 months.
EARNINGS PER SHARE
The Company calculates basic earnings per share (EPS) by dividing net income attributable to controlling interest by the weighted-average number of shares of common stock outstanding for the period (net of treasury shares). The Company’s unvested RSUs and PSs, of which some include the right to receive non-forfeitable dividend equivalents, are considered participating securities. The diluted EPS reflects the potential dilution that could occur if common stock was issued for awards under the Stock Incentive Plan and is calculated using the more dilutive method of either the two-class method or the treasury stock method. The treasury stock method assumes that the Company uses the proceeds from the exercise of stock option awards to repurchase ordinary shares at the average market price during the period. For unvested restricted stock, assumed proceeds under the treasury stock method will include unamortized compensation cost and windfall tax benefits or shortfalls. Post spin-off assumed proceeds under the treasury stock method related to RSUs will only include unamortized compensation cost related to Autoliv employees holding Autoliv RSUs. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator. For further details, see Notes 17 and 22.
CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents.
RECEIVABLES AND ALLOWANCE FOR EXPECTED CREDIT LOSSES
In addition to continuing to individually assess overdue customer balances for expected credit losses, the Company has as of January 1, 2020 implemented a new methodology that reflects the expected credit losses on receivables considering both historical experience as well as forward looking assumptions. The method calculates the expected credit loss for a group of customers by using the customer groups’ average short-term default rates based on officially published credit ratings and the Company’s historical experience. These default rates are considered the Company’s best estimate of the customer’s ability to pay. The Company regularly reassess the customer group’s and the applied customer group’s default rates by using its best judgement when considering changes in customer’s credit ratings, customer’s historical payments and loss experience, current market and economic conditions and the Company’s expectations of future market and economic conditions.
There can be no assurance that the amount ultimately realized for receivables will not be materially different than that assumed in the calculation of the allowance for expected credit losses.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
All derivatives are recognized at fair value.
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 and foreign exchange rates.
For further details on the Company’s financial instruments, see Notes 5 and 14.
INVENTORIES
The cost of inventories is computed according to the first-in first-out method (FIFO). Cost includes the cost of materials, direct labor and the applicable share of manufacturing overhead. Inventories are evaluated based on individual or, in some cases, groups of inventory items. Reserves are established to reduce the value of inventories to the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company calculates provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. There can be no assurance that the amount ultimately realized for inventories will not be materially different than that assumed in the calculation of the reserves.
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment is recorded at historical cost. Construction in progress generally involves short-term projects for which capitalized interest is not significant. The Company provides for depreciation of property, plant and equipment computed under the straight-line method over the assets’ estimated useful lives, or in the case of leasehold improvements over the shorter of the useful life or the lease term. Amortization on capital leases is recognized with depreciation expense in the Consolidated Statements of Income over the shorter of the assets’ expected life or the lease contract term. Repairs and maintenance are expensed as incurred.
LEASES
In accordance with ASC 842, Leases, the Company recognizes contracts that is, or contains, a lease when the contract conveys the right to control the use of a physically identified asset for a period of time in exchange for consideration in the balance sheet as a right-of-use asset and lease liability. The Company recognizes a right-of-use asset and a lease liability at lease commencement. The lease liability for both finance and operating leases is measured at the present value of the remaining lease payments, discounted at the Company's incremental borrowing rate (if the implicit interest rate in the lease contract is not readily determinable). The right-of-use asset (ROU) for finance and operating leases is initially measured at the sum of the Initial lease liability plus initial direct costs plus prepaid lease payments minus lease incentives received. Lease payments include undiscounted fixed payments plus optional payments that are reasonably certain to be owed. Lease payments do not include variable lease payments other than those that depend on an index or rate. Variable lease payments that depend on an index or a rate are included in the calculation of lease payments and in the measurement of the lease liability.
If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.
The Company has elected the practical expedient of not separating lease components from non-lease components for all its classes of underlying assets. The Company has also elected to recognize the lease payments for short-term leases in its consolidated statement of income on a straight-line basis over the lease term and recognize the variable lease payments in the period in which the obligation for those payments is incurred.
For further details on the Company’s leases, see Note 4.
LONG-LIVED ASSET IMPAIRMENT
The Company evaluates the carrying value and useful lives of long-lived assets, other than goodwill and intangible assets, when indications of impairment are evident or it is likely that the useful lives have decreased, in which case the Company depreciates the assets over the remaining useful lives. Impairment testing is primarily done by using the cash flow method based on undiscounted future cash flows. Estimated undiscounted cash flows for a long-lived asset being evaluated for recoverability are compared with the respective carrying amount of that asset. If the estimated undiscounted cash flows exceed the carrying amount of the assets, the carrying amounts of the long-lived asset are considered recoverable and an impairment cannot be recorded. However, if the carrying amount of a group of assets exceeds the undiscounted cash flows, an entity must then measure the long-lived assets’ fair value to determine whether an impairment loss should be recognized, generally using a discounted cash flow model. Generally, the lowest level of cash flows for impairment assessment is customer platform level.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the fair value of consideration transferred over the fair value of net assets of businesses acquired. Goodwill is not amortized but subject to at least an annual review for impairment. Other intangible assets, principally related to acquired technology, are amortized over their useful lives which range from 3 to 25 years.
The Company performs its annual impairment testing in the fourth quarter of each year. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment, or decline in value, may have occurred. In 2018 and 2019, the Company opted to use a qualitative assessment for impairment testing. The qualitative assessment permits the Company to assess whether it is more than likely than not (i.e. a likelihood of greater than 50%) that goodwill or an indefinite-lived intangible asset is impaired. If the Company concludes based on the qualitative assessment that it is not more likely than not that the fair value of goodwill or an indefinite-lived intangible asset is less than its carrying amount, it would not have to quantitatively determine the asset’s fair value. In conducting its qualitative impairment testings in 2018 and 2019, the Company used the fair value calculation performed in 2017 for its goodwill as the starting point. The Company also considered external factors that could affect the significant inputs used to determine fair value.
In 2020 the company performed a quantitative impairment testing by calculating the fair value of its goodwill. The estimated fair market value of goodwill is determined by the discounted cash flow method. The Company discounts projected operating cash flows using its weighted average cost of capital. Estimating the fair value requires the Company to make judgments about appropriate discount rates, growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss is recognized for the excess of carrying amount over the fair value of the respective reporting unit. To supplement this analysis, the Company compares the market value of its equity, calculated by reference to the quoted market prices of its shares, with the book value of its equity.
There were no impairments of goodwill from 2018 through 2020.
WARRANTIES AND RECALLS
The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably estimate costs. Recall costs are costs incurred when the customer decides to formally recall a product due to a known or suspected safety concern. Product recall costs are estimated based on the expected cost of replacing the product and the customer´s cost of carrying out
the recall, which is affected by the number of vehicles subject to recall and the cost of labor and materials to remove and replace the defective product. Insurance receivables, related to recall issues covered by the insurance, are included within other current and non-current assets in the Consolidated Balance Sheets.
Provisions for warranty claims are estimated based on prior experience, likely changes in performance of newer products and the mix and volume of products sold. The provisions are recorded on an accrual basis.
RESTRUCTURING PROVISIONS
The Company defines restructuring expense to include costs directly associated with rightsizing, exit or disposal activities.
Estimates of restructuring charges are based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a timeframe such that significant changes to the exit plan are not likely. Due to inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.
PENSION OBLIGATIONS
The Company provides for both defined contribution plans and defined benefit plans. A defined contribution plan generally specifies the periodic amount that the employer must contribute to the plan and how that amount will be allocated to the eligible employees who perform services during the same period. A defined benefit pension plan is one that contains pension benefit formulas, which generally determine the amount of pension benefits that each employee will receive for services performed during a specified period of employment.
The amount recognized as a defined benefit liability is the net total of projected benefit obligation (PBO) minus the fair value of plan assets (if any) (see Note 19).
CONTINGENT LIABILITIES
Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability or other matters (see Note 18).
The Company diligently defends itself in such matters and, in addition, carries insurance coverage to the extent reasonably available against insurable risks.
The Company records liabilities for claims, lawsuits and proceedings when they are probable and it is possible to reasonably estimate the cost of such liabilities. Legal costs expected to be incurred in connection with a loss contingency are expensed as such costs are incurred.
The Company believes, based on currently available information, that the resolution of outstanding matters, other than any antitrust related matters described in Note 18, after taking into account recorded liabilities and available insurance coverage, should not have a material effect on the Company’s financial position or results of operations.
However, due to the inherent uncertainty associated with such matters, there can be no assurance that the final outcomes of these matters will not be materially different than currently estimated.
TRANSLATION OF NON-U.S. SUBSIDIARIES
The balance sheets of subsidiaries with functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates.
The Statements of Income of these subsidiaries is translated into U.S. dollars using the average exchange rates for the year. Translation differences are reflected in equity as a component of OCI.
RECEIVABLES AND LIABILITIES IN NON-FUNCTIONAL CURRENCIES
Receivables and liabilities not denominated in functional currencies are converted at year-end exchange rates. Net transaction losses, reflected in the Consolidated Statements of Income amounted to $(23.9) million in 2020, $(15.3) million in 2019 and $(22.1) million in 2018, and are recorded in operating income if they relate to operational receivables and liabilities or are recorded in other non-operating items, net if they relate to financial receivables and liabilities.
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 June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held and enhanced disclosures. The Company’s financial assets in the scope of ASU 2016-13 mainly consists of short-term trade receivables. Historically, the Company’s actual credit losses have not been material. In addition to continuing to individually assess overdue customer balances for expected credit losses, the Company has implemented a new methodology that reflects the expected credit losses on receivables considering both historical experience as well as forward looking assumptions. The method calculates the expected credit loss for a group of customers by using the customer groups’ average short-term default rates based on officially published credit ratings and the Company’s historical experience. These default rates are considered the Company’s best estimate of the customer’s ability to pay. The Company will regularly reassess the customer group’s and the applied customer group’s default rates by using its best judgement when considering changes in customer’s credit ratings, customer’s historical payments and loss experience, current market and economic conditions and the Company’s expectations of future market and economic conditions. ASU 2016-13 was adopted prospectively by the Company on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40), Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018-15. The amendments in ASU 2018-15 are effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those annual years. The Company adopted ASU 2018-15 prospectively as of January 1, 2020 and the impact on the consolidated financial statements has not been material during 2020. The future impact of ASU 2018-15 will depend on the nature of the Company’s future cloud computing arrangements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
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 has finalized its evaluation of the impact of adopting ASU 2019-12 and concluded that the adoption will not have a material impact on the Company’s consolidated financial statements. The Company adopted ASU 2019-12 as of January 1, 2021.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to current year presentation.
3. Discontinued Operations
As discussed in Note 1, Basis of Presentation, on June 29, 2018, the Company completed the spin-off of Veoneer and the requirements for the presentation of Veoneer as a discontinued operation were met on that date. Accordingly, Veoneer’s historical financial results are reflected in the Company’s Consolidated Financial Statements as discontinued operations. The Company did not allocate any general corporate overhead or interest expense to discontinued operations.
The financial results of Veoneer are presented as loss from discontinued operations, net of income taxes in the Consolidated Statements of Income. The following table presents the financial results of Veoneer for the year 2018 (dollars in millions).
Years ended
December 31, 2018
Net sales
$
1,122.9
Cost of sales
(896.4
)
Gross profit
226.5
Selling, general and administrative expenses
(59.7
)
Research, development and engineering
expenses, net
(224.0
)
Goodwill, Impairment charge
-
Amortization of intangibles
(10.5
)
Other income (expense), net
(53.4
)
Operating loss
(121.1
)
Loss from equity method investments
(29.9
)
Interest income
0.7
Interest expense
(0.4
)
Other non-operating items, net
0.5
Loss before income taxes
(150.2
)
Income tax (expense) benefit
(43.6
)
Loss from discontinued operations, net of
income taxes
(193.8
)
Less: Net loss attributable to non-controlling interest
(8.3
)
Net loss from discontinued operations
$
(185.5
)
The Company incurred $76.3 million in separation costs related to the spin-off of Veoneer for 2018 and was reported in Other income (expense), net. These costs are primarily related to professional fees associated with planning the spin-off, as well as spin-off activities within finance, tax, legal and information system functions and certain investment banking fees incurred upon the completion of the spin-off.
Veoneer Capital Contribution
In connection with the spin-off, Autoliv capitalized Veoneer with approximately $1 billion of cash. Net assets of $2,129 million were transferred to Veoneer on or prior to the Distribution Date, including $13 million of accumulated other comprehensive loss (primarily related to pension and cumulative translation adjustment) and the non-controlling interest of $112 million. This resulted in a $2,030 million reduction to retained earnings. In the second half of 2018, an adjustment to the cash contribution amount of $5 million was made reducing the net assets contributed to Veoneer to $2,123 million. In the second quarter of 2019, an adjustment of $0.2 million was made to true-up the $2.5 million contribution made to Veoneer as an adjustment of deferred tax assets related to Veoneer.
The following table presents depreciation, amortization, capital expenditures, acquisition of businesses and significant non-cash items of the discontinued operations related to Veoneer for the year 2018 (dollars in millions).
Years ended
December 31, 2018
Depreciation
$
44.8
Amortization of intangible assets
10.5
Capital expenditures
71.1
Acquisition in affiliate, net
71.0
M/A-COM earn-out adjustment
(14.0
)
Undistributed loss from equity method investment
29.9
4. Leases
The Company has operating leases for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment. The Company’s leases have remaining lease terms of 1-46 years, some of which include options to extend the leases for up to 25 years, and some of which include options to terminate the leases within 1 year.
Finance lease right-of-use assets are presented together with other property, plant and equipment assets and finance lease liabilities are presented together with other short-term and long-term liabilities in the Consolidated Balance Sheets. The Company has not identified any material finance leases as of December 31, 2020.
As of December 31, 2020, the Company has no additional material operating leases that have not yet commenced.
The following tables provide information about the Company’s leases. Since finance leases are not material the finance lease cost components have not been disclosed in the tables below.
Lease cost
(in millions)
Year ended December 31
Operating lease cost
$
45.9
$
48.5
Short-term lease cost
8.2
6.8
Variable lease cost
2.3
3.6
Sublease income
(1.6
)
(2.4
)
Total lease cost
$
54.8
$
56.5
Other information
(in millions)
Year ended or as of
December 31,
Cash paid for amounts included in the measurement of operating lease liabilities
$
46.3
$
47.6
Right-of-use assets obtained in exchange for new operating lease liabilities
48.0
55.9
Weighted-average remaining lease term - operating leases
6 years
7 years
Weighted-average discount rate - operating leases
1.9
%
2.3
%
Maturities of operating lease liabilities (undiscounted cash flows) are as follows:
(in millions)
Maturities
$
37.8
30.6
22.6
16.3
12.7
Thereafter
30.0
Total operating lease payments
150.0
Less imputed interest
(9.4
)
Total operating lease liabilities
$
140.6
5. 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, other current liabilities and short-term debt 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 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. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other 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 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.
Under U.S. GAAP, there is a disclosure framework hierarchy associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
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.
Level 3 - Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
The Company’s derivatives are all classified as Level 2 of the fair value hierarchy.
The tables below present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis for the continuing operations as of December 31, 2020 and December 31, 2019. 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 Consolidated Balance Sheets at December 31, 2020 and December 31, 2019 have been presented on a gross basis. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company choose not to offset are presented below.
DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS
There were no derivatives designated as hedging instruments as of December 31, 2020 and December 31, 2019 related to the continuing 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 December 31, 2020 and December 31, 2019 were foreign exchange swaps.
For 2020, the gains and losses recognized in other non-operating items, net are a gain of $18.5 million for derivative instruments not designated as hedging instruments. For 2019, the Company recognized a gain of $3.5 million in other non-operating items, net for derivative instruments not designated as hedging instruments. For 2018, the Company recognized a loss of $1.5 million in other non-operating items, net for derivative instruments not designated as hedging instruments. For 2020, 2019 and 2018, the gains and losses recognized as interest expense were immaterial.
DECEMBER 31, 2020
DECEMBER 31, 2019
Fair Value Measurements
Fair Value Measurements
Derivative asset
Derivative liability
Derivative asset
Derivative liability
Nominal
(Other current
(Other current
Nominal
(Other current
(Other current
Description
volume
assets)
liabilities)
volume
assets)
liabilities)
DERIVATIVES NOT DESIGNATED
AS HEDGING INSTRUMENTS
Foreign exchange swaps, less
than 6 months
$
1,462.7
1)
$
25.2
2)
$
2.7
3)
$
934.2
4)
$
6.0
5)
$
1.8
6)
TOTAL DERIVATIVES NOT
DESIGNATED AS HEDGING
INSTRUMENTS
$
1,462.7
$
25.2
$
2.7
$
934.2
$
6.0
$
1.8
1)
Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,462.7 million.
2)
Net amount after deducting for offsetting swaps under ISDA agreements is $25.2 million.
3)
Net amount after deducting for offsetting swaps under ISDA agreements is $2.7 million.
4)
Net nominal amount after deducting for offsetting swaps under ISDA agreements is $860.6 million.
5)
Net amount after deducting for offsetting swaps under ISDA agreements is $5.8 million.
6)
Net amount after deducting for offsetting swaps under ISDA agreements is $1.6 million.
FAIR VALUE OF DEBT
The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The fair value and carrying value of debt is summarized in the table below. 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 for the continuing operations are summarized in the table below (dollars in millions).
DECEMBER 31, 2020
DECEMBER 31, 2019
CARRYING
VALUE1)
FAIR
VALUE
CARRYING
VALUE1)
FAIR
VALUE
LONG-TERM DEBT
Bonds
$
1,376.5
$
1,483.4
$
1,597.5
$
1,671.1
Loans
732.5
752.9
128.6
128.6
Other long-term debt
0.6
0.6
-
-
TOTAL
$
2,109.6
$
2,236.9
$
1,726.1
$
1,799.7
SHORT-TERM DEBT
Commercial paper
$
-
$
-
$
230.7
$
230.7
Short-term portion of long-term debt
275.0
278.5
112.0
112.1
Overdrafts and other short-term debt
26.8
26.8
25.4
25.3
TOTAL
$
301.8
$
305.3
$
368.1
$
368.1
1)
Debt as reported in balance sheet.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NON-RECURRING 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 as of the reporting date, 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 period 2018-2020, the Company did not record any material impairment charges on its long-lived assets for its continuing operations.
6. Income Taxes
INCOME BEFORE INCOME TAXES
U.S.
$
(101.5
)
$
66.5
$
47.0
Non-U.S.
392.7
581.9
565.4
Total
$
291.2
$
648.4
$
612.4
PROVISION FOR INCOME TAXES
Current
U.S. federal
$
(40.6
)
$
18.6
$
31.6
Non-U.S.
168.8
178.2
192.7
U.S. state and local
(1.5
)
4.8
10.1
Deferred
U.S. federal
(5.5
)
(2.8
)
0.8
Non-U.S.
(16.5
)
(12.6
)
(0.2
)
U.S. state and local
(1.8
)
(0.6
)
(0.1
)
Total income tax expense
$
102.9
$
185.6
$
234.9
EFFECTIVE INCOME TAX RATE
U.S. federal income tax rate
21.0
%
21.0
%
21.0
%
Non-Deductible Expenses
3.0
0.3
1.4
Foreign tax rate variances
8.4
4.1
5.5
Tax credits
(3.2
)
(1.7
)
(3.9
)
Change in Valuation Allowances
-
-
(3.2
)
Current year losses with no benefit
7.1
0.2
0.5
Net operating loss carry-forwards
-
(0.1
)
(0.1
)
Changes in tax reserves
1.7
1.7
3.4
Provision to Return
(8.8
)
(2.3
)
(0.3
)
Earnings of equity investments
(0.2
)
(0.1
)
(0.1
)
Withholding taxes
8.5
2.4
3.5
State taxes, net of federal benefit
(0.7
)
0.4
1.1
Antitrust settlement
-
-
9.9
U.S. FDII Deduction
-
(0.5
)
-
U.S. GILI Tax
-
1.8
1.7
Other, net
(1.5
)
1.4
(2.0
)
Effective income tax rate
35.3
%
28.6
%
38.4
%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. On December 31, 2020, the Company had net operating loss carryforwards (NOL’s) of approximately $328 million, of which approximately $321 million have no expiration date. The remaining losses expire on various dates through 2025. The Company also has $25 million of U.S. Foreign Tax Credit carry forwards, which begin to expire in 2026.
Valuation allowances have been established which partially offset the related deferred assets. Such allowances are primarily provided against NOL’s of companies that have perennially incurred losses, as well as the NOL’s of companies that are start-up operations and have not established a pattern of profitability. The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation allowance.
The foreign tax rate variance reflects the fact that approximately two-thirds of the Company’s non-U.S. pre-tax income is generated by business operations located in tax jurisdictions where the tax rate is between 20-30%. The tax rate from quarter to quarter and from year to year is also impacted by the mix of earnings and tax rates in various jurisdictions compared to the same periods or prior years.
The Company has reserves for income taxes that may become payable in future periods as a result of tax audits. These reserves represent the Company’s best estimate of the potential liability for tax exposures. Inherent uncertainties exist in estimates of tax exposures due to changes in tax law, both legislated and concluded through the various jurisdictions’ court systems. The Company files income tax returns in the United States federal jurisdiction, and various states and non-U.S. jurisdictions.
At any given time, the Company is undergoing tax audits in several tax jurisdictions, covering multiple years. The Company is no longer subject to income tax examination by the U.S. Federal tax authorities for years prior to 2015. With few exceptions, the Company is no longer subject to income tax examination by U.S. state or local tax authorities or by non-U.S. tax authorities for years before 2010. The Company is undergoing tax audits in several non-U.S. jurisdictions and several U.S. state jurisdictions, covering multiple years. As of December 31, 2020, as a result of those tax examinations, the Company is not aware of any proposed income tax adjustments that would have a material impact on the Company’s financial statements, however, other audits could result in additional increases or decreases to the unrecognized tax benefits in some future period or periods.
The Company recognizes interest and potential penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2019, the Company had recorded $65.4 million for unrecognized tax benefits related to prior years, including $8.2 million of accrued interest and penalties. During 2020, the Company recorded a net increase of $0.5 million to income tax reserves for unrecognized tax benefits related to tax positions taken in prior years and reclassified $24.0 million to contra-deferred tax asset to offset excess foreign tax credit carryforwards.. Also during 2020, the Company recorded a net increase of $4.2 million to income tax reserves for unrecognized tax benefits based on tax positions taken in the current year.
The Company had $10.2 million accrued for the payment of interest and penalties as of December 31, 2020. Of the total unrecognized tax benefits of $46.1 million recorded at December 31, 2020, $3.1 million is classified as current income tax payable, and $43.0 million is classified as non-current tax payable included in Other Non-Current Liabilities on the Consolidated Balance Sheets. Substantially all of these reserves would impact the effective tax rate if released into income. The following table summarizes the activity related to the Company’s unrecognized tax benefits:
UNRECOGNIZED TAX BENEFITS
Unrecognized tax benefits at beginning of year
$
59.0
$
49.6
$
29.6
Increases as a result of tax positions taken during a prior
period
0.7
3.8
24.0
Increases as a result of tax positions taken during the current
period
4.2
6.1
4.7
Decreases as a result of tax positions taken during the
current period
-
-
(3.1
)
Decreases relating to settlements with taxing authorities
-
-
(3.2
)
Decreases resulting from the lapse of the applicable statute
of limitations
(1.0
)
(0.6
)
(1.5
)
Translation Difference
(0.4
)
0.1
(0.9
)
Total unrecognized tax benefits at end of year
$
62.5
$
59.0
$
49.6
The tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities were as follows.
DEFERRED TAXES
DECEMBER 31
Assets
Provisions
$
141.2
$
105.2
$
104.9
Costs capitalized for tax
21.3
25.5
18.2
Property, plant and equipment
4.7
9.8
13.0
Retirement Plans
58.7
60.6
50.1
Tax receivables, principally NOL’s
109.7
93.8
113.9
Deferred tax assets before allowances
$
335.6
$
294.9
$
300.1
Valuation allowances
(67.9
)
(60.7
)
(71.0
)
Total
$
267.7
$
234.2
$
229.1
Liabilities
Acquired intangibles
$
(1.9
)
$
(3.8
)
$
(6.1
)
Statutory tax allowances
(0.2
)
(0.2
)
(0.5
)
Distribution taxes
(14.5
)
(15.4
)
(22.9
)
Other
(4.3
)
(6.5
)
(10.1
)
Total
$
(20.9
)
$
(25.9
)
$
(39.6
)
Net deferred tax asset
$
246.8
$
208.3
$
189.5
The following table summarizes the activity related to the Company’s valuation allowances:
VALUATION ALLOWANCES AGAINST DEFERRED TAX ASSETS DECEMBER 31
Allowances at beginning of year
$
60.7
$
71.0
$
110.6
Benefits reserved current year
13.9
3.9
6.4
Benefits recognized current year
(1.1
)
(10.5
)
(36.9
)
Write-offs and other changes
-
-
-
Translation difference
(5.6
)
(3.7
)
(9.1
)
Allowances at end of year
$
67.9
$
60.7
$
71.0
7. Receivables
DECEMBER 31
Receivables
$
1,831.4
$
1,632.4
$
1,659.4
Allowance at beginning of year
$
(8.5
)
$
(7.3
)
$
(6.3
)
Reversal of allowance
6.7
1.6
0.9
Addition to allowance
(10.5
)
(5.1
)
(3.8
)
Write-off against allowance
1.0
2.3
1.6
Translation difference
(0.5
)
0.0
0.3
Allowance at end of year
$
(11.8
)
$
(8.5
)
$
(7.3
)
Total receivables, net of allowance
$
1,819.6
$
1,623.9
$
1,652.1
8. Inventories
DECEMBER 31
Raw material
$
378.8
$
366.3
$
370.9
Work in progress
292.3
257.4
277.4
Finished products
220.1
200.4
194.7
Inventories
$
891.2
$
824.1
$
843.0
Inventory reserve at beginning of year
$
(83.2
)
$
(85.1
)
$
(80.6
)
Reversal of reserve
5.0
11.3
1.4
Addition to reserve
(16.2
)
(13.2
)
(13.9
)
Write-off against reserve
7.8
8.3
5.3
Translation difference
(6.3
)
(4.5
)
2.7
Inventory reserve at end of year
$
(92.9
)
$
(83.2
)
$
(85.1
)
Total inventories, net of reserve
$
798.3
$
740.9
$
757.9
9. Other Non-Current Assets
DECEMBER 31
Equity method investments
$
8.7
$
8.6
Deferred tax assets
281.1
244.6
Income tax receivables
28.2
25.2
Insurance receivables
104.7
68.4
Other non-current assets
43.5
39.6
Total other non-current assets
$
466.2
$
386.4
As of December 31, 2020 and 2019, the Company had one equity method investment. The Company has ownership of 49% in Autoliv-Hirotako Safety Sdn, Bhd (parent and subsidiaries) in Malaysia which it currently does not control, but in which it exercises significant influence over operations and financial position.
10. Property, Plant and Equipment
DECEMBER 31
Estimated
life
Land and land improvements
$
120.6
$
114.3
n/a to 15
Buildings
962.0
888.2
20-40
Machinery and equipment
4,208.3
3,810.5
3-12
Construction in progress
313.9
329.0
n/a
Property, plant and equipment
$
5,604.8
$
5,142.0
Less accumulated depreciation
(3,735.7
)
(3,326.3
)
Net of depreciation
$
1,869.1
$
1,815.7
DEPRECIATION INCLUDED IN
Cost of sales
$
327.1
$
307.0
$
300.9
Selling, general and administrative expenses
12.9
13.4
13.9
Research, development and engineering expenses, net
20.8
18.7
15.9
Total
$
360.8
$
339.1
$
330.7
No significant fixed asset impairments related to the Company’s continuing operations were recognized during 2020, 2019 or 2018.
The net book value of machinery and equipment and buildings and land under finance lease contracts recorded at December 31, 2020 and December 31, 2019 were immaterial. The amortization expense related to finance leases is included with depreciation expenses disclosed in the table above.
11. Goodwill and Intangible Assets
GOODWILL
Carrying amount at beginning of year
$
1,387.9
$
1,389.9
Translation differences
10.2
(2.0
)
Carrying amount at end of year
$
1,398.1
$
1,387.9
Approximately $1.2 billion of the Company’s goodwill is associated with the 1997 merger of Autoliv AB and the Automotive Safety Products Division of Morton International, Inc. No goodwill impairment charges were recognized during 2020, 2019 or 2018.
AMORTIZABLE INTANGIBLES
Gross carrying amount
$
406.8
$
398.9
Accumulated amortization
(393.2
)
(376.6
)
Carrying value
$
13.6
$
22.3
At December 31, 2020, intangible assets subject to amortization mainly relate to acquired technology. No significant impairments of intangible assets were recognized during 2020, 2019 or 2018.
Amortization expense related to intangible assets was $10.0 million, $11.5 million and $11.3 million in 2020, 2019 and 2018, respectively. Estimated future amortization expense is (in millions): 2021: $9.9; 2022: $3.5; 2023: $0.1; 2024: $0.1 and 2025: $0.0.
12. Restructuring
Restructuring provisions are made on a case-by-case basis and primarily include severance costs incurred in connection with headcount reductions and plant consolidations. The Company expects to finance restructuring programs over the next several years through cash generated from its ongoing operations or through cash available under its existing credit facilities. The Company does not expect that the execution of these programs will have an adverse impact on its liquidity position. The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Income. The restructuring reserve balance is included within Accrued expenses in the Consolidated Balance Sheet.
The Company recorded restructuring charges in 2020, mainly related to the structural efficiency program initiated in the second quarter of 2020 in the Americas and Europe and footprint optimization activities in Europe initiated in the third quarter of 2020. Cash payments mainly related to the structural efficiency program initiated in 2019. As of December 31, 2020, approximately $57 million out of the $125.9 million in total reserve balance can be attributed to the structural efficiency program initiated in the second quarter of 2020. This program is expected to be concluded in 2021. Approximately $36 million of the balance can be attributed to footprint optimization activities in Europe initiated in the third quarter of 2020. This program is expected to be concluded in 2023.
December 31
Provision/
Provision/
Cash
Translation
December 31
Charge
Reversal
payments
difference
Restructuring employee-related
$
55.9
$
108.5
$
(10.1
)
$
(38.4
)
$
9.5
$
125.4
Other
0.2
0.3
-
-
0.0
0.5
Total reserve
$
56.1
$
108.8
$
(10.1
)
$
(38.4
)
$
9.5
$
125.9
The provision recorded in 2019 of $56.9 million mainly related to the Structural efficiency program initiated in the second quarter of 2019. The total cost of the Structural efficiency program was expected to be $52.0 million, and as of December 31, 2019, approximately $23 million out of the $56.1 million total reserve balance could be attributed to these activities. The remaining balance related to older restructuring programs, primarily in Western Europe. Cash payments in 2019 mainly related to the Structural efficiency program initiated in 2019. The table below summarizes the change in the balance sheet position of the restructuring reserves from December 31, 2018 to December 31, 2019 (dollars in millions).
December 31
Provision/
Provision/
Cash
Translation
December 31
Charge
Reversal
payments
difference
Restructuring employee-related
$
33.2
$
56.9
$
(3.0
)
$
(30.3
)
$
(0.9
)
$
55.9
Other
0.2
-
-
-
0.0
0.2
Total reserve
$
33.4
$
56.9
$
(3.0
)
$
(30.3
)
$
(0.9
)
$
56.1
In 2018, the restructuring provisions and cash payments related mainly to headcount reductions in high-cost countries in Western Europe. The table below summarizes the change in the balance sheet position of the restructuring reserves from December 31, 2017 to December 31, 2018 (dollars in millions).
December 31
Provision/
Provision/
Cash
Translation
December 31
Charge
Reversal
payments
difference
Restructuring employee-related
$
39.4
$
9.0
$
(0.1
)
$
(13.6
)
$
(1.5
)
$
33.2
Other
0.2
0.2
-
-
(0.2
)
0.2
Total reserve
$
39.6
$
9.2
$
(0.1
)
$
(13.6
)
$
(1.7
)
$
33.4
13. Product Related Liabilities
Autoliv is exposed to product liability and warranty claims in the event that the Company’s products fail to perform as represented and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company has reserves for product risks. Such reserves are related to product performance issues including recall, product liability and warranty issues. For further information, see Note 18.
The Company records liabilities for product related risks when probable claims are identified and when it is possible to reasonably estimate costs. Changes in reserve for warranty claims are estimated based on prior experience, likely changes in performance of newer products, and the mix and volume of the products sold. The changes in reserve are recorded on an accrual basis.
Pursuant to the Spin-off Agreements, Autoliv is also required to indemnify Veoneer for recalls related to certain qualified Electronics products. At December 31, 2020, the reserves for indemnification liabilities were approximately $10 million and were included within accrued expenses on the Consolidated Balance Sheet.
In 2020, the change in reserve for product related liabilities mainly related to recall related issues, whereof the “Toyota Recall” represented the major recall issue (for further information, see Note 18). In 2018 and 2019, changes in the reserve mainly related to other recall and warranty related issues. In 2018, 2019 and 2020, cash payments primarily relate to recall and warranty related issues. The reserve for product related liabilities is included in accrued expenses on the Consolidated Balance Sheet.
A majority of the Company’s recall related issues as of December 31, 2020 are covered by insurance. Insurance receivables are included within other current and non-current assets on the Consolidated Balance Sheet. As of December 31, 2020, the Company had total insurance receivables related to recall issues of $343 million. The total product liability reserve currently is less than the product liability insurance receivable because the timing of insurance recoveries does not match the timing of our product liability.
The table below summarizes the change in the balance sheet position of the product related liabilities (dollars in millions).
Reserve at beginning of the year
$
72.1
$
62.2
$
95.6
Change in reserve
303.5
39.3
20.6
Cash payments
(36.0
)
(29.1
)
(54.3
)
Translation difference
1.4
(0.3
)
0.3
Reserve at end of the year
$
341.0
$
72.1
$
62.2
14. Debt and Credit Agreements
SHORT-TERM DEBT
As of December 31, 2020, total short-term debt was $302 million (2019: $368 million). Short-term debt consisted mainly of $275 million USPP Bond with maturity in April 2021 and $27 million local debt.
The Company’s subsidiaries have credit agreements, principally in the form of overdraft facilities with several local banks. Total available short-term facilities as of December 31, 2020, excluding commercial paper facilities as described below, amounted to $487 million, of which approximately $27 million was utilized. The weighted average interest rate on total short-term debt outstanding at December 31, 2020 and 2019, excluding the short-term portion of long-term debt, was 3% and 3%, respectively.
LONG-TERM DEBT
As of December 31, 2020, total long-term debt was $2,110 million.
In December 2020, the Company repaid the €100 million of 18-month floating rate notes under its EMTN program. It was originally issued in June 2019 and carried a coupon of 3M Euribor +0.50%.
In June 2020, the Company repaid its 3-year loan from Swedish Export Credit Corporation of SEK 1,200 million in advance which carried a floating interest rate of 3M STIBOR +0.54%. At the same time, the Company utilized its new SEK 6,000 million facility with Swedish
Export Credit Corporation which was signed in May 2020. The SEK 6,000 million facility was utilized in two different loans. One SEK 3,000 million loan maturing in 2022 carrying a floating interest rate of 3M STIBOR +1.35% and one SEK 3,000 million loan maturing in 2025 carrying a floating interest rate of 3M STIBOR +1.85%.
In June 2018, the Company also issued €500 million of 5-year notes in the Eurobond market. The notes carry a coupon of 0.75%.
In 2014, the Company issued long-term debt securities in a U.S. Private Placement. The current long-term debt outstanding from the 2014 issuance consist of: $275 million aggregate principal amount of 7-year senior notes with an interest rate of 3.51%; $297 million aggregate principal amount of 10-year senior notes with an interest rate of 4.09%; $285 million aggregate principal amount of 12-year senior notes with an interest rate of 4.24%; and $185 million aggregate principal amount of 15-year senior notes with an interest rate of 4.44%.
CREDIT FACILITIES
In July 2016, the Company signed a $1,100 million senior unsecured revolving credit facility with 14 banks. The term of the facility was 5 years with two one-year extension options. The Company has utilized these extension options and extended the maturity to July 2023. The Company pays a commitment fee on the undrawn amount. The commitment fee is 35% of the applicable margin. The applicable margin is related to the Company’s credit rating. Given the Company’s current credit rating of BBB from S&P Global Ratings, the applicable margin is 0.375%. As of December 31, 2020, and December 31, 2019, the facility was not utilized.
The Company has two commercial paper programs: one SEK 7 billion (approx. $855 million) Swedish program and a $1.0 billion U.S. program. At December 31, 2020 a total of $0 million had been issued under these programs.
The Company is not subject to any financial covenants, i.e. performance related restrictions, in any of its significant long-term borrowings or commitments.
CREDIT RISK
In the Company’s financial operations, credit risk arises in connection with cash deposits with banks and when entering into forward exchange agreements, swap contracts or other financial instruments. In order to reduce this risk, deposits and financial instruments are only entered with a limited number of banks up to a calculated risk amount of $150 million per bank for banks rated A- or above and up to $50 million for banks rated BBB+. The policy of the Company is to work with banks that have a strong credit rating and that participate in the Company’s financing. In addition to this, deposits of up to an aggregate amount of $2 billion can be placed in U.S. and Swedish government paper and in certain AAA rated money market funds. As of December 31, 2020, the Company had placed $392 million in money market funds.
The table below shows debt maturity as cash flow. For a description of hedging instruments used as part of debt management, see the Financial Instruments section of Note 2 and Note 5.
DEBT PROFILE
Total
PRINCIPAL AMOUNT BY EXPECTED MATURITY
(dollars in millions)
Thereafter
long-
term
Total
Bonds
$
$
-
$
$
$
-
$
$
1,380
$
1,655
Loans
-
-
-
-
Commercial papers
-
-
-
-
-
-
-
-
Other short-term debt
-
-
-
-
-
-
Total principal amount
$
$
$
$
$
$
$
2,112
$
2,414
1)
1)
The difference between reported total debt and total principal amount is mainly related to capitalized debt issuance costs.
15. Shareholders’ Equity
The number of shares outstanding as of December 31, 2020 was 87,353,432.
DIVIDENDS
Cash dividend paid per share
$
0.62
$
2.48
$
2.46
Cash dividend declared per share1)
$
-
$
2.48
$
2.48
1) On February 20, 2020, the Company declared a dividend of $0.62 per share for the second quarter of 2020. On April 2, 2020, the Company canceled its declared dividend for the second quarter of 2020.
OTHER COMPREHENSIVE LOSS / ENDING BALANCE1)
Cumulative translation adjustments
$
(268.8
)
$
(364.9
)
$
(381.2
)
Net pension liability
(78.1
)
(84.0
)
(55.0
)
Distribution to Veoneer
-
-
13.0
Total (ending balance)
$
(346.9
)
$
(448.9
)
$
(423.2
)
Deferred taxes on the pension liability
$
22.8
$
24.6
$
15.4
1)
The components of Other Comprehensive Loss are net of any related income tax effects.
SHARE REPURCHASE PROGRAM
The Company’s Board of Directors approved a share repurchase program in 2000 authorizing the repurchase of 10 million shares and subsequently expanded the authorization four times between 2000 and 2014 to 47.5 million shares. The Company made no share repurchases during 2018-2020. There is no expiration date for the share repurchase program. The Company is authorized to repurchase an additional 2,986,288 shares under the program at December 31, 2020.
16. Supplemental Cash Flow Information
Payments for interest and income taxes were as follows:
Interest
$
$
$
Income taxes
17. Stock Incentive Plan
Eligible employees and non-employee directors of Autoliv participate in the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and received Autoliv stock-based awards which include stock options (SOs), restricted stock units (RSUs) and performance shares (PSs). In connection with the Veoneer spin-off, each outstanding Autoliv stock-based award as of June 29, 2018 (the Distribution Date) was converted to a stock award that has underlying shares of both Autoliv and Veoneer common shares.
The conversion that occurred on the Distribution Date was based on the following:
•
SOs - A number of SOs comprising 50% of the value of the outstanding SOs calculated immediately prior to the spin-off continued to be applicable to Autoliv common stock. A number of SOs comprising the remaining 50% percent of the pre-spin-off value were replaced with options to acquire shares of Veoneer common stock.
•
RSUs - A number of RSUs comprising 50% of the value of the outstanding RSUs calculated immediately prior to the spin-off continued to be applicable to Autoliv common stock. A number of RSUs comprising the remaining 50% of the pre-spin-off value were replaced with RSUs with underlying Veoneer common stock.
•
PSs - Outstanding PSs pre-spin-off were converted to time-based RSUs and were divided between Autoliv and Veoneer common stock in the same manner as other outstanding RSUs (as described above) on the Distribution Date. The number of outstanding PSs pre-spin-off to be converted was determined based on pro-ration of the performance period such as:
1)
The level of actual achievement of performance goals for each outstanding PS for the period between the first day of the performance period and December 31, 2017 (the “Performance Measurement Date”), referred to as “Level of Performance-to-Date”; and
2)
The greater of the Level of Performance-to-Date and the target performance level for the period between the Performance Measurement Date and the last day of the performance period.
In each case above, the conversion was intended to generally preserve the intrinsic value of the original award determined as of the Distribution Date. The number of converted RSUs and SOs for Autoliv and Veoneer was based on the average of Autoliv closing stock prices for the last 5 trading days prior to the spin-off and the average of closing stock prices of Autoliv and Veoneer, respectively, for the first 5 trading days after the spin-off. Accordingly, 50% of the outstanding awards as of the Distribution Date, and the related exercise price, were converted to Adjusted Autoliv Awards using a conversion factor of 1.41.
As a result of the spin-off and the related conversion, it was determined that the stock based awards were modified in accordance with ASC 718, Compensation - Stock Compensation. The fair value of the RSUs and SOs immediately before and after the modification was assessed in order to determine if the modification resulted in any incremental compensation cost related to the awards, including consideration of the impact of conversion using the 5 trading day average. Based on the valuation performed, it was determined that the conversion did not result in any incremental compensation cost for any of the outstanding awards. The post spin-off stock-based compensation expense will be based on the original grant date fair value related to only Autoliv employees.
With certain limited exceptions, including the freezing of the Performance Measurement Date to December 31, 2017 as noted above, the adjusted SOs and RSUs outstanding after the spin-off are subject to the same terms and conditions (including with respect to vesting and expiration) that were applicable to such Autoliv stock-based awards immediately prior to the conversion and as described below.
The fair value of the RSUs and PSs is calculated as the grant date fair value of the shares expected to be issued. The RSUs granted in 2020, 2019 and 2018 entitle the grantee to receive dividend equivalents in the form of additional RSUs subject to the same vesting conditions as the underlying RSUs. This also applies for the PSs granted in 2019 and 2020. For the grants made during 2020, 2019 and 2018, the fair value of a PS and a RSU was calculated by using the closing stock price on the grant date. The grant date fair value during 2020 was $6.6 million for the RSUs and $5.7 million for the PSs.
Under the new compensation policy approved in 2020, the Company’s non-employee directors receive RSUs equivalent to approximately 54% of their annual base retainer except for the Chairman of the Board of Directors who also receives 50% of his Non-Executive Chairman supplemental retainer in RSUs. All RSUs vest in one installment on the earlier of the next AGM or the first anniversary of the grant date, in each case subject to the grantee’s continued service as a non-employee director on the vesting date with limited exceptions. The RSUs granted to the Company’s non-employee directors entitle the grantee to receive dividend equivalents in the form of additional RSUs subject to the same vesting conditions as the underlying RSUs. The grant date fair value for the RSUs granted in 2020 to the Company’s non-employee directors was $1.5 million.
The source of the shares issued upon vesting of awards is generally from treasury shares. The Stock Incentive Plan provides for the issuance of up to 9,585,055 common shares for awards. At December 31, 2020, 6,674,658 of these shares have been issued for awards which includes 77,925 shares of common stock issued to non-employee directors in satisfaction of all or a portion of his or her annual base retainer for service on the Board. Included within the RSUs granted in 2020 are 25,301 RSUs issued to non-employee directors in satisfaction of all or a portion of his or her annual base retainer for service on the Board.
In 2015 and earlier, stock awards were granted in the form of SOs and RSUs. All SOs were granted for 10-year terms, had an exercise price equal to the fair value of the share at the date of grant, and became exercisable after one year of continued employment following the grant date. The average grant date fair values of SOs were calculated using the Black-Scholes valuation model. The Company used historical exercise data for determining the expected life assumption. Expected volatility was based on historical and implied volatility.
The Company recorded $11.7 million, $8.4 million and $9.1 million stock-based compensation expense related to RSUs and PSs for 2020, 2019 and 2018, respectively. The total compensation cost related to non-vested awards not yet recognized is $16 million for RSUs and PSs and the weighted average period over which this cost is expected to be recognized is approximately 1.5 years. There are no remaining unrecognized compensation costs associated with SOs.
Information on the number of RSUs, PSs and SOs related to the Stock Incentive Plan during the period of 2018 to 2020 is as follows.
RSUs
Weighted average fair value at grant date 1)
$
69.58
$
76.85
$
131.51
Outstanding at beginning of year
255,195
262,074
188,410
Granted
115,500
109,653
131,246
Shares issued
(105,750
)
(86,086
)
(84,425
)
Cancelled/Forfeited/Expired
(20,044
)
(30,446
)
(6,485
)
Spin conversion 2)
-
-
33,328
Outstanding at end of year3)
244,901
255,195
262,074
1)
Weighted average fair value at grant date pre spin-off in 2018.
2)
Reflects the impact of the cancellation of PS awards outstanding as of the Distribution Date, and the conversion to RSUs in accordance with the conversion factor described above.
3)
Outstanding at the end of 2018 reflects the RSUs held by employees of Autoliv and Veoneer, in accordance with the conversion factor described above. The corresponding weighted average grant date fair value after applying the conversion factor is $100.74 as of December 31, 2018.
The aggregate intrinsic value for RSUs outstanding at December 31, 2020 was $22.6 million.
PSs
Weighted average fair value at grant date 1)
$
69.86
$
77.00
$
105.87
Outstanding at beginning of year
76,321
-
139,891
Change in performance conditions
23,998
12,530
-
Granted 2)
75,940
66,542
Cancelled/Forfeited/Expired
(18,131
)
(2,751
)
(3,076
)
Spin conversion 3)
-
-
(137,403
)
Outstanding at end of year
158,128
76,321
-
1)
Weighted average fair value at grant date pre spin-off in 2018.
2)
2018 grants reflect awards issued pre-spin-off as a result of dividend equivalent rights.
3)
Reflects the replacement of awards due to the spin-off. Outstanding PS awards were converted to RSU awards in accordance with the conversion factor described above.
The PSs granted include assumptions regarding the ultimate number of shares that will be issued based on the probability of achievement of the performance conditions. Changes in those assumptions result in changes in the estimated shares to be issued which is reflected in the “Change in performance conditions” line above.
SOs
Number
of options
Weighted
average
exercise
price
Outstanding at Dec 31, 2017
299,949
$
89.20
Exercised
(92,485
)
86.59
Cancelled/Forfeited/Expired
(65,390
)
88.75
Outstanding at Dec 31, 2018
142,074
63.43
Exercised
(20,928
)
42.11
Spin conversion 1)
(5,271
)
80.40
Outstanding at Dec 31, 2019 2)
115,875
66.70
Exercised
(14,238
)
55.55
Cancelled/Forfeited/Expired
(11,462
)
69.25
Outstanding at Dec 31, 2020
90,175
$
68.13
OPTIONS EXERCISABLE
At December 31, 2018
142,074
$
63.43
At December 31, 2019
115,875
66.70
At December 31, 2020
90,175
68.13
1)
Reflects the cancellation of SOs outstanding as of the Distribution Date, and the conversion to new awards in accordance with the conversion factor described above. The weighted average exercise price reflects the exercise price of the shares cancelled due to the spin-off.
2)
Reflects outstanding SOs held by employees of Autoliv and Veoneer at the end of the year and the weighted average exercise price after applying the conversion factor described above.
The following summarizes information about SOs outstanding and exercisable at December 31, 2020:
RANGE OF EXERCISE PRICES
Number
outstanding &
exercisable
Remaining
contract life
(in years)
Weighted
average
exercise
price
$47.52
6,607
1.14
47.52
$49.07
13,612
2.14
49.07
$51.74
3,799
0.14
51.74
$67.29
26,965
3.14
67.29
$80.40
39,192
4.13
80.40
90,175
3.14
68.13
The total aggregate intrinsic value, which is the difference between the exercise price and $92.10 (closing price per share at December 31, 2020), for all “in the money” SOs, both outstanding and exercisable as of December 31, 2020, was $2.2 million.
18. Contingent Liabilities
LEGAL PROCEEDINGS
Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters. Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel, and with the exception of losses resulting from the antitrust proceedings described below, it is the opinion of management that the various legal proceedings and investigations to which the Company currently is a party will not have a material adverse impact on the consolidated financial position of Autoliv, but the Company cannot provide assurance that Autoliv will not experience material litigation, product liability or other losses in the future.
ANTITRUST MATTERS
Authorities in several jurisdictions have conducted broad, and in some cases, long-running investigations of suspected anti-competitive behavior among parts suppliers in the global automotive vehicle industry. These investigations included, but are not limited to, the products that the Company sells. In addition to concluded matters, authorities of other countries with significant light vehicle manufacturing or sales may initiate similar investigations. It is the Company’s policy to cooperate with governmental investigations.
European Commission (“EC”) Investigations:
On June 7-9, 2011, representatives of the European Commission (“EC”), the European antitrust authority, visited two facilities of a Company subsidiary in Germany to gather information for an investigation of anti-competitive behavior among suppliers of occupant safety systems. On November 22, 2017, the EC concluded a discrete portion of its investigation and imposed a fine on the Company of €8.1 million (approximately $9.7 million), and the Company paid this amount during the first quarter of 2018. On March 5, 2019, the EC completed the remaining portion of the investigation and imposed a fine on the Company of €179 million (approximately $203 million), and the Company paid this amount in June 2019.
PRODUCT WARRANTY, RECALLS AND INTELLECTUAL PROPERTY
Autoliv is exposed to various claims for damages and compensation if its products fail to perform as expected. Such claims can be made, and result in costs and other losses to the Company, even where the product is eventually found to have functioned properly. Where a product (actually or allegedly) fails to perform as expected or is defective, the Company may face warranty and recall claims. Where such (actual or alleged) failure or defect results, or is alleged to result, in bodily injury and/or property damage, the Company may also face product liability and other claims. There can be no assurance that the Company will not experience material warranty, recall or product (or other) liability claims or losses in the future, or that the Company will not incur significant costs to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Government safety regulators may also play a role in warranty and recall practices. Recall decisions regarding the Company’s products may require a significant amount of judgment by us, our customers and safety regulators and are influenced by a variety of factors. Once a recall has been made, the cost of a recall is also subject to a significant amount of judgment and discussions between the Company and its customers. A warranty, recall or product-liability claim brought against the Company in excess of its insurance may have a material adverse effect on the Company’s business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some, or all, of the repair or replacement costs of products when the product supplied did not perform as represented by us or expected by the customer in either a warranty or a recall situation. Accordingly, the future costs of warranty or recall claims by the customers may be material. However, the Company believes its established reserves are adequate. Autoliv’s warranty reserves are based upon the Company’s best estimates of amounts necessary to settle future and existing claims. The Company regularly evaluates the adequacy of these reserves, and adjusts them when appropriate. However, the final amounts actually due related to these matters could differ materially from the Company’s recorded estimates.
In addition, as vehicle manufacturers increasingly use global platforms and procedures, quality performance evaluations are also conducted on a global basis. Any one or more quality, warranty or other recall issue(s) (including those affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures such as a temporary or prolonged suspension of new orders, which may have a material impact on the Company’s results of operations.
The Company maintains a program of insurance, which may include commercial insurance, self-insurance, or a combination of both approaches, for potential recall and product liability claims in amounts and on terms that it believes are reasonable and prudent based on our prior claims experience. The Company’s insurance policies generally include coverage of the costs of a recall, although costs related to replacement parts are generally not covered. In addition, a number of the agreements entered into by the Company, including the Spin-off Agreements, require Autoliv to indemnify the other parties for certain claims. Autoliv cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in our businesses or with respect to other obligations, now or in the future, or that such coverage always will be available should we, now or in the future, wish to extend, increase or otherwise adjust our insurance.
As noted in Note 13 above, as of December 31, 2020, the Company has accrued $341 million for total product related liabilities. The majority of the total product liability accrual as of December 31, 2020, relates to recalls, which are mostly covered by insurance. Insurance receivables for such recall related liabilities total $343 million as of December 31, 2020. The total product liability accrual currently is less
than the product liability insurance receivable because the timing of insurance recoveries does not match the timing of the recording of our product liability.
Specific Recalls:
On June 29, 2016, the Company announced that it is cooperating with Toyota Motor Corp. in its recall of approximately 1.4 million vehicles equipped with a certain model of the Company’s side curtain airbag (the “Toyota Recall”). The Company has determined pursuant to ASC 450 that a loss with respect to the Toyota Recall is probable and has accrued an amount that is included in the total product liability accrual in the fourth quarter of 2020. The amount by which the product liability accrual exceeds the product liability insurance receivable with respect to the Toyota Recall is $25 million and includes deductibles and replacement parts. The ultimate loss to the Company of the Toyota Recall could be materially different from the amount the Company has accrued. The Company expects this matter to be resolved in 2021.
Additionally, in the fourth quarter of 2020, the Company was made aware of a potential recall by one of its customers (the “Unannounced Recall”). The Company continues to evaluate this matter with its customer. The Company has determined pursuant to ASC 450 that a loss with respect to the Unannounced Recall is probable and has accrued an amount that is reflected in the total product liability accrual in the fourth quarter of 2020. The amount by which the product liability accrual exceeds the product liability insurance receivable with respect to the Unannounced Recall is $26 million and includes self-insurance retention costs and deductibles. The ultimate loss to the Company of the Unannounced Recall could be materially different from the amount the Company has accrued.
Intellectual property
In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company does seek to procure the necessary rights to utilize intellectual property rights associated with its products, it may fail to do so. Where the Company so fails, the Company may be exposed to material claims from the owners of such rights. Where the Company has sold products which infringe upon such rights, its customers may be entitled to be indemnified by the Company for the claims they suffer as a result thereof. Such claims could be material.
The table in Note 13 Product Related Liabilities above summarizes the change in the balance sheet position of the product related liabilities for the fiscal year ended December 31, 2020.
19. Retirement Plans
DEFINED CONTRIBUTION PLANS
Many of the Company’s employees are covered by government sponsored pension and welfare programs. Under the terms of these programs, the Company makes periodic payments to various government agencies. In addition, in some countries the Company sponsors or participates in certain non-governmental defined contribution plans. Contributions to defined contribution plans for the years ended December 31, 2020, 2019 and 2018 were $14.7 million, $15.7 million and $19.2 million, respectively.
MULTIEMPLOYER PLANS
The Company participates in a multiemployer plan in Sweden. This ITP-2 plan is funded through Alecta and covers employees born before 1979, for whom it provides a final pay pension benefit based on all service with participating employers. The Company must pay for wage increases in excess of inflation on service earned with previous employers. The plan also provides disability and family benefits and is more than 100% funded. The Company´s contributions to this multiemployer plan for the years ended December 31, 2020, 2019 and 2018 were $4.0 million, $3.9 million and $6.1 million, respectively.
DEFINED BENEFIT PLANS
The Company has a number of defined benefit pension plans, both contributory and non-contributory, in the U.S., France, Germany, India, Japan, Mexico, Philippines, Sweden, South Korea, Thailand, Turkey and the United Kingdom. There are funded as well as unfunded plan arrangements which provide retirement benefits to both U.S. and non-U.S. participants.
The main plan is the U.S. plan for which the benefits are based on an average of the employee’s earnings in the years preceding retirement and on credited service. In a prior year, the Company closed participation in the Autoliv ASP, Inc. Pension Plan to exclude those employees hired after December 31, 2003. Within the U.S. there is also a non-qualified restoration plan that provides benefits to employees whose benefits in the primary U.S. plan are restricted by limitations on the compensation that can be considered in calculating their benefits. During December 2017 the Company amended the U.S. defined benefit pension plan, communicating a benefits freeze that will begin on December 31, 2021.
For the Company’s non-U.S. defined benefit plans the most significant individual plan is in the U.K. The Company has closed participation in the U.K. defined benefit plan to exclude all employees hired after April 30, 2003 with few members currently accruing benefits.
CHANGES IN BENEFIT OBLIGATIONS AND PLAN ASSETS FOR THE PERIODS ENDED DECEMBER 31
U.S.
Non-U.S.
Benefit obligation at beginning of year
$
400.1
$
332.1
$
252.6
$
216.9
Service cost
7.5
6.9
12.2
10.7
Interest cost
12.2
14.2
5.8
6.4
Actuarial (gain) loss due to:
Change in discount rate
46.4
67.8
12.9
27.7
Experience
(5.0
)
3.0
0.1
(1.2
)
Other assumption changes
3.2
(0.4
)
(11.2
)
(1.0
)
Benefits paid
(3.8
)
(23.5
)
(9.0
)
(8.4
)
Plan settlements
(34.4
)
-
(0.4
)
(1.2
)
Special termination benefits
-
-
0.0
0.5
Other
-
-
1.5
1.6
Translation difference
-
-
14.9
0.6
Benefit obligation at end of year
$
426.2
$
400.1
$
279.4
$
252.6
Fair value of plan assets at beginning of year
$
323.8
$
273.0
$
88.7
$
77.8
Actual return on plan assets
52.5
67.0
8.8
8.9
Company contributions
16.5
7.3
9.7
9.5
Benefits paid
(3.8
)
(23.5
)
(9.0
)
(8.4
)
Plan settlements
(34.4
)
-
(0.4
)
(1.2
)
Translation difference
-
-
5.0
2.1
Fair value of plan assets at end of year
$
354.6
$
323.8
$
102.8
$
88.7
Funded status recognized in the balance sheet
$
(71.6
)
$
(76.3
)
$
(176.6
)
$
(163.9
)
The U.S. plan provides that benefits may be paid in the form of a lump sum if so elected by the participant. In order to more accurately reflect a market-derived pension obligation, Autoliv adjusts the assumed lump sum interest rate to reflect market conditions as of each December 31. This methodology is consistent with the approach required under the Pension Protection Act of 2006, which provides the rules for determining minimum funding requirements in the U.S.
COMPONENTS OF NET PERIODIC BENEFIT COST ASSOCIATED WITH THE DEFINED BENEFIT RETIREMENT PLANS
U.S.
(Dollars in millions)
Service cost
$
7.5
$
6.9
$
8.7
Interest cost
12.2
14.2
12.8
Expected return on plan assets
(16.3
)
(13.5
)
(20.4
)
Amortization of prior service credit
0.0
0.0
0.1
Amortization of actuarial loss
2.8
1.9
2.2
Settlement loss
7.2
-
-
Net periodic benefit cost
$
13.4
$
9.5
$
3.4
Non-U.S.
(Dollars in millions)
Service cost
$
12.2
$
10.7
$
10.8
Interest cost
5.8
6.4
5.7
Expected return on plan assets
(1.7
)
(1.9
)
(2.0
)
Amortization of prior service costs
0.4
0.3
0.3
Amortization of actuarial loss
2.3
0.9
1.4
Settlement loss
0.1
0.6
0.2
Special termination benefits
0.0
0.5
0.5
Net periodic benefit cost
$
19.1
$
17.5
$
16.9
The service cost and amortization of prior service cost components are reported among other employee compensation costs in the Consolidated Statements of Income. The remaining components, interest cost, expected returns on plan assets and amortization of actuarial loss, are reported as Other non-operating items, net in the Consolidated Statements of Income.
Amortization of the net actuarial loss from accumulated other comprehensive income is made over the estimated remaining service lives of the plan participants, 9 years for U.S. and from 4 to 31 years for non-U.S. participants, varying between the different countries depending on the age of the work force.
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX AS OF DECEMBER 31
U.S.
Non-U.S.
(Dollars in millions)
Net actuarial loss
$
61.5
$
63.1
$
41.9
$
47.6
Prior service cost
0.0
0.1
3.5
3.7
Total accumulated other comprehensive income
recognized in the balance sheet
$
61.5
$
63.2
$
45.4
$
51.3
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX FOR THE PERIODS ENDED DECEMBER 31
U.S.
Non-U.S.
(Dollars in millions)
Total retirement benefit recognized in accumulated
other comprehensive income at beginning of year
$
63.2
$
48.1
$
51.3
$
33.9
Net actuarial (gain) loss
8.3
16.9
(5.2
)
19.1
Amortization of prior service credit (cost)
0.0
0.0
(0.4
)
(0.3
)
Amortization of actuarial loss
(10.0
)
(1.8
)
(2.3
)
(1.5
)
Translation difference
-
-
2.0
0.1
Total retirement benefit recognized in accumulated
other comprehensive income at end of year
$
61.5
$
63.2
$
45.4
$
51.3
The accumulated benefit obligation for the U.S. non-contributory defined benefit pension plans was $419.1 million and $384.4 million at December 31, 2020 and 2019, respectively. The accumulated benefit obligation for the non-U.S. defined benefit pension plans was $236.9 million and $194.5 million at December 31, 2020 and 2019, respectively.
Pension plans for which the accumulated benefit obligation (ABO) is notably in excess of the plan assets reside in the following countries: U.S., Mexico, France, Germany, Japan, South Korea and Sweden.
PENSION PLANS FOR WHICH ABO EXCEEDS THE FAIR VALUE OF PLAN ASSETS AS OF DECEMBER 31
U.S.
Non-U.S.
(Dollars in millions)
Projected Benefit Obligation (PBO)
$
426.2
$
400.1
$
179.2
$
169.3
Accumulated Benefit Obligation (ABO)
419.1
384.3
142.7
127.2
Fair value of plan assets
354.6
323.8
4.0
3.8
The Company, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected benefit obligation and annual net periodic benefit cost.
ASSUMPTIONS USED TO DETERMINE THE BENEFIT OBLIGATIONS AS OF DECEMBER 31
U.S.
Non-U.S.1)
% WEIGHTED AVERAGE
Discount rate
2.35
3.25
0.25-2.70
0.25-2.70
Rate of increases in compensation level
2.65
2.65
1.80-4.00
2.00-5.00
ASSUMPTIONS USED TO DETERMINE THE NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31
U.S.
% WEIGHTED AVERAGE
Discount rate
3.25
4.35
3.55
Rate of increases in compensation level
2.65
2.65
2.65
Expected long-term rate of return on assets
5.05
5.05
7.08
Non-U.S.1)
% WEIGHTED AVERAGE
Discount rate
0.25-2.70
0.50-3.25
0.25-3.25
Rate of increases in compensation level
2.00-5.00
2.00-5.00
2.00-5.00
Expected long-term rate of return on assets
1.50-2.25
2.25-2.50
2.25-2.50
1)
The Non-U.S. weighted average plan ranges in the tables above have been prepared using significant plans only, which in total represent around 83% of the total Non-U.S. projected benefit obligation.
The discount rate for the U.S. plans has been set based on the rates of return on high-quality fixed-income investments currently available at the measurement date and expected to be available during the period the benefits will be paid. The expected timing of cash flows from the plan has also been considered in selecting the discount rate. In particular, the yields on bonds rated AA or better on the measurement date have been used to set the discount rate. The discount rate for the U.K. plan has been set based on the weighted average yields on long-term high-grade corporate bonds and is determined by reference to financial markets on the measurement date.
The expected rate of increase in compensation levels and long-term rate of return on plan assets are determined based on a number of factors and must take into account long-term expectations and reflect the financial environment in the respective local market. The expected return on assets for the U.S. and U.K. plans are based on the fair value of the assets as of December 31.
The level of equity exposure is currently targeted at approximately 40% for the primary U.S. plan. The investment objective is to provide an attractive risk-adjusted return that will ensure the payment of benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify an asset mix that Autoliv believes will provide the most attractive returns. Long-term return forecasts for each asset class using historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of return for the entire portfolio. The Company has assumed a long-term rate of return on the U.S. plan assets of 5.05% for calculating the 2020 expense and 5.05% for calculating the 2021 expense.
The Company has assumed a long-term rate of return on the non-U.S. plan assets in a range of 1.50-2.25% for 2020. The closed U.K. plan which has a targeted and actual allocation of almost 100% debt instruments accounts for approximately 80% of the total non-U.S. plan assets.
Autoliv made contributions to the U.S. plan during 2020 and 2019 amounting to $16.5 million and $7.3 million, respectively. Contributions to the U.K. plan during 2020 and 2019 amounted to $1.9 million and $1.2 million, respectively. The Company expects to contribute $12.6 million to its U.S. pension plan in 2021 and is currently projecting a yearly funding at approximately the same level in the years thereafter. For the UK pension plan, which is the most significant non-U.S. pension plan, the Company expects to contribute $2.0 million in 2021 and in the years thereafter.
FAIR VALUE OF TOTAL PLAN ASSETS FOR YEARS ENDED DECEMBER 31
U.S.
U.S.
Non-U.S.
ASSETS CATEGORY IN % WEIGHTED AVERAGE
Target
allocation
Equity securities
Debt instruments
Other assets
-
Total
The following table summarizes the fair value of the Company’s U.S. and non-U.S. defined benefit pension plan assets (dollars in millions):
(Dollars in millions)
Fair value
measurement at
December 31,
Fair value
measurement at
December 31,
Assets
Non-U.S. Bonds
Corporate
$
79.6
$
70.4
Insurance Contracts
17.5
14.7
Other Investments
9.6
6.2
Assets at fair value Level 2
106.7
91.3
Investments measured at net asset value (NAV):
Common collective trusts
350.7
321.2
Total
$
457.4
$
412.5
The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. Plan assets not measured using the NAV are classified as Level 2 in the table above. Plan assets measured using the NAV mainly relate to the U.S. defined benefit pension plans and are separately disclosed as Common collective trusts below the Level 2 assets in the table above.
The estimated future benefit payments for the pension benefits reflect expected future service, as appropriate. The amount of benefit payments in a given year may vary from the projected amount, especially for the U.S. plan since historically this plan pays the majority of benefits as a lump sum, where the lump sum amounts vary with market interest rates.
PENSION BENEFITS EXPECTED PAYMENTS (dollars in millions)
U.S.
Non-U.S.
Years 2026-2030
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides postretirement health care and life insurance benefits to most of its U.S. retirees.
In general, the terms of the plans provide that U.S. employees who retire after attaining age 55, with 15 years of service (5 years before December 31, 2006), are reimbursed for qualified medical expenses up to a maximum annual amount. Spouses for certain retirees are also eligible for reimbursement under the plan. Life insurance coverage is available for those who elect coverage under the retiree health plan. During 2014, the plan was amended to move from a self-insured model where employees were charged an estimated premium based on anticipated plan expenses for continued coverage, to a plan where retirees are provided a fixed contribution to a Health Retirement Account (HRA). Retirees can use the HRA funds to purchase insurance through a private exchange. Employees hired on or after January 1, 2004 are not eligible to participate in the plan.
CHANGES IN BENEFIT OBLIGATION FOR POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS AS OF DECEMBER 31
(Dollars in millions)
Benefit obligation at beginning of year
$
18.4
$
15.5
Service cost
0.2
0.2
Interest cost
0.6
0.6
Actuarial loss (gain)
2.1
2.2
Benefits paid
(0.4
)
(0.3
)
Other
0.3
0.2
Benefit obligation at end of year
$
21.2
$
18.4
The liability for postretirement benefits other than pensions is classified as other non-current liabilities in the balance sheet.
COMPONENTS OF NET PERIODIC BENEFIT COST ASSOCIATED WITH THE POST RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
PERIOD ENDED DECEMBER 31 (Dollars in millions)
Service cost
$
0.2
$
0.2
$
0.3
Interest cost
0.6
0.6
0.6
Amortization of prior service cost
(2.1
)
(2.2
)
(2.2
)
Amortization of actuarial loss
(0.0
)
(0.3
)
(0.3
)
Net periodic benefit (credit)
$
(1.3
)
$
(1.7
)
$
(1.6
)
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX ASSOCIATED WITH POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS AS OF DECEMBER 31
U.S.
(Dollars in millions)
Net actuarial loss (gain)
$
(0.1
)
$
2.0
Prior service cost (credit)
4.0
6.1
Total accumulated other comprehensive loss (income)
recognized in the balance sheet
$
3.9
$
8.1
The average discount rate used to determine the U.S. postretirement benefit obligation was 2.6% in 2020 and 3.5% in 2019. The average discount rate used in determining the postretirement benefit cost was 3.5% in 2020, 4.45% in 2019 and 3.75% in 2018.
The estimated future benefit payments for the postretirement benefits set forth below reflect expected future service as appropriate (dollars in millions).
POSTRETIREMENT BENEFITS (Dollars in millions)
EXPECTED
PAYMENTS
0.5
0.6
0.6
0.7
0.7
Years 2026-2030
3.9
20. Related Party Transactions
Throughout the periods covered by consolidated financial statements, Autoliv purchased finished goods from Veoneer. Related party purchases from Veoneer amounted to approximately $70 million and $73 million for the full year 2020 and 2019, respectively.
Autoliv also subleases certain office space to Veoneer. However, related party sublease income from Veoneer is not material for 2020 and 2019.
Amounts due to and due from related parties as of December 31, 2020 and December 31, 2019 are summarized in the below table:
As of
(Dollars in millions)
December 31,
December 31,
Related party receivables
$
2.0
$
2.8
Related party payables1)
27.2
9.7
Related party accrued expenses1)
10.3
7.7
1)
Included in Related party liabilities in the Consolidated Balance Sheet.
Related party receivables primarily relate to an agreement between Autoliv and Veoneer.
The related party payables are mainly driven by Reseller Agreements entered into in connection with the spin-off. The Reseller Agreements are between Autoliv and Veoneer to facilitate the temporary arrangement of the sale of Veoneer products in the interim period post spin-off. For further information, see Note 3. Discontinued Operations above.
The related party accrued expenses consists of indemnification liabilities where Autoliv is required to indemnify Veoneer for certain warranty and recall related claims in connection with the Spin-off.
21. Segment Information
The Company has one operating segment which includes Autoliv’s airbag and seatbelt products and components. The operating results of the operating segment are regularly reviewed by the Company’s chief operating decision maker to assess the performance of the individual operating segment and make decisions about resources to be allocated to the operating segment.
The Company’s customers consist of all major European, U.S. and Asian automobile manufacturers. Sales to individual customers representing 10% or more of net sales were:
In 2020: Renault 13% (including Nissan and Mitsubishi), VW 11%, Stellantis 11% and Honda 10%.
In 2019: Renault 16% (including Nissan and Mitsubishi) and VW 10% and Honda 10%.
In 2018: Renault 15% (including Nissan and Mitsubishi) and VW 10%.
NET SALES BY REGION
Asia
$
3,043.0
$
3,176.6
$
3,194.9
Whereof: China
1,540.8
1,525.3
1,522.2
Japan
732.9
810.3
827.9
Rest of Asia
769.3
841.0
844.8
Americas
2,337.1
2,907.2
2,735.1
Europe
2,067.3
2,463.8
2,748.2
Total
$
7,447.4
$
8,547.6
$
8,678.2
The Company has attributed net sales to the geographic area based on the location of the entity selling the final product.
External sales in the U.S. amounted to $1,647 million, $2,090 million and $1,943 million in 2020, 2019 and 2018, respectively. Of the external sales, exports from the U.S. to other regions amounted to approximately $348 million, $463 million and $384 million in 2020, 2019 and 2018, respectively.
NET SALES BY PRODUCT
Airbag Products1)
$
4,824.2
$
5,676.3
$
5,698.6
Seatbelt Products1)
2,623.2
2,871.3
2,979.6
Total net sales
$
7,447.4
$
8,547.6
$
8,678.2
1)
Including Corporate and other sales.
LONG-LIVED ASSETS
Asia
$
$
Whereof: China
Japan
Rest of Asia
Americas
1,874
1,862
Europe
1,030
Total
$
3,888
$
3,769
Long-lived assets in the U.S. amounted to $1,653 million and $1,633 million for 2020 and 2019, respectively. For 2020, $1,235 million (2019, $1,242 million) of the long-lived assets in the U.S. refers to intangible assets, principally from acquisition goodwill.
22. Earnings Per Share
The computation of basic and diluted EPS under the two-class method were as follows (dollars and shares in millions):
Numerator:
Basic and diluted:
Net income from continuing operations
$
186.9
$
461.5
$
375.9
Net loss from discontinued operations
-
-
(185.5
)
Net income attributable to controlling interest
186.9
461.5
190.4
Participating share awards with dividend equivalent rights
0.0
0.0
0.0
Net income available to common shareholders
186.9
461.5
190.4
Earnings allocated to participating share awards 1)
0.0
0.0
0.0
Net income attributable to common shareholders
$
186.9
$
461.5
$
190.4
Denominator: 1)
Basic: Weighted average common stock
87.3
87.2
87.1
Add: Weighted average stock options/share awards
0.2
0.2
0.2
Diluted:
87.5
87.4
87.3
Basic EPS:
Continuing operations
$
2.14
$
5.29
$
4.32
Discontinued operations
-
-
(2.13
)
Basic EPS
$
2.14
$
5.29
$
2.19
Diluted EPS:
Continuing operations
$
2.14
$
5.29
$
4.31
Discontinued operations
-
-
(2.13
)
Diluted EPS
$
2.14
$
5.29
$
2.18
1)
The Company’s unvested RSUs and PSs, of which some included the right to receive non-forfeitable dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.
Anti-dilutive shares outstanding for the years ended December 31, 2020, 2019 and 2018 were immaterial.
23. Subsequent Events
There were no reportable events subsequent to December 31, 2020.
24. Quarterly Financial Data (unaudited)
Q1
Q2
Q3
Q4
Net sales
$
1,845.8
$
1,047.6
$
2,037.2
$
2,516.8
Gross profit
331.0
14.4
399.7
501.8
Income (loss) before income taxes
111.3
(246.6
)
148.5
277.9
Net Income (loss)
74.9
(174.3
)
98.8
188.9
Net income (loss) attributable to controlling interest
74.8
(174.7
)
98.3
188.5
Earnings (loss) per share
- basic
0.86
(2.00
)
1.13
2.16
- diluted
0.86
(2.00
)
1.12
2.15
Dividends paid
0.62
-
-
-
Q1
Q2
Q3
Q4
Net sales
$
2,174.0
$
2,154.7
$
2,027.7
$
2,191.2
Gross profit
378.8
399.7
379.1
426.8
Income before income taxes
153.6
150.8
134.4
209.7
Net Income
111.5
109.4
86.0
155.9
Net income attributable to controlling interest
111.4
109.1
85.4
155.6
Earnings per share
- basic
1.28
1.25
0.98
1.78
- diluted
1.27
1.25
0.98
1.78
Dividends paid
0.62
0.62
0.62
0.62
Quarterly movements
In the second quarter of 2020, COVID-19 negatively impacted Net Income due to several plant closures as customers’ plants were also closed for several weeks and operated at low levels during Q2. 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 45% in Q2 2020 compared to Q2 2019. In addition to the decline in global LVP, the slow and volatile restart and ramp-up of production had a significant impact on our sales and profitability in the first half of 2020.
EXCHANGE RATES FOR KEY CURRENCIES VS. U.S.
Average
Year end
Average
Year end
Average
Year end
Average
Year end
Average
Year end
EUR
1.139
1.226
1.119
1.120
1.182
1.145
1.129
1.196
1.106
1.052
CNY
0.145
0.153
0.145
0.143
0.151
0.146
0.148
0.154
0.150
0.144
JPY/1000
9.361
9.678
9.178
9.157
9.061
9.051
8.916
8.878
9.222
8.544
KRW/1000
0.847
0.921
0.857
0.870
0.909
0.896
0.885
0.937
0.863
0.832
MXN
0.047
0.050
0.052
0.053
0.052
0.051
0.053
0.051
0.053
0.048
SEK
0.109
0.122
0.106
0.107
0.115
0.111
0.117
0.121
0.117
0.110
BRL
0.197
0.192
0.253
0.247
0.276
0.258
0.313
0.302
0.289
0.307

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes to and no disagreements with our independent auditors regarding accounting or financial disclosure matters in our two most recent fiscal years.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation has been carried out by the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
Internal Control over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Autoliv’s internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013 framework).
Based on our assessment, we believe that, as of December 31, 2020, the Company’s internal control over financial reporting is effective.
(b) Attestation Report of the Registered Public Accounting Firm
Ernst & Young AB has issued an attestation report on the Company’s internal control over financial reporting, which is included herein as the Report of Independent Registered Public Accounting Firm under Item 8. Financial Statements and Supplementary Data for the year ended December 31, 2020.
(c) Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15-(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company’s ability to maintain an effective internal control environment has not been impacted by the COVID-19 pandemic. The Company is continually monitoring and assessing the COVID-19 pandemic’s effect on its internal controls to minimize the impact on their design and operating effectiveness.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10. regarding executive officers, directors and nominees for election as directors of Autoliv, Autoliv’s Audit Committee, Autoliv’s code of ethics, and compliance with Section 16(A) of the Securities Exchange Act is incorporated herein by reference from the information under the captions “Executive Officers of the Company” and “Proposal 1: Election of Directors”, “Committees of the Board” and “Audit Committee Report”, “Corporate Governance Guidelines and Codes of Conduct and Ethics”, and “Section 16(a) Beneficial Ownership Reporting Compliance”, respectively, in the Company’s 2021 Proxy Statement. Information on Board meeting attendance is provided under the caption “Board Meetings” in the 2021 Proxy Statement and incorporated herein by reference.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by Item 11. regarding executive compensation for the year ended December 31, 2020 is included under the caption “Compensation Discussion and Analysis” in the 2021 Proxy Statement and is incorporated herein by reference. The information required by the same item regarding Leadership Development and Compensation Committee is included in the sections “Leadership Development and Compensation Committee Interlocks and Insider Participation” and “Leadership Development and Compensation Committee Report” in the 2021 Proxy Statement and is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12. regarding beneficial ownership of Autoliv’s common stock is included under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2021 Proxy Statement and is incorporated herein by reference.
Shares Previously Authorized for Issuance Under the 1997 Stock Incentive Plan
The following table provides information as of December 31, 2020, about the common stock that may be issued under the Autoliv, Inc. Stock Incentive Plan. The Company does not have any equity compensation plans that have not been approved by its stockholders.
Plan Category
(a) Number of
Securities to
be issued upon
exercise of
outstanding options,
warrants and rights
(b) Weighted-
average exercise
price of outstanding
options, warrants
and rights(2)
(c) Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column
(a))(3)
Equity compensation plans approved
by security holders (1)
493,204
$
68.13
2,910,397
Equity compensation plans not
approved by security holders
-
-
-
Total
493,204
$
68.13
2,910,397
(1)
Autoliv, Inc. Stock Incentive Plan, as amended and restated on May 6, 2009, as amended by Amendment No. 1 dated December 17, 2010 and Amendment No. 2 dated May 8, 2012.
(2)
Excludes restricted stock units and performance shares which convert to shares of common stock for no consideration.
(3)
All such shares are available for issuance pursuant to grants of full-value stock awards.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding the Company’s policy and procedures concerning related party transactions is included under the caption “Related Person Transactions” in the 2021 Proxy Statement and is incorporated herein by reference. Information regarding director independence can be found under the caption “Board Independence” in the 2021 Proxy Statement and is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A regarding principal accounting fees and the information required by Item 14 regarding the pre-approval process of accounting services provided to Autoliv is included under the caption “Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm Appointment” in the 2021 Proxy Statement and is incorporated herein by reference.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a)
Documents Filed as Part of this Report
(1)
Financial Statements
(i)
Consolidated Statements of Income - Years ended December 31, 2020, 2019 and 2018;
(ii)
Consolidated Statements of Comprehensive Income - Years ended December 31, 2020, 2019 and 2018;
(iii)
Consolidated Balance Sheets - as of December 31, 2020 and 2019;
(iv)
Consolidated Statements of Cash Flows - Years ended December 31, 2020, 2019 and 2018;
(v)
Consolidated Statements of Total Equity - as of December 31, 2020, 2019 and 2018;
(vi)
Notes to Consolidated Financial Statements; and
(vii)
Reports of Independent Registered Public Accounting Firm.
(2)
Financial Statement Schedules
All of the schedules specified under Regulation S-X to be provided by Autoliv have been omitted either because they are not applicable, they are not required, or the information required is included in the financial statements or notes thereto.
(3)
Exhibits
Exhibit
No.
Description
2.1
Distribution Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-12933, filing date July 2, 2018).
3.1
Autoliv’s Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 22, 2015).
3.2
Autoliv’s Third Restated By-Laws, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-12933, filing date December 18, 2015).
4.1
Indenture, dated March 30, 2009, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to Autoliv’s Registration Statement on Form 8-A (File No. 001-12933, filing date March 30, 2009).
4.2
Second Supplemental Indenture (including Form of Global Note), dated March 15, 2012, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).
4.3
Form of Note Purchase and Guaranty Agreement dated April 23, 2014, among Autoliv ASP, Inc., Autoliv, Inc. and the purchasers named therein, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 25, 2014).
4.4
Amendment and Waiver 2014 Note Purchase and Guaranty Agreement, dated May 24, 2018 among Autoliv, Inc., Autoliv ASP, Inc. and the noteholders named therein, incorporated herein by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
4.5
General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc., representing common shares in Autoliv, Inc., effective as of May 30, 2018 with Skandinaviska Enskilda Banken AB (publ) serving as a custodian, incorporated herein by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
4.6
Agency Agreement dated June 26, 2018 among Autoliv, Inc., Autoliv ASP Inc. and HSBC Bank PLC, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
4.7
Base listing particulars Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).
4.8
Programme Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).
4.9
Agency Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.9 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).
4.10
Base Listing Particulars Agreement, dated February 21, 2020, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated by reference to Exhibit 4.10 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 24, 2020).
Exhibit
No.
Description
4.11
Amended and Restated Programme Agreement, dated February 21, 2020, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein incorporated by reference to Exhibit 4.11 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 24, 2020).
4.12
Amended and Restated Agency Agreement, dated February 21, 2020, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein. incorporated by reference to Exhibit 4.12 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 24, 2020).
4.13*
Description of Registrant´s Securities.
10.1+
Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers, incorporated herein by reference to Exhibit 10.4 to the Annual Report on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).
10.2+
Form of Supplementary Agreement to the Employment Agreement between Autoliv, Inc. and certain of its executive officers, incorporated herein by reference to Exhibit 10.5 to the Annual Report on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).
10.3+
Form of Severance Agreement between Autoliv, Inc. and certain of its executive officers, incorporated herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).
10.4+
Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers - notice, incorporated herein by reference to Exhibit 10.9 to the Annual Report on Form 10-K (File No. 001-12933, filing date March 14, 2003).
10.5+
Form of Supplementary Agreement to Employment Agreement between Autoliv, Inc. and certain of its executive officers - pension, incorporated herein by reference to Exhibit 10.10 to the Annual Report on Form 10-K (File No. 001-12933, filing date March 14, 2003).
10.6+
Form of Pension Agreement between Autoliv, Inc. and certain of its executive officers - additional pension, incorporated herein by reference to Exhibit 10.11 to the Annual Report on Form 10-K (File No. 001-12933, filing date March 14, 2003).
10.7+
Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated on May 6, 2009, incorporated herein by reference to Appendix A of the Definitive Proxy Statement of Autoliv, Inc. on Schedule 14A (filing date March 23, 2009).
10.8
Revolving Credit Facility Agreement, dated June 21, 2010, between Autoliv AB, Autoliv, Inc., and Nordea Bank AB (publ), incorporated herein by reference to Exhibit 10.21 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 23, 2010).
10.9
Facility Agreement, dated June 21, 2010, among Autoliv, Inc., Autoliv AB, Swedish Export Credit Corporation, National Export Credits Guarantee Board and Skandinaviska Enskilda Banken AB (publ), incorporated herein by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 23, 2010).
10.10+
Amendment No. 1 to the Autoliv, Inc. 1997 Stock Incentive Plan as amended and restated on May 6, 2009, dated December 17, 2010, incorporated herein by reference to Exhibit 10.24 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 23, 2011).
10.11+
Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers - pension, incorporated herein by reference to Exhibit 10.26 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 23, 2012).
10.12+
Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers - non-equity incentive award, incorporated herein by reference to Exhibit 10.27 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 23, 2012).
10.13
Remarketing Agreement, dated as of February 9, 2012, incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).
10.14+
Amendment No. 2 to the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated on May 6, 2009, dated May 8, 2012, incorporated herein by reference to Exhibit 10.29 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 20, 2012).
10.15+
Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers (with Change-in-Control Severance Agreement), incorporated herein by reference to Exhibit 10.34 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 22, 2013).
10.16+
Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers (without Change-in-Control Severance Agreement), incorporated herein by reference to Exhibit 10.35 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 22, 2013).
10.17+
Form of Change-in-Control Severance Agreement between Autoliv, Inc. and certain of its executive officers, incorporated herein by reference to Exhibit 10.36 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 22, 2013).
Exhibit
No.
Description
10.18
Form of Indemnification Agreement between Autoliv, Inc. and its directors and certain of its executive officers, incorporated herein by reference to Exhibit 99.i to the Annual Report on Form 10-K (File No. 001-12933, filing date February 24, 2009).
10.19†
Finance Contract, dated July 16, 2013, among European Investment Bank, Autoliv AB (publ) and Autoliv, Inc., incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 24, 2013).
10.20
Guarantee Agreement, dated July 16, 2013, between European Investment Bank and Autoliv, Inc., incorporated herein by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 24, 2013).
10.21
Form of Note Purchase and Guaranty Agreement, dated April 23, 2014, among Autoliv ASP, Inc., Autoliv, Inc. and the purchasers named therein, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 25, 2014).
10.22+
Form of Supplement to Employment Agreement between Autoliv, Inc. and certain of its executive officers, dated August 13, 2014 and effective as of September 1, 2014, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 23, 2014).
10.23
Amendment, dated January 27, 2015, to the Finance Contract, dated July 16, 2013, among European Investment Bank, Autoliv AB (publ) and Autoliv, Inc., incorporated herein by reference to Exhibit 10.36 to the Annual Report on Form 10- K (File No. 001-12933, filing date February 19, 2015).
10.24
General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc. representing common shares in Autoliv, Inc., effective as of May 30, 2018, with Skandinaviska Enskilda Banken AB (publ) serving as custodian, incorporated herein by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.25
Facilities Agreement of $1,100,000,000, dated July 14, 2016, among Autoliv, Inc., Autoliv ASP, Inc., Autoliv AB, HSBC Bank PLC, Mizuho Bank, Ltd. and Investment Banking, Skandinaviska Enskilda Banken AB (publ), and the other parties and lenders named therein, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 27, 2016).
10.26+
Autoliv, Inc. Non-employee Director Compensation Policy, effective January 1, 2017, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 28, 2017).
10.27+
Amendment No. 3 to the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated, dated April 24, 2017, incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 28, 2017).
10.28+
Form of Non-Employee Director restricted stock unit award agreement to be used under the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 28, 2017).
10.29+
Form of Employee restricted stock unit award agreement (2017) to be used under the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 28, 2017).
10.30+
Form of performance share award agreement (2017) to be used under the Autoliv, Inc. 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 28, 2017).
10.31
Employee Matters Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-12933, filing date July 2, 2018).
10.32
Tax Matters Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-12933, filing date July 2, 2018).
10.33
Amended and Restated Transition Services Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-12933, filing date July 2, 2018).
10.34
Facilities Agreement, dated May 24, 2018, among Autoliv, Inc., Autoliv ASP, J.P. Morgan Securities PLC and Skandinaviska Enskilda Banken AB (publ), incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.35
Employment Agreement, dated November 20, 2015, between Autoliv, Inc. and Mats Backman, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 22, 2016).
10.36
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Mikael Bratt, incorporated herein by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.37
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Jennifer Cheng, incorporated herein by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
Exhibit
No.
Description
10.38
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Daniel Garceau, incorporated herein by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.39
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Michael A. Hague, incorporated herein by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.40
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Jordi Lombarte incorporated herein by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.41
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Bradley J. Murray, incorporated herein by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.42
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Anthony J. Nellis, incorporated herein by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.43
Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Sherry Vasa, incorporated herein by reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).
10.44
Cooperation Agreement, dated March 1, 2019, between Autoliv, Inc. and Cevian Capital II GP Limited, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 1, 2019).
10.45+
Form of Employee restricted stock unit grant agreement (2019) to be used under the Autoliv, Inc 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).
10.46+
Form of Employee performance share grant agreement (2019) to be used under the Autoliv, Inc 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).
10.47+
Addendum, dated April 24, 2019, to the International Assignment Agreement, dated March 21, 2018, between Autoliv, Inc. and Brad Murray, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 19, 2019).
10.48
SEK Facility Agreement dated June 24, 2019 between Autoliv, Inc., Autoliv ASP, Inc. and AB Svensk Exportkredit (Publ), incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 19, 2019).
10.49+
Supplement to Employment Agreement, dated June 20, 2019, between Autoliv, Inc. and Daniel Garceau, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 19, 2019).
10.50+
Mutual Separation Agreement, dated July 1, 2019, between Autoliv, Inc. and Mike Hague, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 19, 2019).
10.51+
Employment Agreement, dated July 14, 2016, between Autoliv, Inc. and Christian Hanke, incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 25, 2019).
10.52+
Employment Agreement, dated April 23, 2019, between Autoliv, Inc. and Frithjof Oldorff, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 25, 2019).
10.53+
Employment Agreement, dated March 18, 2019, between Autoliv, Inc. and Christian Swahn, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 25, 2019).
10.54+
Employment Agreement, dated February 15, 2019, between Autoliv, Inc. and Magnus Jarlegren, incorporated herein by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 25, 2019).
10.55
Form of Indemnification Agreement between Autoliv, Inc. and its directors and certain of its executive officers, incorporated herein by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 25, 2019).
10.56+
Employment Agreement, dated November 26, 2019 and effective as of March 1, 2020, between Autoliv, Inc. and Fredrik Westin, incorporated herein by reference to Exhibit 10.56 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 21, 2020).
10.57+
Employment Agreement, dated January 23, 2020, between Autoliv, Inc. and Bradley Murray, incorporated herein by reference to Exhibit 10.57 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 21, 2020).
10.58+
Employment Agreement, dated January 23, 2020, between Autoliv, Inc. and Svante Mogefors, incorporated herein by reference to Exhibit 10.58 to the Annual Report on Form 10-K (File No. 001-12933, filing date February 21, 2020).
10.59+
Form of Employee 2020 restricted stock units grant agreement promised under the Autoliv, Inc 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 24, 2020).
Exhibit
No.
Description
10.60+
Form of Employee 2020 performance share units grant agreement promised under the Autoliv, Inc 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 24, 2020).
10.61
Facility Agreement, dated May 28, 2020, by and among Autoliv AB, as borrower, Autoliv, Inc. and Autoliv ASP, as guarantors, and AB Svensk Exportkredit, as lender, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 17, 2020).
10.62+
Form of Non-Employee Directors 2020 restricted stock units grant agreement under the Autoliv, Inc 1997 Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 17, 2020).
10.63+
Employment Agreement, dated May 20, 2020 and effective as of July 1, 2020, between Autoliv, Inc. and Per Ericson, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 17, 2020).
10.64+
Employment Agreement, dated June 8, 2020 and effective as of June 15, 2020, between Autoliv, Inc. and Kevin Fox, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 17, 2020).
10.65+
Amendment, effective November 1, 2020, to Employment Agreement, effective as of June 29, 2018, by and between Autoliv, Inc. and Bradley J. Murray, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 23, 2020).
10.66+
Employment Agreement, effective as of August 17, 2020, by and between Autoliv AB and Mikael Hagström incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date October 23, 2020).
21*
Autoliv’s List of Subsidiaries.
23*
Consent of Independent Registered Public Accounting Firm.
31.1*
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document - The instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (embedded within the inline XBRL document).
*
Filed herewith.
+
Management contract or compensatory plan.
†
Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.