More Life Lived More Lives Saved – More Life Lived ...

Financial Performance - Net sales for the three months ended June 30, 2023, increased to $2.635 billion, up 26.6% from $2.081 billion in the same period in 2022[9] - Gross profit for the three months ended June 30, 2023, rose to $447 million, a 37.1% increase from $326 million in the same period in 2022[9] - Net income attributable to controlling interest for the three months ended June 30, 2023, was $53 million, down 32.9% from $79 million in the same period in 2022[9] - Comprehensive income attributable to controlling interest for the three months ended June 30, 2023, was $12 million, compared to a loss of $40 million in the same period in 2022[13] - Net income for the six months ended June 30, 2023, was $127 million, compared to $163 million in the same period in 2022[19] - Net income for the three months ended March 31, 2023, was $74 million, and for the three months ended June 30, 2023, it was $53 million[20] - Net income attributable to controlling interest was $53 million and $127 million for the three and six months ended June 30, 2023, respectively, compared to $79 million and $162 million in 2022[66] - Basic and diluted earnings per share were $0.61 and $1.48 for the three and six months ended June 30, 2023, respectively, compared to $0.91 and $1.86 in 2022[66] Cash Flow and Liquidity - Cash and cash equivalents as of June 30, 2023, decreased to $475 million from $594 million as of December 31, 2022[16] - Net cash provided by operating activities for the six months ended June 30, 2023, was $334 million, a significant increase from $19 million in the same period in 2022[19] - Expenditures for property, plant, and equipment were $268 million for the six months ended June 30, 2023, compared to $254 million in the same period in 2022[19] - Proceeds from long-term debt were $556 million for the six months ended June 30, 2023, compared to $269 million in the same period in 2022[19] - Cash dividends declared for the three months ended June 30, 2023, were $56 million[20] - The company issued a five-year €500 million Eurobond in Q1 2023 and repaid the same amount in Q2 2023[34] Balance Sheet Items - Receivables, net as of June 30, 2023, increased to $2.189 billion from $1.907 billion as of December 31, 2022[16] - Total current assets as of June 30, 2023, increased to $3.898 billion from $3.714 billion as of December 31, 2022[16] - Total liabilities as of June 30, 2023, increased to $5.401 billion from $5.092 billion as of December 31, 2022[16] - Total equity as of June 30, 2023, was $2,557 million, compared to $2,558 million as of June 30, 2022[20] - Total inventories, net of reserve, as of June 30, 2023, were $947 million, compared to $969 million as of December 31, 2022[40] - The fair value of long-term debt as of June 30, 2023, was $1,268 million, compared to a carrying value of $1,290 million[35] Segment and Geographic Performance - The company has one reportable segment, which includes Autoliv's airbag and seatbelt products and components[22] - Total net sales for the three and six months ended June 30, 2023 were $2.635 billion and $5.127 billion, respectively, compared to $2.081 billion and $4.206 billion in 2022[69] - Net sales in China for the three and six months ended June 30, 2023 were $497 million and $950 million, respectively, compared to $363 million and $810 million in 2022[69] - Net sales in the Americas for the three and six months ended June 30, 2023 were $916 million and $1.747 billion, respectively, compared to $738 million and $1.431 billion in 2022[69] - Net sales in Europe for the three and six months ended June 30, 2023 were $751 million and $1.476 billion, respectively, compared to $611 million and $1.186 billion in 2022[69] Restructuring and Liabilities - Approximately $105 million out of the $127 million restructuring reserve balance as of June 30, 2023, is attributed to footprint optimization activities in Europe, expected to conclude by 2025[42] - Reserve for product-related liabilities increased to $178 million at the end of June 2023, up from $141 million at the beginning of the period, primarily due to warranty and recall issues[44][45] - Total insurance receivables for product-related liabilities stood at $169 million as of June 30, 2023[44] - The company accrued $14 million in Q4 2021 and an additional $5 million in Q3 2022 for a product liability lawsuit, with a final settlement resulting in an $8 million excess over insurance receivables[57] - The company faces a class action lawsuit related to ARC inflators, but no accrual has been made as the potential loss cannot be determined[58] - Product warranty and recall reserves are based on the company's best estimates, but actual costs could differ materially from recorded estimates[53] - The company maintains insurance programs for potential recall and product liability claims, although coverage may not be sufficient for all possible claims[55] - Vehicle manufacturers are increasingly requiring suppliers to bear warranty and recall costs, which could lead to material future expenses[53] - The Company accrued $27 million for the Honda Buckle Recall, reflecting self-insurance retention costs and deductibles, with potential losses possibly differing materially from the accrued amount[60] - Volvo recalled approximately 762,000 vehicles due to ZF Inflator malfunctions, with potential losses estimated between $0 to $43 million, though net losses are expected to be immaterial after insurance and claims against ZF[61] Shareholder and Stock Information - Weighted average number of shares outstanding, net of treasury shares, for the three months ended June 30, 2023, was 85.6 million, down from 87.2 million in the same period in 2022[10] - Cash dividend per share declared for the three months ended June 30, 2023, was $0.66, up from $0.64 in the same period in 2022[10] - Stock repurchased and retired for the three months ended June 30, 2023, amounted to $41 million[20] - Stock-based compensation expense for RSUs and PSUs was $5 million and $8 million for the three and six months ended June 30, 2023, respectively, compared to $3 million and $5 million for the same periods in 2022[63] - The Company utilized 20,000 and 112,000 shares of common stock from treasury stock for the Plan during the three and six months ended June 30, 2023, respectively, compared to 16,000 and 138,000 shares in 2022[64] Tax and Accounting - The effective tax rate for Q2 2023 was 35.8%, with discrete tax items having a favorable impact of 4.5%[38] - The company adopted ASU 2022-04 as of January 1, 2023, requiring disclosure of supplier finance program obligations, with payment terms ranging between 30 and 165 days, and a weighted average of 130 days[25] - Confirmed obligations outstanding at the end of the period as of June 30, 2023, were $333 million, with $680 million in invoices confirmed and $661 million paid during the period[26] - Gains recognized in other non-operating items for derivative instruments not designated as hedging instruments were $13 million for Q2 2023 and $8 million for the six months ended June 30, 2023[31] - The fair value of derivatives not designated as hedging instruments as of June 30, 2023, was $10 million for assets and $8 million for liabilities, with a nominal volume of $1,710 million[32] Retirement and Benefit Plans - Net periodic benefit cost for U.S. retirement plans was $0 million for the three months ended June 30, 2023, compared to $4 million in the same period of 2022[48] - Net periodic benefit cost for non-U.S. retirement plans was $6 million for the three months ended June 30, 2023, compared to a gain of $1 million in the same period of 2022[48] - The discount rate used to determine U.S. net periodic benefit cost increased from 5.09% to 5.32% in Q2 2023 due to settlement accounting[49]

Financial Data and Key Metrics Changes - The consolidated net sales for Q1 2023 reached $2.5 billion, a record for the first quarter, representing a 17% increase year-over-year despite a $77 million currency headwind [10][15] - Adjusted operating income improved from $68 million to $131 million, with an adjusted operating margin of 5.3%, up 2.1 percentage points from the same period last year [12][15] - Operating cash flow was negative $46 million, a decrease of $116 million compared to the same period last year, primarily due to adverse working capital effects [13][19] Business Line Data and Key Metrics Changes - Organic sales grew by over 20%, significantly outperforming light vehicle production growth, which increased by around 6% year-over-year [6][11] - The company experienced strong sales growth across regions, with Asia accounting for 38%, Americas 33%, and Europe 29% of total sales [10] Market Data and Key Metrics Changes - The share of sales from China decreased from 21% to 18% year-over-year, attributed to a significant decline in light vehicle production in the region [10] - The company expects to outperform global light vehicle production by approximately 12 percentage points for the full year 2023 [12] Company Strategy and Development Direction - The company is expanding production capacity in Vietnam to support growth in Asia, particularly in airbags and cushions [8] - A commitment to sustainability was highlighted with the issuance of a €500 million green bond to fund climate-related projects [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in Europe due to inflationary pressures and customer volatility but expressed confidence in gradual improvement in operating margins throughout 2023 [7][9] - The company anticipates a full-year adjusted operating margin of around 8.5% to 9% and expects operating cash flow to reach approximately $900 million [26] Other Important Information - The leverage ratio increased to 1.6 times, reflecting a higher net debt relative to trailing adjusted EBITDA [20] - The company plans to continue its share repurchase program while considering various factors including cash flow outlook and debt rating [21] Q&A Session Summary Question: Impact of labor cost recoveries in Q1 - Management indicated it is too early to provide specific percentages regarding labor cost recoveries, but progress is being made in line with expectations [31] Question: Steel price increases and contract renegotiation - Management noted that while steel prices have increased, they have a better balance in contract structures to manage this without significant impact on profitability [33][35] Question: Currency impact on operating income - The negative impact from currency was primarily due to the appreciation of the Mexican peso against the U.S. dollar, affecting transactional currency effects [38] Question: Operating conditions in Europe - Management described the operating environment in Europe as still challenging, with some volatility remaining despite improvements [42] Question: Drivers of margin improvement - Management expects top-line growth, price adjustments, and stabilization of operations to contribute to margin improvement throughout the year [49] Question: SG&A costs and future expectations - SG&A costs increased due to higher headcount and inflation, but management aims to keep these costs lean relative to sales growth [56] Question: Customer production stability - Management indicated that customer production has improved but is not yet normalized, with variability across different customers [60] Question: Pricing tailwind from cost negotiations - Management expects pricing to be a significant contributor to organic growth, with more than 90% of contracts renegotiated to account for cost inflation [71]

More Lives Saved – More Life Lived Earnings Call Presentation 1 st Quarter 2023 April 21, 2023 April 21, 2023 ALV – Q1-2023 Earnings Call and Webcast Copyright Autoliv Inc., All Rights Reserved Public More Life Lived Safe Harbor Statement* This report contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forwardlooking statements include those that address activities, events or developments tha ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section details the company's unaudited financial statements, management's analysis, market risk, and internal controls [Financial Statements](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Autoliv's unaudited condensed consolidated financial statements, including income, balance sheets, cash flows, and detailed notes [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This section provides the unaudited consolidated statements of income for the three months ended March 31, 2023 and 2022 Consolidated Statements of Income (Unaudited) | (Dollars in millions, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net sales** | **$2,493** | **$2,124** | | Gross profit | $379 | $288 | | **Operating income** | **$127** | **$134** | | Income before income taxes | $109 | $119 | | **Net income attributable to controlling interest** | **$74** | **$83** | | **Net earnings per share – diluted** | **$0.86** | **$0.94** | | Cash dividend per share – declared | $0.66 | $0.64 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (Unaudited) | (Dollars in millions) | As of March 31, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | **$4,061** | **$3,714** | | Total assets | $8,185 | $7,717 | | **Total current liabilities** | **$3,529** | **$3,642** | | Long-term debt | $1,601 | $1,054 | | Total liabilities | $5,544 | $5,092 | | **Total equity** | **$2,641** | **$2,626** | | Total liabilities and equity | $8,185 | $7,717 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section provides the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (Unaudited) | (Dollars in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | **($46)** | **$70** | | Net cash used in investing activities | ($143) | ($17) | | Net cash provided by (used in) financing activities | $300 | ($74) | | **Net increase (decrease) in cash and cash equivalents** | **$119** | **($31)** | | Cash and cash equivalents at end of period | $713 | $938 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the basis of presentation, accounting policies, and specifics on various financial items - The Company adopted ASU 2022-04 regarding supplier finance programs as of January 1, 2023. Obligations under this program are recorded in Accounts Payable. As of March 31, 2023, confirmed obligations outstanding were **$287 million**[25](index=25&type=chunk)[26](index=26&type=chunk) - The effective tax rate for Q1 2023 was **31.6%**, compared to **30.3%** for Q1 2022. Total unrecognized tax benefits as of March 31, 2023, were **$48 million**[38](index=38&type=chunk) - The Company is involved in a product liability lawsuit (Andrews case) and has accrued **$14 million** for the probable loss in Q4 2021 and an additional **$5 million** for pre-judgment interest in Q3 2022. The total potential loss ranges from **$18 million to $118 million**, excluding punitive damages[58](index=58&type=chunk)[60](index=60&type=chunk) - A recall by American Honda Motor Co. was announced on March 9, 2023, for approximately **449,000 vehicles** related to front seat belt buckles. The Company's product liability accrual for this recall, net of insurance, is **$27 million**[62](index=62&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Q1 2023 financial results, highlighting strong organic sales growth, margin impacts, negative operating cash flow, and a confident full-year outlook [Executive Overview](index=22&type=section&id=Executive%20Overview) This section provides an executive summary of the company's financial performance and key highlights for the first quarter of 2023 Q1 2023 Financial Highlights | Metric | Q1 2023 | Change vs. Q1 2022 | | :--- | :--- | :--- | | Net Sales ($M) | $2,493 | +17% | | Organic Sales (Non-GAAP) | N/A | +21% | | Operating Margin | 5.1% | -1.2pp | | Adjusted Operating Margin (Non-GAAP) | 5.3% | +2.1pp | | EPS (Diluted) | $0.86 | -9% | | Adjusted EPS (Non-GAAP) | $0.90 | +99% | - Sales increased organically by **21%**, outperforming global Light Vehicle Production (LVP) growth of **6.1%** by **15 percentage points**, driven by new product launches and higher prices[79](index=79&type=chunk) - Operating cash flow decreased to negative **$46 million** from **$70 million** in the prior year, mainly due to negative working capital effects from high sales growth[81](index=81&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section details the company's operational performance, including sales development by product and region, gross profit, and operating income Sales Development by Product & Region (Q1 2023 vs Q1 2022) | Category | Q1 2023 Sales ($M) | Reported Change | Organic Change (Non-GAAP) | | :--- | :--- | :--- | :--- | | **By Product** | | | | | Airbags, Steering Wheels, etc. | $1,673 | +21% | +25% | | Seatbelt products | $820 | +10% | +14% | | **By Region** | | | | | Asia | $936 | +9.2% | +17% | | Americas | $831 | +20% | +18% | | Europe | $725 | +26% | +31% | | **Total** | **$2,493** | **+17%** | **+21%** | - Gross profit increased by **$91 million** to **$379 million**, and gross margin improved by **1.6 percentage points** to **15.2%**, driven by price increases and volume growth[99](index=99&type=chunk) - Operating income decreased by **$7 million** to **$127 million**, mainly because a prior-year gain of **$80 million** from a property sale in Japan was not repeated. Adjusted operating income (Non-GAAP) increased by **$63 million** to **$131 million**[99](index=99&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity position, cash flow generation, and capital structure, including debt and leverage - Operating cash flow decreased by **$116 million** to negative **$46 million** compared to Q1 2022, primarily due to negative working capital effects[101](index=101&type=chunk) - Free cash flow (Non-GAAP) was negative **$189 million**, a significant decline from positive **$53 million** in the prior-year period, driven by lower operating cash flow and higher capital expenditures[101](index=101&type=chunk) - Net debt (Non-GAAP) increased to **$1,477 million** as of March 31, 2023, up **$420 million** from a year earlier. The leverage ratio (Non-GAAP) was **1.6x**[101](index=101&type=chunk) [Full Year 2023 Indications](index=32&type=section&id=Full%20year%202023%20indications) This section provides the company's financial outlook and key indications for the full year 2023, including sales growth and margins Full Year 2023 Outlook | Financial Measure | Full Year Indication | | :--- | :--- | | Organic sales growth | Around 15% | | Foreign currency impact on net sales | Around 1% negative | | Adjusted operating margin | Around 8.5%-9% | | Tax rate | Around 32% | | Operating cash flow ($ million) | Around $900 | | Capital expenditures, net (% of sales) | Around 6% | - The outlook is based on customer call-offs, an assumed global LVP growth of around **3%**, and achieving targeted cost compensation effects[115](index=115&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=33&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company states that as of March 31, 2023, there have been no material changes to the information regarding quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to market risk disclosures were reported for the quarter ended March 31, 2023, compared to the 2022 year-end report[122](index=122&type=chunk) [Controls and Procedures](index=33&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023. Additionally, no changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period[123](index=123&type=chunk) - There were no changes in internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls[123](index=123&type=chunk) [PART II - OTHER INFORMATION](index=34&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other essential information, including legal proceedings, risk factors, equity sales, and exhibits filed with the report [Legal Proceedings](index=34&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to the detailed disclosure on contingent liabilities and legal proceedings found in Note 9 of the financial statements. It confirms that the company is subject to various legal proceedings in the ordinary course of business - Information regarding ongoing legal proceedings is incorporated by reference from Part I, Item 1, Note 9 'Contingent Liabilities'[125](index=125&type=chunk) [Risk Factors](index=34&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - As of March 31, 2023, there have been no material changes to the risk factors disclosed in the Company's 2022 Form 10-K[126](index=126&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's stock repurchase activity during the first quarter of 2023, including the number of shares repurchased and the average price paid Common Stock Repurchases (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share (USD) | | :--- | :--- | :--- | | January 1-31, 2023 | — | — | | February 1-28, 2023 | 219,866 | $90.98 | | March 1-31, 2023 | 230,293 | $93.38 | - The repurchases are part of a program approved on November 16, 2021, authorizing up to **$1.5 billion** or **17 million** common shares to be repurchased between January 2022 and the end of 2024[128](index=128&type=chunk) [Exhibits](index=35&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including various agreements, certifications, and Interactive Data Files (XBRL) - The filing includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[131](index=131&type=chunk) - Interactive Data Files (Inline XBRL) are included as part of the submission[133](index=133&type=chunk)

Market Share and Growth - The company's passive safety market share increased from 27% in 1997 to 43% in 2022, driven by a steady flow of new technologies and a superior global footprint[16] - The company's sales CAGR for passive safety has been around 5% since 1997, outperforming the market rate of 2.4%[16] - The company has a global market share of 45% in seatbelts and 44% in airbags, driven by advanced technologies and higher installation rates[16] Light Vehicle Production and Market Forecast - Light vehicle production (LVP) is forecasted to grow to 87 million by 2025 from 79 million in 2021, with a compound annual growth rate (CAGR) of 1.6% since 1997[16] - The annual passive safety market is expected to grow from $20 billion in 2022 to over $25 billion in the next three years, with the highest growth rate in steering wheels[16] Content per Vehicle (CPV) and Regional Growth - Content per vehicle (CPV) in Developed Markets is around $320, while in Growth Markets it is approximately $200, with expected growth in both regions over the next three years[16] Manufacturing and Production - In 2022, the company manufactured 134 million complete seatbelt systems, 102 million side airbags, 56 million frontal airbags, and 19 million steering wheels[19] - The company's "just-in-time" delivery system is designed to accommodate low inventory levels and rapid stock delivery, with assembly capacity in multiple countries[19] Quality Management - The company's quality initiative "Q5" focuses on five dimensions: products, customers, growth, behavior, and suppliers, aiming for zero defects[20] - All of the company's facilities shipping products to OEMs are certified according to the IATF 16949:2016 international quality management standard[22] Supply Chain and Customer Concentration - Direct materials purchased from external suppliers accounted for 52% of the company's net sales in 2022[25] - The company's top five customers represented 49% of consolidated sales in 2022, while the top ten accounted for 80%[28] - Asian vehicle producers represented 43% of global sales in 2022, with Japanese OEMs accounting for approximately two-thirds of this share[29] Research and Development (R&D) - Gross R&D expenditures in 2022 amounted to $595 million, with $205 million related to customer-funded projects[30] - Net R&D expenditures in 2022 were $390 million, with 79% allocated to projects with customer orders[30] - Autoliv holds over 6,600 patents and patent applications, mainly in seatbelt and airbag technologies[90] Workforce and Diversity - The company's total workforce increased to 69,100 in 2022, up from 60,600 in 2021[34] - Women held 49% of the company's workforce and 18% of senior management positions at the end of 2022[35] - Temporary workforce accounted for 11% of the total workforce in 2022, up from 8% in 2021[34] - 49% of the workforce are women, up from 47%[41] - 18% of senior management positions are held by women, up from 17%[41] - 99% of employees participated in the annual Performance and Development Dialogue (PDD)[41] - 4,100 employees attended at least one training program, down from 4,400[41] Health and Safety - 71% of the company's production facilities were certified according to ISO 45001 by the end of 2022[38] - 71% of Autoliv facilities are certified (OHSAS 18001 or ISO 45001)[41] - Incident rate decreased to 0.32 from 0.41[41] - Severity rate decreased to 3.31 from 5.84[41] Environmental Sustainability - The company aims for carbon neutrality in its own operations by 2030 and net-zero emissions across its supply chain by 2040[24] Financial Risks and Tax Implications - The company faces significant foreign currency risks due to its global operations[86] - Changes in U.S. or foreign tax laws, regulations, or accounting principles could impact the company's income taxes, effective tax rate, and deferred tax assets, with potential adverse effects on operating results and cash flows[98] - The company's effective tax rate is influenced by global earnings mix, currency exchange rates, and the ability of subsidiaries to pay dividends, which may cause fluctuations in the tax rate[98] - Deferred tax assets may not be fully realized if future taxable income is lower than expected due to market conditions or operational changes, adversely affecting income in the adjustment period[99] - The separation of Veoneer could result in significant tax liabilities if the transaction is deemed taxable, despite an opinion from outside counsel suggesting it qualifies as a tax-free reorganization[100] Legal and Regulatory Risks - Autoliv is subject to various government regulations, including environmental and occupational health and safety laws[95] - Potential indemnification obligations to Veoneer or Veoneer's refusal to indemnify the company could materially adversely affect its business, operating results, and financial condition[101] - Warranty, recall, and product liabilities for electronics products manufactured before the internal reorganization remain with the company, requiring indemnification of Veoneer for associated losses[101] - The acquisition of Veoneer by SSW Partners on April 1, 2022, may impact the company's ability to recover amounts from Veoneer under the transaction agreements[101]

Autoliv, Inc. (NYSE:ALV) Q4 2022 Earnings Conference Call January 27, 2023 8:00 AM ET Company Participants Anders Trapp - VP, Investor Relations Mikael Bratt - Chief Executive Officer Fredrik Westin - Chief Financial Officer Conference Call Participants Rod Lache - Wolfe Research Mattias Holmberg - DNB Markets Vijay Rakesh - Mizuho Group Giulio Pescatore - Exane BNP Paribas Hampus Engellau - Handelsbanken Colin Langan - Wells Fargo Agnieszka Vilela - Nordea Itay Michaeli - Citi Anders Trapp Welcome everyone ...

Financial Data and Key Metrics Changes - The consolidated net sales for Q3 2022 reached $2.3 billion, a 25% increase compared to Q3 2021, and an 11% increase from Q2 2022 [12][17] - Adjusted operating income rose from $103 million to $173 million, with an adjusted operating margin of 7.5%, up approximately 2 percentage points year-over-year [12][18] - Operating cash flow increased by $43 million to $232 million, primarily due to improved working capital and higher net income [21] Business Line Data and Key Metrics Changes - Organic sales growth was over 32% in Q3 2022, driven by price and volume mix, despite an 8% negative impact from currency translation [13][12] - The sales split by region showed Asia at 42%, North America at 34%, and Europe at 24% [13] Market Data and Key Metrics Changes - Light-vehicle production in Q3 2022 increased by 29% year-over-year, with Autoliv outperforming global production by approximately 4 percentage points [14][15] - In Europe, Autoliv outperformed light-vehicle production by 11 percentage points, while in the Americas and Japan, the outperformance was 7 and 6 percentage points, respectively [15] Company Strategy and Development Direction - The company is focused on negotiating higher prices to offset inflationary pressures and has reached agreements in over 90% of raw material-related price adjustments [10] - A strong emphasis on cost control measures and capital efficiency programs is in place to improve trade working capital and maintain flexibility in operations [11][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sequential margin improvement in Q4 2022 through price increases and cost reduction activities, despite ongoing market challenges [9][31] - The company anticipates that full-year 2022 global light-vehicle production will grow around 6%, with an organic sales increase of approximately 15% [33] Other Important Information - The leverage ratio improved to 1.6 times, down from 1.7 times in the previous quarter, reflecting a decrease in net debt and an increase in trailing adjusted EBITDA [25] - The company has a liquidity cushion of approximately $1.6 billion, including cash and unutilized credit facilities [25] Q&A Session Summary Question: Pricing agreements and raw material costs - Management clarified that 90% of contracts have been negotiated to include compensation clauses for raw material costs, improving the balance between supplier and customer [36][37] Question: Net working capital and inventory inefficiencies - The company is progressing well with its capital efficiency program, but current market volatility has delayed the expected results in inventory management [38] Question: Q4 margin expectations - Management indicated that Q4 margins would be driven by higher volumes and improved pricing, with less reliance on retroactive pricing adjustments compared to previous quarters [41] Question: FX headwinds and their impact - The company acknowledged a total currency headwind of approximately $42 million in Q3, primarily from the Japanese yen, and expects continued negative impacts in Q4 if current rates persist [48][49] Question: Raw material cost recovery - Management confirmed that while raw material prices are declining, the company still faces significant costs compared to pre-COVID levels, and negotiations for labor and logistics costs are ongoing [71][84] Question: Digitization and automation initiatives - The company is continuing its strategic roadmap for digitalization and optimization, which is expected to contribute positively to performance over time [86]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Autoliv's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022, including key financial statements and detailed accounting notes [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) This section provides the unaudited consolidated statements of income, balance sheets, and cash flows, highlighting key financial performance metrics for the periods presented Consolidated Statements of Income (Unaudited) | (Dollars in millions, except per share data) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $2,302 | $1,847 | $6,507 | $6,111 | | **Gross profit** | $383 | $301 | $998 | $1,143 | | **Operating income** | $171 | $99 | $429 | $500 | | **Net income attributable to controlling interest** | $105 | $60 | $267 | $320 | | **Net earnings per share – diluted** | $1.21 | $0.68 | $3.06 | $3.65 | Condensed Consolidated Balance Sheets (Unaudited) | (Dollars in millions) | As of Sep 30, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $3,587 | $3,675 | | **Total assets** | $7,334 | $7,537 | | **Total current liabilities** | $3,458 | $2,821 | | **Total liabilities** | $4,843 | $4,888 | | **Total equity** | $2,491 | $2,648 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (Dollars in millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $251 | $437 | | **Net cash used in investing activities** | ($319) | ($301) | | **Net cash used in financing activities** | ($389) | ($386) | | **Decrease in cash and cash equivalents** | ($486) | ($275) | [Notes to the Financial Statements](index=10&type=section&id=Notes%20to%20the%20Financial%20Statements) This section provides detailed notes on the basis of financial statement preparation, significant accounting policies, fair value measurements, tax provisions, and contingent liabilities - The company's derivative financial instruments, primarily foreign exchange swaps, are classified as **Level 2** in the fair value hierarchy. The fair value of long-term debt was **$1,011 million**, slightly below its carrying value of **$1,037 million** as of September 30, 2022[28](index=28&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) - The effective tax rate for Q3 2022 was **30.8%**, nearly unchanged from **30.9%** in Q3 2021, with the Inflation Reduction Act of 2022 not expected to materially affect results[37](index=37&type=chunk) - The company is appealing a product liability judgment including **$100 million** in punitive damages, having accrued **$19 million** for compensatory damages and pre-judgment interest, with a probable loss and recognized insurance receivables[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) Revenue Disaggregation by Product and Region (Q3 2022) | (Dollars in millions) | Q3 2022 Net Sales | | :--- | :--- | | **By Product** | | | Airbag Products and Other | $1,510 | | Seatbelt Products | $792 | | **By Region** | | | Americas | $794 | | China | $537 | | Europe | $552 | | Japan | $175 | | Rest of Asia | $243 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=21&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial condition and results of operations, highlighting strong Q3 2022 recovery driven by record sales, improved margins, and organic growth despite ongoing macroeconomic challenges Financial Highlights Q3 2022 (YoY Change) | Metric | Value | YoY Change | | :--- | :--- | :--- | | Net Sales | $2,302M | +25% | | Organic Sales (Non-U.S. GAAP) | - | +32% | | Operating Margin | 7.4% | +2.0 pp | | Adjusted Operating Margin (Non-U.S. GAAP) | 7.5% | +1.9 pp | | EPS | $1.21 | +78% | - The company's organic sales growth of **32.5%** in Q3 2022 outperformed global Light Vehicle Production (LVP) growth of **28.8%** by **3.7 percentage points**, driven by price increases and new product launches[83](index=83&type=chunk)[98](index=98&type=chunk) - The company is updating its full-year 2022 adjusted operating margin indication towards the upper end of the **6.0-7.0%** range, reflecting successful price adjustments and cost control measures[82](index=82&type=chunk) Full Year 2022 Indications | Financial Measure | Full Year Indication | | :--- | :--- | | Organic sales growth | Around 15% | | Adjusted operating margin | Upper end of around 6%-7% | | Operating cash flow | Around $700-750 million | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=34&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company confirms that there have been no material changes to the quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the year ended December 31, 2021 - As of September 30, 2022, there were no material changes to the market risk information previously disclosed in the company's 2021 Form 10-K[144](index=144&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=34&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were concluded to be effective as of September 30, 2022 - The CEO and CFO have concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[145](index=145&type=chunk) - There were no changes in the company's internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[145](index=145&type=chunk) [PART II - OTHER INFORMATION](index=35&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=35&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section cross-references Note 9 of the financial statements for a summary of ongoing legal proceedings - For a summary of certain ongoing legal proceedings, the report refers to Part I, Item 1, "Financial Statements, Note 9 Contingent Liabilities"[147](index=147&type=chunk) [ITEM 1A. RISK FACTORS](index=35&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights that while risk factors are materially unchanged from its 2021 Form 10-K, significant macroeconomic uncertainty, including supply chain disruptions and inflationary pressures, poses heightened risks - The company is currently operating in a period of significant macroeconomic uncertainty, with risks including supply-chain disruptions, COVID-related lockdowns, inflationary pressures, and the war in Ukraine[148](index=148&type=chunk) - The company has experienced exacerbated increases in costs for raw materials, transportation, energy, and commodities, and unsuccessful commercial negotiations to offset these could materially impact business and results of operations[148](index=148&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=35&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's stock repurchase activities for the third quarter of 2022 Stock Repurchases in Q3 2022 | Period | Total Number of Shares Purchased | Average Price Paid per Share (USD) | | :--- | :--- | :--- | | July 1-31, 2022 | 23,895 | $83.71 | | August 1-31, 2022 | 96,980 | $82.50 | | September 1-30, 2022 | 135,463 | $73.85 | - The Board of Directors approved a new stock repurchase program on November 16, 2021, authorizing the company to repurchase up to **$1.5 billion** or **17 million** common shares between January 2022 and the end of 2024[152](index=152&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=36&type=section&id=Other%20Items) This section confirms that there were no defaults on senior securities, no mine safety disclosures, and no other material information to report under Item 5, concluding with a list of exhibits filed with the Form 10-Q - Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information) are noted as not applicable for this reporting period[152](index=152&type=chunk) - Item 6 lists the exhibits filed with the report, including corporate governance documents, debt agreements, and required officer certifications[154](index=154&type=chunk)[155](index=155&type=chunk)