AUTOLIV, INC. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theUnited States Securities and Exchange Commission (the "SEC") onFebruary 21, 2020 . Unless otherwise noted, all dollar amounts are in millions.Autoliv, Inc. ("Autoliv" or the "Company") is aDelaware corporation with its principal executive offices inStockholm, Sweden . The Company functions as a holding corporation and owns two principal operating subsidiaries,Autoliv AB andAutoliv ASP, Inc.
Through its operating subsidiaries,
Autoliv's filings with theSEC , including this Quarterly Report on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, proxy statements and all of our other reports and statements, and amendments thereto, are available free of charge on our corporate website at www.autoliv.com as soon as reasonably practicable after such material is electronically filed with or furnished to theSEC (generally the same day as the filing). The primary exchange market forAutoliv's securities is theNew York Stock Exchange (NYSE) whereAutoliv's common stock trades under the symbol "ALV".Autoliv's Swedish Depositary Receipts (SDRs) are traded on Nasdaq Stockholm's list for large market cap companies under the symbol "ALIV SDB". Options in SDRs trade on Nasdaq Stockholm under the name "Autoliv SDB". Options inAutoliv shares are traded onNasdaq OMX PHLX and on NYSE Amex Options under the symbol "ALV".
EXECUTIVE OVERVIEW
The challenges the Company managed in the second quarter were unprecedented. The COVID-19 pandemic is first and foremost a human crisis, where safeguarding health and safety is the Company's first priority and its global Smart Start Playbook has been instrumental to the Company in safely restarting its operations. The Company has a solid organization that managed to reduce costs and safely restart operations while continuing to execute on the Company's long-term strategy. The pace and scope of the demand decline coupled with a volatile ramp-up had a significant impact on the Company's financial performance in the second quarter. The Company's largest marketsAmericas andEurope were virtually standing still in April, followed by a restart and ramp-up in May and June. Daily adjustments were needed to respond to a low and volatile customer demand, including headcount reductions of 3,700 since March, furloughing personnel and significant reductions in capital expenditures and discretionary spending. It is essential that the Company balance the cost reduction responses against the need for capacity to manage the recovery that started mid-quarter and continues into the first weeks of July. The Company also need to preserve capacity for the new normal market demand and its expected outgrowth. The Company is confident that the actions implemented and planned are positioning it well to benefit from any demand recovery. The Company's sales declined slightly more than global LVP, which declined almost 50% in the second quarter compared to the same quarter of the previous year. The Company's organic sales development was better than LVP in all regions but because high safety content markets declined more than low safety content markets, the sales mix was unfavorable. Encouragingly, operating cash flow turned positive in June. It is also positive that the Company's customers´ sourcing activities and model launch plans are close to unchanged. The Company's engineering support for these activities remains high, even though there are some limited new model launch delays. The order intake for the first half year was in line with last year. The Structural Efficiency Program (SEP) launched last year was close to complete at the end of the second quarter of 2020. As the next step, the Company has launched a second SEP, or SEP2, during the second quarter of 2020. The Company also seeks to continue the strategic initiatives and structural improvement projects outlined at its Capital Markets Day in 2019. The ambition is to ensure that the Company has an adequate cost structure supporting its medium-term profitability targets in a reduced LVP environment, although the additional challenge could mean more time is needed to reach the Company's targets.
Financial highlights in the second quarter of 2020
48% organic sales decline (non-
18
--------------------------------------------------------------------------------(22.3)% operating margin
Key business developments in the second quarter of 2020
• Organic sales (non-
light vehicle production declined, with the negative regional mix offsetting
the Company's outperformance within each of the regions. April sales declined
year-over-year organically by 65%, May by 55% and June by 20%. Order intake in
the first half year was in line with last year and supportive of prolonged
sales outperformance.
• Profitability and cash flow negatively impacted by customer plant closures and
a volatile industry ramp up, and by continued high engineering activity
preparing for future model launches. Our liquidity position remains strong
with
cash flow was$128 million negative in the second quarter, but it turned positive in June.
• Substantial cost reductions with short- and long-term effects includes
reduction of personnel costs by 25% compared to the first quarter, and
launching SEP2, which targets additional annual employee cost reductions of
around
footprint, remain under evaluation.
COVID-19 Pandemic Related Business Update
Autoliv is navigating the same challenges that many other companies are facing in managing and forecasting the overall impact the COVID-19 pandemic is having on the automotive industry. In this environment, onApril 2, 2020 , the Company withdrew its previously issued 2020 guidance until the effects of the pandemic can be better assessed. First half of 2020 The COVID-19 pandemic had a substantial impact on our operations already in the first quarter, particularly inChina , where most of our customers' plants were closed for several weeks in February and operated at low levels in March. InEurope andNorth America , sales declined substantially in the second half of March as the pandemic led to customer plant closures. A large number of customer plants were closed in April and parts of May, followed by a ramp-up in June. According to IHS, global light vehicle production (LVP) declined by 22% in Q1 2020 compared to Q1 2019, and 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.
Liquidity and management actions to manage this challenging period
• In response to ongoing volatility and uncertainty, the Company canceled the
dividend in Q2 2020 and suspended future dividends; although, the Board of
Directors will review such suspension on a quarterly basis. In addition, the
Company drew down
Facility (RCF) in two tranches in March and April and secured
(
was primarily used to pay down
unutilized, committed credit facilities amounted to approximately
as of
position as debt maturities are
Capital expenditures were also reduced year-over-year by 50% in Q2 2020.
• The Company's executives voluntarily agreed to reduce their base salaries by
20% for Q2 2020 and non-employee board members agreed to reduce their cash
compensation by 20% for Q2 2020.
• The Company reduced headcount by 5.6% during Q2 2020 compared to Q1 2020. The
Company also instituted strict inventory control, close monitoring of
receivables and close collaboration with suppliers to navigate the ongoing
volatility due to COVID-19. In addition, the Company adjusted production and
work week hours due to rapid changes in demand, reduced or suspended discretionary spending that was not critical for daily operations and accelerated cost saving initiatives and furloughed personnel, many in government supported programs.
• The Structural Efficiency Program I (SEP1) was close to complete at the end of
Q2 2020 and the Company launched SEP2 in Q2 2020. SEP1 was launched in Q2 2019
and reduced the indirect workforce by around 800 employees. SEP1 cost the
Company approximately
approximately
approximately 900 indirect workers and
Company. SEP2 is targeted to be completed in 2021 and is estimated to cost the
Company approximately
our capacity alignment adjustments.
• Based on the Company's Smart Start Playbook, developed for its ramp-up
following COVID-19 related shutdowns, the Company has invested in employee
safety equipment, re-designed production lines and work places as necessary,
and adapted new processes for interactions with its suppliers and customers to
safely manage the restart and ramp-up of the Company's
19
--------------------------------------------------------------------------------
operations. Direct COVID-19 related costs, such as personal protective
equipment, temporary supplier support and premium freight was approximately
$10 million in Q2 2020. Second half of 2020 In all regions around the world, the automotive industry, includingAutoliv , are in different stages of ramp-up of operations. This is a positive trend, but with certain challenges, as global LVP is expected to still be below 2019 levels and there is still high volatility in customer call-offs. The high volatility and thus low volume predictability have a negative impact on operational efficiency, including cost and capital efficiency. The volatility has gradually declined but is still higher than normal in all regions. As communicated earlier, the Company also expects second half 2020 profitability headwinds from lower inflator replacement sales, costs relating to investments in the factory of the future and higher depreciation and amortization. The Company expects profitability tailwinds in the second half year from cost reduction actions such as the Structural Efficiency Programs and strategic initiatives outlined at the Capital Markets Day in 2019, execution of the strong order book and lower raw material costs. Next steps While we continue to focus on cost reduction actions, we are ramping up production in coordination with our customers and suppliers. Although visibility is limited, below is a summary of our current view of our three most important regions.China : OEMs returned to pre-crisis production levels in the second quarter, with 7% year-over-year growth in LVP according to IHS.China Association of Automotive Manufacturers reported that Q2 2020 retail sales were 7.1% above Q2 2019.Europe : LVP improved gradually from April's year-over-year decline of 93% to 61% in May and 29% in June. Car registrations inWestern Europe improved during the quarter but June was still around 22% below a year earlier, as dealers in large parts ofEurope did not re-open until late May or in June. The production rate will likely continue to be volatile for the next few months at least, with reduced shifts to adapt to uncertain demand and component availability.North America : LVP improved gradually from April's year-over-year decline of 99% to 85% in May and 26% in June. Light vehicle sales improved during the quarter from a SAAR of 8.6 million in April to 12.3 million in May and 13.1 million in June. Retail sales were significantly stronger than fleet sales, as large fleet buyers such as rental companies are not yet buying in large volumes. Dealer inventories at the end of June were low, at 2.6 million, or 59 days of supply, and there is scope for demand support from inventory build-up in the next few months.
Non-
Some of the following discussions refer to non-U.S. GAAP financial measures: see reconciliations for "Organic sales", "Operating working capital", "Net debt", "Leverage ratio", "Adjusted operating income", "Adjusted operating margin" and "Adjusted EPS" provided below. Management believes that these non-U.S. GAAP financial measures provide supplemental information to investors regarding the performance of the Company's business and assist investors in analyzing trends in the Company's business. Additional descriptions regarding management's use of these financial measures are included below. Investors should consider these non-U.S. GAAP financial measures in addition to, rather than as substitutes for, financial reporting measures prepared in accordance withU.S. GAAP. These historical non-U.S. GAAP financial measures have been identified as applicable in each section of this report with a tabular presentation reconciling them to the most directly comparableU.S. GAAP financial measures. It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies. 20 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Overview
The following table shows some of the key ratios management uses internally to
analyze the Company's current and future financial performance and core
operations as well as to identify trends in the Company's financial conditions
and results of operations. We have provided this information to investors to
assist in meaningful comparisons of past and present operating results and to
assist in highlighting the results of ongoing core operations. These ratios are
more fully explained below and should be read in conjunction with the
consolidated financial statements in our Annual Report on Form 10-K and the
unaudited condensed consolidated financial statements in this Quarterly Report
on Form 10-Q.
KEY RATIOS
(Dollars in millions, except per share data)
Three months ended Six months ended
or as of June 30 or as of June 30
2020 2019 2020 2019
Total parent shareholders' equity per
share $ 22.24 $ 23.21 $ 22.24 $ 23.21
Capital employed 1) 3,793 3,849 3,793 3,849
Net debt 2) 1,838 1,811 1,838 1,811
Operating working capital 2) 498 645 498 645
Operating working capital relative to
sales, % 10) 7.0 7.5 7.0 7.5
Gross margin, % 3) 1.4 18.6 11.9 18.0
Operating margin, % 4) (22.3 ) 7.9 (3.4 ) 7.9
Return on total equity, % 5) (34.9 ) 21.8 (9.7 ) 22.4
Return on capital employed, % 6) (25.0 ) 18.3 (5.3 ) 18.9
Headcount at period-end 7) 61,800 65,700
61,800 65,700
Days receivables outstanding 8) 104 72 75 72 Days inventory outstanding 9) 74 35 53 35 1) Total equity and net debt.
2) See tabular presentation reconciling this non-
below under the heading "Liquidity and Sources of Capital".
3) Gross profit relative to sales.
4) Operating (loss) income relative to sales.
5) Net (loss) income relative to average total equity.
6) Operating (loss) income and income from equity method investments, relative to
average capital employed.
7) Employees plus temporary, hourly personnel.
8) Outstanding receivables relative to average daily sales.
9) Outstanding inventory relative to average daily sales.
10) Latest 12 months of net sales. For 2019 excluding EC antitrust non-cash
provision.
THREE MONTHS ENDEDJUNE 30, 2020 COMPARED WITH THREE MONTHS ENDEDJUNE 30, 2019 Consolidated Sales Three months ended June 30 Components of change in net sales Currency 2020 2019 Reported change effects 1) Organic 3) Airbags and other 2)$ 653.8 $ 1,435.7 (54.5 )% (3.4 )% (51.1 )% Seatbelts 2) 393.8 719.0 (45.2 )% (4.1 )% (41.1 )% Total$ 1,047.6 $ 2,154.7 (51.4 )% (3.6 )% (47.8 )% Asia$ 587.9 $ 757.7 (22.4 )% (2.4 )% (20.0 )% Whereof: China 366.4 349.5 4.8 % (3.7 )% 8.5 % Japan 104.6 191.1 (45.3 )% 2.1 % (47.4 )% Rest of Asia 116.9 217.1 (46.2 )% (4.5 )% (41.7 )% Americas 213.4 758.1 (71.9 )% (5.3 )% (66.6 )% Europe 246.3 638.9 (61.4 )% (3.1 )% (58.3 )% Total$ 1,047.6 $ 2,154.7 (51.4 )% (3.6 )% (47.8 )%
1) Effects from currency translations.
21
--------------------------------------------------------------------------------2) Including Corporate and Other sales.
3) Non-U.S. GAAP measure. Sales by product - Airbags Sales of all our different airbag products except textiles declined organically (non-U.S. GAAP measure) by between 40% and 80% in the second quarter. Textiles increased organically by 40%, reflecting new sales of textiles for manufacturing of personal protection equipment. Inflator sales declined organically by around 75%. Sales by product - Seatbelts Seatbelt sales organic decline (non-U.S. GAAP measure) broadly reflected the regional sales declines, with seatbelt sales inChina growing organically by 12% while organic seatbelt sales in all other regions declined by between 17% and 76%. Sales by Region The Company's global organic sales (non-U.S. GAAP measure) declined by 47.8% compared to the LVP decline of 45.2% (according to IHS). Sales declined organically in all regions exceptChina , which was up by 8.5%. The largest organic sales decline drivers wereAmericas andEurope , followed byJapan and Rest ofAsia . Our organic sales development outperformed LVP in all regions - by almost 11pp inAsia excludingChina , by more than 5pp inAmericas , by around 3pp inEurope and by 1.6pp inChina . Despite outperforming in all regions, our sales did not outperform on a global level because markets with high safety content per vehicle such asNorth America andEurope , declined significantly more than markets with lower safety content per vehicles such asChina which lead to the automotive safety market declining significantly more than LVP. Q2 2020 Organic growth1) Americas Europe China Japan Rest of Asia Global Autoliv (66.6 )% (58.3 )% 8.5 % (47.4 )% (41.7 )% (47.8 )% VW, Ford, Main growth drivers Textiles Inflators Toyota, Honda, Suzuki Renault BYD, Textiles Mazda, Honda FCA, Honda, VW, Mitsubishi, FCA, Nissan, Nissan, Renault, Nissan, Toyota, Hyundai/Kia, Honda, Ford, Main decline drivers Ford, GM, Daimler, Inflators Mazda, Suzuki, Toyota, VW, Toyota, Inflators PSA, BMW, Nissan, Mitsubishi, Isuzu Hyundai/Kia, Ford, FCA Subaru GM, Renault 1) Non-U.S. GAAP measure.
Change vs. same quarter last year
Americas Europe China Japan Rest of Asia Global
LVP1) (71.8 )% (61.2 )% 6.9 % (47.4 )% (60.7 )% (45.2 )%
1) Source: IHS
July 2020.
22
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Earnings
Three months ended June 30
(Dollars in millions, except per share data) 2020 2019 Change
Net Sales $ 1,047.6 $ 2,154.7 (51.4 )%
Gross profit 14.4 399.7 (96.4 )%
% of sales 1.4 % 18.6 % (17.2 )pp
S, G&A (98.5 ) (101.1 ) (2.6 )%
% of sales (9.4 )% (4.7 )% 4.7 pp
R, D&E, net (88.0 ) (117.0 ) (24.8 )%
% of sales (8.4 )% (5.4 )% 3.0 pp
Other income (expense), net (59.0 ) (9.2 ) 541.3 %
Operating (loss) income (233.5 ) 169.5 (237.8 )%
% of sales (22.3 )% 7.9 % (30.2 )pp
Adjusted operating (loss) income1) (171.4 ) 183.2 (193.6 )%
% of sales (16.4 )% 8.5 % (24.9 )pp
Financial and non-operating items, net (13.1 ) (18.7 ) (29.9 )%
(Loss) income before taxes (246.6 ) 150.8 (263.5 )%
Tax rate 29.3 % 27.4 % 1.9 pp
Net (loss) income (174.3 ) 109.4 (259.3 )%
(Loss) earnings per share, diluted2) (2.00 ) 1.25 (260.0 )%
Adjusted (loss) earnings per share, diluted1),2) (1.40 ) 1.38 (201.4 )%
1) Non-
related matters.
2) Assuming dilution, when applicable, and net of treasury shares. Participating
share awards with right to receive dividend equivalents are under the two-class method excluded from the EPS calculation.
Second quarter 2020 development
Gross profit decreased by$385 million and the gross margin decreased by 17.2pp compared to the same quarter 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 in April coupled with a volatile restart and ramp-up in May and June with limited visibility and predictability had a significant effect on our gross margin, despite major reductions in costs for material and labor. Direct COVID-19 costs amounted to around$10 million in Q2 2020.
S,G&A declined by
R,D&E, net declined by
Other income (expense), net declined by$50 million compared to a year earlier, mainly due to capacity alignment accruals of$62 million in Q2 2020 compared to$13 million a year earlier. The Q2 accruals are mainly related to future reductions of our indirect workforce under the Structural Efficiency Program II. Operating (loss) income decreased by$403 million compared to the same period in 2019, as a consequence of the lower gross profit and other income (expense), net being partly offset by lower costs for S,G&A and R,D&E, net. Adjusted operating (loss) income (non-U.S. GAAP measure) decreased by around$355 million compared to the prior year, mainly due to lower gross profit partly offset by lower S,G&A and R,D&E, net.
Financial and non-operating items, net improved by
(Loss) income before taxes decreased by
Tax rate was 29.3% compared to 27.4% the same quarter last year, impacted by unfavorable country mix with some losses without tax benefit.
(Loss) earnings per share, diluted decreased by
23
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SIX MONTHS ENDED
Consolidated Sales
Six months ended June 30 Components of change in net sales
Currency
2020 2019 Reported change effects 1) Organic 3)Airbags and other 2)$ 1,855.9 $ 2,883.4 (35.6 )% (2.6 )% (33.0 )% Seatbelts 2) 1,037.5 1,445.3 (28.2 )% (3.3 )% (24.9 )% Total$ 2,893.4 $ 4,328.7 (33.2 )% (2.9 )% (30.3 )% Asia$ 1,185.1 $ 1,508.5 (21.4 )% (2.1 )% (19.3 )% Whereof: China 563.9 680.0 (17.1 )% (3.5 )% (13.6 )% Japan 307.6 399.2 (22.9 )% 1.7 % (24.6 )% Rest of Asia 313.6 429.3 (26.9 )% (3.6 )% (23.3 )% Americas 885.5 1,501.1 (41.0 )% (3.3 )% (37.7 )% Europe 822.8 1,319.1 (37.6 )% (3.0 )% (34.6 )% Total$ 2,893.4 $ 4,328.7 (33.2 )% (2.9 )% (30.3 )%
1) Effects from currency translations.
2) Including Corporate and Other sales.
3) Non-U.S. GAAP measure. Sales by Product - Airbags Sales of all our different airbag products except textiles declined organically (non-U.S. GAAP measure) by between 27% and 65% in the first half of the year. Textiles increased by 18%, reflecting new sales of textiles for manufacturing of personal protection equipment. Inflator sales declined organically by around 65%. Sales by Product - Airbags
Sales by Region The global organic sales decline (non-U.S. GAAP measure) of 30.3% was 3.3pp better than LVP (according to IHS). Sales declined organically in all regions. The largest organic sales decline drivers wereAmericas andEurope , followed by Rest ofAsia ,Japan andChina . Our organic sales development outperformed LVP in all regions - by 9.4pp inAsia excludingChina , by 7.3pp inChina , by 4.7pp inEurope and by 4.5pp inAmericas . First six months 2020 Organic Japan Rest of Asia Global growth1) Americas Europe China Autoliv (37.7 )% (34.6 )% (13.6 )% (24.6 )% (23.3 )% (30.3 )% Tesla,
Main growth drivers Textiles, Inflators BYD, Ford, Mazda
Honda, Suzuki Renault, GM Tesla, BYD
Mazda
Daimler, FCA, Honda,
FCA, Honda, VW, Mitsubishi, Nissan, VW,
Nissan, Renault, Nissan, Great Toyota, Hyundai/Kia, Ford,
Main decline drivers Ford,
Mazda, Suzuki, Toyota, Daimler,
Inflators PSA, FCA, Geely, VW Nissan, Mitsubishi, Isuzu Hyundai/Kia,
Volvo Subaru Toyota,
Inflators
Change vs. same period last year
Americas Europe China Japan Rest of Asia Global
LVP1) (42.2 )% (39.3 )% (20.9 )% (26.6 )% (38.3 )% (33.6 )%1) Source: IHSJuly 2020 . 24
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Earnings
Six months ended June 30
(Dollars in millions, except per share data) 2020 2019 Change
Net Sales $ 2,893.4 $ 4,328.7 (33.2 )%
Gross profit 345.4 778.5 (55.6 )%
% of sales 11.9 % 18.0 % (6.1 )pp
S, G&A (192.0 ) (202.5 ) (5.2 )%
% of sales (6.6 )% (4.7 )% 1.9 pp
R, D&E, net (190.6 ) (224.4 ) (15.1 )%
% of sales (6.6 )% (5.2 )% 1.4 pp
Other income (expense), net (56.9 ) (3.2 ) 1,678.1 %
Operating (loss) income (99.2 ) 342.7 (128.9 )%
% of sales (3.4 )% 7.9 % (11.3 )pp
Adjusted operating (loss) income1) (35.4 ) 349.6 (110.1 )%
% of sales (1.2 )% 8.1 % (9.3 )pp
Financial and non-operating items, net (36.0 ) (38.3 ) (6.0 )%
(Loss) income before taxes (135.2 ) 304.4 (144.4 )%
Tax rate 26.5 % 27.4 % (0.9 )pp
Net (loss) income (99.4 ) 220.9 (145.0 )%
(Loss) earnings per share, diluted2) (1.14 ) 2.52 (145.2 )%
Adjusted (loss) earnings per share, diluted1),2) (0.53 ) 2.57 (120.6 )%
1) Non-
related matters.
2) Assuming dilution, when applicable, and net of treasury shares. Participating
share awards with right to receive dividend equivalents are under the
two-class method excluded from the EPS calculation.
First six months 2020 development
Gross profit declined by$433 million and the gross margin declined by 6.1pp compared to the same period 2019. The gross margin decline was primarily driven by lower sales and lower utilization of our assets from the decline in LVP. The sharp sales decline followed by a volatile restart and ramp-up with limited visibility and predictability had a significant effect on our gross margin, despite significant reductions in costs for material and labor.
S,G&A decreased by
R,D&E, net declined by
Other income (expense), net declined by$54 million compared to a year earlier, mainly due to capacity alignment accruals of$64 million in first half of 2020 compared to$13 million a year earlier. The accruals mainly related to future reductions of our indirect workforce under the Structural Efficiency Programs. Operating (loss) income decreased by$442 million , mainly as a consequence of the declines in gross profit and other income (expense), net, partly offset by lower costs for S,G&A and R,D&E, net.
Adjusted operating (loss) income (non-
Financial and non-operating items, net improved by around
(Loss) income before taxes decreased by
Tax rate was 26.5% compared to 27.4% last year, impacted by unfavorable country mix with some losses without tax benefit.
(Loss) earnings per share, diluted decreased by
25
--------------------------------------------------------------------------------LIQUIDITY AND SOURCES OF CAPITAL
Second quarter 2020 development
Operating working capital (non-U.S. GAAP measure, see reconciliation table below) was 7.0% of sales compared to 7.5% of sales a year earlier, mainly due to accounts receivable declining more than accounts payable. The Company targets that operating working capital in relation to the last 12-month sales should not exceed 10%. Operating cash flow was$128 million negative, compared to$21 million negative a year earlier, mainly due to the lower net income, partly offset by the payment of the EC antitrust payment of$203 million in the second quarter of 2019, and by positive effects from changes in operating assets and liabilities in second quarter of 2020. Capital expenditure, net of$64 million was$64 million lower than a year earlier, reflecting our efforts to reduce capital expenditure to support cash flow. Capital expenditure, net in relation to sales was 6.1% vs. 5.9% a year earlier. Net debt (non-U.S. GAAP measure, see reconciliation table below) amounted to$1,838 million as ofJune 30, 2020 , which was$27 million higher than a year earlier and$188 million higher compared toDecember 31, 2019 .
Liquidity position At
Leverage ratio (non-U.S. GAAP measure, see calculation table below)Autoliv's policy is to maintain a leverage ratio commensurate with a strong investment grade credit rating. The Company measures its leverage ratio as net debt (non-U.S. GAAP measure) adjusted for pension liabilities in relation to adjusted EBITDA (see calculation table below). The long-term target is to maintain a leverage ratio of around 1x within a range of 0.5x to 1.5x. As ofJune 30, 2020 , the Company had a leverage ratio of 2.9x, compared to 1.8x atJune 30, 2019 . The increase is due to a lower adjusted EBITDA in the current period compared to a year earlier. AtDecember 31, 2019 , the leverage ratio was 1.7x.
Total equity decreased by
First six months 2020 development
Operating cash flow was$28 million compared to$133 million a year earlier. The decline of$105 million was primarily due to the lower net income, partly offset by the EC antitrust payment of$203 million in the second quarter of 2019, and by positive effects from changes in operating assets and liabilities in first half of 2020.
Capital expenditure, net of
Non-U.S. GAAP measures Reconciliation ofU.S. GAAP financial measures to "Adjusted operating income", "Adjusted operating margin" and "Adjusted EPS" (Dollars in millions, except per share data) Three months ended June 30, 2020 Three months ended June 30, 2019 Reported U.S. Non-U.S. Reported U.S. Non-U.S. GAAP Adjustments1) GAAP GAAP Adjustments1) GAAP Operating (loss) income$ (233.5 ) $ 62.1$ (171.4 ) $ 169.5 $ 13.7$ 183.2 Operating margin, % (22.3 ) 5.9 (16.4 ) 7.9 0.6 8.5 (Loss) earnings per share, diluted (2.00 ) 0.60 (1.40 ) 1.25 0.13 1.38
1) Including costs for capacity alignment and antitrust related matters.
26
--------------------------------------------------------------------------------
Six months ended June 30, 2020 Six months ended June 30, 2019
Reported U.S. Non-U.S. Reported U.S. Non-U.S.
GAAP Adjustments1) GAAP GAAP Adjustments1) GAAP
Operating (loss)
income $ (99.2 ) $ 63.8 $ (35.4 ) $ 342.7 $ 6.9 $ 349.6
Operating margin, % (3.4 ) 2.2 (1.2 ) 7.9 0.2 8.1
(Loss) earnings per
share, diluted (1.14 ) 0.61 (0.53 ) 2.52 0.05 2.57
1) Including costs for capacity alignment and antitrust related matters.
Items included in Non-U.S. GAAP adjustments
(Dollars in millions, except per share data)
Three months ended June 30, 2020 Three months ended June 30, 2019
Millions Per share Millions Per share
Capacity alignment $ 61.9 $ 0.71 $ 13.2 $ 0.15
Antitrust related matters 0.2 0.00 0.5 0.01
Total adjustments to operating
income 62.1 0.71 13.7 0.16
Tax on non-U.S. GAAP
adjustments1) (9.9 ) (0.11 ) (2.7 ) (0.03 )
Total adjustments to net
income $ 52.2 $ 0.60 $ 11.0 $ 0.13
1) The tax is calculated based on the tax laws in the respective jurisdiction(s)
of the adjustment(s).
Six months ended June 30, 2020 Six months ended June 30, 2019
Millions Per share Millions Per share
Capacity alignment $ 63.6 $ 0.73 $ 13.1 $ 0.15
Antitrust related matters 0.2 0.00 (6.2 ) (0.07 )
Total adjustments to operating
income 63.8 0.73 6.9 0.08
Tax on non-U.S. GAAP
adjustments1) (9.9 ) (0.12 ) (2.7 ) (0.03 )
Total adjustments to net
income $ 53.9 $ 0.61 $ 4.2 $ 0.05
1) The tax is calculated based on the tax laws in the respective jurisdiction(s)
of the adjustment(s). The Company uses the non-U.S. GAAP measure "Operating working capital," as defined in the table below, in its communications with investors and for management's review of the development of the working capital cash generation from operations. The reconciling items used to derive this measure are, by contrast, managed as part of the Company's overall cash and debt management, but they are not part of the responsibilities of day-to-day operations' management. The historical periods in the table have been restated to only reflect continuing operations. Reconciliation ofU.S. GAAP financial measure to "Operating working capital" (Dollars in millions) June 30, 2020 June 30, 2019 December 31, 2019 Total current assets$ 3,382.9 $ 3,052.2 $ 3,002.1 Total current liabilities (2,152.0 ) (2,418.4 ) (2,410.2 ) Working capital 1,230.9 633.8 591.9 Cash and cash equivalents (1,223.2 ) (406.4 ) (444.7 ) Short-term debt 492.9 366.8 368.1 Derivative (asset) and liability, current (2.6 ) (3.5 ) (4.2 ) Dividends payable 1) 0.0 54.1 54.1 Operating working capital $ 498.0 $ 644.8 $ 565.2
1) On
quarter of 2020.
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Reconciliation of U.S. GAAP financial measure to "Net debt"
(Dollars in millions)
June 30, 2020 June 30, 2019 December 31, 2019
Short-term debt $ 492.9 $ 366.8 $ 368.1
Long-term debt 2,567.0 1,850.2 1,726.1
Total debt 3,059.9 2,217.0 2,094.2
Cash and cash equivalents (1,223.2 ) (406.4 ) (444.7 )
Debt issuance cost/Debt-related derivatives, net 1.2 0.3 0.3
Net debt $ 1,837.9 $ 1,810.9 $ 1,649.8
The non-U.S. GAAP measure net debt is also used in the non-U.S. GAAP measure
"Leverage ratio". Management uses this measure to analyze the amount of debt the
Company can incur under its debt policy. Management believes that this policy
also provides guidance to credit and equity investors regarding the extent to
which the Company would be prepared to leverage its operations. For details on
leverage ratio refer to the table.
Calculation of "Leverage ratio"
(Dollars in millions)
June 30, 2020 June 30, 2019 December 31, 2019
Net debt1) $ 1,837.9 $ 1,810.9 $ 1,649.8
Pension liabilities 235.7 202.8 240.2
Debt per the Policy 2,073.6 2,013.7 1,890.0
Net income2) 142.5 248.1 462.8
Less; Net loss from discontinued operations2) - (2.0 ) -
Net income continuing operations2) 142.5 246.1 462.8
Income taxes 2) 66.3 231.7 185.6
Interest expense, net2,3) 61.9 68.2 65.9
Depreciation and amortization of 349.9 349.9 350.6
intangibles2)
Antitrust related matters, capacity alignment 105.5 221.4 48.6 and separation costs2 EBITDA per the Policy $ 726.1$ 1,117.3 $ 1,113.5 Leverage ratio 2.9 1.8 1.7
1) Net debt (non-
derivatives, less cash and cash equivalents.
2) Latest 12-months.
3) Interest expense, net is interest expense including cost for extinguishment of
debt, if any, less interest income.
Headcount
June 30, 2020 March 31, 2020 June 30, 2019
Headcount 61,800 65,500 65,700
Whereof:
Direct workers in manufacturing 70 % 71 % 71 %
Best cost countries 81 % 81 % 80 %
Temporary personnel 6 % 8 % 10 %
Compared to March 31, 2020 , total headcount (permanent employees and temporary
personnel) decreased by 3,697. The decrease in the second quarter of 2020 was
driven by a reduction of around 7% of the direct workforce while the indirect
workforce decreased by around 2%. Our responses to manage the demand declines in
Europe and Americas also include furloughing employees and shorter work weeks to
reduce wage and salary costs. Our operations in almost all regions are currently
in different stages of ramp-up, as customer demand gradually increased in May
and June. Compared to a year ago, total headcount decreased by 3,903, driven by
a reduction of around 7% of the direct workforce and a reduction of 4% of the
indirect workforce.
Outlook 2020
No full year 2020 indications will be provided until effects of COVID-19 pandemic can be better assessed.
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.
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--------------------------------------------------------------------------------CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company's future contractual obligations have not changed materially from the amounts reported in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onFebruary 21, 2020 .
OTHER RECENT EVENTS
Key launches in the Second Quarter of 2020
Below are some of the key models which were launched in the second quarter of
2020.
• Chevrolet Suburban/Tahoe & GMC Yukon/Yukon XL: Steering Wheel,
Driver/Passenger airbags.
• Fiat 500: Steering Wheel, Driver/Passenger airbags, Side airbags,
Head/Inflatable Curtain airbags.
• Audi 3 Limousine: Steering Wheel, Driver/Passenger airbags, Front Center
Airbag, Seatbelts.
• Xpeng P7: Steering Wheel, Driver/Passenger airbags, Side airbags,
Head/Inflatable Curtain airbags, Seatbelts.
• Lynk & Co 06: Driver/Passenger airbags, Side airbags, Head/Inflatable
Curtain airbags, Seatbelts.
• Buick Envision S: Steering Wheel, Driver/Passenger airbags, Side airbags,
Head/Inflatable Curtain airbags.
•
Airbag, Seatbelts.
• VW Polo Sedan: Steering Wheel, Driver/Passenger airbags, Seatbelts.
• VW Tayron X: Steering Wheel, Driver/Passenger airbags, Side airbags,
Head/Inflatable Curtain airbags, Seatbelts.
Other Items
• On
taken by the Company to manage the automotive industry downturn caused by the
COVID-19 pandemic. Measures announced included reduction in capex and employee
related costs and a strengthening of the liquidity position and credit
resources through entering a lending facility of approximately
with the
• On
position as Vice President Brazil to the position of President,
member of
has extensive experience leading large-scale operations and driving positive
results over nearly two decades. He began his career at
has experience from leadership roles in Engineering, Operations and Quality as
well as being a Plant Manager.
• On
Resources and Sustainability and member of
Team, succeeding
move back to
roles in Stora Enso, Haldex and most recently as Senior Vice President, Head
of Group Business Development at Husqvarna.
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