AUTOLIV INC (ALV)

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, 2024 compared to the year ended December 31, 2023. Discussions of the Company's results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended December 31, 2023, which was filed with the United States Securities and Exchange Commission on February 20, 2024.

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 year ended December 31, 2024, a number of factors influenced the Company’s results of operations, including:

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Customer call-off volatility improved, yet remains above pre-pandemic levels, limiting productivity.

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Cost inflation moderated but remains elevated, especially for labor

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Continued growth above LVP despite unfavorable LVP mix development

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Order intake impacted by developments in technology, geopolitics and customer landscape.

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Strategic and structural initiatives

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Continued focus on operational excellence and quality

1) Reported figures impacted by costs for capacity alignments and antitrust related matters. See section Items affecting comparability and Note 12 to the Consolidated Financial Statements included herein.

2) Net of treasury shares.

Customer call-off volatility

2024 saw global LVP decline by around 1.2% (according to S&P Global January 2025). Our sales to customers are based on production schedule order quantities and delivery dates that are communicated to us by our customers, which we refer to as “call-off” plans. We saw an improvement in call-off volatility in 2024, especially in the second half year. This improvement supported our improvement in operating efficiency and productivity, including a significant reduction in direct workforce. However, customer call-off volatility remained higher than pre-pandemic levels, and low customer demand visibility and changes to customer call-offs with short notice still had a negative impact on our production efficiency and profitability. Geopolitical uncertainties could continue to create a challenging operating environment. We also see a likelihood that there could be new or increased tariffs or other related trade restrictions imposed in 2025 that may impact our operations. We continue to closely monitor the situation and are prepared to remain agile in responding to any such developments.

Inflation

Cost pressures from labor, in our own operations and related to our suppliers' labor costs, had a negative impact on our profitability in 2024. Most of the inflationary cost pressure was offset by customer price and other compensations. Changes in raw material costs had a limited impact on our profitability in 2024. The Company expects only limited raw material price changes in 2025. We also expect continued cost pressure from inflation relating mainly to labor, including increased labor costs for our suppliers, especially in Europe and the Americas. The Company continues to execute on productivity and cost reduction activities to offset these cost pressures, and we continue to seek inflation compensation from our customers. The Company believes price adjustments will gradually offset the cost inflation, with limited positive effects in the first quarter and gradual improvement as the year progresses.

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GROWTH IMPACTED BY LIGHT VEHICLE PRODUCTION AND SAFETY CONTENT PER VEHICLE

The most important driver for Autoliv’s sales is the LVP. In 2024, global LVP declined by 1.2%.

The increase in LVP in China of 4.2% was significantly more than what was expected in the beginning of the year, driven mainly by a multitude of successful launches of new models by domestic Chinese OEMs, especially BYD. The LVP decline of 4.7% in Europe was impacted by affordability issues and technology uncertainties. The LVP decline in North America LVP was mainly driven by vehicle inventory corrections. Japan declined by 8.8% impacted by model homologation issues.

The different LVP growth rates for different regions in 2024 was dilutive to global safety content per vehicle (CPV), as LVP in several high CPV regions declined while LVP increased in some lower CPV regions. The highest CPV region is North America, and its share of global LVP declined by 0.2pp to 16.2%. The second highest CPV region is Europe, and its share of global LVP declined by 0.7pp, to 19.6%. The lowest major CPV region is India, which saw its share of LVP increase from 6.1% to 6.5%. CPV in China is below the global average, and China’s share of global LVP increased from 32.0% to 33.7%. Japan’s share decreased to 8.9% from 9.7%. Additional dilution to global CPV came from the difference in growth within China, where lower CPV models and segments grew strongly while higher CPV models and segments growth was limited or negative. LVP growth for Domestic Chinese OEMs with typically lower CPV was 18% compared to global OEMs with typically higher CPV saw LVP decline by 9.5%. Combined with the regional growth differences, we estimate this shift in LVP mix contributed negatively to our sales growth by between 2 to 3 pp. The Company estimates that its market share decreased from around 45% in 2023 to around 44% in 2024. The main reasons for this change are the difference in regional LVP growth outlined above and that component sales, which is growing fast, especially to BYD, is not part of market share calculation.

Despite macro-economic uncertainties in parts of the world, we expect light vehicle markets to grow both in the medium and long term, driven by pent-up end user demand and a growing GDP/capita.

Due to more stringent crash test rating requirements, by institutes such as Euro NCAP, increased government regulations and increasing consumer demand for more safety in emerging markets, the Company sees 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, partially due to new government regulations and crash test rating programs. This is supporting higher installation rates of airbags and more advanced seatbelts, impacting CPV positively. Commercial customer recoveries compensating for increased labor costs also added to CPV in 2024, partly offset by negative effects from continued productivity related pricing pressure from vehicle manufacturers. CPV increased in Japan, Europe and India, was unchanged in North America while it decreased in China due to the changes in LVP mix outlined above. The changes in regional and model mix diluted global CPV by 2 to 3pp leading to a global CPV that was unchanged compared to 2023. Together with the positive pricing and the execution of the Company's strong order book, this supported an organic growth (Non-U.S. GAAP measure) of around 1.6pp above growth in global LVP. The average global safety CPV (airbags, pedestrian safety, seatbelts, and steering wheels) amounted to around $260 in 2024.

The Company believes that the more stringent crash rating requirements and consumer demand for more safety should enable the global automotive safety market to grow around 1-2 percentage points per year faster than the global LVP in the medium and long term. This excludes the impact from cost inflation related price increases.

The past years’ high order intake share has resulted in the Company's sales development outperforming the underlying LVP significantly. In the past 5 years, the Company's organic sales development outpaced global LVP between around 2 and 9 percentage points every year. During 2024, growth was positively affected through recent launches of several new models, including Subaru Forester, Hyundai Santa Fe, Nissan Kicks, Dacia Duster, Toyota Landcruiser, Zeekr 7z and Toyota 4Runner.

The Company estimates that the sales to Electric Vehicles (not including PHEVs) amounted to around $1.4 billion in 2024.

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GLOBAL FOOTPRINT WELL ADAPTED TO THE GEOGRAPHIC TREND SHIFT IN AUTOMOTIVE PRODUCTION

The Company's regional sales mix continues to be balanced with 28% of sales in Europe, 33% in the Americas and 19% in Asia, excluding China in 2024, compared to 27%, 34% and 19%, respectively, in 2023. The Company's sales in the important Chinese market was 19% of total sales in 2024 compared to 20% in 2023.

The balanced regional sales mix has been achieved through timely investments and strengthening of technical and support capabilities in growth markets.

ORDER INTAKE ADDING TO AN ALREADY STRONG CUSTOMER BASE

The Company's order intake in 2024, with high win rates for new platforms with both new and traditional OEMs as well as for both EV and ICE platforms, added to the Company's already strong base, which includes supplying products to more than 1,300 vehicle models and around 100 car brands. The order intake in 2024 supports the Company's ability to defend its around 45% sales market share in the near and medium term. For several years, the automotive industry face some key trends that impacts the industry, notably changes in technologies as well as geographic growth differences with the emergence of new automakers are particularly visible in China. Autoliv have therefore increasingly focused resources on developing new products and to strengthen our position with new automakers to capture the growth opportunities that comes with these changes. This includes long term development agreements with several new automakers in China in recent years as well as increased investments in capacity and capabilities in India. The order intake from new automakers, mainly in China and North America, accounted for nearly 1/3 of our total order intake in 2024. We won multiple awards supporting new market- and industry trends like foldable steering wheels for self-driving vehicles including new types of driver airbags that deploys from the dashboard or ceiling The 2024 order intake included high win rates with new automakers. In China, the Company estimates that around 60% of order intake in 2024 was with domestic Chinese OEMs, which supports our expectation that domestic OEMS in China will continue to increase its share of the Company's sales in China in 2025. New order intake is defined as the sales value of awards for future business, received within that year. The lifetime 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.

The lead time from order intake to start of production is typically 1-3 years. 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 factor of RD&E expenses, net. Additionally, the Company has to build up production capacity, in the form of new lines, to meet future product launches.

In 2024, OEMs sourcing of new business was at the lowest level since 2018 for the industry, as OEMs are reconsidering certain future product offerings due to geopolitical and technological uncertainties. The Company's order intake share for 2024 continued on a high level. Even so, the low level of OEM sourcing activity in 2024 resulted in a lower order intake in 2024 for the Company. The estimated life-time sales for all orders booked in 2024 is around $7.4 billion, compared to around $11.8 billion in 2023. As sourcing of several large platforms were pushed into 2025, we expect a rebound of OEM sourcing activity and Autoliv order intake in 2025.

STRATEGIC INITIATIVES AND STRUCTURAL IMPROVEMENTS

2024 light vehicle market was impacted by a technological and geopolitical uncertainties with continued high customer call-off volatility and inflationary pressure on costs for labor. In response, Autoliv management continued to implement strict cost control measures, as well as initiating significant structural cost reduction measures. In June 2023, the Company communicated a cost reduction framework which included the intent to reduce our indirect headcount by up to 2,000, and to improve direct labor productivity equivalent to up to a 6,000 direct workforce reduction. Based on the intended indirect workforce reductions, the Company estimates that the annual cost reductions will amount to around $135 million in total annual savings when fully implemented, with around $50 million in savings recorded in 2024, which is expected to increase to around $100 million in 2025 and the remaining amount in 2026 and 2027.

At the end of 2024, around 1,400 of the planned indirect reductions were completed. We also saw positive results on direct labor efficiency in 2024, especially in the second half year.

The provision, net of reversals, for restructuring activities in 2024 amounted to $18 million compared to $(210) million in 2023. As of December 31, 2024, the Company had $151 million reserved in its balance sheet related to restructuring compared to $213 million last year. For more information, see Note 12, Restructuring, to the Consolidated Financial Statements included herein.

In addition to the structural improvements outlined above, the Company continues to implement the strategic initiatives to improve the efficiency of its value chain from end to end, not least through the Autoliv Production System and increased digitalization and automation. With several hundred projects in implementation or undergoing development, the Company has a high pace in the planning and implementation of the strategic initiatives and structural improvements. These initiatives are key drivers to the Company's targets and building the foundation to continue to create shareholder value.

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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 and raw material price development. For the five-year period 2017-2021, the Company estimates the average reduction of product prices on existing programs to have been in the range of around 2-4% annually. In 2022, the pricing environment changed to some extent due to high raw material price and cost increases, which led to renegotiations with customers regarding commercial terms. These discussions resulted in a net positive price development, gradually implemented throughout the year. This was also the case in 2023, and for 2024 as well, albeit at a lower level.

A key strategy for Autoliv to be and to remain cost competitive is to reduce labor costs, through continuously implementing productivity improvement programs, optimizing the Company's production footprint, and instituting restructuring and capacity alignment activities as well as other actions to address the Company's cost structure.

The Company's 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:

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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 the Company's customers.

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Autoliv 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 the Company continuously optimize its supply base footprint, consolidate purchase volumes to fewer suppliers, improve productivity in the Company's supply chain, standardize components and redesign its products.

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Strategic Initiatives, including Automation, Digitalization, Supply Chain Management Effectiveness and RD&E Effectiveness.

The Company's historic experience is that the continuous improvement strategies have enabled productivity improvement at or above its target of 5%. However, the Company had not achieved its 5% productivity target since the COVID-19 pandemic in 2020, due to the related decline in LVP in 2020 and the high volatility in customer call-offs in 2021, 2022 and 2023 driven by the industry wide supply chain instability, especially for semiconductors. In 2024, however, the Company achieved its 5% productivity target, as gradual improvement in customer call -off volatility enabled an improved operational efficiency.

The Company foresees opportunities for further productivity on organic sales growth and increased call-off stability when global supply chains have stabilized at pre-pandemic levels, but also from increasing use of automation in its 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.

FOCUS ON QUALITY

The number of vehicle recalls in the automotive industry continues on a relatively high level. The Company expects overall recall numbers to remain high for years to come and, although the Company strives for the highest quality in its processes, it cannot be ruled out that the Company may also be adversely impacted by a future recall.

Quality has been and always will be the Company's number one priority, and the Company continues to sharpen its focus in this area. The Company now holds a global market share in passive safety of around 44%, while the Company has been involved in around 2% of recalls in the industry in the past ten years. This indicates that the Company is delivering on its quality strategy. For more information see product warranty and recalls in Note 13, Product Related Liabilities, to the Consolidated Financial Statements in this Annual Report.

CHANGES IN COMPETITIVE AND CUSTOMER LANDSCAPE

The Company has not noted any significant changes in the competitive landscape in 2024. We consider Joyson Safety Systems, a part of Ningbo Joyson Electronic Corp., and ZF LIFETEC, a part of ZF Friedrichshafen AG, to be global competitors to Autoliv. In addition, there are several smaller regional and product specific competitors, especially in China.

The customer landscape is gradually changing, with a multitude of new OEMs emerging in recent years. This is especially prominent within electric vehicles and in China. In China, domestic OEMs have gained significant market shares and as a group now has larger market share than global OEMs have in China. Autoliv's sales to domestic OEMs in China has grown rapidly. In 2022, this group accounted for 22% of Autoliv's sales in China, and in 2024 their share of Autoliv sales in China was 37%. The fastest growing OEM in China in recent years is BYD. BYD has a uniquely high degree of vertical integration, with a large proportion of in-house sourcing of products and systems. This includes passive safety systems, which is supplied by its subsidiary FinDreams Technology. Autoliv supplies components, especially inflators, to FinDreams Technology. In 2024, the institutional alliance between Renault, Nissan, and Mitsubishi ended.

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CAPITAL STRUCTURE

The Company’s net debt stood at $1,554 million on December 31, 2024. This was an increase of $187 million compared to December 31, 2023. Total interest-bearing debt at December 31, 2024 amounted to $1,909 million, an increase of $47 million compared to December 31, 2023.

Cash flow from operations was $1,059 million in 2024 and $982 million in 2023. Capital expenditures, net amounted to $563 million in 2024 and $569 million in 2023. During 2024 and 2023 the Company paid dividends of $219 million and $225 million, respectively.

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 1.0x and to be within the range of 0.5x to 1.5x. At December 31, 2024, the current leverage ratio is 1.2x. 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 2024 and 2023, the Company repurchased and retired 5.1 million and 3.7 million shares, respectively, under the new stock repurchase program approved by the Board of Directors in November 2021. This stock repurchase program authorizes the Company to repurchase up to $1.5 billion or up to 17 million shares (whichever comes first) between January 2022 and the end of 2024. In November 2024, the Board of Directors approved the extension of this stock repurchase program through the end of 2025.

In 2024, the Company retired an additional 2 million shares held in Treasury stock. After the retirements, the Company continues to hold around 2.7 million shares of common stock in treasury.

Outlook for 2025

In addition to the assumptions noted below, the Company's guidance for 2025 is mainly based on our customer call-offs, the achievement of our targeted cost compensation effects and no material changes to tariffs or trade restrictions.

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.

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results of operations

Consolidated net sales in 2024 decreased by 0.8% compared to 2023. Excluding negative currency translation effects of 1.2%, the organic sales increased (Non-U.S. GAAP measure, see reconciliation table below) by 0.4% compared to the global LVP decrease of 1.2% (according to S&P Global, Jan 2025). The 1.6pp outperformance was mainly driven by new product launches, and to a lesser extent higher prices, partly offset by negative customer and model mix.

Sales by Product

1) Effects from currency translations.

2) Including Corporate and Other sales.

Airbags, Steering Wheels and Other

Sales grew organically (Non-U.S. GAAP measure, see reconciliation table above) by 0.7% in 2024. The largest contributor to the increase was steering wheels, followed by center airbags, side airbags, inflatable curtains and inflators, partly offset by decreases for passenger airbags, knee airbags and driver airbags.

Seatbelt Products and Other

Sales for Seatbelt Products and Other declined organically (Non-U.S. GAAP measure, see reconciliation table above) by 0.2% in the period. Sales decreased organically in China and Europe, while it increased in Asia excluding China and the Americas.

Sales by Region

1) Effects from currency translations.

Autoliv’s global sales increased organically (Non-U.S. GAAP measure, see reconciliation table above) by 0.4% in 2024 compared to 2023, which was around 1.6 percentage points better than global LVP (according to S&P Global, January 2025).

Our organic sales growth (Non-U.S. GAAP measure) outperformed LVP growth by 11 percentage points in Asia excluding China supported by strong outgrowth in India, Japan and South Korea. We outperformed by 6.1 percentage points in Europe due mainly to product launches and to a smaller extent higher prices, while it was in line with LVP growth in Americas. Our sales growth underperformed LVP growth by 7.4 percentage points in China. LVP growth in China was tilted to domestic OEMs with typically lower safety content. Domestic OEM LVP in China grew by 18% while LVP declined by 9.5% for global OEMs in China in 2024. Autoliv's sales to domestic OEMs increased by 24% in 2024.

2024 Organic Growth (Non-U.S. GAAP measure)

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Condensed Statement of Income

1) Assuming dilution and net of treasury shares.

2) Non-U.S. GAAP Measure.

Gross Profit

In 2024, gross profit increased by $106 million and the gross margin increased by 1.2pp compared to 2023. The improvement was mostly due to that better customer call-off accuracy supported an improved operational efficiency with around $82 million in lower costs for labor, premium freight and waste and scrap. The gross profit increase was also, to a lesser extent, supported by positive effects from lower material costs. The main offsetting factor to the improvement were negative effects of lower sales.

Operating Income

Operating income increased in 2024 by $290 million, mainly due to lower capacity alignment accruals as outlined below, and the increase in gross profit, as outlined above.

Selling, General and Administrative (S,G&A) expenses increased in 2024 by $30 million. The main reason for the cost increase was higher costs for personnel, due to high wage inflation. S,G&A costs in relation to sales increased from 4.8% to 5.1%.

Research, Development & Engineering (R,D&E) expenses, net decreased in 2024 by $27 million, Higher engineering income explained almost the entire improvement. R,D&E, net, in relation to sales decreased from 4.1% to 3.8%. The Company consider a level of around 4% to be representative for its business scope.

Other income (expense), net was an expense of $19 million in 2024 compared to an expense of $207 million in 2023. Almost all of the $188 million in lower expense was due to lower capacity alignment accruals in 2024 compared to 2023. The high level of capacity alignment accrual in 2023 relate to a structural efficiency program aiming at reducing indirect headcount by up to 2,000. No significant further accruals are expected for this program.

Financial and Non-operating Items, net

Costs for Financial and non-operating items, net, costs increased by $27 million in 2024 compared to previous year, mainly due to $14 million in increased interest expense as the result of higher debt and higher interest rates, and $13 million in increased expenses for Other non-operating items.

Income Taxes

The tax rate for 2024 was 26.0%, compared to 20.1% in 2023. Discrete tax items, net, decreased the tax rate in 2023 by 17.3pp, mainly related to a net deferred tax asset recognized in the fourth quarter of 2023 due to the transfer of certain assets and operations as part of restructuring activities. Discrete tax items, net, decreased the tax rate in 2024 by 4.8pp. In addition, country mix impacted the 2024 tax rate favorably by 6.1pp compared to the prior year. The Company considers a tax rate in the range of 25%-30% to be within normal parameters.

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Net Income and Earnings Per Share

Net income in 2024 increased by $159 million compared to 2023. Earnings per share, diluted increased by $2.32 compared to a year earlier, where the main drivers were $2.83 from higher operating income and $0.45 from lower number of outstanding shares, diluted, partly offset by $0.76 from higher taxes and $0.21 from higher financial and non-operating items, net.

The weighted average number of shares outstanding assuming dilution in 2024 was 80.4 million compared to 85.2 million in 2023.

Non-GAAP Performance Measures

In this annual report, the Company sometimes refers to non-GAAP measures that the Company and securities analysts use in measuring Autoliv’s performance.

The Company believes that these measures assist management and investors in analyzing trends in the Company’s business for the reasons given below. Investors should not consider these non-GAAP measures as substitutes for, but rather as additions to, financial reporting measures prepared in accordance with GAAP.

These non-GAAP measures have been identified, as applicable, in each section of this annual report with tabular presentations provided below, reconciling them to GAAP.

It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies.

Organic Sales

The Company analyzes its 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. 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.

See tabular reconciliations above, that present changes in “organic sales growth” as reconciled to the change in total GAAP net sales.

Net debt

The Company, from time to time enters into “debt-related derivatives” (DRDs) as a part of its debt management and as part of efficiently managing the Company’s overall cost of funds. Creditors and credit rating agencies use net debt adjusted for DRDs in their analyses of the Company’s debt, therefore we provide this non-U.S. GAAP measure. DRDs are fair value adjustments to the carrying value of the underlying debt. Also included in the DRDs is the unamortized fair value adjustment related to a discontinued fair value hedge that will be amortized over the remaining life of the debt. By adjusting for DRDs, the total financial liability of net debt is disclosed without grossing debt up with currency or interest fair values.

Reconciliation of GAAP measure "Total debt" to non-GAAP measure “Net debt”

Adjusted operating income, adjusted operating margin and adjusted diluted Earnings per share (EPS)

Adjusted operating margin and adjusted diluted EPS are non-GAAP measures the Company uses to evaluate its business, because the Company believes it assists investors and analysts in comparing the Company's 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 and for diluted EPS unusual tax items) and that the Company does not believe are indicative of its core operating performance and underlying business trends. Adjusted operating margin and adjusted diluted EPS, as shown in the table below, should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, including operating margin and diluted EPS.

Reconciliation of GAAP measure "Operating income" to Non-GAAP measure "Adjusted Operating income"

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Reconciliation of GAAP measure "Operating margin" to Non-GAAP measure "Adjusted Operating margin"

Reconciliation of GAAP measure "Earnings per share - diluted" to Non-GAAP measure "Adjusted Earnings per share - diluted"

The following tables reconcile Income before income taxes, Net income, Net income attributable to controlling interest, Capital employed, which are inputs utilized to calculate Return On Capital Employed (“ROCE”), adjusted ROCE, Return On Total Equity (“ROE”) and adjusted ROE. The Company believes this presentation may be useful to investors and industry analysts who utilize these adjusted non-U.S. GAAP measures in their ROCE and ROE calculations to exclude certain items for comparison purposes across periods. Autoliv’s management uses the ROCE, adjusted ROCE, ROE and adjusted ROE measures for purposes of comparing its financial performance with the financial performance of other companies in the industry and providing useful information regarding the factors and trends affecting the Company’s business.

The Company believes ROCE and adjusted ROCE are useful indicators of long-term performance both absolute and relative to the Company's peers as it allows for a comparison of the profitability of the Company’s capital employed in its business relative to that of its peers. The Company’s management believes that ROE is a useful indicator of how well management creates value for its shareholders through its operating activities and its capital management.

With respect to the Andrews litigation settlement, the Company has treated this specific settlement as a non-recurring charge because of the unique nature of the lawsuit, including the facts and legal issues involved.

Accordingly, the tables below reconcile from U.S. GAAP to the equivalent non-U.S. GAAP measure.

Reconciliation of GAAP measure "Income before income taxes" to Non-GAAP measure "Adjusted Income before income taxes"

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Reconciliation of GAAP measure "Net income" to Non-GAAP measure "Adjusted Net income"

Reconciliation of GAAP measure "Net income attributable to controlling interest" to Non-GAAP measure "Adjusted Net income attributable to controlling interest"

Reconciliation of GAAP measure "Return on Capital Employed" to Non-GAAP measure "Adjusted Return on Capital Employed"

Reconciliation of GAAP measure "Return on Total Equity" to Non-GAAP measure "Adjusted Return on Total Equity"

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Liquidity, Capital Resources, and Financial Position

NET CASH PROVIDED BY OPERATING ACTIVITIES

Cash flow from operations, together with available financial resources and credit facilities, is expected to be sufficient to fund the Company’s anticipated working capital requirements, capital expenditures and future dividend payments.

Net cash provided by operating activities was $1,059 million in 2024 compared to $982 million in 2023. The increase of $77 million in 2024 was mainly due to $159 million in higher net income. The improvement was also a supported by continued reduction of working capital, although on a smaller scale compared to the 2023 reduction. The improvement of operating assets and liabilities, net in both 2023 and 2024 was mainly a result of improved customer call-off accuracy enabling more precise planning and use of resources as well as a multi-year working capital efficiency program aiming at improving working capital by $800 million. At the end of 2024, the Company estimates that around $700 million improvement in working capital has been achieved since the start of the program. The remaining around $100 million in the program is targeted to be achieved mainly in inventories and is dependent on a continued improvement in customer call-off accuracy in the years to come.

Receivables outstanding in relation to sales was 19% at December 31, 2024, compared to 20% at December 31, 2023. Factoring agreements did not have any material impact on receivables outstanding for 2024 or 2023.

Inventory outstanding in relation to sales was 9% at December 31, 2024, compared to 9% at December 31, 2023.

Payables outstanding in relation to sales was 17% at December 31, 2024 compared to 18% at December 31, 2023.

NET CASH USED IN INVESTING ACTIVITIES

In 2024 and 2023, net cash used in investing activities amounted to $563 million and $569 million, respectively. The Company's investing activities primarily consist of investments in property, plant and equipment. Net cash generated by operating activities continued to sufficiently cover capital expenditures for property, plant and equipment.

In relation to net sales, capital expenditures, net was 5.4% compared to 5.4% in previous year. The 5.4% level is slightly above what the Company expects for the longer term, due to investments in capacity, mainly in Asia, and in footprint optimization, mainly in Europe and Japan.

Depreciation and amortization totaled $387 million in 2024 compared to $378 million in 2023.

During the years 2024 and 2023, a majority of the Company's investments were for production capacity to support new product launches and automation projects for improved efficiency.

NET CASH USED IN FINANCING ACTIVITIES

Net cash used in financing activities amounted to $680 million and $490 million for the years 2024 and 2023, respectively. The increase of $190 million in cash used in financial activities was mainly the result of $200 million additional repurchased shares in 2024 as compared to 2023.

The Company's net issuance of short-term and long-term debt was $94 million in 2024 and $87 million in 2023.

In 2024, the Company paid cash dividends of $219 million. In 2023, the Company paid dividends of $225 million. The Company's dividend approach has been the same for several years.

The Company repurchased shares to an amount of $552 million and $352 million in 2024 and 2023, respectively. The Company intends to continue to repurchase shares in accordance with the current authorization until the end of 2025.

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, Summary of Significant Accounting Policies, and Note 5, Income Taxes, to the Consolidated Financial Statements included herein.

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PENSION ARRANGEMENTS

The Company has defined benefit pension plans covering nearly half of the U.S. employees. As of December 31, 2021, the main U.S defined benefit plan was frozen for further benefits. Many of the Company’s non-U.S. employees are also covered by pension arrangements.

At December 31, 2024, the Company’s net pension liability (i.e. the actual funded status) for its U.S. and non-U.S. plans was $153 million compared to $159 million at December 31, 2023.

The plans had a total net unamortized actuarial loss before tax of $36 million recorded in Accumulated Other Comprehensive (Loss) Income in the Consolidated Balance Sheets at December 31, 2024, compared to $34 million at December 31, 2023. The amortization of the actuarial loss is expected to be $22 million in 2025.

Total pension expense associated with the defined benefit plans was $34 million in 2024 and $21 million in 2023, and is expected to be $21 million in 2025. The increase in 2024 pension expense was due to the negative impact from curtailment and settlement losses in mainly Americas.

The Company contributed $29 million to its defined benefit plans in 2024 and $11 million in 2023. The Company expects to contribute $15 million to these plans in 2025 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, Retirement Plans, to the Consolidated Financial Statements included herein.

EQUITY

During 2024, total equity decreased by $285 million to $2,285 million as of December 31, 2024. The change was mainly due to dividends paid to shareholders of $219 million, share repurchases of $558 million, negative foreign exchange effects of $161 million, partly offset by $648 million from net income.

TREASURY ACTIVITES

DEBT AND CREDIT ARRANGEMENTS

The Company's total debt as of December 31, 2024 and 2023 was $1,909 million and $1,862 million, respectively. The Company had a net debt position (see section Non-U.S. GAAP Performance Measures) at December 31, 2024 and 2023 of $1,554 million and $1,367 million, respectively.

In July 2024, the Company entered into a $125 million bilateral revolving credit facility (Bilateral RCF) with substantially the same terms as the revolving credit facility (RCF) with the 11 banks (see below). In May 2022, the Company refinanced its existing RCF of $1,100 million. The facility was syndicated among 11 banks and matures May 2029. The Company pays a commitment fee on the undrawn amount of 0.10%, representing 35% of the applicable margin, which is 0.275% (given the Company’s ratings of "BBB+" from Fitch and “Baa1” from Moody’s). Borrowings under the facility are unsecured. On December 31, 2024, the Company’s unutilized long-term credit facilities were $1,225 million, represented by the RCF and the Bilateral RCF. These facilities are not subject to any financial covenants nor is any other substantial financing of Autoliv.

In February 2024, the Company priced and issued a 5.5-year green bond for a total of €500 million in the Eurobond market. The bond carries a coupon of 3.625% and matures in August 2029.

In March 2023, the Company priced and issued a 5-year green bond for a total of €500 million in the Eurobond market. The bond carries a coupon of 4.25% and matures in March 2028.

In June 2020, the Company utilized its SEK 3,000 million facility with Swedish Export Credit Corporation which was signed in May 2020. The SEK 3,000 million loan mature in May 2025 carrying a floating interest rate of 3M STIBOR +1.85%.

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, 2024, $470 million remains outstanding with $285 million maturing in April 2026 and $185 million maturing in April 2029.

The Company has a €3,000 million Euro Medium Term Note Program in place for being able to issue notes to be traded on the Global Exchange Market of Euronext Dublin. At December 31, 2023, €1,000 million had been issued under this program.

At December 31, 2024 Autoliv’s long-term credit rating from S&P Global Ratings was BBB, from Moody’s Baa1, and from Fitch BBB+. All ratings with stable outlook. As of February 7, 2025, S&P Global Ratings withdrew the ratings for Autoliv on the Company’s request. The company aims to maintain a strong investment grade credit rating.

For additional information about the Company's debt and credit arrangements, see Note 14, Debt and Credit Agreements, to the Consolidated Financial Statements included herein.

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FACTORING

During 2024 and 2023, 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, 2024, the Company had received $211 million for sold receivables without recourse and discounted notes with a discount cost of $3 million during the year, compared to $209 million at December 31, 2023 with a discount cost of $3 million recorded in Other non-operating items, net.

NUMBER OF SHARES

At December 31, 2024, 77.7 million shares were outstanding (net of 2.7 million treasury shares), a 6.0% decrease from 82.6 million one year earlier.

The number of shares outstanding is expected to increase by 0.5 million when all RSUs and PSs vest and if all SOs to key employees are exercised, see Note 17, Stock Incentive Plans, to the Consolidated Financial Statements included herein.

During 2024 the Company repurchased and retired approximately 5.1 million shares equal to $552 million. In addition, the Company also retired 2,000,000 treasury shares in December 2024. In 2023, the Company repurchased and retired approximately 3.7 million shares equal to $352 million. During 2022, Autoliv repurchased and retired approximately 1.4 million shares, equal to $115 million. In 2022, the Company also retired 10 million shares of common stock that had been repurchased under a prior stock repurchase program and since held in treasury. Under the current stock repurchase program authorized by the Board to repurchase up to $1.5 billion, or 17 million common shares (whichever comes first), between January 2022 and the end of 2024. In November 2024, the Board of Directors approved the extension of the current stock repurchase program through the end of 2025.

Contractual Obligations and Commitments

Contractual obligations include debt, sponsored defined benefit plans, lease and purchase obligations that are enforceable and legally binding on the Company.

For material contractual debt obligations as of December 31, 2024, see Note 14, Debt and Credit Agreements, to the Consolidated Financial Statements included herein.

Operating lease obligations represent the payment obligations (undiscounted cash flows) under leases classified as operating leases. Capital lease obligations are not material. See Note 3, Leases, to the Consolidated Financial Statements included herein.

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.

The Company sponsors defined benefit plans that cover a significant portion of the Company's 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 the Company's pension plans in other countries is based upon plan provisions, actuarial recommendations and/or statutory requirements. 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. The Company 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 the Company believes that it is financially advantageous to do so and based on other capital requirements. See Note 19, Retirement Plans, to the Consolidated Financial Statements included herein.

COMMITMENTS

The Company has entered into a number of unrecognized unconditional purchase agreements relating to Solar Farms in US and China during 2024, of which none is individually significant for disclosure. Together these agreements have an aggregated termination fee (discounted) of approximately $51 million as of December 31, 2024.

These Solar Farm agreements have a contract period ranging from 20-25 years. The future payments (undiscounted) relating to these unrecognized unconditional purchase agreements are in total $62 million to be paid over the following years: 1-3 years: $6 million; 4-5 years: $4 million and; more than 5 years: $52 million.

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 the Company's 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.

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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 more than 1,300 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 approximately 28%, 33% and 39%, respectively, of the Company's 2024 total sales.

It is the Company’s strategy to reduce the risks associated with fluctuating LVP by using temporary personnel in direct production, when appropriate. During 2024 and 2023, the level of temporary personnel in relation to total personnel in direct production decreased to 11% from 13%. To reduce the potential impact of unusual fluctuations in the production of vehicle models supplied by the Company such as during the financial crisis in 2008-2009 and the COVID-19 pandemic in 2020-2021 – 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 historical extent of price reductions varies from year to year and takes the form of one time give backs, reductions in direct sales prices and/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, the Company monitors key measures such as costs in relation to sales and productivity.

In 2024, due to cost pressures from labor and other items the Company engaged in extensive negotiations with its customers regarding compensations.

COMPONENT COSTS AND RAW MATERIAL PRICES

The cost of direct materials was approximately 55% of sales in 2024 (55% in 2023).

The main raw materials being used as input material for the Company's operations are steel, textiles, plastic and non-ferrous metals.

The Company still sees effects coming from import tariffs and trade barriers across borders. These barriers are impacting the raw material market and creating pricing and availability uncertainties. There is also volatility in the sea freight rates driven by geopolitical events.

In 2024, raw material inflation was limited. Cost inflation remained significant and related primarily to labor. The Company took actions, including pricing discussions with customers and suppliers, 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, Contingent Liabilities, to the Consolidated Financial Statements included herein and Item 3 – Legal Proceedings.

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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 includes 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 the Company will at all times be in compliance with all such requirements and regulations, despite its 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.

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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 the Company does business could increase its 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 during the past 18 years this China NCAP, together with the additional Chinese rating program, CIASI, from 2017, drive Chinese vehicle safety performance and safety content with regards to crashworthiness and occupant protection. Latin America introduced a basic rating program in 2010 followed by ASEAN NCAP in Southeast Asia in 2011, and Global NCAP is rating vehicles sold in significant emerging markets. Several countries, e.g., Malaysia and Thailand, are increasingly adopting the UN Regulations regarding vehicle safety under the UN 1958 agreement, and Malaysia started a world first motorcycle safety rating program in 2021.

The United States upgraded its vehicle rating program, US NCAP, in 2011 and again in 2024. Europe upgraded the Euro NCAP rating system during 2018, and is now completing a new upgrade, intended to 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 passenger airbags from 2021 for all new passenger vehicles (M1), moreover has announced that side airbags shall become mandatory in 2023. In addition, India's Bharat NCAP went into effect in 2023 and was updated in 2024.

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. This development is likely to become subject to legal requirements.

There are also other plans for improved automotive safety through new or changed regulations, 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

As a result of this highly consolidated market, the Company is dependent on a relatively small number of customers with strong purchasing power. In 2024, the Company's five largest customers accounted for around 41% of global LVP and the ten largest accounted for around 62% of global LVP. In 2024, the Company’s five largest customers accounted for around 44% of consolidated sales and the ten largest customers accounted for around 71% of consolidated sales. The Company's largest customer contract accounted for around 4% of consolidated sales in 2024.

1) Source: S&P Global January 2025

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 the Company'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 the Company's service to a customer or uncompetitive prices or products could result in the customer not awarding the Company new business, which will gradually have a negative impact on the Company's sales when current contracts start to expire.

See also Note 20, Segment Information, to the Consolidated Financial Statements included herein.

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CUSTOMER PAYMENT RISK

Another risk related to the Company's customers is the risk that one or more of its customers will be unable to pay their invoices that become due. The Company seeks to limit this customer payment risk by invoicing its major customers through their local subsidiaries in each country, even for global contracts. By invoicing this way, the Company attempts 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, the Company also monitors invoices becoming overdue.

Even so, if a major customer is unable to fulfill its payment obligations, it is likely that the Company would be forced to record a substantial loss on such receivables.

DEPENDENCE ON SUPPLIERS

The Company 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. The Company's supply chain organization continually reviews sourcing risks and actively works on mitigating related supply chain risks.

The Company’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 the Company's 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 the Company's competitiveness and position as a market leader, it is important to focus on all 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 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 2024, the Company held more than 6,600 patents and patents applications. These patents expire on various dates during the period from 2025 to 2044 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.

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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, Summary of Significant Accounting Policies, 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.

CRITICAL ACCOUNTING ESTIMATES

The Company’s significant accounting policies are disclosed in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein. 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 the Company's historical experience, terms of existing contracts, and management’s evaluation of trends in the industry, information provided by the Company's 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 the Company's financial condition or results of operations. The accounting estimates that require management’s most significant judgments include the estimation of variable considerations, estimation of pension benefit obligations based on actuarial assumptions, estimation of accruals for warranty and recalls, 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 Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. The estimated amount of variable consideration that will be received or paid by the Company is based on historical experience and trends, management's understanding of the status of negotiations with customers and including pricing strategies. Negotiations with customers is an ongoing process and the recognition of variable considerations is impacted by the outcome and timing of these negations. Estimating variable consideration to be received or paid related to price concessions requires significant judgments by management that affect the amount of revenue recorded in the financial statements due to the unique facts and circumstances in each of the customer agreements and the on-going commercial negotiations with the customers. For the year-end 2024 the company recognized an accrual amounting to $185 million net for variable considerations to be received or paid for variable considerations versus $173 million the year before.

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. In the year-end 2024 and 2023 respectively the capitalized amount has been insignificant.

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 the Company's consolidated financial statements.

The company continuously assesses the relevant facts and circumstances for on-going litigation matters in its determination of whether it is probable that an asset has been impaired or a liability has been incurred. The Company also considers its historical experience of similar matters using significant judgement to make its estimates. For the years ended December 31, 2024 and 2023 management's estimation process has been consistent and there have not been any material changes to the contingent liabilities recorded during 2024.

For further information, see Note 18 Contingent Liabilities describing the significant on-going claims and lawsuits the company is involved in.

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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. 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. 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.

The provision recorded for product liabilities for the years ended December 31, 2024 and 2023 were $65 million and $96 million respectively. The Company continuously assesses the relevant facts and circumstances for on-going product recall matters and considers its historical experience of similar matters using significant judgement to make its estimates, which are generally supported by external counsel expertise. For the years ended December 31, 2024 and 2023 respectively management’s estimation process has been consistent and the ultimate outcome for settled product recall matters during the years ended December 31, 2024 and 2023 as compared to management estimations have been favorable. The reversal of the reserve in 2024 was related to certain recall issues that were settled with a favorable outcome.

For further information, see Note 13 Product Related Liabilities and Note 18 Contingent Liabilities.

DEFINED BENEFIT PENSION PLANS

The Company has defined benefit pension plans in thirteen countries. The most significant plans exist in the U.S. These U.S. plans represent approximately 50% of the Company’s total pension benefit obligation. See Note 19, Retirement Plans 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 2024 pension expense were a discount rate of 5.13% and an expected long-term rate of return on plan assets of 6.21%.

The assumptions used in calculating the U.S. benefit obligations disclosed, as of December 31, 2024 were a discount rate of 5.60%. 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 long-term return on plan assets are determined based on several factors and must consider long-term expectations and reflect the financial environment in the respective local markets. At December 31, 2024, 30% of the U.S. plan assets were invested in equities, which is close to the target of 32%.

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 and decrease in return on plan assets for the U.S. plans (in millions). The use of actuarial assumptions is an area of management’s estimate.

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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 because of intercompany transactions. 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, including key factors such as projected future profitability including tax planning strategies, interpretation of applicable tax laws and on-going or anticipated tax audits. Deferred net tax assets amounted to $394 million for the year 2024 including a valuation allowance of $126 million. For 2023 the deferred net tax assets amounted to $394 million including a valuation allowance of $129 million.

The Company evaluates its uncertain tax positions based on enacted tax laws and consideration of all facts and circumstances, including key factors such as interpretation of applicable tax laws, on-going tax audits or anticipated tax controversies. The unrecognized tax benefits amounted to $35 million and $83 million respectively for the year 2024 and 2023. The change mainly relates to expiration of statutes of limitations.

See also the discussion of reserves for uncertain tax positions, and the determination of valuation allowances on the Company's deferred tax assets in Note 5, Income Taxes, to the Consolidated Financial Statements.

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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, 2023 compared to the year ended December 31, 2022. Discussions of the Company's results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended December 31, 2022, which was filed with the United States Securities and Exchange Commission on February 22, 2022.

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 year ended December 31, 2023, a number of factors influenced the Company’s results of operations, including:

•
Industry supply chain disruptions caused high customer call-off volatility

•
Cost inflation, especially for labor, logistics and utilities, and corresponding inflation compensation negotiations with customers

•
Continued growth above LVP driven by price, higher content per vehicle, and execution of strong order book

•
Order intake adding to an already strong customer base

•
Strategic and structural initiatives

•
Continued focus on operational excellence and quality

1) Reported figures impacted by costs for capacity alignments and antitrust related matters. See section Items affecting comparability and Note 11 to the Consolidated Financial Statements included herein.

2) Assuming dilution and net of treasury shares.

Supply Chain

2023 saw global LVP growth year-over-year by around 9.4% (according to S&P Global January 2024). We saw an improvement in call-off volatility in 2023 as supply chains were less strained compared to a year earlier. However, customer call-off volatility remained higher than pre-pandemic levels, and low customer demand visibility and changes to customer call-offs with short notice still had a negative impact on our production efficiency and profitability. The unfolding situation in the Red Sea did not have any measurable impact on our operations in 2023. It is too early to estimate what impact this situation will have on our operations, directly or through our customers, going forward.

Inflation

Cost pressures from labor, logistics, utilities, and other items had a negative impact on our profitability in 2023. Most of the inflationary cost pressure was offset by customer price and other compensations. Changes in raw material costs had a negligible impact on our profitability in 2023. The Company expects the raw material price changes in 2024 to be largely reflected in price changes in our products, albeit with delays of several months. We also expect continued cost pressure from inflation relating mainly to labor, but also to a lesser extent to utilities and other items, especially in Europe and the Americas. The Company continues to execute on productivity and cost reduction activities to offset these cost pressures, and we continue to seek inflation compensation from our customers. The Company believes price adjustments will gradually offset the cost inflation, with limited positive effects in the first quarter and gradual improvement as the year progresses.

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GROWTH IMPACTED BY LIGHT VEHICLE PRODUCTION, SAFETY CONTENT PER VEHICLE, AND STRONG ORDER BOOK

The most important driver for Autoliv’s sales is the LVP. During the past ten years, LVP has shown year-over-year growth with the exception of the years 2018-2020. Global LVP grew by 9.4% in 2023 - much above the 3.5% expected by S&P Global in the beginning of the year. For Europe, the LVP growth of 5.3% that was expected in the beginning of the year became an increase of 13%, as previous years' production limitations eased and some inventory restocking could take place. LVP in China also grew significantly more than what was expected in the beginning of the year, driven mainly by a multitude of successful launches of new models by domestic Chinese OEMs.

Chinese LVP, the world’s largest automotive market, increased by 2.3 million units or by 9.1% from 2022 to 2023. In Europe, an important market for automotive safety systems, LVP increased by 13% or by approximately 2.0 million light vehicles during the same period. In North America, LVP increased by 1.4 million units, or by 8.7% compared to 2022.

During 2023, both the Americas' and Europe’s share of global LVP remained at around 20% each. China’s share was also unchanged, at 32%, while Japan’s share increased to 10% from 9% and India's share remained at 6%.

Despite macro-economic uncertainties in parts of the world, we expect light vehicle markets to grow both in the medium and long term, driven by pent-up end user demand, rebuilding of new vehicle inventories and a growing GDP/capita.

Due to more stringent crash test rating requirements, by institutes such as Euro NCAP, increased government regulations and increasing consumer demand for more safety in emerging markets, the Company sees 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 government 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 is supporting higher installation rates of airbags and more advanced seatbelts, impacting CPV positively. Commercial customer recoveries compensating for increased raw material costs also added to CPV in 2023, partly offset by negative effects from continued productivity related pricing pressure from vehicle manufacturers. The overall increase in global CPV in 2023 was around 3% which together with the execution of the Company's strong order book, supported an organic growth (see section Non-U.S. GAAP Performance Measures) of around 9 percentage points above growth in global LVP. The average global safety CPV (airbags, pedestrian safety, seatbelts, and steering wheels) amounted to around $261 million in 2023.

The Company believes that the more stringent crash rating requirements and consumer demand for more safety should enable the global automotive safety market to grow around 1-2 percentage points per year faster than the global LVP in the medium and long term. This excludes the impact from cost inflation related price increases.

The past years’ high order intake share has resulted in the Company's sales development outperforming the underlying LVP significantly. In the past 5 years, the Company's organic sales development outpaced global LVP between 5 and 9 percentage points every year . During 2023, growth was positively affected through recent launches of several new models, including Subaru Impreza/Crosstrek, Mercedes E-Class, BMW 5 Series, and several Zeekr models.

The Company estimates that the sales to Electric Vehicles (not including PHEVs) amounted to around $1.4 billion in 2023.

WELL BALANCED GLOBAL FOOTPRINT

The Company's regional sales mix continues to be balanced with 27% of sales in Europe, 34% in the Americas and 39% in Asia in 2023, compared to 27%, 33% and 40%, respectively, in 2022. In Asia, the Company's sales in the important Chinese market was 20% of total sales in 2023 compared to 21% in 2022.

The balanced regional sales mix has been achieved through timely investments and strengthening of technical and support capabilities in growth markets.

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ORDER INTAKE ADDING TO AN ALREADY STRONG CUSTOMER BASE

The Company's order intake in 2023, with high win rates for new EV platforms with both new and traditional OEMs as well as for ICE platforms, added to the Company's already strong base, which includes supplying products to more than 1,300 vehicle models and around 100 car brands. The order intake in 2023 supports the Company's ability to defend its around 45% sales market share in the near and medium term. The Company estimates that its market share increased from around 43% in 2022 to around 45% in 2023. The lead time from order intake to start of production is typically 1-3 years. 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 factor of RD&E expenses, net. Additionally, the Company has to build up production capacity, in the form of new lines, to meet future product launches.

The Company's order intake share for 2023 continued on a high level. The estimated life-time sales for all orders booked in 2023 is around $11.8 billion, an increase compared to around $10.7 billion in 2022. The 2023 order intake included high win rates with relatively new automakers and for new EV platforms as well as ICE platforms with traditional OEMs. The Company estimates that around 45% of total order intake in 2023 was for EV platforms, while order intake from new automakers accounted for around 25% of all order intake. In China, the Company estimates that around 50% of order intake in 2023 was with domestic Chinese OEMs, which supports our expectation that domestic OEMS in China will account for close to 40% of the Company's sales in China in 2024. This is an increase from 28% in 2023. 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.

STRATEGIC INITIATIVES AND STRUCTURAL IMPROVEMENTS

2023 light vehicle market was impacted by a distressed global automotive supply chain with continued high customer call-off volatility and inflationary pressure on costs for labor, logistics and utilities. In response, Autoliv management continued to implement strict cost control measures, as well as initiating significant structural cost reduction measures. In June 2023, the Company communicated a cost reduction framework which included the intent to reduce our indirect headcount by up to 2,000, and to improve direct labor productivity equivalent to up to a 6,000 direct workforce reduction. More details on these initiatives were communicated on July 13, 2023, October 5, 2023, and on October 30, 2023. Based on the intended indirect workforce reductions in these three announcements, the Company estimates that the annual cost reductions will amount to around $130 million in total annual savings when fully implemented, with around $50 million in savings in 2024, which is expected to increase to around $100 million in 2025.

We do not expect to announce further major reduction initiative details within this framework. Further reduction of global headcount as part of the structural initiative is expected to be through minor actions and natural attrition with limited accruals. At the end of 2023, around 75% of the planned indirect reductions were detailed and announced. We also saw positive results on direct labor efficiency towards the end of 2023.

The provision, net of reversals, for restructuring activities in 2023 amounted to $210 million compared to $13 million in 2022. As of December 31, 2023, the Company had $213 million reserved in its balance sheet related to restructuring compared to $32 million last year. For more information, see Note 11, Restructuring, to the Consolidated Financial Statements included herein.

In addition to the structural improvements outlined above, the Company continues to implement the strategic initiatives to improve the efficiency of its value chain from end to end, not least through the Autoliv Production System and increased digitalization and automation. With several hundred projects in implementation or undergoing development, the Company has a high pace in the planning and implementation of the strategic initiatives and structural improvements. These initiatives are key drivers to the Company's targets and building the foundation to continue to create shareholder value.

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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 and raw material price development. For the five-year period 2017-2021, the Company estimates the average reduction of product prices on existing programs to have been in the range of around 2-4% annually. In 2022, the pricing environment changed to some extent due to high raw material price and cost increases, which led to renegotiations with customers regarding commercial terms. These discussions resulted in a net positive price development, gradually implemented throughout the year. This was also the case in 2023, and is expected for 2024 as well.

A key strategy for Autoliv to be and to remain cost competitive is to reduce labor costs, through continuously implementing productivity improvement programs, optimizing the Company's production footprint, and instituting restructuring and capacity alignment activities as well as other actions to address the Company's cost structure.

The Company's 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 the Company's customers.

•
Autoliv 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 the Company continuously optimize its supply base footprint, consolidate purchase volumes to fewer suppliers, improve productivity in the Company's supply chain, standardize components and redesign its products.

•
Strategic Initiatives, including Automation, Digitalization, Supply Chain Management Effectiveness and RD&E Effectiveness.

The Company's historic experience is that the continuous improvement strategies have enabled productivity improvement at or above its target of 5%. However, the Company has not achieved its 5% productivity target since the COVID-19 pandemic in 2020, due to the related decline in LVP in 2020 and the high volatility in customer call-offs in 2021, 2022 and 2023 driven by the industry wide supply chain instability, especially for semiconductors.

The Company foresees opportunities for further productivity on organic sales growth and increased call-off stability when global supply chains have stabilized at pre-pandemic levels, but also from increasing use of automation in its 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.

FOCUS ON QUALITY

The number of vehicle recalls in the automotive industry continues on a relatively high level. The Company expects overall recall numbers to remain high for years to come and, although the Company strives for the highest quality in its processes, it cannot be ruled out that the Company may also be adversely impacted by a future recall.

Quality has been and always will be the Company's number one priority, and the Company continues to sharpen its focus in this area. The Company now holds a global market share in passive safety of around 45%, while the Company has been involved in around 2% of recalls in the industry in the past ten years. This indicates that the Company is delivering on its quality strategy. For more information see product warranty and recalls in Note 12, Product Related Liabilities, to the Consolidated Financial Statements in this Annual Report.

CHANGES IN COMPETITIVE LANDSCAPE

During the past eight years, Autoliv experienced significant changes in its competitive landscape. In 2015, TRW, a key competitor in passive safety, was acquired by German group ZF Friedrichshafen. In 2016, Key Safety Systems (“KSS”) was acquired by Ningbo Joyson Electronic Corp. Beginning in 2014, Takata, Autoliv's 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, KSS substantially acquired all of Takata's global assets and operations and combined it with KSS, forming the new company Joyson Safety Systems (JSS).

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CAPITAL STRUCTURE

The Company’s net debt stood at $1,367 million on December 31, 2023. This was an increase of $184 million compared to December 31, 2022. Total interest-bearing debt at December 31, 2023 amounted to $1,862 million, an increase of $96 million compared to December 31, 2022.

Cash flow from operations was $982 million in 2023 and $713 million in 2022. Capital expenditures, net amounted to $569 million in 2023 and $485 million in 2022. During 2023 and 2022 the Company paid dividends of $225 million and $224 million, respectively.

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 1.0x and to be within the range of 0.5x to 1.5x. At December 31, 2023, the current leverage ratio is 1.2x. 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 2023 and 2022, the Company repurchased and retired 3.67 million and 1.44 million shares, respectively, under the stock repurchase program authorized by the Board of Directors in November 2021. This stock repurchase program authorizes the Company to repurchase up to $1.5 billion or up to 17 million shares (whichever comes first) between January 2022 and the end of 2024. In addition, in 2022, the Company retired 10 million shares of common stock that has been held in treasury. These shares were acquired between 2008 and 2014 under the prior stock repurchase program. After the retirement, the Company continues to hold around 4.9 million shares of common stock in treasury.

Outlook for 2024

The Company's guidance for 2024 is mainly based on our customer call-offs, a full year 2024 global LVP decline of around 1%, our achievement of our targeted cost compensation effects and a reduction in customer call-off volatility.

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 17 Contingent Liabilities to the Consolidated Financial Statements in this Annual Report.

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results of operations

Consolidated net sales in 2023 increased by 18.5% compared to 2022. Excluding positive currency translation effects of 0.3%, the organic sales increased (Non-U.S. GAAP measure, see reconciliation table below) by 18.2%.

Sales by Product

1) Effects from currency translations.

2) Including Corporate and Other sales.

Airbags, Steering Wheels and Other

Sales for all major product categories increased organically (Non-U.S. GAAP measure, see reconciliation table above) during the year.

The largest contributor to the increase was steering wheels and inflatable curtains, followed by side airbags and passenger airbags.

Seatbelt Products and Other

Sales for seatbelt products and other increased organically (Non-U.S. GAAP measure, see reconciliation table above) in all major regions during the year. The main contributor to the increase was Europe, followed by Asia excluding China, the Americas and China.

Sales by Region

1) Effects from currency translations.

Autoliv’s global sales increased organically (Non-U.S. GAAP measure, see reconciliation table above) by 18.2% compared to 2022, which was around 9 percentage points better than global LVP (according to S&P Global, January 2024).

Sales increased organically in all regions. The around 9pp outperformance was driven by new product launches and price increases. Autoliv outperformed LVP by around 15pp in Asia excluding China, by around 8pp in China, by around 7pp in Europe and by around 7pp in the Americas.

2023 Organic Growth1)

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Condensed Statement of Income

1) Assuming dilution and net of treasury shares.

2) Non-U.S. GAAP Measure.

Gross Profit

In 2023, gross profit increased by $425 million and the gross margin increased by 1.6 pp compared to 2022. The gross profit increase was primarily driven by price increases, volume growth and lower costs for premium freight. This was partly offset by increased costs for personnel related to higher volumes and wage inflation as well as higher costs for energy

Operating Income

Operating income increased in 2023 by $31 million, mainly due to higher gross profit, partly offset by the changes in Other income (expense), net and the higher costs for S,G&A and R,D&E, net.

Selling, General and Administrative (S,G&A) expenses increased in 2023 by $61 million, mainly due to increased costs for personnel and projects. S,G&A costs in relation to sales decreased from 4.9 % to 4.8%.

Research, Development & Engineering (R,D&E) expenses, net increased in 2023 by $35 million, mainly due to higher costs for personnel and lower engineering income. R,D&E, net, in relation to sales decreased from 4.4% to 4.1%.

Other income (expense), net decreased by $300 million in 2023 compared to the previous year, mainly due to that the prior year was positively impacted by around an $80 million gain from the sale of a property in Japan and around $20 million from a patent litigation settlement, partly offset by around $10 million in capacity alignment provisions for the closure of a plant in South Korea while 2023 was negatively impacted by around $218 million in accrual for capacity alignment.

Financial and Non-operating Items, net

Financial and non-operating items, net, costs decreased by $22 million in 2023 compared to previous year, mainly due to increased interest expense as an effect of higher debt and higher interest rates.

Income Taxes

The tax rate for 2023 was 20.1%, compared to 29.5% in 2022. Discrete tax items, net, decreased the tax rate in 2023 by 17.3pp. The decrease is mainly related to a net deferred tax asset recognized in the fourth quarter due to the transfer of certain assets and operations as part of restructuring activities. Discrete tax items, net decreased the tax rate in 2022 by 2.5pp.

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Net Income and Earnings Per Share

Net income in 2023 increased by $64 million compared to 2022. Earnings per share, diluted increased by $0.87 compared to a year earlier, where the main drivers was $0.35 from higher operating income and $0.63 from lower income tax, partly mitigated by $0.27 from financial items.

The weighted average number of shares outstanding assuming dilution in 2023 was 85.2 million compared to 87.2 million in 2022.

Non-U.S. GAAP Performance Measures

In this annual report, the Company sometimes refers to non-U.S. GAAP measures that the Company and securities analysts use in measuring Autoliv’s performance.

The Company believes that these measures assist management and investors 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

The Company analyzes its 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. 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.

See tabular reconciliations above, that present changes in “organic sales growth” as reconciled to the change in total U.S. GAAP net sales.

Trade working capital

Due to the need to optimize cash generation to create value for the Company's shareholders, management focuses on operationally derived trade working capital as defined in the table below.

The reconciling items used to derive this measure are, by contrast, managed as part of the Company's overall management of cash and debt, but they are not part of the responsibilities of day-to-day operations management.

Reconciliation of U.S. GAAP measure to “Trade working capital” (dollars in millions)

Net debt

As part of efficiently managing the Company’s overall cost of funds, the Company routinely enter into “debt-related derivatives” (DRD) as part of its debt management.

Creditors and credit rating agencies use net debt adjusted for DRD in their analyses of the Company’s debt and therefore the Company provides this non-U.S. GAAP measure. See reconciliation table below. 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.

Reconciliation of U.S. GAAP measure to “Net debt” (dollars in millions)

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Adjusted operating income, adjusted operating margin and adjusted EPS

Adjusted operating margin and adjusted EPS are non-U.S. GAAP measures the Company uses to evaluate its business, because the Company believes it assists investors and analysts in comparing the Company's 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 and for EPS unusual tax items) and that the Company does not believe are indicative of its core operating performance and underlying business trends. Adjusted operating margin and adjusted EPS, as shown in the table below, 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.