Exhibit 13

Content

(page numbers refer to the Annual Report)

Reader’s Guide

Autoliv Inc. is incorporated in Delaware, USA, and follows Generally Accepted Accounting -Principles in the United States (U.S. GAAP). This annual report also contains certain non-U.S. GAAP measures, see page 38 in the Annual Report and page 49 in the Annual Report. All amounts in this annual report are in U.S. dollars unless otherwise indicated.

“We”, “the Company” and “Autoliv” refer to -“Autoliv Inc.” as defined in Note 1 “Principles of Consolidation” on page 56 in the Annual Report. For forward-looking information, refer to the “Safe Harbor Statement” on page 45 in the Annual Report.

Data on markets and competitors are Autoliv’s estimates (unless otherwise indicated). The estimates are based on orders awarded to us or our competitors or other information put out by third parties as well as plans announced by vehicle manufacturers and regulatory agencies.

Financial Information

Every year, Autoliv publishes an annual report and a proxy statement prior to the Annual General Meeting of shareholders (see page 32 in the Annual Report).

The proxy statement provides information not only on the agenda for the meeting, but also on the work of the Board and its committees as well as on compensation paid to and presentation of directors and certain senior executive officers.

For financial information, please also refer to the Form 10-K and Form 10-Q reports and Autoliv’s -other filings with the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). These filings (including the CEO/CFO Section 302 Certifications, Section 16 Insider Filings, and the 2010 CEO -Certification to the NYSE) are available at www.autoliv.com under Investors/Filings and at www.sec.gov.

The annual and quarterly reports, the proxy statement and Autoliv’s filings with the SEC as well as the Company’s Corporate Governance Guidelines, Charters, Codes of Ethics and other documents governing the Company can be downloaded from the Company’s corporate website. Hard copies of the above-mentioned documents can be obtained free of charge from the Company at the addresses on page 84 in the Annual Report.

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A Record Year

2010 was a record year for autoliv. Our company surpassed several previous records, such as:

These records reflect our swift restructuring efforts, which significantly reduced our Company’s cost base and helped transform our Company’s global footprint to take advantage of the dramatic shift that global light vehicle production (LVP) has undergone since 2007.

Shifts in Global LVP

In 2010, the global LVP rebounded from its precipitous drop to an annualized run rate of only 45 million at the low point of the crisis and reached a record high of nearly 72 million vehicles.

While the 2010 LVP level exceeded its 2007 pre-crisis peak, the geographical mix has changed dramatically. LVP has dropped by nearly 20% in Europe, North America and Japan (“The Triad”) where we used to generate more than 80% of revenues. This decline was more than offset by the Rest of the World (RoW) where LVP has increased by more than 50%. The markets in China and India stand out by increasing LVP by 109% and 66% compared to the 2007 levels.

To take full advantage of the growth opportunities primarily in China, India and Thailand, we are allocating more than 60% in our expansion-related capital expenditures to our growth markets, even though these markets “only” accounted for approximately 20% of sales in 2010 (despite the very rapid sales increases in recent years). Additionally, we have made acquisitions to strengthen our position in Asia and with the local Asian vehicle manufacturers (see “Stronger than ever” on page 5 in the Annual Report).

As a result, Autoliv now has virtually one third of sales in each of our three regions Europe, North America and Asia including Japan. At the end of 2010, China accounted for 13% of sales compared to 4% in 2007. Consequently, not only has Autoliv’s geographical sales mix become better balanced, but we have improved our Company’s position in areas where LVP is expected to grow the most during the next several years.

Company Transformation

We initiated our action program already in July 2008. We were therefore well positioned to expand and accelerate the program when the crisis fully developed after the Lehman Brothers bankruptcy in September 2008.

This enabled us to adjust headcount by nearly 10,000 or close to 25% already within nine months. These adjustments continued during 2009 and 2010 in high-cost countries (HCC), particularly for indirect personnel in overhead functions, to maintain and improve the cost reductions we had achieved. Despite these substantial headcount reductions, we launched a new R&D project (for small car safety) in the midst of the crisis.

In parallel with the decrease of permanent employees in HCC, we expanded in low-cost countries (LCC), particularly in direct manufacturing personnel, to ensure that Autoliv would be well prepared for the rebound of these markets. In summary, we reduced headcount in HCC by 21% and expanded headcount in LCC by 26% from the 2007 levels.

As a result, Autoliv had 63% of total headcount in LCC at the end of 2010 compared to 52% at the end of 2007. In addition, 20% of headcount were temporary personnel and 30% were indirect personnel in overhead functions compared to 16% and 34%, respectively. This gives us more flexibility, an even better presence in the fastest growing markets, and a significantly better cost structure with a lower break-even point.

Reduced Cost Base

Following this transformation, we estimate that Autoliv can reach its break-even point at a sales level that is approximately $0.8 billion lower than since the crisis.

This is mainly due to lower labor costs. In relation to sales, we have reduced these costs by nearly 4 percentage points. However, this not only reflects our restructuring actions and strategic moves to LCC but also includes productivity improvements of 6% in manufacturing in every year during 2008–10, which is in line with our target of at least 5% per year.

Another major improvement in our cost structure is the reduction in depreciation due to plant closures in high-cost countries. New manufacturing capacity required in response to the increased LVP has been concentrated in LCC, where the costs for buildings and machinery are lower and where less capital-intensive manufacturing processes and automation can be used.

Furthermore, the record operating margin in 2010 of 12.1% would not have been achieved had we not been able to reduce our component cost below 52% of sales again from 52.4% in 2008. This has been a challenge due to the continuous squeeze between the sales price erosion on our products and increasing raw material prices. We have managed to offset these trends primarily by localizing component sourcing to LCC, standardizing products and components, and by developing more efficient suppliers.

“Stronger than ever”

Our improved market position and cost structure have resulted in a very healthy cash flow. This has led to a record strong balance sheet and to Autoliv regaining its long-term credit rating of “BBB+”. It has also allowed our Company to resume dividend payments to shareholders and to drive industry consolidation through several strategic transactions.

Since the third quarter 2009, we have invested a total of $168 million in acquisitions to accelerate Autoliv’s growth and strengthen our Company by fully integrating subsidiaries. The acquisitions are expected to add $570 million in consolidated sales over a 12-month period, despite the fact that some of the acquisitions were minority interests in already consolidated subsidiaries. At the end of 2009, we acquired Delphi’s European and North American assets for airbags, steering wheels and seatbelts and, during 2010, Delphi’s remaining assets in Asia for passive safety.

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Also in 2010, we acquired the remaining shares in our Estonian subsidiary Norma (which is the leading automotive safety supplier for the Russian market) and in our Japanese inflator company. Additionally, we made two smaller strategic acquisitions in active safety: Visteon’s automotive radar business and Delphi’s pyrotechnic safety switch business.

In conclusion, Autoliv has emerged as one of the winners from the crisis; stronger and more efficient than ever.

Quality in All Dimensions

After our record year of 2010, you may ask: What is your next step

My answer is simple: superior quality and expansion in active safety.

Quality has always been paramount in the automotive industry, especially for safety products. Lately, the vehicle manufacturers have become even more quality focused, partially due to a few highly publicized vehicle recalls. This has significantly increased the number of vehicles recalled, and the trend is likely to continue as vehicle manufacturers introduce even stricter quality requirements.

We have not been immune to this trend as we have recently been involved in recalls (see page 29 in the Annual Report). However, as a technology leader we are determined to meet these challenges and make stricter quality requirements an even stronger competitive edge for our Company. Therefore, already in mid-year 2010, we launched a proactive quality initiative, called “Q5 - Quality in all dimensions” (see page 28 in the Annual Report), to further enhance our leadership and reemphasize the importance of quality.

Growth in Passive Safety

We expect demand for airbags and seatbelts in passive safety to continue to grow, thanks to increasing global LVP, strong consumer demand for safer vehicles, new regulations and crash-test rating criteria. For instance, side curtain airbags for head protection will become mandatory in 2013 in all light vehicles sold in the U.S. In addition, by 2017, the side curtain airbags will be required to prevent occupants in the U.S. from being ejected in roll-overs, according to a new regulation announced at the beginning of 2011. Furthermore, Brazil has decided to mandate frontal airbags in all light vehicles by 2014, and Europe is in the process of phasing-in a tougher EuroNCAP crash rating test program.

These examples show that automotive safety continues to be a priority of governments all over the world. This bodes well for our company and its long-term growth prospects. For the next three years, we expect our main market for passive automotive safety to grow at an average annual rate of approximately 6%, based on the LVP forecast from the market institute IHS.

Expansion in Active Safety

The next step in automotive safety is active safety systems that can prevent an accident or, at least, reduce the speed and the severity of impact. In 2010, we stepped up our investments in this area, primarily by increasing our R&D by more than $40 million. These projects now represent more than 10% of our total gross R,D&E expense.

We see very strong growth trends in our sales of radar, night vision and vision cameras, and the potential in active safety is significant as this new market continues to expand and migrate to new product lines and new technologies. Consequently, we are stepping up our undertakings in active safety, which is the principle reason for our plans to increase gross R,D&E expense in 2011 by almost $70 million.

Outlook 2011

Since we are approaching maximum capacity utilization in manufacturing facilities in our growth markets, we recently initiated a three-year capital expenditure plan. This plan calls for seven plant extensions or new plants in China, India, Brazil, Poland and Thailand. As a result, in 2011, we expect to increase capital expenditures in the range of $300 and 350 million or around 4% of sales compared to $236 million or 3.3% of sales in 2010.

In 2011, the market forecasting institute IHS expects LVP to grow globally by 5% on average, mainly due to an 8% growth in the Rest of the World. In Western Europe, where the safety content per vehicle is relatively high, IHS expects LVP to increase by less than 1%. Despite the fact that this regional mix is unfavorable for the auto safety market, we expect Autoliv’s organic sales to grow faster than global LVP or at a rate of approximately 6% during 2011. This is explained, primarily, by an expected continued positive vehicle model mix for our Company and a strong order intake in prior years.

Currency effects are expected to add 3% to revenues, provided that the mid-February exchange rates prevail, while the remaining annualized effect of acquisitions from 2010 should add 2% to the 2011 full-year sales. We therefore expect consolidated sales to grow by more than 10% and achieve an operating margin of at least 11.5%.

The fact that Autoliv should be able to report double-digit margins for two consecutive years immediately after the worst crisis in the history of the automotive industry is a testimony to our employees’ hard work and dedication to customer commitments. For this I would like to extend a sincere “thank you” to all of them. During very difficult times, they built a solid foundation that now yields these excellent results.

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Who We Are, What We Do

Statistically there were almost two seatbelts and 1.2 airbags from Autoliv in every vehicle produced globally

ACCORDING TO THE World Health Organization (WHO), over 1.2 million people perish each year on the world’s roads, and between 20 and 50 million suffer severe injuries. If the current trend continues, the number of annual deaths will double by 2030, according to WHO.

While human suffering cannot be measured, monetary costs to society are estimated in the hundreds of billions of dollars each year for health care, rehabilitation and loss of income.

Innovation and the focus on saving lives have been the hallmarks for Autoliv from its inception half a century ago. Now our products save 25,000 lives every year and prevent ten times as many severe injuries. The next step to further reduce road traffic accidents is active safety systems that can assist the driver to avoid an accident or, at least, reduce the speed of impact, thereby substantially mitigating injuries.

The roots of Autoliv go back to 1953 when the young entrepreneur Lennart Lindblad started a repair shop in Vårgårda near Gothenburg in Sweden. In 1956, the Company produced its first seatbelt, and, in 2010, 121 million seatbelts and 85 million airbags. Statistically, there were almost two seatbelts and 1.2 airbags from Autoliv in every vehicle produced globally in 2010, despite not all cars having airbags.

Today’s Autoliv Inc. is a Fortune 500 company and the world’s largest automotive safety supplier with sales to all the leading car manufacturers in the world. We develop, market and manufacture airbags, seatbelts, active safety systems, night vision systems, safety electronics, steering wheels, anti-whiplash systems, pedestrian protection systems and child seats. Our global market share is approximately 35 percent.

Incorporated in the state of Delaware, Autoliv Inc. is the result of a merger in 1997 of the Swedish company, Autoliv AB, and the American company Morton ASP. The global headquarters is located in Stockholm, Sweden. The Company has more than 80 facilities and joint ventures in 29 countries with more than 43,000 people. In addition, Autoliv has eleven technical centers, in nine countries, with 20 crash test tracks – more than any other automotive safety supplier.

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Autoliv Saves Lives

Our Vision

To substantially reduce traffic accidents, fatalities and injuries.

Our Mission

To create, manufacture and sell state-of-the-art automotive safety systems.

Our Values

LIFE – we have a passion for saving lives.

CUSTOMERS – we are dedicated to providing satisfaction for our customers and value for the driving public.

INNOVATION – we are driven for innovation and continuous improvement.

EMPLOYEES – we are committed to the development of our employees’ skills, knowledge and creative potential.

ETHICS – we adhere to the highest level of ethical and social behavior.

CULTURE – we are founded on global thinking and local actions.

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Active Safety Systems

Using our radar and vision technologies to monitor the environment around the vehicle, our active safety systems can intervene before a crash by adjusting engine output, steering and braking, in addition to making driving easier and more comfortable.

Thanks to passive safety systems such as seatbelts and airbags, vehicle safety has substantially improved. Although these systems are effective in mitigating the human consequences of an accident, they can never prevent the accident from occuring. With the introduction of active safety systems, many accidents will become avoidable or at least less severe by reducing the speed of impact. This will result in significant improvements in the protection provided by the passive safety system.

Night Vision

Night Vision system, displays an image of the road scene ahead to provide assistance to the driver. The system analyzes the scene content with respect to the vehicles’ motion to determine if a pedestrian is at risk of being hit by the vehicle. It can detect pedestrians up to two times further away than the typical headlight range and if a threat exists, the driver is alerted.

Radar

Short and medium range radar system provides all-weather object detection. By scanning up to 30 meters around the vehicle, the system can provide an advanced warning of an imminent collision. The radar is also used for detecting objects in the blind spots of a vehicle and to control stop-and-go functions in queue assist systems. Our longer range radars are utilized for adaptive cruise control systems.

Vision Systems

Vision system is continuously checking the road ahead using one or two forward looking cameras. This system can be used for such applications as speed sign recognition, lane departure warning, forward collision warning and collision mitigation by braking.

Next ECU Generation

To monitor the environment around the vehicle and the control of the vehicle motion, Autoliv is developing the next step of electronic integration. This new Electronic Control Unit (ECU) links the environmental sensors (radar, vision, night vision), and the actuators that control vehicle motion (brakes, steering, engine/transmission). The ECU architecture is designed to offer a range of features, including: inertial measurement unit data; vehicle state estimates (e.g., side slip, roll angle); electronic stability control, lane keeping, and forward collision mitigation. In addition, the central controller consolidates many of the redundant functions in ECUs in modern vehicles, thereby helping the vehicle manufacturers simplify the electronic architecture of the vehicle and reduce costs.

Active Seatbelts

An active seatbelt has an electrically driven pretensioner that tightens the belt as a precaution in hazardous situations. The belt system then releases some webbing if the driver manages to avoid the traffic hazard. This function could also be used to warn the driver by letting the pretensioner vibrate the seatbelt webbing.

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Passive Safety Systems

Autoliv has accounted for virtually all major technological breakthroughs within passive safety over the last 20 years.

Seatbelt Systems

Modern seatbelts can reduce the overall risk of serious injuries in frontal crashes by as much as 60% thanks to two advanced seatbelt technologies: pretensioners and load limiters.

Retractor and buckle pretensioners tighten the belt at the onset of a frontal crash, using a small pyrotechnic charge. Slack is eliminated and the occupant is restrained as early as possible, thereby reducing the risk of rib fractures.

In an accident, load limiters release some webbing in a controlled way to avoid the load on the occupant’s chest from becoming too high.

When used in combination, pretensioners, load limiters, lap pretensioners and frontal airbags can reduce the risk for life-threatening head or chest injuries by 75% in frontal crashes.

Lap pretensioners further tighten the webbing to avoid sliding under the belt which improves lower leg protection and prevents abdominal injuries from a loose belt.

Airbags and Steering Wheel

The passenger airbag for the front-seat passenger reduces fatalities in frontal crashes by approximately 20% (for belted front-seat occupants).

Both the driver and the passenger airbags deploy in 50 milliseconds, half the time of the “blink of an eye”, and can be “smart”, e.g. the power of the airbags can be tuned to the severity of the crash, using adaptive output airbag inflators.

Curtain airbags reduce the risk of life-threatening head injuries in side impacts by approximately 50% for occupants who are sitting on the side of the vehicle that is struck. Curtain airbags cover the whole upper side of the vehicle.

Regular one-chamber side airbags reduce the risk for chest injuries by approximately 25%.

With dual-chamber side airbags, both the pelvis and the chest areas are protected which further reduces the risk of serious injuries in side-impact crashes.

Rear side airbags reduce injuries for rear occupants.

Knee airbags significantly reduce the risk for injuries to the knee, thigh and hip. These injuries today represent 23% of the active-life years lost to injury in frontal crashes involving motor vehicles.

Anti-sliding airbags are installed in the seat cushion. In a crash, the airbag raises the front end of the seat cushion to prevent the occupant from sliding under the seatbelt. This reduces significantly the risk for knee, thigh, and hip injuries for belted occupants. In addition, by keeping the occupant in an upright position, the protection from the frontal airbags becomes more efficient.

Modern steering wheels offer a variety of control switches and different designs. Some of our steering wheels have an integrated electrical motor that can vibrate the steering wheel thereby alerting the driver of a dangerous situation. To improve comfort in cold climate, the steering wheel can have a heated rim.

The driver airbag reduces fatalities in frontal crashes by approximately 25% (for belted drivers) and reduces serious head injuries by over 60%.

Crash Electronics

Satellite sensors are mounted in the door beam, b-pillar, rocker panel, and various locations at the front of the vehicle to provide the ECU with raw acceleration data to enable appropriate deployment of the airbags and seatbelt pretensioners.

The electronic control unit (ECU) is the brain of the car’s safety system. It decides not only if, but also exactly when, the seatbelt pretensioners should be triggered and each airbag system should be deployed. The ECU contains crash sensors and a microprocessor, as well as back-up electricity in the event the connection to the car battery is cut off in the crash. The ECU is located in the middle of the vehicle where it is well protected during a crash. Autoliv’s latest ECU also contains sensors for the Electronic Stability Control System, as automakers estimate that they save almost 50% of the cost for one of these units by the integration. Autoliv’s new technology is the first step in a holistic redesign of electronic safety control architecture in vehicles (See “Next ECU Generation”).

Pedestrian Protection

Vulnerable pedestrians and bicyclists have been a forgotten group among road users. This group does not have a protective “shell” around them and are therefore more at risk. They represent nearly half of the annual 1.2 million road fatalities in the world. The main cause of fatalities among pedestrians is head injuries. To protect the head, the hood needs to be able to act as a cushion. This can be achieved by using actuators that lift the rear-end of the hood to create clearance above the rigid structures beneath. However, in many smaller vehicles the hood is too short and the head of a pedestrian will most likely hit the hard area between the hood and the windscreen or one of the A-pillars. In this case outside airbags can be used to create a cushion-effect.

Pedestrian protection systems are deployed either by contact sensors in the bumper or by an active safety system. The advantage of the active safety system is that they can also brake the car and thereby reduce the impact speed.

Anti Whiplash

Anti-whiplash systems are based on a yieldable backrest that tilts in a controlled way in a rear-end collision, and thereby reduces the risk for neck injuries.

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Innovations for the Future

In our quest to reduce traffic accidents, fatalities and injuries, Autoliv continues to research automotive safety problems beyond the existing regulations and ratings.

SAFETY, TOGETHER WITH LOW FUEL CONSUMPTION, is one of the strongest sales drivers for new cars. In virtually all inquiries about what consumers want in their next vehicle, new safety products rank very high or at the top of their priority lists.

Autoliv assists vehicle manufacturers in meeting these evolving safety trends by staying at the forefront of technology, crash-testing more vehicles than any other safety company and working as a development partner for new vehicles.

Research in Real Life Traffic Safety

Autoliv Research consists of a group of approximately 50 highly skilled researchers working in a top-down manner to improve safety in real life traffic situations.

The work starts with understanding various traffic environments and the type of accidents occurring within it. Different accident databases are used to get a macro picture of the traffic situations in most countries and regions. This understanding is leading into micro investigations or deep studies in Autoliv’s research laboratory to find new solutions and completely new safety systems.

Development and Engineering

Autoliv has approximately 4,000 engineers for product development and application engineering.

Autoliv has a unique capability compared to our competitors, by being the only automotive supplier that has dedicated resources to perform full-scale vehicle crash tests. This specialized service and expertise, when combined with our advanced crash simulations (CAE), allow us to optimize our products and other safety critical functions to the particular structure of the planned vehicle.

Current Investments

During 2010, gross expenditures for Research, Development and Application Engineering (R,D&E) amounted to $490 million compared to $428 million in 2009 which correspond to 6.8% of sales in 2010 and to 8.4% in 2009.

Of the amounts, $129 million in 2010 and $106 million in 2009 were related to customer-funded engineering projects and crash tests.

Net of this income, R,D&E expenditures in relation to sales declined in 2010 by 1.3 percentage points to 5.0%. Of the $361 million expense in 2010, 76% was for projects and programs for which we have customer orders, typically related to vehicle models in development. The remaining 24% was not only for completely new innovations but also for improvements of existing products, standardization and cost reduction projects.

Future Investments

During 2011, we expect to spend close to $70 million more in RD&E mainly to increase our engineering capability in Asia and to accelerate our efforts even further in active safety, thereby reinforcing our long-term commitment to innovation and technology.

Patents

Our commitment to technological leadership is evidenced by our strong position in patents. In 2008 (the latest year with official statistics), Autoliv accounted for 7% of all new automotive safety filings, higher than any other safety system supplier.

Autoliv holds more than 6,000 patents covering a wide range of innovations and products in automotive safety and key supporting technologies, an increase (partly due to acquisitions) from 5,000 in 2009.

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Investing in Social Responsibility

For a company creating products that save lives and reduce traffic injuries, social responsibility is not new. It has been our core business for more than 50 years.

OVER 1.2 MILLION PEOPLE perish each year on the world’s roads, and between 20 and 50 million suffer serious injuries according to the World Health Organization (WHO). Road traffic injuries especially affect younger people. Among people aged 5 to 44 traffic accidents are one of the top three causes of death. While road traffic death rates in many high-income countries are declining, WHO’s data suggests that in most regions of the world this epidemic of road traffic injuries is still increasing. By 2030, traffic fatalities are expected to almost double to 2.4 million.

Therefore, helping to save more lives will be the most important contribution Autoliv can make to social responsibility (SR).

Contribution to Protecting the Environment

The environmental impact from our operations is generally modest, since most of our manufacturing consists of the assembly of components. For instance, Life Cycle Assessments (LCA) show that the CO ₂ emission from Autoliv account for 1% of the 31.4 kg emitted during the life of a driver airbag and that the driving of the vehicle and the raw material production for the airbag generate almost 100 times more carbon dioxide.

As a consequence, the most important contribution we can make to the environment is to design and develop low-weight and environmentally-friendly safety systems. Even a small reduction in weight contributes to the environment through lower fuel and emission throughout the car’s entire life. Helping our customers in their efforts to meet the stringent CO ₂ and CAFE (Corporate Average Fuel Economy) requirements is important for them, and thus a competitive tool for us.

Although Autoliv’s CO ₂ emissions are low, we have launched several energy saving programs, ranging from automatic lighting systems to heat recovery of cooling water. The total energy consumption (incl. electricity and heating) by all Autoliv facilities was 666 GWh during 2010, which corresponds to 234,000 metric tons of CO ₂ (using the Greenhouse Gas Protocol). This was an increase of 30% from 2009 and in line with Autoliv’s organic sales increase in 2010.

With our strong global presence we can minimize the environmental impact imposed by logistics when procuring parts and supplying finished products to our customers. By improving our logistic systems we also benefit financially.

Assisting Customers and Suppliers in SR

Since 2006, the European directive End of Life of Vehicle (ELV) requires that 85% of all material in new vehicle models must be recoverable. The level will be raised to 95% by 2015.

Although the directive on ELV only specifies recovery levels for the whole vehicle and not for individual components, we make sure that our products meet or exceed the legal requirements.

It is our policy that every Autoliv facility shall be certified according to ISO 14001. The few remaining non-certified plants are essentially new manufacturing facilities that have not yet been certified.

All Autoliv facilities measure and continuously improve their relevant environmental measurables , such as energy and water consumption, emissions to air, transportation and the use of packaging materials. For energy, which is the most important measurable in Autoliv, we have corporate reduction targets.

We also work closely with all of our suppliers to encourage them to implement an environmental management system, according to ISO 14001. We also require them to adhere to our environmental policy (see www.autoliv.com ).

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We Care

Every year, our products save 25,000 lives, help prevent at least ten times as many severe injuries and save tens of billions of dollars for societies all over the world. This is the most important contribution from Autoliv to society.

WE ALSO ASSUME SOCIAL RESPONSIBILITY in several other ways, for instance, through our ethical codes, sustainable environmental development and our core values. Other examples are our support and cooperation with universities, authorities, traffic rescue organizations and insurance companies.

Autoliv’s Core Corporate Values:

LIFE – we have a passion for saving lives.

CUSTOMERS – we are dedicated to providing satisfaction for our customers and value for the driving public.

INNOVATION – we are driven for innovation and continuous improvement.

EMPLOYEES – we are committed to the development of our employees’ skills, knowledge and creative potential.

ETHICS – we adhere to the highest level of ethical and social behavior.

CULTURE – we are founded on global thinking and local actions.

Ethical Code

We adhere to the highest level of ethical and social behavior. The standards and rules are set in our “Code of Business Conduct and Ethics” which can be downloaded from www.autoliv.com. The code applies to all operations and all employees worldwide. The local Autoliv president in each country is responsible for communicating the code to the employees in that country. In addition, in late 2010, we introduced an e-learning program with an exam on our intranet. By mid-February 2011, 4,400 Autoliv associates had already passed the exam and testing will be rolled out further during the year.

Also in 2010, we produced a more reader-friendly version of our ethical code. This version is now being rolled out, in 15 different languages, among our employees.

Autoliv’s ethical code draws on universal standards such as the “Global Sullivan Principles of Social Responsibilities” and on the UN’s “Global Compact”. As a result, we:

Express our support for universal human rights and, particularly within our sphere of influence, the communities within which we operate and parties with whom we do business.

Promote equal opportunity for our employees at all levels of the Company with respect to issues such as color, race, gender, age, ethnicity, sexual orientation or religious beliefs, and do not tolerate unacceptable worker treatment such as the exploitation of children, physical punishment, female abuse, involuntary servitude, or other forms of abuse.

Respect our employees’ voluntary freedom of association.

Compensate our employees to enable them to, at least, meet their basic needs and provide the opportunity to improve their skills and capability in order to raise their social and economic opportunities.

Provide a safe and healthy workplace, protect human health and the environment and promote sustainable development.

Promote fair competition, uphold the highest standard in business ethics and integrity and not offer, pay or accept bribes.

Our code is also an integrated part of the Autoliv Supplier Manual (ASM). All new and existing suppliers are required to sign an acknowledgement letter where they confirm that they will comply with the ASM requirements, including the code.

Compliance Monitoring

Each regional president, business director and certain other managers are obliged to report violations of regulations and our codes as a requirement in their monthly letters to the Autoliv CEO.

In addition, our employees are encouraged to report any violation of law or Autoliv’s ethnical codes. It can be done anonymously by email or by using a special hotline number in each country.

A few years ago, we started a social responsibility assessment of our operations in the low cost countries in Asia, where we are rapidly expanding. These assessments show that all of our plants in these markets maintain good overall standards and practices. The following years, we continued the assessment in Eastern Europe and other countries, with similarly good results.

Our leading suppliers are monitored as part of our regular quality audit process.

As part of our social responsibility activities, Autoliv Southern Africa started an AIDS program already in 2000. The program includes both tests and education for our employees and their spouses.

Our company is now fortunate to have one of the lowest ratios of HIV positive employees in the country.

Autoliv South Africa was recently shortlisted for the SWHAP Achievement Award 2010 for Most Comprehensive Program and nominated for the SWHAP Achievement Award 2010 for Most Innovative Intervention.

The Company actively supports children orphaned by AIDS, some of them are orphans of our ex-employees.

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Dedicated and Motivated Employees

Our people are the foundation of our success. To find, develop and retain people with the right skills and talents for the right positions is therefore a top priority.

FINDING THE RIGHT PEOPLE is paramount for a sustainable development of a company. This has been a top priority for Autoliv especially in 2010 when total headcount in our company rose by more than 5,400 people. Finding skilled people will continue to be pivotal in 2011, particularly in our growth markets.

We make concerted efforts to recruit well-educated people and/or provide adequate trainings in producing and developing life-saving products. In all plants, we have on-the-job and skills development trainings, where work safety is also an important element in addition to understanding the manufacturing process and the product technologies.

We offer excellent work conditions, safe work places and many interesting work tasks, and Autoliv is in the forefront of technology, a global market leader that is saving lives; all of this helps to attract and retain skilled people. Another advantage in the recruiting process, is our close relationship with all the important vehicle manufacturers in the world. For potential employees in our tech centers, Autoliv’s close relationship with universities and colleges is another attraction factor.

We are committed to maintaining this environment that attracts high performers and keeps them motivated. Effectively communicating and cascading corporate strategy is our key method for creating such a workplace, and is critical for enrolling associates in our shared vision.

Motivated Employees

Even great ideas are meaningless without robust processes, motivated employees and talented teams in place to take them from concept to reality. Fortunately, Autoliv has a long track record of lean manufacturing and culture of continuous improvement which encourages all employees to be creative and put forward their improvement ideas. Who is better to propose improvements in, for instance, manufacturing than the line operators themselves?

We have therefore made the number of improvement suggestions per associate one of our 16 operational key performance indicators (KPI), by which our 80 facilities globally are benchmarked every quarter. During 2010, this KPI continued to improve as seen from the index chart below. In North America alone, more than 215,000 employee suggestions were received and 6,000 team improvement projects were implemented during 2010 and shared across the region, helping us reduce waste and improve labor efficiency at a record pace.

Employee Safety

Our very first key performance indicator is employee safety. The target for each plant is zero injuries, of course. In 2010, 18 plants managed to meet this target, an improvement from 10 plants five years ago.

Our overall injury level globally continues to decline as seen in the graph below, from an already low level. Since we are dedicated to the business of protecting people and saving lives, we feel a unique responsibility to ensure the safety, health and well-being of our associates. For instance, we have introduced a global “first alert” system which uses our worldwide network of safety representatives to share information readily among all plants should a machine or process require any type of corrective process as a result of a safety concern. With this timely notification, plants using similar equipment or processes can promptly analyze their own resources and work to prevent future risk.

Employee Well-being

A third indicator of the well-being of Autoliv’s most valuable asset is labor absenteeism, although this indicator also often reflects the welfare systems and levels of sick leave compensations in the various countries where we operate. We measure labor absenteeism as labor hours lost due to sickness in relation to total possible labor time.

This ratio used to be relatively high due to our operations in Western Europe. However, we have made dedicated efforts during a number of years. As a result, labor absenteeism has been cut by half from the 2006 levels.

Employee Development

As part of our intensive global effort to train or recruit associates for future leadership positions, we recently launched the Autoliv Development Center, as a supplement to our existing training activities and leadership selection tools. First introduced in our European region, this tool has been used successfully to assess both the current performance level of employees in specific functions and their potential for further growth and development.

Participating in a variety of role-play exercises, management candidates are observed by senior management team members who offer candid, constructive feedback used to place these high potential employees in positions that best utilize their talents and enhance their potential. This tool is especially powerful in our succession planning and talent management processes.

Ongoing training and development enhances the knowledge and skills of our associates and gives them increased job mobility while providing management an increasingly diverse pool of talented resources. These and other similar activities not only reinforce Autoliv’s competitiveness as an employer but strengthen our ability to maximize customer and shareholder value, helping us grow our sales.

Employee Diversity

Due to Autoliv’s global presence, the Company’s workforce reflects the diversity of the 29 countries in which we operate. However, simply having diversity in our workforce is not enough. We work hard to create an inclusive environment where all people can contribute their best work regardless of age, gender, ethnicity or other differentiating factors.

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We place special priorities on diversity in selection of professionals for our training program and succession planning to achieve balance and competence in our workforce and management.

The average age of our personnel is 34 years and 49% are women. Seventy percent of our 43,300 associates are direct workers and 17% other personnel in manufacturing, 9% are involved in R,D&E and 4% in sales and administration.

Global Presence

With operations in 29 countries and one of the broadest customer bases of any automotive supplier, Autoliv has the best global footprint in its industry.

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Our Market

Autoliv’s market is expected to grow at an annual rate of approximately 6%, and we have been increasing our global market share.

OUR MARKET - the global occupant restraint market - is driven by two factors:

1. Light vehicle production (LVP), which is expected to grow all over the world. For the years 2011 through 2013, the average global growth rate is expected by IHS to be 7% per year. This is due to the recovery in LVP in established markets after the crisis and the long-term LVP growth primarily in Asia.

2. Safety content per vehicle (CPV), which is driven by the number of airbags and other safety systems in each vehicle and the value of these safety systems. The global average value grew by 3% per year up until 2004 when virtually all of the increase in global LVP was in established markets in North America, Western Europe and Japan where average CPV now is $300 or more. However, since the middle of the last decade, the global average CPV value has remained at approximately $250. This reflects - in addition to price erosion - the shift in global LVP to more small cars and to the Rest of the World (RoW), where the CPV is currently around $200. However, these low safety-content vehicles also add to the size of our market, and the safety standards of vehicles in the emerging markets are increasing long term.

Growth by Region

In 2010, the global occupant restraint market increased by 21% to $18 billion. This was a record high growth rate due to the sharp recovery in LVP.

During the next three years through 2013, our market is expected to grow at an annual rate of 6% to $21 billion due to an anticipated continued recovery in global LVP and higher penetration rates for airbags and advanced seatbelts.

The European market (where Autoliv currently generates 38% of sales) is expected to grow at an average annual rate of 3%. The North American market (29% of sales) is expected to grow at a rate of approximately 7%, the Japanese market (11% of sales) at 1.5% and the RoW market (22% of sales) at a rate of almost 10%.

For Autoliv, this mix in global LVP growth will be negative since our market share in Europe and North America is higher (slightly above 40%) than in the RoW, where we estimate Autoliv’s market share to be approximately 30%.

Growth by Product

Unlike global LVP which Autoliv can not influence, we can effect the other growth driver of our market by continuously developing new higher value solutions. This increases long-term the average safety content per vehicle and has, historically, caused the automotive safety market to grow faster than the underlying LVP. A steady flow of new technologies to the market has also enabled Autoliv to outpace its market and take market share. For instance, during the last ten years, Autoliv’s consolidated sales have increased at an average annual rate of nearly 6% compared to 4% for our market and slightly more than 2% for light vehicle production.

We expect this trend to continue as we have a stronger position in the fastest growing product lines of the market. The highest market growth rate is expected for various side-impact airbags. This section of the market, where we estimate Autoliv’s market share to be around 40%, is expected to grow at an average rate of 7% to $5.4 billion by 2013. This is partially due to new regulation in the U.S. that make side airbags mandatory in all new vehicles beginning in September 2013.

On the other hand, the market for frontal airbags where Autoliv has a market share of around 27%, is expected to grow at an annual rate of 4% to $5.7 billion by 2013. Consequently, we expect Autoliv to benefit from the fact that the demand for side airbags is growing faster than demand for frontal airbags.

In seatbelts, our global market share has grown to almost 40%, primarily by Autoliv being the technology leader with several important innovations such as pretensioners and load limiters. Our strong market position in seatbelts is also a reflection of our superior global footprint. Seatbelts are the primary safety product and also an important requirement in low-end vehicles for emerging markets. This gives us excellent opportunities to benefit from the expected growth of this segment of the market which is projected to grow at an annual rate of 5% to approximately $5.7 billion by 2013.

Passive safety electronics have grown in line with the general market and continue to account for close to 20% of the market. In this product line, Autoliv has doubled its market share to more than 20% in 2010 from 8% in 2000. This has been achieved both through acquisitions and by customers taking full advantage of our highest-value safety system solutions by sourcing electronics and airbags from the same supplier. Our new electronic control unit (ECU) has also been important for strengthening our market position. This ECU is the first product that integrates active and passive safety (see pages 12-15 in the Annual Report).

The active safety market, mainly radars and vision systems, where Autoliv operates is still small but it is growing very fast; from $400 million in 2010 to an estimated $1.1 billion by 2013. We estimate Autoliv’s current market share in these product lines of to be around 20%.

Sales by Customer

Our strong global presence is contributing both to a more diversified customer mix and to achieving growth above the average market rate. This is evidenced by, for instance, Autoliv’s growing sales in South Korea, Thailand and the in the BRIC countries. It is also evidenced by the fact that Asian vehicle manufacturers now account for 35% of Autoliv’s sales globally compared to 19% ten years ago, while Ford, General Motors and Chrysler (“the D3”) now account for 26% of our global sales compared to 38% in 2000. This is also due to a change in global market share among the vehicle manufacturers.

As a technology leader, premium vehicles are especially important in terms of sales per vehicle but also as a way to introduce new technologies in the market. This is evidenced by Volvo, BMW and Daimler that have introduced many of Autoliv’s “world-first products”. Volvo, BMW and Daimler now account for 0.5%, 2.0% and 2.1% of the global vehicle production but for 3%, 5% and 4%, respectively, of our sales.

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Change in Competition

The growth in emerging markets and the slowdown of growth in Western Europe and North America are also changing the competitive landscape in our industry. Generally, Autoliv’s major competitors are TRW and Takata, each of which accounts for around one fifth of the global automotive occupant restraint market, while Autoliv accounts for more than one third of this market.

TRW is an American company, listed on the New York Stock Exchange, with strong market positions especially in North America and Europe.

Takata is a family dominated company with 25% of its shares listed on the Tokyo Stock Exchange. Takata is especially strong in North America and its domestic market in Japan.

However, in Japan, South Korea and China there are a number of local manufacturers that often have close ties with the domestic vehicle manufacturers in these countries. Toyota, for instance, has in-house suppliers for seatbelts, airbags and steering wheels that receive the majority of the Toyota business in Japan for these products. Consequently, these safety product suppliers are often the toughest competitors in these markets.

During 2010, the consolidation of our industry continued as Delphi exited the occupant passive safety market. Virtually all of Delphi’s market share was resourced by the vehicle manufactures to Autoliv.

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Efficient Global Manufacturing & Purchasing

Through our effective total cost management in manufacturing and purchasing we create customer and shareholder value.

OUR MAIN TARGETS for cost efficiency are to:

Reduce Impact of Raw Material Prices

Approximately half of our revenues are spent on direct materials (DM) from external suppliers. The raw material content in these components currently represents 48% of the direct material cost, while the other 52% represents the value added by our supply base (for more details on dependence on raw materials and component costs, see page 46 in the Annual Report).

The raw material value portion in our costs for components has increased from 19% of net sales in 2006 to 25% in 2010, primarily due to increasing raw material prices. This ratio is expected to remain on a high level also due to the shift in our purchasing mix.

By shifting sourcing of components to LCC, we reduce the labor portion in our component costs, but the raw material portion of the costs is unaffected by these shifts since raw material prices are global. Our strategy to consolidate purchasing volumes to fewer suppliers has a similar effect on this ratio since this change affects the value-added portion of component costs but not the raw material portion.

The most efficient cost-reduction method is replacing existing designs and components with new, standardized and more cost-efficient ones. We particularly focus on reducing weight and complexity in our designs as a method to reduce cost.

Supplier Consolidation

Another tool aimed at reducing direct material cost is our strategy to consolidate purchases to fewer suppliers in order to give them higher volumes, thereby helping them reduce costs and, as a result, their prices to us.

In 2005, when this strategy was adopted, 35% of our component sourcing was with the long-term strategic suppliers. During the following years, this ratio increased to 77% at the end of 2009, but decreased to 69% during 2010. This decline was due to the addition of new suppliers as a consequence of several acquisitions. However, the underlying trend is still positive and we expect to reach our strategic target of 90% within five years.

Sourcing in Low-Cost Countries

We are also actively increasing our level of component sourcing in LCC. During 2010, sourcing in these countries rose as a portion of total direct material costs by 2 percentage points to 45%, despite a lowering effect from recent acquisitions. When this program was initiated in 2004, this ratio was less than 15%. Our target which is 50% is expected to be reached by the end of 2012.

Through the above-mentioned strategies we have met our direct material cost reduction target of at least 3% every year, except in 2005 and in 2008 when, in particular, steel prices sky-rocketed. Also during 2010, we had headwinds from higher raw material prices but we still managed to meet our target and achieved a net savings rate of 3.5%. Excluding the price effect from raw materials, the savings exceeded 4%, well above our target of at least 3%.

Labor Productivity Improvements

The second most important type of cost is wages, salaries and other labor costs. In 2010, these costs corresponded to 21.8% of sales, which was a reduction from 25.4% in 2007, the last comparable year unaffected by the financial crisis.

This reduction has been achieved by restructuring of operations, expansion in LCC and move of production to LCC, and by continuous productivity improvements.

Due to the crisis and the drop in light vehicle production, we had to reduce headcount by 4,200 or 21% in high-cost country (HCC) from the 2007 level. During the same three years, we have increased headcount by 5,600 or 26% in LCC.

As a result, 22,000 or 72% of our direct workers were in LCC at the end of 2010. Our average headcount cost in LCC is only 17% of the average headcount cost in HCC. These trends are the main reasons for the reduced labor cost in relation to sales.

In addition, by moving and building capacity in emerging markets in Eastern Europe and Asia, Autoliv becomes well-positioned to take advantage of growth opportunities in these markets.

We measure productivity improvements in manufacturing in labor minutes per produced unit (LMPU). During the last three years, we achieved LMPU reductions of approximately 6% each year. Consequently, Autoliv managed to reach its productivity improvement target of at least 5% per year both when LVP dropped sharply during the crisis and in 2010 when there was a strong sales increase in LCC.

Since we use less automation and more labor-intensive manufacturing processes in LCC, shifts of production to LCC can negatively impact our average global LMPU, although the productivity in individual LCC may actually improve.

Through automation of our manufacturing processes, we can achieve productivity improvements in HCC and thereby continue to support our customers with manufacturing close to their assembly plants in North America, Western Europe and Japan.

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Quality Excellence

We can never lose sight of why we work for our company, to save lives! This is why we can never compromise on quality or safety.

OUR PRODUCTS NEVER GET A SECOND CHANCE. Quality is a key to our financial performance, since quality excellence is critical for winning new orders, preventing recalls and maintaining low scrap rates. In addition, quality improvements further enhance our image among customers, employees and authorities.

Therefore, we are fully committed to provide quality products and services to all our customers.

This pursuit of excellence is a continuous improvement process, driven by our ability to anticipate and respond to the challenges of a rapidly changing automotive industry.

New Step in Proactive Quality Culture

Although quality has always been paramount in the automotive industry, especially for safety products, vehicle manufacturers have become even more quality-focused with even less tolerance for deviations. This intensified quality-focus is partially due to a sudden increase in the number of vehicle recalls due to a variety of reasons (not just safety) coupled with a few highly publicized vehicle recalls. In 2010, more than 20 million vehicles were recalled in the U.S. alone. This trend is likely to continue as vehicle manufacturers introduce even stricter quality requirements.

In response to this trend and to improve our own quality, we launched in the summer of 2010 the next step in our strategy of shaping a proactive quality culture of zero defects. It is called “Q5” because it addresses quality in five dimensions: products, customers, growth, behavior and suppliers.

The goal of Q5 is to firmly tie together quality with value within all our processes, for all our employees, thereby leading to the best value for all our customers.

We believe this will advance our leadership position even further in automotive safety. When we get our customers’ acknowledgement and confirmation that our products and services are superior to anything else on the market, we know we are on our way toward reaching our goal.

Flawless Products and Deliveries

In our pursuit of excellence we have developed a chain of four “defense lines” against quality issues. These defense lines are systems that should ensure 1) robust product designs, 2) flawless components from suppliers and our own component companies, and 3) on-time deliveries of flawless products to our customers. The fourth “defense line” is systems for verifying that our products conform with specifications and an advanced tracability system in the event a recall.

In our product conformity verifications we register all deviations and include them in our quality measure, which is “parts per million” (PPM). Our quality target used to be a customer reject rate of not more than 10 PPM. To illustrate how tough this target is, it could be compared to not having even one rainy day in 257 years. However, in accordance with our zero defect principle and our customers’ increased focus on quality, we have now tightened that target to no defects at all.

When quality deviations occur, they very rarely affect the protection provided by our products. Virtually all deviations are, instead, due to other requirements, such as flawless labeling, precise delivery of the right parts at the right moment, as well as correct color nuance and surface texture on steering wheels and other products where the look and feel is important to the car buyer.

Our Quality Performance

For the last ten years, we have successfully reduced our PPM levels year-over-year. In the last five years, the reduction has been a six fold decrease in our customer reject index. In 2010 alone, the reduction was 20% compared to the 2009 level.

However, in 2010, we also experienced some quality issues, leading to GM recalling approximately 130,000 cars. Fortunately, there were no reports of injuries due to these products, but there was a risk that the products would not operate fully as intended. The cost for the recalls has already been accounted for in 2010. However, GM has informed us that they will award us new business only when specific conditions have been met (see also page 47 in the Annual Report). We are committed to meeting these specifications as quickly as possible, and expect to expand our investment in quality during 2011 twice as fast as our sales growth.

Quality Improvements in the Supply Base

In our pursuit of zero defects, it is critical to prevent non-conforming components from entering our manufacturing plants. This is one of the most important “lines of defense” against quality issues. We therefore work very closely with our suppliers, and train them to meet our demanding quality requirements.

All requirements, policies and procedures for the collaboration between us and our suppliers are specified on the Autoliv Supplier Manual (ASM). Suppliers are required to sign and accept the ASM. This is a requirement in the qualification of new suppliers.

The ASM has a strong focus on quality, ranging from the supplier pre-qualification requirements, through supplier development and component quality assurance, to regular supplier status reviews. It also encourages suppliers to maintain continuous improvement programs.

Suppliers are trained to comply with the ASM and all suppliers are rated in terms of quality and delivery performance on a monthly basis. The focus on quality in managing our supply base is necessary not only to ensure flawless parts but also to improve efficiency and low cost in our operations.

ISO Certifications

We have the policy that all of our facilities should be certified according to the automotive quality standard ISO/TS 16949. We also require our suppliers to be certified according to this standard or a similar quality management standard.

At the end of 2010, all of Autoliv’s manufacturing facilities were certified to ISO/TS 16949.

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How to Achieve Zero Defects

Product Development

Autoliv’s Product Development System (APDS) ensures that all new products pass five mandatory checkpoints: 1) project planning, 2) concept definition, 3) product and process development, 4) product and process validation, and 5) product launch. In this way, we proactively prevent problems and ensure we deliver only the best designs to the market.

Supplier Manual

Autoliv’s Supplier Manual (ASM) focuses on preventing bad parts from being produced by our suppliers, and helps eliminate bad intermediate products as early as possible in our assembly lines.

Production System

Through the Autoliv Production System (APS), all our employees are working according to the continuous improvement principles. Our associates are also trained to react on anomalies and to understand the critical connection between themselves and our lifesaving products.

Mistake Proofing

Through the Autoliv Quality System (AQS) we verify flawless quality by using mistake-proofing methods such as Poka- Yoke, in-line inspections, and cameras and sensors to prevent us from delivering bad products. We also maintain an advanced product traceability system.

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Value-Creating Cash Flow

By creating customer satisfaction, maintaining tight cost control and developing new products, we generate cash for long-term growth, financial stability and competitive returns to shareholders.

AUTOLIV HAS ALWAYS had a strong focus on cash flow and cash flow generation.

On average, operations have generated $674 million in cash per year during the last five years. The highest level was $924 million in 2010 and the lowest level $493 million in 2009. Consequently, even in the challenging 2009 when sales dropped by 21%, the Company recorded substantial positive cash flow. Operating cash flow has always exceeded capital expenditures, even during the latest recession.

Capital Efficiency Improvements

Autoliv’s strong cash flow reflects both the Company’s earnings performance and improvements in capital efficiency.

From a peak of $724 million at the end of 2006, we have released $336 million from inventories and other working capital items, despite $1 billion higher sales in 2010.

As a result of the improved working capital efficiency, operating working capital at the end of 2010 corresponded to 5.4% of sales, well in line with our policy of not more than 10%. Although, the 2010 (and 2009) level was exceptionally low due to restructuring reserves, we expect to meet this target also for the next few years.

In addition, we have reduced funds tied up in property, plant and equipment (PPE) by 19% or $234 million from a peak of $1,260 million at the end of 2007, despite acquisitions which have added $37 million.

These improvements in operating working capital and PPE were especially significant in 2009 and 2010 when we substantially stepped up our restructuring efforts. The improvements are the results of plant consolidations and a number of other activities such as outsourcing, expansion in low-cost countries (where less capital-intensive manufacturing processes can be utilized), and simplification of manufacturing processes by product redesign.

Furthermore, goodwill and other intangibles have remained relatively unchanged despite acquisitions. This stability is due to the fact that we abstained from making major acquisitions before the crisis in 2008 when companies were more expensive. It is also due to the fact that our subsequent acquisitions, since the third quarter in 2008, have only added $49 million in goodwill and intangibles, compared to total goodwill and intangibles of around $1.7 billion.

As a result, we have reduced the average annual capital employed by 11% from a peak in 2007 of $3.5 billion to $3.1 billion in 2010. Despite this, sales were 6% higher in 2010 than in 2007. Therefore, Autoliv’s capital turn-over rate has improved by more than 19% to 2.3 times from less than 1.9 times before the crisis.

We expect sales - as well as earnings - to continue to grow faster than capital employed, thereby continuing to generate a strong cash flow.

Our Cash Flow Model

When analyzing how to best use our operating cash flow (of $924 million in 2010 and $493 million in 2009), the Autoliv Board uses the model depicted above to create shareholder value. The model takes all important variables into account such as the cost of marginal borrowing, the return on marginal investments and the price of Autoliv shares. When evaluating the various uses of cash, the Company weighs these decisions against the need for flexibility due to the cyclical nature of the automotive industry.

Debt Policy

Autoliv’s policy is to have a leverage ratio significantly below 3.0 and an interest coverage ratio significantly above 2.75 (for definitions, see page 79 in the Annual Report). We also want Autoliv to have a long-term credit rating that is “strong investment grade”.

Due to the financial crisis and substantially increased restructuring reserves, Autoliv could not maintain compliance with the policies beginning in the first quarter 2009, and Standard and Poor’s downgraded the Company three notches to BBB- within four months from November 2008. Therefore, we focused even more on cash generation and the top-priorities for the use of cash were to reduce debt and to participate in and drive consolidation of our industry.

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In 2010, $536 million of generated cash was therefore used for debt reduction and $551 million in 2009. From a peak in net debt at $1.3 billion in the midst of the crisis, the Company reduced its net debt to only $127 million at year end 2010. During the first quarter 2010, we returned to compliance with our debt policies and on December 31, 2010, the leverage ratio and the interest coverage ratio were 0.1 times and 14.1 times, respectively. In July 2010 we also regained our BBB+ rating. This provides flexibility to make acquisitions and the potential to raise returns to shareholders, while providing a solid financial foundation in the cyclical automotive business.

Investing in Operations

To create long-term value for shareholders, cash flow from operations should only be used to finance investments in operations until the point when the return on investment no longer exceeds the cost of capital. In Autoliv’s case, return on capital employed has usually (i.e. except during the crisis in 2008–09) exceeded 12%, which is the Company’s estimated cost of capital before tax (in 2010, the return was 28%).

Consequently, in 2010, $220 million of cash flow was re-invested in the operation in the form of capital expenditures. This was an 82% increase from 2009, and we expect a further increase in 2011 to $300–350 million to maintain and expand our business. In 2009, capital expenditures were below the long-term trend. This was not only a result of the crisis which reduced the long-term need for manufacturing capacity in high-cost countries, but it also reflects Autoliv’s capacity build-up in 2004–07 in China and our other growth markets. This enabled the Company to strengthen our leadership position when those markets rebounded. However, the capacity in these growth markets has already become fully utilized. This will lead to a further increase in capital expenditures in 2011.

Acquisitions

In order to further accelerate the Company’s growth and drive industry consolidation, we used $141 million of the year’s cash flow for acquisitions of new companies or the remaining shares in consolidated subsidiaries. This was a significant increase from $41 million in 2009.

Focus was on acquisitions in Asia and in the fast growing segment of active safety and safety electronics.

Shareholder Returns

Once the Company had met its debt policy, Autoliv could resume declaring dividends to shareholders, and $58 million of the 2010 cash flow was returned to shareholders. The first dividend, which was paid in the third quarter, was 30 cents per share. The next dividend in the fourth quarter was raised to 35 cents per share, a 17% increase.

Autoliv declared a dividends of 41 cents per share in the two quarters preceeding the crisis, corresponding to an annualized pay-out of $115 million. Historically, the dividend typically represented a yield of 2-3% in relation to the Autoliv share price.

Share Buybacks

Until the financial crisis broke out in September 2008, Autoliv purchased its own shares but has not yet re-activated its existing repurchase mandate. Repurchases of shares could create more value for shareholders than dividends, if the share price appreciates long-term, as in Autoliv’s case. The Company’s 13.8 million treasury shares have been repurchased at an average cost of $42.93 per share, compared to the closing price in 2010 of $78.94, an appreciation of 84%.

Repurchased shares could also be used to quickly enhance a company’s financial position. Autoliv took advantage of this opportunity in March 2009 when the Company enhanced its equity base by using treasury shares. This capital raise also allowed Autoliv to acquire assets from financially distressed competitors, receive a credit commitment on favorable terms from the European Investment Bank and defend and improve the Company’s Standard & Poor’s credit rating.

Dividend Policy

Since Autoliv uses both dividend payments and share buybacks to create shareholder value, the Company has no set dividend policy. Instead, the Board of Directors regularly analyze which method is most efficient, at each time, to create shareholder value. Management believes that such recurrent analyses have the potential to generate more value for Autoliv’s shareholders than a pre-defined dividend policy.

Share Price Performance

As a result of these value creating strategies, the Autoliv stock has outperformed most of its automotive industry peers on both the New York and Stockholm stock exchanges (see page 32 in the Annual Report).

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Share Performance and Shareholder Information

The Autoliv stock increased during 2010 by close to 80% to an all-time record high.

Share Performance

In 2010, Autoliv stock recorded an all-time high, both on the New York Stock Exchange (NYSE) and on the NASDAQ OMX Exchange in Stockholm.

New York

On the primary market for the Autoliv securities, i.e. the New York Stock Exchange (NYSE), Autoliv’s stock increased by 78% during 2010, nearly twice the increase of the S&P 1500 Auto Components Index, to close at almost $80. During the same period the S&P 500 index rose by just 11%.

From the beginning of 2006 to the end of 2010, the Autoliv share price increased by 66%, while the S&P 500 Index remained virtually unchanged. The S&P 1500 Auto Components index increased by 21% during the same period.

In New York, the average daily trading volume in Autoliv shares was 387,102 in 2010 compared to 424,223 in 2009.

Stockholm

In Stockholm, the price of Autoliv Swedish Depository Receipts (SDR) increased by 70% to 533 SEK during 2010 compared to a 23% increase in the OMX All Share Index. Compared to the OMX Automotive Index that was commenced at the end of 2006, Autoliv’s SDR has increased in line with its peers in Sweden.

In Stockholm, the average daily trading volume increased by 40% during 2010 to 604,533 from 435,667 in 2009.

In 2010, the Autoliv SDR climbed 11 places to become the 20th most traded security in Stockholm. Of the total exchange trading, the Autoliv stock accounted for 1.6% compared to 0.7% during 2009. In Stockholm, Autoliv’s SDRs are traded on the stock exchange’s list for large market capitalization companies.

Number of Shares

The number of shares outstanding increased during 2010 89.0 million from 85.1.

In 2010, Autoliv accepted the accelerated exchange of 36% of the Company’s equity units, originally issued in March 2009, into 3.1 million shares and cash. The number of shares outstanding will be further increased on April 30, 2012 from the exchange of the remaining equity units. This will increase the number of shares outstanding between 5.7 and 6.8 million shares. The exact number of shares will depend on the average stock price shortly before April 30, 2012 (see Note 13).

Stock options, if exercised, and granted Restricted Stock Units (RSUs) could increase the number of shares outstanding by 1,155,966 and 360,928, respectively. This would increase the total number of shares by 1.7% (see Note 15).

In November 2007, the Board of Directors authorized a fourth Share Repurchase Program for up to 7.5 million of the Company’s shares. On December 31, 2010, 3.2 million shares remained of this mandate for repurchase. On December 31, 2010, the Company had 13.8 million treasury shares, including 6.8 million which are reserved for the equity unit offering.

Number of Shareholders

Autoliv estimates that the total number of beneficial Autoliv owners on December 31, 2010, to approximately 60,000 and that approximately 51% of the Autoliv securities were held in the U.S. and approximately 35% in Sweden. Most of the remaining Autoliv securities were held in the U.K., Central Europe and Canada.

On December 31, 2010, Autoliv’s U.S. stock registrar had more than 2,600 holders of Autoliv stock, and according to our soliciting agent, there were nearly 40,000 beneficial holders that held Autoliv shares in a “street name” through a bank, broker or other nominee.

According to the depository bank in Sweden, there were 15,000 record holders of record of the Autoliv SDRs and according to the Swedish soliciting agent nearly 3,000 “street names” of the SDRs. Many of these holders are nominees for other, non-Swedish nominees.

The largest shareholders known to the Company are shown in the table below.

Stock Incentive Plan

Under the Autoliv, Inc. 1997 Stock Incentive Plan adopted by the Shareholders and as further amended, awards have been made to selected executive officers of the Company and other key employees in the form of:

Stock options

Restricted Stock Units (RSUs)

All options are granted for ten-year terms, have an exercise price equal to the fair market value of the share at the date of the grant, and become exercisable after one year of continued employment following the grant date.

Each RSU represents a promise to transfer one of the Company’s shares to the employee after three years of service following the date of grant or upon retirement (see Note 15).

Dividends

If declared by the Board, quarterly dividends are paid on the first Thursday in the last month of each quarter.

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The record date has historically been one month earlier and the ex date (when the stock trades without the right to the dividend) is typically two days before the record date.

Quarterly dividends are declared separately by the Board, announced in press releases and published on Autoliv’s corporate website.

Annual General Meeting

Autoliv’s next Annual General Meeting of Stockholders will be held on Tuesday, May 10, 2011, at The Four Seasons Hotel, 120 East Delaware Place, Chicago, Illinois, 60611 USA.

Stockholders are urged to vote on the Internet whether or not they plan to attend the meeting.

Public Information Disclosure

We report significant events to shareholders, analysts, media and interested members of the public in a timely and transparent manner and give all constituencies the information simultaneously. All relevant public information is reported objectively. Information given by Investor Relations is authorized by management.